South Africa’s multibillion–rand national infrastructure plan offered the only realistic short-term hope of reviving South Africa’s ailing manufacturing sector, which was unlikely to receive any relief from the troubled global economy for at least the coming three quarters. But Pan-African Research and Investment Services economist Dr Iraj Abedian said it was critical that implementation be visibly accelerated, or there was a real risk that the positive sentiments associated with the plan could be reversed.
Speaking at the release of the Manufacturing Circle’s first quarter 2012 Manufacturing Survey, Abedian said the infrastructure plan had the potential to inject life into the economy and pave the way for subsequent growth and development.
“But it is one thing to say, and create [positive] sentiment and expectation [around infrastructure]. It’s another thing not to do, which tends to reverse expectations and place question marks in front of the effectiveness of the plans.”
The survey, which is compiled using information garnered from 49 CEOs representing manufacturing enterprises with yearly turnovers of between R300-million and R10-billion, expected manufacturing value added is to shrink by about 0.7% during 2012. However, confidence levels were stable, which was attributed primarily to the anticipated workflow arising from the public infrastructure drive.
“The speed at which this moves is absolutely critical [especially for manufacturing].”
Speaking in Parliament, Finance Minister Pravin Gordhan said the Development Bank of Southern Africa’s new corporate plan had a “sharp focus on supporting implementation of national and regional infrastructure investment plans”.
“The bank has established firm partnerships with several national departments and continues to strengthen its role in provincial and municipal infrastructure development,” the Minister said.
Gordhan also noted progress being made by the Presidential Infrastructure Coordinating Commission and reported that the National Treasury had stepped up its capacity to assess and support major infrastructure programmes.
But he also noted that output growth in the first quarter had been slower than was forecast and described manufacturing production as disappointing.
Manufacturing Circle reported that production in the period grew by 1.9% quarter-on-quarter, but the value of domestic and international sales deteriorated.
The sector lost 64 000 jobs in the quarter, making manufacturing the second-largest shedder of jobs during the quarter. A total of 35% of the firms surveyed reported job losses during the three-month period, compared with 27% in the previous quarter. The immediate hiring outlook was also negative.
Respondents also highlighted the poor performance of municipalities as a key concern and a business inhibitor.
“Municipalities have become, increasingly, a source of instability and are undermining the economy,” Abedian argued, adding that in some instances poor local government service delivery had even led to the closure of small firms.
This negative effect arose as much from the surge in rates and taxes over the past five years, as to delays in the issuance of permits. He said municipal rates and taxes paid by his own consultancy, which is located in Johannesburg, had risen by 900% since 2008.
Lack of stable service delivery was also imposing costs, with many small businesses having to consider, for instance, the installation of back-up generators.
Some of the firms surveyed, however, also reported a tendency among large municipalities to replace local products with imports, which was undermining their business.
“The bulk of our economy, if not all of it, is under municipal governance. To the extent that municipalities are not improving despite their intentions and plans [to do so], is a cost to business,” he concluded.