14 of 2018

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Newsletter No. 14                                                                                  20 April  2018

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Why is it important to grow manufacturing

Johannesburg – Manufacturing Indaba will take place at the Sandton Convention Centre in Johannesburg on the 19th and 20th of June, 2018 and will be facilitated with the collaborative backing and strategic partnership of the Department of Trade and Industry (the dti) and the Manufacturing Circle, a corporate association of manufacturers.

One of the aspects of the conference will be to focus on South Africa’s manufacturing as a fundamental driver of GDP growth and associated with direct employment, as many services sectors are likely to increase their employment capacity on the basis of an increased GDP.

Newly elected President Cyril Ramaphosa delivered his maiden State of the Nation Address (SONA 2018) and alluded to addressing the decline over many years of South Africa’s manufacturing capacity, which has deeply affected employment and exports. As a result, poverty levels have risen, economic growth has weakened, with the President stating that it has become imperative to re-industrialise on a scale and at a pace that draws millions of job seekers into the economy. Unemployment levels have risen due to looming investment downgrades; hence he emphasised the need for a focus on local manufacturing and production.

Nicholas Kaldor (Zalk, 2014) developed a set of hypotheses to explain the central role of manufacturing in the process of economic development. He contended that manufacturing reveals a unique characteristic: the capacity to generate ‘dynamic increasing returns’, displaying a positive correlation with GDP growth while other primary and tertiary sectors generally do not. That is, indicating that the faster the rate of growth of output in manufacturing, the faster the rate of growth of both manufacturing and economy-wide productivity (Thirlwall, 1983, as cited in Zalk, 2014). Thus, clarifying that manufacturing is the core driver of GDP growth and employment while other sectors, particularly many services sectors are only likely to grow on the basis of the growing demand derived and resulting from an increasing GDP. Therefore, growth and employment in most services sectors follow rather than lead growth in GDP (Zalk, 2014).

In accordance with the vital importance of this sector’s encouraged growth, the President undertook to promote greater investment in key manufacturing sectors through the strategic use of incentives and other measures. Accordingly, and further stimulating manufacturing by forging ahead with the localisation programme, through which products like textile, clothing, furniture, rail rolling stock and water meters will be designated for local procurement. Ramaphosa also reiterated that the country had spent more than R57 billion on locally-produced goods that otherwise might have been imported from other countries.

The Industrial Policy Action Plan (IPAP) 2017/18 – 2019/20 report as part of the National Development Plan (NDP) 2030 outlines sector specific goals and a vision for South Africa to be achieved by the year 2030 and referred to inherent structural challenges within the economy that remain difficult to overcome. These challenges include weak growth and domestic demand reflecting and contributing to persistent unemployment, resulting in unsustainable race and gender-based inequality and rural marginalisation. Value-add in manufacturing lagged behind the economy as a whole from 2008, and investment in manufacturing has declined since the global credit crisis. The IPAP report also indicated that investment as a share of GDP is also below the 25% level required for sustained economic expansion.

In light of this aspect, Ramaphosa at SONA referred to the special economic zones that will remain important instruments that SA will use to attract strategic foreign and domestic direct investment and build targeted industrial capabilities in order to establish new industrial hubs. He also emphasised that the process of industrialisation must be underpinned by transformation, and that through measures like preferential procurement and the black industrialists programme, a new generation of black and women producers will be able to build enterprises of significant scale and capability.

In light of this objective industrial financing and incentive support has played a key role in supporting private sector investment and black economic empowerment in critical industrial areas. Another example and a high point of 2016/7 has been the Automotive Investment Scheme with R8.7bn on investment leveraged through 2 new projects with an estimated investment value of R548.9m, projected to create 1 140 jobs. Included in this buoyant mix is the Manufacturing Competitiveness Enhancement Programme (MCEP) which has reopened a R1bn loan component with 270 projects supported, and R8.24m disbursed thereby supporting R3.38b of investments & 62 2353 jobs.

Bearing these examples in mind, and Ramaphosa’s affirmation at SONA that, “…at the centre of our national agenda in 2018 is the creation of jobs, especially for the youth”, Philippa Rodseth, executive director, Manufacturing Circle (2016, in The importance of Manufacturing for SA’s economic growth), stated that in order to promote a resilient, sustainable manufacturing environment, three goals were identified in order to secure the long-term sustainability of South Africa’s manufacturing industry.

Hence, these following aspects will ultimately contribute to the economic growth of the country-: the achievement of a competitive manufacturing environment, the attainment ofa supportive international trade position and the advancement of the reputation of SA manufactured goods.

These issues and other pertinent topics relating to Manufacturing in South Africa and the continent will be considered, evaluated and debated at the upcoming prestigious Manufacturing Indaba conference in June, in this year of “hope and renewal.”

My Newsroom

Ethiopian textile, garment sector on the rise: Ministry

The Ethiopian textile and garment sector is rapidly expanding and playing a key role in boosting the country’s’s light industry and in transforming the economy, according to the country’s ministry of industry. The number of industries in this sector has more than doubled in the last few years to reach over 200, a top ministry official said recently.

The trend shows that the sector is in the right path to become the leading sector in Africa and turn the country into a continental textile hub in the coming years, Zerihun Abebe, director of textile and apparel research, monitoring and support, in the industry ministry told The Ethiopian Herald newspaper.

Government statistics show Ethiopia’s textile and apparel industry has grown at an average rate of 51 per cent and more than 65 textile investment projects have been licensed for foreign investors in the last five to six years.

The expansion and development of industrial parks, adoption of technology, an industrial culture and attractive investment incentives are helping the sector’s growth, Zerihun said.

The country now has a 15 year road-map to strategize cotton development by raising productivity and directing how the sector can be assisted and facilitated, he remarked.

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Kenya’s NEMA to approve trials of GM cotton by next month

Kenya’s National Environment Management Authority (NEMA) will approve performance trials for genetically-modified (GM)  cotton by next month. Public feedback on an environmental impact assessment for the proposed trials at nine sites is awaited before a go-ahead can be given, chief compliance officer Margaret Njuki said recently in Nairobi.

The proposed sites are Mwea, Katumani, Kampi ya Mawe, Bura, Perkerra, Kibos, Alupe, Barwessa and Matuga, according to a Kenyan newspaper report. The transgenic cotton variety is resistant to bollworm, which lowers productivity by 50 to 90 per cent.

Rajeev Arora, adviser on textile value chain at the Kenyan ministry of industry and trade, said a cotton task force was formed last year to ensure the implementation of a five-year roadmap. Initially, hybrids and conventional seeds will be the focus, but by 2019, the plan is to grow Bt cotton after its commercialisation, he said.

Production will take place in more than 494,210 acres in the five years, Arora added.

Cotton production last year stood at about 30,000 bales of lint against a potential of 368,000.

Did you know……..

Chopines

If you thought a stilettoed Louboutin was hard work, your ankles and toes are going to quake in fear at the thought of chopines. Popular with Venetians in the 16th and 17th centuries, the shoe attachment was invented to help women walk through muddy streets. However, the practicality of the chopines soon turned to fashion, as being tall signified that you were an important, wealthy person. Sometimes, a lady’s chopines were so high that she needed an attendant to maintain balance.

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