Annual Forum Papers

In this study, we set out to empirically investigate the impact of interest rates and other macroeconomic factors on manufacturing performance in Nigeria using co-integration and an error correction mechanism (ECM) technique with annual time series covering the period between 1970 and 2002. Some statistical tools are employed to explore the relationship between these variables. The analysis starts with examining stochastic characteristics of each time series by testing their stationarity using Augmented Dickey Fuller (ADF) test. Then, the study estimates error correction mechanism (ECM) model.From the error correction model, several interesting conclusions are drawn from the study. First, interest rate spread and government deficit financing have negative impact on the growth of manufacturing sub-sector in Nigeria. Secondly, the study empirically reveals that liberalization of the Nigerian economy has promoted manufacturing growth between 1970 and 2002. Lastly, the findings are further reinforced by the presence of a long-term equilibrium relationship, as evidenced by the co-integration, and stability in the model.

  • Year 2004
  • Publication Author(s) Babasanmi Babatope-Obasa; Michael Adebayo Adebiyi
  • Countries and Regions Southern African Development Community (SADC)

Absences can be as telling as presences, as Sherlock Holmes reminds us. Some times, however, it is difficult to know whether one is really dealing with an absence or not. In the case of South African labour economics some absences have attracted attention: the surprisingly small size of the informal sector, or the surprisingly small rate of job creation during the 1990s. To these mysteries can be added another: the disappearance of about 300 000 manufacturing workers from the 1996 population census.

  • Year 2004
  • Publication Author(s) Martin Wittenberg
  • Countries and Regions South Africa

This report attempts to provide an overview of South Africa's industrial landscape during the 1990s, focusing on growth and sectoral shares in value-added at a detailed 46-sector level. Use is made of the TIPS South African Standardised Industry Database, which offers long-term trends spanning 1970 to the present for 46 industrial sectors, mainly in manufacturing. Monetary values are recorded in 1995 constant prices.

  • Year 2003
  • Organisation TIPS
  • Publication Author(s) TIPS
  • Countries and Regions South Africa

This report attempts to provide an overview of South Africa's industrial landscape during the 1990s, with specific emphasis on growth and sectoral shares in exports at a detailed 46-sector level. If one of the objective of the policies adopted during the middle of the 1990s was to bring about a shift in resources towards more tradable goods producing industries, then it is important to examine the trade performance of South Africa's industries in both the first and second halves of the 1990s.

  • Year 2003
  • Organisation TIPS
  • Publication Author(s) TIPS
  • Countries and Regions South Africa

In spite of the trade liberalisation efforts that have characterised the 1990s, it is apparent that imports by the manufacturing sector have remained more or less constant in real terms, whereas imports by agricultural industries have witnessed a decline in imports. Declining imports of business services have also been manifest during this time. Using the TIPS South African Standardised Industry Database, the trends in import growth and sectoral shares of imports at a detailed 46-sector level are investigated for both halves of the decade. Monetary values are recorded in 1995 constant prices

  • Year 2003
  • Organisation TIPS
  • Publication Author(s) TIPS
  • Countries and Regions South Africa

Section 1 examines South Africa's comparative industrial performance over approximately the last two decades – manufacturing value added (MVA), manufactured exports in aggregate and exports of dynamic manufactured products, and industrial structure. Two “equity dimensions” of this performance that feature strongly in government's objectives for manufacturing are then outlined – namely manufacturing employment and remuneration and the geographical spread of manufacturing.

Section 2 examines the policies effected by the dti to promote the development of industry. These include the policies and supports that are available to all firms and the supports that are for selected sectors, namely autos and auto components and clothing and textiles.

Section 3 advances some broad proposals that could enhance the institutional and organisational capacity to support industrial and business growth and development.

  • Year 2003
  • Publication Author(s) David Kaplan
  • Countries and Regions South Africa

The small and medium enterprise (SME) sector in South Africa has been the focus of attention since the first democratic elections in 1994. Not only does the sector offer the opportunity to enhance entrepreneurship amongst previously disadvantaged communities in South Africa, but it is also seen as one that has the ability to absorb relatively more labour per unit of output than large scale enterprises. One possible reason for the relatively higher labour absorption of the SME sector is that they pay relatively lower wages per worker.

