AMITH SINGH: SA has to manufacture its way to success

The discourse on SA’s manufacturing sector paints a picture of a once-thriving cornerstone of the economy now grappling with multifaceted challenges.

Since the mid-2000s the industry has experienced steady decline, and so too its contribution to GDP. Figures Stats SA released in February illuminate this downturn, revealing a 1.7% drop in manufacturing production month on month and defying predictions of a 0.4% increase.

The decline was broad-based, affecting six out of 10 sectors, with vehicle production plunging 13.8%. The drop is attributed to a combination of factors, including underinvestment, slow pace of domestic growth, escalating production costs, stiff competition from imports and pervasive investor uncertainty.

The manufacturing sector’s contribution to economic activity fell to 13.2% in 2021 from 23.1% in 1993. The implications extend beyond mere statistics, as the sector shed more than 309,000 jobs from 2005 to 2021. The advent of the Covid-19 pandemic worsened those job losses, with companies undertaking hefty restructuring to weather the storm.

The past two years have seen the energy crisis intensifying, further crippling the sector. Logistical bottlenecks such as clogged harbours and an inefficient rail network have escalated transport costs, compounding challenges posed by climate change, which now looms larger than ever.

Despite these formidable challenges the manufacturing sector remains a pivotal element of the government’s economic recovery agenda in the wake of Covid-19. Traditionally, manufacturing has been the backbone of SA’s economic and social growth, and fostering job creation.

A pillar for trade

The sector is a pillar of SA’s engagement with the African Continental Free Trade Area (AfCFTA), offering a beacon of hope for an export-led economic revival that could attract much-needed inward investment.

The state of the manufacturing sector, while daunting, offers an opportunity for collaboration and innovation to reclaim and enhance its contribution to the economy. A robust manufacturing base can serve as a bedrock, given its interconnections with processing, logistics, banking, supply chains and retail.

The expansion of manufacturing is poised to spur the broader economy, with the potential to ignite an industrial renaissance, boost exports, create employment opportunities and increase government revenue through corporate taxes.

However, realising this vision requires an urgent and concerted effort. Policy and regulatory certainty — coupled with an improved investment and business climate — is essential. The government’s role is pivotal, given the pressing need for structural reforms and accelerated investment in infrastructure, including energy, ports, rail and road networks.

Financial institutions have been at the forefront of supporting the manufacturing sector, offering not only working capital but also assistance to optimise operations, reduce costs, and expand market reach.

The investment calculus for the manufacturing sector is intricate, weighing factors such as the cost-benefit analysis of local production versus imports, raw material costs, energy security and market potential. The broader macroeconomic environment also plays a critical role, with risks such as sluggish economic growth over the past decade deterring manufacturing activity.

Climate change

In addition, climate change emerges as a significant threat, manifesting in a shortage of water, which is critical for manufacturing processes. This scenario underscores the urgency for the sector to invest in climate adaptability and sustainable practices.

The path to revitalising SA’s manufacturing sector requires a multifaceted strategy: the government fine-tuning its regulatory and policy frameworks and the manufacturing industry embracing new investments to redefine its contribution to growth and beneficiation. Innovation, productivity enhancement and a focus on core competencies are imperative for companies in the sector.

The trade and export opportunities heralded by the AfCFTA represent a golden opportunity for the manufacturing sector to invest in new capacities and technologies for products that can compete on the global stage. A supportive industrial policy, bolstered by fiscal neutrality and a competitive trade stance, is crucial. By leveraging investment and regulatory oversight, SA can strengthen its position as a Sub-Saharan economic powerhouse.

In summary, the challenges facing SA’s manufacturing sector are daunting, but not insurmountable. While there is no single approach to reviving the sector,  we believe that with the correct investments and partnering with clients as well as sector associations and bodies we can achieve the revival that is critical not just for its inherent value but as a catalyst for broader economic and social growth.

• Singh is national manager: manufacturing at Nedbank Commercial Banking.