Which Sectors Can Be Engines of Growth and Employment in South Africa? An Analysis of Manufacturing and Services

by TREGENNA, F. , 2007
Research Report, Employment Growth & Development Initiative, Human Sciences Research Council

Tregenna investigates whether manufacturing still has the potential to be the engine of growth in South Africa, or whether services can play this role in future. International comparisons reveal that while the share of manufacturing value added in South Africa is high for the country’s level of income, the share of manufacturing employment is less than would be expected. Meanwhile, the share of services in GDP and employment are both higher than expected. The study finds that manufacturing is a central source of demand in the economy, both directly and indirectly. A decline in manufacturing could negatively affect the future growth of services and of the rest of the economy. Services are also a significant source of demand, and the price and quality of services inputs affect the competitiveness of the manufacturing sector. Nevertheless, manufacturing remains more important in terms of ‘growth-pulling’, while services are central to employment creation, both directly and indirectly. These differing qualities present a tension in prioritising growth and employment. However, this trade-off is mitigated to the extent that the current level of unemployment in South Africa itself constitutes a constraint on growth.