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SA, BRIC economies take manufacturing hit

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While South Africa is still seen as the most competitive manufacturing country in Africa, it is losing momentum when compared to global leaders China and others.

China was ranked as the most competitive country with South Africa coming in at 27th position, a drop of three places since 2013. The US, Germany, Japan and South Korea rounded off the top five.

This is according to the findings of the Deloitte 2016 Global Manufacturing Competitiveness Index (GMCI), a study conducted every three years and designed to help global industry executives and policy makers evaluate drivers that are key to company and country level competitiveness. It also identifies those nations expected to offer the most competitive manufacturing environments until 2020.

The difficult manufacturing environment is mirrored by the remaining BRIC countries (Brazil, Russia, and India) who experienced a significant decline in the rankings over the last few years. Brazil (29th) experienced the steepest fall from eighth position in 2013 with Russia down from 28th to 32nd. However, it is anticipated that India will improve its rank from 11th this year to the number five spot by 2020.

“Globally, we are seeing manufacturing-related activities evolving very quickly to match the advances in technology. This is seeing countries increase their focus on developing advanced manufacturing capabilities by investing in high-tech infrastructure and education,” says Mike Vincent, Africa industrial products and services sector leader at Deloitte.

In this environment, there is a convergence of digital and physical with advanced technologies becoming an essential driver to remain competitive. The study has found that technology-intensive sectors dominate the global manufacturing landscape in most advanced economies and offer a strong path to achieve or sustain manufacturing competitiveness.

Advanced technologies such as predictive analytics, the Internet of Things, and smart products and factories will be instrumental in unlocking future manufacturing competitiveness. However, despite the necessity for a technology-driven approach, talent is still considered to be the top driver for manufacturing competitiveness.

“A focus on creating differentiated talent acquisition, development and retention strategies to be regarded as employers of choice, as well as identifying and nurturing new models of collaboration that leverage key sources of talent outside of the organisation will be key.”

However, manufacturers also consider cost, productivity, and a good supplier network as vital components to remain competitive.

“In an era of sluggish economic growth, containing costs and increasing productivity to boost profits remains critical, alongside building a strong network and ecosystem of suppliers. This means adopting more innovative strategies aimed at embracing a broader ecosystem approach. Developing and taking advantage of integrated manufacturing and technology clusters and partners will be a growing imperative going forward.”

Governments are also becoming aware of the significant benefits a manufacturing industry provides to national economic prosperity. Similarly, manufacturers understand the role government policy can play in their success.

“We are seeing many countries with unfavourable or overly bureaucratic manufacturing policies working to improve and reform these. They are also investing in greater economic development and strengthening the overall manufacturing infrastructure.”

In Africa, Kenya has been very aggressive in industrialising its economy and reducing the bureaucratic burden on industry – resulting in a significantly more competitive environment. Meanwhile, executives throughout the US, Europe, and China have indicated that there are a number of favourable policies around key elements of manufacturing competitiveness. Those policies that are specifically focused around the areas of technology transfer and science and innovation are geared towards encouraging manufacturers to use advanced technologies.

“While the signs are already there, the rest of this decade will see manufacturing-related activities evolve rapidly. Earnings and exports are stimulating economic prosperity resulting in countries increasing their focus on developing advanced manufacturing capabilities by investing in high-tech infrastructure and education.”

This drive to progress to these advanced technologies is seeing a push at both a country as well as an organisational level. Unfortunately for Africa, a look at the top 15 countries in the index shows the formation of three distinct regional clusters of manufacturing strength.

In North America, the United States provides an anchor for both Canada and Mexico. It is a similar story in Europe where Germany plays the anchor role, and the Asia Pacific cluster where China, Japan, and South Korea are leading a group of emerging Southeast Asian nations.

“Executives surveyed clearly expect the most competitive nations in the future to embrace a higher-value manufacturing paradigm characterised by the adoption of advanced technologies. In the wake of this transformation, the days when a country could establish a position of manufacturing dominance on the back of a single point of strength are decidedly gone. In fact, leading countries are taking a much more balanced approach to talent, cost competitiveness, and innovation to set themselves apart from the global crowd.”

According to the study, countries are increasingly incentivised to build strong, multi-faceted foundations that foster long-term manufacturing competitiveness in an attempt to insulate themselves from external forces. This focus toward the future has prompted several of the top ranked countries to develop policies that encourage investment in the creation of highly integrated manufacturing technology and innovation ecosystems involving national labs, supplier networks, universities, and private equity investors.

“The ongoing battle for global manufacturing supremacy belongs to those that prioritise a comprehensive innovation agenda to remain attractive to global companies, while also finding the right balance across a number of key drivers, including support for high value talent, cost competitiveness, productivity gains, supplier strength, and the maintenance of policy and regulatory environments that are conducive to global business requirements,” says Vincent.

“It is thus vital for South Africa to engage on how to steer manufacturing forward in light of the ailing industry environment and its great potential. The Kwa-Zulu Natal Manufacturing Indaba happening on 16 August 2016 is a platform to do exactly that, with KZN manufacturing being the 2nd largest after Gauteng,” he adds.