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Analysis of the export and employment opportunities for the South African manufacturing industry

This analysis explores the potential for export-led economic and employment growth in the South African manufacturing industry. It examines the local economic climate, manufacturing outlook, focused export promotion, and identifies new export opportunities. The study utilizes a Computable General Equilibrium (CGE) model and a Decision Support Model (DSM) to assess the impact of increased exports on different sectors. The results suggest that skilled labor-intensive sectors offer the greatest advantages in terms of employment creation and economic growth, but may also increase inequality. The study identifies new export opportunities in basic metal products, transport equipment, machinery, electrical machinery, and chemicals, particularly in African, BRICS, and N-11 countries. Recommendations include focusing on these sectors and exploring opportunities in priority countries such as China.

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Analysis of the export and employment opportunities for the South African manufacturing industry

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  1. Analysis of the export and employment opportunities for the South African manufacturing industry Mr JH Malan, Dr EA Steenkamp, Prof R Rossouw and Prof W Viviers

  2. Outline • Introduction • Literature overview • Methodology • Results • Recommendations

  3. Introduction 1.1 Local economic climate 1.2 South African manufacturing outlook 1.3 Focused export promotion 1.4 Research questions

  4. 1.1 Economic climate • South Africa's economic challenges: unemployment, poverty and inequality • Recognised in various South African policy documents: NGP, NDP, IPAP • Manufacturing exports highlighted as an important driver in the economy.

  5. 1.2 South African manufacturing outlook Trade and employment in the manufacturing sector: • The sector has recorded a negative trade balance since Q2 of 2002 • Employment within the sector remains stagnant • Stats SA indicates a decline in employment in real terms since 2003

  6. 1.3 Focused export promotion • Limited resources require focus • Focused export promotion will yield positive returns

  7. 1.4 Research question Research questions: • Which manufacturing sub-sectors hold the highest export-led economic and employment growth potential? • What are new (un- or under exploited) export opportunities for these identified manufacturing sub-sectors?

  8. 2. Literature overview Industrialisation and manufacturing: • Industrialisation has positive effects on employment growth and manufacturing, which spills over into economic growth and development (Kuznets, 1966; Cheneryet al., 1986; Chenery & Srinivasan, 1988; Thirlwall, 2003; Szirmai, 2012) Trade, growth and employment: • Increased manufactured exports have a strong and positive correlation with employment and employment growth (Romer, 1986; Lucas, 1988; Kotabe and Czinkota, 1992;Singh, 2011; Kuceraet al., 2012)

  9. 3. Methodology 3.1 Computable General Equilibrium (CGE) 3.2 Decision Support Model (DSM)

  10. 3.1 CGE: Identify key sectors Illustrative scenario developed: • Model and benefits • A comparative-static CGE model of the South African economy • Captures economy-wide effects; substitution based on relative price changes; high level of analytical detail; based on theory; flexible; functioning of open economy; macroeconomic accounting consistency through closure rules. • Economy-wide impact of increased exports in all manufacturing sectors • Serves to highlight those manufacturing sectors (in relative terms) offer the best advantages in terms of employment creation, economic growth and overall positive effects.

  11. 3.2 DSM: Realistic export opportunities

  12. 4. Results (CGE) Observed percentage change to selected exogenous variables • The results show that a sector-specific export-led strategy in South Africa will benefit skilled labour-intensive sectors for the most part with a possible side-effect of increasing inequality and wage dispersion in the labour market. 1 2 3 4 5

  13. 4. Results (CGE) Industry-level results: • Alongside the 10% increase in exports of individual manufacturing sectors, • the output of the skilled labour-intensivesectors varied more, and • labourdemand varied in the same direction as output. • Most of the sectors experienced upturns in domestic prices, mainly due to increased production costs. • In some cases, mostly where imports represent a significant share of domestic supply, the increase in exports had the effect of depressing output.

  14. 4. Results (CGE)

  15. 4. Results (DSM) Top 10 new export opportunities in African, BRICS and N-11 countries for Basic metal products

  16. 4. Results (DSM) contd. Top 10 new export opportunities in African, BRICS and N-11 countries for Transport equipment

  17. 4. Results (DSM) contd. Top 10 new export opportunities in African, BRICS and N-11 countries for Machinery

  18. 4. Results (DSM) contd. Top 10 new export opportunities in African, BRICS and the N-11 countries for Electrical machinery

  19. 4. Results (DSM) contd. Top 10 new export opportunities in African, BRICS and N-11 countries for Chemicals

  20. 4. Results - concluding • The five manufacturing sectors that holds the highest export-led economic and employment growth potential are: • basic metals, • transport equipment, • machinery, • electrical machinery and • chemicals. • This study presented new (un- or under exploited) export opportunities for South Africa in Africa, BRICS and the N-11 countries, since these countries are highlighted as priorities in national policy documents. • China hold high opportunities across all five selected sub-sectors within the manufacturing sector.

  21. 5. Recommendations This paper set out to: • identify those manufacturing sectors where an increase in exports would lead to the highest economic and employment gain. • identify new (un- or under exploited) export opportunities in each of these sectors. This paper provides a strategic / realistic means of reaching some of the manufacturing export-led employment and economic growth goals of the South African government. Translating these opportunities into a more dynamic manufacturing sector will require focused, cost-intensive export promotion strategies that have strong stakeholder input and support.

  22. Thank you Contact information: TRADE Research Niche Area North-West University Potchefstroom Campus Wilma.Viviers@nwu.ac.za

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