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JULY 2023
Role of industrial policy and the fourth industrial evolution within fibre processing and manufacturing (FP&M) sector
by Victor Kgalema
Mphil: International Finance (University of Glasgow)
Abstract
This paper investigates industrial policy, strategy, and trends in the FP&M sector. It does so by looking at the global and local macro-economic overviews of the subsectors, the impact of industrial policy and the fourth industrial revolution (4IR) on growth and development, and the implications for skills development. The paper finds that while the role and efficacy of industrial policy continues to be a bone of contention in debates, it is clear that industrial policy remains a key tool employed by countries to help guide industry to achieve sustainable growth in all economic segments within the FP&M sector. There is also no doubt that a significant number of industries – with well organised stakeholders – do benefit from financial and non-financial support emanating from these policies. However, the success of any policy intervention is dependent on skills development strategies that respond to and support such growth strategies. The emergence of the 4IR has radically shifted the workplace paradigm: traditional technical skills remain in demand, but the composition and content of these skills has altered, causing skills gaps. What is becoming even more critical is the emphasis on formal education by industry stakeholders, requiring a workforce with the ability to learn and re-learn.
Keywords: Industrial policy, fourth industrial revolution, 4IR, FP&M sector, macro-economic, growth and development, sustainable growth, skills development, skills gaps
1. Introduction
1.1. Background to the study
This study explores global and local industrial policy, strategy and trends in the FP&M sector, within an environment where there are radical structural and technological changes driven by the advent of the fourth industrial revolution (4IR) globally. It also explores the extent to which current industrial policy and strategy approaches are able to support companies in the FP&M sector to respond to these changes.
1.2. Industrial policy
Industrial policy as an economic subject has attracted different viewpoints and debates from major economic stakeholders, making it a contentious topic. At the centre of these debates and this contention is the role and efficacy of industrial policy in a free-market capitalist economy. Before the 2008 global financial crisis, many leading economies had dismissed the efficacy, if any, that industrial policy has in facilitating economic growth, however, after the crisis, more economies were willing to recognise the value of industrial policy and often put measures in place to strengthen it – the United States of America (USA) and Germany being the most prominent examples of these economies (Chang & Andreoni, 2020).
Industrial policy usually refers to a set of policies designed to promote promising industries or segments thereof, while propping up or easing the falling or declining segments. Defined that way, industrial policy is often described as the government picking winners and losers (Neely, 1993).This paper adopts the following definition of industrial policy: “as selective targeting of pre-identified industrial sectors or subsectors, particularly within manufacturing to enhance efficiencies and promote productivity, growth and long-term sustainability”.
1.3. Fourth industrial revolution
While the paper explores the role of a coherent industrial policy in the promotion and enhancement of growth and sustainability of the sector, particular attention is paid to how the fourth industrial revolution (4IR) also impacts on the economic fortunes of this sector. The term 4IR has been used in the main to frame and analyse the impact of emerging technologies on nearly the entire gamut of human development in the early 21st century, from evolving social norms and national political attitudes to economic development and international relations (Schwab, 2016). The paper adopts the definition that: 4IR or Industry 4.0 is a holistic automation, business information, and manufacturing execution architecture to improve industry with the integration of all aspects of production and commerce across company boundaries for greater efficiency.
2. Methodology
2.1. Research questions
The study was guided by the following research questions:
How does the sector compare to other sectors within manufacturing, in relation to its contribution to GDP, employment and other economic indicators?
Are there discernible structural, growth, technology, skills and employment changes in this industry over the last five years or so?
What are the key drivers underlying such changes?
Are there government industrial policy measures in place to support growth and long-term sustainability of the sector or part of its subsectors, e.g., financial incentives, tariffs or state procurement preference, etc.?
What are the global drivers and trends in the FP&M sector, with regards to market structure, growth, technology, skills requirements and employment?
With regards to those trends, how are they relevant to the South African FP&M sector, and how is the country responding compared to its international counterparts? That is:
What can we learn from various international case studies about what kinds of strategies could be adopted or strengthened locally for supporting the domestic FP&M sector?
3. Structure of the report
3.1. Global macro-economic overview of manufacturing, with a focus on the FP&M sector
Broader global and domestic manufacturing industry context is provided so as to analyse and appreciate similarities and dissimilarities between the domestic and global economic dynamics within the sector. The manufacturing industry is considered a key catalyst and multiplier for job creation and broader economic growth. The sector accounted for approximately 16% of global GDP and 14% of global total employment in 2018, and continues to grow its contribution globally (Businesswire, 2020). Despite its growth, though a bit muted, the 2008 financial crisis highlighted the need for new sources of jobs and growth. Policymakers are already re-examining industry-related policy interventions, as they reflect on the changing nature of the sector globally. These changes include: the declining share of manufacturing activity in OECD countries; growing competition from emerging economies; the growing demands for resource-efficient manufacturing; the increasing complexity and importance of global manufacturing value chains; and finally, the accelerating pace of technological change across all segments of the industry (O’Sullivan et al., 2013).
