How 4IR manufacturing technologies can help turn South African industry around
Opinion / 13 February 2020, 9:00pm / Miyelani Mkhabela
JOHANNESBURG – The World Economic Forum (WEF) 2020 theme on Industry pose a global markets question on “How to help business create the models necessary to drive enterprise in the Fourth Industrial Revolution, responding on the manufacturing technologies; How to navigate an enterprise in a world exposed to political tensions, challenges experienced by emerging markets like South Africa, India and China and driven by exponential technological change as well as increasing expectations from all stakeholders.
The term Industry 4.0 encompasses a promise of a new industrial revolution—one that marries advanced manufacturing techniques with the Internet of Things to create manufacturing systems that are not only interconnected but communicate, analyze, and use the information to drive further intelligent action back in the physical world.
Companies from all sectors across the globe are embracing business in the digital age and the rate of technology adoption in developed and developing markets is increasing at a fast pace, making the level of industry digitisation high, and this value is expected to rise on average from 30 percent to 65 percent within the next five years. In South Africa, the current level of digitisation and integration is expected to rise from about 25 percent to 57 percent within the next five years.
According to statistics South Africa, South Africa's manufacturing production slumped 3.6 percent from a year earlier in November 2019, following a 0.8 percent fall in October. It was the sixth straight month of declines in industrial activity and at the quickest pace since June. Main decreases were recorded in production of wood and wood products, paper, publishing and printing (-9.3 percent vs -5.7 percent); motor vehicles, parts and accessories & other transport equipment (-10 percent vs 0.6 percent); petroleum, chemical products, rubber & plastic products (-2.6 percent vs -0.5 percent); textiles, clothing, leather and footwear (-13.3 percent vs -9.5 percent) and basic iron and steel, non-ferrous metal products, metal products and machinery (-2.5 percent vs -2.4 percent). Output only increased for food & beverages (1.3 percent vs 4 percent). On a seasonally adjusted monthly basis, industrial production shrank 1.5 percent, after a downwardly revised 2.5 percent rise in October. Industrial Production in South Africa averaged 0.93 percent from 1974 until 2019, reaching an all-time high of 18.50 percent in May of 1995 and a record low of -23.20 percent in April of 2009.
Industrial Production in South Africa is expected to be -1.40 percent by the end of this quarter, according to Trading Economics global macro models and it is estimated that Industrial Production to stand at 1.50 in the next 12 months. On the other hand, The Bureau for Economic Research (BER) confirms that South Africa's Absa Manufacturing PMI edged down to 47.1 in December 2019 from 47.7 in the previous month. The reading pointed to the fifth consecutive month of contraction in factory activity, amid declines in new orders and business activity after the country's state-owned power utility Eskom implemented its most severe power cuts to date in December. Manufacturing PMI in South Africa averaged 50.83 points from 1999 until 2019, reaching an all-time high of 57.89 points in March of 2007 and a record low of 38.38 points in April of 2009.
According to Statistics South Africa, Electricity Production in South Africa decreased to 20653 Gigawatt-hour in November from 21571 Gigawatt-hour in October of 2019. Electricity Production in South Africa averaged 18017.82 Gigawatt-hour from 1985 until 2019, reaching an all-time high of 23801 Gigawatt-hour in July of 2007 and a record low of 10439 Gigawatt-hour in February of 1985. The decline in electricity production is caused by poor infrastructure maintenance, poor production planning caused by poor retention of engineers, managers and executives, which is influenced by high political interference and low adaption to the continuously changing technological systems.
Eskom continued to adapt with Governance and accountability corporate structure consisting of a management board and a management team.Post-1994, Eskom embarked on a massive electrification scheme, connecting townships and households that were not connected to the national grid during apartheid. In 1995 alone, the power utility connected more than 300 000 households.In its annual report John Maree, chairperson of the board, restated the company’s mission is to force down the price of electricity for consumers and a pillar for the country’s economic growth. According to Maree, Eskom was generating enough revenue to cover its costs and would be able to raise affordable finance on the international markets to partially help finance expansion projects.
