Manufacturing production levels in South Africa are alarmingly low as the cost of everything from electricity to water is on the rise and the availability of raw materials is under pressure. Companies in agricultural processing and manufacturing are not spared.
According to Mike Schüssler, award-winning economist and owner of Economistscoza, an honest discussion about the disaster that is taking place in much of Mzansi’s manufacturing industry is needed.
“After 16 years of the Industrial Policy Action Plan (Ipap), and as many versions, South African manufacturing has gone nowhere,” Schüssler states in a recent column.
Manufacturing production levels in the country over the three months to July were seemingly lower than at the start of 2005. In the second quarter, fewer people were employed in the formal manufacturing industry than in 1969, Schüssler writes.
This means that 52 years ago, more people were employed producing products in South Africa than are employed in the sector now.
“I think we are feeling the impact of high costs of power, labour, water, and regulations such as black economic empowerment (BEE).
“We are also impacted by people who should not intervene in the economy but do so due to the power given to them at so many levels, from municipal to national government level,” Schüssler believes.
Difficult to source steel
According to Kutlwano Tisane, co-founder of Oracle Farming Technologies, operating in the current climate is proving to be difficult for their business. The steel needed to set up their farming systems is a hard thing to come by consistently, he tells Food For Mzansi. Yet demand for their systems has been on the rise.
“We mitigate our risk by pacing our local… unit production to service retail efficiently, as well as current projects we have undertaken.”
This limits their speed of production and delays their projects, putting them under significant pressure to meet deadlines.
Tisane adds that, due to increasing petrol prices which are factored into the transportation ecosystem, rising steel prices have affected the company’s profit margins tremendously.
Oracle Farming Technologies’ carbon footprint has also increased as a result, and plans to expand have been hindered.
“Our solution to this catastrophe has been to purchase our raw input steel material in bulk – more than we usually require in a six-month period. This gives us leeway to operate normally whilst we don’t absorb rising prices in the short term,” Tisane explains.
He says that, thanks to an understanding that the issue is global, they have sustained their relationships with key suppliers and always try to negotiate prices as best as they can.
Agro-processing getting harder
Agricultural processors also have the cards stacked against them. Edward Kagarose, creator and founder of Kgarose Kgaros, an agri-business producing a variety of sweet potato drinking yoghurts, says electricity and petrol prices are challenging to his business.
“For example, if Eskom’s electricity tariffs are too high, it means that as manufacturers and agri-processors we battle to maintain our production output,” he explains.
His business makes use of several pasteurising pots that require large amounts of hot water. The water is heated by geysers, which consume significant amounts of electricity.
“This forces me to increase my pricing. But I’m not alone in the market; I have competitors who are bigger companies, so I have to be careful with my pricing.”
The yoghurt entrepreneur feels that smaller agripreneurs like him are increasingly on the back foot.
“Big companies like Rhodes can produce 125 cans per minute, so you can imagine how many they produce in one hour. We are far behind in terms of production compared to these guys.”
Feeling abandoned by government
Kagarose is convinced that the problem lies with government.
“If they can just empower us then we won’t be stuck with challenges that hinder our production levels. Right now, I am struggling to get a simple response from the office of the HOD. They are always campaigning that they need youth in the agro-processing space, but they fail us.”
Agro-processing is a numbers game, Kagarose says, and the competition is tough. Getting a foot in the door is even tougher and capacity issues leave you in a Catch-22 situation.
When a small-scale agro-processor wants to get an offtake agreement from a retailer, they will hear that their capacity is too low. “Then the department wants you to attach the offtake agreement to your application for funding. How are you going to fund me when I can’t get the offtake agreement?”
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