Government needs to pay attention to manufacturing

This is according to Coenraad Bezuidenhout, executive director at the Manufacturing Circle. He was recently the guest speaker at the EBI’s Captains of Industry Forum meeting.

According to Bezuidenhout, the second quarter of the 2014 Manufacturing Circle Survey paints a picture of downbeat business conditions in the manufacturing sector owing to factors such as industrial action in the platinum industry, weak consumer demand and elevated input costs.

Recently the Manufacturing Circle revealed that 59 000 jobs have been lost in the manufacturing sector in the second quarter of the year.

This follows the release of economic data indicating manufacturing industry shrank by -0.3 per cent within the second quarter.

“The manufacturing industry has already shed more than 250 000 jobs since 2008 (lost or exported to other countries such as China), which is a sure indication that this traditionally labour intensive industry is failing to generate jobs for millions of South Africans.

A main contributor of the bleak outlook is the ripple effect of the recent strikes.

“We have to remember that mining is the backbone of manufacturing in this country, so both the Numsa and the Platinum Belt strikes had a huge impact on the economy, causing millions of rand to be lost daily.

“It impacted the retailer and reverberated across the country. Recovery is going to take a long time.”

Bezuidenhout painted a picture of how the emerging economic market is experiencing a slower growth, but at the same time labour prices keep going up, while labour remains inflexible. This is not healthy for the GDP.

He, however, stressed that despite the negativity surrounding manufacturing, one has to remember that South Africa has been manufacturing quality goods for a long time, that Africa remains a top export destination and that with the right government momentum the pendulum can take a swing for the positive.

He also discussed the Purchasing Manager’s Index (PMI), which is compiled by the Bureau of Economic Research (BER) and sponsored by Kagiso Tiso Holdings. It measures key statistics such as new sales and business activity, thus, focusing on business conditions in the manufacturing sector.

SA’s PMI rating has dropped from 50.8 in 2013 to 46.1 in 2014. Manufacturing PMI has averaged 51.84 from 1999 until 2014, reaching an all-time high of 63.71 in July of 2006, and a record low of 34.11 in April of 2009.

“It is also scary that the manufacturing output of many products is down, with only a few sectors showing growth, such as food and beverages.”

The state of the manufacturing in South Africa according to Bezuidenhout also has to be measured against the volatile global economy, with America and Europe’s recovery remaining patchy, while other global leaders like China and Russia are struggling.

Relative to the outcome in the second quarter of 2013, domestic and export demand for South African manufactured goods performed dismally in the second quarter of 2014.

“Among the factors that affected demand are a number of construction projects reaching their terminal phase over the quarter, the poor performance of the domestic motor industry, as well as increased competition on the global market.

“Shortages of adequate skills and raw materials, electricity and water disruption and a fall in labour productivity, characterised supply conditions experienced by the survey participants in the second quarter.”

He pointed out that uncertainty in the labour market, elevated wages, competition from imported goods, low productivity and lack of skills have also placed the manufacturing sector under strain.

“A majority of respondents did not benefit from the government’s local procurement programme in the second quarter, despite it being deemed important to the growth of manufacturing operations.

“While the survey reveals that the short-term outlook for manufacturing is bleak, the Manufacturing Circle has been quietly going about its business of interacting with government and other stakeholders in order to review, debate and help formulate policies, which will have a positive impact on South Africa’s manufacturing base.

The Manufacturing Circle, thus, keeps a close eye on the government’s Industrial Policy Action Plan which wants to reverse deindustrialisation through value-added, labour-intensive and environmentally-sustainable growth through R8-billion of conditional support.

“Although successes has been achieved to promote competitiveness in specific sectors and to bolster manufacturing in general, strategic sourcing capacity in government to promote local procurement, weak domestic demand and financial market failure presents major challenges,” says Bezuidenhout.

The Manufacturing Circle is made up of a number of South Africa’s leading medium- to large manufacturing companies from a wide range of industries.

Some of the initiatives to date of the organisation are:

* The need for a competitive and stable currency.

* Preferential procurement for locally manufactured goods.

* The need for a lower cost of capital in South Africa.

* Inputs into IPAP2 and the new Growth Plan.

* Effective trade policy which supports South African manufacturing.

“We are also calling from audible strike balloting and zero-tolerance enforcement on intimidation and strike violence,” says Bezuidehout in light of the recent crippling strikes.

“Protection also needs to be offered on local products to be protected against competition from imported goods, while creating a stronger buy local campaign will address consumer demand.”