South African Business 2016 edition

OVERVIEW Manufacturing

OVERVIEW Manufacturing Increasing manufacturing capacity is a national priority. South Africa has a sophisticated and varied manufacturing sector. Growth since 1994 has been led by the automotive sector, followed by resource-based manufacturing (Quantec). The latter sector includes steel, aluminium, petrochemicals, paper and pulp and non-metallic minerals. Among other important sectors are metals beneficiation (more than 50% of the world’s ferrochrome is produced in South Africa), coke and refined petroleum products, paper and paper products, and information and communication technology. Steel and petroleum collectively make up about 45% of South Africa’s total manufacturing production capacity. According to Stats SA, manufacturing production increased by 5.6% year-on-year in July 2015, driven mostly by a 39.6% yearon-year production rise in the automotive industry and a 17.4% year-on-year rise in the metals and machinery industry. These increases do not necessarily indicate high levels of production, but are largely a result of what economists term the “base effect”. The base effect describes the impact that abnormally high or low levels (in this case, levels of production) in a base month have on percentage change figures when compared with the most recent month. A base effect for output in the metals and machinery industry was also evident in July 2015 due to industrial action by NUMSA in 2014. Output slumped in July 2014, with a production index of 87.0, the lowest monthly production level on record (series starting in January 1998). The manufacturing sector accounts for approximately 15% of GDP. The sector employs the third most people, about 1.7-million, after financial services and retail. Three of South Africa’s most SOUTH AFRICAN BUSINESS 2016 90

important manufacturing sectors (automotive, food and beverages and chemicals) are dealt with in separate sections of this book. The latest component of national government’s master plan to attract investors to South Africa was unveiled in 2012 when the Department of Trade and Industry (dti) launched the Competitiveness Enhancement Programme. This programme targets medium-sized manufacturers and includes a cost-sharing grant of between 30% and 50% for investments up to R50-million and up to 80% on specific projects. South Africa aims to diversify its economy away from an over-reliance on the primary sector (mining and agriculture) towards a more varied economy in which increased capacity OVERVIEW in existing manufacturing sectors is coupled to the growth of wholly new areas such as alternative energy, biofuels and digital television. A key government initiative in this regard is the Industrial Policy Action Plan (IPAP) 2015/2016. Launched in May 2015, IPAP rests on the following pillars: Infrastructure-driven industrialisation to “ensure that the very substantial build programme supports local industrial development”, said Minister of Trade and Industry Rob Davies at the launch. He added that resource-driven industrialisation “aimed at leveraging the mineral resources endowment to support higher levels of downstream beneficiation and value addition, whilst systematically building up both the demand and competitive advantages South Africa enjoys in the upstream mining, transport and capital goods sectors. Advanced manufacturing-driven industrialisation in order to build an integrated system of industrial financing, incentives and export support—with a special focus on lead and dynamic companies that can compete effectively in export markets—encompasses a strong commitment to support emerging black industrial entrepreneurs.” Procurement, focused “on strengthening the localisation of public procurement, building on the lessons learnt through the implementation of various policy instruments over the past few years” Regional economic integration centred “on maximising the opportunities presented to the domestic economy by a growing market on the African continent, driven by high growth in the region, strong consumer demand, infrastructure development and resource exploitation.” IPAP 2015 designates 16 sectors, subsectors and products for local procurement, with the following added this year: transformers, power-line hardware and structures, steel conveyance pipes, mining and construction vehicles and building and construction. The Support Programme for Industrial Innovation (SPII), run by the Industrial Development Corporation (IDC) on behalf of the dti, promotes technology development in South African industry. SPII comprises three programmes: the Product Process Development, Matching schemes and Partnership schemes. The type of funding made available depends on the project size. In August 2014, The Department of Trade and Industry (the dti) launched the Black Industrialists Programme with the aim of creating 100 black industrialists over the next 3 years. The programme aims to support increased productive capacity, broaden black participation, achieve greater economic growth and employment in the manufacturing sector as espoused by the National Industrial Policy Framework (NIPF) utilising amongst others, Local (and Preferential) Procurement as a key lever to drive inclusive industrialisation. 91 SOUTH AFRICAN BUSINESS 2016