EXECUTIVE SUMMARY - Agbiz · inefficiencyin collective bargaining is problematic. Moreover, low productivity, lack of skills as well as the recent xenophobic attacks were mentioned

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Manufacturing Bulletin

QUARTERLY REVIEWSECOND QUARTER 2015

EXECUTIVE SUMMARY

• Business confidence in South Africa was largely muted in Q2-2015, a trend that followed from Q1- 2015. Disruptions in electricity supply, the volatile exchange rate, industrial action in the form of strikes as well as compromised commodity prices have all added to the less that positive business outlook. The surveyed firms in the manufacturing sector encountered numerous performance inhabiting factors that ranged from high labour costs and lack of essential skills in the sector as well as a shortage of raw material.

• Emerging at the top of concerns for manufacturers is Eskom’s ongoing inability to keep up with the country’s energy requirements. Since the firstquarter of 2008, the SA economy has been gripped by a growing energy crisis with its associated economic and social consequences. The situation has caused material damage to the economy’s present and expected medium-term performance. A lethal blend of policy inconsistencies, administrative and management failures has complicated the crisis. At the time of writing, SA has not yet produced a credible national energy policy which is conducive to a sustainable, globally competitive, and accessible energy mix for the country’s medium term revival of growth and social development. The common thread over the years is the reality that these well-intended and clearly articulated programmes were not implemented.

• The lesson emerging from the past 8 years of harmful experience is that energy provision is not a matter of policy and politics only. Implementation matters most, and for this relevant management skills remain central. Ideological posturing is costly, and results in considerable loss of public funds and social welfare, and the erosion of the national interest. Government’s domestic and international reputation and ratings suffer too. Success, therefore, requires a heavy dose of pragmatism, underpinned by technically sound and technologically competitive components.

• In light of the current business confidence, it is imperative that South Africa creates an enabling environment for all forms of businesses that are vital for the growth and stability of the economy, most importantly the manufacturing sector for reasons we have articulated many times over the years.

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INDEX

Page Article

1. Executive Summary

2. Introduction: First Quarter 2015 Manufacturing Circle Survey

3. Section 1: Overall Manufacturing Business Confidence

3. Section 2: Changing Global manufacturing landscape and implications for re-industrialisation of South Africa

5. Manufacturing: South Africa’s Greatest Opportunity for Job-Rich Growth

6. Section 3: South African Manufacturing Environment: Q2 2015

8. Section 4: Q2 2015 Survey Results

9. Is the Small Business Innovation Partnership Programme the Answer for SME Development in Manufacturing?

INTRODUCTION: SECOND QUARTER 2015 MANUFACTURING CIRCLE SURVEY

BACKGROUND TO THE MANUFACTURING CIRCLE SURVEY

The Manufacturing Circle Survey is compiled by Pan-African Investment and Research Services (PAIRS) on behalf of the Manufacturing Circle. The purpose of the survey is to capture current and expected economic and business conditions in the domestic manufacturing sector.

This quarterly review covers the latest available trends in the domestic manufacturing sector, as gathered from key informants during the second quarter of 2015 (Q2 2015).

PROFILE OF THE SURVEY PARTICIPANTS

The survey contained quantitative and qualitative questions, completed by a total of 73 firms, varying from small to large South African manufacturing companies. The respondents represent different sectors of the manufacturing industry. Using the “Standard Industrial Classification” (SIC) of economic activities codes, the respondents of the Q2 2015 edition operate in the following industries:

• Basic metals, fabricated metal products, machinery and equipment and office, accounting and computing machinery;

• Coke, refined petroleum products and nuclear fuel; chemicals and chemical products; rubber and plastic products;

• Electrical machinery and apparatus not elsewhere classified

• Food products, beverages and tobacco products;• Other non-metallic mineral products;• Radio, television and communication equipment and

apparatus of medical, precision and optical instruments, watches and clocks

• Textiles, clothing and leather goods;• Transport equipment; and• Wood and products of wood and cork, except furniture;

articles of straw and plaiting materials; paper and paper products; publishing, printing and reproduction of recorded media.

The majority of firms that participated in the Q2 2015 edition of the Manufacturing Circle survey fall in the category of small to medium companies in terms of the size of the workforce as well as the level of turnover. For instance, Fig. 0.1 shows that approximately 7 out of 10 surveyed firms said they employed less than a thousand workers in Q2 2015. Similarly, as shown in Fig. 0.2, about 8 out of 10 respondents said they had a turnover of less than R1 billion in Q2 2015.

Picture on cover courtesy Aspen Pharmacare and Peter Morey Photographic

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QUARTERLY REVIEW SECOND QUARTER 2015

Fig. 0.1: How many employees did your company have over the quarter?

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SECTION 1: OVERALL MANUFACTURING BUSINESS CONFIDENCE

The Manufacturing Business Confidence measure is based on the Manufacturing Circle Survey and reflects the overall confidence of domestic manufacturers in the sector in relation to the respondents’ feedback.

MANUFACTURING BUSINESS CONDITIONS

According to the latest survey, business conditions in the manufacturing sector were on the whole downbeat during Q2 2015. A staggering 73 per cent (approximately three quarters) of the respondents said that business conditions were either poor or fragile during Q2 2015. This also indicates a worsening in this category from the same period a year ago as 67 per cent of the respondents had then indicated that conditions were either poor or fragile. In a similar manner, the proportion of those who said that business conditions were stable to good declined by 5 per cent, and unlike in Q2 2014, none of the surveyed manufacturers saw business conditions as being strong.

Going further to understand the respondents’ sentiments regarding business conditions, the survey reveals that numerous factors are responsible but a few stand out. The responses show that the generally negative economic conditions are not good for business nor are they inspiring much confidence for business in the foreseeable future. For starters, on the production side, the

ongoing energy crisis is cited extensively as a source of concern. The respondents argue that load shedding, the uncertainty associated with electricity provision by Eskom, as well as overall energy constraints in the country are having a negative impact on both productivity and profitabilit . Furthermore, they indicate that the rising electricity prices are resulting in increased production costs. The survey results also suggest that the weak and volatile rand is hurting business; as an example they pointed out that it adds to volatility and hence more uncertainty in doing business, and also increases the cost of imported inputs, thereby driving up overall production costs. Labour issues are too seen to be adding to the negative outlook. Respondents said that unrests in the labour market, especially those in the mining sector are hurting business. For example, one respondent indicated that inefficiency in collective bargaining is problematic. Moreover, low productivity, lack of skills as well as the recent xenophobic attacks were mentioned as having and/or having had a negative impact on manufacturing.

Fig. 1.1: How do you perceive the manufacturing sector’s conditions over the past quarter?

