If the US model is anything to go by, the path to South African economic recovery lies in greater productivity through more flexible labour laws, and exploitation of the energy reserves currently lying in the Karoo.
At a Frontier Forum seminar hosted by the IDC and Deloitte professional services group this week, president and CEO of the Ford Motor Company of South Africa Jeff Nemeth says that the US over the past five years had successfully achieved exactly what South Africa wishes to accomplish: re-industrialisation. Nemeth says South Africa already had all the tools it needed to accomplish the same feat as the US.
“The US achieved its re-industrialisation using just two tools: greater productivity through labour flexibility and a lower cost of energy through fracking. South Africa has the option to do the same: introduce more flexible labour laws and exploit fracking in the Karoo,” says Nemeth.
Deloitte is the thought leadership partner of Frontier Forum, and Deloitte Africa Manufacturing leader and director Karthi Pillay says the future of manufacturing globally “will be about technology-led manufacturing, most likely heavily influenced by disruptive innovations using big data – like driverless cars, 3D-printing as a form of manufacture and telematics”.
In contrast, government’s National Development Plan (NDP) and unions alike are intent on protecting and creating low-skill, low-pay jobs that will simply be economically irrelevant ten years from now.
The speakers were part of a panel from business, government and labour that was discussing the way forward for manufacturing in South Africa.
“Future jobs in successful economies will be high-tech jobs, not low-tech. To this end, Deloitte is globally spending time working with leading universities, and the public and private sectors in various countries to understand and shape the future of manufacturing, and what this means for local economies such as South Africa,” says Pillay.
The NDP calls for the halving of unemployment to 6,5% by 2030, requiring the creation of 11-million jobs, of which a considerable number will have to come from low-skill, minimum pay public works projects. Trade unions are simultaneously looking at protecting existing low-tech manufacturing jobs. A shift to high-tech manufacturing would not be achieved by the model currently being pursued in South Africa, one of social dialogue to find answers.
Coenraad Bezuidenhout, director of the Manufacturing Circle, says social dialogue was of “little value in transforming South Africa’s economy as it only solidifies the positions adopted by the government, business and labour”.
Martyn Davies, forum facilitator and CEO of Frontier Advisory, says the country at the moment “was in a negative head space, a fractious environment of low trust between stakeholders” which had resulted in an precipitous decline in the country’s manufacturing capacity as a percentage of total gross domestic product.
Initially, during 1994-2003 the value-added manufacturing component of the economy declined on average by an annualised rate of 0,76%, accelerating sharply to an annualised loss of 5,2% during 2004-2013.
“The NDP talks of industrialising: 20 years ago we were industrialised, and today the NDP calls for re-industrialising, something that has never before achieved by any developing country, and not only that but to industrialise at the bottom end of the value-adding chain with low-skill jobs,” says Davies.
Where other countries such as the US and China were retooling their industrial economies, it was towards high-tech jobs and services.
The dialogue between government and labour regarding low-tech industrialisation was consequently becoming increasingly irrelevant, even were it to produce any action plan.
While seemingly endless talk-shops were being held, other African countries were fast closing the business competitiveness gap on South Africa for those low-skill industries – something which had speeded up since the labour strike deaths at Marikana.
Raymond Padayachee, Siemens head: Industry and Manufacturing Sector for SA and Africa, says: “Last year in the mining sector, global mining houses invested $20-billion into African mining ventures – of which zero came to South Africa. Dialogue becomes focused on short-term issues and misses long-term trends which are about creating sustainable employment opportunities for skilled people.
“The way to compete globally is to replace unskilled work with mechanisation so that we can move up the value chain with more skilled jobs.
“We need to be looking at our competitiveness on a global stage – not looking internally at the South African market. However, the education system is not producing the skills we need to achieve high value-add.”
The panel also included Jonas Mosia, co-ordinator of industrial policy for the Congress of South African Trade Unions, and Nizam Kalla, MD of Amka Products.
Leading the discussion was Nimrod Zalk, industrial development policy and strategy adviser at the Department of Trade and Industry, who says manufacturing in South Africa was in a long-term downward trend since the height of apartheid in 1975, with the brief revival during the years before the global financial crisis in 2008. This was entirely consumer driven, and had resulted in average indebtedness of households rising to a level of about 75%.
“Households cannot get any further indebted as a means of sustaining GDP growth – so we need to focus on the productive side of the economy, and as our domestic economy is too small to warrant the level of investment required this inevitably means we have to become far more export-focused,” he says.
Davies concludes: “For the South African economy to re-industrialise we are going to have to diversify and differentiate ourselves by focusing on what we’re good at.”