With the Coronavirus prompting global investors to diversify their sources of product supplies, South Africa’s manufacturing sector presents them with a unique option. The sector is well-established, possesses advanced technologies to produce quality goods and is strategically placed to provide businesses with access to the rest of the continent.
Global environmental sustainability, green energy and emerging technologies such as artificial intelligence (AI), are high on the agenda at the Expo 2020 Dubai. Yet these concerns seemingly contrast the reality of global industry – one that is seen as possessing a wasteful manufacturing sector that exploits the planet’s resources and uses inefficient and dirty energy.
According to the Department of Trade, Industry and Competition (the dtic), South Africa’s well-established manufacturing sector presents numerous opportunities to potential investors looking to diversify their portfolio. The sector’s diverse industry means investors can pick the industries they wish to explore. Niche industries such as food processing, beverages, motor manufacturing and wood products have reached maturity and are ripe for foreign direct investment.
Despite the Coronavirus disrupting the economy, South Africa’s manufacturing sector contributed 13% to the GDP and almost 50% to total export earnings in 2020.In the same year, basic iron and steel products accounted for R65.9-billion (9.5%) and food production, R60.7-billion (7%). However, motor vehicle production proved to be the mainstay, valued at nearly R165-billion (23.7%).
It is clear where our strength lies. South Africa is home to some of the world’s biggest automotive manufacturers because of its ease of doing business, rule of law and reasonable labour practices. We also have strong original equipment manufacturers that produce quality parts and equipment, South Africa is considered to be playing a massive role where the auto industry increased production of electric vehicles. Our manufacturing sector has the advanced technology and infrastructure to help the world’s cars switch from fossil fuels to that of clean energy.
Ease of doing business
Investors interested in South Africa will find that there is an ease in doing business. However, government is always looking at ways to improve the business environment.
Some of the more effective measures include the InvestSA initiative and the dtic’s masterplans. InvestSA facilitates a business’ entry into the market and helps reduce the time it takes to establish itself. Its master plans – aimed at producers in the forestry, poultry, automotive, sugar, and steel and furniture industries – provide a framework for increasing output and jobs through a number of measures. The ease of doing business is one of the dtic’s top priorities, and these initiatives and plans help create an enabling business environment.
Intra-African trade a boon
The African Continental Free Trade Area (AfCFTA) provides South African manufacturers a new opportunity to increase the volume of trade with the balance of the continent. As it stands, more than 37% of goods made in South Africa are destined for other African countries.
The AfCFTA has been in the pipeline since the African Union adopted the Lagos Plan of Action in 1980. It sought to reduce reliance on trade with the West and develop intra-African trade. Member states agreed to establish the AfCFTA in March 2018, ratified it the following year and commenced trade in January 2021. AfCFTA will further develop the continent’s export market and strengthen regional value chains.
South African manufacturers, being an important source of products sold in the SADC region, will benefit from additional export opportunities under the AfCFTA. More than ever before, South Africa will be the springboard for manufacturers who want to expand across the continent.
The only barrier to harmonious intra-African trade is the poor transport infrastructure between major cities on the continent. Transporting goods from South Africa to other regions on the continent – be it by rail, road, sea or air – is still costly and time-consuming. Visa regulations among African countries also remain a challenge. *Africans have just 54% liberal access to other countries on the continent. Most of the transport infrastructure is not suitable for moving goods, tariffs at ports remain high and the difficulty in crossing borders continues to hamper business.
Reindustrialising South Africa amidst Covid-19
The Covid-19 restrictions have caused disruptions to global supply chains and has prompted companies around the world to diversify their sources of supply.
This presents the South African manufacturing sector an opportunity to position itself as an attractive business destination. The strategy fits in with government’s Economic Reconstruction and Recovery Plan (ERRP) as it aims to expand and diversify the manufacturing base, improve the sector’s global competitiveness and increase participation in regional and global markets.
Moreover, South Africa has the funding channels – such as banks and the development finance sector – to support large industrial projects. Industrial financing support such as government schemes, development finance and tax incentives, as well as the country’s 13 special economic zones (SEZ) can reduce project risks and raise returns on investment.
The government’s re-industrialising plans to modernise manufacturing and building green industries and emerging technologies are already underway. It is already developing an AI institute for advanced manufacturing. This would turn South Africa into a globally competitive player in the digital economy.
Government is also hastening development of township and rural enterprises for manufacturing, getting SMMEs to produce light and fast consumer goods, and encouraging them to participate in processing high-demand minerals such as chrome and ferrochrome.
It is reassuring to know that government is taking these steps not just for large industry but for SMMEs too. It is by time that we recognise the small business’ role in the manufacturing value chain.