SA needs aggressive export drive to grow manufacturing sector – Zalk
20 August 2014
by Leandi Kolver
South Africa had to embark on an aggressive export drive, particularly into the rest of Africa, to adequately grow its manufacturing sector, Department of Trade and Industry (DTI) industrial development policy and strategy adviser Nimrod Zalk said on Wednesday, adding that this drive had to be accompanied by regional integration.
Speaking at a Frontier Advisory Frontier Forum under the theme ‘What is the Future of Manufacturing in South Africa’, he stated that for manufacturing in developing countries to grow rapidly it needed to achieve convergence with advanced economies.
However, South Africa had, to an extent, become de-industrialised, with its manufacturing sector having declined significantly over the past 20 years.
Also speaking at the forum, Frontier Advisory CEO Dr Martyn Davies pointed out that, in 1994, the contribution of the country’s manufacturing sector to its gross domestic product (GDP), at just above 20%, was in line with that of the US today.
However, since then, South Africa had experienced an increasingly “rapid erosion or haemorrhaging”, of industrial capacity relating to GDP, which had resulted in structural challenges in terms of employment, he said.
Davies noted that between 1994 and 2004 the local manufacturing sector’s contribution to GDP had declined by 0.76%, while 2004 to 2013 had seen a 5.2% average decline.
Zalk stated that there was no single causative factor that could be identified for the decline, but that this was rather owing to a range of factors that had to be collectively dealt with if the country wanted to raise its levels of diversified manufacturing and, subsequently, employment.
These counter measures included a strong push to reclaim the domestic market through localisation, trade policy and ensuring that the country had a competitive and stable currency, he said.
“But, critically important, is that the foothold in the domestic market must be used to actively develop diversified exports,” Zalk asserted, stating that South Africa had to undergo a rapid transition from supplying the domestic market to pushing into the export market.
“Because if sectors are not pushed to move into export markets and become export competitive, then there is a significant risk that they will peak and decline entirely with the domestic economy,” he noted.
He added that there were a number of factors that supported the significant potential for growing South Africa’s manufacturing exports into the rest of the continent.
These included the significant growth rate of the continent, the fact that this growth was occurring off a low base and South Africa’s proximity to the market.
Meanwhile, speaking as part of a panel discussion, Ford sub-Saharan African region president and CEO Jeff Nemeth reiterated the need to move into exports, stating that the South African market was not large enough to sustain a large-scale manufacturing sector.
He added that, specifically with regard to the automotive sector, Africa was seen as a budding marketplace, with infrastructure projects providing some specific opportunities.
Nemeth further said that, for the country to fully tap into the opportunities offered by the pan-African market, free trade would be required.
Further, this suggested that the export drive had to be tied in with the concept of beneficiation, which Zalk said South Africa had to approach logically and carefully.
He stated that when considering beneficiation, there were two areas that had to be focused on.
The first was the minerals as a direct feedstock into downstream manufacturing, which meant that there was a need for cost-effective supply of core materials to ensure that the manufactured products were cost competitive.
“Another area where there is a significant opportunity [for beneficiation] is where South Africa commands a large proportion of the global resource, which, in turn, has promising prospects for manufacturing, such as platinum-group metals,” he said.
FUTURE FOCUS
Meanwhile, another speaker at the forum, Deloitte Africa manufacturing leader Karthi Pillay posed the question of whether South Africa was doing enough in terms of thinking where it was going in the manufacturing space, as opposed to only focusing on the “here and now”.
He stated that the future of the manufacturing sector would depend on remaining globally competitive, which would require some forward thinking.
“To remain competitive you need to understand the future and what role South Africa will be playing in the future of manufacturing,” he said, adding that, therefore, Deloitte believed South Africa needed a “think tank” to address this.
Pillay noted that Deloitte was engaging with the Department of Science and Technology and the Council for Scientific and Industrial Research with regard to establishing such a forum.
Also touching on the topic of forward thinking, Siemens South Africa and Africa industry and manufacturing sector head Raymond Padayachee commented that the country had to adopt a longer term view when looking at unemployment.
He stated that South Africa was so concerned with creating short-term jobs for unskilled people that it forgot to look at the bigger picture.
“If we keep looking to create jobs for unskilled workers we are missing the boat,” he said, adding that government intervention was needed to create skills that would benefit the country in the longer term.
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