Johannesburg - South Africa's manufacturers are feeling the pinch from tightening interest rates, but rigid labour laws and unskilled workers have left them unable to compete with cheap imports from China.
Manufacturers say it is becoming more and more difficult to operate a successful enterprise in South Africa, with an unskilled but expensive workforce, while labour laws make it difficult to hire and fire.
"Labour is the biggest cost we have," said Eric Bruggeman, managing director of APE Pumps, a pump-manufacturing company based in Johannesburg that exports to 21 countries.
"You have stringent minimum wage rules and the union guys just don't understand. You have to think twice about employing a new person because of all the other hidden costs."
Manufacturing is the second largest sector in Africa's biggest economy, accounting for about 16% of gross domestic product and is a key employer in a country struggling to create jobs.
Higher rates bite
Official data showed the sector's expansion slowed to a three-year low of 0.5% in the second quarter, from 4.7%. That has largely been blamed on higher interest rates.
The trend looks set to continue.
A survey by the Bureau of Economic Research on Tuesday showed manufacturers are becoming increasingly pessimistic, while the monthly purchasing managers index - a key indicator of underlying activity - declined to its lowest level in more than a year in August.
Analysts say the sector has failed to capitalise on the increasing domestic demand that has seen the economy grow by 5% last year, near a three-decade high.
Global phenomenon
Danalee van Dyk, an economist at Standard Bank said: "It's worrying that the manufacturing industry has not taken advantage of domestic demand and economic growth.
"Unfortunately, fixing it is not a short-term story either.
"Lack of competitiveness is a global phenomenon. We are all struggling to become more efficient and China has cheap labour and it's difficult to compete with that."
Compounding South Africa's problems are government regulations that stifle small- and medium-sized businesses.
South Africa is battling to slash unemployment - which stands at 25.5% - and some blame the labour laws.
Labour unions demanded higher-than-inflation wage hikes this year, and the country lost 11.5 million man-days to strike action in the first half of this year, the highest since 1987 when people were protesting against apartheid.
At mercy of imports
High labour costs have left employers at the mercy of cheap imports.
"The other reason for the general slowdown you are seeing is the cheap imports from China, India and Brazil. Those guys are manufacturing a lot cheaper than what we have," Bruggeman said.
The government introduced quotas for Chinese imports this year to help save the local clothing and textile sector, but critics say this was too little too late.
"Job creation is not incentivised here and government really should remove barriers, whether they are perceived or otherwise," said Peter Bauwer, managing director of Cape Town based Hose Manufacturers.
"By the time government put drastic measures in place to limit the amount of (textile) imports from China by retailers, there was no industry left," he said.
Manufacturers said they were not very confident that their plight will improve, especially if the cost of doing business remains high and scarcity of skills persists.
"For us to be competitive, we have to reduce the costs of doing business here if we want to compete with China, otherwise I don't see much of a future," Bruggeman said.
- Reuters