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May 25, 2012

Uphill battle

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Europe|Malaysia|South Africa|South Korea|Thailand|Gross Domestic Product|Manufacturing|Manufacturing Businesses|Manufacturing Output|Manufacturing Sector|Rob Davies
europe|malaysia|south-africa|south-korea|thailand|gross-domestic-product|manufacturing|manufacturing-businesses|manufacturing-output|manufacturing-sector|rob-davies
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As if one were needed, South Africans were given another reminder recently about the poor state of health of its manufacturing sector.

Despite warnings that the output improvements of January and February might not be sustainable, it nevertheless came as something of a shock to learn that manufacturing output fell by 4.3% month-on-month in March, and by 2.7% year-on-year.

The performance represented a sharp deterioration from the 4% year-on-year growth reported in February and was also well below market expectations of 3.3% growth.

Moreover, the output decline was broad based and also came against the backdrop of forward-looking indicators suggesting that the feeble March performance was likely to continue into April and possibly for much of the rest of the year.

Weak demand from Europe and slower growth in some emerging markets are likely to undermine export sales, while domestic demand is unlikely to shoot out the lights, particularly in the current gap period between government’s infrastructure promises and actual delivery.

In many ways, South Africa’s manufacturing sector is not a million miles away from where it was prior to the 2009 recession, which saw manufacturing businesses shed about 200 000 jobs.

Sadly, the current weakness is also part of a chronic problem, as Trade and Industry Minister Dr Rob Davies pointed out again last week, when unveiling a much-needed new nonsector-specific incentive for manufacturers.

The contribution of manufacturing to the total output of the South African economy has been falling since the mid-1970s. In 2011, the sector contributed 14.6% of gross domestic product (GDP), well down from its 21% GDP contribution in 1977.

In an effort to reinforce the importance of manufacturing to South Africa’s future employment and growth prospect, Davies also offered a sobering comparison between the performances of South African manufacturers and those in fast-growing Asian economies.

“In 1977, manufacturing made up 23.65 % of output in South Korea and, by 2010, this figure had grown to 30.6%,” he noted. In Malaysia manufacturing output made up 19% of output in 1977 but had risen to 26.1% by 2010. Similarly, in Thailand, the figure was 20% in 1977 but, in 2010, it stood at 35.6%.

Davies argued further that “no developing country has prospered in the last three decades with an industrial sector that has shrunk as much as ours”.

Few would disagree. However, despite the much-needed attention now being given to reviving the sector, along with some resources, the jury remains out on whether enough is truly being done to reverse the fortunes of manufacturing. Unless this deindustrialisation trend is reversed, South Africa’s growth and employment prospects will be under pressure.

Edited by: Terence Creamer
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