Opinionista Johann Redelinghuys 7 October 2013

Manufacturing is not our route to riches

President Zuma, goading the country, whip in hand, is trying to exhort black manufacturing in to life, but he is onto a losing dream. Speaking at a department of Trade and Industry Summit on Black Economic Empowerment, he said that the country needs to build a strong black manufacturing capacity. He wants the supply chain of the big groups to boost black enterprise development and at the same time playing to the masses, he is tightening the already stringent BEE codes. His two-birds-with-one-stone initiative is not going to work.

He is being inspired, no doubt, by countries where the small and medium enterprises often run by families provide the bedrock of their industrial economy. Countries that have deep manufacturing cultures, built up over centuries, like Germany, Italy and Japan can build and grow their economies by making things. For them manufacturing creates employment, small business development and sustainable income. We don’t have it and wishing for a quick-fix manufacturing economy to be brought on as the president is trying to do is an unlikely road to transformation riches. We even mess up manufacturing when it is given to us on a plate, as in the case of BMW, who is withdrawing because of our labour issues.

Because nations have talent and aptitude clusters just like people have, the most successful countries build on their natural talents and don’t bash their heads against the wall trying to become what they are not. That is why the Swedes are ship builders, the Dutch are water experts, the Italians are designers, the Swiss are bankers and make chocolate, the French do food and fashion and the Germans are experts in engineering and technology. The list can go on. And in the emerging markets, the Kenyans grow flowers and do long-distance running. The Indians make textiles and manage call centres. The Brazilians grow maize and make ethanol. This may be a superficial view, but the message is clear. Build where your strength lies and where you can excel.

What could we be really good at? What is it that comes to us naturally? The history of South Africa started because, exploiting our natural resources, this warm and sunny place grew vegetables to replenish the ships on their way to the East. That must be our first clue. Soon cattle farming and cattle stealing took over. Cattle herding is in our blood. That must be the second clue. For the cold and huddled masses of Europe who came as settlers to South Africa or en route in the spice trade this must have been an ideal stop-over, in fact a great tourist destination. Is that our third clue? Then, number four, exploiting our geological resources and building a rich mining industry was ours for the taking.

What have we done with it? We have never reached our potential in agriculture. Farming of the old traditional kind was a life-style decision rather than led as a concerted effort to establish the country as a provider of agricultural products on a world scale. Agriculture provides 12% of the GDP in Australia. Primary agriculture contributes about 3% to GDP in South Africa. Beef and the growing of protein for a hungry and under-fed world have also not reached their mark. We have talked a lot about tourism, and there has been some progress. But tourism as a percentage of GDP in South Africa is 7.9% compared for example to two other warm and friendly places, Spain at 17.2% and Portugal at 15.7%

All along there were obvious value adding services and manufacturing opportunities that we just did not spot, and when they were put right in front of us we looked the other way. The standing example is that of the gold, diamonds and platinum that have been mined here and have always been sent abroad to be made into jewellery and other valuable products. The real profit is still being made outside South Africa. Because of labour problems and other related cost challenges our gold is now the most expensive in the world. We used to be the top producer of gold, and we are now sixth in the world. Investors are looking elsewhere. The wool from our sheep and the feathers from our ostriches were also sent elsewhere for processing. Manufacturing that has come to South Africa has often come, compliments of Europe, America, Japan or Korea. Manufacturing has not ever been our own strong suit.

Yes, we built an armaments industry when sanctions made us do it and there have been notable South African achievements in industries like Sasol and the major motor manufacturers. But we have not ever been a country that has nurtured and developed small-scale manufacturing of the kind Mr Zuma wants and which he believes will hasten transformation by being suppliers to the big companies.

The president was ignoring the amber lights of our industrial history. He is also ignoring the grudging decisions forced on CEOs to cut off often long-standing supplier relationships to work with the new black empowered suppliers. The punitive empowerment index demands that points be earned, and CEOs are cowed into making that happen. It is grudge-transformation and it is rarely built on goodwill. At best we will end up with these newly contrived supply relationships staying on the periphery of business, trying to make the best of the opportunities and tenders. They will not come into the mainstream of business.

The question we have to ask is: wouldn’t it be better in the long run if the president encouraged emerging black business to establish its own businesses instead of riding on the back of and trying to change the structures of businesses that are already functioning well? During the early years of the Nationalist regime the Afrikaners, who had been sidelined by the English business establishment, went out and established their own enterprises. It worked for them. It gave them confidence and uplifted them. Could it work to accelerate black empowerment?

Could those genuinely African businesses, when they are established, be focused on food production and life sciences? Could South Africa depart from the image of the struggling farmer who lives as a victim of the weather, and could we establish a vibrant world-class agriculture sector that attracts the best graduates and international sponsorship for an irrigated and hot house agriculture to become the “food basket” of Africa and beyond?

In rural Africa cattle are the currency and even today there are pin-striped bankers who remember their rural childhood and pine for an opportunity to farm cattle. It is in the blood of Africa. So should we not become a world leader in the provision of beef protein where the Australians and Brazilians are now beating us hands down? DM

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