Accounting for 40.6% of South Africa’s manufacturing base, the performance and challenges facing manufacturers in Gauteng reflect those of the country as a whole. The industrial sector is feeling the strain of several factors impeding its growth prospects, including reduced demand due to the global slowdown; squeezed margins due to rising electricity, fuel and labour costs; and competitive pressures arising from an influx of cheap imports. While the province wields clout in the services sector – which accounts for the majority of provincial GDP – maintaining a strong manufacturing base is vital for employment and sustaining a healthy economy. Efforts are thus under way to protect, revitalise and diversify Gauteng’s production output.
Framework
Formulated under the provincial Department of Economic Development, the Gauteng Industrial Policy Framework (GIPF), the current iteration of which was drafted in 2010 and runs through to 2014, recommends a number of programmes and action plans aimed at supporting five, broad strategic thrusts: the expansion of work opportunities; the development of medium technology and labour-intensive manufacturing; the strengthening of supply chain development; improved value addition; and, ultimately, the creation of an integrated and diversified industrial base.
Given the high concentration of manufacturing industries present in Gauteng and their degree of integration into the national production chain and South African economy, the GIPF, while provincially focused, attempts to complement the National Industrial Policy Framework set out under the Department of Trade and Industry’s (DTI) Industrial Policy Action Plan (see Industry chapter). The industries selected to receive focused attention, and the strategic direction in which the province wishes to steer them, can be viewed as two tiered. On the one hand, the province is undertaking what it has termed the Gauteng Advanced Manufacturing Sector Key Action Plan, which is “aimed at realigning the sector away from traditional heavy industry and low value-added production to sophisticated, high value-added goods”. While at the lower end of the manufacturing spectrum, the province is looking to aid labour-intensive industries that employ unskilled and semi-skilled workers, such as furniture and textiles, mainly by helping make the small and medium-sized enterprises (SMEs) in those sectors more competitive.
Agro-Processing
Agro-processing demonstrates the province’s strength in downstream manufacturing.
Due to a small, mostly urbanised landmass where already sparse agricultural plots compete with commercial, industrial and residential property developments that tend to yield higher returns on investment, upstream agricultural production in Gauteng is minimal, accounting for just 0.4% of the province’s GDP in 2011. Yet half of South Africa’s agro-processing companies operate in the province, and due to the interconnectivity provided by its highway infrastructure in combination with the country’s busiest airport, OR Tambo International Airport, many of the country’s largest feedlots and millers are located within the province. Significant proportions of the maise, grains and other crops grown in the more agrarian neighbouring Free State, North West and Mpumalanga provinces arrive in Gauteng to be sold either for consumption or redistribution, or utilised as inputs into downstream food processing.
The annual average growth rate for employment in agro-processing between 2002 and 2012 was 4.2%, contributing 15.7% toward total manufacturing employment for the province. Indeed, under the GIPF, agro-processing is an important segment owing to its role in addressing food security and food price inflation.
Automotives
The national government, under the DTI, has long championed the automotives sector through initiatives such as the Automotive National programme, which, given the large number of manufacturers in Gauteng, have benefitted the province. In 2009, as per figures cited by the-then Blue IQ Investment Holdings, 41% of all light vehicles manufactured in South Africa came from Gauteng, with international brands such as Nissan/Renault, BMW, Ford and Tata all owning manufacturing and assembly facilities in the province, along with an estimated 164 individual automotive component manufacturers. Overall, the local automotives sector is estimated to constitute around 200 companies employing around 38,000 people; making up for 4.3% of the local economy.
Blue IQ Investment Holdings, which has since been absorbed under the Gauteng Growth and Development Agency (GGDA), has made strategic investments in the Automotive Industry Development Centre (AIDC) as well as the Automotive Supplier Park (ASP); with both initiatives located in the industrial area of Rosslyn just north of Pretoria. Both provide technical and logistical support, with the AIDC focusing predominantly on supplier competitiveness through supply-chain development and skills training, while the ASP focuses on logistics optimisation, offering shared property and business services for component manufacturers, suppliers and service providers.
Furniture & Textiles
Furniture and textiles have each been identified as target sectors by the provincial government, given their importance for the region’s SMEs and their tendency to employ low-skilled workers who, if retrenched, would find difficulty gaining employment otherwise. At the time of the transfer to democracy, which coincided with the end of a period of trade sanctions, South African furniture producers were seeing strong net export growth, much of which was attributable to a rapid depreciation of the rand. The appreciation of the rand in combination with rising raw material prices for key inputs such as timber and steel has reversed this, leading to import substitution.
In particular, SMEs in the furniture segment find themselves constrained by the inability to order in bulk. As a result, the provincial government is looking to provide assistance by encouraging and facilitating collective sourcing to reduce the costs of key inputs and is offering incentives, such as lower borrowing rates, towards the use of domestic inputs. The government is also seeking to promote greater clustering, which should in turn help smaller producers gain access to capital equipment and services that would otherwise be too expensive to secure independently.
Another challenge facing furniture makers is a reduction in investment towards technology upgrades and innovation, which has prompted the roll-out of skills-enhancing programmes by both the government and industrial associations. Finally, considering the purchasing power of dominant domestic retail groups, and the effect this has on eroding margins for manufacturers, the government is introducing several incentives to furniture retailers that stock local products.
A decline in the province’s textiles and clothing industry is driven by many of the same factors eroding the competitiveness of the furniture industry, such as a volatile currency and an appreciation in material and input costs: challenges that are compounded by a surge in the volume of illegal imports arriving from low-cost producing countries. Similar efforts and interventions have been identified to enhance supply chain efficiencies and skills development (see Industry chapter).
Research & Development (R&D)
Technology and innovation are viewed as enablers for the advancement of other industries. According to the Organisation for Economic Cooperation and Development, Gauteng’s share of total national R&D for 2008/09 stood at 52%. The province has the highest representation of academic and research institutions in the country, most of which collaborate with industry on R&D commercialisation. Indeed, the Council for Scientific and Industrial Research (CSIR), with its main campus situated in Pretoria, is one such national research institute, and is under the domain of the Department of Science and Technology. According to CSIR’s Annual Report 2011/12, grant, revenue and royalty income was R17bn ($207m) in 2011, making the organisation the largest research group in Africa, accounting for 10% of the continent’s R&D spend. Also located in Pretoria is the Agricultural Research Council, which is the South Africa’s primary agricultural research institution. Also complementing industry-specific research, the University of Pretoria and the University of the Witwatersrand, which is located in Johannesburg, make up two of the country’s five universities accredited as “research-intensive” by the South African Council on Higher Education.
Breakdown of economy by sector, 2010
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