Introduction

Although still a sizeable component of the South African economy, the manufacturing sector has been performing poorly over the years. The country is in effect deindustrialising, with manufacturing’s contribution to gross domestic product (GDP) having decreased to a low of 12.90% in 2020 (IDC, 2021). At this level, its contribution to GDP is less than half of what is appropriate for a country at South Africa’s stage of development (Manufacturing Circle, 2017).

The decline in manufacturing over the past two decades has had detrimental impacts on the overall economy and on jobs. Manufacturing could generate significant employment, which is essential if South Africa is to tackle persistent inequality and high joblessness. The unemployment rate is currently 32.60% (narrow definition) and 46.30% (expanded definition) (Stats SA, 2021a). In the Covid-impacted year of 2020, total manufacturing production decreased by 11% – the worst performance since the 2009 global financial crisis – and all ten manufacturing divisions reported negative growth rates (Stats SA, 2021b).

The Manufacturing Circle, an association of corporate manufacturers, estimates that if manufacturing were to expand to 30% of GDP, between 800 000 and 1.1 million direct jobs could be created, with five to eight times that number in indirect jobs (Manufacturing Circle, 2017).

On a mission to craft a new growth-centred economic blueprint for South Africa, the Inclusive Society Institute (ISI) is engaging with different economic sectors to identify the reasons behind the country’s depressed growth performance and to provide a forum for innovative thought on forging a path of higher growth.

The ISI has held discussions with the financial sector and sought input from multinational funding institutions to gain an understanding of what policies should be pursued. This report focuses on the discussions that were held with representatives of the manufacturing industry.

The engagement showed that the automotive industry, which is the country’s biggest manufacturing sector, is generally content with its current state. The industry has for decades benefitted from consecutive industrial policy plans and detailed incentives programmes.

South Africa’s automotive sector is a centre of strength and technical know-how, which is highly integrated into global supply chains. Through industry associations, original-equipment manufacturers and component producers have made great strides in their collaboration with government.

However, the automotive industry, with its long history of substantial government support, is the exception and does not reflect the general mood among manufacturers. Acknowledging that the industry is diverse and that not all subsectors are as strong as the automotive sector, the report argues that there is a common thread that calls for a more a business-friendly environment, more flexible labour polices, improved education outcomes, more competitive inputs, and the fixing of municipalities, among others.