South Africa - Manufacturing

As manufacturing activity expanded, the sector became increasingly capital intensive despite the availability of a large labor pool in South Africa. The government encouraged capitalization through tax incentives and led such investment through the state corporations. During the 1970s, manufacturing enterprises steadily increased their fixed-capital stock, leading to surplus capacity by the mid-1980s. In particular, massive extensions at the government's power utility, Eskom, as well as the establishment of SASOL synthetic fuel plants and the Koeberg nuclear power station, represented significant capital intensification but only a minimum labor requirement. Furthermore, most private manufacturers moved toward machinery and technology to cut labor costs, both to keep up with foreign producers and to avoid confronting an increasingly militant, organized labor force. Nevertheless, by the mid-1980s the government recognized that much of the responsibility for creating jobs for new entrants to the labor market would necessarily rest on the manufacturing industries, and for this reason, government programs in the 1990s were beginning to encourage more labor-intensive manufacturing enterprises.

The first vehicle assembly plant was established by Ford in Port Elizabeth, and in 1960 the government began to promote the increased use of local parts in vehicle assembly. Phase One through Phase Five of the local-content encouragement program were based on the weight rather than the value of local components and tended to make South African vehicles relatively heavy and expensive. In 1989 the government introduced Phase Six, which shifted the determination of content to value rather than weight. The result was a reduction in the cost of vehicles as manufacturers turned to low-cost imported parts in order to increase the percentage of value represented by local products. The lowered cost of assembly was evidenced in June 1991 when the South African Motor Corporation (Samcor) announced that it had started exporting locally assembled Mazdas to Britain.

The Koeberg nuclear power station, commissioned in 1976 but subsequently damaged through sabotage, began operations using uranium as an energy source in 1984. In the mid-1990s, it is the only nuclear power plant in operation, but sites have been selected for at least two additional plants to be built early in the twenty-first century.

Despite Eskom's strong sales record, officials became increasingly concerned over the government's capital investments in Eskom's expansion efforts, which were estimated at R27 billion between 1983 and 1987. Eskom was one of the enterprises hit hardest by the cutoff in foreign loans in 1985. After that, it scaled down plans for further expansion. Eskom supplied more than 97 percent of the electricity used nationwide in the early 1990s, but a few mines and industries had power generators of their own. Only about 40 percent of the population had electricity in their homes, but the new government in 1994 placed a high priority on supplying power to rural areas.

Manufacturing industries registered sharp increases in capacity utilization in 1994 and 1995, exceeding 90 percent of capacity in the coal and nonferrous metal industries, as well as in furniture and footwear manufacturing. Investors judged South Africa's manufacturing competitiveness in the international arena to be fairly weak, however, largely because of the outdated facilities and physical plant in many industries.

Clothing manufacturing and textile weaving are important consumer industries. The clothing industry predated local textile manufacturing; even at the end of the nineteenth century, clothing manufacturers relied on imported textiles to produce a variety of apparel. By the 1990s, the clothing industry not only met the country's needs but also exported its goods, aided in part by the government's elimination of import duties on cloth. It maintained a 30 to 35 percent import duty on most apparel through the early 1990s. Then, because clothing manufacturers increasingly relied on imported cloth, the domestic textile industry suffered from the increased competition, and as all import tariffs were being lifted in 1995 and 1996, both clothing and textile manufacturers were laying off workers.

South Africa imported electricity from the Cahora Bassa hydroelectric facility in Mozambique during the early 1980s, but that source was cut off in 1983 as a result of sabotage by Mozambican rebels. South Africa, Mozambique, and Portugal agreed on reconstruction plans, begun in 1995, that were expected to reestablish power to South Africa by 1997.

More about the Economy of South Africa.

The government controls a significant segment of the chemical industry. Its largest investment is the SASOL operation, in which synthetic oil and gas are extracted from coal through a gasification process that also produces ammonia, pitch, alcohol, and paraffin. The government established the Phosphate Development Corporation (Foskor) in 1950 to produce phosphate concentrates for use in chemical fertilizers, and Foskor also produces zirconium and copper. Government involvement in the industry increased in 1967, when the IDC created a holding company to merge several small chemical companies in an effort to achieve greater economies of scale.

South Africa also has a significant heavy-engineering industry that meets many of the country's industrial and construction requirements. Many of the firms connected to Iscor produce structural steel, for use in construction, as well as machinery and mining equipment. Most advanced machinery, such as Eskom's generators or SASOL's plant, was still being imported in the 1990s. Nevertheless, when the production of all categories of heavy industry is combined--including steel and metal products, machinery, and vehicles--this subsector accounts for about one-fourth of manufacturing output by value.

Manufacturing industries are heavily concentrated in urban areas--especially in the industrial region around Johannesburg, which accounted for more than 50 percent of industrial output in the early and mid-1990s. Other major industrial centers are Cape Town, Port Elizabeth, East London, and Durban. Smaller, but nonetheless important, industrial concentrations are at Kimberley, Bloemfontein, Queenstown, and Mossel Bay. Government incentives for manufacturers to move to rural areas and the black homelands during the 1980s were generally unsuccessful, in part because of logistical and transportation difficulties. The government then tried regional development projects, intended to bring manufacturing jobs to undeveloped areas by providing performance-based incentives and improving infrastructure, although these projects were difficult and costly to initiate.

From 1936 to 1946, manufacturing output grew by 6 percent per year, and growth jumped even more dramatically after 1948, when the government tightened its control over imports. Annual manufacturing output increased an average of 13.3 percent in the early 1950s. Since then, most growth in manufacturing has been in heavy industry, led by the local iron and steel industry, but by the early 1990s, the manufacturing sector as a whole was relatively diverse (see table 14, Appendix).

