Creating foundations for sustainable growth in manufacturing
31 October 2022
Production in the South African manufacturing industry has seen a 12,5% year-on-year increase, revealing upward momentum for the sector despite the ongoing impact of the pandemic and the energy crisis. As the country’s fourth-largest sector, it is well poised to take advantage of financial support, which is increasingly tailored to ensure sustainable growth.
Manufacturing operations most likely to be affected by sustainability regulations are those with high greenhouse gas emissions (GHG), such as cement, iron and steel production, as well as energy-intensive operations such as paper and chemicals operations.
Moving to sustainable business models that embrace the circular economy will involve a sharp U‑turn in thinking about the current foundations of manufacturing. According to the Council for Scientific and Industrial Research (CSIR), the manufacturing sector creates 52% of national energy demand, and is responsible for 3% of the national water allocation. Electricity costs have outpaced inflation for over a decade, with blackouts leading to declining competitiveness, investment losses, as well as rising costs. Adding to this picture is the fact that over 80% of energy in this sector is from coal-fired generation, a major source of GHGs.
However, various government policies, industry master plans and strategic plans are creating a clear intent to increase investment in manufacturing and to provide circular-economy opportunities.
In the circular economy the idea is to reduce waste by sharing, re-using, repairing and recycling materials and products, opposed to traditional ‘take, make and dispose’ business models.
Opportunities in the circular economy lie in the calls towards localisation, energy efficiency and GHG mitigation, renewable energy, waste reduction and recycling as found in the government’s 10th Industrial Policy Action Plan (IPAP). IPAP is already bearing fruit: it’s been successful in 'doubling production and job creation in the automotive sector, reviving the ailing tooling industry and boosting the clothing, textiles, leather and footwear sectors. Importantly, the IPAP exploits public procurement by designating certain sectors or products for local procurement based on preferential procurement regulations', according to the CSIR.
The European Union (EU), too, has highlighted the need for innovative approaches in manufacturing that mobilise expertise and capital towards a green transition. The EU is the most important trading partner for the South African manufacturing sector. Just last year our exports to the EU increased by 30%, and over a third of these were manufactured goods, including vehicles.
The EU is also the world’s biggest investor, responsible for 40,3% of all foreign direct investment in 2020. South Africa’s programme for a Just Transition to carbon neutrality is co-financed by the EU, which is why our exporters of high-carbon-emission products, like steel, now find it worthwhile to transition from fossil fuels to alternative energy sources and a circular economy.
The EU’s investments in renewable energy and water efficiency, for example, are further boosting foreign direct investment and laying the foundations for sustainable growth in manufacturing. The EU is also busy developing a rulebook for sustainable financing, setting out green-bond standards and detailed rules to help financers achieve this. Globally, trends show that sustainability, growth and prosperity are not in contradiction. In fact, sustainability does not come at the cost of profitability, according to a United Nations report. The report outlines the many environmental and economic benefits of a circular economy, and found that remanufacturing and refurbishment are industrial processes that create job opportunities.
Nedbank’s financing offering to the manufacturing sector is aligned with the South African government’s National Development Plan 2030, which states that collaborative engagements across sectors and industries is needed to meet its goals, says Amith Singh, Nedbank National Manager: Manufacturing. This offer is designed to overcome obstacles to sustainable manufacturing by, for example, unlocking associated benefits, understanding the business case, and providing financing mechanisms for sustainable manufacturing.
“By embedding long-lasting relationships, expertise, insights and financial advisory in the offering, Nedbank is ensuring that the industry has immediate and relevant access to the right support, at the right time,” adds Singh.
