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Thee Competitiveness of
South African
Manufacturing and the
Role of Technology
Strategic Communications
5th CSIR Annual Conference
9 September 2015
Outline of Presentation
Introduction to FTI Consulting
Inroductory Remarks
Recent Economic Outcomes in SA & Manufacturing
Changing Global Manufacturing Landscape
Policy & Strategic Agenda for Manufacturing
2
Section 1
Introduction to FTI Consulting
3
FTI Consulting: Who We Are
FCN
$1.58
1982
440+
79
16
Senior Managing Directors
Offices in 79 cities around
the globe
Experts in 16
industry specialties
Publicly traded
BLN
Market capitalization(1)
Year founded
10/10 94/100 47/100
Advisor to the
world’s top 10 bank
holding companies
4
Advisor to 94 of the
world’s top 100 law
firms
(1)Total Shares outstanding times the closing share price as of December 31,
2014.
47 of Global100
corporations are clients
4,400+
Total employees worldwide
2 Nobel
Laureates
We Advise Across A Global Economy
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With offices in every major financial
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5
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FTI Consulting Segments and Practices
Forensic &
Litigation Consulting
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Communications
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Corporate Communications
Business Valuation
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Advisory Services
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Advisory Services
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Management
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Practice
Restructuring and Financial
Issues
Health Solutions
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Proxy Advisory
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Intellectual Property
Trial Services
6
E-discovery Software &
Services
Strategy Consulting &
Research
FTI Consulting South Africa
Majority-owned by FTI Consulting – New York-listed firm
SA offices in Johannesburg and Cape Town
Heavyweight and medium-weight resourcing approach
BEE Level 2 certification – July 2015
SEC compliance and regulatory standards in everything we do!
7
Section 2
Inroductory Remarks
8
In recent decades SA has been experiencing a gradual
de-industrialization, driven by a cocktail of factors
A Schematic History of SA Manufacturing
Source: Adapted from GIBS
Introductory remarks
1. The nature of global manufacturing business model is
changing, with implications for competitiveness of SA
industries.
2. Manufacturing stakeholders in the public and private sectors as
well as civil society need to rethink revival strategies for the
sector accordingly.
3. Technically, speaking of “manufacturing” is somehow
misleading; we need to focus on ‘industries’ as each has its
own technical, market-structure and geographic dynamics.
4. The pace of change creates inordinate complexity for
industrial policy making- old style policy formulation is a
waste of opportunity!
Section 3
Recent Economic Outcomes in SA & Manufacturing
11
The performance of SA’s economy
remains tied to that of its manufacturing sector
Annual growth in GDP and manufacturing production, South Africa, 1974 - 2014
10.0
10
7.5
5
Manufacturing output
5.0
Per cent
2.5
0.0
-2.5
-5.0
-7.5
0
-5
-10
GDP at market prices
Manufacturing output
-15
-10.0
-4
Source: SARB and PAIRS
-2
0
2
4
GDP at market prices
6
8
Manufacturing contribution to GDP typically rises as the
economy develops but SA has been an exception
Manufacturing share in an economy
2013 SA per capita GDP
USD6886.3 (World Bank)
1995-2014 SA
Average =
15.3%
Source: McKinsey Global Institute and PAIRS
Note: 1 1990 International dollars
In addition to falling short by standards, SA manufacturing
contribution to GDP has gradually been declining
Manufacturing contribution to GDP, South Africa, 1963 - 2014
20
Per cent
15
10
5
0
Source: SARB and PAIRS
Commodities still dominate in terms of the
share of total SA exports
SA export products (% of total exports, average 2010 – 2013)
Mineral
products
24%
Others
24%
Machinery
9%
Precious
metals
21%
Vehicles
9%
Base metals
13%
Source: IMF, Haver , SARS and PAIRS
Sub-Saharan Africa has emerged as
a key destination for SA exports
Export markets (% of total exports, average 2010 – 2013)
subSaharan
Africa
26%
ROW
35%
Japan
6%
Euro area
14%
US
8%
China
11%
Source: IMF, Haver , SARS and PAIRS
Meanwhile, SA’s share of global exports
has lagged that of its BRICS peers
14
3.5
12
3.0
10
2.5
8
2.0
Per cent
Per cent
South Africa’s share of global trade in context, 2001 - 2013
6
1.5
4
1.0
2
0.5
0
0.0
SA
Brazil
India
China
Russia
Source: TradeMap and PAIRS
SA
Brazil
India
Russia
Rising manufacturing unit labour cost is
eroding competitiveness
Manufacturing employment, labour productivity and unit labour cost,
South Africa, 2000 - 2013
250
Index (2000=100)
200
Onset of widening gap
between labour cost and
productivity
150
100
50
0
Employment
Labour productivity
Source: SARB and PAIRS
Unit labour cost
SA scores below the median of EMEs
in many other respects
SA’s competitiveness score in context , 2014/15
Source: WEF, OECD and IMF
High cost or delays caused by domestic transportation
16.6
Access to imported inputs at competitive prices
12.9
Identifying potential markets and buyers
11.2
Tariff barriers abroad
9.3
Burdensome procedures at foreign borders
8.9
Inappropriate production technology and skills
8.9
High cost or delays caused by international transportation
8.7
Access to trade finance
5.8
Corruption at foreign borders
5.4
Difficulties in meeting qlity/qtity requirements of buyers
4.6
rules of origin requirements abroad
3.9
Technical requirements and standards abroad
3.9
Score
Ten most problematic factors for SA exporters in 2013
Section 4
Changing Global Manufacturing Landscape
21
Final product assembly is the most common entry point for
African manufacturers into global value chain
Top activities performed in manufacturing value chains in Africa, 2014
Final product assembly
79%
Packaging and shipping
64%
Intermediate inputs (production of components,
modules)
58%
Sales and marketing
56%
Ancillary services (input retail, equipment services)
44%
Design, research and development
33%
After-sales customer service
24%
0%
Share of respondents
Source: 2014 AEO Experts Survey and PAIRS
Note: Based on a survey of AEO country economists.
