DARYL SWANEPOEL: Ditching our regulatory load could revive factories to fire up growth engine

Driving through the industrial areas of the East Rand, one can see that the once-mighty “workshop of Africa”, has become a depressing business. The humming sound of industrial machinery has made way for abandoned factories, now a breeding ground for pigeons and migrating swallows.

Difficult labour relations, cheap imports, rocketing electricity prices, a lack of confidence in the future as well as policy and regulatory uncertainty have choked SA manufacturing, which now contributes less than 13% to GDP — a far cry from the 24% of the 1980s manufacturing heyday.

SA is in the throes of a painful process of deindustrialisation, which will have economic and political ramifications for an economy struggling to hold the line and create viable opportunities, particularly for young people entering the labour market.

Manufacturing must be an integral part of the vision for inclusive growth and employment, but what will it take to restore industrial production, get people into work and rejuvenate the struggling industry?

Discussions that the Inclusive Society Institute has held with manufacturers affirmed that they are passionate about SA and want to continue to invest in the country, but regulatory burdens — including stringent BEE requirements, rigid labour legislation, skills shortages, failing municipalities and crime — weigh heavily on decision-making by business owners and managers.

If opportunities are to be grasped, SA will have to improve its ease-of-doing-business status and its attractiveness as a place to invest in manufacturing activity. The country aims to be among the top 50 global performers in the World Bank’s Doing Business index, but that objective seems far off — we languished at 84th out of 190 countries assessed in the latest survey. SA is not doing much better on the Competitive Industrial Performance index, which ranked us at 52 out of 152 countries.

Wake-up call for municipalities

To improve its status SA will need to revitalise a spirit of entrepreneurship that is so desperately lacking. Too often merely complying with administrative legalities takes up valuable resources that could otherwise have been channelled into growth.

It is an urgent priority to fix dysfunctional municipalities, in which a lack of service delivery is sending businesses packing. Poultry producer Astral’s court order against the Lekwa municipality for failing to deliver basic services to its factory in Standerton, Mpumalanga, and the departure of SA’s biggest cheese factory from Lichtenburg, North West, over continued poor service delivery, should be a wake-up call for municipal managers countrywide — shape up or business will ship out.

The government should modernise labour legislation to make it easier for employers to hire and dismiss workers. Collective bargaining structures and legislation, which benefit big businesses more than smaller ones, should also to be revisited.

Increases in rates, services charges and wages must be kept in line with and even below inflation. This will allow business to catch its breath, regroup and focus its energy on the proverbial out-of-the box thinking for which South Africans are renowned. From 2007 and 2020 electricity tariffs increased more than 500% and average municipal water tariffs have risen four times faster than inflation since 1996.

Keeping costs in check will improve the competitiveness of SA goods. This move will in turn enhance export growth, especially in the lucrative African market that has turned its sights eastward when purchasing goods.

Function reimagined

The same goes for steel input pricing. We cannot continue to protect upstream steel production at the expense of the downstream steel industry. If protection measures for primary steel producers are to be maintained the same level of protection must be afforded to the downstream industry. SA steel fabricators have significant job-creation potential and can be made competitive again in the vast and promising African market.

Closer to home, more locally manufactured goods must be procured, but only if their costs and quality are competitive. Creating special economic zones (SEZs) in rural areas or revitalising “old” industrial parks located in former homeland areas can act as a catalyst for economic and industrial development in economically lagging rural regions.

However, SEZs have failed to meet expectations. Industry experts believe this is because what is supposed to make them “special” is in fact not so special. The core function of these economic zones must be reimagined.

Financing rules must also be revisited to ensure they promote economic development by mobilising and allocating resources efficiently, making it easier for entrepreneurs to access credit. Banks are unwilling to offer monetary assistance to provide specialised upgrades, for instance, and are arguably more willing to provide loans for more common assets such as buildings or vehicles.

Education is another area that needs urgent intervention. Manufacturing, like many other industries, relies heavily on a skilled labour force, which will contribute to its standing globally. Education must be redesigned to meet job market requirements.

SA’s developed automotive sector is an exception in the otherwise stagnant manufacturing industry. Motor manufacturing has gone from strength to strength since the democratic government’s initial support programme was introduced in 1995. Nowadays, the automotive sector is integrated into global supply chains and is a significant export earner and contributor to skills development and GDP growth.

The long-term strategic partnership between the government and the automotive industry provides a clear illustration of the power of co-operation between government and business — local and global — as well as the importance of a shared vision and common purpose among business managers, trade unions and surrounding communities.

The success of the automotive industry is a model worth emulating and could be appropriately modified for different sectors. It is through a spirit of co-operation and common purpose that SA manufacturing will be moved forward into a new era of success.

It is time to blow life-giving breath onto the embers of the once-roaring furnaces of SA industry, to see the lights burn brightly again through the grimy windows of now abandoned factories. Finding effective strategies to reanimate manufacturing will fire up a much-needed growth engine for the economy.

• Swanepoel is CEO of the Inclusive Society Institute.