Pieter Theron | Leader | Industrials & Services | PwC Africa | mail me |
Following a challenging 2023, South Africa’s manufacturing sector must prioritise digital transformation, cost reduction and reskilling to drive growth.
South Africa boasts a well-developed manufacturing sector. In 2023, the sector in its entirety provided more than 1.6 million jobs and accounted for 13.0% of South Africa’s gross domestic product (GDP).
According to data from Statistics South Africa, the food and beverage sub-sector was the largest contributor to sales (22.3%) in the last quarter of 2023 (October-December), followed by basic iron and steel, non-ferrous metal products, metal products and machinery (20.9%) and petroleum, chemical products, rubber and plastic products (20.1%).
The global influence on manufacturing activity
South Africa’s manufacturing sector also carries weight globally. In 2022, the country ranked 51st out of 153 countries in the United Nations Industrial Development Organisation (UNIDO) Competitive Industrial Performance (CIP) Index. This measurement evaluates 153 countries’ capacity to produce, and export manufactured goods, their technological progress, and their global influence on manufacturing activity. It placed South Africa – the African continent’s most industrialised economy – within the top third of manufacturing economies globally.
While these achievements and figures are notable, the sector is navigating a complex landscape marked by challenges and opportunities. In our newly released report, Manufacturing Analysis 2024 – Resolute. Resilient. Adaptable., we take a detailed look at the financial and operational performance of South Africa’s major listed manufacturing companies in 2023, and home in on the key trends and challenges they faced and overcame.
During the past year, the sector faced significant headwinds driven by an underperforming economy, escalating production costs and logistics disruptions. However, in the face of this, the sector has shown resilience with only a small decrease in overall sales. Key focus areas driving the industry include cost reduction, sustainability, digital transformation, automation and employee reskilling.
Between 2023 and 2024, the sector’s total combined revenue declined by 2.53%, masking the sector’s true potential. Net profit dropped significantly by 145.66%, with the speciality chemicals and paper and wood sectors registering losses, while the packaged food sector saw the greatest profit increase. Operating profits decreased across the sector by 21.04%, with the top four contributors to profit also being the top revenue contributors. Based on the poor financial performance and risks identified within the industry, sustainable and cost-effective manufacturing is a key future requirement.
– Vinesh Maharaj, Smart Manufacturing Lead at PwC South Africa
Focus areas for growth
Maintaining and growing the sector involves risks, with business structure, politics and the economy being top concerns for CEOs. Leaders are also aware that skills are the golden thread for organisational success.
Our 27th Annual Global CEO Survey in Africa indicates that 45% of CEOs in sub-Saharan Africa are anticipating that labour and skills shortages will have a significant impact on their profitability in the next decade.
Now more than ever, it is imperative for organisations to not only nurture the skills that employees will need throughout their careers, but to further develop workforce skills that will be crucial to achieving business goals and transformation.
– Dr Dayalan Govender, People & Organisation Leader at PwC Africa
Sustainability matters now more than ever
Data from our Voice of the Consumer 2024: South African Findings report also indicates that South African consumers are willing to pay on average 11.9% above the mean product price for sustainably produced or sourced goods.
This signifies that consumers do care about sustainability and are willing to pay more for it.South African industries have benefited from high carbon intensity and lower export prices, but the Carbon Border Adjustment Mechanism (CBAM) and similar policies will erode this advantage, leading to higher costs, lower demand and increased pressure from EU importers for carbon footprint and sustainability compliance.
– Nqaba Ndiweni, Consumer, Industrial Products and Services (CIPS) Industry Leader at PwC Africa
However, the CBAM also offers an opportunity for South African manufacturers – it forces them to rethink their business models and embrace a circular economy that minimises waste and maximises resource efficiency.
Tax as a value driver
Tax plays a critical role in optimising and transforming supply chains in the manufacturing sector.
Embedding tax governance in the supply chain is no longer a compliance exercise – it’s a driver of value. By strategically managing tax within the supply chain, companies can unlock cash flow, reduce costs and better manage risks associated with supply chain disruptions. Effective tax management also provides flexibility and adaptability needed to navigate evolving tax regulations and economic uncertainties.
– Carla Perry, Tax Reporting & Governance Director at PwC South Africa
Taking the industry forward
Digital transformation is reshaping the industry, enhancing efficiency, reducing costs and improving product quality. Therefore, the adoption of Industry 4.0 tools and smart factory technologies is what is needed to drive significant improvements in manufacturing efficiency and sustainability.
Overall, the South African manufacturing sector holds significant potential for growth and innovation, provided it can navigate the challenges and leverage the opportunities presented by sustainability, digital transformation and strategic collaboration.
Related FAQs: Digital transformation in manufacturing
Q: What is digital transformation in manufacturing?
A: Digital transformation in manufacturing refers to the integration of digital technologies into all areas of the manufacturing process, resulting in significant changes to how manufacturing businesses operate and deliver value to customers.
Q: What are the benefits of digital transformation in the manufacturing industry?
A: The benefits of digital transformation in manufacturing include increased productivity, reduced costs, improved quality, enhanced customer experience and the ability to leverage data analytics for better decision-making.
Q: Can you provide examples of manufacturing digitalisation?
A: Examples of manufacturing digitalisation include the use of IoT sensors for real-time monitoring, predictive analytics for maintenance, cloud manufacturing for collaboration and artificial intelligence to optimise production processes.
Q: How can manufacturers implement digital solutions effectively?
A: Manufacturers can implement digital solutions effectively by developing a clear digital transformation strategy, investing in new technologies, training employees and continuously evaluating their transformation efforts to adapt to changing needs.
Q: What role does AI play in the digital transformation of manufacturing?
A: AI plays a crucial role in the digital transformation of manufacturing by enabling predictive maintenance, automating processes, optimising supply chains and enhancing data analytics to improve decision-making and operational efficiency.
Q: What challenges do manufacturers face during their digital transformation journey?
A: Manufacturers may face challenges such as resistance to change, high initial investment costs, integration of new digital technologies with existing systems and the need for skilled personnel to manage and analyse data.
Q: What is Industry 4.0 and how is it related to digital transformation in manufacturing?
A: Industry 4.0 refers to the fourth industrial revolution characterised by the use of cyber-physical systems, IoT and cloud computing in manufacturing. It is closely related to digital transformation in manufacturing as it encompasses the adoption of these digital technologies to create smarter, more efficient production processes.
Q: How can data analytics help manufacturers in their digital transformation efforts?
A: Data analytics helps manufacturers by providing insights into operational performance, identifying inefficiencies, predicting maintenance needs and enhancing the overall manufacturing process, ultimately leading to improved productivity and reduced downtime.
Q: What is cloud manufacturing and how does it support digital transformation?
A: Cloud manufacturing is a model that utilises cloud computing to enable flexible manufacturing processes and resources. It supports digital transformation by providing scalable infrastructure, facilitating collaboration and allowing real-time access to data across the manufacturing environment.
Q: How can manufacturers measure the success of their digital transformation initiatives?
A: Manufacturers can measure the success of their digital transformation initiatives by tracking key performance indicators (KPIs) such as productivity improvements, cost reductions, quality enhancements and customer satisfaction levels to assess the impact of their digital solutions.