100%
Production of intermediate goods is the dominant feature of
South Africa’s participation in global value chains
Value chain indicators, South Africa, 2012
Capital goods
Imports
21.3
52.4
14.7
5.4 6.2
Intermediate goods
Consumer goods
Exports
9.9
75.2
8.6 4.1
Passenger motorcars
2.2
0%
100%
Share of merchandise trade flow
Source: WEF Global Enabling Trade Report and PAIRS
Others
Changing global manufacturing practices
1. Improvements in ICT and transport infrastructure have
contributed to the globalisation of manufacturing value
chains.
2. Outsourcing and off-shoring of functions within
companies’ manufacturing value chains are rising.
3. The following factors drive this trend:
a. Containing cost and improving productivity;
b. Penetrating new markets; and
c. Gaining access to strategic assets in other countries
e.g. skilled labour and technological know-how.
Source: Adapted from BIS
Changing global manufacturing practices
1. The concept of “manufacturing” is no longer understood
in terms of production alone; it increasingly
encompasses varying types of activities:
Illustrative manufacturing value chain
Research
Design
Production
Logistics &
distribution
Sales &
marketing
After sales
services
2. In fact, distinctions between manufacturing and services
are no longer clear-cut.
Source: Adapted from BIS
More than producing goods:
From manufacturing to “manu-services”
1. “Servitization” refers to the innovation of an
organisation’s capabilities and processes to generate
greater value via a shift from selling products to selling
Product-Service Systems (Neely 2013).
2. As
such,
addressing
SA’s
manufacturing
competitiveness stalemate and reviving the sector’s
performance requires taking into account and
embracing the emerging global trends.
3. The servitization of manufacturing is happening during
an era characterised by creative destruction and the
emergence of disruptive technologies.
Creative destruction and
the “age of discontinuity”
Average lifetime of S&P 500 companies
Source: McKinsey
Challenging the status quo:
the advent of disruptive technologies
Some key potentially economically disruptive technologies
Source: Adapted from McKinsey Global Institute
Meanwhile, ICT affordability and skills stock in SA falls
below the average of peer countries
High score = better
Source: WEF, Global Information Technology Report (2014)
Section 5
Policy & Strategic Agenda for Manufacturing
30
To succeed in repositioning SA manufacturing performance
in a changing global environment requires a concerted effort
Public sector:
•Create a positive environment for the sector through strategically coherent policies and institutions
•Promoting frank and robust engagement with the private sector
Private sector:
•Provide effective on-the-job training and promoting technology-related training
•Pro-actively engaging in industrial policy making
Appropriate Infrastructure & Operational Environment:
•Critical infrastructure: power, transportation, ...
•Industrial relations stability
Source: Adapted from GIBS
Introducing Advanced Manufacturing Technologies will
require us to go the Extra Mile
“A lot of incentives would be required, before a widespread adoption of industry
4.0 applications amongst South African manufacturers will happen.“
“The lack of infrastructure is a key risk for the success of the industrial internet
in South Africa. That needs to be overcome first.“
“A lot of South African manufacturers are focused on immediate issues, like
labour and electricity. There is a general lack of focus on building for the future
and investing in education and training as well as R&D and innovation.“
“A shortage of skills should not stop new investments in technology. Skills will
eventually catch-up with industry needs or training will happen.“
Source: Adapted from GIBS
Thank you for your attention
Contact Details
[email protected]
Tel: 011 214 2400
Content Acknowledgement: Pan African Research and Investment Services and the Manufacturing Circle