Toyota Wessels Institute for Manufacturing Studies manufacturing ambassador Professor Justin Barnes
Government needs to evaluate whether current industrial policy and black economic empowerment (BEE) are truly contributing to growth in the manufacturing industry, says Toyota Wessels Institute for Manufacturing Studies manufacturing ambassador Professor Justin Barnes.
Speaking at the Manufacturing Indaba on October 24, he questioned whether South Africa would be better off by designating the entire country as an industrial development zone, with a 10% corporate income tax rate and generous corporate income tax breaks for greenfield investments in manufacturing, for example.
He also suggested a change in BEE legislation in the manufacturing sector from equity-based BEE to skills development and enterprise development only. Barnes believes businesses should be unencumbered by who owns the capital, if manufacturing and investment is to grow.
The hard reality, he stated, was that BEE ownership rendered most businesses unsustainable.
Barnes also stressed the need to rebuild key State infrastructure with a focus on manufacturing – “we need more people working productively and less people receiving grants”, he emphasises – adding that this would need more functional infrastructure such as road, rail, ports and trade administration services to realise.
Not only was manufacturing at the heart of all high-growth economies, but it was also a force for good which ensured social upliftment when it prospered, Barnes highlighted.
He lamented the dire manufacturing value added (MVA) trajectory in saying that South Africa was essentially locked in a nongrowth manufacturing environment while the population increases every year. To stimulate the productive side of the economy, MVA growth must supersede that of population growth.
Barnes said South Africa’s manufacturing decline pre-dated the “lost decade” of State capture and Covid-19. He added that the decline could also not be explained simply by “middle-income trap” arguments and that despite masterplans and other initiatives, the South African manufacturing sector was in serious trouble, having lost capacity and capability.
The country desperately needed expansion and structural transformation of its manufacturing sector, he stated.
“Structural transformation is about building a competitive economy that participates effectively in global and regional value chains.”
There are, of course, the obvious recommendations to improve the manufacturing sector, such as improved government service delivery, reliable energy supply, sustainable water supply, increased safety and security, skills development, better access to capital, better transport linkages, digital infrastructure and compliance enforcement. However, Barnes advocates for a more contested improvement list, which includes new monetary policy, less government policy and regulation, more trade liberalisation, more government targeting of sectors – as it has done with the automotive sector, less taxes and more effective BEE, or different kinds of BEE.
In citing a foreign CEO of a multinational subsidiary in South Africa, Barnes quoted: “I have worked in many countries and South Africa is the only one where the government keeps bugging me to do more for them, and who keeps telling me how to run my business.
“In the other countries I was being asked by government officials to find out what more could be done to help my business grow and prosper, never to dictate what I should be doing, and South Africa wants more foreign direct investment?”
He also cited Finance Minister Enoch Godongwana's comments, from his book published in 2021, saying that the country needed an industrial ecosystem of firms with effective links to public institutions and dismantled barriers to entry, to allow a new system of accumulation to develop, which supported a more inclusive industrialisation path.