Martyn Davies’ Warnings on the State of ZA Manufacturing

We were struck by the introduction to a recent Frontier Advisory conference by its CEO Martyn Davies, who pinpointed the way in which the ZA manufacturing sector has been in relative decline as a share of the total economy. So we asked him for a few details…. 

ZAC: You speak of de-industrialisation in ZA. When did it start and how far has it gone?

MD: The de-industrialisation trend has really accelerated since the political-economic opening of the country after 1994. To an extent this was to be expected, as the economy was exposed to increased competition. But arguably de-industrialisation has been exacerbated by poor policy choices, lack of direct/indirect support for the manufacturing sector, and increasingly belligerent unionised labour.

 

ZAC:   It seems we are not alone.   You are suggesting that this happens elsewhere in the developing world?

MD: Whilst other emerging countries (in Asia) have also experienced similar pressures, their economies have been able to “graduate” into services, whilst maintaining very low unemployment levels. Examples would be Singapore, Malaysia, Taiwan, Korea – amongst others. South Africa has not been able to relocate labour out of manufacturing into other productive economic activity.

 

ZAC: How is it a problem?   Surely if high-skill industries such as financial services are replacing manufacturing in the economy that is a good thing?

MD: It is a problem if the workforce is not adequately skilled to move into financial services and unemployment becomes “structural” –i.e. almost a permanent fixture in the economy. Reinforcing this trend, the bureaucratic state has stifled the growth of small business through over-regulation thus preventing new areas of employment opening up.

 

ZAC:   Government in ZA seems determined to see re-industrialisation through incentive schemes, targeting support for industries such as the auto sector, film making and so on.   Is de-industrialisation a trend which can be reversed?

MD: Government needs to enable and support parts of the economy to spur manufacturing growth. It is primarily skills and liberalisation driven – not intervention and subsidy – although that latter can assist in building and promoting sectors. But much more needs to be done when it comes to labour reform and skills development, which is sorely lacking.

 

ZAC:   Waves of industrial action seem to be encouraging employers in manufacturing, and other sectors, to favour more automation.   Do you worry that if we can achieve re-industrialisation in SA it might be with far less employment?

MD: This is the undoubted trend. Militant unions with political complicity are contributing to this trend. If not mechanization, manufacturing will simply take place somewhere else.

 

ZAC:   What opportunities might there be for ZA in China’s expected de-industrialisation?

MD: There is enormous opportunity to attract jobs away from China – especially in low value manufacturing – to Africa. One would expect SA to have a leading position to leverage toward this end but rigid and unionized labour alongside unfavourable legislation means that we are unlikely to benefit from this significant shift in manufacturing employment in China….despite the unprecedented opportunity that it presents.

 

Conclusion:

This is very important but worrying analysis in the context of this country’s crying need for more jobs and greater economic growth.  

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Funny Tweets (@Funny_TweetsQ): If I got a dollar for every time I thought about you, I would start thinking about you.

 

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