Manufacturing sector evolving

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Manufacturing sector evolving

Manufacturing sector evolving
Photo credit: Graeme Williams | MediaClub South Africa

KwaZulu-Natal Economic Development, Tourism and Environmental Affairs MEC Sihle Zikalala says the changes in trade, technology, organisation of production and product demand have all influenced the evolution of manufacturing activities.

“We are living through the Fourth Industrial Revolution, a wave of new technologies that are emerging and affecting our lives in many new ways, creating entirely new capabilities for people and machines. Global trends show an increase in disruptive markets that are changing traditional markets as we have known them,” Zikalala said.

Zikalala was speaking at the KZN Manufacturing Indaba, which was held on Wednesday, 22 August 2018 at Inkosi Albert Luthuli International Convention Centre.

Zikalala said the changes in the manufacturing sector has impacted heavily on the relationships between firms and the spaces they operate in.

“Probably the most significant change in this regard has been the globalisation of production networks whereby most manufacturing businesses are part of some type of globalised or globalising value chains. The growth of the manufacturing sector hinges on the availability of both skilled labour force and the ability of companies to acquire the latest technology to improve competitiveness,” he said.

Protect aggregate demand

The MEC said while they value the importance of technology in production, they also believe there is a need to protect the country’s aggregate demand, through attempting to balance the purchasing power of the labour force and productivity.

This will ensure that companies remain competitive and at the same time maintain the aggregate demand required to sustain increased production, he said.

Zikalala also stressed a need to constantly promote the growth of the middle income population in the economy, noting that in most emerging markets like India, China and Brazil, the growth in the middle income population has continued to anchor sustained economic growth.

Invest in infrastructure

In view of this, Zikalala said there is a need to invest in infrastructure that is investing for growth, rather than investing because of growth.

“There is a need to earmark substantial resources for research and development that are aimed at improving product quality. This might be achieved through tax incentives. KwaZulu-Natal remains committed to the national agenda of maximising the benefits of regional integration within SADC (Southern African Development Community) and BRICS (Brazil, Russia, India, China and South Africa) countries.

“The significance of exports in economic growth is evidenced by a large contribution of exports to GDP (Gross Domestic Product) in many successful countries. I can cite many examples here but it is critical to mention China and Germany. China’s export to GDP ratio is 39.9%, Germany’s ratio is about 50% compared to 25% of South Africa, and about 18% for KZN,” Zikalala said.

Zikalala maintained that the most successful economies of the world are those that are able to diversify their export basket.


Address by MEC Sihle Zikalala at the KwaZulu-Natal Manufacturing Indaba

I am honoured to be with you this morning as we collectively deliberate the developments in the manufacturing sector and profer solutions to stimulate growth.

The manufacturing Indaba offers us an opportunity to discuss the opportunities in the manufacturing sector and these can be exploited to by fight unemployment, povery and inequlity.

At present, the manufacturing sector is beset by a myriad of challenges. The challenges include lack of competitiveness and rising production costs.

It is in our hands as government, business, labour, and communitiese to find lasting solutions to improve the performance of the sector in order to create jobs, grow our economy and tackle poverty.

It is important for all spheres of government to know who their manufacturers are and must actively support the country’s localisation policies.

The manufacturing sector has such important linkages with other economic processes.

Manufacturing can also stimulate further deeper economic processes in towns and cities that are important not just in manufacturing, but also in a variety of services sectors.

Industrial development processes have thus been a necessary element of creating urban areas that can better meet the needs of citizens and a variety of economic systems.

This conference comes at a particularly momentous opportunity when the province is working tirelessly to implement various programmes to advance industrial development in the province such as the Special Economic Zones (SEZs), Industrial Economic hubs, maritime and Aerotropolis among other critical interventions.

Let me share a few reflections on some of the critical factors to develop the manufacturing sector in KwaZulu-Natal.

We remain guided by our growth and development vision that states that by “2030 KwaZulu-Natal will be a prosperous province with a healthy, secure and skilled population, acting as a gateway to Africa and the world.”

This vision is underpinned by the full knowledge that to succeed, we need a strong compact among all social partners to prioritise inclusive growth, create employment, reduce poverty.

KwaZulu-Natal manufacturing sector contributed about 21% to South Africa’s manufacturing Gross Value Added (GVA) in 2017.