With all these structural changes, the industry remains critical to both the developing and developed world. In developing economies, the sector continues to provide a pathway away from subsistence agriculture to rising incomes and living standards. Whilst in developed economies, the sector remains a vital source of innovation and competitiveness, and continues making outsized contributions to research and development, exports, and productivity growth. Sustained changes within the sector over time have brought both opportunities and challenges and neither business leaders nor policymakers can rely on old responses in the new manufacturing environment (Manyika et al., 2012).
3.1.1. Industrial policy and the fourth industrial revolution
As mentioned above, the 2008 global financial and economic crisis has forced researchers and policymakers to confront the reality that market forces alone generally do not lead to pareto-efficient outcomes (Stiglitz et al., 2013). Most countries continue to review and re-adjust industrial policy measures and instruments to respond to continuous industrial changes, both disruptive and non-disruptive. Recent industry research studies show that a significant number of economies, both within the developed and developing world, are still lagging behind in fashioning coherent responses to current industry disruptions (Guliwe, 2019). Some of the response delays, or lack thereof, are attributed in part to a global manufacturing landscape that has become increasingly fragmented and complex. Goods are increasingly created in stages – including raw material extraction, component production, assembly, and customisation – that may occur in different locations and countries (Shi & Gregory, 1998; Cattaneo et al., 2010). Each of these stages may involve multi-level interactions between firms from different manufacturing and non-manufacturing sectors, thus making it difficult for effective design and implementation of policy instruments (Park, 1989; Pilat et al., 2006).
Despite the industrial policy design challenges mentioned above, there are a significant number of countries that are already engaged in the policy design and implementation or are at an advanced stage in designing such policies, to ensure that their economies are able to effectively and in a targeted manner respond to current structural and technological changes. For example, countries like the United Kingdom (UK), China and Vietnam are at different stages of policy formulation and implementation when it comes to responses to the fourth industrial revolution – the UK already has a white paper (government policy) in place that seeks to guide government and industry in responding to the fourth industrial revolution (UK Government, 2019). Even companies that are attempting to implement a response are confronted by a number of hurdles.
Figure: 2
Source: WEF, 2018
Figure 2 above lists the top nine factors that make it difficult for companies to accelerate changes needed to take advantage of potential benefits availed by the fourth industrial revolution.
3.1.2. Emerging trends and implications for skills development
Industrial policy has re-emerged as a critical and potent tool employed by governments and industrial stakeholders in guiding growth and sustainability of targeted economic sectors.
A number of governments and industry have come to embrace potential disruptive changes that the fourth industrial revolution is likely to bring to this industry.
Developed and developing economies alike, are busy setting up policy and regulatory frameworks in an attempt to effectively respond to the fourth industrial revolution.
Research undertaken in this industry, including the research done by the European Union (EU), India and Vietnam, shows that while traditional technical skills remain crucial and are in most cases still not optimally supplied, skills which were mostly in the background are becoming even more critical as the industry rapidly transform.
In addition, emerging research information shows that changes within the sector are rapid and ongoing and therefore make it difficult for skills development experts and practitioners to work out the nature and form of skills that would be needed by industry in the near future.
3.2. South African macro-economic overview of the FP&M sector
The South African manufacturing sector contributes 14% to the country’s GDP and 11% to total employment in the economy (Stats SA, 2018). Within the FP&M sector, wood products, paper and printing form the fourth major contributor to manufacturing value add, at 11%, whilst textiles and clothing, and furniture contribute 3%, respectively. The country has managed to establish a resilient manufacturing base and to induce substantial competence in the automotive, metal, chemical, food and beverages, and the textiles and clothing sectors (Stats SA, 2018).
Production in manufacturing has experienced downswings over the last two decades, from 19% in 1997 to 14% in 2018. The sector has seen a loss of 105,000 jobs in just one quarter of 2017, and it has managed to register a lackluster growth in 2018 of 1.2%, coming off a 0.5% contraction in 2017 and a growth rate of 0.7% in 2016. This is despite successive policy interventions by government in a number of segments within the sector, like automotive, textiles and clothing, and agro-processing (South African Market Insights, 2019).
Figure: 3 below provides a macro-economic overview of the manufacturing subsector’s contribution to the country’s manufacturing sector’s value add.
