Transcript Re-industrialiUniversity of Johannesburg - Mr

From Workshop to Warehouse?
Pathways to re-industrialisation in the Gauteng CityRegion
Presentation to the Gauteng Economic Indaba
Mark Burke
Centre for Competition, Regulation and Economic Development (CCRED)
University of Johannesburg
09 June 2016
www.competition.org.za
Overview
•
Review of past performance in manufacturing
•
Pathways to re-industrialisation
• Diversification and building capabilities
• Machinery and equipment sector
• The plastics sector
•
Strategic constraints and critical choices
• Constraints
• Strategic implications
• Priorities for action
• Policy implications
Review of Past Performance
Manufacturing Sector
Why manufacturing matters?
•
Manufacturing has greater scope for: learning-by-doing, increasing returns to
scale, cumulative productivity increases; strong growth-pulling linkages with
the rest of a domestic economy; tendencies to technological progress
•
Manufacturing may act as an engine of growth through output and
employment channels (Tregenna 2009, 2015)
•
The growth-pulling effects of manufacturing through backward and forward
linkages with the rest of the domestic economy relate more to the share of
manufacturing in GDP and the growth of manufacturing output
•
Demand multiplier effects, through wages paid, relate to the share of
manufacturing in total employment
De-industrialisation - from workshop to warehouse?
•
Over past 20 years there has been consistent concerns about deindustrialisation, with locally produced manufacturing goods increasingly
displaced by imports
•
De-industrialisation could potentially turn the region, once referred to as the
‘National Industrial Workshop”, into the warehouse of the region as it shifts
from a manufacturing hub towards becoming a logistics hub
•
De-industrialisation is defined as a fall in the share of manufacturing in total
employment, or in GDP, or both
•
Advanced economies undergoing deindustrialization since the 1970s (Palma
2005; Rowthorn and Ramaswamy 1997)
•
Many developing countries (with exception of East Asia) have began to
deindustrialize at relatively low levels of industrial development
De-industrialisation - from workshop to warehouse?
•
In conditions of ‘premature’ deindustrialization, can services act as dynamic
replacement or as an engine of growth?
•
Likely to be relatively low-skilled, low-productivity, non-tradable activities
(which don’t therefore earn foreign exchange) in retail or personal services - do
not have strong properties of increasing returns or the potential for cumulative
productivity increases
•
Services are important, but should services be a focus of policy?
•
If manufacturing is specific engine of growth, it should be focus of policy and
manufacturing related services should be integral (engineering, logistics,
finance for industry)
Manufacturing in South Africa
•
Manufacturing dominated by narrow group of capital intensive sectors (MEC
core) with severe implications for employment
•
Manufacturing outside the MEC core (see next slide) is weaker but has greater
potential to create employment
•
De-industrialization is happening in the core as well as lack diversification
downstream
Manufacturing and the MEC:
Distribution of Capital Stock Across Sectors
MEC sectors
Non-MEC manufacturing
Source: Ashman and Newman 2016
Manufacturing in Gauteng
Figure: Manufacturing Sub-sector GVA as a share of GDP 1995-2013
8
6
4
2
SC03: Food, beverages and tobacco [SIC: 301-306]
SC04: Textiles, clothing and leather goods [SIC: 311-317]
SC05: Wood, paper, publishing and printing [SIC: 321-326]
SC06: Petroleum products, chemicals, rubber and plastic [SIC: 331-338]
SC07: Other non-metal mineral products [SIC: 341-342]
SC08: Metals, metal products, machinery and equipment [SIC: 351-359]
SC09: Electrical machinery and apparatus [SIC: 361-366]
SC10: Radio, TV, instruments, watches and clocks [SIC: 371-376]
SC11: Transport equipment [SIC: 381-387]
Source: Quantec 2016, StatsSA, 2016
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
Manufacturing in Gauteng
Figure: Gauteng Manufacturing Sub-sector share of total employment, 1995-2013
Gauteng Manufacturing Sub-Sector Share of in Total Employment
Source: Quantec 2016, StatsSA, 2016
Source: Quantec, 2016
Manufacturing in Gauteng
•
While the orientation of the economy has shifted towards business and finance
services, Gauteng's manufacturing still forms the cornerstone of the province
and the country accounting for 40% of the share of manufacturing to GDP and
18% of Gauteng’s Gross Value Added
•
Manufacturing sector is the second biggest employer in Gauteng and
accounted for 21% of the province’s total employment
•
In 2013, the largest manufacturing sub-sectors were:
• (1) metals, metal products, machinery and equipment (R 35470,02 million);
• (2) petroleum products, chemicals, rubber and plastics (R 32752,68
million); and
• (3) food, beverages and tobacco amounted to (R 23088,29 million) in MVA.
