MANUFACTURING
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How important is the manufacturing sector to the South African economy? Manufacturing activities promote development as they boost the value generated in an economy by creating activity further along value chains, from raw materials to finished products. South Africa’s manufacturing sector remains one of the key contributors to directly impact employment. It remains imperative for key industry players to acknowledge the direct and indirect impact that manufacturing growth has on boosting economy-wide employment. The introduction of innovative technologies and methodologies in the manufacturing realm further increase productivity levels. In addition, manufacturing creates employment opportunities, boosts the skills of the workforce, reinforces the economy, extends developments into the wider economy, and tends to support social stability. Furthermore, manufacturing can contribute to provide a level of equilibrium between creating local competition for imports along with producing goods for export. A recent GDP report published by Statistics South Africa indicated that manufacturing currently accounts for just under 14% of the nation’s GDP. This equates to R386-billion of the
How did the sector fare in 2020? Negative growth rates in the volume of manufacturing production data were released by Stats SA owing to South Africa’s national lockdown occasioned by COVID-19 which had dire consequences on manufacturing output. Data reflects a deceleration by -16.3% in June 2020 compared with June 2019 which is concerning for local companies in both the metals and engineering cluster of industries as well as the broader manufacturing sector, especially given the need for key labour-intensive sub-industries to remain resilient for job creation and sustainability. The ban on alcohol sales had a destructive impact on the food and beverage division of manufacturing, while work interruptions and a decline in demand for steel were detrimental to facilities specialising in metals and machinery. However, despite a relative slowdown on a monthon-month basis, seasonally adjusted manufacturing production increased by 16.8% in June 2020 compared with 30.4% in May 2020. Stats SA stated that all 10 manufacturing divisions reported negative growth rates, although the metals and engineering sector, comprising the basic iron and steel, non-ferrous metal products and
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total economic value. Manufacturing is the fourth largest industry in South Africa, and within the sector, the food and beverages category is the biggest player, contributing 26% to the total manufacturing value added. Petroleum and chemical products are second, at 24%, followed by basic iron and steel at 19%.
SA MINING INDUSTRY SNAPSHOT
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he manufacturing sector accounts for just under 14% of South Africa’s GDP. In a bid to better understand the impact of the pandemic on the sector, Industry Snapshot chatted to Liz Hart – MD of Siyenza Events, organisers of the Manufacturing Indaba.
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By Nelendhre Moodley
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MANUFACTURING HIT HARD BY SECTOR PANDEMIC
JANUARY 2021
www.samining.co.za
metal products and machinery, saw the largest negative contributions, of 36.6%. The manufacturing outlook for 2020 is dire, especially given the need for companies to remain resilient against the backdrop of a weak economy that is additionally under constraint owing to the COVID-19 pandemic. The decline in manufacturing output remains a concern and such underperformance exacerbates the various obstacles confronted by local businesses in the diverse M&E subsectors, including a disruption of supply-chain activity since the advent of COVID-19. It remains critical for policymakers to focus on demand-side measures aimed at increasing demand, and accordingly, production for local businesses. What are some of the key challenges that the sector has faced, especially those companies related to the mining sector? The key contributing factors directly impacting South Africa’s manufacturing sector, especially companies related to mining, include the following: Political instability and insecurity. State capture, corruption and mismanagement. Infrastructure constraints. Low productivity (cost of manufacturing). Lack of skills development. Negative perceptions of potential investors. COVID-19 pandemic. Volatile exchange rates. Moody’s downgrade. Unreliable electricity supply. Weak demand.