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On the demand side, a great number of the survey respondents indicated that the overall demand for their manufactured output has been compromised. Several said that (cheap) imports from countries such India, Brazil and especially China are resulting in less demand for their output and in general are resulting in a smaller market for them. Another source of less demand is said to be the slower expected growth in China, which is resulting in less demand for commodities and/or lower commodity prices. The decline in commodity price emerges as an important factor in the downbeat business environment. All in all, the results show that there has been a general decrease in demand from both the domestic and foreign market, although some respondents that demand is good or is about to pick up in the near future.

The major findings of the Q2 2015 Manufacturing Circle Survey are presented in Section 4.

SECTION 2: SA ENERGY OPTIONS: LEARNING FROM SELF-INFLICTED CRISIS

Since the first quarter of 2008, the SA economy has been gripped by a growing energy crisis with its associated economic and social consequences. The situation has caused material damage to the economy’s present and expected medium term performance. The mining and manufacturing sectors have suffered considerable, and in part irreparable, damage.

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MANUFACTURING: SOUTH AFRICA’S GREATEST OPPORTUNITY FOR JOB-RICH GROWTH

At the recent Second Annual Manufacturing Indaba of 29 and 30 June 2015 at Emperors Palace, Ekurhuleni, Bruce Strong used his keynote speech to launch “Three Goals to Grow Manufacturing: South Africa’s Greatest Opportunity for Job-Rich Growth”, a brief document setting out the vision of the Manufacturing Circle’s members for taking South Africa’s manufacturing sector forward. The document is available online at http://manufacturingcircle.co.za/documents.html and what follows is an edited excerpt from the Manufacturing Indaba Conference Proceedings Report on Mr Strong’s speech:

Manufacturing companies may differ in shape and size, or have different views, but no manufacturer experiences challenges that are unique. The agenda should be to promote positive changes to support the resilience and address the challenges that exist for manufacturers in South Africa. In this, the Manufacturing Circle represents the voice of manufacturers in South Africa, with its purpose being to promote job creation.

Mining, banking and retail sectors are important, but dependent on how the manufacturing sector does. Manufacturing, in turn, is important for a number of reasons that may be well understood. Manufacturing employs more than 1.6 million people, in South Africa, provides base load and scale for infrastructure such as electricity, rail, water supply and many other municipal services.

It is one of the top three multiplier sectors, in terms of value addition are job creation, export earnings and revenue generation. Manufacturing is also a driver of tertiary education, responsible for the absorption of skilled people into the workforce and accounts for more than 12% of the gross domestic product (GDP).

However, manufacturing is also important for three reasons that may be less well-known:

• Research shows that the fortunes of South Africa’s economy are tied to the prospects of the manufacturing industry and vice versa. Over the last four decades, growth of manufacturing mirrored GDP growth in SA. This implies there is a significantopportunity for manufacturing to become an engine rather than a mirror of growth.

• Manufacturing in South Africa’s destiny is waiting to be fulfilled. The manufacturing share of GDP remained around an average of 15% for the past two decades, and should be able to reach double that figure given the level of development the country’s economy is at.

• Opportunities are arising to return manufacturing jobs to South Africa as costs in China rise, as global manufacturers seek to diversify supply chains and as we gain better access opportunities for cheaper energy in the coming years. We can also access rapidly urbanising African markets with close to a billion consumers, with their many young people

entering the work force, and the various energy exploration and exploitation developments that are under way and need to be serviced.

To promote a more resilient manufacturing environment that could leverage these opportunities better, three goals were identified by the Manufacturing Circle’s membership. Briefly:

1. South Africa’s manufacturers must achieve a competitive manufacturing environment;

2. manufacturers must attain a supportive international trade position; and,

3. the reputation of South African manufactured products must be advanced domestically and around the world.

These three goals have been published in a document entitled “Three Goals to Grow Manufacturing: South Africa’s Greatest Opportunity for Job-Rich Growth” and will be expanded upon soon as manufacturers meet to consider policy proposals to support each point.

Bruce Strong, CEO of MPACT and Chairperson of the Manufacturing Circle

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Energy Development Institute focusing on energy efficiency and energy research and development.

THE POLICY ADJUSTED INTEGRATED RESOURCE PLAN 2010:

The plan was released for promulgation in March 2011, and includes a total of 17.8 GW of renewable energy by 2030.This would include 8.4 GW of solar PV, 1.0 GW concentrating solar power and 8.4 GW of wind. The plan also includes the provision for 6 new nuclear power stations, totaling 9.6 GW of new capacity and the mega coal-fired power stations Medupi and Kusile, as planned. Not only was this plan developed without a review of the renewable energy white paper, but it was also developed without an overarching Integrated Energy Plan (IEP) – both of which should inform the electricity planning for the country’s medium term needs.

The common thread over the years is the reality that these well-intended and clearly articulated programmes were not implemented. The government never implemented the vision of the 1998 White Paper on Energy; never implemented the REDS, and never implemented the ISMO Bill. It also failed in a series of procurement drives to pull in the private sector (PNCP, MTPPP, Base Load Programme, others), failed in demand interventions (Solar water geyser rebate programme, Power Conservation Programme). Critically, it is a fact that savings were not retained in years when Eskom was profitable and failed to shift the economy to cost-reflective electricity prices (see Fig. 2.1). All of these coupled with other aspects, including ruptures in the industrial relations arena, played their respective parts.

Figure 2.1: South African and International Average Electricity Tariffs, 2014

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The lesson emerging from the past 8 years of harmful experience is that energy provision is not a matter of policy and politics only. Implementation matters most, and for this relevant management skills remain central. Ideological posturing is costly, and results in considerable loss of public funds and social welfare, and the erosion of the national interest. Government’s domestic and international reputation and ratings suffer too. Success, therefore, requires a heavy dose of pragmatism, underpinned by technically sound and technologically competitive components. Equally importantly, whilst SA has been floundering in policy contestations and implementation failures, the global energy revolution has been gathering momentum over the past decade. Both supply and demand factors have been at full play. As a result, energy sources, power generation technology, transmission and distribution modalities have been subjected to unprecedented paradigm change. The world over, the boundaries of public and private sectors in the energy field have been redrawn dramatically.

Recent global studies offer convincing evidence that in the

Job losses have been massive, and lost opportunities plenty. Ironically, the self-inflicted damages have been recognized by three successive presidents, four administrations, and a number of energy ministers - all to no avail. A lethal blend of policy inconsistencies, administrative and management failures has complicated the crisis. Instead of solving the problem in hand, successive administrations have compounded the policy fields with some or other distractive interventions. At the time of writing, SA has not yet produced a credible national energy policy which is conducive to a sustainable, globally competitive, and accessible energy mix for the country’s medium term revival of growth and social development.

Of course, this is not to say that there have been no attempts to formulate acceptable policies. Far from it, there has been too many. The upshot of all these policies is a remarkable and substantive case of “government failure”. Below is a synopsis:

WHITE PAPER ON ENERGY POLICY (1998):

This document outlined five key objectives: to increase access to affordable energy services particularly to meet the basic needs of the poor, to improve energy governance, to stimulate economic development, to manage energy related environmental impacts particularly focusing on poor households and to secure supply through diversity.

