COVID-19: Economic meltdown the price – skills and trade the answer

The South African manufacturing negative supply shocks will cause demand shortages, while South Africa will be expected to be dependent on imports for the next half a decade.

South Africa’s manufacturing production fell 2.1% from a year ago in February of 2020, following a downwardly revised 1.8% decrease and almost in line with market expectations of a 2.2% slump. Covid19 has made it worse. Demand and supply is disrupted and raw materials are expected to be too expensive in the future, while backlogs caused by the lockdown are starting to hurt manufacturers.

 Manufacturing is very prone to COVID-19, with many small businesses closing without  credit to sustain them. Many had problems as far back as 2015 as they faced changing in markets and also disruptions from electricity and less investment confidence in the South African economy.

A rapid response survey, conducted by Stats SA has the following key findings for the manufacturing industry: About 4% of business turnover was above the normal range, about 88% of business turnover below the normal range and 8% of business turnover was within the normal range; The manufacturing trading status of businesses are, about 10% continuing to trade with full capacity, 26% continues to trade partially, 6% has permanently ceased to trading and about 58% has temporarily closed or paused trading; The majority of responding businesses (85,4%) reported turnover below the normal range.;46,4% indicated temporary closure or paused trading activity; 50,4% expected their workforce size to stay the same in the two weeks after the survey, while 36,8% reported that their workforce size is expected to decrease; 28,3% indicated that their workforce has decreased working hours and 19,6% reported laying off of staff in the short term; 19,1% indicated that prices of materials, goods or services purchased increased more than normal.

There is no doubt large manufacturing companies are in trouble and about  50 percent of companies in financial distress, which can lead to South Africa experiencing the highest number of manufacturing business rescue and acquisitions by new shareholders as a result of Covid19 and South African recession..

New technologies are an enabler, not merely a goal in themselves, and more than the reported 10 percent should have continued to operate when adoption to manufacturing technologies was higher than it is currently. We believe that the senior leaders of many manufacturing organizations need to start asking different questions as they think about the investments and changes they will make in the coming years.

It is likely that advanced technologies will be part of the answer to that question, but ensuring that people have the skills, stunning mind-set, and behaviours to use those technologies effectively will be equally important. The South African manufacturing industry needs to improve on the skills development for it to be competitive to the global economy.

The implementation of African Continental Free Trade Area (AfCFTA)  are to create a continental market for goods and services that  can boost continental trade and inspire growth post Covid19.

 What we think is very exciting is not only can you think about utilizing existing assets in a new way—but that goes for the workforce as well. How can we utilize an existing workforce and upskill or reskill them to be successful in the new technologies? What we’re seeing around the world is that some of the most advanced Industry 4.0 plants not only are using brownfield assets but they’re also using their same workforce. The people are learning new skills and working in a new way. The implementation of the South African special economic zones must be aligned with the evolution of the global manufacturing technologies and the human centred approach for its sustainability.

Most businesses (65,0%) anticipate that the COVID-19 pandemic will impact their business substantially worse than the 2008/09 global financial crisis. Revised strategic planning in manufacturing operations management will add value for new affordable solutions to turnaround businesses and deliver the expected needs of the customer’s.

Miyelani Mkhabela is an Executive Director of Antswisa Transaction Advisory Services.

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