Manufacturing Woes Drag Recovery

SOUTH AFRICA - In Brief 26 Nov 2013 by Iraj Abedian

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The uninspiring 0.7 per cent quarter-on-quarter Q3 2013 GDP growth outcome comes on the back of a mediocre performance within the manufacturing sector. Since the beginning of 2013, the quarterly performance of the manufacturing sector has moved from pillar to post. On the whole, South African manufacturers had to endure the effect of a poisonous cocktail during Q3 2013. Both domestic and external factors were at play. In particular, labour-related production stoppages, weak demand, and elevated input costs (in part due to a weak rand) were the main culprits. As such, the Q3 2013 outcome was inevitable. That labour relations instability in South Africa is a key deterrent to the country’s competitiveness, is well-documented. The World Economic Forum’s 2013 Global Competitiveness Report ranks South Africa 148th out of 148 countries in the category “cooperation in labour-employer relations”. On the other hand, controlling for the effects of strikes on the performance of the South African economy, we believe that the Q3 2013 GDP growth outcome would not have been spectacular enough to signal a robust recovery. Essentially, the South African economy is stalling, thereby remaining susceptible to external headwinds as well as a structural and uphill domestic terrain. Any delays in engaging the required gears will result in the economy gradually losing momentum. In fact, the GDP growth rate has exhibited a downtrend since Q1 2010. But what are these necessary gears? The nature and sequencing of gears (that is, policy actions) required to help the South African economy overcome the uphill structural terrain - featuring a lack of adequate skills, yawning inequality, unstable indu...