How did 2020’s pandemic affect manufacturing in South Africa? 2020 was a huge change in everyone’s lives as the Covid-19 pandemic arrived and created a world shut down in industries across the world. Many industries were brought to their knees through this precarious time but how did manufacturing do in South Africa during the on-going pandemic?
Manufacturing production fell by 11% and total sales declined by 9,9% in 2020 when compared to the previous year. Stats SA data revealed the pressure under which companies within the Metals and Engineering (M&E) sector operated: total M&E production across the 13 sub-categories declined by 13.6% in 2020 when compared to 2019, and total sales declined by 12.3% to reach R727-billion. The largest sales value for the year was in the non-ferrous metal products sub-sector at R162-billion. The M&E sector represents 29% of the South African manufacturing base, and that its decline has massive implications for other sectors of the economy such as construction, into which 60% of its products feed as key inputs. According to Stats SA, in 2020 total capacity utilization in the manufacturing sector was 72.3%, 1.8% down from the 81% in 2019. Within the M&E sector, average total capacity utilization in 2020 was 67.6%, with the lowest level recorded in the other transport equipment sub-sector, at 58.4%, and the basic iron and steel sub-sector, at 54.2%. He said these figures explained the shortages of steel experienced in the country.The South African economy is estimated to have contracted by 7.5% in 2020, partially due to the weak manufacturing production trends throughout the year, as a result of low capacity utilization at producing companies under stringent COVID-19 lockdown regulations.
the M&E sector is heavily reliant on demand from key Government projects to boost its production and sales, especially for products such as steel and other related downstream products such as roofing material. The lack of progress in the implementation of such key Government projects was a hindrance to reviving the economy.
If we are going to be looking towards reviving the manufacturing side of the economy there needs to be tools put in place such as online platforms where availability of certain materials is accessible for government and private sector economies. Manufacturing in Africa could become some of the best worldwide and this industry could drive Africa to a higher value in the years to come. Through continental collaboration and fostering effective private–public partnerships, there is incredible opportunity to position Africa and South Africa as global Manufacturing hubs.
Cost and availability of labour and materials
This was ranked as the single biggest driver of competitiveness in South Africa. It is common cause that labour costs in South Africa have increased at a faster rate than is the case with global peers, and there has not been a commensurate increase in labour productivity. This is borne out by numerous studies and is dealt with in greater detail in other sections of this report. Given that the South African Manufacturing sector was built on the basis of relatively cheap labour, there is little wonder why this factor has been ranked so highly by respondents. Education, skills development, spatial development and community safety are social factors that have impinged on South Africa’s ability to be competitive.
Local market attractiveness
Respondents felt that the South African Manufacturing sector is currently in survival mode as a result of many factors, including the small size of the domestic market, the threat of cheap imports, policy uncertainty, high input costs and a limited skills base. It is important to the future of the sector that the local market be dynamic, growing and competitive. Compared to large developed markets it is very small, and respondents felt that this undermines our ability to compete against global peers, especially in adjacent African markets.
Energy cost and policies
It is unsurprising that this competitiveness driver is so highly ranked, given the recent cost increases envisaged by the power build programme initiated by Eskom. While the importance of this factor is dependent on the power demands of the individual respondents, its impact will be felt across the sector.
Economic, trade, financial and tax system
Government has an important role to play in creating an enabling environment in which Manufacturing can thrive. Respondents felt that there was a significant need for improved incentives or import protection in the short term.
Physical infrastructure
Respondents felt that while infrastructure expenditure proposals were laudable, it was important that the process be expedited. The need to improve rail, road and port infrastructure is paramount but has to be supported by improvements at the Department of Home Affairs and in education. An integrated approach should be adopted to improve South African competitiveness.
Talent-driven innovation
Talent-driven innovation was not as highly rated when compared to global peers. Respondents felt that there were more fundamental issues to deal with, such as primary and secondary education. It was noted that the extensive brain drain has severely diluted our intellectual skills in the country. However, if South African Manufacturing companies wish to be competitive, they would need to be innovative and, in doing so, they would have to attract the right talent.
Government investments in Manufacturing
An adversarial relationship between government, labour and business severely hampers a coordinated approach for the good of the sector. The state’s primary responsibility is to create an enabling environment to promote the competitiveness of the sector. To this end, consistent trade and industrial policy implementation is a prerequisite for improved competitiveness. This should be applied irrespective of changes in political leadership. Respondents pointed to a need for government to focus on long-term issues such as education and not short-term “quick fixes”. In addition, there is a need for greater collaboration between government departments on policy matters to achieve the intended.
So what actually needs to be done?
Proactive engagement between government, labour and business
For the Manufacturing sector to become more competitive it is critical that a trust-based working relationship be established between government, labour and industry. Respondents felt that alignment is required around a long-term vision and that key building blocks and actions should be agreed between the parties. The idea of an economic indaba was discussed as one way in which to create positive momentum.
Regulatory adjustments
Respondents felt that there was a need for government to review duties for in-bound products in order to make these more comparable to other emerging countries. In addition, more stringent control on administered prices to keep them competitive is required, and greater flexibility is required in labour laws. The implementation of the National Development Plan should also receive priority.
Incentives
The rapid implementation of current Manufacturing initiatives, subsidies and import protection were all identified as important strategies.
Industry collaboration
Respondents endorsed the buyback South Africa campaign, emphasizing the need for business and labour to agree on jobs as a priority and local beneficiation. They also agreed on the need to create a sub-Saharan body to coordinate and fund cross-border infrastructural projects.
Labour
Labour is an important stakeholder in the future of the Manufacturing sector, and there is a need to engage on wages and job creation. It is also important to depoliticize labour.
