The country's manufacturing sector is shrinking fast and we must immediately implement broad reforms suggested by the Treasury, says economist. Picture: THOMAS MUKOYA/Reuters
The country's manufacturing sector is shrinking fast and we must immediately implement broad reforms suggested by the Treasury, says economist. Picture: THOMAS MUKOYA/Reuters

SA's manufacturing sector on the line

By Mwangi Githahu Time of article published Feb 10, 2020

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Cape Town - The country's manufacturing sector is shrinking fast and we must immediately implement broad reforms suggested by the Treasury last year to grow the economy.

This is the view of economist Mike Schussler, who was responding to news from Statistics SA (Stats SA) that local manufacturing firms are using less and less of their full capacity due to insufficient demand because of both a weak economy and increased imports, which reduces the need for manufacturing in South Africa.

Last year, Finance Minister Tito Mboweni said: “We are facing a slow-burn economic crisis. Our economy is characterised by weak investment, low savings and untenable high levels of unemployment. Inequality and poverty remain far too high. Our fiscal situation is unsustainable. Clearly, we need to do things differently.”

The lack of efficient government and reliable power generation was also in the firing line.

Economist Dawie Roodt said: “The three-sector model in economics divides economies into three sectors of activity: extraction of raw materials (primary), manufacturing (secondary) and services (tertiary). If we want to grow this economy the emphasis must be on the secondary sector, but this cannot happen without electricity, skills or an efficient state.”

Referring to last week's state visit by German Chancellor Angela Merkel, Roodt said: “It doesn't make sense to invite the Germans to invest here when we have no electricity and cannot guarantee it either. Also, why invest now when we are not using our capacity?”

Stats SA reported the utilisation of production capacity by large manufacturers was 81% in November last year compared with 83% for the same period in 2018.

Roodt said: “These figures are really bad news for economic growth prospects. If it continues we will get 0% growth this year and possibly 0% again in the next one.”

According to Stats SA, “Eight of the 10 manufacturing divisions showed decreases in utilisation of production capacity in November 2019 compared with November 2018. The largest decreases recorded were petroleum, chemical products, rubber and plastic products (-4.1 percentage points), glass and non-metallic mineral products (-3.9 percentage points), motor vehicles, parts and accessories and other transport equipment (-3.7 percentage points), furniture and ‘other’ manufacturing (-3.2 percentage points), basic iron and steel, non-ferrous metal products, metal products and machinery (-2.6 percentage points) and radio, TV and communication apparatus and professional equipment (-2.5 percentage points).”

Chief economist at Stellenbosch University's Bureau for Economic Research Hugo Pienaar said: “The utilisation rate has been under pressure for a long time, but I must point out the rate is never 100%, when things are going well it is pegged at about 86%.”

“That said, where we are now is quite low. The economy has many problems that have caused this situation including supply side issues, safety and security as well as the increases in labour costs,” said Pienaar.

“We have an abundance of low-skilled manpower who should be absorbed into agriculture and mining, but because the economy is not growing, we can't absorb them,” he added.

@MwangiGithahu

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Cape Argus

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