BUSINESS DAY TV: ‘The creation of jobs is a single-minded focus’
As the Manufacturing Indaba winds up, Manufacturing Circle chairman André de Ruyter discusses the ‘woeful underperformance’ of SA’s manufacturing industry
BUSINESS DAY TV: The country’s manufacturing sector is well below where it should be given its developmental stage and, instead of boosting employment, it has shed jobs as its contribution to GDP shrinks. That’s according to André de Ruyter, He’s chairman of the Manufacturing Circle; he was speaking at this week’s Manufacturing Indaba in Johannesburg, he joins me now.
André, so the stats you put out in your presentation to the Indaba are frightening. Contribution to GDP has shrunk from 24% in 1980 to 13% now. Is there a single cause for this or a silver bullet that can actually cure it?
ANDRÉ DE RUYTER: I don’t think there is a silver bullet. What is required to reverse this trend first of all, and restore manufacturing to its proper place as a major contributor to both GDP. And the creation of jobs is a single-minded focus by labour, business and government, to re-industrialise the country in order to create jobs.
BDTV: Are you all on the same page with this though?
ADR: We’ve had very good engagements with Numsa, we’ve had very good engagements with Cosatu. There appears to be a general awareness that something different needs to be done. We’ve had engagement with various government departments and I believe we’re getting a lot of alignment. Now, how all this works in practice will, of course, take a lot of effort and a lot of hard work by lots of people, but we are gaining traction. And, of course, the latest numbers that have come out showing the unemployment trends have really contributed to the sense of crisis.
BDTV: Some of the contributing factors to the de-industrialisation are the high costs of labour in SA, and that’s going to be a difficult one to win with Cosatu, as well as with Numsa.
ADR: Yes. What we need to look at is the rate at which labour cost has increased versus the rate at which productivity has not increased, and that is one of the major issues that we need to address. Now for the manufacturing sector, strangely enough, productivity has been increasing significantly but it has come at the expense of jobs, and one of the key areas that we need to discuss with labour is, at what stage do we have jobless productivity growth and we become much more capital intensive, and far less labour intensive. And in a country with 27.7% unemployment, is that the correct approach to be taking? We are starting to change the narrative somewhat, but you’re quite right, it is going to be a challenging discussion.
BDTV: There’s been a slow deterioration in the manufacturing sector since 1980, is it going to be as slow to build it back up again? You do believe that we could have 28% to 30% of GDP coming from the manufacturing sector, and that’s going to take time.
ADR: Yes, absolutely. Just doing some very rough calculations, I believe it’s going to take at least a decade to get to that point. If we are able to achieve that, we will create between 800,000 and 1-million new jobs. Now that’s extremely good news and that’s obviously something that we should be pursuing as a nation, because of the fact that the manufacturing sector has the greatest multiplier in terms of indirect jobs created — between five and eight indirect jobs for every direct manufacturing job, so it’s really a worthwhile cause to pursue.
BDTV: Do we have to focus on what we’re good at? Is there a specific area within the manufacturing sector that we should be focusing on to grow the industry?
ADR: What we should not try and do is to let the government pick winners and losers in the manufacturing sector…
BDTV: … such as the motor industry?
ADR: I believe business should take risk, business should make commitment to invest, business should do what its best at, namely, to develop and grow businesses, and government should create the environment within which business can take calculated risks. But we should also allow businesses to fail if they are not competitive.
BDTV: And yet government isn’t creating that environment at the moment. There is regulatory uncertainty, business isn’t investing; consumer confidence, business confidence both at multi-year lows at the moment — so does the ball really lie in the government’s court at this point?
ADR: There is this narrative around that business is on an investment strike, and nothing is further from the truth. No one will build a factory if there is no demand for the products that will be produced by that factory. It’s as simple as that. So in the absence of demand, people will not invest. So we need an alignment between appropriate demand-side policies and then also supply-side policies. Now at this point in time, it’s our contention that some of the fiscal policies that are either in place or that are up for debate, such as the carbon tax, the sugar tax, the packaging tax, that those are not conducive to stimulating investment in manufacturing, but rather deter investment.
BDTV: You talk about regulatory uncertainty … we have a new Mining Charter which has just been put in place, and it’s come under fire from the mining industry. Could this inadvertently be good for the manufacturing industry, because it talks about beneficiation and that’s one of the things that you say is not being done enough, that we’re exporting unbeneficiated material?
ADR: No, I don’t think it will be good for the manufacturing sector. A drop in investment in mining clearly will have a negative impact on the manufacturing sector because many manufacturers are suppliers of goods into the mining sector, and if that sector takes pain then we will take pain as well.
BDTV: Even if it is pushing for more "buy local" and for more local beneficiation?
ADR: We would love to buy raw materials from the mines at competitive pricing that we can turn into products for exports. But in order to be able to do that, we need a vibrant mining sector, which I don’t think the Mining Charter encourages.
BDTV: How about looking further afield? We had the Trade and Industry Minister, Rob Davies, talking about creating large markets across Africa and, wearing your other cap as the CEO of Nampak, that’s something that you have done, and you’ve successfully done. But it does also come with pitfalls, doesn’t it?
ADR: The returns north of us are fantastic. They are two and a half or three times higher than what we’re able to achieve in SA, but they are high for a reason and the risks are definitely higher. Now SA should be exploring these regional markets, but we should also not neglect our domestic market because that is where we have a real challenge with low economic growth and high employment.
BDTV: How are you going to take this forward? How is the Manufacturing Circle going to engage government further to build the sector?
ADR: We’ve already had a very constructive engagement with the new Finance Minister Malusi Gigaba, his deputy and his new DG, so we’ve seen a change in tack from Treasury as to a willingness to engage on how we industrialise, how we stimulate manufacturing. So that’s very pleasing and we’re very encouraged by that.
Secondly, the Minister of Trade and Industry, Rob Davies, yesterday called for an urgent engagement between DTI and the Manufacturing Circle and we already have a meeting scheduled for next week with Trade and Industry to discuss ways in which to take this forward.
BDTV: Hopefully in a year’s time, we’ll be looking at a sector that’s growing.