Data recently released by StatsSA shows that South Africa has technically entered a recession but a closer look at the data shows that the primary sector – that is mining and agriculture – is recovering, growing by 15 percent last quarter. This is because of global commodity prices improving, and the effects of the drought, which had crippled the agricultural sector easing.


So why is South Africa not growing in comparison with other developing economies, given the advantages they have of a sophisticated infrastructure and business capabilities many countries only dream of having?


Mainly because South Africa remains locked-into global markets as a primary commodity exporter and often finds itself vulnerable to lower commodities demand. Which accounts for the poor performance of economies such as Russia, Brazil, and Nigeria and of course South Africa. Economies that have maintained a higher and fairer growth, and that have proved more resilient in the recent global downturn, are those with more diversified economies and higher levels of manufacturing value added, whereas South Africa’s manufacturing value added as a percentage of GDP is around 12 percent.


Yet in the high technology exports, the substantive differences are most exposed. As a percentage of manufactured exports, high technology goods make up only 4.5 percent in SA compared for example to 43 percent in Malaysia, and 26 percent in both China and South Korea. Which is attributed to government support in areas of R&D, technology development, industrial policy, export incentives and logistics efficiencies, and private investment in R&D and venture capital funding.


Thus affected by mounting consumer headwinds, including rising interest rates, depressing employment prospects, weak global trade activity and in the face of rising input costs which will only further repress South Africa’s manufacturing growth, the country’s manufacturing is falling behind some other key sectors needed to help keep South Africa’s economic engine throbbing.


Yet despite these manifold challenges, the manufacturing sector continues to occupy a big share of the South African economy. Employing 1.6 million people and enduring as a critical catalyst for stimulating growth in other sectors and is dominated by industries such as agro-processing, automotive, chemicals, information and communication technology, electronics, metals, textiles, clothing and footwear.


South Africa has in fact been de-industrialising since the Apartheid era when manufacturing was capital and energy intensive and dominated by six large conglomerates and state-owned enterprises, (SOE’s). This coupled with an incoherent tariff policy mean that the economy boomed on the back of its manufacturing base. With a large contributory factor in the eventual decline of South Africa’s manufacturing sector having been the Apartheid government’s inability to diversify its manufacturing base.


This having been primarily rooted in infrastructure and mining mega-projects. Which boosted the fortunes of engineering and related sectors. Post-1994, however, there has been a lamentable continuation of the countries old industrial path. The focus remaining on commodity manufacturing and those sectors focussed on intermediate manufacturing inputs, although the few non-commodity manufacturing successes include the automotive sector, and the machinery and equipment sector.


Therefore the manufacturing sector in South Africa finds itself at an inflexion point with a manufacturing industry that has been in a state of decline for many years, facing challenges around productivity, costs, labour issues, skills shortages, efficiency and new technology. So whilst there is no specifically identifiable area that is the core problem, addressing each of these and moving towards a more diversified manufacturing sector will make sure that growth can continue to happen. With strategies employed including: localisation, strategic trade policy, an aggressive export-driven manufacturing outlook and a stronger push by the government towards greater regional economic integration.


And given South Africa’s proximity to the rest of Africa, this also serves as potentially major boon for the sector. The continent is the fastest growing region in the world, thus South Africa must grasp the opportunity to supply the continent. As albeit from a low base, South Africa’s diversified export growth to Africa has far outstripped the growth of manufacturing export to the European Union and this can be expanded over an extended period.


So along with these challenges, there are huge opportunities, and if industry leaders can overcome these hurdles and seize the initiative in the arena of technological transformation, South Africa has the wherewithal to become the manufacturing hub on the African continent.


Yet the manufacturing sector continues to grapple with the following challenges: low productivity, compared to international competitors, especially China and Germany, High input costs, labour costs and efficiency, all rendering the South African manufacturing sector relatively uncompetitive. Plus a lack of alignment between government and the manufacturers, particularly on how best to promote growth in the industry, and address an acute shortage of skills at all levels in the industry.


However, the biggest shift that SA’s business leaders in manufacturing are contending is the move globally from traditional manufacturing practices – which were labour intensive and required low technology – to models embracing the latest technological – especially digital – advances. These recent models need skill sets, which are in short supply in domestic manufacturing.


What policy interventions does South Africa need to drive the growth of manufacturing?


South Africa’s first formal government intervention came with the Industrial Policy Action Plan (IPAP) in 2007, which used a wide range of instruments and was aimed at stimulating several key sectors via economy-wide policy interventions. Yet there remains a pressing need for continuous engagement of key stakeholders in the sector across manufacturers, labour unions, government and private sector to create a favourable investment climate the necessary for manufacturing growth.


Skills development programs, benchmarked to international standards, and moving unskilled labour up the value chain, a diversified export-driven manufacturing sector, and forward thinking by the government with enhanced targeted planning and implementation are also vital policy considerations. South Africa’s industrial policy needs to make sure that manufacturing today can sustain large-scale industries as was initially envisaged by the Industrial Policy Action Plan (IPAP). Whilst also creating more demand in the economy which will be another important element of this.


The future of manufacturing in South Africa will also have to compete on a global scale whilst leveraging regional opportunities. Whilst automation will also be essential for creating further capacity for effectiveness. In manufacturing economies of scale matter as South Africa lacks the market size to sustain large-scale manufacturing activity but with Africa as the next economic frontier and Pan-African infrastructure projects – those related to transport – will all be pivotal for the sector.


In sum, the government needs to take a long-term view on its goals and objectives in the manufacturing sector. As South Africa’s competitiveness is what will drive growth. Directing objectives towards a more innovation-driven sector will be crucial. A much more focused and coherent plan is needed to tackle the structural weaknesses along with a more dynamic understanding of the manufacturing sector demanded to tackle and allow for more coordinated interventions.