Research on the performance of the manufacturing sector



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Forward and Backward Linkages in the Manufacturing Sector


The value chain between different industries is potentially a very complex subject. One method of looking at the value chain is from a supply-use point of view (supply-use matrix) where you can track all the inputs from one sector to another, or all the usages from one sector to another. This is also sometimes referred to as direct forward and backward linkages from a specific industry’s point of view.

The 2009 supply-use table from Statistics SA is shown in the Appendix, with the focus being on the manufacturing sector. The primary and tertiary sectors have been condensed. A more detailed analysis can also be performed, for example, by looking at the share (percentage) of each sub-sector to the total sector, or by looking at the multiplier impact. But this is outside the scope of this research and future research can focus on this.

The table provides very detail information and although the detail will not be discussed, the principles will be provided on how to interpret the table with one example. Such a table can be very useful to support policy making by looking at potential ‘gaps’ in the value chain that can for example be filled up with SMMEs. This can also be interpreted with employment information and import and export information per sector.

The table is read from the top down (vertical) to look at the usages for a specific sub-sector/industry from other sub-sectors/industries, and from left to right (horizontal) to look at the supply from one sector/industry to another.

Looking, for example, at the furniture industry: it uses R3.7 billion in wood products, R1.76 billion of other fabricated metal (this will include for example all the cutting blades), R531 million of plastic products, R486 million in leather products, R465 million of textile fabrics and R344 million of basic chemicals. It will also use R384 million of agricultural products, and R4.39 billion of tertiary activities.

The domestic furniture sector supply mainly the retail sector (tertiary) with R2.4 billion of products. From Table , it can be seen that furniture on average used 2.36 employers to create R1 million of turnover (down from 4.38 in 2001). The furniture sector import almost the same as what it export (R3.5 billion vs R3.6 billion) and the imports and exports are roughly about 14% each of total supply at purchases prices.


Provincial Manufacturing Activity


Figure shows the provincial contribution to the manufacturing industry between 1995 and 2010. The shares between the provinces remained more or less the same of this period. Gauteng remain the major manufacturing contributor as a province, contributing 40.5% (or R134.8 billion in 2010) of SA’s manufacturing (this remained stable from 40.8% in 1995). This is followed by KwaZulu-Natal at 21.3% and Western Cape at 15%. Northern Cape only contributed 0.5% and Limpopo only 2.7%.

Figure : Provincial manufacturing activity (1995 – 2010) constant 2005 prices


Source: StatsSA

Forecasting in the Manufacturing Sector


Forecasting the manufacturing sector is a difficult exercise, given the dependence of such a forecast on both the uncertainties of the international environment, as well as the domestic growth and government policy environment. Internationally, the European Union seems as if it will go into another short recession given the economic problems in Greece (as well as Spain and Portugal). The EU is the largest manufacturing goods trading partner of SA and economic growth in this region will impact the SA manufacturing environment.

Other variables that will impact the growth in the manufacturing sector will be the exchange rate changes (not only the rand dollar but also the dollar euro), interest rates (that is expected to remain lower for longer; potentially for the remainder of 2012) and the impact of the private sector (and their risk appetite) and government investment (including the 17 strategic infrastructure projects that government has identified).

A forecast, based on a current GDP forecasts for SA and an autoregressive model of the manufacturing sub-sectors, provide a manufacturing forecast of 2.4% for 2011, 2.8% for 2012, 3.2% in 2013 and 3.8% in 2014. The textiles, clothing and leather industry is expected to slightly outpace the growth in the rest of the sectors, given the very low base and the potential impact of lower wages of new employees in this sectors that will impact on the profitability in the sector. Growth in the non-metal mineral products is expected to remain slow given the dependence on the building and construction activity. The detailed forecast per manufacturing sub-sector is shown in Figure and Table .

Figure : A forecast of the manufacturing activity (2011 to 2014 are forecasted values)


Source: StatsSA and own forecast

Table : Year-on-year percentage change in manufacturing industries and forecasted percentages for 2011 to 2014






2009

2010

2011*

2012*

2013*

2014*

Manufacturing

-10.1%

5.4%

2.4%

2.8%

3.2%

3.8%

Food, beverages and tobacco

-4.9%

7.8%

1.3%

3.8%

4.2%

4.7%

Textiles, clothing and leather goods

1.1%

7.8%

3.6%

6.1%

6.4%

6.8%

Wood and paper; publishing and printing

-11.4%

10.3%

-1.2%

2.1%

2.6%

3.2%

Petroleum products, chemicals, rubber and plastic

-5.1%

4.0%

1.6%

2.6%

3.1%

3.7%

Other non-metal mineral products

-23.6%

13.1%

-2.3%

-0.4%

0.0%

0.5%

Metals, metal products, machinery and equipment

-20.1%

6.1%

3.9%

1.9%

2.3%

2.9%

Electrical machinery and apparatus

-4.2%

3.4%

5.8%

4.9%

5.3%

5.8%

Radio, TV, instruments, watches and clocks

-4.8%

3.7%

5.0%

4.5%

4.9%

5.4%

Transport equipment

-10.4%

0.5%

4.9%

2.3%

2.7%

3.3%

Furniture; other manufacturing 1/

-9.5%

0.3%

4.5%

2.6%

3.1%

3.6%


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