SA is deindustrialising prematurely – expert

The continuous erosion of the manufacturing sector is leading to the premature deindustrialisation of South Africa, says Dr Martyn Davies, managing director of Emerging Markets and Africa at Frontier Advisory Deloitte.

“At our current rate of GDP per capita we should not have deindustrialised at the rate that we have in the past few years,” said Davies at the Southern African Metals and Engineering Indaba.

He said the value-added contribution of manufacturing to GDP fell from 19% in 2000 to 13% in 2014, making South Africa one of the poorest-performing emerging market countries over the period.

Since the end of the industrial revolution, a strong manufacturing sector has underpinned the success of most countries, particularly Asian nations. This, is reflected in the way in which their export mix has grown over time.

“We have fallen into the trap in that we often think that GDP is a fair and competitive evaluation of a country’s competitiveness,” Davies said, arguing that exports are a more accurate measure.

Exports, like imports, account for 50% of demand for goods produced by the metals and engineering sector, said Henk Langenhoven, chief economist of the Steel and Engineering Industries Federation of Southern Africa.

The value of the metals and engineering industry’s exports fell by 7% year-on-year in 2015 and is down by 14.5% since peaking in 2008, Langenhoven said. He added that the total value of imports increased by 12.2% year-on-year from 2014 and by 0.4% since peaking in 2008. Profit margins for the sector fell by 19.7% year-on-year in 2015 and by 96% from their 2005 peak.

At the same time, South African producers’ share of the domestic market continues to decrease, falling from 65% in 2000 to less than 50% in 2015.

Langenhoven said the decline in the metals and engineering sector appears to be structural rather than cyclical. “Any sign of improvement must come from drivers of industry, including manufacturing, mining and construction,” he said, taking some comfort in an improvement in the Purchasing Managers Index.

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