WHITE PAPER ON RENEWABLE ENERGY POLICY (2003):

The target set by the White Paper is that South Africa should produce 10,000 GWh of renewable energy by 2013. This paper also called for a mid-term assessment in 2008, which was scheduled to occur in 2010. However, the review of the renewable energy white paper was not released for stakeholder comment by mid- 2011 and did not inform the integrated resource planning process.

ENERGY EFFICIENCY STRATEGY (2005):

The vision of this strategy is to strive for affordable energy for all, and to minimize the negative effects of energy usage on human health and the environment through sustainable energy development and efficient practices. The strategy sets a target of 12% energy savings by 2015 with 8 goals based on social, environmental and economic sustainability.

THE ELECTRICITY REGULATION ACT (2006):

This Act was amended in 2008 making provision for energy efficiency measures with respect to lighting, water heating and space heating/cooling and smart metering to be enforced as well as ensuring that incentives and penalties are legislated. These energy efficiency applications included in the Act are largely the responsibility of municipalities to enforce and/or implement by 2012.

NATIONAL ENERGY BILL (2008):

The primary objectives of this Bill are to ensure an uninterrupted and diverse supply of energy, facilitate effective management of energy demand, promote energy research and standards, ensure data collection, optimize supply and demand, facilitate universal access to energy at affordable prices and ensure the health and safety of people and the environment. To this end it was proposed that the Minister must annually review and publish an integrated energy plan and set up the South African National

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in addition to these countries, SA itself has its own and many other African sources of gas supply. Critically, ramping up the country’s energy-from-gas requires almost no fiscal investment. Within the existing policy and pricing framework, nearly all the additional investment could be easily sourced from the capital markets. The role of government would be to facilitate, promote, and streamline policies.

In brief, procrastination in dealing with the country’s structural fault-lines is harming the national interest. Relying on old-style nuclear reactors to provide energy stability is an expensive, highly risky and deeply problematic intervention. In addition, it may become a major distraction too. Nuclear technologies themselves are subject to technological disruptions, and it will take a number of years before they settle down. Rushing to install old-style reactors now is bad timing at best, and financiallyirresponsible at worst. The sooner we recognize the clear and present disruptive forces within the global energy market, the sooner we can set up the country for success. SA has all that it takes to solve its energy crisis; but we need to learn to avoid the same mistakes!

SECTION 3: SOUTH AFRICAN MANUFACTURING ENVIRONMENT: Q2 2015

The business confidence index of South Africa exhibited a downward trend in Q2 2015, and this was following a similar decline in Q1 2015 (see Fig 3.1). This indicates a general decrease in the country’s business confidence. The Bureau for Economic Research (BER) indicates that the decline of six index points (from 49 in Q1 2015) by the index that puts it at 43, places the business index in the same position as it was in the first half of 2014 when the country’s economy took a negative blow from the strikes in the platinum sector. Taking a closer look at the different components of the index; both new vehicle dealers and retailers recoded a decrease while wholesale recorded (a slight) improvement, and building and manufacturing (dropped by one point to 29) remained virtually unchanged. The main culprits for the decrease in the Q2 2015 business confidence according to the BER are increasing petrol prices, growing dread over higher electricity tariffs as well as fears of an interest rate hike (that actually panned out).

Fig. 3.1: RMB/BER business confidence index, SouthAfrica, Q1 2011 – Q2 2015

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decades ahead, the following is likely to be on the cards with regards to a sustainable energy policy for nations:

a. Gas will assume a growing importance in terms of cost as well as environmental considerations.

b. Solar energy will maintain its rapid growth, and falling prices in solar technology sector will help countries to avoid the cost and complexity of building national grids. National utilities, such as Eskom, will probably be the first,but far from the only, major sector to experience solar’s disruptive potential.

c. Coal will remain a major player, but at a declining rate. As the McKinsey Global Institute (2015) points out: “According to the US Energy Information Administration, coal still accounts for 39 per cent of US electricity generation today, but that’s down from almost 50 per cent a decade ago; moreover, no new coal-fired capacity is expected to come on line. And although coal is proving irresistible as much of Europe shifts away from nuclear and continues to experiment with renewables and shale gas, its attraction will fade in time as a result of environmental concerns.”

d. Nuclear remains controversial, highly risky and in serious doubt. Certainly the traditional nuclear reactors with heavy upfront capital expenditure are financially doomed, and socio-environmentally irresponsible. Advancements in the nuclear field are, however, likely to provide alternatives as a component in the national energy mix. As an emission-free source of constant base load power, new generation modularized nuclear reactors may be feasible for a number of countries.

e. The battery technologies will prove equally disruptive over the next decade.

In this context, the global competitiveness of nations will be influenced by two broad variables; one is the structure of the energy sector, and the other the mix of energy sources. Learning from our past 8 years of damaging failures, we need to set the country on the path to recovery as a matter of urgency. In line with the world wide trends in successful countries such as China, USA, and many EU member countries, the SA national transmission grid should be separated from generation and distribution. The grid itself, as a ‘natural monopoly’, should remain a national utility so as to promote stability and accessibility on cost-reflective basis.

Power generation, however, should be decentralized and localized to the maximum extent possible. Both national and local government policies should promote localization of power generation as part and parcel of risk mitigation and energy diversification. Both the residential and industrial sectors will accelerate their participation in the generation activities - something that the country badly needs. Importantly, there is no need for subsidization; rather regulatory facilitation and promotion are needed.

With regard to the diversification of energy sources, SA has achieved a great deal in promoting alternative sources such as wind and solar as well as bio fuel. One critical field that is lagging behind is gas. This is ironic because, as mentioned above, gas remains one of the most feasible components of national energy globally, and for SA in particular. Given SA’s energy crisis, gas is the obvious option both financially and in terms of “time to market”. Also, importantly, the rapid promotion of gas-to-power will accelerate both short term and medium intra-Africa trade and investment. Countries such as Algeria, Nigeria, Angola, amongst others, have known and substantial gas (LNG) reserves. In the short term, i.e. between 2 to 3 years, SA could source its gas requirements from these countries. Over the long term,

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Source: BER and PAIRS

Table 3.1: Barclays Purchasing Managers’ Index (quarterly average), South Africa, Q1 2014 – Q1 2015

PMI Business Activity

New Sales Orders

Backlog of Sales Orders

Inventories Purchasing Commitments

Suppliers Performance Prices Employment Exp. Business

Conditions

Q22014 46.5 43.6 44.7 36.4 53.4 42.3 53.1 74.6 44.4 57.4Q32014 47.9 45.6 47.5 37.3 49.5 45.3 54.7 77.5 45.4 55.7Q42014 51.2 51.5 52.6 43.0 54.8 57.3 51.0 69.0 46.9 57.9Q12015 49.9 50.6 50.7 35.1 55.1 53.9 50.7 63.4 44.6 64.0Q22015 49.2 47.3 48.7 33.1 55.8 48.6 52.7 73.1 46.4 46.9

