An uptick in investment into SA’s manufacturing subsectors would have a multiplier effect on overall economic growth, bolstering GDP and increasing fiscal revenue.
This is according to economist Dr Iraj Abedian, who said targeted investment into SA’s agro-processing, meat, sugar, furniture, automotive, steel and pharmaceuticals sectors would have a positive overall effect on economic growth.
“If we want to be a successful economy, we cannot afford not to turn our manufacturing about, no matter which ideology you subscribe to,” said Abedian. “No sector can improve and turn about without investment.”
Abedian, who wrote the “Revitalising the SA Manufacturing Sector” report, said research has shown there would be a projected GDP contribution of 13% as a result of a 10% increase in investment into the manufacturing sector coupled with a 9% projected increase in fiscal revenue.
SA’s manufacturing sector, including its jobs, infrastructure and tax contributions, has shrunk in the last two decades and is in urgent need of a turnaround in terms of its contribution to the economy and its export competitiveness.
A side effect of deindustrialisation is a falling tax contribution by the manufacturing sector from 16.7% in 2017 to 13.2% in 2020, the report read.
Since 2019 various sectoral master plans for agro-processing, furniture, poultry, sugar, tyres, steel and the automotive sector have been established and approved with some buy-in from the private sector aimed at improving growth, job creation, competitiveness, technology upgrading and transformation.
However, progress has been subdued as unemployment remains stubbornly high while economic growth is sluggish, though SA’s automotive manufacturing sector is one of the success stories of a collective thrust backing an industry.
The latest Stats SA data showed SA’s manufacturing production fell at a steeper rate than expected in September year on year, weighed down in part by the electricity supply deficit.
Manufacturing output fell 4.3%, far outpacing market estimates for a contraction of 2.4%, Stats SA said last week. Food and beverages, motor vehicles, parts and accessories, and other transport equipment were the main drags.
Given the nature of manufacturing’s ecosystems, every job created in manufacturing leads to more jobs down the value chain, Abedian said, adding that this was why employment in the sector is favoured across the globe by policymakers.
Increased manufacturing activity and deliberate investment in the sector, driven by a clear localisation drive, will have a strong effect on the services, construction, trade, transport, communications and finance sectors, he added.
The 2023 budget allocated R237.6bn for economic development including R40bn for industrialisation and exports. Additionally, in April SA secured at least 25% more investment pledges than the R1.2-trillion set out in 2018 at the first Investment Conference as part of President Cyril Ramaphosa’s investment drive, but research shows more funding is required.
Abedian said the modelled additional funds envisioned would be sourced from the private sector as the government was drowning in debt.
“It [government] does not have the money, not for the next generation. Anybody who is waiting for the government to inject is waiting for Goddo to arrive. You are dreaming, you are politicking, you’re not being a businessperson,” Abedian told Business Day.
“Our public debt ratio is such that if in the next 10 years we grow at 6-7% we can only reach a sustainable level, so forget about putting more pressure on the government. Business must come to the party. It’s a tough game and the tough must get going.”
He added that there were some incentives for businesses based on SA’s current tax regime, as any investments done by businesses could be written off in the next three years.
Black Business Council president Kganki Matabane warned that SA is in the midst of a crisis when he highlighted that of its 62-million people, 16.2 million are employed as opposed to 27 million on social grants.
He said localisation was one of the solutions but lamented the lack of political will to take decisions and implement them.
“We are the highest consumers of ARV medication but we are not manufacturing those here in SA,” said Matabane. “This means that even when we have got the market, we still go and create jobs in other countries.”
Proudly SA CEO Eustace Mashimbye challenged the BBC and other captains of industry to look at their respective value chains to see how they could voluntarily increase their procurement of locally manufactured goods.
“If we get industry-level commitments, as opposed to getting a commitment from one company, it ensures uniformity and a bigger market to expose local manufacturers and service providers to,” said Mashimbye. “Collective buy-in is important.”
SA’s buy-local campaign was conceived at the 1998 Presidential Job Summit convened by former president Nelson Mandela to combat the triple challenges of poverty, inequality and unemployment.
Since 2001, the country’s official “buy local” campaign has been advocating for the local procurement of goods and services in both the private and public sectors.
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