The time was ripe to review South Africa’s monetary policy, which was cited as one of the main challenges facing the country’s manufacturing sector, Manufacturing Circle executive director Coenraad Bezuidenhout said on Wednesday.

At a manufacturing CEO breakfast hosted by the Black Management Forum and State-owned Transnet, in Sandton, he stated that the country’s monetary policy should be adjusted to support government’s Industrial Policy Action Plan, the National Development Plan and the New Growth Path, which all prioritise manufacturing.

“The problem with our current monetary policy regime is that it is too narrowly focused on inflation targeting. In terms of our economic and social circumstances, inflation targeting remains important, but it cannot be the only thing you look at if your aim is to grow the productive sectors of the economy, because it results in higher interest rates,” Bezuidenhout put forward.

After 1994, there had been significant expansion in the local manufacturing sector, as markets opened up and investment increased; however, after 2005, growth started to contract again. This was attributable to infrastructure challenges, unfavourable macroeconomic policies and the exacerbated global financial crisis.

The result was a marked decline in the contribution of manufacturing to South Africa’s gross domestic product (GDP), which was about 15% in 2010 and 2011, down from about 22% in the early 80s when mining was also at its strongest in terms of its contribution to GDP.

However, South Africa had historically been viewed as an attractive manufacturing destination, owing to its relatively low labour and electricity costs, which was no longer the case. Impacting on local manufacturers’ competitiveness was their inefficiency, as well as the producer price index, which registered an 81.4% increase from 2002 to 2012, coupled with a 232% increase in electricity costs, while the rand had basically remained flat, explained Bezuidenhout

“We need to rethink where we are going and how we are going to get there,” he warned, adding that the manufacturing sector, which currently employed about 1.7-million people in South Africa, could play a central role in alleviating the country’s high unemployment.

He noted that research done by the Manufacturing Circle two years ago suggested that, if manufacturing continued to grow at a yearly rate of 3.4% over the next ten years, the sector could add at least 158 000 jobs and, if it grew at a yearly rate of 10%, it could add almost half-a-million jobs to the economy.

Weighing further on manufacturing demand was the housing sector, where growth in mortgages had declined and flattened in recent years, as consumers were not building or upgrading their homes.

Meanwhile, imports and exports in South Africa have decoupled since January last year, with increasing imports and decreasing exports placing the manufacturing industry under increasing pressure and making it difficult for local manufacturers to compete.

Bezuidenhout said exports were declining as a result of poor demand, while South Africa’s openness in terms of trade was boosting imports.

“The South African market is much more open than that of its Brics partners…this must be equalised, which will require bold political moves,” he stated.

Over the last couple of years, China’s exports into South Africa had significantly exceeded that of Germany. Bezuidenhout pointed out that South Africa had an established partnership with Germany, which had made notable investments in developing manufacturing capacity in South Africa.

South Africa’s much more one-sided relationship with China needed to be rectified, he added.

Export growth from China to South Africa reached a monthly average of about $78-million in 1999 and currently stood at about $1.7-billion. This growth has had a particularly negative impact on products such as automotive and architectural glass, as well as paper and steel products.

Bezuidenhout said there was ample opportunity for South Africa to expand its manufacturing sector, especially in terms of metal parts and components, automotive components, rubber and plastics, pipes and processing equipment.

Meanwhile, he highlighted that the announcement by the Transnet National Ports Authority last month of a 49% decrease in port tariffs for South African exporters of manufactured goods would benefit the economy.

TRANSFORMATION

A snap survey conducted by Bezuidenhout on 15 of the Manufacturing Circle’s members, showed that roughly one-third of the members were Level 3 black economic-empowerment contributors, almost one-third were Level 4 contributors, while one company was a Level 5 contributor and another one-third represented Level 6 and 7 contributors.

He noted that the majority of the Manufacturing Circle’s members expected to be Level 4 contributors or higher by 2015.

“There is good performance in terms of corporate social investment, economic development and preferential procurement, but the more challenging areas are ownership, management and control.

“Although there are some black players in the sector, we need more such players to invest in manufacturing. Admittedly, it is not easy in the current environment, especially with low demand and the inherent challenges we face in South Africa,” Bezuidenhout said.