In order to investigate whether this is indeed the case and whether this has resulted in relatively better performance by the SME sector in the manufacturing industry, we present data that offer a breakdown of key economic variables (value added, employment, wage bill, etc.) in the manufacturing industry by four size groups of enterprises: small (employing 1-19 workers); medium (employing 20-49 workers); large (employing 50-199 workers); and very large (employing more than 200 workers).

The data are presented for four points in time, spread over the period 1971-1996. Although the results are not as accurate as they might have been if we had time series of annual data, the analysis of the changes over the discrete time intervals gives us some idea of the economic performance of the different size groups of firms.

We start with a discussion of the data set in Section 1. Section 2 gives the broad descriptive picture of the role of SMEs in the industrial structure of South Africa and its changes over time. Finally, in Section 3 we turn to an analysis of the wage-employment trends in the different size groups of firms, based on the decomposition model developed by Mazumdar (2000), which has been used in an earlier paper for the South African manufacturing sector as a whole (Mazumdar and van Seventer 2002).

Section 1: Data

While a previous analysis of real wage decomposition for South Africa made use of an extensive industry database consisting of 30-year trends on an annual basis covering about 46 industries in the South African economy, this database is not endowed by a size class distinction. For our purposes here, we have to settle for less perfect data, recently made available in an unpublished format by Ntsika (1999). Although Ntsika has tried to cover all sectors in an attempt to bring size class differences in the South African economy to the surface, we limit our analysis to the manufacturing industry. The data shown in Table 1 are, according to Ntsika (1999), drawn from various issues of the Stats South Africa Statistical Yearbook. This cannot be correct as the last Stats South Africa Yearbook was published in 1995, while the more recent South African Statistics 2000 publication - which resembles the Statistical Yearbooks very closely - does not offer size class information. More likely, the information shown in the next table is drawn directly from the manufacturing census publications for the relevant years, which suggests that several other manufacturing census, such as the one for 1985, were not employed.

It should also be noted that the data shown in Table 1 are reported in 1995 constant prices, while the original manufacturing census is only reported in current prices. This means that an implicit deflator must have been employed; which one, however, is not clear. The other issue to note is that, probably as a result of employing a sub-industry specific deflator, the data set is no longer consistent. This can be attested in the last five rows of the table, where we sum the individual entries of each sub-industry for each size class and subtract the manufacturing totals shown at the top of the table. In the last row, it can be seen that even for the sum of all size classes, the sub-industries do not sum to total manufacturing.

Since we do not know what deflator Ntsika has employed, we use the TIPS South African Standardised Industry Database (see www.tips.org.za) to construct a deflator for the relevant years and relevant sub-industries in order to arrive at current values. Since it is unlikely that our deflator is the same as the one used by Ntsika, value added and wages and salaries at current prices also turned out to be inconsistent. We enforce consistency with the South African Standardised Industry Database by employing the biproportionality method (see Miller and Blair, 1985: 276-294) to a matrix consisting of size class dimensions per sub-industry for each year in two rounds.

Starting with the variables in constant 1995 prices, we let the sub-industry totals add up to the relevant counterparts of the South African Standardised Industry Database, while maintaining as much as possible Ntsika's proportions across sub-industries and across size classes. We then apply the South African Standardised Industry Database deflators to reconstruct values at current prices, followed by another round of the biproportionality method. The end result is a set of value added and wages and salaries data points for the four selected years in current and constant prices (see Table 1).

  • Year 2003
  • Publication Author(s) Dipak Mazumdar; Dirk van Seventer
  • Countries and Regions South Africa

This paper examines the response of South African manufacturing production to changes in prices and exchange rates. A restricted profit function is used to model the behaviour of the manufacturing sector, as well as a number of manufacturing sub-sectors, and of the agricultural and coal mining sectors. Labour and intermediate imports are treated as variable inputs into the productions process. Capital is treated as a fixed input. Outputs of the production process are goods for the domestic market and exports. Using estimates derived from the restricted profit function, both price and exchange rate elasticities are calculated.


