Manufacturing growth trapped in caution-deferment cycle

AS BIG business sets out to prove it’s not on an investment strike, there’s a burning question related to job creation: if South African companies are in fact investing, where are the jobs?

Business Leadership South Africa’s (BLSA) 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.

According to the report, the median employment level of BLSA members last year 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 two million people were employed last year – 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.

While business seeks to prove that investment continues to flow in, job creation remains lethargic. At 27.7% by the narrow definition, unemployment is at a 14-year high and is expected to yet increase.

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 R905-billion, 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 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 – though daunting given the current economic conditions.

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% this year and since 1989, the sector has shed more than 500 000 jobs.

De Ruyter said: “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.”— DDC