Lack of demand stifles job creation in manufacturing
As big business sets out to prove it’s not on an investment strike, there’s a burning question related to job creation: if SA companies are in fact investing, where are the jobs?
Business Leadership South Africa’s (BLSA’s) recent report, which sets out to dispel notions of an investment strike, shows that 57 of the organisation’s 77 members are among the biggest job creators in SA.
According to the report, the median employment level of BLSA members in 2016 came to 10,376. The largest employer had 110,500 people.
The direct effect on total employment was 1.29-million people, while indirect effects implied that an additional 2million people were employed in 2016 — an increase of 18,833 jobs from 2015. The largest losses in employment were in mining and construction companies, mainly due to the sales of operations.
But despite statistics that impress and evidence of investment, job creation remains elusive. While business seeks to prove that investment continues to flow in, job creation in SA remains lethargic. At 27.7% by the narrow definition, unemployment is at a 14-year high and is expected to increase in the coming quarters.
According to the BLSA’s recent report, most of the 57 members who participated in the report were classified under finance and business services, followed by manufacturing. These two sectors combined had a direct output effect of about R905bn, which made up 48% of the 57 members’ output effect of R1.9-trillion.
At the launch of the Map to a Million initiative on Friday at the Gordon Institute of Business Science, Manufacturing Circle chairman Andre de Ruyter said: “If manufacturing can expand to 30% of GDP, between 800,000 and 1.1-million direct jobs can be created, with five to eight times that are in indirect jobs.”
The Manufacturing Circle’s maths indicates that the task is possible if jobs are added in the sector at a compound annual growth rate of 5% a year, although this would seem daunting given the economic conditions in SA at present.
It’s also a mammoth task given the odds stacked against the sector. Since the early 1980s, manufacturing’s contribution to GDP has dropped from 24% to less than 13% in 2017, and since 1989, the sector has shed more than 500,000 jobs.
But it does pose a challenge for investment and feeds into the investment strike narrative. While business has given the assurance that it is not on an investment strike, the weak economic conditions place limits on investment.
“There will be a period where you won’t see new investments as we grow into this new role,” said De Ruyter. “There’s a sense of urgency here when we look at 27.7% unemployment.”
De Ruyter explained that the investment strike narrative was fuelled by the challenge that no one was going to build factories if there were no consumers who wanted to buy the goods made at those factories.
“The issue is that there is a lack of demand.
“We are trapped in this cycle where investments are deferred and postponed, which undermines investor confidence,” he said.
De Ruyter’s argument is that SA corporates are looking further afield into the rest of Africa, which he argued was much more attractive than the South African market.
Trade and Industry Minister Rob Davies warns that a lack of government policy coherence could hold up the initiative. Increasingly, manufacturing has been identified by key government individuals as the driver of economic growth and job creation including by Finance Minister Malusi Gigaba, Deputy President Cyril Ramaphosa and Davies.
Despite this, the government and business seem to be at odds once again, hampering SA’s opportunities for economic growth and job creation.
The real task will be for the government and business to band together to fill the everincreasing unemployment gap, which trade unions forecast will hit the 30% mark soon.
THE GOVERNMENT AND BUSINESS SEEM TO BE AT ODDS ONCE AGAIN, HAMPERING SA’S OPPORTUNITIES FOR GROWTH