The economic performance and competitiveness of manufacturing firms in Johannesburg, South Africa

May 2018
By Lauralyn Kaziboni

1 Introduction

The City of Johannesburg accounts for 17% of South Africa’s economic output and is the leading metropolitan area for most of the country’s key sectors (Quantec 2017). However, the population growth of the metro coupled with poor economic performance has resulted in increasing unemployment levels, high crime rates and the sprawl of informal settlements (City of Johannesburg 2016). The character of economic activity in Johannesburg over the years has been skewed by mining industries and the apartheid legacy, and has not been able to adjust to the growing employment demand. With the population expected to grow from 4,9 million in 2016 to 5,4 million by 2021, there is an urgent need to stimulate the city’s productive sectors (City of Johannesburg 2016). 

Situational analysis indicates that employment losses in the agriculture and mining sectors have not been rapidly and adequately replaced by non-tradable sectors such as manufacturing (DTI 2007). Employment growth and creation in the services industry has grown sporadically, and while services contribute significantly to employment, the role of the manufacturing industry is critical. Manufacturing has strong forward and backward linkages with other sectors and has potential to stimulate employment growth in these supporting services. Despite the manufacturing sector’s importance, overall contribution to total employment has not recovered from the 2008 levels (Figure 1). 

Figure 1: Johannesburg manufacturing sector employment

Yet, some manufacturing sub-sectors have exhibited better growth compare to others. In Johannesburg, the major sub-sector contributing to employment is metal, metal products, machinery and equipment. This is followed by food, beverages and tobacco and petroleum products. With the exception of food, beverages and tobacco, electrical machinery and transport equipment, all sectors are experiencing a decline in the number of employees, with furniture and other manufacturing being affected the most (Figure 1).  

The declining contribution of the manufacturing sector to key economic indicators (GDP, gross value added, and employment) is termed deindustrialization. In South Africa, deindustrialization has largely been driven by financial and trade liberalization (Tregenna 2011). Interventions required to reverse this phenomenon need to be tailored to the manufacturing industry and the requisite support services, taking into account that reindustrialization in itself is challenging. Furthermore, various studies (Campbell, Partridge and Soto 2013; European Commission 2011; OECD 2013; Todes and Turok 2015) highlight that the location of firms is key in designing policies and interventions that are specific, because of diverse institutional, physical and socio-political characteristics by area.

Johannesburg has a number of industrial nodes with potential to contribute towards revitalizing the economy. There is limited research with regards to the nature of economic activity and the challenges faced by firms at a node-level. Yet, to improve economic activity there is a strong need to implement evidence-based interventions to address challenges faced by firms and spur economic growth. Absent these interventions, there is a high likelihood that the level of unemployment will continue to increase, especially impacting the youth. Like most parts of the country, the challenges of poverty and inequality remain acute. A sound understanding of industrial activity allows policy makers to leverage resources in the direction of greatest potential return.  There is, therefore, a need to increase competitive local production as a basis for job creation, exports and sustainable firm growth. The research questions that this paper aims to address are: 

  1. Which factors influence economic performance and competitiveness?
  2. How can economic performance be improved in Johannesburg’s industrial nodes?

This paper draws on the data collected from the City of Johannesburg firm-level survey that was undertaken by the University of Johannesburg’s Centre for Competition, Regulation and Economic Development in 2015/16. The paper also draws from insights from interviews conducted in selected nodes to better understand the challenges faced by firms, as part of the survey data collection process.

Section 2 provides an overview of the current literature on the role of manufacturing; and economic performance and competitiveness. Section 3 sets out the methodology that was used for the study and provides rationale for the proxies employed to assess economic performance and competitiveness. Section 4 provides an overview of the nature and spread of manufacturing activity in Johannesburg. The penultimate section explores the findings from the survey data, analysing the state of performance and competitiveness. Section 6 concludes and suggests policy recommendations. Read more

Dowload SA-TIED Working Paper 14/2018

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