Source: Stats SA, 2018
Figure 3 above shows the contributions of different subsectors to manufacturing value add. As the fourth-largest industry in the country, manufacturing contributes 14% to GDP, whilst the various subsectors contribute the following: food and beverages is the biggest contributor at 26% to total manufacturing activity; within the FP&M sector, wood products, paper and printing is the third-largest contributor within the sector, contributing 11% to manufacturing value add (Stats SA, 2018).
3.2.1. Industrial policy and the fourth industrial revolution
South Africa developed elaborate industrial policy measures and strategies over the years, designed for targeted support to identified economic segments, particularly within manufacturing. These policy instruments were and are still designed to enable such targeted economic segments to improve their growth and sustainability prospects. Some of these policies are: the National Development Plan (NDP), which sought to map-out a planned long-term economic development trajectory of the country; Broad-Based Black Economic Empowerment (B-BBEE), which seeks to transform the economy in ways that improve participation of black people at all levels of the economy; and the Industry Policy Action Plan (IPAP), which provides targeted sectoral support programmes (the dtic, 2017). These policies, for varied reasons, of which some are discussed in this paper, have mixed results in their attempt to transform and grow the economy, particularly manufacturing. For example, a sector like clothing and textiles was brought from the verge of collapse and stabilised through targeted policy interventions during the late 1990s and early 2000s (Allais et al., 2021), whilst on the other hand, parts of the steel economic segment have either disappeared or are struggling to survive despite sustained government support.
Due to limited information and the fact that South Africa is in the early stages of developing comprehensive policy responses when it comes to the 4IR, only limited evidence is emerging from a few studies that show most stakeholders in this industry are aware of this revolution and are beginning to explore ways to respond to the 4IR (Allais et al., 2021). There are, however, also a number of sectoral initiatives led by government in partnership with industry, who’s objectives are to develop sectoral masterplans for national priority sectors – these plans are to guide planning and strategy implementation aimed at enabling industry to effectively respond to current changes (Barnes et al., 2016).
3.2.2. Emerging trends and implications for skills and skills development
Industrial policy is one of the key instruments used by the South African government in its quest to build and grow a sustainable manufacturing base.
There is general recognition and acceptance by major industry stakeholders that the industry is being confronted by rapid and disruptive changes brought about by the fourth industrial revolution.
Emerging occupations are likely to be disproportionately concentrated in the non-routine and cognitive category and require skills that cannot be easily automated.
There are strong emerging arguments, that meeting the skills demands of the fourth industrial revolution requires strengthening learnability, the willingness and ability to learn, unlearn and relearn, amongst the current and future workforce.
Skills remains a major challenge within the sector, as industry is struggling with supply of appropriate skills.
Changes in the structure and business models within the sector, are also having an impact on the profile and/or content of current technical skills.
4. Clothing, footwear, leather and textiles
4.1. Global macro-economic overview of the sector
The clothing and textiles sector is varied, which means that many countries choose their own path and direction to follow, whether it is medical textiles or high fashion. However, there are a few discernible trends that seem to be the new direction for most of the textiles market. The sector remains a significant contributor to economic growth in countries like Vietnam, Bangladesh and India – these are countries that dominate significant parts of the global clothing and textiles value chain and markets, after China (Knack, 2017). The sector also remains a major employer, particularly of women, in a number of economies globally. It is estimated that the total number of textiles, clothing and footwear (TCF) workers employed in the sector is 75 million worldwide, with textiles and apparel exports totalling more than $750 billion in 2017, however, a significant number of these workers are without contracts and labour law protection (Solidarity Center, 2019).
The geographical distribution of production in the TCF industries has experienced a dramatic change in the past 30+ years, resulting in sizeable employment losses in the developed economies of Europe and North America, while Asia and other parts of the developing world, on the other hand, gained from these changes. This trend, according to the International Labour Organization, has been generally accompanied by a parallel shift of production from the formal to the informal sector in many countries and that, in some cases, has had negative consequences on wages (ILO, 1996).
4.1.1. Industrial policy and the fourth industrial revolution (4IR)
Developing countries remain highly competitive in a number of segments within the clothing and textiles sector, despite market restrictions and high tariff walls imposed by developed economies. Comparative advantages of the developing economies over the developed ones, are in the main driven by lower labour costs in emerging economies. However, developed economies are continually reviewing these market restrictions, some of which can be traced back to 1935 when Japan was forced to announce a voluntary restraint (VER) on textiles exports to the US. Recent market restrictions by the developed economies are better illustrated by the Multifibre Arrangement (MFA). Introduced in 1974, the MFA was an international trade agreement regulating clothing and textiles that was in place from 1974 till 2004. The arrangement imposed quotas on the amount of clothing and textiles exports from developing countries to developed countries. Despite these restrictions, the export market share in the sector by developing countries was more than 50% in 1987, and growing (World Bank, 1990).