There are a number of key findings:

  • For the manufacturing sector as a whole, prices do determine output supply and input demand. This is the case for most manufacturing sub-sectors and agricultural production.
  • Manufacturing export supply is very inelastic with respect to export prices, as well as domestic prices and import prices and wages. This means that price changes have a very small impact on the amount of exports supplied.
  • Changes in the price of intermediate imports or the price of domestic goods have a larger impact on the quantity of exports supplied than do changes in the price of exports.
  • Like export supply, domestic output supply is also very inelastic.
  • In most sectors exports and domestic output are compliments. This suggests that an increase in domestic price increases export supply and vice versa.
  • Both domestic supply and exports respond negatively to an exchange rate devaluation. We suggest that this is the result of the increase in the price of intermediate imports caused by a devaluation. The magnitude of this reaction has decreased since 1994.
  • A 25% devaluation in the nominal effective exchange rate of the Rand (a devaluation similar to that experienced at the end of 2001) causes a 2 percent decrease in total manufactured exports and a 5 percent contraction in domestic supply. However, a number of sectors benefit from this depreciation. The electrical, radio and TV and transport sectors expand exports by between 4 and 5 percent in response to this devaluation. Domestic supply falls in all these sectors.


The results of our estimations suggest three areas particularly relevant for policies designed to increase export supply and labour demand (and consequently decrease unemployment):

  • Firstly, domestic prices (the price the producer receives in the domestic market) are one of the most important determinants of both export supply and labour demand. Policies which increase these prices will boost exports and the demand for labour. Policies which aim to increase firm efficiency, stimulate domestic demand, or decrease taxes should do this.
  • Secondly, the price of intermediate imports has the largest effect on the quantity of exports produced. A decrease in this price through a reduction in tariffs would increase the quantity of exports and domestic goods produced. It would also increase labour demand.

  • Year 2002
  • Publication Author(s) Neil Rankin
  • Countries and Regions South Africa

This paper analyses the historical performance of the South African manufacturing sector in an international perspective. After a brief overview of the industrialisation process of South Africa during the 20th century, a binary comparison of manufacturing output and productivity between South Africa and the US is presented. The industry-of-origin approach is used to construct unit value ratios (UVRs), as an alternative to the exchange range for converting US and South African output data into the same currency. Subsequently, the UVRs are used to estimate labour and total factor productivity levels for total manufacturing and 13 manufacturing branches for the period 1970-1999 in comparison to the USA. Next, these results are used to compute relative unit labour costs, which give shed light on the international competitiveness of the South African manufacturing sector at a detailed level. The study is part of the International Comparisons of output and Productivity (ICOP) project carried out at the universities of Groningen and Eindhoven.

We find that there exists a considerable labour and total productivity gap between the US and South Africa, which is continuously widening over time. In 1970, labour productivity stood at 32 percent of US level, while it was only 20 percent in 1999. With respect to relative unit labour costs, the results show that on average, South Africa is competitive with the USA, albeit there are some industries which show consistent relative unit labour costs above US level. here

  • Year 2002
  • Publication Author(s) Michiel van Dijk
  • Countries and Regions South Africa

The government's Integrated Manufacturing Strategy identifies competitiveness as its primary focus, and value-matrices as the framework within which to assess manufacturing performance. This paper addresses these issues through two main components. The first is a review of interpretations of competitiveness and its determinants. The second is an assessment of South African manufacturing performance in a comparative context. This makes reference to recent studies of manufacturing sub-sectors, and draws comparisons with the performance of other developing countries. Drawing on the analysis, implications are discussed for the government's industrial policy framework and the use of a value matrix methodology.

  • Year 2002
  • Publication Author(s) Simon Roberts
  • Countries and Regions South Africa

At the end of the 1960s, after a half century of rapid industrialisation, South Africa had a relatively advanced and diversified manufacturing sector. By the standards of today's advanced industrial countries, which feature in Gerschenkron's (1952) seminal analysis, South Africa was a very late industrialiser, but it was a very much earlier industrialiser than those East Asian countries which have been the stars of the manufacturing growth firmament since the 1960s.

Since the early 1970s, however, South Africa's manufacturing growth performance has deteriorated greatly, and has been especially poor since the early 1980s. This is the central fact which any account of South Afric an manufacturing in the period 1970-2000 must seek to explain.