Chemicals Industry

South Africa has a well-developed chemicals industry that dates back to the use of explosives in the late nineteenth-century mining industry. Miners imported dynamite from France and Germany until 1896, when the De Beers company succeeded in establishing a dynamite factory at Modderfontein in partnership with a British chemical manufacturer. In addition to explosives, the African Explosives and Chemical Industries (AECI) plant produced a wide variety of industrial chemicals including insecticides, paints, varnishes, nitrogen compounds, sulfuric acid, and cyanide.

South Africa produced about 9 million tons of steel, on average, each year in the early 1990s, only about 1 percent of world production. This output was more than enough to meet domestic demand and to provide some steel for export. The industry plans to increase production in the late 1990s to meet domestic construction needs and to increase steel exports.

Because of the general economic downturn of the 1980s, chronic high inflation, and the debt crisis--which hit capital-intensive manufacturing especially hard--manufacturing output slumped during the decade from an overall annual increase of 3 percent in 1981 to a decline of 2.5 percent in 1991. The biggest decreases were in textiles, footwear, industrial chemicals, and nonferrous base-metal industries. The poor performance in these industries reflected a weakness in local demand and the drawing down of inventories because of higher interest rates. Furthermore, average labor productivity in nonagricultural sectors was only about 2 percent higher in 1990 than in 1980, despite a major increase in capital per worker during the decade. Manufacturing sales increased after 1990, largely the result of improved business and investor confidence, increased domestic and export sales, and a decline in stocks of finished goods. In the early 1990s, manufacturing contributed more than 22 percent of total economic output.

The bread industry was subsidized by the government for decades in order to avoid high prices for basic foodstuffs; the government eliminated the bread subsidy in 1991 in an effort to encourage competition. A few large institutions then dominated the bread industry; six of them, representing about 85 percent of the local market, reached a marketing agreement, allocating sales by producer quotas and by regional distributor. The government in the mid-1990s decided to allow the companies to continue market-sharing but was debating whether to discourage such agreements in the future.

Eskom derives nearly 90 percent of its power from coal-fired electric power stations, 8 percent from nuclear power plants, and the remainder from hydroelectric plants. Some energy analysts predict that the country's coal reserves (estimated to be between 60 billion and 100 billion tons) will begin to run out by the middle of the twenty-first century. Eskom officials estimate that the last coal-fired station will be commissioned before the year 2045. With about 14 percent of the world's uranium reserves in South Africa, Eskom then plans to switch to the use of nuclear power to produce electricity.

Vehicles are manufactured primarily in the industrial area around Johannesburg, in Mpumalanga, and in the Eastern and Western Cape provinces, using parts manufactured locally at more than 150 plants and some imported parts. In 1994 South African automakers assembled more than 225,000 passenger cars and more than 97,000 commercial vehicles, employing more than 91,000 workers. At that time, almost 6 million vehicles, including more than 3.5 million passenger cars, were licensed to operate in South Africa.

Heavy Industry

Iron and steel production dominates South Africa's heavy industry, providing material for manufacturing structural goods, transport equipment, and machinery, and for the engineering industry. Large-scale production of iron and steel was begun in 1934 by the state-owned South African Iron and Steel Corporation (Iscor). Iscor began selling shares to the public in 1989. It operate plants at Pretoria, Vanderbijlpark (Gauteng), and Newcastle (KwaZulu-Natal) and owns numerous coal, iron ore, and other mines throughout the country. Most major companies in this sector, including Union Steel (Usco), African Metals (Amcor), and Vanderbijl Engineering (Vecor), were established with help from Iscor or are operated as subsidiaries of Iscor. Highveld Steel and Vanadium is owned by the Anglo American Corporation.

Electric Power

The country's first electric power plants were developed to support the turn-of-the-century mining industry. Most mines used on-site electrical generators until 1909, when the Victoria Falls Power Company was established. In 1923 the electricity parastatal, Eskom, began providing electricity for the country's railroads and nonmining industries. Eskom bought out the Victoria Falls Power Company in 1948 and has been the country's major power producer since then. Eskom's sales increased faster than GDP growth after World War II, and the utility expanded steadily. From 1950 to 1982, sales grew at an average rate of 8 percent per year.

Consumer Goods

The single most productive subsector in manufacturing is the food-processing industry, which produces canned fruits and vegetables, dried fruit, dairy products, baked goods, sugar, and meat and fish products. Dairy products and baked goods are sold exclusively on the local market, but dried fruit, canned foods, sugar, meat, and fish products are exported. In the early 1990s, South Africa produced about 400,000 tons of canned fruits and vegetables each year.

Many other chemicals are produced in South Africa, including plastics, resins, dyes, solvents, acids, alkalis, hydrogen peroxide, iodine, nitrates, and chemical materials for atomic reactors. Pharmaceutical products are also produced, primarily by subsidiaries of large international firms.

Manufacturing

Although agriculture and, later, mining historically have dominated South Africa's economy, manufacturing became the most productive sector in the early twentieth century. Until then, manufacturing industries--wine making, tanning, and tallow production--were entirely derived from agriculture and were intended primarily for the domestic market. Then as the mining sector expanded, new industries arose to meet growing urban demands for processed foods, clothing, and footwear. Until the 1920s, the country still depended heavily on imports, ranging from mining equipment to textiles and clothing. The government encouraged local manufacturing through the establishment of state corporations to produce electricity (in 1922) and steel (in 1928) for manufacturers' use and through tariffs designed to protect local industry.

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