With its industrial base decimated, SA’s economy needs real change — Godongwana

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Industrialisation must be at the centre of South Africa’s development agenda, Finance Minister Enoch Godongwana has said.

“Over the years, South Africa has experienced significant deindustrialisation,” the minister said at a book launch on Tuesday afternoon, noting that the manufacturing sector’s contribution to GDP had shrunk from 22% in the early 1990s to 12% currently.

In addition, Godongwana noted, the sector’s capital base had narrowed from R677.7-billion in 2008 to the current R545.9-billion in real terms. 

“These numbers speak of the decimation of our industrial base. They also speak to significant job losses, widening income inequality and poverty,” he said.

Godongwana delivered the keynote address at the launch of Structural Transformation in South Africa. The book contends — among the other lessons identified by its authors — that premature deindustrialisation needs to be arrested and reversed and that the manufacturing sector must be upgraded. 

The minister noted that the current state of the South African economy was unsustainable, pointing out that real GDP per capita had been declining since 2015, productivity had  continued to slow, and the unemployment rate had hit a record high of 34.4%. 

Economists have flagged that recent GDP growth, after last year’s low levels amid Covid-19’s economic onslaught, has been driven by sectors that are not labour-intensive. For GDP gains to translate into more jobs, growth has to come from sectors like mining and manufacturing.

According to second-quarter GDP figures, mining saw growth, manufacturing declined 0.8% and deducted 0.1 percentage points  from the overall GDP number. Six of the 10 manufacturing divisions reported negative growth rates in the second quarter, according to Statistics South Africa.

“Part of our policy response requires that we place emphasis on fundamentally transforming  the structure of our economy — to move from low-growth and low-labour-absorbing sectors, to  sectors of high growth, high productivity and greater labour absorption,” Godongwana said on Tuesday.

“Our focus must also be on how we upgrade to higher value-added activities within sectors. If we can do this we stand a greater chance of catapulting our economy onto a path of inclusive growth, sustainability and global competitiveness.”

Godongwana noted that manufacturing “has strong backward and forward linkages to the rest of the economy, which make it a significant driver of demand across the economy”.  

“Equally, the sector’s ability to interface between agrarian and resource-extracting economies and introduce new products and technologies allows it to move the economy forward — from low- to high-productivity activities,” he said.

“Further, in an environment such as ours, where structural unemployment remains stubbornly high, manufacturing has a critical role to play in expanding our skills base and helping us deal with unemployment.”

Godongwana concluded his point by saying that industrial development “is critical for our aspirations, as a nation, for higher levels of economic growth, job creation, transformation, and development”.