Source: Bureau for Economic Research and PAIRSNote: (1) Seasonally Adjusted

Reflective of the compromised business confidence, the Barclay’s Purchasing Managers’ Index (PMI) also declined from the previous quarter’s 49.9 to 49.2 in Q2 2015 (see Table 3.1). A PMI falling below the level of 50 indicates a contraction in business activity, therefore the Q2 2015 PMI of 49.2 reflectsa contraction. The ongoing energy crisis in South Africa is one of the possible causes negatively affecting the manufacturing sector as the sector is highly energy intensive. Of the five sub-indices used to calculate the PMI, the ones carrying the most weight, i.e. business activity and new sales orders both declined from Q1 2015 to Q2 2015. On the other hand, the next important sub-index of the PMI, employment, improved from 44.6 to 46.4 during the same period. Expected business conditions took a major blow as it decreased from 64.0 to 46.9. It is interesting to note however that even though the PMI decreased from Q1 2015 to Q2 2015, it is still higher than the Q2 2014 PMI that stood at only 46.5.

The PMI’s price sub-index increased from 44.6 in Q1 2015 to 46.4 in Q2 2015 (see Table 3.1), and this is in line with producer prices for final goods that increased to 3.4 in Q 2 2015 from 3.1 in Q1 2015 (Figure 3.3). The rand exchange fell to its lowest level in since 2001 in July 2015, indicating that the rand remains weak and volatile (see Fig 3.4), applying upward pressure on imported input costs, and this is evident in the rise in the PMI price sub-index as well as the producer price index (of final goods). What’s more, the relatively low international oil prices (see Fig 3.2) do not appear to be translating into lower producer prices, and the weak rand is a possible reason for this.

Fig. 3.2: Brent Crude Oil Price (USD per barrel), 2014 Jul – 2015 Jul

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Fig. 3.3: Quarterly average producer price index inflation for final manufactured goods, South Africa2013 Jan – 2015 Jun

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Fig. 3.4: Rand per US Dollar exchange rate, 01 Jan 2014 – 04 May 2015 12.5

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According to Statistics South Africa, employment in the manufacturing sector declined from 1 779 000 in Q1 2015 to 1 756 000 in Q2 2015. This indicates that moving from Q1 to Q2 2015, approximately twenty three thousand jobs were lost in the manufacturing sector. Some of the factors that this could possibly be attributed to include persistently weak domestic expenditure along with an evident relapse in foreign demand for locally manufactured goods (BER). Employment in this sector has, however, grown slightly by 0.63 on a year-on-year basis in Q2 2015 from Q2 2014.

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Fig. 3.5: Quarterly manufacturing employment, South Africa, Q1 2008 – Q2 2015

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SECTION 4: Q2 2015 SURVEY RESULTSi ii

This section provides an analysis of developments in the domestic manufacturing sector, based on the respondents’ feedback in the Q2 2015 Manufacturing Circle Survey.

A. DEMAND CONDITIONS

The local as well as the foreign markets are important to local manufacturers according to the results from the manufacturing sector survey resented in Fig. 4.1. For example, 50 per cent of the manufacturers sold up to 20 per cent of their output to the foreign market in Q2 2015, and a further 19 per cent exported up to 40 per cent of their output. On the other hand, 44 per cent of local manufacturers sold up to 100 per cent of their output in the domestic market in Q2 2015, with another 32 per cent having sold up to 80 per cent of their output in this market. This goes to show the significance of the domestic market for the local manufacturing sector.

Fig. 4.1: What proportions of your production were sold domestically / exported?

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All in all, the performance of domestic and export sales was lacklustre in Q2 2015. The survey shows that only approximately a quarter of the respondents reported a positive growth in the volume of domestic sales and 36 per cent in export sales in Q2 2015; both lower than the results of a year ago. In addition, 50 per cent of the respondents reported a decline in domestic sales in Q2 2015.

Some of the factors that affected demand negatively, according to the survey responses, are listed below:

1. Weak demand conditions because the global economy remains fragile, which are resulting in dampened local and foreign demand.

2. Negative conditions in the mining sector, an important client for the manufacturing sector are negatively impacting demand.

3. Elevated competition from imported goods, e.g. goods from China

Despite a generally muted output demand, some firms reported experiencing good sales due to:

1. A competitive rand exchange rate, especially with regards to foreign demand;

2. Buoyant demand from the African continent;3. Increased focus towards international markets on the back

of domestic market weakness.

Similar to earlier survey outcomes, Africa, Europe and North America remained the most significant destinations for the majority of the domestic sector manufacturers in terms of exports. For example, more than 8 out of 10 respondents exported goods to Africa in Q2 2015, and about 8 out of 10 exported goods to Europe (see Fig. 4.4).

9


There are a number of new opportunities for SA, which emerged from the discussion at the conference: high value niche markets, integrating into global supply change and infrastructure development. Having markets that are open to competition and making sure that the bankruptcy laws and regulatory systems encourage entrepreneurship is important. There are too many countries in the world that want entrepreneurs and innovation, but where the bankruptcy laws impose penalties that are so high that they discourage any involvement.

To strengthen R&D, it is important to bring in talent from around the world: the university system needs to be internationalized and the executives need to be internationalised. The United States has the highest share of R&D worldwide – this provides good opportunities for collaboration in order to energise innovation systems. Small companies faced some distinct challenges: many are ‘home alone’ companies. They do not have the machinery to test their ideas. That is where the industrial commons is very effective: for example, the Fraunhofer system in Germany and the I-Corps programme in the US to mentoring for promising entrepreneurs.

Critical for new innovation is to ask the customer what is needed. Public-private partnerships (PPPs) are very important and industry research consortia are important for both large and small companies. The problem is how to get technologies out into the market. Many say ‘if it is a good idea, then the market will fund it’. That is not true, as it is difficult to figure out whether an idea will work – especially for a venture capitalist. For example, when Google started, it was not clear that the idea would work and many refused to invest). The phrase is the ‘valley of death’: when you try pull ideas from applied research through development and demonstration to the finaldeployment. The reality is that potential investors have limited knowledge. Often venture capitalists wait till an idea is better established as the risk for them is lower or they are crowd-driven: they follow the industry or sector that seems to be “in” at the moment.

Seed stage funding in the US is mostly given by friends, family and personal savings. Venture capital is at the same level for seed funding as bank loans.There is a programme in the US called Small Business Innovation Research (SBIR), which competitively awards grants and contracts to support technological innovation in small companies. It allows small companies to develop early-stage ideas that are promising but too high risk for other forms of funding. It puts forward solicitations in certain topics and sectors. Some people also submit outside of specific solicitations. It grants money in different phases: first phase funding is US$150 000, during which the company works out a proof of principle. If this is successful, it is granted a second phase, at US$1 million. It is at this point that the private sector wants to come in, because projects have undergone two cycles of due diligence.

