Manufacturing is the production of goods on a large-scale using machinery. It helps in the development of any economy. Chronic unemployment is a major problem in many African countries, therefore, the manufacturing sector is very important in many economies as it leads to creation of jobs, provision of goods and creation of revenue for the economy, through taxes.
According to Nimrok Zalk(2014), manufacturing is the core driver of GDP growth and direct employment in South Africa. It also continues to be heavily dominated by resource-processing sectors that are capital and energy-intensive. The sectors include; Agriculture, which is mainly cattle and sheep farming, and contributes to 4% of South Africa’s GDP (Brand South Africa), Automotive, Electronics, Metals, Textiles, clothing, and footwear.
From 1935-1973, the government of South Africa pursued an active policy of import substitution to stimulate domestic manufacturing and state investment in key sectors(Geoffrey E. Schneider, 2000). Since then, the total contribution of the manufacturing sector towards the country’s Gross Domestic Product has been declining to 10.6% in 2016 up from 18% in 1975. This is because South Africa is rapidly becoming a services-led economy. Services such as government services, personal services, and financial services among other services, contribute to around 70% of the country’s Gross Domestic Product. Furthermore, there has been an increase in employment in the services sector as compared to the manufacturing sector. The services sector has accounted for 78% of economic growth over the years(Haroon Bhrat &Christopher Rooney, 2017).
South Africa’s manufacturing sector has been stagnating because of shortage of skilled an inadequate supply of cheap labour as compared to other countries such as China , India, and Indonesia. Furthermore, since China joined the World Trade Organization in 2001, there has been an increase in bilateral trade between China and South Africa. This however, impacted production and employment in the manufacturing sector. South Africa exports raw materials to China, while China imports manufactured goods to South Africa. This has reduced the manufacturing output in South Africa. Employment has also been affected, in that there were approximately 500,000 job losses in the manufacturing sector by the end of year 2014.
Recently, the utilization of production capacity in South Africa’s manufacturing sector reduced from 80.3% in August 2019 to 72.9% in August 2020. This increased under-utilization of production capacity to 27.1% in August 2020, up from 19.7% in August 2019. This was caused by a shortage of raw materials, shortage of skilled labour and insufficient demand among other reasons, according to a statistical release from the department of statistics in South Africa. The table below shows how production capacity in various manufacturing divisions has been utilized, between August 2019 and August 2020.
Utilization of production capacity generally decreased in all manufacturing divisions in August 2020 but there were significant decreases in utilization of production capacity in various divisions such as; i)electrical machinery with a decrease of 16.0%, ii)motor vehicles, parts and accessories and other transport equipment with a decrease of 15.5%, iii)textiles, clothing, leather and footwear with a decrease of 11.6%, iv)wood and wood products, paper, publishing and printing with a decrease of 10.1% and v) basic iron and steel, non-ferrous metal products, metal products and machinery with a decrease of 9.6%. These significant decreases were caused by reasons such as downtime due to maintenance and changes in productivity.
The increase in under-utilization of production capacity reduced manufacturing production by 11.1% in August 2020, as compared to August 2019. However, in September 2020, one month later, manufacturing production increased by 3.2%. This is because there was an increase in contributions made by divisions such as; i) basic iron and steel, non-ferrous metal products, metal products and machinery, ii) petroleum chemical products, rubber, and plastic products, iii) motor vehicles, parts and accessories and other transport equipment with a decrease of 15.5%, iv) food and beverages, v) wood and wood products, paper, publishing, and printing.
Manufacturing sales also increased by 3.7% in September 2020 compared to August 2020. The largest contribution was made by the food and beverages division, which contributed 1.2 percentage points to the total contribution. By November 2020, manufacturing production had increased by 8.9% due to an increase in contributions from various divisions such as; i) Food and beverages, ii) motor vehicles, parts and accessories and other transport equipment, iii) basic iron and steel, non-ferrous metal products, metal products and machinery, iv) )wood and wood products, paper, publishing, and printing.
According to the South African Market insights, the country’s large manufacturers recorded a decline in their total income earned of -10.6%, by 31 March 2020. Moreover, profits on assets sold or revalued declined by 40% over the course of the year 2020. Such a big decline affected the balance sheets of the firms. These large firms are also struggling due to lack of demand for manufactured goods, unreliable power supply and continued use of imported products instead of locally manufactured goods. This has greatly affected the manufacturing sector in South Africa. The country, however, still seeks to achieve structural development and to increase competitiveness of South African manufacturing. South Africa has become the primary manufacturing hub for many car and truck companies. 84% of all motor vehicles produced throughout the African continent are manufactured by South Africa. The manufacturing sector in South Africa still plays an important role in the growth and development of the economy through creation of jobs, production, and exportation of goods.
Melyn Atieno. Strathmore University of Mathematical Sciences Writer at Cue Africa Email: email@example.com LinkedIn: Melyn Were