Combatting deindustrialisation in South Africa: developing a passion for manufacturing and building monozukuri

“South Africa urgently needs to develop a passion for, and commitment to, manufacturing – to support the fundamental transformation of society and enable substantially higher standards of living” – Barnes (2019)

The South African manufacturing sector has experienced limited development over the last two decades. Several indicators show worrying signs of premature deindustrialization. To turn this around, Barnes (2019) argues that the country must urgently develop monozukuri – a passion for manufacturing – so that it can better contribute to employment creation, skills upgrading, and other benefits associated with manufacturing-led industrialization.

South Africa has seen little growth in real manufacturing value addition per capita over the 20-year period shown in the figure below. Moreover, this shows that the country has been left behind by a range of developing countries¹. In recent years, the country has seen deteriorating levels of manufacturing contribution to GDP; gross fixed capital formation; foreign direct investment; manufacturing goods contribution to balance of payments; and employment in manufacturing (Barnes, 2019).

Source: Prepared by TWIMS, derived from World Bank data (2021a; 2021b)² 

The importance of manufacturing to economic development

Nicholas Kaldor (1960) first argued that manufacturing was an engine for GDP growth. Since then, the importance of manufacturing to economic growth has been widely supported³. Tregenna (2011) notes the special characteristics that are strongly associated with the manufacturing sector, namely: it has dynamic opportunities for achieving economies of scale; it has strong backward and forward linkages with other sectors; it has unique opportunities for learning-by-doing; it leads to technological development and innovation; and it has an important positive impact on a country’s balance of payments. Manufacturing remains an important vehicle for employment creation, human capital development, and wider economic growth (Cantore et al., 2014; Szirmai, 2009).

Deindustrialization in South Africa

Tregenna (2011) notes the process of premature deindustrialization in several middle-income countries around the world. Indeed South Africa is well on this path of premature deindustrialization (Odendaal, 2017). Imbs (2013) explains that deindustrialization in South Africa began in the early 2000’s as the share of services to GDP increased in relation to manufacturing. The national government’s Department of Trade, Industry and Competition has also summarized a number of factors that have led to South Africa’s relatively poor manufacturing performance in its various Industrial Policy Action Plans, namely: sub-optimal performance of state owned companies; logistical bottlenecks; infrastructure constraints; volatility of South African exchange rate; monopoly pricing of key economic inputs, such as steel; skills deficiencies across the national economy; aging capital equipment; and the rapid liberalization of the domestic economy to global trade in the late 1990’s and early 2000’s (Barnes, 2019).

Importantly, Barnes (2019) points out a major frustration expressed by industrialists in South Africa is the ongoing lack and associated high costs of management skills to drive productivity improvements. Barnes, Black, and Techakanont (2017), in a benchmark assessment of cost profiles between a generic South African and Thai automotive component manufacturer, found that management costs were 2.7 times more expensive in South Africa. Combined with the supply and demand mismatch for high level skills, this has significantly curtailed local firm level efforts to advance operating capabilities in the face of international competition (Barnes, 2019). Not only have industrialists expressed this as a challenge within their own firms, but as a challenge across the broader manufacturing ecosystem. Simply put, firm level efforts to increase productivity are significantly impeded by poor logistics, infrastructure, transport and government services (Barnes, 2019). Across this ecosystem there is a lack of management skills and a desire to create an environment that supports local manufacturers as they attempt to upgrade their productive capabilities and increase their competitiveness. 

South Africa’s manufacturing future is therefore precarious. And yet the country desperately needs to re-energise its processes of manufacturing-led industrialization with their capacity to create employment, enhance labour productivity, upgrade skills, increase wages, grow the economy, and generate innovation. Informed by this, Barnes (2019, p. 7) argues that South Africa urgently needs to develop “a passion for, and commitment to, manufacturing – to support the fundamental transformation of society and enable substantially higher standards of living”. In Japan they call this monozukuri – a spiritual and philosophical underpinning that materializes in a pride for the making of things (Roser, 2017).

How do we build monozukuri and combat deindustrialisation in South Africa?

How does South Africa create a passion for manufacturing then? How do we build monozukuri in South Africa and the rest of the African continent for that matter? 

A crucial part of the answer is education in support of industrialization (Barnes, 2019). This needs to encompass both formal education (developing technical, professional and generic management skills to advance productive capabilities) and more informal learning associated with supporting the development of a widespread appreciation for, and pride in making things (Barnes, 2019). To this effect the Toyota South Africa Education Trust established the Toyota Wessels Institute for Manufacturing Studies (TWIMS) in 2018. TWIMS’ mandate is to develop manufacturing leadership and monozukuri in South Africa and the African continent more broadly. To date, TWIMS has reached over 400 industry leaders through its MBA program, executive short courses, various seminars, and other activities. It has also made concerted efforts to support the participation of women, black industrialists, and small and medium enterprises in its own programmes and the manufacturing community more broadly. 

Ultimately, no firm can survive in the region as an island of advanced manufacturing capability (Barnes, 2019). South Africa and the rest of Africa’s industrialization depends upon the creation of a supportive ecosystem that appreciates manufacturing and is proud of its industrialists that attempt to advance their productive capabilities for their own benefit, and that of broader society