Research on the performance of the manufacturing sector



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SECTION 1: INTRODUCTION AND PROJECT OBJECTIVES




Introduction


Um Jwali Market Research was commissioned by the Small Enterprise Development Agency (Seda) to conduct a desktop research study on the performance of the manufacturing sector in South Africa, to determine the role of small to medium enterprises in the manufacturing sector. The study dictated that the manufacturing sector be analysed on a national; provincial and local level which meant that all policies and programmes reviewed also be analysed on these three levels. The study also includes a review of the sub sectors in the manufacturing sector, which encompass the current performance of each sub sector and the challenges experienced by the sub sectors. The overall aim of the study is to identify the potential that the manufacturing sector has for job creation through SMME development.

An analysis of the economic growth and development strategies was completed to establish if there is cohesion between National, Provincial and Local governments departments.

The purpose of this study is to provide a detailed look into the manufacturing sector and the potential that this sector holds for employment creation through an analysis of existing data and documentation. The research further looks at the requirements that are needed to support growth and development for established SMME entities within the manufacturing sector, through programmes, interventions, and strategies that are available.

Project Objectives

Included in this introduction is the project background and objectives as expressed in the Terms of Reference and project briefing document.

With the SMME sector being identified as a key sector to drive job creation and economic development, Seda identified three key sectors where SMME development would result in direct job creation

The three sectors are:



  • Manufacturing

  • Agriculture (Primary and Agro processing)

  • Services Sector

Through the study of the manufacturing sector, Seda hopes to understand each sector and make future decisions relating to products, programmes, and developing partnerships with other organisations to optimally assist SMMEs within the manufacturing sector based on the findings.

Seda has identified the following objectives or outcomes from the study to consider when making decisions regarding future products and programmes to assist SMMEs within the manufacturing sector:



  • The identification of foreseeable sector wide developments within the manufacturing sector.

  • The identification of Spinoffs due to developments in the manufacturing sector.

  • The identification of possible opportunities for SMMEs within the manufacturing sector.

In addition to the above mentioned objectives, the study should provide a basis for identifying:

  • Value chains and the areas that would be most suited for SMMEs to operate in.

  • Projects that are currently available through government and non-governmental institutions which provide growth and development in the manufacturing sector and SMME support.

  • The role Seda can play in stimulating job creation through customized programmes that are specific to SMMEs operating in the manufacturing sector.

Other objectives of the study are:

  • To study the manufacturing sector and its sub sectors with a view to quantify the market potential for current and potentially new products, systems, and Seda services.

  • To create new products and provide support to existing enterprises that has the potential to create jobs within the manufacturing sector.

  • To identify market penetration options and strategies to capture opportunities.

  • To identify key stakeholders in the manufacturing sector and recommend relationships or partnerships that will contribute to the success of government’s drive to create employment.

The structure of the document is as follows, section 2 provides a background to the international manufacturing environment followed by a detail discussion of the SA manufacturing in section 3. Section 4 provides a detail overview of the national, provincial and local policies that guides and supports manufacturing. A detailed sub-sector analysis of the manufacturing sector is provided in section 5; this includes agro-processing, automotive, plastics, chemicals, textiles, metals, wood products, publishing and printing and furniture. Section 6 shows the detail of relevant stakeholders in the manufacturing sector. The results from a telephonic profile are provided in section 7. Recommendations and policy initiatives are provided in section 8 and section 9 concludes.

SECTION 2: INTERNATIONAL MANUFACTURING ENVIRONMENT AND THE IMPORTANCE OF SMMES

Importance of manufacturing – International experience


Manufacturing is a wealth-producing or wealth creating sector in the economy, where the service sector tends to be wealth consuming (Friedman 2006). Even though the tertiary sector in most economies is currently dominant as a percentage of the economy and employment creation, most of these economies were built from a strong manufacturing base.

According to the 2010 United Nations (UN) data, the US is still the largest manufacturer in the world, with a share of 20.2% of the world’s manufacturing, closely followed by China at 18.9%. Japan is third with 11.1% of manufacturing and Germany fourth with 6.4%. The top 10 countries in the world manufacture 72.3% of the world’s manufacturing (see Figure )

Figure : Share of Worlds manufacturing of the top 10 manufacturing economies in 2010
Source: United Nations

Figure shows the manufacturing output by the top 10 manufacturing countries in constant 2005 US$ prices. China has increased its manufacturing output from $153.2 billion in 1990 to $1.6 trillion in 2010 (in constant 2005 prices). This is an increase from 3% of total world manufacturing in 1990 to 18.9% in 2010. The share of US manufacturing has remained flat from 20.3% in 1990 to 20.2% in 2010, but has increased from $1 trillion in 1990 to $1.7 trillion in 2010.

Figure : Trend in manufacturing output in the top 10 manufacturing countries (US$, constant 2005 prices)
Source: United Nations

South African manufacturing (not shown in the graph) has increased in dollar terms from $30 billion in 1990 to R44 billion in 2010 (in constant 2005 prices), but the SA share of world manufacturing output has decreased from 0.61% in 1990 to 0.5% in 2010. This highlights the need for domestic policy to improve the domestic economy and manufacturing output.

Table shows the manufacturing share of total gross fixed capital formation (GFCF) for the top 10 manufacturing countries and South Africa. It is clear from this table that China is building their economy on manufacturing activity, having a share of 43.1% of manufacturing as a percentage of GVA in 2010. The republic of Korea also has a high manufacturing share of 30.4% in 2010 (up from 27% 2004). Germany and Japan have got manufacturing shares of GVA of above 20%. South Africa and Mexico are below 18%.

Table : Manufacturing share of gross value added in the top 10 manufacturing countries and South Africa from 2004 to 2010






2004

2005

2006

2007

2008

2009

2010

United States

13.6%

13.7%

13.7%

14.0%

13.6%

12.6%

13.4%

China, People's Republic of

41.6%

41.8%

41.8%

42.1%

42.2%

42.0%

43.1%

Japan

20.1%

20.6%

21.1%

21.6%

21.7%

19.0%

20.8%

Germany

22.4%

22.7%

23.5%

23.6%

22.4%

19.4%

20.8%

Republic of Korea

27.0%

27.5%

28.3%

28.8%

28.9%

28.3%

30.4%

Italy

18.7%

18.5%

18.7%

18.8%

18.1%

16.2%

16.6%

UK and Northern Ireland

13.6%

13.3%

13.1%

12.8%

12.4%

11.7%

11.9%

France

13.2%

13.2%

13.0%

12.9%

12.5%

11.4%

12.3%

India

15.4%

15.6%

16.2%

16.4%

16.0%

16.1%

15.9%

Mexico

18.7%

18.7%

18.8%

18.4%

18.0%

17.2%

17.8%

South Africa

18.3%

18.5%

18.7%

18.6%

18.4%

16.7%

17.1%

Source: United Nations, own calculations
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