The effectiveness or success of industrial policy measures within the clothing and textiles sector currently depends to a large extent on the manner in which they are designed, to enable industries to respond to the new wave of changes brought about by the 4IR. The clothing and textiles sector, having been at the cutting edge of changes during the first industrial revolution, finds itself again at the cusp of this new revolution. New business models are being developed within TCF and production processes are being re-imagined or re-designed.
The fourth industrial revolution, it is said, presents unimaginable opportunities within clothing and textiles, while at the same time, it also brings with it challenges. For example, whilst digitisation enables companies to improve production efficiencies and competitiveness, and also bring new fabrics and new manufacturing techniques powered by a wave of new innovations across the physical, biological and digital worlds, such as 3D printing, artificial intelligence and biomaterials, it however also poses a threat to developing economies, as it may put emerging economies at risk of losing their cost advantage (Andreoni et al., 2021).
Figure 4 below shows a list of the top ten barriers to digitalisation, with the most inhibiting factor shown at the bottom of the figure.
Figure: 4
Source: McKinsey & Company, 2017
Figure 4 above shows the top ten key barriers to companies fully embracing digitalisation. At the top of the list, companies identify upfront investment in systems integration as highly prohibitive.
4.1.2. Implications for skills and skills development
Changes in the factory business model and production line, has significantly impacted on skills required within manufacturing and the economy, broadly. A recent study by the European Skills Council on textiles, clothing and leather identified expectations for future skill needs based on a series of scenarios on how the sector in Europe might progress towards 2020 that:
What were once secondary competencies are coming to the foreground – such as the increasing importance of logistics and commercial skills, reflecting that, for many companies, ‘trade has taken the place of production’.
Technical production competences remain central to recruitment and training plans, although with increased focus on the demand for motivated and versatile staff, who, given the overall decline in staffing levels, can operate across different workstations to meet shortages.
The priority focus should be on basic skills linked to recruitment difficulties, the characteristics of the workforce, and changes in work organisation (including an increased focus on ICT).
There should be a general focus on technology, innovation and sustainability (Horgan, 2014).
The Indian National Skills Development Corporation (NSDC) also identifies significant skills gaps in the current workforce required by industry in order to adjust to current industry challenges. Two functions are highlighted below where such skills gaps are said to exist (NSDC, 2022).
Table: 2 Skills gaps within India’s garment economic segment
Source: NSDC, 2022
The table above shows that Purchasing Managers and Senior Merchandisers in India are some of the skills gaps experienced by industry (NSDC, 2022).
4.2. South African overview of the sector
The South African textiles, clothing and footwear sector has a long history of being considered critical within the country, in that it is seen as a source of employment in the economy, particularly for women and peri-rural communities. The employment creation potential of the sector has benefited from government support over the years, through financial incentives and high tariff bearers and preferential procurement (the dtic, 2017). The sector contributed R10 billion to manufacturing value add in 2017 and employed approximately 59,000 workers in 2016.
Policy instruments like the Clothing and Textile Competitiveness Programme (CTCP), the Competitiveness Improvement Programme (CIP) and the Production Incentive Programme (PIP), have played quite a key role in recent years to help stymie job losses and reposition the clothing and textiles sector for sustainable growth (the dtic, 2017). From the earliest beginnings, the South African clothing and textiles sector was built to focus on supplying the domestic market, with no clear strategy to grow it beyond this market. This domestic focus was further strengthened by economic sanctions against the country in the 1980s. By the early 1990s the sector sourced the majority of its fabric from local textile mills, supplied 93% of local clothing demand, and exported only a small proportion of total output (Hirschsohn, Godfrey & Maree, 2000).
4.2.1. Industrial policy and the fourth industrial revolution
The clothing and textiles sector was built on the back of high tariff walls, which sought to protect it from internal competition. The sector was in the main created by government, through financial incentives and industrial policy measures designed to establish it and set it on a sustainable growth path. An industry study by the Board for Trade and Industry, commissioned by government in 1950, for example, provides quite a comprehensive background on how the industry was conceptualised and developed. The objective of the study was to determine the prospects of, and the conditions for, the development of the local textiles industry to a stage where it could obtain a substantial domestic market (John Maree, 1995).
While government succeeded in the establishment of the industry through the above-mentioned measures, a number of them were revised in 1993 as the country sought to join the World Trade Organisation (WTO) and had to comply with the organisation’s rules (Vlok, 2006). The revision took place on the eve of democracy; all tariffs were radically slashed. Even though the trade unions, with the support of Nelson Mandela the incoming president, tried to reverse what was seen as destructive policy, they were only partially successful in changing the country’s offer in the final talks (The Journalist, 2016).