The funding does not need to be paid back, but the company pays taxes on income. The system is decentralised and flexible: in the US, each government department uses its money for its goals, but it has to be given to small companies. The funding for the programme is also stable as it does not need to be accepted by US

IS THE SMALL BUSINESS INNOVATION PARTNERSHIP PROGRAMME THE ANSWER FOR SME DEVELOPMENT IN MANUFACTURING?

South Africa needs innovation as this is how it can grow and maintain its competitive position. This was the message of Dr Charles Wessner an expert on Global Innovation Policy from Georgetown University in the United States of America to the Second Annual Manufacturing Indaba, held at Emperors Palace on 29 and 30 June this year. The following is an edited extract from the conference proceedings report on Dr Wessner’s address at the Indaba;

South Africa has a challenge of independence: in order to be independent, it has to be confident and has to grow and has to have a vibrant economy. To do that it needs to innovate and to do this effectively it needs to collaboration between small and large businesses, with universities, and with government. These entities are not enemies; they are essential collaborators. For this, South Africa needs to change, which means new laws, new institutions and incentives.

South Africa and the United States have some common challenges:

• inadequate infrastructure investment – in the US bridges are falling down and roads are collapsing and in South Africa power structures are faulty;

• not enough spending on education and R&D;• neglected middle skills technical training;• problems with early-stage financing• suffering from de-industrialisation and off-shoring;

and,• figuring out how to capture the benefits of new

technology and the employment growth it can generate.

This shows that South Africa is not alone but the solutions are hard because they require change and focus. Leading countries are setting the standard: they are supporting their industries, funding research, supporting innovative small businesses and they are focused on partnerships. There is nothing that others are doing that SA cannot do. The country needs only consistency and effort, and you need the ability to change when necessary.

Innovation was not something that happened in a university laboratory or a garage, or that happened because someone called for it. It was something that required collaborative groups of people and institutions that worked together. Innovation is also non-linear with a lot of unanticipated applications. It requires that one has to be prepared to change when something does not work.

Innovation was also not necessarily new: it can be something new to the country/region/sector/company, taking business models and adapting them to the local context. It can also mean innovation in the existing industrial base to improve productivity within existing companies. The concept of an ‘innovation ecosystem’ was a dynamic one that encompassed both disturbances and recovery. It is characterised by non-linearity and interdependence.

10

Fig. 4.2: What is the percentage change in the volume of domestic sales?

2

11

11

9

3

5

6 to 10%

11 to 15%

> 15%

Q2 2015 Q2 2014

4

16

31

13

2

11

11

6

9

18

20

15

9

3

15 t 11%

‐10 to ‐6%

‐5 to ‐1%

0

1 to 5%

6 to 10%

11 to 15%

> 15%

9

2

4

16

15

6

9

18

0 10 20 30 40

< ‐15%

‐15 to ‐11%

‐10 to ‐6%

‐5 to ‐1%


0 10 20 30 40


Fig. 4.3: What is the percentage change in the volume of export sales?

2

13

7

9

6

2

6 to 10%

11 to 15%

> 15%

Q2 2015 Q2 2014

7

20

24

13

2

13

7

5

9

22

25

9

9

6

15 t 11%

‐10 to ‐6%

‐5 to ‐1%

0

1 to 5%

6 to 10%

11 to 15%

> 15%

11

2

7

20

14

5

9

22

0 10 20 30 40

< ‐15%

‐15 to ‐11%

‐10 to ‐6%

‐5 to ‐1%


0 10 20 30 40


Congress every year. The programme is large scale and thus gives a portfolio effect, where because of the large number of projects supported, it is very likely that some of them will work. Every year about one third of the projects/companies are new. The programme generates employment, innovative products and solves problems for the US government. It has supported companies that are now listed on the stock market.

Opportunities exist now with smart manufacturing: it is smarter, safer, more environmentally stable, highly automated. These new technologies are driven by cloud services, mobile apps, the internet of things, data analytics, collaborative robotics, etc. These opportunities need to be engaged in. What needs to be done, both in the United States and South AA is to invest more in R&D, greater recognition of the need for a skilled workforce and infrastructure investment focusing on manufacturing and clean energy.

The US has established a new system of manufacturing institutes based on international learning and drawing, in particular on elements from the Fraunhofer system in Germany. Collaboration is central to this. It is based on PPPs with matching funds and the involvement of universities. Because the projects are very large, they attract stronger political support, expertise and funding. Some people are concerned about losing copyrights in team projects, but a lot of pre-competitive research is needed before it even makes it into these collaborative projects, which lowers the costs, offers shared knowledge and moves things to market faster.

If the SA economy is to survive at the level it is and grow to the potential it has, then some of these things need to be done. When these partnerships are engaged in, the goals need to be determined clearly so that one can measure what is achieved and to see that the resources are sufficient to make a difference. The importance of learning from others and to partner and collaborate is absolutely essential in this.

Dr Charles Wessner, Global Innovation Policy Expert, Georgetown University

11


Fig. 4.4: What is the distribution of regional export shares?

22 22

6 3 6

41

19 19 5 5

14

38

0

20

40

60

80

100

Shar

e of

resp

onde

nts (

%)

Africa Q2 2015 Q2 2014

56

28

7 5 2 2

54

36

7 4 0 0 0

20

40

60

80

100

Shar

e of

resp

onde

nts (

%)

North America Q2 2015 Q2 2014

78

19

3 0 0 0

72

24

4 0 0 0 0

20

40

60

80

100

Shar

e of

resp

onde

nts (

%)

China Q2 2015 Q2 2014

81

19

0 0 0 0

73

27

0 0 0 0 0

20

40

60

80

100

Shar

e of

resp

onde

nts (

%)

India Q2 2015 Q2 2014

40 36

16 4 2 2

30 43

17 3 0 7

0

20

40

60

80

100

Shar

e of

resp

onde

nts (

%)

Europe Q2 2015 Q2 2014

69

31

0 0 0 0

64

29

4 0 4 0 0

20

40

60

80

100

Shar

e of

resp

onde

nts (

%)

South America Q2 2015 Q2 2014

89

9 0 0 3 0

88

12 0 0 0 0

0

20

40

60

80

100

Shar

e of

resp

onde

nts (

%)

Japan Q2 2015 Q2 2014

54

33

8 0 3 3

45 41

7 0 3 3

0

20

40

60

80

100

Shar

e of

resp

onde

nts (

%)

Other Regions Q2 2015 Q2 2014

12

B. SUPPLY CONDITIONS

The Q2 2015 edition of the Manufacturing Circle survey reveals that input costs increased for most of the respondents (Fig. 4.5). Approximately 5 out of 10 respondents reported an increase in total input costs during Q2 2015. Similarly, approximately 5 out of 10 of the respondents said that the cost of imported inputs escalated over the same period (see Fig 4.5). In the same perspective, imported input costs accounted for up to 40 per cent of total input costs for 8 out of 10 surveyed firms (see Fig. 4.6).