The province’s manufacturing sector is the second largest in the country after Gauteng which contributes close to 41% of the total manufacturing GVA.

In KwaZulu-Natal, the manufacturing activities constitute about 72% of the secondary sector. The manufacturing sector in KwaZulu-Natal is heavily diversified, with highly integrated sectors such as industrial chemicals, timber, paper & pulp, and sugar.

In 2017, the real manufacturing GVA for KwaZulu-Natal was estimated at R80.8 billion and R154.7 billion for Gauteng, whereas the South African manufacturing sector GVA was estimated to be R384.04 billion.

The structure of KZN’s economy differs from the structure of the national economy in that it has a much larger manufacturing sector (16.6% of GGP compared to 12.6% of GDP for SA) and employs 12% of the province’s total employment.

The manufacturing sector employs about 14% of the province’s workforce. About a third of the country’s manufactured products originate in KwaZulu-Natal.

The lacklustre growth in the manufacturing sector remains the chief cause of slow growth in both the provincial and the national economy.

The province’s manufacturing sector contracted by 6.4% in the first quarter of 2018.

The causes of this sluggish growth in the sector relates predominantly to production bottlenecks centred on energy, labour unrests, infarstructure rigidities, diminishing competitiveness and exchange volatility.

As a country and as a province we are not an island. We are connected to a global network through various economic linkages and activities.

The current trade wars being experienced will affect us all and perhaps might even create a structural shift where manufacturing in the global sphere takes place.

This is both a challenge for many but also an opportunity.

We need to be flexible enough to counteract external threats and evolve and adjust to the changing environment.

We are living through the Fourth Industrial Revolution, a wave of new technologies that are emerging and affecting our lives in many new ways, creating entirely new capabilities for people and machines.

Global trends show an increase in disruptive markets that are changing traditional markets as we have known them.

For an example, we can talk about the automotive sector and how important this sector is to us but we know electric cars and autonomous vehicles are coming and how we prepare ourselves and transition the industry to this new wave of technology and going about re-skilling our workforce.

Changes in trade, technology, organisation of production and product demand have all influenced the evolution of manufacturing activities.

These changes have impacted heavily on the relationships between firms and the spaces they operate in. Probably the most significant change in this regard has been the globalisation of production networks whereby most manufacturing businesses are part of some type of globalised or globalising value chains.

The growth of the manufacturing sector hinges on the availability of both skilled labout force and the ability of companies to acquire the latest technology to improve competitiveness.

Whilst we value the importance technology in production, we also believe there is need to protect the country’s aggregate demand through attempting to balance the purchasing power of the labour force and productivity. This will ensure that our companies remain competitive and at the same time maintaining agregate demand required to sustain increased production.

We believe for our regional economy to grow, there is need to constantly promote the growth of the middle income population in the economy. In most emerging markets such as india, China and Brazil the growth in the middle income population has continued to anchor susstained economic growth.

In view of the above, there is need to invest in infrastructure, that is, investing for growth rather than investing because of growth.

There is need to earmark substantial resources for Research and Development that are aimed at improving product quality. This might be achieved through tax incentives. KwaZulu-Natal remains committed to the national agenda of maximising the benefits of regional integration within SADC and BRICS countries.

The significance of exports in economic growth is evidenced by a large contribution of exports to GDP in many successful countries. I can cite many examples here but it is critical to mention China and Germany.

China’s export to GDP ratio is 39.9%, Germany’s ratio is about 50% compared to 25% of South Africa and about 18% for KZN.

It is, therefore, a clear observation to state that the most successful economies of the world are those that are able to diversify their export basket. Our quest is to be able to grow the contribution of the export sector to GDP from the current levels to comparable levels with best economies of the world.

Export-led industrialisation has been highlighted in most economic circles as the vehicle through which developing countries and emerging markets can realize their economic fortunes and developmental aspirations.

In major emerging market economies export growth has been singled out as a necessary condition for rapid economic growth. The realisation of the importance of exports in economic growth is generally regarded as the force behind the success of the Asian “tiger economies”.

Ladies and Gentlemen, it is disheartening to note that although South Africa’s trade grew since 1994, the growth has been characterised predominantly by export of raw material commodities.

The success of our province and indeed our country hinges on our ability to grow the manufactured exports. The provincial government has placed the development of the export sector as an apex intervention that can grow the manufacturing sector and the economy at large.

