SOUTH African manufacturing companies have backed calls to increase their production capacity instead of relying on imports in a bid to boost the forecast gross domestic product growth.

A report launched by BUSA, BLSA and Intellidex showed that local manufacturing businesses could increase their capacity by substituting 20 percent of non-petroleum goods imports for domestically produced goods within five years.

It is particularly important as the government has placed localisation as a central cog in the machinery of policy to best assist South Africa’s economic recovery.

Intellidex said the general sentiment among the 125 companies surveyed was that they support attempts to improve localisation “under the right conditions”.

The survey found that goods-producing companies could undertake substitution of 12.6 percent of imports “right away” under the right conditions, rising to 32.3 percent after five years.

Intellidex’s head of capital markets research, Peter Attard Montalto, said quantitative modelling showed large variation in capacity to localise and ability to do so in short to medium run.

Montalto, however, said businesses were sceptical of existing localisation policy and worried about capacity, price and quality, and the “usual” constraints of electricity and labour regulations. He said that localisation maximisation was possible, but only under the right conditions or it would have negative consequences for prices and recovery.

Targets could well be achievable over the medium-term, but that the right conditions do not exist in most sectors.

Localisation is certainly an element of this, but must be considered in the context of critical reforms for investment and growth.

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SOURCE: IOL