Fig. 4.5: What is the percentage change in imported and total input costs over the quarter?

4

610

6

11 to 15%

> 15%

Imported Input Costs Total Input Costs

5

4

21

18

4

6

3

8

14

18

10

6

‐5 to ‐1%

0%

1 to 5%

6 to 10%

11 to 15%

> 15%

3

0

2

5

4

1

0

2

3

8

0 5 10 15 20 25

< ‐15%

‐15 to ‐11%

‐10 to ‐6%

‐5 to ‐1%

0%

31

0 5 10 15 20 25

< ‐15%

Share of respondents (%)

Fig. 4.6: What is the ratio of imported input costs to total input costs in over the quarter?

43

40

50

43

27

20

30

40

re of respo

nden

ts (%

)

10 10 10

2

0

10

20

Share of re

sp

0

The survey responses show that the escalation in input costs can partly be traced to:

1. Increasing electricity costs,2. High labour costs,3. A weak exchange rate.

Against the backdrop of high and continually escalating input costs, the majority of surveyed firms cited electricity shortages as the number one input shortfall in Q2 2015. A number of respondents highlighted that they have also been experiencing shortages of other inputs such as steel, sugar and water (as a result of supply disruptions).

C. UTILITY SERVICES CONDITIONS

The Q2 2015 municipal distributors supplied electricity to about 7 out of 10 surveyed firms, indicating that the majority of firmsbought electricity from municipalities (see Fig. 4.7)

Fig. 4.7: Do you buy your electricity for your plant/s from Eskom or from local/municipal distributors?

Eskom13%

Both18%

Municipal69%

Municipal69%

On the whole, firms that accessed electricity directly from Eskom experienced more days of lost production due to electricity interruptions (approximately 3 days) compared to municipal clients (approximately 2 days). Generally, water supply disruptions were less of an occurrence compared to electrical power cuts (see Fig. 4.8).

Fig. 4.8: Please provide an estimation of how many production days lost at your plant/s due to:

Eskom MUNICIPALITIES Mean 4.031746 Mean 1.650794 Mean 0.603175 Median 3 Median 1 Median 0 Water Maximum 30 Maximum 25 Maximum 5 Eskom Minimum 0 Minimum 0 Minimum 0 Mean 3 2 1 Std. Dev. 4.859206 Std. Dev. 3.768112 Std. Skewness 2.681718 Skewness 4.384145 Skewness 2.490869 Kurtosis 14.00098 Kurtosis 25.39082 Kurtosis 8.140341

Jarque‐Ber 393 1935 Jarque‐Ber 1517 859 Jarque

3

2 Jarque‐Ber 393.1935 Jarque‐Ber 1517.859 Jarque Probability 0 Probability 0 Probabilit

Sum 254 Sum 104 Sum 38 Sum Sq. De 1463.937 Sum Sq. De 880.3175 Sum

2

1

Eskom Municipalities

Electricity disruptions Water disruption

Observatio 63 Observatio 63 Observati

Electricity disruptions Water disruption

Sample average production days lost by categories

It would appear that many manufacturers have adapted to the country’s electricity challenges as a large number of firms have indicated that they have on-site generation capacity. The next most common means of dealing with electricity shortages, according to the survey, was to reschedule production in Q2 015. A still significant portion of firms indicate that they either reduced production or closed down production lines (or substituted own production for imports).

13


Fig. 4.11: If the previous answer was yes, what are the main reasons for the upgrades?

40.0%

40.0%

30.0%

46.7%

33.3%

23.3%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

New product innovation

Introduction of advanced manufacturing capacity

Mechanisation of functions that were previously done manually

Greater productivity

Greater efficiency (energy and water)

Other

Share of respondents (%)

E. EMPLOYMENT, SKILLS DEVELOPMENT AND LABOUR PRODUCTIVITY CONDITIONS

Employment in the manufacturing sector was subdued in Q2 2015, according to the survey. Only about a firth (20 per cent) of firms reported an increase in the number of employees in Q2 2015, a proportion very similar to that of Q1 2014. More discouraging to note is that during the same period (Q2 2015), an astounding half (48 per cent) of firms surveyed indicated thatthey decreased their number of employees in Q2 205.

Fig. 4.12: What is the percentage change in the level of employment?

3 > 5%

Q2 2015 Q2 2014

33

16

4

32

18

3

0

1 to 5%

> 5%

Q2 2015 Q2 2014

13

33

33

16

21

27

32

0 5 10 15 20 25 30 35

< ‐5%

‐5 to ‐1%

0

1 to 5%

1321

0 5 10 15 20 25 30 35

< ‐5%


At the same time, the majority of respondents felt that the skills profile within their respective industries was by and large insufficient in Q2 2015. For example, 7 out of 10 respondents show that skills in their industry were either poor or inadequate. Only 5 per cent said that skills in their industries were good in Q2 2015. These sentiments are very similar to those of Q1 2015 indicating very little, if not no improvement in skills in the manufacturing sector (see Fig. 4.13).

Fig. 4.9: What alternatives have you employed to mitigate against electricity shortages/inconsistencies at your plant/s?

17

Closing down production lines or substituting local

Other

19

15

17

Reducing production

Closing down production lines or substituting local manufacture for imports

Other

63

53

19

0 10 20 30 40 50 60 70

On‐site generation capacity

Rescheduling production

Reducing production

63

0 10 20 30 40 50 60 70

On‐site generation capacity

Share of respondents (%)Note: A respondent could choose more than one option.

D. COMPANY LEVEL COMPETITIVENESS CONDITIONS

Approximately 5 out of 10 respondents upgraded their plants’ existing capacity in Q2 2015 according to the survey (see Fig 4.10). Firms that upgraded this capacity did so for a wide range of reasons, the most common one was to increase productivity (see Fig. 4.11). Upgrading due to the introduction of advanced manufacturing capacity as well as new product innovation were the next most popular reasons for upgrading plant capacity.

Fig. 4.10: Have you upgraded any existing capacity at your plants over the last quarter?

Yes48%Yes48%

No52%No52%

14

Fig. 4.13: How do you describe the status of skills availability in your industry?