In 2001, Eskom was named the Financial Times Power Company of the Year at the Global Energy Awards Ceremony in New York. It was described as providing the world’s lowest-cost electricity, while at the same time making superior technological innovations, increasing transmission system reliability, and developing economic, efficient and safe methods for combustion of low-grade coal. In 2005 Reuel Khoza, chairperson of the Eskom board said one of the many factors that made the company successful was its commitment to good corporate governance – it wasn't shackled by a regime of crippling debt or unsustainable subsidies from the government. In 2019, its debt levels of R430bn represent about 15 percent of the state’s total debt, debt from municipalities are growing by R1bn per month, and its wage bill has exploded from R9.5bn annually in 2007 to R29.5bn in 2018. The power utility experienced a significant loss of critical skills with poor quality of maintenance and poor workmanship causing continuous electricity crisis that continues to affect the performance and productivity of the South African industry and the economy at large.
The South African Energy Mix strategy is a solution to create a stable industrial market currently and its expected future growth. Minister of Energy, Gwede Manthashe said, South Africa's energy mix still expected to lean on coal in next decade and the additional capacity for the energy mix until 2030 would include 1 500 megawatts (MW) from coal, 2 500 MW from hydro, 6 000 MW from photovoltaic, 14 400 MW from wind, 2 088 MW from storage and 3 000 MW from gas.
According to the Ministry of Energy, South Africa’s total domestic electricity generation capacity is 51,309 megawatts (MW) from all sources. Approximately 91.2 percent, or 46,776 MW, comes from thermal power stations, while 4,533 MW, or 8.8 percent,* is generated from renewable energy, as per October 2019.
Challenges of renewable energy production and cost have been a major concern for the South African economy as many components are imported from abroad making the cost to escalate above anticipated presented by project preparation feasibility studies. The future strategy for renewables will only succeed to provide an economical solution when the country collaborate with renewable energy producers that are having cost-saving technologies for sustainable management and maintenance of facilities. Other than that, the country will be expected to continue with competitive resources that they have such as coal and nuclear power for the next four decades while working on the means to reduce and replace with renewables at reasonable stages that will not collapse the industry.
There is massive potential to grow South Africa’s economy but leadership must create a clear vision that will be understandable to all key stakeholders, that will lead to foster and instil confidence in the domestic business environment in the short to medium for investors to buy in to the new growth prospects and market competitiveness in the manufacturing industry and related sectors.
Restoring investment confidence is South Africa’s primary goal and sometimes it can take longer than expected when we don’t portray consistency in our integrated economic expansion policy position. Everything relates back to Investment confidence and that the major factor investors consider is whether their capital injection will yield the projected Interest Rate of Return and changes in political leadership will not have a direct impact on their investment in the future.
When confidence improves, there is a high potential for foreign capital to reconsider investing in the South African Economy, that can benefit the domestic economy with massive volumes of fresh fixed capital investment that will also assist in creating the needed great and decent jobs to swallow the 29 percent unemployment and 60 percent Youth unemployment.
Mining can play a critical role when there is another boom in the commodities market, that can assist South Africa to restore its benediction market and increase competitiveness by exporting processed products to the global markets. A great foresight will be looking at changing the status quo and redesign the entire industry to have smart industries and smart factories, as that will create jobs. Major economies like China, Britain, the United States and Germany still have above 10 percent GDP growth from the manufacturing industry and South Africa needs to reflect on this reality.
The Department of Trade and Industry Special Development Zones are projects that need tweaking on Tax Incentives and other benefits to attract investors. We believe that when the SEZ programme is reviewed to suit mainly investors interest, we will witness investment flows to South Africa. Infrastructure and Industrialisation project preparation needs critical and analytical analysis for different regional markets we seek to attract investors and developing investment factsheets will need South Africa to realise that investors are starting to have more options to allocate their funds. Our main priority is to create jobs for the 60 percent youth unemployment and that will put the country in a better position for transformation and reducing poverty.
When we say Globalization 4.0 is at hand, we don’t mean that countries mustn’t have a clear competitive vision of their own manufacturing, South Africa with abundance of natural resources still has a huge advantage in industrialisation to increase its Africa trade, as the continent is the biggest importer of consumer goods, Industrial and Mining goods. This new phase of globalization driven by shifts in technology, geopolitics, and social and environmental needs, it will require concerted governance and collaboration from multiple levels - corporate, national and international stakeholders.
