Manufacturing development in the Southern District Municipality of South Africa

Abstract

This study is an investigation of the development of the manufacturing sector in the Southern District Municipality (SDM) of South Africa and its ability to create jobs and enhance growth of the Gross Value Added Production. According to Kleynhans (2003:3) and Suleman (1998:105) manufacturing leads to economies of scale and scope, positive externalities, and employment creation. Manufacturing is identified as one of the industrial sectors that have potential for income and employment creation. Manufacturing has the ability to increase economic growth through its positive impact on the Gross Domestic Product (Humphrey, 1995:5 & Nel, 2002:81). The study began with an investigation into the theory of spatial economic growth, and the impact of the following aspects on the regional economy received attention: the economic theory of the firm, agglomeration, the Marshall, Arrow and Romer theory (MAR), Porter and the externalities theory, specialisation and diversity, human capital and knowledge, innovation and competitiveness. An overview of the Southern District Municipality's objectives, potential and opportunities in manufacturing was taken and this was followed by noting the profile based on economically active population, gross regional product per capita, education levels and unemployment. The gross domestic product per capita revealed a rather startling situation where growth in the GDP per capita of the SDM exceeds the GDP per capita growth of the whole North West Province. An empirical investigation to test the ability of manufacturing to create jobs in the SDM and influence the growth of the gross value added production was undertaken. Shift-Share analysis methodology was applied and data on employment and gross value added production was obtained from the REX database of Global Insight. This method revealed the sectors of manufacturing with the highest potential for economic growth and the creation of employment. The Shift-Share method divides analysis of the region into four sections, National Share (N), Industry Mix (M), Regional Competitive Share (S) and Total Change in Regional Share (R). The study revealed the following sectors in manufacturing as having potential for growth of the gross value added production and employment creation: Transport equipment, Wood and Paper Products, Metal Products, Petroleum and Chemicals, and Furniture. Despite the differences in ranking by employment and gross value added data, the results are similar. Transport equipment was ranked number one in both cases. Although Textile and Clothes, Electrical Machines and Electronic Equipment show reasonable growth in gross value added production, they are not among the top five because their respective contribution to the total gross value added is less than three percent for each sector. Recommendations are made in the final chapter for the Southern District Municipality to enable them to improve their economy and reduce unemployment, which was exacerbated by the closure of mines. However, there is scope for further research and improvement.