Manufacturing stimulus is vital
• No need for new special economic zones with settled areas such as Vaal Triangle available
Statistics SA said on Tuesday that unemployment was 26.5% in the last quarter of 2016. There had been a small fall in the total, with 44,000 new manufacturing jobs. However, the jobless number is still far too high.
Many young people have given up looking for work. From any number of perspectives, this is a crisis, and deserving of every bit of effort and attention that we as a country can throw at solving this problem.
Jobs cannot be created by legislation, however. They can only be created through growing our economy. And the employment opportunities we want are decent jobs that will contribute to social stability and cohesion through meaningful participation in the formal economy. These jobs can be created in the manufacturing sector, which at the moment is idling at 13% of GDP instead of revving at 30%, where comparative studies suggest SA should be performing for our stage of economic development.
If we could lift manufacturing output so that it does, indeed, account for 30% of GDP, we would give a major boost to the economy. Reversing the loss of close to 500,000 manufacturing jobs that has occurred since the early 1990s would be a first step. The Manufacturing Circle estimates that getting manufacturing to 30% of GDP would create close to 1-million jobs.
SA’s automotive industry has demonstrated that we can be globally competitive in manufacturing given the right regulatory structure and investment climate. Cars made in SA drive on roads all over the world. We need to replicate this success story across other sectors and it starts by making products consumers want to buy.
Indian Prime Minister Narendra Modi has realised that manufacturing is the key to growing his economy. His Make in India campaign puts focus and effort into attracting investors to set up shop in India. Trotting out the old mantra that SA is open for business is not enough to persuade international investors that we are the preferred investment destination.
So what is holding back South African manufacturing? Imports are one reason for the erosion of our manufacturing base and there is no shortage of examples where a boost in local manufacturing could not only reduce the volume of imports but give a boost to our exports as well. A recent statement by Department of Trade and Industry director-general Lionel October that SA is “naïve” to lower tariff barriers is spot on: there will always be a competing country where governments will give higher subsidies and where workers are prepared to work for lower wages.
So a race to the bottom to outcompete lowest-cost countries on an uneven playing field only leads to the decimation of your own manufacturing base and exporting of jobs.
Blunt protectionism is not the answer, but a carefully modulated import tariff structure, targeting tariff code evasion, quick responses to dumping and a full understanding of nontariff barriers, subsidies and support by their own governments for exporters to SA, will go a long way to helping local manufacturing to compete.
Raising a wall of tariff barriers to protect inefficiency and low productivity at the expense of the consumer clearly isn’t the way forward either.
Manufacturing in SA needs to invest in skills and machines to be globally competitive. It is my contention that the skills gap is not particularly severe at shop floor level, but rather at middle management. We need to get better at the hard-core skills of running a factory, planning production and optimising inventory, while meeting customer requirements.
The Department of Trade and Industry-led incentive scheme under section 12i of the Income Tax Act has been very successful in fostering investment in new productive capacity. Competing for scarce resources against other government priorities, however, has led to other incentive programmes, such as the Manufacturing Competitiveness Enhancement Programme (MCEP), to be suspended. The one thing investors crave above all is certainty and incentive programmes have to be sustained if they are to be effective.
Just as the fiscus giveth incentives, so it also taketh through taxes. While we understand that revenue is under pressure, the flurry of new taxes being considered (carbon tax, sugar tax, packaging tax) is not going to entice investment that, through job creation and company profits, enhances tax revenue in the long run.
When investments are made in new factories, billboards are put on lampposts, ribbons are cut and plaques are unveiled by dignitaries. When a factory shuts down it is very often not reported. Workers are paid severance packages, supplier contracts are terminated and products are imported from India or China.
And thus deindustrialisation happens. Not with a bang, but with a whimper. Driving through the Vaal Triangle, where job losses have been particularly severe, it is clear that the once proud home of some of our major industries is turning into a rust belt of disinvestment.
The government has published a policy on special economic zones (SEZs), which seeks to create new hubs where manufacturers can set up shop for exports. But what about stretching the concept to include the Vaal Triangle, where existing infrastructure is in place, where there is a large population of unemployed workers, where we already have schools, universities and hospitals and where we are on the doorstep of the biggest regional market in SA, Gauteng?
Work is already under way to prepare the groundwork for a Vaal Triangle SEZ. It’s one of the proposals being considered by the task teams set up by the Treasury to ignite job creation and growth. CEOs of large companies that have operations in the area have given their support to this initiative.
Lots more work is necessary, but this is not a moon shot; the taxpayer will not be asked to invest huge amounts in infrastructure in the middle of the veld, like an apartheid-era decentralisation policy.
Nor will years of work be required to build new roads, pipelines and railway lines. It’s already there and by and large it is not used to full capacity. What we need is the package of investment incentives under the act that will allow investors to create growth and jobs. We don’t think government should pick industries and winners. That should be left to the market. What government can do is to create the ecosystem in which business can set up factories. The SEZ policy provides the ideal vehicle for this.
Aiming for 1-million new jobs by boosting manufacturing through a competitive and responsive global trade policy, improving competitiveness and making products in SA that consumers clamour to buy may seem like a pipe-dream. But surely the alternative of waiting for the decline and fall of industry through inaction is just not on? Business, labour and government can and must solve this equation in the national interest.
RAISING A WALL OF TARIFF BARRIERS TO PROTECT … LOW PRODUCTIVITY AT THE EXPENSE OF THE CONSUMER ISN’T THE WAY FORWARD EITHER
Job at hand: The automotive industry shows that SA can be competitive in manufacturing, given the right regulatory structures and investment climate.