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SA manufacturing mirrors global skill gap

Johannesburg, 2 May 2012 - The future of global manufacturing is turning into a competition for global talent according to a new report, a trend that is mirrored in South Africa where a lack of skills is adding to the woes of a manufacturing sector that has grown by just over 2% in five years, says Deloitte.

Commenting on today’s release by the World Economic Forum of the Deloitte global report: The Future of Manufacturing: Opportunities to Drive Economic Growth, Andrew Mackie, Industry Leader: Manufacturing, Automotive & Construction Deloitte, said that in addition to inadequate skills in the South African sector, several other factors were taking their toll on South Africa’s manufacturing industries.

Shrinking export sales, high production costs and the rising costs of credit are 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.

“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,” said Mackie.

“The situation in the emerging South African economy means that a hard look will have to be taken at all aspects of local manufacturing capabilities,” he said.

“The present economic environment, lack of skills in the manufacturing sector and an outlook that includes several years of steeply rising electricity costs and fuel costs, means that significant investment will 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.”

Looking internationally, it could also be expected that there will be a dramatic increase in global competition for foreign direct investment.

“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,” Mackie warned.

“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,” said Bronwyn Kilpatrick, Audit Partner at Deloitte.

“Therefore companies carefully consider all factors when making investments. Political stability of countries. Risk and infrastructure development play major roles in these decisions, particularly when investments in Africa are being contemplated.

Ease of doing business in a country was also important when investments were being considered, added Kilpatrick.

“South Africa 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 South Africa, many companies are considering their options as energy costs and regulatory considerations continue to place constraints on their operations.

“Margins are being squeezed and the point has now been reached where the question must be asked whether South Africa is really trying to make itself attractive to international investors, especially as the country is now competing for investments with an entire continent that is now open for business.”

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

Craig Giffi, Vice Chairman and Consumer & Industrial Products Industry Leader at Deloitte LLP in the United States, who helped author the global report, notes that the skills gap that exists today will not likely close in the near future.

“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,” says Mackie, adding that global sourcing of talent could therefore exacerbate South Africa’s already tenuous labour position.

Turning to other issues, Mike Vincent, Director Strategy and Innovation Deloitte said that to be truly competitive the South African manufacturing sector will have to critically examine its present productivity levels.

“Competitiveness depends on the productivity with which a nation uses its human, capital and natural resources. It is productivity that sets the sustainable standard of living, including wages, returns on capital and natural resources.

“It is therefore not what industries a nation competes in that matter for prosperity, but how productively it competes in those industries in which it is active that counts.

South Africa’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.”

“As was stated in the global report, South Africa would also have to concentrate on innovation in its manufacturing sector if it was to increase its effectiveness,” Vincent said.

“According to the global report, innovation will play a key role in determining which countries and companies can succeed in global manufacturing in the next two decades.

“The report states that companies regarded as more innovative grew net income nearly two times faster from 2006 to 2010 than their non-innovative counterparts. It was also noted that countries that are more successful at fostering innovation perform better when it comes to both gross domestic product (GDP) and GDP per capita.”

“The bottom line, as the report says, is that manufacturers must innovate to stay ahead of competition. They must also be enabled by infrastructure and a policy environment that better supports university and research lab breakthroughs in science and technology,” Vincent concluded.

About the Future of Manufacturing report

The Future of Manufacturing report is the result of a year-long effort combining primary and secondary research, including a review of academic and industry literature, interviews with more than 30 manufacturing business, academia, and policy leaders, and virtual task force meetings. In addition, industry, policy, and academic stakeholders provided valuable input to the report during seven face-to-face global workshops.

In summarizing the report, Giffi emphasizes one frequently recurring theme: Collaboration between governments and private sectors will be critical. “With competition increasing for so many resources and capabilities—and with the prosperity of nations hanging in the balance—policymakers will be actively looking for the right combination of trade, tax, labor, energy, education, science, technology, and industrial policy levers to generate the best possible future for their citizens.”

To view The Future of Manufacturing report click here

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