Plan well for a diverse economy
In February, the province hosted its investment conference with the aim of planning for the investments it hopes to attract into the region throughout various sectors.
The foreword to the investment book compiled ahead of the conference indicates that the province aims to “grow and sustain investments in the urban areas” of the Eastern Cape, but that the government also hoped to diversify away from an economy “that has depended too much on the auto sector for five decades”.
This statement attributed to economic affairs MEC Oscar Mabuyane awakens some concern.
The Nelson Mandela Bay Business Chamber has long advocated for the growth of several sectors we believe could make a critical contribution to the economic development of the metro and the region.
In principle, diversification into several sectors to decrease a reliance on a single sector or resource is absolutely the key to sustainable growth.
We wholeheartedly support the development of various sectors in the metro, as any growth and job creation opportunities should be welcomed.
However, we are concerned as well – because any move towards diversification and away from a strong, established industry is a move that will have to be carefully planned and executed.
In the larger context of Africa, our country has already made great strides towards diversifying its industries.
Whereas many African economies face the challenge of moving away from economies dependent on a single commodity or sector, SA has several established sectors, including government services, hospitality, financial services and automotive manufacturing.
As a country we have made progress towards diversification, but we cannot become reliant on these industries alone.
We must always look forward and move towards greater sustainable growth.
A Deloitte report on African business trends in 2017 indicated that diversification would be key to ensuring economic development on the continent.
“Countries that recognise the need for economic transformation and successfully implement diversification drives into manufacturing and services-based activities will be primed to move towards a more sustainable and ultimately more inclusive growth trajectory,” the report said.
As it stands, the manufacturing industry – which obviously includes the automotive sector – makes up 18.8% of the Bay’s economy.
Some of the largest private sector investments announced for the Bay in the last couple of years have been within the automotive manufacturing space.
With that in mind, any diversification would have to be done without neglecting an industry that has been the mainstay of the metro’s economy.
In fact, a 2011 report by the United Nations Organisation for Economic Co-Operation and Development (OECD) identified the country’s manufacturing base as “a key driver of economic growth and diversification”.
To put it simply, we are able to diversify our country’s economy precisely because of the strength of our established industries.
It would, therefore, make sense to diversify the offerings within these industries as well.
The greatest challenge on the road to SA’s diversification, according to the report, relates to the labour requirements of its industries, especially against the backdrop of high unemployment figures.
“To address the skills shortage,” the report recommends, “South Africa needs to strengthen higher education and training, ensure a more flexible labour market and smooth employer-worker relations.
“This would all help to improve labour market efficiency, in which South Africa does not perform well.”
Both the Deloitte and the OECD reports emphasise the need for planning and policies that can serve as the foundation in which a more diverse economy is built.
More specifically, it highlights the importance of close collaboration between the government and the private sector.
In this model, the government is tasked with adopting pro-industry policies, and providing the necessary infrastructure to enable and sustain economic growth.
Arguably, the SA Automotive Masterplan, with its focus on increasing localisation and industrialisation in the automotive value chain, would be a good example.
The private sector must be the leader in terms of the innovation that will develop underexploited sectors.
The OECD recommends that private companies can invest in research and development initiatives towards growing such sectors.
In this regard, the Business Chamber has already made inroads towards developing a diverse local economy.
Our in-house research unit is aimed at identifying catalytic projects that can contribute to the development of key sectors in the metro.
Meanwhile, our new industry 4.0 task team, made up of leaders in various fields, will contribute to sustainable growth across sectors amid the digital revolution.
If we are to work towards a more diverse economy for the province and the Bay – and we really should – let us do it the right way: together, and with sufficient planning as the foundations on which we build a successful city.