The reduction of tariffs resulted in significant job losses in the sector, leading to the establishment of the Swart Commission to investigate policy options required to halt the demise of the sector. In its recommendations the Commission noted that the sector needed technology upgrading, infusion of new skills, improved process management systems, specialisation and dynamic marketing efforts. The industry’s lack of capital, technology and innovation, led to high labour and management costs in relation to output, and its domestic market focus meant it was never able to achieve economies of scale (Barnes, 2005: 7).
In the evaluation of the impact of 4IR within the sector, emerging research shows that the majority of companies are aware of these radical structural changes driven by 4IR, however, a significant number of these companies say they are not yet in the position to attend to these challenges, as they are still focusing on measures designed to deal with immediate concerns about the survival of their businesses and/or maintaining their current markets (Allais et al., 2021). A number of other research studies conducted in the sector make similar findings. They show that as industry and government continue with efforts to restructure the sector, in order to set it on a sustainable growth trajectory, a significant number of companies are at the same time grappling with the design and formulation of new strategies to respond to new disruptions (TIPS, 2018).
4.2.2. Emerging trends and implications for skills
Industrial policy remains a key growth driver within the clothing and textiles sector.
South Africa is lagging far behind in developing a policy framework to guide industry responses to the fourth industrial revolution, compared to a significant number of comparable countries.
There is also emerging evidence that points to re-ordering of key skills within manufacturing broadly, that is, skills which are currently predominantly utilised in the service sector are said to be becoming key drivers of the new business model or smart factory within manufacturing.
Domestic clothing and textiles industry stakeholders, despite being concerned about market retention and business survival, are however also actively influencing industry and national skills development policies and strategies in an effort to ensure that skills requirements and emerging skills gaps are addressed as the technical content of traditional skills evolves and/or changes.
5. Forestry, pulp and paper, wood products, and furniture
5.1. Global sectoral overview
The pulp and paper sector is considered a strategic sector globally, not only because of its significant contribution to the fiscus and employment, but also because of its extensive contribution to technological development and acquisition, including skills development within the global economy. The sector is valued at US$63.3 billion in 2018 and is expected to reach US$76.8 billion by the end of 2025, growing at a Compounded Annual Growth Rate (CAGR) of 3.56% during 2019-2024 Research studies show that some of the segments in this sector, like paper and forest products, are experiencing growth, albeit at a slower pace than before, as other products are filling the gap left by the shrinking graphic-paper market. Although a relatively small market, pulp for textile applications is also registering noticeable growth. In addition, a broad search for new applications and uses for wood and its components is taking place in numerous labs and development centres within a number of developed and developing countries (Berg & Lingqvist, 2019). The paper and forest-products industry is not disappearing as initially anticipated by industry pundits, far from it, but it is changing, morphing and developing, though the sector as a whole is going through the most substantial and/or radical transformation it has seen in many decades (Berg & Lingqvist, 2019).
The pulp and paper sector is dominated globally by the Asian region, both as producers and consumers of pulp and paper products. For example, China's accelerated economic growth over the past decade has driven a sharp increase in the nation's demand for paper and paperboard products. In 1997, China's apparent consumption of paper and paperboard was 32.7 million tonnes; and by 2007, this figure is estimated to have reached 71.9 million tonnes (China Paper Association, 2007). Total pulp imports increased more than tenfold between 1995 and 2005, from 750 000 tonnes to 7.2 million tonnes (UN Comtrade, 2007).
The structural changes that have been taking place in the sector for the past two decades, led to consolidation into growth segments of the sector, and in some instances resulted in big companies becoming even bigger in their chosen areas of focus. At the aggregate level, the world’s largest paper and forest-products companies have not grown much, if at all. As mentioned above, several of them have, in fact, reduced in size and what they have done is to focus their efforts on fewer segments. As a result, concentration levels in specific segments have generally, if not universally, increased.
Figure: 5
Source: Berg & Lingqvist, 2019
Figure 5 above shows the segments of the pulp and paper sector identified as having growth potential and those that do not show potential at all.
The world production of paper and paperboard is around 390 million tonnes and is expected to reach 490 million tonnes by 2020. Total revenue of the industry for 2018 stands at US$422 billion and it has 7,278 companies and employs 1,1 million people (Bajpai, 2014).
