'We must start making things'

This was the message from Minister of Finance Pravin Gordhan when he addressed the Centre for Small Business Development at the University of Johannesburg's Soweto campus.

Gordhan's remarks came hours after Stats SA released manufacturing data for January, showing a year-on-year increase in production volume of just 1.3%. While this was better than December's growth rate of 0.2%, it was still well below expectations.

Gordhan said de-industrialisation in SA is a challenge.

"We have stopped producing things and we have stopped being competitive," he said. "We have to turn that around."

That means SA needs to make things people want, at the right price and at the right quality, he said.

The goods also have to be marketed and transported effectively, particularly out of this country, he said.

"That is part of the turnaround (needed) in the economy," he said.

"But we have to look at the new things we can do. There is no point in trying to compete with China when they make something for 50c and we make it for R1."

Possible solutions

Gordhan said linking big, medium and small business in the same value chain, as the motor industry does to some extent, is part of the solution.

The motor industry is one of the drivers of the local manufacturing sector.

After growing by 9.9% year on year, the manufacture of motor vehicles, parts and accessories contributed one percentage point to the 1.3% growth rate of manufacturing in January.

Food and beverages contributed 0.8 percentage point to the total growth, but sectors such as furniture, textiles and clothing and basic iron and steel made negative contributions to manufacturing growth.

Kgotso Radira, an economist at Investec, said although growth in manufacturing has recovered, it is still not broad based across all subsectors - which is in line with the slow recovery in global demand.

Road to recovery

After a deep slump in 2009, manufacturing production grew by more than 8% for some months in the run-up to the World Cup last year. Growth in the sector slowed sharply as strikes halted work, particularly in the motor industry.

However, the local purchasing managers index (PMI) is rising, pointing to good prospects in the manufacturing sector.

The first-quarter business confidence index of Rand Merchant Bank (RMB) and the Bureau for Economic Research (BER), which was released this week, showed a substantial increase. This was partly driven by an increase in confidence in the manufacturing sector of 10 index points.

Last year there were repeated calls for a weaker rand to boost the manufacturing sector, but since the currency's temporary weakening to above R7 to the dollar earlier this year, the calls have decreased.

Radira warned that the rand alone would not solve problems such as ageing infrastructure in the manufacturing sector.

"The cost of doing business, rigid labour laws, ageing transport infrastructure and the power of labour unions are some of the problems facing the economy and therefore a weaker rand will not help overcome these problems," he said.

Manufacturing is key

The manufacturing sector is a key sector for job creation identified in the National Growth Path of Ebrahim Patel, the Minister of Economic Development.

Guy Harris, facilitator of the Manufacturing Circle, said manufacturing growth of 1% or 2% is not real growth.

"You can meet the demands of 1% or 2% growth through efficiency, rather than adding to capacity," he said.

"And it is only when you expand capacity that you will expand growth."

Harris said the government had to start implementing policies in the New Growth Path and the budget.

Gordhan said in his budget speech that businesses employing fewer than 50 people account for 68% of private-sector employment.

"Government has to talk to the people who drive growth," said Harris.

"What is government doing to talk to labour-intensive manufacturing and the small, medium and micro enterprises (SMME) sector? Government needs to focus on the areas which will be able to deliver on jobs."

Source: Business Times