•
Decline in manufacturing value add has largely been driven by decrease in
metals, metal products, machinery and equipment from 6.2% of GDP in 1995
to 3% of GDP in 2013; and decline in petroleum products, chemicals, rubber
and plastics from 4.3% and 3% over the same period
Pathways to Re-industrialisation
Machinery and Equipment Sector
Pathways to re-industrialisation
•
Machinery and equipment sector
Radio, TV,
instruments,
watches and
clocks
2%
Electrical
machinery and
apparatus
3%
Transport
equipment
9%
Food,
beverages and
tobacco
17%
Metals, metal
products,
machinery and
equipment
25%
Petroleum
products,
chemicals,
rubber and
plastic
24%
Other nonmetal mineral
products
4%
Significant contributor to
GVA (25%)
Furniture and
other
Textiles,
manufacturing
clothing and
7%
leather goods
1%
Wood, paper,
publishing and
printing
8%
Significant contributor to
employment (32%)
Millions
Main exports to SADC, US$
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
2000
2001
Source: COMTRADE
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Food
Other chemicals & man-made fibres
Metal products excluding machinery
Machinery & equipment
Electrical machinery
Motor vehicles, parts & accessories
2012
2013
2014
Regional demand (3 yr average, US$ Bn)
DRC
Angola
Zimbabwe
Zambia
Tanzania
Namibia
Mozambique
Malawi
Madagascar
Botswana
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Billions
• Machinery and mechanical appliances
• Electrical machinery and equipment
• Motor vehicles for the transport of goods
…but losing out to competition
For example, losing market share in Zambia, SA largest export
market for mining capital equipment
Exports to Zambia
Product cluster
Mineral processing
equipment
Offroad special vehicles
Conveyor systems and
others
Pumps and valves
2014 (million)
Market share
CAGR (%)
2014 2004
Change
45.7
104.5
11.7
12.9
26.7%
54.3%
-33.4%
-18.6%
8.2
20.5
52.3%
-5.9%
79.2
13.8
58.1%
-14.8%
Machinery and equipment sector
Sector
Perspective
on Priorities
•
Urgent need for diversification (market, products)
•
Strong local Tier 2 supply chains – opportunities for
transformation
•
Not cost-driven → quality, customization→ implications for
RDI & linkages
•
Shared constraints: skills, electricity, strikes
•
Occasional constraints: transport, road quality
Machinery and equipment sector
•
Strategic priorities
Cluster
Development
Regional
Cooperation
Public
Procurement
Strategic Priorities
Transformation
Skills
Development
& Innovation
Pathways to Re-industrialisation
Plastics Sector
What can the plastics sector tell us about the state
of non-commodity manufacturing?
• Plastics representative of the diversified manufacturing industry – growth is
necessary as part of broader-based economic development
• intermediate inputs to other industries
• not ultra-labour intensive, but it is labour absorbing
• not ultra-capital-intensive but requires investment in appropriate, relatively
sophisticated machinery and moulds
• Identified as surplus producing sector
• SA Plastics Sector
• Plastics sector comprises of convertors, machine suppliers, raw material
suppliers (including recyclate)
• Combined turnover of the conversion segment is +/- R50 billion
• 1800 convertors mainly SMME’s
Performance: Turning point in the performance of the
plastics sector?