The Davos society of experts reflects that this moment of crisis has raised important questions about our global-governance architecture. With more and more voters demanding to “take back control” from “global forces,” the challenge is to restore sovereignty in a world that requires cooperation. Rather than closing off economies through protectionism and nationalist politics, we must forge a new social compact between citizens and their leaders, so that everyone feels secure enough at home to remain open to the world at large. Failing that, the ongoing disintegration of our social fabric could ultimately lead to the collapse of democracy.
The key priorities for political leadership and economic cluster Ministers are to introduce processes that will enable industrial policy to be easily implemented with reasonable tax concessions measures for all the investors that will help South Africa during this economic crisis to quickly regain economic stability. We must be informed about the industrial revolution in talking about it, in alignment with sectors, other than just talking about general artificial intelligence and robotics technology without market relevance, as that will make the country know the terms but practically not participating in the Fourth Industrial Revolution manufacturing technologies.
Manufacturing companies are digitising essential functions internally, as well as along their supply chains. Industry 4.0 is the subset of the fourth industrial revolution that concerns the industry. The fourth industrial revolution encompasses areas which are not normally classified as an industry, such as smart cities, for instance.
Although the terms "industry 4.0" and "fourth industrial revolution" are often used interchangeably, however, "industry 4.0" factories have machines which are augmented with wireless connectivity and sensors, connected to a system that can visualise the entire production line and make decisions on its own. This game-changer technology has advantages to emerging markets as they can also participate in the future of manufacturing with responsible machines and highly skilled human talents to respond on their domestic industrial and food-related production and reduce unnecessary imports.
The rise of new digital industrial technology, known as Industry 4.0, is a transformation that makes it possible to gather and analyze data across machines, enabling faster, more flexible, and more efficient processes to produce higher-quality goods at reduced costs. This manufacturing revolution will increase productivity, shift economics, foster industrial growth, and modify the profile of the workforce—ultimately changing the competitiveness of companies and regions.
Nine Technologies Transforming Industrial Production
Advanced digital technology is already used in manufacturing, but with Industry 4.0, it will transform production. It will lead to greater efficiencies and change traditional production relationships among suppliers, producers, and customers—as well as between human and machine. Nine technology trends form the building blocks of Industry 4.0. The nine manufacturing technologies are : Big Data and Analytics; Autonomous Robots; Simulation technology, Horizontal and Vertical System integration; The Industrial Internet Of Things; Cybersecurity; The Cloud; Additive Manufacturing; and Augmented Reality.
Benefits of Manufacturing Technology to South Africa
New smart technologies are changing the face of manufacturing. Nanotechnology, cloud computing, and the Internet of Things are all improving manufacturing processes and helping manufacturers save costs and increase their products' quality. Once manufacturers have experienced the game-changing benefits of technology, there is no way back. Below you can find some of the most significant benefits that technology brings to the manufacturing industry:
Energy efficiency – one of the biggest costs a factory has are coming from energy consumption. Becoming more energy efficient is the dream of any manufacturer. Technology makes it possible by helping businesses determine where they are losing power and developing solutions to fix those problems. Besides the South African electricity crisis, manufacturers must adapt to the new technologies that will be energy efficient.
Predictive maintenance – Internet of Things is the answer for manufacturers looking for solutions to complete maintenance proactively.
Improved product quality – each manufacturer is continuously looking for methods to enhance their products’ quality. Technology can prevent any small errors which can then affect the quality of the products. Smart machines send immediate signals whenever something goes wrong and thus help manufacturing businesses keep their reputation and deliver products that meet the customers’ demands.
Downtime to zero – Modern technology and its capacity to prevent any malfunctions, downtime is reduced considerably. Therefore, technology can help prevent any situation that may cause delays in production and lower product quality.
Informed decisions - When using smart technology, there will be no single moment when managers don’t know what their machines and people are doing. They can switch from a reactive approach to a more proactive one. As a result, they are able to make more informed decisions and react immediately whenever an event happens.
Challenges facing industrial manufacturing companies in Emerging Markets are low-cost manufacturing; High-value manufacturing; Manufacturing production; Innovation; The cost of input electricity to manufacturing in South Africa; Rising costs of other raw materials; Environmental issues and reactive adaptive systems in technologies.
Miyelani Mkhabela is an Economic Strategist and Director at Antswisa Transaction Advisory Services, contactable at : [email protected] and Twitter:@miyelani_hei