File VW plant in PE:The scarcity of skilled labour and rising employment costs without a commensurate improvement in productivity are among the stresses on South Africa's manufacturing sector that were expected to result in its contribution to GDP, which was now only second to mining, sliding from a historical high of 22 percent to below 12 percent, according to by Simphiwe Mbokazi 453

The contribution of South Africa’s manufacturing sector to gross domestic product is now only second biggest and is expected to slide from a historical high of 22 percent to below 12 percent in the future, with negative implications for employment, according to professional services firm Deloitte.

The scarcity of skilled labour and rising employment costs without a commensurate improvement in productivity was identified as one of the major stresses on the manufacturing sector in a local manufacturing competitiveness survey by Deloitte.

This followed a larger Deloitte global manufacturing competitiveness survey in which South Africa’s ranking dropped to 24th out of 38 countries from 22nd position in 2010, Karthi Pillay, the manufacturing industry leader at Deloitte, said yesterday.

Pillay said that South Africa’s manufacturing competitiveness in 2010 had been expected to improve to 19th but its ranking was now expected to slip further to 25th within the next five years.

Mike Vincent, the director of advisory at Deloitte, said the global survey results indicated the competitiveness of the large developed economies was expected to decline and that of the Asian and Brics countries, with the exception of South Africa, was likely to improve. The other Brics countries are Brazil, Russia, India and China.

“The challenge is that South Africa has not been a beneficiary of what has been happening in other developing countries. But manufacturing is crucial and the growth engine of any economy and the one area where you can create jobs,” Vincent said.

The most important competitiveness drivers identified by South African manufacturers were the cost and availability of labour and materials; local market attractiveness; energy cost and policies; economic, trade, financial and tax systems; and physical infrastructure.

The top three concerns highlighted in the global survey were talent-driven innovation; economic and tax considerations; and the availability of labour.

Stewart Jennings, the chairman of the Manufacturing Circle, stressed that the cost of labour in South Africa was not so much the absolute cost of paying wages but the productivity issues the manufacturing sector faced in the country.

He said there was a direct correlation between education and unemployment, while the link between skills and productivity was significant.

Coenraad Bezuidenhout, the executive director of the Manufacturing Circle, said South Africa’s competitiveness was deteriorating because inefficiencies were growing.

“It increasingly costs more to do less in South Africa than in some of these other economies,” he said.

Bezuidenhout said a specific intervention was needed on administered prices.

He questioned whether the way infrastructure was funded and the costs recouped compared adequately with its peer economies or if South Africa was undermining the competitiveness of manufacturing and other high-multiplier industries by not addressing this factor adequately.

“We must stop only wanting to put on a plaster when the real problem is a cancer. You must address the cancer.

“Government incentives are necessary. But more and more incentives are not going to be a sustainable answer if the real problems are real competitiveness issues we need to address, such as energy policy, the way we fund and finance infrastructure expansion and maintenance and the inefficient way in which we recoup those costs.”

A Manufacturing Circle workshop highlighted key issues that needed to be addressed to improve competitiveness.

These included the critical need for the establishment of a trust-based working relationship between the government, labour and industry.