There are three crucial lessons from the Asian Tigers.

Firstly, the success of the Asian tigers and China was their ability to promote labour-intensive manufactured exports. This was done through identifying potential sectors and identifying niche markets globally. The success of these economies was primarily hinged on innovation and beneficiation.

Secondly, the success of the Asian countries was also premised on their ability to promote exports through a combination of policies such free trade, convertible currencies, macroeconomic stability and through a set of innovative approaches such as export processing zones, duty exemption schemes, and incentive packages for foreign direct investment and special economic zones.

Ladies and gentlemen, we do not desire to replicate all of these schemes here, but it suffices to note that as a province we are ardently pursuing the development of SEZs and Industrial hubs in the province.

Lastly, the Asian tigers were also successful in consolidating regional integration as a critical component of export development.

Since 1994 South Africa has acceded to a number of investment and trade promotion agreements.

Our recent membership into BRIC countries is envisaged to bolster the country’s participation in international trade and as a premier investment destination.

South Africa is also a member to Southern African Development Community (SADC), South African Customs Union (SACU), African Growth and Opportunities Act (AGOA), Cotonoua Agreement (being replaced by Economic Partnership Agreements, EPAs), BRICS, World Trade Organisation (WTO) and a number of bilateral trade agreements (BTAs).

All of these point to the opportunities for the KwaZulu-Natal manufactures to aggressively look beyond the South African boarders.

New opportunities exist for us through the creation of a single continental market for goods and services within the African Union.

The African continent constitutes 29% of all exports from KZN and this bodes well as for the manufacturing sector and as a gateway for investors to the rest of the continent.

Our two Special Economic Zones in the KZN Province, one at Richards Bay Industrial Development Zone anchored by the Sea Port of Richards Bay and the Other at Dube Trade Port linked to King Shaka International Airport are gaining traction.

The cargo facilities at Dube Trade Port and connectivity at King Shaka International Airport are there to drive exports of high valued goods and help drive the development of the Durban Aerotropolis while Richards Bay focuses on bulk and heavy manufactured goods.

We are tirelessly working on a number of initiatives to re-industrialize the province and transform the economy through a number of mechanisms to radically transform the economy. The SEZ’s will be supported by Regional Industrial Economic Hubs through competitive advantages presented to us by various regions in the Province.

The province has identified the maritime sector as one of the strategic indutsries to develop exports and grow the provincial economy.

The areas we are focusing on include ship and boat building as well as repairs.

We are also exploring maritime tourism, oil and gas, fishing and aquaculture and the general freight and logistics sector. This is also in line with the national operation Phakisa programme that also identifies the maritime sector as critical for South African growth.

In the 21st century airports have become the springboads for the development of modern cities.

The provincial government recently formulated an integrated Aerotropolis strategy to guide the development of Durban Aerotropolis centrered around King Shaka International airport.

The Aerotropolis presents KwaZulu-Natal manufacturers and entrepreneurs to develop products that are geared for exports. It also presents opportunities in tourism resorts, hotel and accomodation, infrastructure and property development.

The province continues to attract international airlines to consider flying to King Shaka International airports.

From October, King Shaka International Airport welcomes British Airways to start a new route connecting KwaZulu-Natal and the United Kingdom.

We urge KZN companies to take advantage of this expanded network of King Shaka International airport to grow exports into the United Kingdom and Europe in general.

As we devise strategies to promote growth in the manufacturing sector and the economy in general, we cannot afford to do so at the detriment of the environment.

We need to work towards building a low-carbon footprint in KwaZulu-Natal. What this means is that when seeking for development models, we do not aspire to simply replicate the path to prosperity taken by the industrialised world.

We must pursue innovative waste management programmes, introduce carbon reduction incentive programmes and protect the biodiversity contained in many of our natural protected areas in the province.

Choosing a low carbon growth path for a cleaner future will be taking the road less travelled in development terms but the rewards definitely outweigh the risks.

Successful manufacturing has been heavily influenced by networks and relationships.

Therefore Ladies and Gentlemen I encourage you to compete through building effective clusters, involving specialised interactions between suppliers, producers, customers, related and supporting industries and government.

We are confident that your meaningful discussions will lead to an improved environment for our industrialist to prosper, to create jobs, and to train our youth to become the next generation of industrialists and grow the economy.

I thank you.