Research on the performance of the manufacturing sector

Table 3 shows key data for the manufacturing sector at current prices between 2005 and 2010. The gross value added (GVA) at basic prices increased only slightly, from R259 billion to R332 billion while the gross operating surplus (GOS) (profits in the industry) decreased from R137 billion to R134.6 billion. The GOS also decreased from a share of 53% of value added at factor cost in 2005 to 41% in 2010. Compensation of employees increased from 47% of value added at factor cost in 2005 to 59% in 2010, this while employment creation in the sector decreased. This implies that wages increased much faster than profits in the manufacturing industries, and this contributed to layoffs of workers to keep companies profitable, or the closing down of companies (productivity increases were lower than wage increases). The lower profits, lower employment, and higher compensation of employee’s levels, show the severe competition in the manufacturing sector.

Table 4 shows the manufacturing output at constant 2005 prices. The gross value added at basic prices increased with only 8.9% from 2005 and 2010 (from 259 101 to 282 215) with most of this driven by increases in the compensation of employees, and not by increases in gross operating surplus (as shown above). This will imply that the profitability at constant prices in the manufacturing sector actually decreased from 2005 to 2010.

Table 4: Annual Manufacturing production at constant 2005 prices (R million) (2005 – 2010)

Manufacturing	2005	2006	2007	2008	2009	2010
Output at basic prices	1 029 868	1 074 423	1 117 438	1 177 104	1 101 729	1 094 089
Intermediate consumption	770 767	798 641	827 192	879 216	834 006	811 873
Gross value added at basic prices	259 101	275 782	290 246	297 889	267 723	282 215

Source: Stats SA

The relative higher labour cost increases is also shown in Figure 7 when compared to the labour productivity. Labour productivity increased with 40% between 2000 and 2011 compared to nominal unit labour cost that increased with 84.9%, with a large divergence occurring after the international financial crisis in 2008. Going forward, labour prices in the manufacturing industry will either have to increase at a much lower pace, or productivity will have to increase much faster to enable an environment where manufacturing enterprises can be profitable.

Source: Data from the SA Reserve Bank

Figure 8 also confirms the gap that opened up between unit labour cost and productivity shown in Figure 7. According to this graph the percentage utilisation of production capacity in the manufacturing industry for durable and non-durable goods decreased on average from around 84% to below 78% during the international financial crisis and is struggling to regain lost ground.

Figure 8: Percentage utilisation of production capacity in the manufacturing sector

Source: SA Resbank