Picture: 123RF/DMITRY KALINOVSKY
Picture: 123RF/DMITRY KALINOVSKY

The machinery and equipment sector is crucial to the fourth industrial revolution (4IR) because the convergence of ICT and machinery is the basis for smart manufacturing. SA is fortunate to have established advanced capabilities in machinery and equipment production largely due to the linkage with mining. With a proper plan of action, this strength can be leveraged for substantial, additional employment for hundreds of thousands of people.

The unprecedented changes in production processes bring prospects for improved productivity and industrial competitiveness. As such, countries are much better positioned in the 4IR if they have developed capabilities in the manufacture of machinery and in the linked design, engineering and data analysis services.

At stake for SA are the production capabilities and employment prospects of the almost 150,000 people currently directly employed in the production of machinery and electrical machinery, along with many more jobs in related services, such as engineering, transport and logistics, and financial services. In the past five years, even with very weak local demand, there has already been employment growth in the sector, while multipliers indicate as many as five times the direct jobs are involved in related activities. And, while overall technology means lower levels of labour intensity, data shows that output growth does create direct employment, even as firms become more sophisticated.

SA’s advanced capabilities in mining machinery cuts across areas such as minerals processing, mining, transport above and below ground, and specialised pumps. This machinery is customised to different conditions and is linked through value chains into many components. Importantly, it provides a good capabilities base for manufacturing machinery for other uses.

SA urgently needs to build strong regional value chains to regain the lost ground in machinery and equipment exports

Research by the Centre for Competition, Regulation and Economic Development (CCRED) at the University of Johannesburg indicates that SA’s leading mining machinery manufacturers have become key sites of innovation.

Local lead firms are embracing opportunities provided by digitalisation, which brings together new and established technologies. These technologies allow for co-ordination efficiencies, condition monitoring and process optimisation (such as in design and prototyping), both within firms and along their supply chains.

Firms must simultaneously learn from global developments and provide regional solutions in, for example, predictive maintenance, which requires reliable data transfer.

A major requirement is that appropriate investments are made to develop specific — and new — skills and capabilities demanded by the machinery and equipment sector. This means greater focus on specialist engineering (process engineers) and technical (electrical and mechanical) skills, as well as design capabilities and software engineers. While lead firms are investing, overall rates of investment in the sector in SA are poor.

The big gains require a plan that addresses local and regional competitiveness, and partnering with others in the region to grow industrial capabilities across borders. Over the past two decades, however, local businesses have lost out to mining machinery imports into the region.

In the absence of effective interventions, there has been a hollowing out of capabilities in key areas in SA, and with increasing machinery and equipment imports from outside the SADC region. Imports into the local market amounted to $11.5bn in 2018. After taking into account exports, mostly to the region, SA has a net trade deficit in machinery and equipment of about $6.7bn.

Other SADC countries are now collectively a bigger market in terms of mining activity than SA itself. And, the SADC region has very strong growth prospects. SA urgently needs to build strong regional value chains to regain the lost ground in machinery and equipment exports.

For example, CCRED research shows that SA’s share in Zambian imports of mining machinery, the single largest regional market, has declined substantially in key areas. SA exports of mineral-processing equipment and conveyor systems each accounted for more than 60% of Zambia’s imports in the early 2000s, but had declined to shares of just 19% and 37%, respectively, in 2018.

SA has lost similar shares of other regional markets, such as just more than 20% of Mozambique’s mining machinery market in the past five years. SA’s loss in market share has translated into the regional market being captured largely by Chinese-manufactured equipment, although there has also been substantial import penetration from countries such as Germany and Japan.

570,000 additional jobs

Simply regaining the share SA had a decade ago in the regional market would mean increasing local machinery production by more than 50%, bringing substantial employment creation. We estimate that 65,000 direct jobs would be created, and another 325,000 in related activities due to the multiplier effects. A more ambitious target to reduce the trade deficit over five years to the lowest levels in dollar terms over the past two decades would see employment creation of as many as 570,000 additional jobs.

There are examples of strong local firms that have bucked the overall trend of market share losses and point to the potential for a turnaround. In the past five years, even with very weak local demand, there has already been employment growth in the sector. These companies already work across the region and globally to build skills and productive capabilities. They need to be at the heart of a business-oriented Southern African industrial strategy with SA as a regional hub.

The growing regional market for machinery and equipment, new markets in oil and gas, together with long-term opportunities in aftermarket services call for such a regional strategy as part of a master plan for machinery and equipment. Given the central position of machinery and related services in the 4IR, it is imperative for a strategy to promote diversification towards higher value-adding and sophisticated industries that will create substantial numbers of jobs.

Such a plan should include industry-led initiatives, at substantial scale, that support shared learning and acquiring technological capabilities and skills. The existing lead firms in SA with accumulated capabilities have, with the right facilitation support, huge potential to play a role in building capabilities across their supply chains.

Such initiatives need to target regional competitiveness as a whole. SADC countries need to be on board so that their industrial policies build the regional industrial base. Seeing Zambia, for example, as a competitor for investment and employment misses the big picture. Growth in one country will grow incomes and demand across Southern Africa in a regionalisation of production. This will also attract inward foreign investment given the size of an integrated regional market.

• Prof Roberts is a lead researcher, and Nkhonjera a researcher, at the University of Johannesburg’s Centre for Competition, Regulation and Economic Development.