Domestic factors could dent factories’ fortunes

Ethel Hazelhurst

Though the global outlook is picking up, a string of domestic factors could affect the fortunes of local factories, according to a survey of 61 members of the Manufacturing Circle.

The survey showed low export levels, high input costs, squeezed margins, poor labour market outcomes and a lack of adequate skills in the fourth quarter, Iraj Abedian, the chief executive of Pan-African Capital, said in a presentation of the findings yesterday.

Other factors were shortages of electricity, steel, foundry capacity, sulphuric acid, polymers, coal and water. Most firms surveyed had a turnover of less than R300 million and employed up to 500 workers.

Given weak global demand, the majority focused their sales efforts on the local market. Domestic sales accounted for more than 60 percent of the total. And 54 percent of respondents said exports represented only 10 percent of total revenue.

Companies expected some improvement in the business environment over the year ahead. Though many predicted fragile or weak conditions, a 39 percent majority expected stability. And they saw a further improvement two years down the line.

But this expectation did not prevent job losses and 45 percent of participating firms saw a contraction in the workforce in the fourth quarter of last year – one by as much as 25 percent.

On the other hand, a third of firms hired more people. Increased demand for manufactured goods was one of the drivers, one respondent said. The net effect was no change in employment levels.

Nearly 80 percent of respondents described the skills pool as “poor”. And the proportion who found the skills profile in the existing workforce “adequate” tumbled from about 61 percent in the third quarter to just below 50 percent.

“Given this backdrop, a sustained skills shortage will constitute a major bottleneck to job creation,” the circle said.

Some manufacturers suggested ways to improve the regulatory framework in their industries. These included a review of tariff codes and support from the International Trade Administration Commission of SA for the removal of anti-dumping duties applied to local manufacturers abroad.

Writing in the circle’s quarterly review, ANC MP Ben Turok launched an attack on the Chamber of Mines for its lack of support for adding value to extracted minerals. Manufacturers were forced to pay import parity prices – the same price paid by overseas manufacturers – to mining firms. This, he said, ensured that local manufacturers were uncompetitive.