The top 10 countries by forest sector employment are: China, USA, Brazil, Russia, India, Japan, Germany, Indonesia, Italy and Malaysia. Some studies estimate that the number of jobs attributable to forestry could be much higher and that these figures are likely to be a vast underestimate of the true levels of employment in forestry, despite the generally small contribution of the sector as a formal employer, as it is characterised by a high degree of informality. Particularly in developing countries, it remains a significant employer, particularly within rural communities. It is estimated that it employs 54 million workers globally, 13 million within the formal sector and the remainder in the informal sector (FAO, 2019). A tendency that reinforces the weight of informal work in the subsector is the expansion of illegal logging. Although women are important in the wood industry and forestry operations around the world, their work is often overlooked.
Furthermore, the rapidly evolving tourism industry in the Middle East and Africa is anticipated to boost the growth of the market for furniture in the coming years. The forestry subsector, on the other hand, employs globally an estimated 13.7 million formal workers, which is equivalent to 0.4% of the total global labour force. The industry is dominated by ten countries, which concentrate more than 60% of the total employment. Out of these, China employs 3.5 million in the formal sector, which accounts for 26% of the world’s employment (ILO, 2018).
5.1.1. Industrial policy and the fourth industrial revolution
A number of segments within the sector enjoy considerable government support through a range of policy instruments globally. Some of the segments within the sector are highly regulated by the majority of countries because of their negative impact on the environment. Whilst this paper focuses on incentives – that is, financial and non-financial – derived from government, environmental regulations employed are the key policy instruments, used to guide production behaviour of companies in support of greener or cleaner processes. For example, because of the sector’s existing environmental problems, which include global warming, human toxicity, ecotoxicity, photochemical oxidation, and the generation of solid wastes, countries have introduced stringent regulatory majors (Söderholm et al., 2019).
Countries like China and Canada have always provided a number of financial incentives to establish, grow and modernise the sector. For example, China aggressively promoted the development of a domestic wood pulp industry, integrated with a plantation-based fibre supply and downstream paper production in 2004 – one of the highlights of the extent to which industrial policy measures are utilised, in this case to establish and grow an industrial sector. The government did so by providing discounted loans from state banks, fiscal incentives, and capital subsidies for the establishment of at least 5.8 million hectares of fast-growing pulpwood plantations (Barr & Cossalter, 2004).
These policies obviously are also being implemented within an environment where the industry is undergoing immense market and structural changes. For example, the industry has experienced mixed results in recent years due to increasing digitisation of the global economy and rising internet usage across the globe, which has cut into demand for various traditional industry products, such as newsprint and other forms of paper. However, the sector has benefited from other trends. Rising consumer spending and increased use of online retail have resulted in booming demand for paper packaging products, and many operators have pivoted (Price, 2022). There is lack of information as studies are still being undertaken to review if some or most of the industrial policies being developed are factoring in the fourth industrial revolution. Furthermore, whilst there is increasing acknowledgement and preparedness to embrace the 4IR, research studies show that a number of countries have made significant strides in setting up policy frameworks, and that there is an equal number of countries that are still lagging behind in formulating responses to these industry changes (Guliwe, 2019).
5.1.2. Implications for skills and skills development
The Confederation of European Paper Industries (CEPI) has found that there is a clear demand, not just to strengthen core technical competence, but also “softer” skills. Closer to the core technical competences, such as health and safety and maintenance, there is a growing need for a broader set of skills with regards to mastering entire production processes.
Behavioural skills, such as communication, team building, the ability to learn and be results-driven, are becoming more important. They are needed to help workers to adapt to a continuously changing and more complex work environment. In short, workers will need a broader set of skills and the basic and higher education system will have to help provide these skills (CEPI, 2016).
Figure: 6
Source: European Commission, 2018
Figure 6 above shows that there is an increasing need for team building and ability to learn skills, which are seen to be critical in driving the new production process.
5.2. South African overview
The sector straddles the primary, secondary and tertiary industries with one of its large segments in forestry, which is part of agriculture (primary industry). The reality is that South Africa’s forestry value chain reflects a legacy of historically import-substituting industrialisation policies. This segment is a resource-based set of activities, the majority of which are local value addition and are globally competitive, however, there are major changes occurring in the value chain. Dominant amongst these changes is the transformation of the forestry resource base, as the government privatises its plantation forestry holdings and simultaneously shifts afforestation to small growers (Kraak, 2009). It is a multibillion-rand industry, responsible for 9.8% of the country’s agricultural Gross Domestic Product (GDP) and 4.9% of South Africa’s manufacturing GDP, with an export value of over R38.4 billion (Forestry South Africa, 2019). On the other hand, pulp and paper is estimated to be R29 billion and has a direct contribution to the balance of trade of R7 billion in 2016.
