South Africa has been captured by deindustrialisation

Over the past two months we have seen two major conferences where manufacturing, job losses and the shortage of skills in all sectors of the economy have been debated. But if we break it down, the one thing impacting most on South Africa’s economy is deindustrialisation.

In the 1980s, manufacturing’s contribution to GDP was 27%. By 2015 this had fallen to below 13%. The Manufacturing Circle estimates that given South Africa’s developmental stage, the contribution to GDP should today be between 28 and 32%.

This, theoretically speaking, would have created between 800 000 and 1,1-million jobs. Instead, the economy is struggling with an unemployment figure of 27,7%.

There does not seem to be any light at the end of a very long and dark tunnel. In the first quarter of this year, the manufactoring sector shrunk a further 3,4%, shedding more jobs.

According to the World Bank, manufacturing is the highest job multiplier of any sector, so job losses have an outsized negative impact. Manufacturing makes 3,4 times more social returns for the same private returns, compared with mining.

The manufacturing industry creates many opportunities for smaller businesses to feed in products and components.

Government quite rightly recognises this by encouraging the creation of small businesses and entrepreneurships, but are they not missing the bigger picture?

For these smaller businesses and entrepreneurs to succeed, larger manufacturing plants are needed to take up their output. The manufacturing sector needs a major boost before small and medium size businesses can flourish and create more jobs.

Many reasons are given for our deindustrialisation but the two most obvious ones are the lack of policy and regulatory uncertainty; and asymmetrical compliance with the World Trade Organisation rules.

These are not too difficult to overcome, but it is in government’s hands to agree on economic policies that create certainty for investment in the manufacturing industry, and labour policies that will provide incentives for both employers and employees.

Compared to many industrialised nations, our productivity level is not commensurate with the continual demand for higher wages.

If government would become responsible and stop endless talk of radical transformation of this and of that, and start walking the talk, there would be no need for mass action, marches and strikes. It seems that action is taken when things get destroyed.

Government should listen and heed the call from the manufacturing industry and focus on supporting industry by creating an environment for investment.

This could be done by, for example, introducing tax holidays during start up periods, accelerated depreciation allowances similar to the mining industry, and recapitalisation allowances.

There are several other tax instruments at government’s disposal which could be used to kick-start a new manufacturing industry ethos in South Africa.

Automation has also been on the conference agendas over the past few months. It is often questioned whether automation is not counterproductive in a country with a high unemployment rate. Should we not be creating jobs instead of automating processes?

In theory that would be so, but South Africa has to keep up with world trends if we want to export our products to the rest of the continent and indeed the world. Automation in itself creates new jobs and this is where the problem lies.

These new jobs require better skills which in turn require a better education system and closer ties between industry and the education structures.

We blame government for many of our ills, and government deserves to be called to order; but are we, the people of South Africa, playing our part? Industry blames inadequate skills development on tertiary education institutions, but in turn they complain that  industry is not playing its part sufficiently.

In my humble opinion, it is time that we stop talking past each other and focus on getting the economy on track. We must walk the talk and stop waiting for the next person to make a positive move.

Source: We are captured by deindustrialisation

Now read: Three graphs which show how Zuma wrecked South Africa’s economy

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South Africa has been captured by deindustrialisation