Stats SA published an important manufacturing survey earlier this month looking at capacity utilisation — the proportion of installed capacity arising from prior investment used by large industrial firms. If we consider a slightly historical view this publication reveals interesting insights.
The main insight from a two-decade view of the publication challenges us to consider the “iron wall” erected in policy debates between industrial and social policy measures, and the important link between insufficient demand, employment and capacity utilisation.
First, the levels of capacity utilisation from the first quarter of 2003 to the last of 2009 remained roughly the same, averaging about 83%, while manufacturing employment as a share of nonagricultural formal jobs fell nearly four percentage points from just above 19% to 14.5% by the end of 2009. It now stands at about 11%, with general utilisation at 77.9%.
Second, while aggregate utilisation is not too far from the level of 20 years ago, if we look below the bonnet of these numbers we see that in labour-intensive subsectors capacity utilisation has fallen significantly, while it has risen in others.
In February 2003 the textiles sector exhibited capacity utilisation of 80.9%, while 20 years later this stood at 67.3%. The same is seen in the basic iron and steel sector, which declined from 91.4% in 2003 to 66.2% in 2023. In both sectors thousands of lost jobs accompanied this productive decline.
There were sectors that saw capacity utilisation rise in the two- decade period. The beverages sector rose from 73.2% in 2003 to 82.1%, the automotive sector from 76.7% to 81.8% and basic chemicals from 78.3% to 85.1%. These also happen to be the subsectors that have added a few thousand jobs each in the period after the global financial crisis.
If we accept that social grant recipients spend their transfers on final products from the beverages sector, and that rising middle class incomes mean a growing consumer market for automotive production, the realm of social policy (grants, and even transformation measures) has “industrial outcomes”.
What then of maintaining sufficient demand? Insufficient demand for what domestic manufacturers produce may arise due to import competition reducing access to a rising share of spending by local household and industrial customers. In this case trade instruments such as tariffs and anti-dumping duties may provide protective cover against selected import flows, for these firms to use more of their installed capacity, recover from injurious imports or invest further in capacity.
Protecting the consumption baskets of poor and indigent households may also serve to maintain demand for the production of basic consumer goods. This is why in a July 2 2022 Sens announcement clothing retailer Mr Price suggested that “sales growth in April and May 2022 was adversely affected by the nonpayment of the Covid-19 social relief of distress grant”.
This suggested that the retailer recognised the effect of social transfers on disposable incomes and discretionary spending choices of recipients, and on upstream industrial production in the food, beverages, clothing and textile sectors.
The other element that ensures the maintenance of sufficient demand relates to the procurement choices in the case of both industrial and public procurement. The industrial master plans have targeted growing procurement commitments by large industrial wholesale and retail customers as a demand injection to improve utilisation and employment levels, in the sugar and clothing sector for instance. The purchasing decisions in both the public and private sectors serve as a demand injection that can spur greater output, use of capacity and job growth.
If we accept that the problem for us lies not just in input challenges on the supply side but — for any economic recovery in subsectors of manufacturing — on the demand side, we may want to see the social grants, master plans, incentives and even trade policy as a package or battery of enabling industrial measures, rather than as one crowding out the others.
• Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity.
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