535860

75

dents (%)

18

53

2724

58

30

45

60

Share of Respo

nden

ts (%

)

18

27

2 0

24

106

3

0

15

30


Sha

0Poor Fragile/weak Stable Modest to good Strong

Q2 2014 Q2 2015

A number of survey participants expressed concern over the lack of technical (engineering and artisanal) skills in the sector. Despite the shortage of skills, only about 3 out of 10 respondents invested more than 3 per cent of their turnover in skills development (see Fig. 4.14) The majority of surveyed firmsrelied on SETA-sponsored programmes as well as government-sponsored programmes as vehicles of skills development for their staff (see Fig. 4.15). According to the survey responses, in-house training increasingly featured among other types of skills development strategies.

Fig. 4.14: As a percentage of turnover, how much does your company invest in skills development?

52

50

60

26

52

30

40

50

respon

dents (%)

0

26

18

5

0

10

20

30

Share of re

spon

de

00

Fig. 4.15: Which of the following skills development programmes does your company make use of?

29Other

31

68

29

Government‐sponsored lnternships

Seta‐sponsored programmes

Other

42

31

0 10 20 30 40 50 60 70 80

Government‐sponsored learnerships

Government‐sponsored lnternships

0 10 20 30 40 50 60 70 80Share of respondents (%)

Note: A respondent could choose more than one option.

With regards to labour productivity, it was a wide held view amongst the survey participants that productivity has remained unchanged in Q2 2015. A quarter (25 per cent) of the participants said that labour productivity has deteriorated, and this presents an improvement from the almost 4 out of 10 participants with that sentiment for the same period in the previous year (Q2 2014). This also means that another quarter said that productivity has improved in Q2 2015, also an improvement from Q2 2014 (see Fig. 4.16).

Fig. 4.16: How do you describe the level of labour productivity over the quarter?

5660

80

(%)

Q2 2014 Q2 2015

38

5651

40

60

e of Respo

nden

ts (%

)

38

7

25 25

0

20

40

Deteriorated Same Improved

Share of Respo

7

0Deteriorated Same Improved

F. PROFITABILITY AND ACCESS TO CREDIT CONDITIONS

Profitability was compromised in the manufacturing sector in Q2 2015. Only 35 per cent of the surveyed firms reported an increase in profits in Q2 2015 while approximately half reported a decrease in profits in this period (see Fig. 4.17). What is more, this presents deterioration in profits from the same period in the previous year, a period that profitability was already compromised. For instance, 41 per cent of the surveyed firmsreported an increase in profits, with approximately 4 out of 10 reporting a decrease in profitability in Q2 2014. Despite this, it is encouraging to note that of there were more firms that reported an increase in profits of greater that 11 per cent in Q2 2015 (15 per cent) than in Q2 2014 (7 per cent).

15


Fig. 4.17: What is the percentage change in operating profit before cost of funding over the quarter

FundingQ2 2015 Q2 2014

17

17

2

5

15

15

5

5

10

0

1 ‐ 5%

6 to 10%

11 to 15%

> 15%

Q2 2015 Q2 2014

5

7

15

15

17

17

22

7

8

12

15

15

5

‐15 to ‐11%

‐10 to ‐6%

‐5 to ‐1%

0

1 ‐ 5%

6 to 10%

17

5

7

22

7

8

0 5 10 15 20 25

< ‐15%

‐15 to ‐11%

‐10 to ‐6%


According to the surveyed firms, profitability decreased in Q2 2015 due to a wide range of factors such as decreased demand for outputs, increased input cost resulting from higher labour and energy costs as well as the weaker exchange rate. Firms that reported an increase in profits attributed it to reasons ranging from more efficiency in production (with particular focus on cost cutting), lower inflation, as well as growth in the export market.

The proportion of geared firms fell from 75 to 70 per cent between Q2 2014 and Q2 2015 (see Fig 4.18). Relative to a year ago, the second quarter of 2015 was therefore somewhat less geared. Some respondents indicated that it is more challenging to access funding with lower profits while some said that more government funding is required.

Fig. 4.18: What is your firm s debt to equity ratio over the quarter?

117 > 65%

Q2 2015 Q2 2014

30

27

7

11

36

17

10

7

1 to 25%

26 to 49%

50 to 64%

> 65%

25

30

27

29

36

0 10 20 30 40

Ungeared

1 to 25%

Share of Survey Respondents (%)

0 10 20 30 40

Share of Survey Respondents (%)

There appears to have been no major changes in the rates at which manufacturers accessed credit in Q2 2015 compared to Q2 2014. The survey results show that the share of respondents who accessed credit at rates below JIBAR +3 did not change much and remained at approximately 6 out of 10 firms from Q2 2014 to Q2 2014 for short term funding, however it improved slightly from 62 per cent in Q2 2014 to 66 per cent in Q2 2015 for long-term funding (see Fig 4.19 and 4.20).

In general, respondents indicated that there were no major problems with regards to accessing funding.

Fig. 4.19: At what rate do you access short-term funding?

100

65 64

60

80

100

f Respo

nden

ts (%

)

33

2

28

9

0

20

40

60

< JIBAR + 3% JIBAR + 3 to + 6% > JIBAR + 6%

Share of Respo

nd

20


Q2 2014 Q2 2015

Fig. 4.20: At what rate do you access long-term funding?

100

62

36

66

40

60

80

100

of Respo

nden

ts (%

)

36

2

24

10

0

20

40

60


Share of Respo

n

0< JIBAR + 3% JIBAR + 3 to + 6% > JIBAR + 6%

Q2 2014 Q2 2015

G. LOCAL PROCUREMENT CONDITIONS

Fig 4.21 depicts the status of local procurement by the manufacturing sector in Q2 2015 and it shows that these rely on the domestic market for inputs and raw materials to varying degrees. Close to 60 per cent of the respondents sourced more than 60 per cent of their inputs and raw material from the domestic market in Q2 2015.

Fig. 4.21: What percentage of your total purchase is constituted by locally sourced products?

0%

3%

20% 20% 20%

36%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Shar

e of

resp

onde

nts (

%)

With regards to the government’s local procurement programme, there is a noticeably large shift in manufacturers that vied this

16

form of procurement as important form Q1 2014 to Q2 2015. In Q2 2014 about 6 out of 10 surveyed firms said that the local government procurement programme was either important or very important, and this decreased to approximately 3 out of 10 surveyed participants in Q2 2014. Surprising to note though is that a larger proportion of the surveyed firms (approximately 3 out of 10) indicate that they benefited from this programme in Q2 2015 than in Q2 2014 (about 2 out of 10).

Fig. 4.22: How important is the government’s local procurement programme to the maintenance of growth in your manufacturing concern?

45Q2 2015 Q2 2014

1715

34

24

34

27

16

30

45

of re

spon

dents (%)

Q2 2015 Q2 2014

17

10

15

24

16

9

14

0

15

Share of re

spon

0Very Important Important Neither

important nor unimportant

Unimportant Not important at all

Fig. 4.23: Did your manufacturing concern benefit fromthe government’s local procurement programme over the quarter?