190
40
35
170
30
25
130
20
15
110
10
90
5
70
199419951996199719981999200020012002200320042005200620072008200920102011201220132014
Non-commodity manufacturing
•
•
Plastics
Employment
Import-domestic demand ratio
Source: own calculations based on Quantec data
Non-commodity manufacturing =Manufacturing less; Basic chemicals, Coke and refined
petroleum products, other chemicals and man made fibres, basic iron and steel, basic
non-ferrous metals
Percentage
Index, 1994=100
150
SA losing competitiveness in the region
•
•
•
•
•
Demand in the region has grown
strongly
Opportunity for SA, as the gateway to
Africa
BUT-imports from SA have grown in
absolute terms, but losing market
share to others e.g. China
Imports from China growing at CAGR
32% (vs SA 6%).
If SA loses competitiveness to China
in the region this will affect 83% of
our exports of plastics.
Source: Own calculations based on Quantec
data.
SA share of plastics
products in SADC
imports
2011
41%
2012
36%
2013
34%
2014
33%
Strategic Constraints and Critical
Choices
Challenges to re-industrialisation from
machinery and equipment and plastics
Inclusive growth and industrial development
•
Manufacturing important for inclusive growth, multiplier effects; big linkages
between industry growth and services
•
Developing countries acquire capabilities, adopt and adapt technologies in
cumulative learning processes
•
Requires bringing together: production capabilities, conducive environment
such as competitively priced inputs, access to finance, investment in
appropriate technology, and working public infrastructure
•
Nature of building capabilities: takes time and effort to learn to use
technologies, build skills; private firms will inherently under-invest in
activities required to build these capabilities
Challenges faced in sectors
•
High raw material prices
•
Electricity cost and reliability
• Firms supplied by municipalities face higher prices
• Reliability of supply is key
•
Shortage of skills and cost of labour
• Scarcity of skilled labour has led to higher costs
• Unit labour cost much more influenced by productivity than wage rate
•
Poor public transport infrastructure affects ability to run optimal shifts
•
Out-dated machinery and low investment rates
•
Losing capabilities over time
Strategic implications
Growth driven by
regional exports
•
•
•
•
Export markets are a key driver of growth
Regional exports tend to have more value add
Logistics to the region creates inefficiencies
Succeeded when exporters have agents in export markets
Competitiveness
•
•
•
•
•
Raw material availability and costs
Infrastructure (electricity-availability, reliability and cost),
Public transport for 24/7 shifts
Investment in upgrading equipment
Localisation/ local content (auto component manufacturers)
Opportunities
Alignment with
existing programmes/
stakeholders
Skills is a challenge
• Winning back import penetration
• Infrastructure development and rehabilitation
• Growing regional demand
• Municipalities tender design (pipes)
• Government procurement-locally produced
• Public procurement
• Labour productivity more NB than cost
• There is a mismatch between available skills and industry needs
Prioritising issues for action
•
Development of company competencies at local level through gains from
collective learning in informal networks, common understanding, and trust
•
•
Cluster development as channel for initiatives to encourage and support
inter-firm collaboration, production capabilities, and R&D with role of local
government
Importance of public institutions and infrastructure, including electricity,
transport and education & training:
Focus on:
•
Concrete cluster plans, addressing competitiveness, market access,
infrastructure and skills development (for example, South African Minerals
Processing Cluster (SAMPEC)); with clear responsibilities, targets and
monitoring
•
Prioritise – start with a limited number of pilots as flagships and get them going
to demonstrate commitment, including concrete and pragmatic interventions
Policy implications
• Diversify out of the MEC core into more labour intensive sectors
thereby reducing manufacturing dependence on mining so that
we are less vulnerable to global prices:• Promote sectors-sector specific interventions
• Alignment: re-industrialization with energy policy; reindustrialization with housing and public transport issues and
education policy
• Cross cutting infrastructure is important – electricity, water,
transport issues
• Concrete cluster plans require focused work and
commitments
• Rail and rail procurement – take pressure off roads, boost
capital equipment and other sectors
• Regional Value Chains - evidence of exports to region holding
up, deepen and develop
With inputs from:
• Samantha Ashman
• Maphefo Sipula
• Judith Fessehaie
• Pamela Mondliwa
• Simon Roberts