An account of how South Africa industrialised in the decades before 1970 is necessary for understanding subsequent developments, and the forces which dislodged South Africa from its earlier, robust growth trajectory. Section 2 thus provides a short description of the main features of South African industrial development from the eve of the First World War through to the beginning of the 1970s. Section 3 deals with developments during the 1970s, a decade notable for the great gold-led commodity price boom which began in 1972; and Section 4 with the period from the early 1980s through to the late 1990s, during which manufacturing output stagnated and employment declined. In the light of the discussion in earlier sections, Section 5 considers some further perspectives on the problems of South African manufacturing over the past thirty years, and their implications for the future sectoral growth path of the economy.

  • Year 2001
  • Publication Author(s) Trevor Bell; Nkosi Madula

This paper presents results based on a recent South African firm-level survey. It examines the export behaviour of South African manufacturing firms, it attempts to characterise the decision to export and it also considers the destination of exports. We find the following:

  • 71% of South African firms export. These firms export on average 18% of their output.
  • The proportion of firms exporting is one of the highest for a number of African countries. However, given that a firm exports, the percentage of output exported is amongst the lowest.
  • There are very few specialist exporters. Less than half the firms in the sample export more than 10% of their output.
  • More than a quarter of exporters export only to countries in the SADC region.
  • SADC is the major market for all sectors and for more than 50% of firms in all sectors except the iron and steel sector and the textiles and garments sector.
  • Other major markets include the rest of Africa, Western Europe, Asia and North America, although there are noticeable differences in major markets between sectors.
  • For those firms that export, about 55% of exports go to SADC and 45% to the rest of the world. Less than 6% of total output for all firms is exported to the rest of the world. However, these figures mask important differences between sectors.
  • Exporters produce more output per employee and have higher average labour costs.
  • Estimates of production functions for firms suggest that firms with some foreign ownership produce more output than identical firms with none. This suggests that foreign ownership may be an important channel for technological transfer.
  • Production function estimates suggest that returns to scale are constant.
  • Exporting in general does not make a difference to efficiency but exporting out of SADC does. Firms that export outside of SADC produce more output with the same amount of inputs than those that do not. 3
  • Larger firms are more likely to export suggesting that fixed costs may be important for exporting.
  • Larger, more efficient firms are more likely to export outside of SADC. It is argued that there may be some efficiency threshold which firms need to overcome in order to enter global markets.
  • Further research on factors determining the amount exported is needed. It seems as though if a firm is exporting, its size is not an important factor in determining the amount exported.
  • If an increase in manufactured exports is a policy goal (we suggest that it should be), policy should focus on encouraging firms to export more rather than persuading more firms to export.
  • In order to provide better insight into the dynamic evolution of South African manufacturing firms it would be very valuable to add a time dimension to the survey data. Expanding the human capital and skills section would also be useful.

  • Year 2001
  • Organisation Centre for the Study of African Economies, Univers...
  • Publication Author(s) Neil Rankin

The paper utilises data from a survey of plastics firms and six firm case studies to examine the relationships between production and technology changes, and employment. The analysis examines associations between different factors influencing firms in making such changes and firm performance. These factors include trade liberalisation and the export performance of firms. The paper further explores the institutional relationships involved in technology changes, the sources of technologies which are introduced, and the nature of competition in which firms are engaged. In particular, the analysis distinguishes between defensive changes associated with cost minimisation and constructive changes associated with growth in employment and turnover. We find that it is important to consider the development of firm capabilities, and that these are based largely on the domestic market.

  • Year 2000
  • Organisation TIPS
  • Publication Author(s) Chris Malikane; Simon Roberts
  • Countries and Regions South Africa

The growth of employment in the manufacturing sector has been an important issue in development economics for a long time. Employment growth is, of course, limited by output growth in this sector, but the elasticity of employment with respect to output has varied widely in different regions and economies. This paper focuses attention the idea that a major determinant of employment elasticity is the way the fruits of output growth are divided between employment growth and wage growth. The nature of the division in any economy depends on labor market institutions, and in particular the way the interests of the insiders' work out relative to the interest of the ‘outsiders'. But before we are able to determine the quantitative dimension of the trade-off, we have to allow for two other factors which affect the size of the cake available to labor in real terms. These are: the elasticity of the wage bill with respect to output -which determines the trend in the share of labor; and secondly, the price effect, depending partly on the rate of inflation and partly on the movements of producer prices relative to consumer prices. A simple decomposition procedure has been outlined in the paper which allows us to quantify the relative importance of these factors, and hence give a clearer idea of the labor market outcome leaning to one or other of the two interests, employment growth and real wage growth. The empirical analysis for different regions of the world is carried out on time series data for the manufacturing sector collected by UNIDO from the national surveys of member countries for the decades of the seventies and the eighties.