90

Q2 2015 Q2 2014

71

82

60

75

90

f respo

nden

ts (%

)

Q2 2015 Q2 2014

29

18

15

30

45

60

Share of re

spon

d

18

0

15

30

Yes No

H. MANUFACTURING OUTLOOK

The Barclay’s PMI’s downward trend persisted well into the beginning of the second quarter of 2015 (see Fig 4.24), bringing the quarter’s average down and lower than that of Q1 2015. This is indicative of the still fragile state of business in the manufacturing sector. The Barclay’s PMI has, however, been showing signs of recovery since May 2015. Meanwhile, manufacturing in China appears to be stagnant, a condition that has persisted since the beginning of 2015. Even though manufacturing activity in the US and Germany remain buoyant, the trends indicate some slowdown. The South African manufacturing sector could benefit from some positive spill over effects from the advance economies such as Germany and the US that are doing well in this sector, but only if conditions in these economies strengthen further.

Looking at the short to medium term horizons depicted in Fig. 4.25 to Fig. 4.26, it is clear that the survey participants representing the manufacturing sector expect business conditions to mostly be in the “poor” and/or “fragile/weak” state. This sentiment unfortunately does not change much when looking at a 2 year horizon (see Fig. 4.27).

The survey reveals that the level of pessimism has increased from Q2 2014 to Q2 2015 (see Table 4.1), and this is true for the short to medium term as well as the longer term (2 years). The intensity of pessimism, however, appears to diminish moving from the short term horizon (82) to the medium term (75), and finally to the longer term horizon (69), an indication that manufacturers at least expect conditions in the sector to improve.

Key factors expected to drag confidence include

1. Electricity supply disruptions related to the difficultiesfaced by the country’s power sector, 2. The ongoing challenges presented by the compromised commodity prices,3. The likelihood of labour-related production disruptions resulting from industrial action in the industry,4. The continuing demand challenges with regards to the manufacturing sector’s output.

Against this backdrop, 20 per cent of the surveyed firms indicate that they plan to decrease employment (i.e. to cut jobs) during the coming 3 months while only 8 per cent said they would be increasing employment during this period. In addition, a staggering 45 per cent of the firms indicated that that they will decrease employment in the coming 12 months while only 24 per cent said they will be increasing employment during this period. Hence it appears that employment will be more stable in the coming 3 months than in a year’s time (see Fig. 4.28).

9.

Fig. 4.24: Purchasing Managers’ Index, South Africa vs. major trading partners, 2012 Jan – 2015 Jan

606060

50ndex 50

inde

x

50

inde

xin

4040J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J

2012 2013 2014 2015

40J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J

2012 2013 2014 20152012 2013 2014 2015

China US Germany South AfricaChina US Germany South Africa

Source: BER, NBS, ISM & Markit and PAIRS

17


Fig. 4.25: How do you perceive the manufacturing sector’s conditions over the next six months?

535860

75

dents (%)

18

53

2724

58

30

45

60

Share of Respo

nden

ts (%

)

18

27

2 0

24

106

3

0

15

30


Sha


Q2 2014 Q2 2015

Fig. 4.26: How do you perceive the manufacturing sector’s conditions over the next twelve months?

49

5660

75

ts (%

)

49

33

18

56

1715

30

45

60

Share of Respo

nden

ts (%

)

10 8

0

18 17

71

0

15

30


Share o


Q2 2014 Q2 2015

Fig. 4.27: How do you perceive the manufacturing sector’s conditions over the next two years?

5560

75

nts (%)

31

47

1214

55

2330

45

60

Share of Respo

nden

ts (%

)

10 12

0

14

23

63

0

15

30


Share o


Q2 2014 Q2 2015

Table 4.1: Rise in surveyed firms’ pessimism (“fragileweak” or “poor” outlook)

Horizon Proportion of pessimistic respondents (in per cent)

Q2 2014 Q2 20156 months 71 8212 months 59 7524 months 41 69

Fig. 4.28: What is the planned percentage change in employment?

8

0

2

0

0

2

6 to 10%

11 to 15%

> 15%

Next 3 months Next 12 months

16

32

14

8

0

5

21

56

11

0

0

‐5 to ‐1%

0%

1 to 5%

6 to 10%

11 to 15%

8

0

21

16

32

5

2

5

21

0 10 20 30 40 50 60

< ‐15%

‐15 to ‐11%

‐10 to ‐6%

‐5 to ‐1%

0%

8

0 10 20 30 40 50 60

< ‐15%

Share of respondents

ENDNOTES

i Unless otherwise specified, percentage changes based on consecutive quarters.

ii Shares may not add up to 100 due to rounding.1 MGI 2012 - Manufacturing the future: the next era of global

growth and innovation2 BIS 2010 - Manufacturing in the UK: an economic analysis of the

sector3 Neely 2007 - The Servitization of Manufacturing: An Analysis of Global

Trends

18

Notes:

19


The Manufacturing Bulletin is an initiative of the Manufacturing Circle. It aims to serve as a voice for manufacturing in South Africa with insightful analysis of trends as well as informed comment on what needs to be done to ensure that South Africa’s manufacturing base is nurtured and grown.

The Manufacturing Circle is made up of a number of South Africa’s leading manufacturing companies from a wide range of industries. Some of the members are leading South African exporters of manufactured goods, others are locally focused companies competing with imports from around the world. There is one common denominator among them and that is a passion for manufacturing coupled with a fervent belief that for South Africa to be strong, its manufacturing sector must be strong.

A strong and developing manufacturing sector will drive the creation of skilled and semi-skilled jobs in the South African economy - jobs not just in the large manufacturing companies but critically also in entrepreneurial small companies. New jobs go hand in hand with an increase in fixed investment in plant and buildings – a further multiplier of economic growth. Job creation is a primary objective of the Manufacturing Circle.

Formed in 2008, the Manufacturing Circle has been quietly going about its business of interacting with government and other stakeholders in order to review, debate and help formulate policies which will have a positive impact on South Africa’s manufacturing base.

KEY INITIATIVES TO DATE HAVE BEEN:• The need for a competitive and stable currency• Preferential procurement for locally manufactured goods• The need for a lower cost of capital in South Africa• Inputs into IPAP and other important government policies• Effective trade policy which supports South African manufacturing• Input and debate on the issues of electricity costs and carbon taxes• Improving investment and export incentive schemes and processes

Manufacturing holds the key to a growing and employing South African economy and the Manufacturing Circle is playing a key role in finding that future

Research And Analysis

Pan-African Investment and Research ServicesWeb: www.pan-africanresearch.co.za

Email: [email protected]

Manufacturing Circle

Email: [email protected]: www.manufacturingcircle.co.za

To receive your copy of the Manufacturing Bulletin on a quarterly basis, please email your postal address to: [email protected]

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EXECUTIVE SUMMARY - Agbiz · inefficiencyin collective bargaining is problematic. Moreover, low productivity, lack of skills as well as the recent xenophobic attacks were mentioned