Research on the Performance of the Manufacturing Sector

Furniture

Furniture and solid wood processing is an old and well-established manufacturing industry within South Africa, and one of the more traditional sectors that account for a significant proportion of employment. This sector has been experiencing a tough period for the last 10 years, however, the future outlook seems promising, with demand kicking in from the low to middle income households, and with opportunities for niche markets (South Africa Furniture Outlook:2010).


Seeds

Water
Value chain


Machinery



Forestry



Machinery

Chemicals



Sawmills



Logistics, quality



Furniture

Manufacturers

Design



Paint, adhesives, etc.



Machinery

(The Global Wood Furniture Value Chain: 2003)

Barriers and Constraints

• 
  Although the national output growth is stable, the sector in KZN has recently come under pressure, with output and employment growth moderating considerably (Furniture Manufacturing: 2007).
  
• 
  Competitively priced Asian furniture imports have captured the significant market share from local producers and have kept prices for finished products low (Furniture Manufacturing: 2007).
  
• 
  Local manufacturers are facing challenges to get retailers to buy locally produced products instead of cheap imports (Industrial Policy Action Plan: 2012).
  
• 
  The demand of raw material far exceeds supply, which has resulted in the closure of most downstream processing industries especially in furniture and small-scale saw milling industry. Due to this more jobs will still be lost if the demand/supply equation is not addressed soon (Industrial Policy Action Plan: 2012).
  
• 
  The small businesses in this industry are mostly affected by this due to the fact that companies own plantations and small businesses rely on supply from these plantations (Industrial Policy Action Plan: 2012).
  
• 
  Quality standards to differentiate from cheap low quality imports need to be in place (Industrial Policy Action Plan: 2012).
  
• 
  The main obstacle that the SMMEs are facing is the size of small time furniture manufactures. Because these manufacturers are so small, they struggle to meet the required quantities and quality for retailers. As a result they fail to secure sustainable contracts (Industrial Policy Action Plan: 2012).
  
• 
  One of the furniture design manufacturers in the Western Cape called Wild Designs has mentioned that some of the many challenges they face are financing projects, and dealing with the manufacturing, designing and prototyping of all products by being a one man based manufacturer.
  
• 
  Being a small manufacturer there are limited opportunities for wholesalers/ retailers to export the manufacturers products.
  
• 
  Furniture Design schools are also limited especially in the Western Cape.
  

Opportunities

• 
  To make furniture manufacturing in KZN a globally competitive sector, the KZN provincial government has established the KwaZulu-Natal Furniture Manufacturing Cluster (Furniture Manufacturing: 2007).
  
• 
  The few objectives of the cluster is to promote economic growth, competitiveness, innovation and export readiness of the sector in KZN, through marketing and promotion of the provincial furniture sector, co-operative input procurement policies, and the facilitation of joint ventures between local and foreign companies (Furniture Manufacturing: 2007).
  

• 
  The development of clusters will first help small manufacturers to secure contracts (Industrial Policy Action Plan: 2012).
  
• 
  Small furniture manufacturers will then benefit from economies of scales, shared infrastructure, shared transport costs, sharing of information, and reduce their input costs. This will result in efficiently operating business with improved competitiveness (Industrial Policy Action Plan: 2012).
  

• 
  “Domestic consumer demand for furniture has been driven over the past couple of years primarily by strong demand growth for new houses and falling furniture prices, and fuelled by robust growth in real discretionary income due to lower interest rates, lower income tax, and rising real wages” (Furniture Manufacturing: 2007).
  
• 
  Opportunities also exist to expand the small scale saw milling industry since most of the saw millers are located close to forests in rural areas (Industrial Policy Action Plan: 2012).
  
• 
  A local furniture designer in the Western Cape mentioned that there is opportunity for furniture manufactures in South Africa to create furniture from simple raw materials. However, these manufacturers need design schools whereby they can improve their skills and be innovative using simple raw materials.
  

Policies affecting this sector

• 
  Issuing of water licenses has become a serious obstacle for forestry
  

Development (Industrial Policy Action Plan: 2012).

• 
  Most of the land that has been identified as suitable land for forestry activities belongs to tribes or communities where land claims settlement issues still need to be resolved before tree planting can take place (Industrial Policy Action Plan: 2012).
  
• 
  There is lack of proper consultation and mobilisation with communities with regard to forestry development protocols (Industrial Policy Action Plan: 2012).
  

Provinces

• 
  The furniture manufacturing sector in KZN employs about 7000 to 7500 people (Furniture Manufacturing: 2007).
  
• 
  Nationally, the sector comprised 1.6% of total South African manufacturing output (Furniture Manufacturing: 2007).
  
• 
  There are about 310 furniture manufacturers in the Province of Kwa Zulu Natal (Furniture Manufacturing: 2007).
  
• 
  Two thirds of whom are small manufacturers employing between 2 and 20
  

Employees (Furniture Manufacturing: 2007).

• 
  Geographically, furniture manufacturing areas tend to be clustered, over a very large area, in a few urban centres like Isithebe, Vryheid, Newcastle, Port Shepston, Pietermaritzburg, and the Durban metro (Furniture Manufacturing: 2007).
  
