Ghaleb Cachalia. Picture: RUSSELL ROBERTS
Ghaleb Cachalia. Picture: RUSSELL ROBERTS

The DA has come up with policy proposals to address the decline in the manufacturing sector, which include slashing the corporate tax rate for manufacturers from 28% to 15%.

Another key pillar of the proposals to rescue the sector is to stimulate local demand by allowing a price-premium of up to 20% for goods purchased in SA by organs of state compared to their imported equivalents.

The proposals were released this week by DA trade and industry spokesperson Dean Macpherson, deputy spokesperson Ghaleb Cachalia, DA MP Gwen Ngwenya, and DA spokesperson for economic development in Gauteng, Janet Semple.

The reduction in the corporate tax rate for manufacturers would be conditional on re-investment in capacity to expand production, skills training and corporate social investment. Sector-specific manufacturing incentives would also be granted based on the ability of the manufacturer to improve production efficiencies, lower costs and create new jobs.

Manufacturing has the capacity to be a job multiplier....
DA's policy proposal document

In terms of the DA proposals, local procurement by the state, the largest purchaser of goods and services, would be enforced through a "purchasing audit" by the auditor-general. Organs of state would have to provide "source of origin" certificates for purchased goods to stop "fronting" through local companies simply importing goods.

State-owned entities (SOEs) entering the manufacturing space, such as Eskom and Transnet, would be required to follow stringent procurement processes to facilitate local growth and manufacturing.

Other elements of the DA’s policy proposals include reducing red tape; ensuring policy certainty; preparing the skills base for the fourth industrial revolution; increased trade; reducing energy costs; focusing on SA’s comparative advantage; and a review of steel tariffs and investment in infrastructure.

"The key is to focus not on interventionist regulatory measures and fiscal incentives but rather on facilitating higher value addition through improving skills and public-private sector collaboration. This methodology has also assisted in moving Malaysia from a low-growth to high-growth path," the policy document states.

"Manufacturing has the capacity to be a job multiplier within our country and catapult the country to a new level of development. It is thus vital that the government applies the correct set of tools to encourage this sector. The key areas for concern around manufacturing in SA remain political instability, policy uncertainty, currency fluctuations, skills shortages, low investment confidence and weak local demand."

Negative growth

Outlining the context of its proposals, the DA’s policy document points out that seasonally adjusted manufacturing production decreased by 1.5% in the three months ended May 2018 compared with the previous three months. Nine of the 10 manufacturing divisions reported negative growth rates over this period. Overall, the manufacturing industry decreased by 6.4% and contributed -0.8 of a percentage point to GDP growth in the first quarter of 2018.

The decline in manufacturing had led to a loss of jobs and increased unemployment. In 1994, manufacturing made up between 16% and 17% of the workforce. In 2002, manufacturing employment constituted 16% of the workforce, while in the second quarter of 2018 it had fallen to 10.7% of the workforce.

The latest quarterly labour force survey indicated that manufacturing employment had contracted by 3.1% from June 2017 to June 2018, resulting in a loss of 105,000 jobs.