Golden opportunities for small business in manufacturing

Despite several hurdles thwarting the manufacturing industry’s progress over the past few years, there are opportunities. Efforts by the public and private sectors to revitalise and expand South Africa’s manufacturing capabilities present an encouraging prospect for small and medium-sized businesses.

South Africa’s manufacturing sector is one of several areas of interest identified in the National Development Plan (NDP) as an industry poised for job creation and gross domestic product (GDP) growth.

The sector’s gross value declined by 1.3 percentage points during the first six months of the year compared to the same period in 2022 due to persistent load shedding and input cost pressures.

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However, the industry showed signs of recovery during the last part of 2022, with an almost 3 percentage point year-on-year increase in September. Despite analysts’ predictions that factory output would remain subdued, factory production increased by just under 5% compared to the previous month over the same time.

The Absa Purchasing Managers Index recently also increased to 49.8 index points in April 2023 from 48.1 in March, showing some signs of recovery.

Small business can help manufacturing sector grow

Small businesses are vital cogs in the sector’s growth engine, says Jeremy Lang, chief investment officer at Business Partners Limited. “As sectors such as manufacturing seek to follow the country’s renewed impetus towards economic recovery, a vital component of the solution lies with small businesses.”

Lang says going forward the strategic positioning of small businesses along the industry’s supply and value chains will unlock the sector’s potential as a bolstered contributor to our country’s GDP, socioeconomic development and the broadening of the fiscal base.

Recent data from Statistics SA saw South Africa’s manufacturing sector taking its place as the second highest contributor to total turnover (25%), after trade.

“Now is the ideal opportunity for local entrepreneurs to seek out and harness the opportunities that exist in the manufacturing space.” Lang encourages small business owners to look into sub-sectors such as agriculture, pharmaceuticals, renewable energy and steel.

There are opportunities in sub-sectors of manufacturing, as illustrated in a report by the Pan-African Investment and Research Services (PAIRS), that indicated the agro-processing sub-sector is one of the most crucial drivers of the manufacturing sector in areas such as processing, logistics, training and skills development, quality assurance and machinery.  

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Lang says for small businesses that want to take advantage of emerging trends in these kinds of value chains, skills such as innovation, negotiation and collaboration will be significant determinants of enduring success.

It is also the ideal time to pool resources and optimise existing strengths as a country, he says, referring to the fact that South Africa boasts some of the world’s largest automotive production plants.

“Given that the automotive industry is undergoing an unprecedented period of transformation, driven by the global call for sustainability, small businesses now have the opportunity to position themselves in this pivotal change process in areas such as the production of parts for electric vehicles and cleaner energy innovations.

Think big for manufacturing

Small businesses must also not think small because they are small. There are now intercontinental prospects for them. Lang encourages entrepreneurs to set their sights on local prospects as well as those in the African continent as a whole.

He says an important factor in the growth of the country’s intercontinental manufacturing capabilities is the African Continental Free Trade Area (AfCFTA) that can provide the exact momentum local manufacturers need to expand into other African territories.

“The greatest challenge for small businesses that want to take advantage of more harmonious intra-Africa trade lies within skills and the realm of transport and the ailing state of South African infrastructure.”

Due to the skills challenge, Lang encourages small businesses to seek support from the Business Partners Ltd technical assistance and mentorship programme sponsored by the Swiss State Secretariat for Economic Affairs (SECO).

“Through our technical assistance programme, we contract expert consultants to assist business owners in navigating the challenges they face in their business journey and close the skills gap that may exist within a business.”

He also supports the recently launched NEF-Transnet SMME Fund designed to boost localisation and South Africa’s manufacturing capabilities. The five-year partnership between Transnet, the National Empowerment Fund, the National Association of Automotive Component and Allied Manufacturers (Naacam) plan to integrate SMEs into its related value chains and is expected to invest around R220 million into the resurgence of the local manufacturing sector.

“South African SMEs must tap into developments on the local front, where government has committed to promote localisation and industrial diversification as part of its NDP targets. As the future of the sector, driven by policy reform, begins to take shape, entrepreneurs must pay close attention to industry developments and consider that manufacturing may hold the key to long-term success.”