Johannesburg: South Africans are living through "dangerous times", Finance Minister Pravin Gordhan told Parliament on Friday, saying it was "clear that investment is still held back by both global and domestic uncertainties". Much of the uncertainty is jitters about Europe, which, as SA's main trade partner, takes a third of manufactured exports. But there are also significant home-grown uncertainties about the domestic economy, as the bloody clash between the Congress of South African Trade Unions and Democratic Alliance over a youth wage subsidy shows.
In its quarterly bulletin released last week, industry body Manufacturing Circle says despite confidence being stable in the manufacturing sector in the first quarter of the year, SA is in real danger of losing its small manufacturing base. It says despite production in the quarter growing 1,9% quarter on quarter, compared with 1% in the fourth quarter of last year, manufacturing in the period accounted for the second-highest number of job losses, even as input costs fell from the previous quarter.
While Manufacturing Circle says recession in the euro zone and a volatile currency lie ahead for manufacturers, what most threatens the economy is deficient water and electricity supplies; scarcity of good grades of coal and steel; soaring costs of transport and energy; uncompetitive labour costs, and the spectre of currency appreciation.
The contribution of manufacturing to SA's economy has long been in decline. The Department of Trade and Industry says last year manufacturing made up 14,6% of gross domestic product compared with 21% in 1977. In March, manufacturing saw an unexpected and significant drop, suggesting poor demand in Europe is taking a toll on SA's exports.
However, Manufacturing Circle also found manufacturers were critical of SA's regulatory framework, and have misgivings over "mediocre" service delivery and a general lack of confidence. But it says there is a "silver lining" in that most impediments can be addressed by policy and administrative reform.
Trade and Industry Minister Rob Davies says manufacturing and industrialisation are the key to long-term growth. To this end, last week he launched the government's R5,75bn manufacturing competitiveness enhancement programme in Cape Town, at the same time that President Jacob Zuma confirmed a youth wage subsidy will be implemented.
However, business is adamant it cannot bear much more in the way of taxes, levies, red tape and inflexible labour legislation, particularly while the global economy is teetering. And while organised labour fears livelihoods are at stake in the face of a potential army of young people entering the workforce on uncertain remunerative terms, its rights are substantially protected by law.
Business Unity SA says it welcomes the new competitiveness incentives, but questions the government's insistence that base employment levels be retained.
Joan Stott, executive director of economic policy, says certain industry codes stipulate that in addition to maintaining base-level employment, businesses must show additional jobs will be created before they can qualify for the programme. Mr Davies says the competitiveness plan should not be looked at in isolation, and hopes manufacturers will gear themselves to take advantage of preferential procurement regulations.
The state wants manufacturers to invest in raising their competitiveness, especially in downstream labour-intensive sectors, saying it will provide assistance to do this.
Mr Davies says manufacturers most affected by the recession were those who did not invest in competitiveness, despite recognising "the difficulty ... both the global and domestic economy places on manufacturers that may be considering investing in modernising their factories."
To this end, the plan aims to encourage firms to make investments in competitiveness sooner rather than later, and is built around production incentives managed by the Department of Trade and Industry and a working capital facility managed by the Industrial Development Corporation (IDC).
"The production incentive component will be very valuable in terms of getting new manufacturing projects off the ground, making production more efficient and more green," Manufacturing Circle executive director Coenraad Bezuidenhout says.
"We expect significant interest from manufacturers in this programme and will be working proactively with the (department) and the IDC to ensure the accessibility and effectiveness thereof."