Manufacturing is leaving – and policy uncertainty is not helping

Any aspiration that South Africa has to rebuild its industrial base is disappearing before our eyes. The Department of Trade, Industry and Competition (dtic) should take the lead in changing that, if they indeed regard industrialisation as strategic to the growth of the South African economy. If it fails, a generation of South Africans will pay the price.

Manufacturing contributes roughly 12% of GDP and supports more than 1.5 million jobs directly, with multiples of that in supply chains. But we are watching this foundation erode. In the last two years alone, Bridgestone and 13 other automotive component manufacturers have shut down operations.

Now Nissan has effectively exited manufacturing here, maintaining only marketing and sales functions after selling its Rosslyn plant, which had built bakkies for over 60 years, to Chinese manufacturer Chery. And the problems go far beyond the automotive sector – to cite just one example, British American Tobacco closed its remaining South African factory last year.

Last week Nissan announced a $45-million investment to expand manufacturing capacity in Egypt. Not South Africa. Egypt. That decision speaks volumes about where we stand in the global competition for manufacturing investment.

Read:
Nissan to ramp up Egypt carmaking in bid to boost Africa sales
China’s Chery plans multi-billion-rand car plant at old Nissan Rosslyn site

The dtic should be the part of government that welcomes manufacturers and helps them succeed. Instead, Minister Parks Tau’s department is seemingly becoming a source of policy uncertainty that is actively driving investment away. The proposed amendments to (broad-based black economic empowerment) B-BBEE regulations are a recent example.

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Original equipment manufacturers have spent years building local supply chains, deliberately including majority black-owned businesses as part of their transformation commitments. Now the dtic’s proposed amendments threaten to strip them of their B-BBEE status because many suppliers are not 100% black owned. But this raises some fundamental questions:

Where are the black suppliers that should have been systematically developed over the years?
Where is the pipeline of black businesses that institutions like the Small Enterprise Finance Agency, the National Empowerment Fund, and the Industrial Development Corporation were meant to build?
What has become of the Black Industrialisation Programme?
What tangible outcomes have emerged from the Localisation Fund?

In assessing the outcomes of B-BBEE policy, these questions must also be answered. It will allow for more coherent solutions, rather than sudden changes that risk damaging businesses that are large employers. Automotive components for specific models cannot simply be swapped out when the B-BBEE rules change.

Developing new suppliers takes years, requiring testing, certification, integration into production lines. The government-backed interventions should be providing a pipeline of strong black-owned businesses who can compete – if they are not, we should ask why not?

Under the proposed amendments, OEMs would lose their B-BBEE status immediately.

That status is critical to accessing the tax incentives and support schemes that government has established for the industry.

No one knows how this could possibly be managed. Boards of directors, many sitting in capitals around the world, are looking at this regulatory uncertainty and comparing it to other markets. We want South Africa to win in the comparison.

I hope the dtic reverses course on the B-BBEE amendments after comments on the drafts were received last month. That would be a signal that it understands the imperatives of businesses and investors.

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Of course, there are several initiatives the dtic has succeeded in delivering. The Automotive Masterplan has kept some investment flowing, with manufacturers like Toyota, BMW and Mercedes-Benz expanding operations over recent years. But we need to see consistency across policies to ensure investors feel there is a government department that is on their side.

Read: New threat to SA’s waning automotive manufacturing strength
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Faced with expensive logistics, high energy costs, security concerns, Asian dumping, illicit products and regulatory instability, manufacturers are making rational decisions to invest elsewhere. Egypt offers proximity to north African and European markets, policy stability and governments actively courting their investment.

Government needs a coherent strategy to rescue our industrial base as a matter of urgency. This requires specific, immediate action.

First, the dtic must withdraw the proposed B-BBEE amendments and commit to regulatory stability. Transformation is essential, but policy changes cannot happen overnight in sectors where supply chains take years to build.

Second, Minister Tau must establish a manufacturer task force with monthly reporting directly to the president. This cannot be resolved through bilateral negotiations with individual businesses. We need a macro-level understanding of obstacles and coordinated government action to remove them.

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Third, the entire cabinet must recognise that manufacturing is everyone’s responsibility. Energy reliability, logistics costs, ports performance, crime and security – these affect manufacturers’ ability to compete globally. When a factory closes, it’s not just the dtic’s problem.

Read:
Scrap BEE laws to unlock ‘billions of dollars’ – US ambassador
Legal firms press ahead with court bid to scrap BEE sector code

BLSA is constantly engaged with many manufacturers and we can document specific obstacles and present them directly to the presidency. We cannot watch deindustrialisation happen passively while government departments add to manufacturers’ challenges instead of solving them. Business will make the case for what must change.

The urgency cannot be overstated. Every month that passes without action means more boardroom decisions in Detroit, Tokyo, Stuttgart and Shanghai choosing Egypt, Vietnam, Mexico over South Africa. More factories closing, jobs lost, supply chains dismantled.

We have manufacturers still operating here who want to succeed. The question is whether government will be their partner or their obstacle. Minister Tau must make his department the manufacturer champion it should be. The industrial base we still have depends on it.

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