Tackle manufacturing contraction urgently or SA youth will face even bleaker future
|Published
By Michael Mynhardt
Many South African industry stakeholders would have seen the headlines by now - our country’s manufacturing activity contracted for a fourth successive month in May, as business conditions and sentiment continued to deteriorate as a result of ongoing power cuts.
The official announcement - which was pulled from the Absa purchasing managers’ index (PMI), indicates a decline to 49.2 points, down from 49.8 points in April.
This is problematic for two reasons - our manufacturing output is inching further below the 50 point mark, indicating a marked contraction as opposed to the expansion we so desperately require to keep the gears of our economy turning.
The second problem we need to address concerns the impact of the contraction of this sector on the opportunities available to the youth of our country.
This year, Youth Month has been commemorated nationally with a critical view to accelerate the economic emancipation of our youth for a sustainable future. Sadly, this will remain a pipe dream if our national government continues to ignore the dangers of a declining manufacturing output. There is little sustainability or business confidence in any market economy without the growth that accompanies the production and sale of goods through its manufacturing sector.
This negative outlook is only compounded further by a national energy crisis that continues to thwart our potential or perceived growth in future. A future that belongs to the youth of our country.
In its effort to motivate our youth to become active participants and contributors to our local and formal economy, national government has initiated various youth development and empowerment initiatives under the Presidential Youth Employment Intervention programme.
These range from formal education and training, to internships and broader support for youth entrepreneurship. While this will offer our youth some degree of state-level support towards an income (and employment), it does little to address the sustainable creation of opportunities in the long-term.
For those who may be unaware, South Africa’s manufacturing sector provides up to 20% of formal sector employment opportunities in our country. If we are going to be serious about the economic emancipation of our youth, then we certainly need to prevent this sector from contracting any further.
Three large pharmaceutical manufacturing businesses in Cape Town were recently forced to bite the loadshedding bullet - with one firm retrenching up to 50% of its staff to simply keep its doors open. If we were to look at this from a statistical perspective, based on the latest insights from Stats SA, we can determine that of the 40 million working age population in South Africa (quarter one 2022), more than half (51.6%) fall into the youth category (15-34 years).
Citizens in this age group are already the most vulnerable in the South African labour market, with an unemployment rate as high as 46.5% (as of May 2023). So if half our working age population fall into the youth category, we can assume that at least 25% of the staff retrenched by the pharmaceutical manufacturing company were members of our country’s youth. Now that’s a regrettable way to celebrate youth month this year - there is no financial freedom in a bucket of retrenchment letters.
If the private and public sectors are to address the economic emancipation of our youth, for a sustainable future, we must collectively enable the sustainable growth and expansion of sectors that provide high rates of formal employment in our country. To make this possible in manufacturing, we need to improve regulatory support for the different industries in the sector, improve the rate of skills and technology transfers from players overseas while improving public procurement processes with sound off-take agreements.
In terms of regulatory support, our government can provide the manufacturing sector with the financial support they need through tax-friendly incentives. This would help create a more enabling environment for the expansion of the sector - consider vastly improved tax rebates or concessions for solar installations at factories committed to our country’s transition to renewable energy.
Regulatory support must also come from larger, industry-specific bodies operating across Africa. Consider the pharmaceutical manufacturing sector in South Africa, and the Africa Centres for Disease Control and Prevention (CDC). Africa CDC should be leveraged to promote the mutual recognition of local manufacturers to lower the barriers to entry to new markets across the continent.
The African Medicines Agency (AMA) is already in pursuit of this goal, towards incentivising local pharmaceutical production processes in Africa. This will be a critical undertaking to help prevent the contraction of pharmaceutical industries across Africa, while enabling their expansion and growth.
In the long-term, this will help create opportunities for our youth that extend far beyond the manufacturing sector.
That being said, we must continue to improve the technology and skills transfer from players overseas if we don’t want manufacturing to fall behind. Local manufacturers require technical support from larger, international companies and foundations through skill transfers in manufacturing, to continue meeting the highest global standards, to adopt the latest in global best practice and towards improving the efficacy and management of all internal processes.
Local manufacturers in South Africa should also secure preferential treatment in terms of public and private market procurement. Public contracts, where possible, must be reserved exclusively for local manufacturing businesses. Government cannot make its procurement decisions based on the price tag alone - imported goods are often less costly to those produced locally. In such cases, the public sector must consider the imported price against the economic multiplier effect. If contracts are awarded to local manufacturers, it results in improved job creation, skills transfer and development, economic stimulation and increasing levels of investment into our own economy, which will benefit the youth enormously in future. We should also restrict imports on products that could be locally manufactured to prevent a continued decline in investment in the manufacturing industry.
One thing is clear - we cannot simply focus on reversing four months of successive contractions in our manufacturing sector. Our approach to address this trend must include a plan, and vision, that makes sustainable provisions for the growth and expansion of the industry in future as well. Only then can we begin to visualise the true economic emancipation of our youth.
Michael Mynhardt is a business strategist and group executive
BUSINESS REPORT