What does the future hold for South African manufacturing?

October 31st, 2014, Published in Articles: Energize, Articles: EngineerIT, Articles: Vector


A discussion panel on the future of manufacturing in South Africa heard that government has not pursued solutions sufficiently to enable the country to fulfill its manufacturing potential, resulting in the loss of over 300 000 jobs in the sector since the global financial crisis.

The panel members with a replica of Mars rover Curiosity, which was designed using Siemens software.

The panel members with a replica of Mars rover Curiosity, which was designed using Siemens software.

Yet, at 11% of GDP, the sector still employs 1,6-million people, is the second largest sector of the economy and is one of the top three multipliers in terms of value addition,  job creation, export earnings and revenue generation.

The discussion panel was hosted at the Siemens Future of Manufacturing event in Johannesburg and comprised representatives from the Department of Science and Technology (DST); the Department of Trade and Industry (DTI); Frontier Advisory; Manufacturing Circle; Siemens Southern and Eastern Africa and the Technology Innovation Agency (TIA).

Describing the current state of manufacturing in South Africa, Frontier Advisory CEO Dr. Martyn Davies said the manufacturing sector accounted for about 22% of GDP twenty years ago but this contribution had subsequently shrunk to half that figure. He said the challenge now was to re-industrialise the country by channeling intellectual, entrepreneurial and technical talent into industry clusters. No country, he said, had ever succeeded without industrialisation.

Manufacturing Circle executive director Coenraad Bezuidenhout called for the creation of greater demand for local product. He said this should be done by growing the local market, by further opening up existing markets and by creating new markets for local product.

“This means we must work harder at foreign and training policy level,” he said.

He also called for action on the issue of administered prices as this could increase manufacturing growth by a number of percentage points in the short term.

DST chief director: technology localisation and advanced manufacturing Beeuwen Gerryts stressed the importance of improving global competitiveness for this country to be considered part of the global value chain.

To Siemens process industries and drives vice president Raymond Padayachee, South Africa could position itself very favourably for the uptake of manufacturing in the rest of Africa if we resolved our challenges. To become a net exporter, it was imperative that this country, with its small population, take advantage of the greater African market. This, however, will only be achieved by building skills and by bringing together labour, government and industry.

DTI chief director: advanced manufacturing Nomfuneko Majaja agreed that SA must broaden its export market, specifically into the rest of the continent, given the small marketplace locally. She said local products are not competitive internationally due in part to the high cost of local manufacture. Products on international markets are becoming more advanced technologically while this is not the case locally.

When asked by panel facilitator Chris Gibbons how South African manufacturing “got into this pickle”, Bezuidenhout said our existing industrial base had been built on traditionally strong, protected mining and agricultural sectors. The labour policies of the past used subsidised labour to stimulate growth in manufacturing and mining. The provision of cheap electricity was another such industrial policy.

The country was, however, liberated rapidly in terms of trade with the disappearance of these policies and with the privatisation of state-owned entities in the 1990s, but this led to less work for the industrial sector.
Bezuidenhout cited the cumulative effect of drops in sales of local product and “the rise of China” as another factor contributing to this decline.

On why South African factories are not sufficiently productive, Padayachee said local factories tend to be either world-class facilities or “industrial museums”. He said this country has manufacturing of international standard, the right technology and export abilites to become a successful international player but the cost of unskilled labour had become too high, which is evident in the mining sector where it has become expensive to perform competitively on the international stage.

Another reason for low productivity in local factories is the county’s reduced skills levels, exacerbated by the recent “skills exodus”.

On the issue of labour policies, Davies commented on an “unsustainable disconnect” and “fractious relationships” between business and labour currently undermining a world-class South African manufacturing base.

When asked about the science and technology investments and policies provided by government, the DST’s Gerryts said his department, which works on long-term timeframes, offers an R&D-led industry development portfolio to open market opportunities and unlock industrial growth.

Bezuidenhout (Manufacturing Circle) confirmed this fact and cited the Industrial Policy Action Plan or IPAP as an example of an overarching policy of this kind. There is, however, much room for improvement, especially in terms of local procurement which he said is governed by line departments and provincial governments, some of which show “disregard for their commitments”.

