South African manufacturing companies have backed calls to increase their production capacity instead of relying on imports in a bid to boost the forecast gross domestic product growth. Picture: Oupa Mokoena/African News Agency (ANA)
South African manufacturing companies have backed calls to increase their production capacity instead of relying on imports in a bid to boost the forecast gross domestic product growth. Picture: Oupa Mokoena/African News Agency (ANA)

South African manufacturing companies rally to localisation call

By Siphelele Dludla Time of article published May 18, 2021

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JOHANNESBURG - SOUTH African manufacturing companies have backed calls to increase their production capacity instead of relying on imports in a bid to boost the forecast gross domestic product growth.

A report launched yesterday showed that local manufacturing businesses could increase their capacity by substituting 20 percent of non-petroleum goods imports for domestically produced goods within five years.

The report was launched by the Business Unity SA (Busa) in conjunction with the Business leadership SA (BLSA) after research and consulting firm Intellidex surveyed 125 businesses. It is particularly important as the government has placed localisation as a central cog in the machinery of policy to best assist South Africa’s economic recovery.

Intellidex said the general sentiment among the 125 companies surveyed was that they support attempts to improve localisation “under the right conditions”.

The survey found that goods-producing companies could undertake substitution of 12.6 percent of imports “right away” under the right conditions, rising to 32.3 percent after five years.

Intellidex’s head of capital markets research, Peter Attard Montalto, said quantitative modelling showed large variation in capacity to localise and ability to do so in short to medium run.

Montalto, however, said businesses were sceptical of existing localisation policy and worried about capacity, price and quality, and the “usual” constraints of electricity and labour regulations. He said that localisation maximisation was possible, but only under the right conditions or it would have negative consequences for prices and recovery.

“Targets could well be achievable over the medium-term, but that the right conditions do not exist in most sectors,” Montalto said.

Manufacturing production in South Africa rose to pre-pandemic levels after increasing 4.6 percent in March from a year before, the strongest growth in factory activity since April 2019.

Busa chief executive Cas Coovadia said the localisation initiative could not be considered in isolation of the broader imperative of fundamental economic reforms that attract investment.

“We remain committed to working with all social partners to attract investment and put the country onto a sustainable economic growth path,” Coovadia said.

“Localisation is certainly an element of this, but must be considered in the context of critical reforms for investment and growth.”

BLSA chief executive Busi Mavuso said business must ensure localisation efforts create jobs and did not lead to increased prices in commodities manufactured locally.

“The study is a critical instrument to contextualise our localisation efforts and ensure these are informed by empirical data, so that we progress in a manner that ensures localisation is sustainable and creates employment, increases competitiveness and produces quality product at competitiveness prices.”

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