Time to rejig supply chain to promote production localisation and job creation

In September 2015, 193 countries convened at the UN summit in New York and adopted 17 sustainable development goals (SDGs) under the theme, “Transforming our World: The 2030 Agenda for Sustainable Development”. Essentially, the SDGs highlight the importance of meeting the needs of the present generation without compromising the ability of future generations to meet their own needs. All 17 goals span three pillars, including social development, economic development and environmental sustainability.

The SDGs are not legally binding, and their implementation and success will rely on countries’ own sustainable development policies, plans and programmes. This implies that SA’s success in achieving the objectives as outlined in the National Development Plan (NDP), the Covid-19-induced corollary, the economic restructuring & recovery plan (ERRP), and the Industrial Policy Action Plan (Ipap), will ensure domestic development while enabling the country to contemporaneously achieve the global imperatives of the 2030 sustainable development agenda.

However, with so much uncertainty ahead caused by the Covid-19 pandemic, which is set to be with us for a long time, it has become more challenging for government to concentrate its efforts on ensuring improved socioeconomic development and environmental sustainability in the near to medium term.

A persistent conundrum is whether to focus more on national health issues or on economic development. While it is important to pool resources and support national efforts aimed at vaccinating roughly 67% of South Africans towards achieving community immunity from the pandemic, it is also necessary to pay equal attention to the nondescript stagnation of the domestic economy that — though out of a technical recession — is still underpinned by weak macroeconomic fundamentals. 

Insights to key statistics on economic growth, unemployment and  inputs inflation, as well as supply and demand patterns, reiterate the need for policymakers, the private sector and civil society to increase considerations for these economic fundamentals towards better sustainable development. The twin deficits of current account and budget deficits also pose a problem, and without robust and sustained economic growth the government’s efforts to address socioeconomic and environmental challenges facing the domestic economy will fail ab initio.

Economic growth is therefore a sine qua non to the success of existing national or provincial economic and development plans, and in achieving organisational strategies towards creating more jobs. As government focuses on containing the spread of the pandemic, it is important not to lose focus on effectively implementing and monitoring existing economic plans towards guaranteed success. The focus should be on growing low-performing, labour-intensive industries such as agriculture, manufacturing and construction, with the potential to solve the unemployment problem.

The pandemic has given rise to possibilities and opportunities for budding local businesses which, thus far, have been supported by the Covid-19 grants and loans put in place by the government, the private sector and civil society. However, while countercyclical efforts to support struggling businesses during the pandemic is commendable, the concern is that the targeted interventions are short-term measures, akin to giving people fish to eat instead of teaching them how to fish.

Challenges experienced by businesses before the start of the pandemic are still evident, with less robust construction and manufacturing activities, a high level of deindustrialisation, high unemployment, an erratic electricity supply, increasing input costs and slow growth. Correspondingly and disconcertingly, import saturation from efficient overseas producers with better economies of scale has rebounded post-lockdown, also affecting the size and composition of SA industrial production and construction sectors.

Essentially, SA remains a net importer, with the rand value of imports rebounding 28% in the first quarter of 2021 from a low base in the second quarter of 2020. While import saturation is worrisome, it is also good as it points towards existing domestic demand. The growing domestic demand base presents unique prospects for enhanced foreign direct investment (FDI) to be channelled into strategic local industrial sectors, which are key engines of economic production, growth and jobs.

Now is the time for the government to stop paying lip service and be more inward looking, raise its support of local manufacturing prospects and establish local supply chains to navigate through global shocks such as the Covid-19 pandemic.

With the pandemic continuing, there is a need to rejig supply-chain activities and ensure SA is ready for potentially difficult period ahead. Before the pandemic, ordinary South Africans bothered little about how goods reached our stores and homes, often taking the entire process for granted. However, the advent of the pandemic compelled consumers to think about the intricate process through which a product flows before it reaches them, commonly referred to in industry parlance as a product’s supply chain.

Supply chains have become more singular and specialised and the need to transport various components across borders to manufacture a product creates possible snags. To manufacture iPhones, for example, Apple sources inputs from suppliers in 43 countries across six continents, and the already fragile process was compounded by the global pandemic, which distorted supply-chain activities almost simultaneously worldwide and caused secondary supply-chain disruptions.

The effects of the pandemic on supply-chain activity were intense, leaving most companies with no contingency plan. It comes as no surprise that some countries are considering moving their manufacturing facilities out of China or closer to home. Consumers are also scrutinising future supply chains, which they will expect to continue to function even in the face of disruption.

While the pandemic is now compelling all countries to confront the supply-chain fragility in real time, it is also forcing some countries to rejig processes and localise production ability. Accordingly, local stakeholders should also scrutinise and localise key supply chain processes to avoid being caught napping should the situation change again for the worse.

Though we may have missed a unique opportunity presented by the hard lockdown in the second quarter of 2020, characterised by low imports volume, it is still not too late to restructure supply-chain activities in line with what advanced economies such as the US and China are now doing. The recent efforts by the US government to strengthen its domestic semiconductor industry and secure the nation’s supply chain of vital technologies, including semiconductors, is a commendable example for SA to follow towards localising supply chain activities and reducing dependence on foreign industries for raw materials.

The pandemic should pave the way for a new era of co-operation between public and private sectors that will change the face of local supply-chain activities, which hold huge job creation potential. Efforts by government and stakeholders should be specific or targeted towards improving and localising supply-chain activities. Provincial governments and investment promotion agencies such as Trade & Investment KwaZulu-Natal also have a role to play in highlighting current opportunities emanating from the pandemic, to channel much-needed foreign capital inflows to relevant sectors domestically and in the provinces.

The emphasis should be both on containing the pandemic and growing the economy while creating quality jobs in the process. Good health and wellbeing, and decent work and economic growth that are both embedded in SDGs three to eight can be jointly pursued. Mainly focusing on health issues without emphasising the need to boost and sustain economic growth by capitalising on opportunities sprouting from the pandemic, is like putting the cart before the horse.    

• Dr Ade is an economist with Trade & Investment KwaZulu-Natal.