Sector Overview : Manufacturing

Reindustrialising South Africa: Manufacturing is On The Recovery

by Koketso Mamabolo

With one of the biggest economies on the continent, supported by an established network of infrastructure and ports of entry, it’s no wonder South Africa’s manufacturing industry employs over a million people, recording sales of over R2-billion in 2021.

The Fall and Rise

According to Statistics South Africa, general manufacturing sales (at current prices) in 2021 hit a five-year high after falling to a low not seen since 2016. The COVID-19 pandemic was a massive blow to the sector, which resulted in sales dropping by 11% in 2020 due to low economic activity. The sector made a spectacular recovery in 2021, with sales rising by a staggering 16%.

The pandemic may have hurt the local industry but it did not change how important it is to the South African economy. Almost half of the total export earnings in 2020 were from manufacturing, and in that same year, it contributed 13% to South Africa’s GDP.

As 2022 draws to a close, monthly sales up to July suggest that this year could see the sector performing even better. Sales in all seven months have surpassed those of the same months in the previous, with January recording a 13.4% increase in sales year-on-year, closely followed by 12.2% in February. The growth slowed in April, May and June, dipping below 10%, before bouncing back to 11.6% in July.

Gross Earnings Paid To Employees

• R74 478 000 in June 2021

• R77 765 000 in June 2022

Employment In The Manufacturing Sector

• 1 170 000 total employees in June 2022

• 1 094 000 full-time employees in June 2022

• 76 000 part-time employees in June 2022

Powering Renewable Energy

The electro-mechanical manufacturing sub-sector is likely to rise in sales in production as South Africa accelerates towards a renewable energy supply in the coming year. All three aspects of the energy pipeline - generation, transmission and distribution - will require electro-mechanical firms to ramp up production to meet the demand.

Electrical Machinery Manufacturing Production

• 15.5% increase year-on-year in February 2022

• 1.6% increase year-on-year in July 2022

Electrical Machinery Manufacturing Sales (July 2022)

• R5 864 000, 14.6% year-on-year increase

Untapped Potential

While presenting a report for Proudly SA, Pan African Investment and Research Services economist Dr. Iran Abedian highlighted the potential the industry holds: “Manufacturing in South Africa, given the structure of our economy, has a positive multiplier effect to the tune of 1.3 times because if you inject 10% into manufacturing, the total economy is better off 13%. So for every rand that you inject into manufacturing investment, you're going to get R1.30 back.”

Dr. Abedian noted that this potential will require the private and public sectors to each play their roles, in an industry that has become more capital-intensive over the years. This relationship will be a key driver of reindustrialisation.

“The success of South Africa’s reindustrialisation rests on an effective partnership framework within which the public sector implements a well-coordinated, intergenerational infrastructure provision programme while the private sector in diverse industries focuses on industry-specific dynamics,” said Dr. Abedian. “Sufficient investment in any sector, including manufacturing, is a necessity for sustainable growth and development,” reads the report. “Gross fixed capital formation has shown to be an important driver of economic growth in South Africa.”

The report touches on the need for the manufacturing sector to adapt to the limitations created by the urgent need to address climate change and rising energy costs. “The growing concerns for environmental sustainability, the rising consumer awareness about the significance of reducing carbon footprint for all goods and services, and the escalation in the cost of energy in all its forms are but a few examples of the constraints within which global manufacturing needs to redefine its operations.”

In March, sales were at the highest of any month in the past seven years at over R260 billion. This is in line with the trend over the last two years where new ceilings have been set, and sales only dipped below R200 million in only two of the previous 19 months. While the outlook has not always been positive, things are certainly looking up for one of South Africa’s key sectors.

Sources: Stats SA | Engineering News | Proudly SA