What is to be done to fix manufacturing in South Africa?

Africa, so the story goes, makes nothing except holes in the ground. And while extractive industries drive economies across the continent, they do not produce the sort of employment figures that make for sustainable growth.

In South Africa, the continent’s largest and most diversified economy, a yawning lacuna between industry, labour and government is not just curbing manufacturing but promises to swallow the entire nation.

This chasm was plainly in evidence during a forum held last November by Johannesburg-based consultancy outfit Frontier Advisory, operated by Martyn Davies, a leading analyst. Held about once a month, these forums often involve people who would not ordinarily find themselves in the same room. This was certainly the case with “The Future of Manufacturing in South Africa”. The irony is that there is no future for manufacturing in South Africa if representatives from industry, labour and government are not in the same physical space as often as possible.

The preamble printed on the programme did not offer much solace: “Despite having the strongest manufacturing base in the region and strong demand for manufactured goods in African economies, South Africa’s manufacturing sector continues to underperform. Recent strife between labour and investors in the country’s manufacturing sector… has only served to highlight how divergent the future vision for manufacturing is in South Africa. According to the World Bank, South Africa’s manufacturing value add as a percentage is now down to 12% of GDP – the lowest among all the BRICS countries. What is to be done to fix manufacturing in South Africa? What are the views of industry, government and labour and how can these be reconciled?”

During his introduction, Davies made his views plain: manufacturing in South Africa is in free fall. In 1994, the sector contributed between 23% and 24% of GDP, a number which has now plunged by half, according to Davies. “Hence,” he noted drily, “the enormous unemployment figures in this country.” Alongside Davies sat Mike Whitfield, the managing director of Nissan South Africa. To his left sat Karthi Pillay, director of IT, Risk and Control at Deloitte, followed by Patrick Craven, national spokesman for the Congress of South African Trade Unions (Cosatu). Coenraad Bezuidenhout, of the industry lobbying group Manufacturing Circle, and Bill Scurr, executive director of the Southern African Stainless Steel Development Association, rounded out the panel. This coterie were all ostensibly invested in stemming the fall and spurring the rise of local manufacturing.

But as you might imagine, they drink different flavours of the economy wonk’s Kool-Aid. How to stop the plunge? While each member of the panel had a subtly different outlook, some views overlapped. For his part, Nissan’s Whitfield wanted us to remember that nowhere in the world do car manufacturers work without co-operation and incentives from government, such as tariff protection, tax breaks and subsidies for building factories. With African plants in Egypt, Morocco, South Africa and, shortly, Nigeria, Nissan’s modus operandi is always based on receiving a helping hand. Whitfield made the point that the size of the incentives guide where and when a car manufacturer sets up shop.

South Africa low on the list

“It now costs 20% more in South Africa than it does in, say, Thailand,” he said. Warily, he noted that the 20% uptick had much to do with labour costs. Seven car manufacturers operate in South Africa, and all seven had just been slammed by almost eight weeks of industrial action led by the National Union of Metalworkers of South Africa. The strikes led to an agreement that saw workers granted a 10% wage increase in 2013, and 8% in 2014 and 2015. This led BMW to pull the plug on plans for an expansion of its manufacturing programme in South Africa. In total the strike cost the sector almost R20bn (US$1.8bn). Such carnage resonates across the entire sector. Pillay directed our attention to the just-published Deloitte 2013 Global Manufacturing Competitiveness Index, a yearly survey to determine how hundreds of leading international CEOs view the competitiveness of the manufacturing industry in 38 countries around the world.

Unsurprisingly, China ranked number one. Another four emerging economies were included in the top 10: India (4), Taiwan (6), Brazil (8) and Singapore (9). Five years from now, according to the survey, emerging economies will surge to the top three places, with India and Brazil following fast on China’s heels. South Africa? A gruesome 24 out of 38, followed by sundry crisis-hit European states, Saudi Arabia and the UAE. That is not company South Africa can afford to keep.