Manufacturing was the most prosperous sector in the early twentieth century in South Africa because of low input costs and developed infrastructure. However, the industry is now facing great challenges. During my trip to South Africa, I observed some weaknesses in the country’s manufacturing industry.
The biggest challenge in the manufacturing industry is its problematic labor market. Labor costs have continued to rise in recent years, at a faster rate than its global peers; however, the productivity remains at a low level. I learned that the workers in South Africa could ask to work six hours per week, whereas workers in other emerging marketing countries such as China, India, and Thailand typically work fifty hours per week. Although labor costs are still relatively cheaper in South Africa than those in developed countries and the declining value of the rand makes the costs even lower, the fact that workers work few hours and thus do not create as much value as workers in other emerging markets undermines the competitiveness of the country. This is largely due to the fact that the labor union in South Africa maintains significant power and enforces many policies that benefit the local workers.
Second, the local market for the manufacturing sector is limited. I learned that cheap Chinese imports are the biggest competitors for the locally manufactured products. People are more likely to buy at lower prices for the same goods, especially in South Africa, where the middle-class is dominant and has limited money to spend. Therefore, South Africans are more willing to buy Chinese goods than local products.
While investors are looking for manufacturing markets that are high-tech and have more skilled workers, South Africa is losing its talents. From conversations with many foreign businessmen in South Africa, I learned that most of the educated foreign workers are planning to move out of the country because of political instability. Such extensive brain drain severely dilutes the intellectual skills in the country and will keep investors away from the South African market.
Moreover, South Africa’s poor energy infrastructure raises manufacturing costs because it increases waste and idle costs. Since the goal of investors is to maximize the return on investments, it is unlikely that investors would choose the South African manufacturing market because it requires higher inputs than many other countries. Additionally, the electricity price is rising recently, envisaged by the power build program initiated by Eskom company. This even worsens the situation and continues to hurt the competitiveness of South Africa's manufacturing market.