Decisive action is required to arrest the decline in South Africa’s manufacturing competitiveness and the contribution of the sector to growth and job creation, the inaugural domestic derivative of the 2013 Global Manufacturing Competitiveness Index asserts.

The country slipped two places from 22 to 24 between 2010 and 2013 in the 38-country global index, compiled by Deloitte Touche Tohmatsu and the US Council on Competitiveness. China, Germany and the US top the index, which was propped up by Greece, Ireland and Egypt.

The South African survey, which was released on Monday, also forecast that the country was poised to fall further in the coming five years, owing to a range of constraints, ranging from chronic skills shortages, through to low labour productivity and rising input costs.

The local survey, which was compiled separately by Deloitte, in collaboration with the Manufacturing Circle, indicated that the 76 domestic manufacturers surveyed were losing ground on a range of indicators.

The enterprises were involved in a diverse cross section of activities and varied in size from firms turning over less than R100-million a year and employing about 100 people, through to large companies with revenues exceeding R10-billion and employing up to 5 000 people.

The leading concern for local manufacturers emerged as the ‘cost and availability of labour and materials’ – a result that represented a marked deviation from the global survey, where ‘talent-driven innovation’ was perceived as the most pressing challenge.

Outgoing Manufacturing Circle chairperson Stewart Jennings said the nominal cost of labour was not the chief concern, but rather low levels of productivity and the lack of technical skills.

He added that there was also still union resistance to linking wage agreements to productivity indicators, which, coupled with a lack of industrial peace, was a key concern for industrial investors.

Deloitte’s South Africa manufacturing industry leader Karthi Pillay said there was an urgent need for government, business and labour to deliberate on ways to reverse the current deindustrialisation trend, as well as to deal with the underlying causes of the country’s declining manufacturing competitiveness.

The sector’s contribution to gross domestic product had fallen from a peak of 22% in the 1980s to below 12% currently.

Pillay reported that Deloitte planned to follow up the release of the ‘Enhancing Manufacturing Competitiveness in South Africa’ report with an effort to facilitate a stakeholder colloquium, where possible remedies could be discussed.

Besides industry’s labour-market concerns, the survey found that domestic manufacturers were also anxious over local market attractiveness; energy costs and policies; economic, trade and tax systems; and the adequacy of physical infrastructure.

By contrast, respondents to the global survey ranked energy costs and policies only seventh in the factors affecting their competitiveness, while placing emphasis on talent-driven innovation and economic, trade and tax systems, which ranked first and second respectively.

Deloitte’s strategy and innovation director Mike Vincent argued that, besides a proactive engagement between the social partners on the key productivity constraint, other important considerations related to education, incentives, industry collaboration and supportive incentives.

Manufacturing Circle executive director Coenraad Bezuidenhout concurred, arguing that incentives could offer critical short-term relief, while sustainable solutions were found to the issues currently undermining South Africa’s manufacturing competitiveness.