MechChem Africa July 2017

One million jobs by growing manufacturing D elivering the keynote address at the open- ing session of the Manufacturing Indaba, Nampak CEO and Manufacturing Circle chairperson, AndrédeRuyter, talkedabout Peter Middleton falls away, all of which cause demand to fall further. “Without a virtuous cycleof investor and consumer confidence, supported by stable policies, South Africa will continue to deindustrialise, without the capacity to move to a services economy,” he notes.

kick-starting industrialisation in South Africa. He opened by highlighting the dire situation we are in:Manufacturing’s contribution toGDPhas fallen from24% in the early 1980s to less than13%by 2015. South Africa, De Ruyter says, is experiencing “prema- ture deindustrialisation”. “For our stage of development, manufacturing’s GDP contribution should be at double current rates and is lagging behind other emerging markets,” he points out. The reasons? Increased competition from imports; increased labour costs; high energy costs; poor infrastructure; policy and regulatory uncertainty and asymmetrical compliance withWTO rules. Since 1989, as the share of GDP has shrunk, South African manufacturing has shed 500 000 jobs. At 27.7%, current unemployment is the highest it has been for the past 14 years – and manufacturing contracted a further 3.4% in the first quarter of 2017. “If manufacturing were to have an appropriate share of GDP (28 to 32%) for South Africa’s devel- opmental stage, 800 000 to 1.1-million jobs could be created,” De Ruyter points out. In addition, “manufacturing has the highest job multiplier of any sector”, so manufacturing job losses have a bigger negative impact. And, compared tomin- ing, “manufacturing generates 3.4-times higher social returns for the sameprivate returns,” 29.6%compared to 8.8% for every 10% of private income generated. The case for a radical transformation of this sector is surely made? Quoting Jerry Jasinowski, De Ruyter says that the economy of developed nations has tended to pass through industrialisation and into a services economy. “History teaches that a strong economy begins with a viable manufacturing base.” Africa, he says, is seeking “a viable path to prosperity without passing through an industrialisation phase. This is not likely to happen. It is by no means clear that it is even possible.” Showing consecutive diagrams of the ‘The vicious cycle of deindustrialisation’ followedby the ‘virtuous cycle that promotes economic growth’ , DeRuyter says that the departurepoint is demand.Whenpeoplehave less dis- posable income and consumer confidence is low, then demand falls, which causes lower capacity utilisation. Returns therefore fall, causing future investments to be deferred or cancelled. From a job’s perspective, fewer shifts precede retrenchments and skills training

The solution? “To stimulatedemand for local goods, via preferential procurement, protecting local indus- tries throughmoreassertive tradepolicies andsupport for localisation initiatives such as Proudly SA.” Simply put, this leads to greater investor confidence, more jobs and training, higher levels of disposable income and increased demand. But investment will not take place “if demand side policies do not dovetail with supply side policies…and current demand from local consumers will not create impetus for growth.” SouthAfrica, DeRuyter believes, “needs amacroeconomic environment that facilitates more capital investment in local manufacturing.” Showing a matrix of possible initiatives, organised under the headings: Government incentives and sup- port; Regulatory and policy interventions; andPrivate sector counter-performance requirements, he says that, while the goal is to persuade the private sector to invest innewcapacity, this comeswith responsibilities: job creation; a commitment to remain invested; and to support black industrialists at scale. From the Regulatory column he lifts out a sugges- tion for government to ‘consider a super-ministry to drive industrialisation – SA’s Ministry of International Trade and Industry – which would offer a less fragmented approach to theendeavours of theministries currently involvedinthisarea:TradeandIndustry(dti),Economic Development (EDD); Small Business Development; Finance and Public Enterprises. Other policy suggestions include: proactive trade policies; using regulatory levers; private sector partici- pation in SOCs; reconsidering proposed disincentivis- ing taxes; and better support for black industrialists. And, most notably in the incentives and support column: a favourable tax rate of 15% for existing and new business in designated industrial areas. Concluding, De Ruyter reveals that the Manu­ facturing Circle, in collaboration with industry asso- ciations, has launched an initiative to create a million new jobs in the manufacturing sector in South Africa. “We are currently identifying: first, investments that could be made by manufacturing firms and; second, what needs to be resolved, unblocked or addressed in order for these investments to take place,” he says. A long overdue process that deserves all of our support. q

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2 ¦ MechChem Africa • July 2017