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How to bring SA manufacturing back from the tipping point

Guy Harris was involved in the 1994 elections as a business observer in KZN. Since then he has also participated in many of the tripartite structures focusing on trade and industry.

As we await Tuesday's Medium-Term Budget Policy statement, only a blind person will not see how deeply endangered our manufacturing, and, with it, South Africa itself are. Some urgent and drastic measures are necessary.

I know it’s been said many times, but in these uncertain global economic times we need a firm hand on the tiller. For many years successive ministers of finance have provided this. However the policy must also encourage the geese that have the potential to lay the golden eggs to do so. Opportunities must be created for manufacturing to get back on a trajectory of growth and job creation, and stop its share of GDP declining. No developing economy has grown sustainably without a strong and vibrant manufacturing sector. What has caused Germany to be strong while Europe is floundering and relegated Ireland to the PIIGS? Manufacturing versus an over-reliance on services.

At a recent New Growth Path (NGP) workshop of social partners, under the auspices of Nedlac, some indication was given of a manufacturing competitiveness enhancement programme. This bodes well. Hopefully there will be more details on Tuesday. However, urgent implementation is required. We probably cannot wait till the main budget speech in February 2012 for details and the Taxation Laws Amendment Bill later in 2012 for certainty. By then too many more businesses will have gone under; with the concomitant loss of direct and indirect jobs and consigning even more South Africans to the informal sector and poverty.

The minister of finance has some influence over exchange and interest rates and, without usurping the independence of the Reserve Bank, there should be strong policy statements that will result in a more competitive and stable exchange rate and more globally competitive interest rates.  Now is not the time for populist policies pandering to foreign funders or citizens who want to coat-tail off entitlement. There also needs to be strong action against corruption and largesse before it becomes a terminal cancer in our society or seen as an attractive alternative and narcotic among our youth. Cutting corruption and waste will also mean that we should have a more manageable fiscal deficit going forward.

There needs to be a commitment to implementing cost effective infrastructure investments on time and on budget. Maybe the private sector’s role should be harnessed more vigorously.  This will result in a positive swing from government employment to government investment. That needs to occur at all three tiers and also within parastatals.  There also needs to be firm implementation of the new preferential procurement regulations due to come into effect on 7 December 2011. All state tendering entities should be encouraged to invoke clause 9 (3) and apply local criteria even if particular products are not yet designated. This should apply now to any tender in preparation that will close after 7 December 2011.

More effective support for the financing and fast track development of high growth employment intensive SME’s and assistance to high potential micro-enterprises should be priorities. Preferential finance for SA manufactured products ought to be available, especially when competing with imports that are subsidised or supported by foreign governments and their agencies. The private sector should be encouraged to get behind the Proudly South African, BuySA initiatives, but government must lead by example, in the interests of us all. The minister should encourage the more aggressive implementation of the department of trade and industry’s latest industrial policy action plan (Ipap2) and the EDD’s  NGP accords and converting the rest of the NGP and work of the presidency’s  national planning commission into actionable plans. We cannot wait for an economic Codesa; we need strong economic leadership, now.

If there is to be a wealth tax or an additional tax on “super earnings”, these should be approached cautiously so that we do not discourage those we should be encouraging. If they are to be implemented then let us rather consider harnessing those successful business people they target into delivering on government priorities around entry level jobs. The wealthy and high earners can probably deliver more effectively than bureaucrats. The challenge is to find a structure which can give the wealthy and high earners upside potential and not just a general tax which goes into the state’s general revenue pool. Treasury may be effectively and efficiently run, but the same cannot be said for many other departments

There are too many above-inflation administered price increases and these need to be brought under control before further businesses are forced to close. Too many of our parastatals are under-capitalised and reliant on current customers to fund their planned capital programs. Others, such as municipal electricity price increases, place an unfair burden on business as they cross-subsidise different activities from higher business revenues.

The entry level jobs subsidy needs to be driven through, even if it does not find favour among one of the alliance partners. The precedent-setting two-tier wage structure should be considered for application in other industries, but that along with the restrictive labour laws is probably more the domain of the minister of labour. However these are too important to leave to one minister and should be addressed by the economic cluster as a collective.

Given the passing away of Irvine Bell 10 days ago, the 2011 MTBPS can be a tribute to him. He founded Bell Equipment 60 years ago. He and the extended family have grown it into a R4 billion globally competitive success, now directly employing thousands locally, tens of thousands indirectly and feeding and clothing hundreds of thousands. What South Africa urgently needs are policies that will assist in ensuring we have hundreds of Irvine Bells. This way we will really achieve some of the high job creation targets we must meet for a stable, sustainable society. This will also potentially move many of our fellow South Africans from unemployment or informal employment into decent jobs and further grow the economy and the tax base. DM

Guy Harris is the group stakeholder relations director of Bell, the recruiter for the manufacturing circle and a director of Proudly South African but writes in his private capacity.


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