Business Opportunities from South Africa’s Rapid Deindustrialisation

De-industrialisation is a process of social and economic change caused by the removal or reduction of industrial capacity or activity in a country or region, especially of heavy industry or manufacturing industry. This is usually seen as a bad thing but it will open up opportunity in some industries.

We all know that South Africa is in decline; we live it every day, an already difficult operating environment made worse by Eskom and petrol price increases has made people give up even trying to start a business and rather turn to trading shitcoins instead but there is still money to be made. I had such a chuckle when the clownish “Brand South Africa” reckoned “South Africa’s manufacturing sector a unique option for investors“. Unique as in what? Losing their money?

But let’s start at the top:

What does de-industrialisation mean?
Cairncross and Lever offer four possible definitions of deindustrialization:

  1. A straightforward long-term decline in the output of manufactured goods or in employment in the manufacturing sector.
  2. A shift from manufacturing to the service sectors, so that manufacturing has a lower share of total employment. Such a shift may occur even if manufacturing employment is growing in absolute terms
  3. That manufactured goods comprise a declining share of external trade, so that there is a progressive failure to achieve a sufficient surplus of exports over imports to maintain an economy in external balance
  4. A continuing state of balance of trade deficit (as described in the third definition above) that accumulates to the extent that a country or region is unable to pay for necessary imports to sustain further production of goods, thus initiating a further downward spiral of economic decline.

Meanwhile in South Africa:

Copyright Moneyweb
Copyright Moneyweb

Where the money at?

We can look at opportunity in macro and micro levels.

On a micro level I have spoke about the seamstresses (sewing machine operators) on the Cape Flats that were formerly employed in the clothing manufacturing industry that can now be hired for cheap. In fact it is quite easy to set up backyard CMT’s with the skills so in abundance.

Due to lack of clients warehouse space has gotten cheaper and cheaper with many large warehouses standing empty. There is thus opportunity to convert to smaller units. We have seen players such as Inospace snap up lots of commercial space and convert it to branded commercial parks but be wary of flying too close to the sun and overextending yourself. Don’t get overly ambitious remember what I said last time. This is not a place for “go big or go home” bets you will go home and homeless.

We just spoke about converting office space to residential.

In theory there will be opportunity for service businesses such as BPO but South Africa has a lack of skills in the entry level job market to make us a global player. Even in basic stuff like call centers good help is hard to come by.

Local prototyping and international sourcing. Things like 3D printing has made prototyping faster, once the prototype is approved it can be sent overseas for mass production.

Importing everything. Large scale manufacturing is done in SA. And I don’t see a way back. Productivity has gotten worse and worse. Its probably a mindset thing.  There will be opportunities to import everything. At the moment manufacturers face a choice of hiring foreigners to do manufacturing (and risk a visit from SA First) or importing. If vehicle manufacturers lose their generous incentives they too will leave.