WITH concern about unemployment in SA verging on desperation, there is a clear understanding across the board that something needs to be done differently. And while that "something" is up for debate, two concepts arise repeatedly in policy thinking: small business and manufacturing.
An appealing combination: both job creation and value-adding; economic growth providing a dignified livelihood. Our manufacturing sector is approaching a unique, possibly very beneficial, crossroads. That is, provided we understand its realities to deal with it properly.
In November last year, research specialists SBP published the first round of its longitudinal SME Growth Index. This is an unprecedented study of SA's small business sector. This year, SBP will conduct the second round. It will be the definitive account of SA's small business sector: over an initial period of three years, the index will track the lives and travails of a panel of 500 firms, to establish how and why they grow or decline. Manufacturers constitute a third of the companies - giving us some insights into the sector.
Most manufacturers participating in the survey work in plastics; food; steel and metal, and wood manufacturing; printing; and manufacturing for the construction industry; with minorities in such industries as chemicals, industrial equipment, textiles, and sports equipment. The 2011 survey results showed the median turnover of these companies to be R10m, employing 29 permanent staff and three temporary workers. About half the staff in the average company are skilled.
Small manufacturers tend to be an older type of firm, with more than 90% older than five years, and more than half operating for longer than 20 years. Their owners tend likewise to be older than their counterparts in other sectors - about 60% are 51 years old or older. They tend to be educated to matric or diploma level, probably an indication that their early careers involved hands-on technical involvement in manufacturing.
Small manufacturers can best be described as concerned. Risk is viewed as a sort of uncertainty rather than an opportunity. The current economic climate, unsurprisingly, has hit them hard, and is seen as a key strategic problem. Galloping increases in administered prices - such as electricity and fuel - as well as the cost of imported components, are of greater concern to manufacturers than to their counterparts in other sectors.
Beyond the economic climate, small manufacturers are concerned about the regulatory burden. Labour legislation is seen by a quarter as a hindrance to employment growth and by more than half as a major regulatory barrier to business growth. An important sub-issue here is the reach of bargaining council agreements, with one in 10 feeling wage levels work against hiring employees.
A shortage of technical skills is another problem. Skilled, qualified artisans - the backbone of manufacturing - are in short supply, and training people is costly. Some 15% of manufacturers say the quality of basic literacy and numeracy is poor, making on-the-job training doubly burdensome. Moreover, some manufacturers are wary of the actual abilities associated with qualifications, and are concerned about limited appropriate training options available to upskill semiskilled staff.
Given this background, small manufacturers have proven fairly resilient in operating successfully at all. Indeed, 42% have grown their staff over the past five years and over a third hope to increase their staff complements this year.
But the trends and outlooks are not encouraging. Manufacturers were more likely than other types of businesses to have shed jobs. Many are bluntly pessimistic about the sector's long-term future and the prospects for new entrepreneurs. Some 35% of the manufacturers canvassed said they would not be involved with their businesses in 10 to 20 years. A fifth have no long-term plan, and a sense emerges that the fate of many of these enterprises at the departure of the owner will be closure rather than sale or succession. Of those who intend to remain in business, optimism for growing their businesses was lower than in other sectors.
The message is that SA is in very real danger of losing its small-scale manufacturing base, as a result of adverse economic conditions, ageing entrepreneurs, and few new ones emerging to replace them. The good news is much of what is undermining the sector could be ameliorated by policy and administrative reform. If SA aspires to a manufacturing future, it will need to take these concerns seriously.
. Darroll is CE of SBP.