South Africa

How MCEP can help re-ignite local manufacturing

By Joanne Bate

As the Covid-19 pandemic continues to ravage the global economy, it's evident that supply chain disruptions have impacted practically all manufacturers across the world.

In the local economy, this is telling in the increase in the number of manufacturers that have shut their operations in the wake of the pandemic and subsequent lockdowns. Even while the threat of Covid-19 is likely to recede in the long-term, it's a fact that the pandemic has not only turned industry on its head but shaken the core of South Africa's industrial base.

Pre-the 2009 financial meltdown, manufacturing was vital to South Africa's economy. However, fortunes have waned. A recent report by global auditing firm Deloitte states that the sector has lost over 300,000 jobs over the last decade.

Blame it on the 4th industrial revolution and a mix of other factors, including local products' failure to compete aggressively against imports, the reality is that local manufacturing has been facing an existential crisis due to increased automation and inventions of more advanced manufacturing technologies. But as the industry slowly grinds its way out of the lockdown and localisation of products becomes a dominant theme, there is renewed optimism for a potential rebound rooted in import substitution and appreciation for locally manufactured products, among other factors.

Even as supply chains begin to re-align globally, the question is, how long will it take for local manufacturing to return to its stellar years that once made it the bedrock of our economy? It was an enforced economic embargo that prompted South Africa to establish what has now become a global petrol-chemicals giant, SASOL. The same could be attributed to the birth of aluminium manufacturing behemoth, Hulamin, phosphate and fertilizer manufacturing giant Foskor, then steel merchant ISCOR among other companies formed to fortify economic independence at the height of international isolation.

Far from nostalgia, it's this resolve and resilience that raises the optimism that faced with a daunting challenge, home grown ingenuity can also help South Africa to overcome its economic challenges. Some of the biggest take-aways for local manufacturing from the pandemic is an acute need for them to become more agile and nimble in this fast-changing manufacturing terrain – never again to be caught up in a dependency syndrome for raw materials. For example, did we really have to resort to importing ventilators, sanitisers, masks and other essentials to meet demand as we got to experience at the peak of the pandemic?

Perhaps drawing on lessons from the far east, notably China, countries that have successfully made the transition from low-income to upper-middle and high-income status have relied on, among other interventions reconfiguring manufacturing, so the industry becomes the main driver of growth. China’s exponential economic growth and industrialisation makes this model worth of examination.

For local entrepreneurs, including Black Industrialists looking for lift-off in an economy characterised by a rarity of green shoots, timing is everything. It's for this reason that government launched programs such as the Manufacturing Competitiveness Program (MCEP). Launched in 2012, MCEP was established to support existing manufacturing enterprises through interventions to improve competitiveness in manufacturing as well as encouraging manufacturers to upgrade their production facilities in the process helping to sustain employment.

While the program has not been able to completely address a downward spiral, several factors continue to impact the industry, including constraints of an infrastructural nature, rising input costs including an unreliable energy supply regime, among others. However, it is encouraging to see focused attention on two vital pillars in our national recovery plan - restoring manufacturing to its pre-imminent status as well as government’s envisaged rapid roll-out of infrastructure projects.

And other opportunities in various state-led infrastructure development projects, including the construction of road networks, bulk water supply infrastructure, and energy capacity building projects among others identified in government's Reconstruction and Recovery Plan bode well for the future of local manufacturing. But most important, the rest of the African market presents a great opportunity for the revitalisation of local manufacturing.

The continent is an expanding market, with 93.2% of South African exports to other African countries being manufactured goods. Therefore, a re-invigorated focus to make MCEP a success also provides a great opportunity for Black Industrialists looking to break into a sector that for long has been considered exclusionary.

Bate is the Chief Operating Officer at the Industrial Development Corporation

BUSINESS REPORT

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