Dr Rob Davies MP, Minister of Trade and Industry Launches Manufacturing Competitiveness Enhancement Programme at Cape Town Lodge in Cape Town.

Dr Rob Davies MP, Minister of Trade and Industry Launches Manufacturing Competitiveness Enhancement Programme at Cape Town Lodge in Cape Town.

As we have always argued at the dti, manufacturing and industrialisation is the key to the long term growth and economic well being of the South Africans. All of the developing countries that have been able to make the transition from low income to upper middle and high income status, primarily in Asia, have relied on the manufacturing sector as the main source and engine of growth.   Growth in their manufacturing sectors has drawn labour from the less productive sectors such as the informal sector and rural subsistence farming thus raising incomes output, employment and incomes.

Our problems with unemployment and stagnant growth can partly be explained by the less than satisfactory performance of our manufacturing sector. The contribution of our manufacturing sector to the total output of the South African economy has been in decline since the mid 1970’s, Last year our manufacturing sector made up 14.6% of GDP. This is in comparison to 21% in 1977.  In contrast, when we look to the fast growing emerging economies of Asia we can observe the reverse of this trend. In 1977 manufacturing made up 23.65 % of output in Korea and by 2010 this figure had grown to 30.6%, in Malaysia manufacturing output made up 19% of output in 1977 and in 2010 it was 26.1%, in Thailand the figure was 20% in 1977 and in 2010 it stood at 35.6%.   For countries like Singapore and Turkey the share of manufacturing output as part of GDP has remained constant. The reality is that no developing country has prospered in the last three decades with an industrial sector that has shrunk as much as ours.

We are launching the MCEP under difficult conditions in the global economy. The 1st recession in 2008/2009 resulted in a loss of approximately a million jobs in the South African economy, 200 000 of which was in manufacturing. Since then the manufacturing sector has experienced difficulties arising from increasing domestic input costs in the form of rapid electricity increases and labour costs. The situation has been made worse by the monetary response of advanced countries to the recession. The so called quantitative easing practiced by the central banks of the advanced countries has resulted in an influx of foreign currency that has strengthened the currencies of emerging market countries. Until the third quarter of last year South African manufacturers were further disadvantaged by a Rand that was much stronger than its fair value. Since then the currency has been fluctuating widely with the frequent changes in global sentiment caused by the European Sovereign crisis. Both developing and developed countries have responded to this tough environment with a range of industrial policy measures ranging from protecting their home markets to subsidising producers. In the last two years we have observed a flux of very cheap imports in our market across a wide range of sectors such as tyres, glass, etc.

Our observation is that manufacturing entities that had neglected to invest in competitiveness were the most affected by the recession. It was mostly factories with obsolete and antiquated machinery and equipment that were forced to close in the 1st recession. We recognise the difficulty that the current uncertainty in the growth prospects of both the global and domestic economy places on manufacturers that may be considering investing in modernising their factories. Plant managers are likely to have a tough time in the current environment convincing shareholders that this is the right time to make investment in competitiveness raising activities. The MCEP is thus aimed at encouraging our firms to make investments in competitiveness now rather than later.

The MCEP draws from the lessons that we have learned with the Clothing and Textiles Competitiveness Improvement Programme. The CTCIP has been able to stabilise both output and employment in the textiles and clothing sector. After many years of firm closures and job losses, for the 1st last year amid very difficult circumstances in the global and domestic economy, we have seen the resilience in the form of limited factory closures and job losses in clothing and textiles. There is a renewed sense of confidence that is communicated when we interact with factory owners and managers. We are confident that if we can reverse the tide in clothing and textiles, our most difficult challenge in the past decade, we should be able to extend that winning formula to other sectors.

Similar to the CTCIP, the MCEP will comprise of a range of competitiveness raising interventions that each manufacturer can apply for in accordance with their needs. The interventions are clustered around the production incentive, which will be managed by the dti, and a working capital facility which will be managed by the IDC. Guidelines and application forms for production incentive will from today be available on the dti website.  Firms can start applying for both clusters of interventions from the 3rd of June. The intervening two weeks is intended to give the department an opportunity to finalise an on line application system.

Most of the interventions of the MCEP will be in the input side of the operations of firms. MCEP should however not be looked at in isolation. Earlier in introducing the IPAP for 2012-2014 we identified a range of other interventions that seek to create greater market access for our manufacturers. Among these interventions is the Preferential Procurement Regulations.  We hope that firms will take advantage of MCEP to gear themselves to take advantage of preferential procurement regulations as well as the infrastructure programme announced in the state of the nation.