Capital Equipment News

By Quinton de Villiers

While they say proof of the pudding is in the eating, at least there is some hope for our ailing economy considering very recent developments in South Africa. Certainly, the election of Cyril Ramaphosa as the new president of the republic and commitments made by the ruling party in his inaugural State of the Nations Address (SONA) point to the start of a very long recovery process.

Quinton de Villiers Bridgewater Logistics

There were many stand-out features of the SONA. These include pledges of changing policies that have hindered mining and investment into infrastructure through to new reforms in the basic education system.

However, it was focus on developing the local manufacturing sector that stood out as a major highlight for the Bridgewater Logistics team. This is in addition to mention being made of ensuring that the country also takes real steps to join those undergoing the Fourth Industrial Revolution to improve global competitiveness.

Bridgewater Logistics is closely associated with various participants in the South African manufacturing sector, and management has always used Absa’s Purchasing Managers’ Index (PMI) as an accurate means of gauging the performance of this critical industry.

While the most recent PMI climbed to 48,6 index points in November 2017 from 47,8 in October that year, this is still well under a score above 50, which the bank considers to be an indication of an expanding manufacturing sector.

It attributes the improvement in the headline index to a rise in manufacturing activity. However, the expected future conditions component of the index fell to a three month low of 50, albeit that the business activity component increased to a six-month high of 48.

According to the Manufacturing Circle, another important source of information, the industry remains erratic and participants are operating in a very fragile environment. Worryingly, it places much of the blame on past government interventions that have been counter-productive.

They have led to job losses and the de-industrialisation of the country, as opposed to fulfilling the ultimate objectives of the National Development Plan, which is to industrialise South Africa.

A sound example of this lack-lustre approach at a policymaking level is the impact that the previous extended periods of load-shedding had on the local manufacturing industry, compounded by the inability of Eskom to complete its latest coal-fired power station projects on time.

The state-owned enterprise is also now in tatters due to rampant corruption and it remains to be seen what its dire financial status will have on plans to beneficiate in South Africa.  

The situation may have been stabilised, but experts agree that an excess supply of electricity can largely be attributed to the recessionary economic environment that has alleviated pressure on the national grid. This is despite additional capacity now being available from these very late mega projects that have significantly exceeded costs and drained the economy.

Meanwhile, “Day Zero” looms in the Western Cape and Eastern Cape. “Wet” industries have already started shedding jobs due to severe water restrictions in these provinces. This can largely be blamed on the inability of state to create policies that encourage resilience in cities during drought conditions.

Protracted periods of strike action have also brought many industries to their knees, and fuelled the rampant flight of foreign capital and closing of local factories.

Renewed focus

Perhaps, the renewed focus on the manufacturing sector by government will help the industry grow to the targeted 30% of gross-domestic product (GDP) to create between 800 000 and 1,1-million direct jobs and five to eight times that in indirect jobs?

Together with agriculture and mining, manufacturing contributed towards the 2% economic growth in the third quarter of 2017, despite this being lower than a revised 2,8% in the second quarter.

This action is sorely needed considering the under-performance in the South African manufacturing sector over many years. By January 2017, the number of manufacturing units produced was just 6,1% higher than the average level in 2010. This means that there was less than 1% growth in manufacturing output in a year.

Once inflation is removed by the Production Price Index, the real net increase in the value of sales since that year is only 2,86%, and this implies that there was actually no “real” growth in terms of the value of manufacturing goods sold.

The time for action is long overdue, and South Africa now has to take real steps towards industrialisation. The fact that the president also alluded to the Fifth Industrial Revolution in his SONA indicates that state also realises that the country is seriously lagging behind its counterparts in the developed world.

This can also be blamed on policies that favour a labour-intensive approach at the expense of technologies that rather boost productivity. This approach has also impacted on our construction and mining industries that are forced to play the “numbers game”. Often, these work opportunities are of a low-skilled and short-term nature, making a minimal impact on the long-term employment and skills-development objectives of the country. This is in addition to being low paying positions that do not raise living standards.

Importantly, the new president also committed to ensuring that we start developing the skills that are needed to participate in this digital era.

While these will help South African manufacturers bolster their international competitiveness, it will also mean that the transport and logistics components of the manufacturing supply chain will have to adapt accordingly.

Transport & Logistics

Transport and logistics is the glue that binds all of the elements of the supply-chain, providing effective, cost-efficient logistics management for a competitive edge. 

Third-party logistics providers will, therefore, serve a vital role in helping develop the responsive and economical transportation systems that are also needed to grow a vibrant South African manufacturing industry. In so doing, they will help reduce manufacturers’ costs and increase their customer service levels, while minimising disruption in the important supply chain.

The critical role that transport and logistics has to play in growing a vibrant economy is demonstrated by the fact that freight activities comprised 10% of the United States’ GDP in 2005. In Germany, these operations accounted for 7% of total GDP, and generated a combined 170 billion Euros that year.

Importantly, these countries have harnessed the sophisticated tools that allow for the improved monitoring, control and optimisation of transportation networks. These, in turn, have been merged with the robotics, artificial intelligence and the Internet of Things used by a smart global manufacturing industry.

A sobering fact is that the World Economic Forum expects that global manufacturers will have invested just under US$300-billion in digitisation by 2020.

This begs the question: can South Africa really afford to stall?

Quinton de Villiers is the founder and managing director of Bridgewater Logistics with a long and impressive track-record in African logistics and security. Follow Quinton at @InTheFastLane for more insights and expert commentary on African transport and logistics.

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