• 
  The bulk of industrial output takes place in the Durban- Pinetown-PMB metro areas, consisting of about 80% of total furniture manufacturers accounting for roughly 70% of total the sectors employment (Furniture Manufacturing: 2007).
  

SWOT ANALYSIS OF THE FURNITURE SECTOR

Strengths Well established sector. Account for a great number of employment. Large forest sector therefore access to wood and timber, mostly at a cheaper price.	Weaknesses Time, effort, raw materials and hard work involved in production. Lack of technology Lack of innovation and skills (designers) Increase wages, less profit therefore a decline in labourers and production.
Opportunities Offering a better quality product then cheaper imported products. Demand far exceeds supply. Small scale saw milling industry. Can customise products for local housing needs / requirements.	Threats Imported products can be cheaper. Restrictions on water licences for plantations.

Electrical Machinery (Appliances)

“Electrical Machinery and Apparatus” is a relatively large and growing sector in South Africa. The South African electronics industry has repeatedly proved itself in terms of world-class innovation and production. The industry is characterised by a handful of generalist companies with strong capabilities in professional electronics, while small to medium companies specialise in security systems and electricity pre-payment meters. Electrical appliances among other products in the country are exported on a larger scale when compared to other manufacturing sectors in South Africa (Manufacturing in South Africa: 2012)

This sector is composed of a range of sub-sectors that relate to distinct electric components. These are:

• 
  Electric motors, generators and transformers, and parts thereof.
  
• 
  Electricity distribution and control apparatus, and parts thereof.
  
• 
  Insulated wire and cable and optical fibre cables.
  
• 
  Accumulators, primary cells, primary batteries, electric filament or discharge lamps, arc lamps; lighting equipment.
  
• 
  Other electrical equipment and parts thereof.
  

(Climate Change Risks and Opportunities For the South African Economy: 2009).

These components do overlap and cannot be seen in isolation.

Value Chain of the Electronic and Appliance manufacturing Sector

Development of software

Sales

Service/ solution

Manufacturing and Assembly

Development and Design

Barriers and Constraints within this Sector

• 
  This sector underwent a long period of investment decline before 2008.
  
• 
  Demand for particular types of workers with specific skill is still present in parts of the sector.
  
• 
  The sector displays high levels of labour intensity, which has caused this sector to lose a number of employees.
  

(Climate Change Risks and Opportunities For the South African Economy: 2009).

Opportunities within this Sector

• 
  Production and value added in the sector have grown slightly in excess of output and value added growth in manufacturing.
  
• 
  Electrical machinery and apparatus is one of the few manufacturing sectors in which real remuneration has increased for workers in this sector.
  
• 
  While having the right skills companies have the opportunity to compete with international markets.
  
• 
  The sector follows the trends of manufacturing activities closely – it appears to be a sector that supports manufacturing expansion.
  
• 
  The sector is performing particularly well in terms of output production.
  
• 
  Productivity has been enhanced over time.
  
• 
  Export specialization is emerging though it seems to be in favour of African countries.
  

(Climate Change Risks and Opportunities for the South African Economy: 2009).

Provinces in which this sector operates mostly

• 
  Gauteng Province specialises in machinery, electrical machinery, appliances and electrical supplies (About SA provinces: 2011).
  
• 
  North West Province also manufactures electrical machinery, electronic equipment (About SA provinces: 2011).
  

Policies Affecting this Sector

• 
  Occupational Health and Safety Act, 1993 (Act No. 85 of 1993).
  
• 
  A number of Member States have import substitution industries that manufacture electrical goods and appliances under significant external tariff protection (The SADC Trade Protocol: Outstanding Issues on Rules of Origin: 2002).
  
• 
  Domestic incentive structures facing such industries have relatively high tariffs on final goods, lower tariffs on imported components or kits, and sometimes additional incentives to source some inputs locally .This has encouraged the development of a number of high cost activities that are unable to compete internationally in terms of price or product quality (The SADC Trade Protocol: Outstanding Issues on Rules of Origin: 2002).
  
• 
  “The small scale of production necessary to meet local market demand makes it difficult to achieve internationally competitive cost levels. These activities nevertheless remain a source of a certain amount of income and employment, supported at the expense of consumers and/or industrial users of the protected goods” (The SADC Trade Protocol: Outstanding Issues on Rules of Origin: 2002).
  

SWOT Analysis for the Electrical Machinery and Appliances Sector

Strengths Large companies have strong capabilities in producing professional electronics. Large scale of exporting products. Sector supports manufacturing expansion: follows manufacturing trends. Increase in manufacturing performance.	Weaknesses Labourers with high skill in demand. High levels of labour intensity due to increased wages and a decline in number of labourers, resulting in further labour lost. High international quotation standards.
Opportunities Large and growing sector in South Africa. Opportunities to compete with international market. Labour intensiveness makes it a sub-sector with high job creation ability.	Threats Large number of exports at cheaper prices. Safety of the labourers is a concern.