An enhanced level of cooperation between the mining and manufacturing industries in South Africa could significantly boost the economy and employment levels, as indicated in research by the Industrial Development Corporation (IDC) and United Nations Economic Commission for Africa (UNECA).
Jorge Maia, head of research for the IDC, reported that combined contributions to South Africa’s GDP from the manufacturing and mining sectors dropped nominally from 28.2% to 21.7% from 1994 to 2012.
According to Professor Ben Turok, who’s a researcher for UNECA, this drop should be attributed more to manufacturing than to mining. Manufacturing’s contribution over the same 18-year period fell from 20% to 12.4%. The share of domestically manufactured goods used in the mining sector declined sharply in the same period, from 50% to 31%. This drop was experienced most sharply in the area of equipment and machinery purchases. Nevertheless, mining remains an important source of business for the manufacturing subsectors, especially in terms of machinery, rubber products, wood products and transport equipment.
Maia argues that the manufacturing industry could recapture some of its market share by collaborating more closely with the mining industry. In turn, this would boost economies of scale and manufacturing competitiveness. There is also further potential for growth of the manufacturing sector in terms of exporting to the rest of Africa. Non-electrical machinery currently makes up 15% of South Africa’s exports to the rest of the continent. Non-electrical machinery, such as injection-moulded plastic parts, paired with smart automation solutions applied in the mining sector, would be a huge boost to both the mining and manufacturing industries.
A move to increase collaboration between the mining and manufacturing sectors has been supported by Chamber of Mines economist Roger Baxter, who says that work is underway within the Department of Trade and Industry to come up with ways to raise the amount of local content within domestic mining companies’ supply chains.
The way forward
It has been suggested that South Africa’s manufacturing and mining sectors use a similar model to one currently being used by state-owned companies. Known as the Competitive Supplier Development Programme, it aims to raise the level of localization in South African businesses’ investment programmes.
Some feel that there are too many hurdles in terms of structural and policy restraints. Others, like UNECA member Dr Adam Elhiraika, have argued that increased output of local commodities is an “imperative”; African countries are growing at a much lower rate than there is potential for, and one of the key reasons for this is their focus on exporting unprocessed commodities.
The Economic Report on Africa 2013, compiled in partnership by the African Union and UNECA, urges the governments of African countries to put together a nine-point framework designed to improve the linkages between domestic industry and local resource sectors. The nine points are as follows:
- adopt coherent industrial-policy frameworks
- develop local-content policies
- boost local technologies and skills
- negotiate and foster regional trade agreements
- create institutional industrial policy mechanisms
- raise lead firm procurement
- run supply-chain development programmes
- address infrastructural bottlenecks and
- coordinate ministries to improve implementation
Hopefully, with these measures in place, South Africa can increase knowledge linkages between sectors to provide a much-needed boost to the economy.