It was found that, after allowing for the value of the of the wage bill elasticity and the price effect, East Asia shared its growth almost equally between real wage and employment increase. Study of the sub-regions of Asia revealed significant difference between S.E. Asia and China on the one hand, and South Asia on the other, particularly in the eighties. The latter had moved away in this period from the others to a labor market outcome which favored real wage growth much more than employment growth. In this respect South Asia approached the experience of EEC and Japan in both periods, and of the United States in the second. At the other extreme we have the experience of SSA which emphasized employment retention at the cost of real wage decline.

 

  • Year 2000
  • Publication Author(s) Dipak Mazumdar

It is widely agreed that technological learning and innovation are essential features of successful economic development. Yet achieving commercial success through technological innovation is notoriously difficult. Sophisticated entrepreneurial, managerial and organisational capabilities are at least as important as technical capabilities for achieving and sustaining this. Policy decisions around innovation expenditure should emphasise commercial not technical success. Expenditure should not only assist the development of new technologies, products and processes but also consider the development of managerial capabilities for penetrating large, difficult to enter overseas markets. This is a particular challenge in the manufacturing sector where innovation has traditionally been inwardly focused. Overcoming this is extremely important as this sector holds the key to broad-based job creation.

  • Year 2000
  • Publication Author(s) Eric Wood

This study undertakes a preliminary analysis of changes in manufacturing in light of the ongoing trade liberalisation measures introduced in the 1990s. The case for trade liberalisation rests on firms responding to the increased incentive to export, leading to more efficient use of resources, with increased productivity, competition and investment.

After reviewing evidence of liberalisation in other developing countries which questions the basis of these expectations, a distinction is drawn between the need for reform of the structure of protection in South Africa, and the broad liberalisation being undertaken beyond the requirements of the GATT/WTO agreement. To understand the process of liberalisation along with other changes affecting manufacturing, the links between changes in trade, production and employment are traced at the sub-sector level. This does not reveal any notable increased specialisation in areas of comparative advantage. Instead, the 14 sub-sectors recording improvements in the net export measure of revealed comparative advantage from 1991 to 1996 all had a trade deficit, while the trade performance weakened of those sub-sectors with an apparent existing comparative advantage.

The study reveals a lack of any clear relationship between liberalisation, changes in trade performance, and changes in production and employment. It further suggests that a careful analysis of sub-sector specific factors is required to interpret the process of restructuring underway in South African manufacturing. Sub-sectors with improved export performance in recent years are dominated by those concentrated around minerals and chemicals, where productive capacity has evolved through exploitation of production linkages and strong support from Government. The study also found export performance appears instead to have improved most in those sub-sectors with relatively low tariffs such that little bias existed in favour of production for the domestic market over production for export due to tariffs.

On the basis of a net export measure which takes imports into account, many of the sub-sectors with apparent improvements in competitiveness have actually been associated with contraction. In five of the 14 sub-sectors with improved net export ratios,
both employment and real output have contracted, employment has fallen in a further three, while in printing and publishing there has been an increase in employment but a fall in production. In contrast there is evidence of the continuing importance of the domestic market. In the six sub-sectors with net employment growth from 1990 to 1996, five have negative net export measures, four of which have worsened over the period. There are also signs in many sub-sectors of increased intra-industry trade which must be understood in the context of imperfect competition and product differentiation. In addition, manufacturing exports appear to be strongly differentiated by geographical region, with the majority of sub-sectors that recorded significantly improved export performance having southern African countries as the first or second largest markets.

These factors affecting restructuring in manufacturing sub-sectors are further illustrated by more detailed discussion of the changes in the two sub-sectors which have been most heavily affected by tariff reductions, clothing and motor vehicles.

The analysis points to the need to re-examine selective protection within the scope of WTO limits, and for the co-ordination of trade and industry measures, taking into account demand as well as supply-side factors.

  • Year 1998
  • Organisation University of London
  • Publication Author(s) Simon Roberts
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