SA manufacturing echoes global skill gap

This a trend that is mirrored in SA, where a lack of skills is adding to the woes of a manufacturing sector that has grown by just over 2% in five years, according to Deloitte.

The report, released on Friday, 4 May 2012, by the World Economic Forum in collaboration with Deloitte, highlighted the skills shortage facing the global manufacturing industry, and said that 10 million manufacturing positions were unfilled.

In addition to inadequate skills in the South African sector, several other factors were taking their toll on SA's manufacturing industries, said Andrew Mackie, Deloitte SA's manufacturing industry leader.

Shrinking export sales, high production costs and the rising costs of credit were having an impact on the industry, while, in common with the global sector, local companies struggled to fill manufacturing jobs which ranged from engineers to highly-trained workers, Mackie said.

"The global report reflects this by estimating that 10 million manufacturing jobs worldwide cannot currently be filled due to a growing skills gap.

"The shortage is pervasive despite the high unemployment rate in many developed economies," he said, adding that the situation in SA's emerging economy meant that a "hard look" would have to be taken at all aspects of local manufacturing capabilities.

Mackie said that the present economic environment, lack of skills in the manufacturing sector, and an outlook that included several years of steeply rising electricity and fuel costs, meant that "significant" investment would be required within the sector.

"At the same time, this investment will have to be undertaken with the knowledge that a focus on selected industries will be required if we are to change the national outlook and compete successfully on an international basis.

"With the challenges facing our manufacturing industry the reality is that we simply cannot compete across all manufacturing sectors," he said.

There was also an expected increase in global competition for foreign direct investment, Mackie said.

"This will undoubtedly complicate the decision processes for local companies in the manufacturing sector, as it will have to compete across a much wider front for investment."

Bronwyn Kilpatrick, audit partner at Deloitte, said: "What also has to be considered in this regard is that manufacturing plants are expensive, requiring the commitment of significant levels of capital which, in turn, take many years to be amortised."

Therefore, Kilpatrick said, companies must carefully consider all factors when making investments, including the political stability of countries.

Risk and infrastructure development also played major roles in these decisions, particularly when investments in Africa were being contemplated, she said, adding that ease of doing business was also an important consideration.

"SA, with its issues ranging from high labour costs, energy hikes, increasing raw material prices and taxation issues such as transfer pricing and customs costs, presents several challenges.

"A fine balance needs to be maintained as manufacturing industries are essential in any economy. There is no doubt that because of the issues being faced in SA, many companies are considering their options as energy costs and regulatory considerations continue to place constraints on their operations," she said.

Kilpatrick added that margins were being squeezed and the point had now been reached where the question had to be asked whether SA was really trying to make itself attractive to international investors, especially as the country was now competing for investments with an entire continent that was now "open for business".

Added to these factors could be increased international pressure for skilled South Africans to take their abilities elsewhere, where salaries were globally competitive due to market scale, she said.

Craig Giffi, vice chairman and consumer and industrial products industry leader at Deloitte LLP in the US, who helped author the global report, said that the skills gap that existed today would not likely close in the near future.

Mackie said that "this means that companies and countries that can attract, develop and retain the highest skilled talent - from scientists, researchers and engineers to technicians and skilled production workers - will come out on top".

He added that global sourcing of talent could therefore exacerbate SA's already tenuous labour position.

Mike Vincent, director of strategy and innovation at Deloitte, said that to be truly competitive, SA's manufacturing sector had to critically examine its current productivity levels and enhance its productivity.

"SA's ability to compete therefore depends on the capacity of its manufacturing industries to innovate and upgrade. In addition there must also be willingness on the side of government to invest in selected industries and create an enabling environment for them to become more competitive," Vincent said.

"As was stated in the global report, SA would also have to concentrate on innovation in its manufacturing sector if it is to increase its effectiveness," he said.

A key to success in global manufacturing was innovation, Vincent said, adding that manufacturers must also be "enabled by infrastructure and a policy environment that better supports university and research lab breakthroughs in science and technology".

Manufacturing activity in SA declined sharply in 2008 during the financial crisis, but the industry has been expanding since early 2010, according to Statistics SA.

The industry was one of the main contributors to GDP growth in 2011, having contributed 0.4 of a percentage point of the 3.1% growth in the country's economy.