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Sector Spotlight: Manufacturing

Is the manufacturing industry experiencing a positive turnaround?

The manufacturing industry has endured years of sluggish growth and job losses, however, it seems the sector is experiencing a turnaround. Government plans to improve industrial policies, solve unemployment issues and provide support for small-scale manufacturers are steps forward in making the sector internationally competitive and domestically dynamic.

Facts and Figures

  • The sector is expected to grow by more than 1% in 2018.
  • The South African economy grew by 2% in the third quarter of 2017; manufacturing was one of the main drivers for growth, along with agriculture and mining.
  • Increased imports of manufactured goods from countries such as China and Germany have affected South Africa’s trade.
  • Manufacturing divisions such as chemical, wood and paper manufacturing account for 36% of the sector’s total output. 
  • 20% of the country’s manufacturing production capacity is not being used.
  • There are approximately 2000 companies in the plastic converting industry, with around 60,960.

Overview

There are a number of different subsectors that make up the manufacturing sector in South Africa. These include agro-processing that is 24% of the manufacturing, the manufacturing of metals and engineering that contributes 23% of the sector, chemical manufacturing at 22%, wood, paper and printing at 13% and automotive manufacturing at 7%.

The manufacturing industry in South Africa was greatly affected by the financial crisis in 2008, and it is only now starting to show signs of positive growth. The sector, however, still has a long road to recovery with regards to of productivity and job losses.

There are positive steps forward within the manufacturing industry at the moment, with the government understanding that improvements in regulations and productivity will help tackle unemployment issues throughout the country.

Challenges

There are a number of issues the manufacturing industry faces that could prevent the sector from reaching its full potential. The country has severe institutional impediments that have negatively impacted the sector.

Employee strikes within the sector also present major issues; an example of this is the 2014 platinum group minerals (PGM) strike. The strike resulted in R67 million worth of purchases lost every day, which shows the instabilities the manufacturing sector is exposed to. 

Skills labour and training is necessary for South Africa to be able to boost manufacturing productivity and compete on a global level with countries such as China and Germany.

Essential skills

  • Financial management, such as attracting investment, cashflow management and knowledge in investment opportunities
  • Procurement and buying knowledge, this could include tendering and managing contracts, stock control and inventory planning
  • Administration abilities, including bookkeeping, handling accounts and payroll management
  • Marketing skills, which may include advertising and media marketing, digital and social media promotion, and skills in strategy and development.
  • Sales talent, including pricing and negotiating, monitoring competitors and market research. 
  • HR skills, such as recruitment and managing employee welfare, staff motivation, performance and training.
  • Business aptitude, such as possessing good written and oral communicational skills, as well as being able to delegate responsibilities within your team.

Support

The South African government has recognised the development of small enterprises in the manufacturing sector is essential to help the recovery of the country’s economy and ensure job creation. The government, along with the private sector, are therefore offering active support for small-scale, innovative enterprises and entrepreneurs.

Seda is a government-run group that is involved in various programmes to contribute to the development of the manufacturing sector. The Industrial Development Corporation (IDC) is another a government-owned institution, which has implemented developments to South Africa's industrial policy for more than 70 years.

The Department of Trade and Industry (DTI) is also committed to enhance industrial capabilities and ensure job creation in South Africa’s manufacturing industry. There are also government schemes such as the National Foundry Technology Network and the Black Industrialists Programme.

Buying an existing manufacturing business

Whether you plan to buy a shoe manufacturing business or a biofuel manufacturer, there are certain aspects all entrepreneurs should consider when buying a business. It is important to do your research and, if you’re a first-time buyer in the sector, speak to other buyers in the sector to gain their knowledge and experience.

When reviewing the business’s physical assets, you should consider what condition and how old the machinery and equipment is. Repairing or replacing machinery can be a big expense, so it’s important to know whether you need to factor in this cost before putting an offer in for an existing manufacturing business.

You should also review any existing contractual agreements and establish whether existing customer contracts will be included in the sale of the business; it is important to also gauge what relationships the business has with their current clients. As a buyer, you should also review what non-tangible asset will be included in the business proposition, such as trademarks, branding and design patents.

Find out whether there are any business debts and loans that you will be taking on, or any amounts owed to suppliers or the premises landlord. Carrying out due diligence checks on the business accounts and bookkeeping is vital to ensure there are no unexpected surprises after you’ve purchased the business.



Krystena Griffin

About the author

Krystena Griffin writes for all titles in the Dynamis stable including BusinessesForSale.com, FranchiseSales.com and PropertySales.com as well as other industry publications.

@Be_TheBoss

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