Many areas exist in government where delivery requires cross-departmental action and the country’s trade regime, for example, is governed by multiple entities who set policies, administer standards, customs and other functions but who do not work together.

“Goverment should create cross-departmental policy to produce a single regulatory regime to consider macro-economic goals instead of creating more departments.”

Siemens Digital Factory vice president Dan Moodley said the country had lost its competitive edge in terms of mining, formerly the backbone of its economy, and local manufacturing had not adopted high technology sufficiently. He said government, which could play a key role in creating competitiveness in our manufacturing sectors, had not played its part and warned that the manufacturing sector of the future will in all likelihood be faced by the current, ongoing energy crisis.

Davies from Frontier Advisory pointed out that the manufacturing narrative in South Africa at present centers around job creation, and that the country must choose between jobs and value.

“The future of manufacturing lies with automation and we must educate the trade unions to get out of this nineteenth century ‘Industrial Revolution’ mind-set and return to the global economy. Businesses, economic sectors and even countries who don’t adapt will fall by the wayside. This country is in need of ideas-driven manufacturing. The value lies in the idea, the technology, in the innovation and not in its assembly.”

Padayachee agreed. He said South Africans tend to focus on low-skill job creation. This has to change. The thought of industrial automation upsets labour and government because, to them, this technology replaces humans in the workplace. Automation is, however, fast coming to the fore.

“To set up a mine for producing 200 000 ounces of platinum, you’ll have to employ some 6000 people. With automation introduced into the skills set, your employees won’t be people who demand a R12 500 wage, but who earn about R35 000. However, bear in mind that the mine now employs only 1500 graduates. This scenario is attractive to investors and benefits production, the national skills base and, ultimately, the country as a whole.

Gerryts described manufacturing as a pyramid of skills and said automation will displace these skills. There are, however, multipliers which must be quantified. Industrial automation will also change the employment structure and create a market for services pertaining to robotics and automation, for instance. He said the answer lies with maximising employment while supporting high technology and advanced manufacturing.

TIA industry sectors executive Pontsho Maruping expressed optimism when asked whether the local economy could recover despite the challenges. She said her interactions with the youth following the launch of the Youth Technology Innovation Fund had left her “amazed”.

“Their solutions are not always hi-tech,” she said, “but contain enough technology to create new businesses.”

Bezuidenhout warned against confusing advanced manufacturing with mechanisation.

“Advanced manufacturing means creating products you couldn’t create through old technology. It is a completely new way of manufacturing. Mechanisation isn’t just used to get rid of labour, but also to build more safety into the system. There will always be certain manufacturing tasks which won’t be done by machines.

“We face stumbling blocks preventing us from advancing productivity because of difficulties dealing with labour. We have these challenges because we disregard the institutional stumbling blocks, the fact that centralised bargaining and things like the National Economic Development and Labour Council (NEDLAC) do not work in our favour, for instance. If we don’t confront these challenges and work to reform them, we’re always going to face problems in terms of making our common vision work.

Bezuidenhout also outlined four goals to stem de-industrialisation and to grow manufacturing. Establishing the right macro environment to grow and attract manufacturers, the first goal, entailed disciplined macro-economic policy execution, adequate infrastructure and adequate maintenance to ensure security of industrial water and electricity supply.

He emphasised that, in addition to policy and policy execution, institutional barriers to growth in South Africa’s social dialogue and labour relations regime had be confronted if manufacturing was to move the economy forward.

Secondly, South Africa needed to encourage fair trade through swift adjustments to tariff and non-tariff barriers. It must focus on enhancing access and integration with African markets while pursuing more equal trade relationships with Asia and South America, and should better leverage its established trade connections with the USA and the Eurozone.

Bezuidenhout’s third goal is for South Africa to become a competitive beneficiator of its own resources as better beneficiation offers a route to manufacturing growth.

“We must promote innovation through a more conducive intellectual property regime and by better leveraging government budgets.”

He said that, in the USA, 2,5% of all government spending is directed at funding private sector solutions to government problems. He also calls for conducive policy certainty and predictability in upstream mining and agriculture.

The last goal is for South African goods to enjoy preference locally and recognition across the world. Local manufacturers produce quality at very competitive prices in many cases. The private sector should dovetail with these efforts while government improves local procurement.

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