Table 3 below shows the forest-paper subsector contribution to the country’s GDP, to manufacturing industry’s GDP and to agriculture from 2015 to 2017. The subsector is shown to be a major contributor to the agricultural GDP (PAMSA, 2016).
Table: 3
Source: PAMSA, 2016
Table 3 above shows that forestry-paper contribution to the South African agricultural GDP remains substantial at 21% in 2017, having moved from 23% in 2015. The two subsectors are quite significant contributors to manufacturing GDP, at 3.6%.
Forestry, pulp, paper and furniture is one of the sectors identified as part of lead sectors in the National Industrial Policy Framework (NIPF), because of its potential for growth and employment-creation, particularly in rural areas, and also for its potential to enable economic and industrial decentralisation (the dtic, 2018). The sector, especially sawmilling and activities further down the value chain, is one of the most labour-intensive in the country’s economy. However, despite its potential, the sector faces major structural challenges around access to raw materials, especially for small-scale saw millers.
5.2.1. Furniture
The South African furniture industry is viewed as one of the strategic and important sectors in the country’s economy, considering its labour-intensity and its real potential for developing small, micro and medium-sized businesses, and also for exports. The industry is sustained by timber supplies from a vibrant South African forestry sector. It contributes about 1% to manufacturing GDP and 1.6% to manufacturing employment. South Africa’s exports of furniture were worth US$4.29 billion in 2016. Seven out of the top ten South African export destination markets for furniture are other African countries, namely: Namibia, Botswana, Swaziland, Lesotho, Zambia, Mozambique and Zimbabwe (the dtic, 2019).
The furniture industry currently comprises more than 2,200 registered firms involved in manufacturing of furniture, bedding and upholstery and employs approximately 29,000 people. The economic segment has seen its employment number shrink over the years, from a labour force of 44,536 in 1995, the work force shrank to 23,300 in 2010, before a modest recovery to 28,411 in 2018. These jobs are now in danger unless protection against external competition is increased and there is a clampdown on illegal imports, which do not meet the required standards.
General lack of competitiveness in the South African manufacturing sector results in the country being a net importer of furniture, with 2014 imports amounting to R8.3 billion compared to exports valued at R5.7 billion. Most furniture imports originate from China, however, even with the current weakness of the rand – which should be an advantage for the local manufacturing sector – imports from China and other Asian countries are still cheaper. Local manufacturers attribute this to support in the form of subsidies from the Chinese government and much lower input costs (Harrison, 2015).
5.2.2. Industrial policy intervention and the fourth industrial revolution
Financial incentives provided by the Canadian government for modernisation of the Québec paper mills, discussed above, are not an exception within this industry globally. Most countries like the USA, China and India, use a number of incentives, both financial and non-financial, to help, protect, develop and modernise this industry (Québec Ministry of Finance, n.d.). The forestry, pulp and paper, wood products, and furniture sector forms part of a number of sectors identified by the South African government as being a strategic industry (the dtic, 2017). The sector is seen as showing potential for significant growth, which would lead to an increased contribution to the country’s fiscus and employment, amongst others. For example, the IPAP outlines a number of industrial policy interventions developed by government to help grow the sector – two such interventions are the Forestry Beneficiation Framework and the Furniture Competitiveness Programme (the dtic, 2017).
Whilst current industrial policy interventions by government within the furniture segment are not necessarily designed to respond to the 4IR challenges, processes are in place to develop a framework or legislation so as to enable government, through policies, to guide industry in the design and deployment of appropriate strategy responses to challenges posed by the 4IR. However, in the meantime, companies have been rapidly increasing the speed of automation, to maintain or improve their market share. A number of companies in the industry are saying, to fully embrace the 4IR, companies will need huge upfront capital investment and this is the most inhibiting factor in this regard (Allais et al., 2021). The other main challenge facing the sector in South Africa is that there are significant segments of the sector that operate in the informal sector and current policies are not calibrated to take this into consideration (Kraak, 2009).
5.2.3. Emerging trends and implications for skills
There is a global push to move the sector or a significant number of its segments to develop and adopt cleaner production technologies, and this would demand injection of new skills and capabilities.
There is general acknowledgement and acceptance by most industry stakeholders of the need for urgent policy and strategy, which should guide the sector through the disruptive changes of the 4IR.
The sector is accelerating automation, as part of a costs management strategy, and the process entails multi-skilling of workers and moving them up the skill ladder.
A number of segments within the sector are unable to attract young workers, while faced with an ageing workforce. This poses a serious risk to skills in the medium- to long-term, unless the industry finds ways to attract this cohort of future workers.
6. Publishing, print media, printing, and packaging
6.1. Global macro-overview
The global printing industry is forecast to reach US$821 billion by 2022, driven by growth in packaging and labels, rather than graphic applications, and digital rather than analogue printing, according to a new market report (Smithers, 2019). The report further indicated that global printing markets are changing many publishing products, electronic versions replacing previously printed volumes. E-books, online newspapers and magazines are taking significant market share (Long, 2018). Many commentators and analysts have recently confidently declared that the age of the printed newspaper is over. Industry-wide developments, including falling advertising revenues and fragmented audiences that are increasingly shifting to online content are said to signal the end of the newspaper industry as we have come know it. However, research information shows that the industry is far from disappearing, actually, the publishing, print media, printing and packaging subsector (sometimes referred to simply as ‘printing and publishing’), worldwide, remains in a stage of transition but not disappearing.
On the other hand, market research shows that packaging demand across the world is increasing at a faster pace, reaching US$917.1 billion in 2019 and is expected to grow in the coming four years, according to the latest data from industry analysts. Consumption at current prices has increased from US$861 billion in 2014 to US$891 billion in 2018, a compound annual growth rate (CAGR) of 0.9%. In a comprehensive study, “The future of global packaging to 2024”, industry research analysts forecast market expansion across 2019-2024 at a 2.8% CAGR to reach US$1.05 trillion in 2024 (Smithers, 2019).
6.2. Industrial policy and the fourth industrial revolution
Interventions by government in some segments of the sector have been for some time considered necessary for a number of reasons, for example, media and publishing form part of segments considered cultural and therefore demands government support. For example, the European Competitiveness Report stresses that the economic rationale for government intervention in favour of cultural industries is based on the notion that this sector constitutes a significant locus of economic dynamism in the post-industrial world (European Commission, 2009). Besides, the media have an acknowledged role in the functioning of democracies, triggering consequent rights and responsibilities with respect to human rights, democracy, and freedom of information and cultural diversity (De Prato, Simon & Sanz, 2014). This role of media is then made to justify public intervention beyond the mere correction of imperfect markets and/or market failures.
Despite guaranteed government intervention in the sector, technological and business models brought about by what is now considered to be the fourth industrial revolution, have transformed the sector beyond recognition in the past two decades. Segments like print media and publishing were even expected to disappear in most economies, whilst recovery in some segments demands even more focused and targeted government support. The impact of the fourth industrial revolution on the printing segment of this sector comes at a time when this segment has gone through continued changes since it started developing digital more than two decades ago. The printing process has become more sophisticated and quality has improved over time, whilst the printing infrastructure has also become more advanced, with complex operational capabilities and a level of flexibility that could not have been imagined at the beginning of these changes. These rapid technological advances are seen to be leading to an increase in skills gaps as candidates with knowledge needed to operate sophisticated machines become fewer, and the 4IR will make this situation even more pronounced than it is now.
6.3. Emerging trends and implications for skills
Industrial policy is one of the key drivers of growth and sustainability of the sector.
Changes in technology and organisation are transforming jobs and the skills needed in the sector.
Emerging key drivers of skills in the sector and to an extent, all other economic sectors are:
the overall performance of the global economy: that is, the overall level of economic growth continues to put pressure on skills requirements.
changing patterns of demand: customers are changing the ways that they want products and services delivered, thus demand changes on current business models.
changing patterns of doing business: technological change is perhaps the most important driver of skills demands, as it is altering the ways in which companies produce their products.
7. Conclusion
It is clear that industrial policy remains a key component of measures employed by countries to help guide industry to achieve sustainable growth in all economic segments within the FP&M sector. Whilst the role and effectiveness of these policies in the long run remains a major point of discussions, there is no doubt that a significant number of industries do benefit from financial and non-financial support emanating from these policies. Having said that, we need to acknowledge that while this is true, as illustrated throughout this paper, a number of economic papers have also argued that these policies encourage inefficient and uncompetitive ways of production, in that they also support companies and/or economic sectors which do not possess a comparative advantage in the products they produce.
What is however clear from the review of the role of industrial policy, is that industries with well organised stakeholders are able to leverage government support for their benefit. The success of any policy intervention, in many ways, is dependent on skills and skills development strategies that respond and support such growth strategies.
On skills, research evidence shows that whilst what is usually referred to loosely as traditional technical skills remain in demand, the changing nature of work has altered the composition and content of these skills, thus causing what is termed skills gaps.
There is an emerging increased demand of skills that were traditionally in the background of the production process, particularly skills that are employed in the services sector.
What is becoming even more critical is the emphasis made on formal education by industry stakeholders, as there is more and more a realisation that the changing nature of the structures and business models within the industry is continuously altering not only the profile of skills required by industry, but also the content and nature of these skills, and thus, requiring a workforce with the ability to learn and re-learn.
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