Dr Justin Barnes talks manufacturing sector, industry policies and the SA Automotive Masterplan

01:47 – The Jendamark CSIR Demo Stand

• It is our inaugural 4IR learning factory that we are developing for the CSIR. The idea behind it is to showcase all our various technologies that constitute the Fourth Industrial Revolution on one stage/platform.

02:08 – What is TWIMS and what leadership role does it play in advancing manufacturing in Africa?

• The Toyota Wessels Institute for Manufacturing Studies originates from a discussion that was had at Toyota back in 2014.
• The Toyota senior leadership were exploring the opportunities to contribute towards the development of management skills in South Africa and they wanted to focus on the development of manufacturing management skills.
• That’s when they called Justin to work with the team at Toyota to conceptualise the model that would realise that objective.
• After looking at different options, they concluded, through the inaugural chair of TWIMS, Dr Johan van Zyl, that what they needed to do was establish a school with a manufacturing management orientation.
• In 2018 they found premises in KwaZulu-Natal, moved into a historical building and have been developing the campus ever since.
• They have built amazing facilities and have developed an MBA programme through the Gordon Institute of Business Science (GIBS).
• They run the GIBS MBA on their campus, which is focused on manufacturing. They offer a PhD program and postgraduate diploma and have developed a host of short courses.
• Justin said he was excited to have visited Jendamark, as one of the things they want to establish is what they call a management sandbox which looks at new technologies like the CSIR stand we have in our background.
• Industry 4.0 digital and physical connectivity is going to change and shape how manufacturing unfolds over the coming years.
• Apart from exploring Industry 4.0 and looking at what everyone in the manufacturing sector is doing, TWIMS want to provide their students and executive delegates on their courses with the opportunity to explore the future of these technologies.
• Experiencing more cutting-edge technology demonstrations will challenge how they organise their businesses and how they strategise for the development of their businesses.

04:52 – TWIMS objective in South Africa

• South Africa is in a poor economic state for a variety of reasons. One of the primary reasons is the decline of our manufacturing sector.
• If South Africa had the same contribution of manufacturing to the GDP today as it did in 1990, we would employ 1.5 million more people. That’s how severely our manufacturing sector has declined.
• It has declined from over 22% of our GDP to less than 13% of our GDP and that has consequently cost us 1.5 million jobs.
• This points out that we have to rebuild manufacturing.

05:32 – Why has manufacturing ceased to contribute to the country’s GDP?

• The manufacturing sector’s decline for several reasons, but South Africa entered a global operating environment in the mid-1990s.
• After democracy we joined the World Trade Organisation and as a result we have liberalised our economy. The question is whether we liberalised appropriately, and Justin reckons that we did it too rapidly.
• Which meant that international competition came into our markets and then we reverted to importing models as opposed to making the products ourselves.
• If we didn’t have the employment and value creation crises in our country, then the way we responded would not have been such a big deal, but the economy needs to create wealth and increase per capita incomes.
• We need to drive productivity and we need to stimulate the productive side of the economy.
• Justin says that, looking back, we made some bad decisions in relation to how we opened our economy. We opened up too quickly and we caused too much damage to our industrial capabilities in the process.

07:03 – The history of the various industrial policies and the introduction to the Automotive Masterplan

• The South African Automotive Industry has been developing and Uitenhage (now Kariega) is at the heart of the South African automotive industry in terms of its initial development back in 1924 and 1926 with the General Motors and Volkswagen plants.
• There is a long history of production in this area (Port Elizabeth/Gqeberha) for very interesting historic reasons.
• The automotive industry was developed in South Africa to solve the poor white people problem and most poor white people were in Eastern Cape, which is why the automotive industry concentrated in that province in the 1920s.
• The farms were commercialising, and poor whites were being moved from commercial farms as the farms were also consolidating and industrialising.
• The country was running up a major balance of payments problem with the automotive industry and one way to correct the problem was to encourage import substitution.
• From the 1920s we saw the development of the automotive industry.
• The government’s support for the industry progressively became more sophisticated and in 1958 they changed its name and it determined that the country required a more formalised and local content-driven programme.
• After World War II, the biggest imported product was vehicles or motor vehicle components.
• From 1961, they decided that they were going to have a local content programme for the South African automotive industry.
• In 1989, there was a recognition that the automotive industry needed to advance its competitiveness because it was falling behind.
• In 1995, South Africa launched the Motor Industrial Development Programme which had been in development from 1991/1992 (before democracy).
• The union and the ANC worked with the apartheid government to start creating a team to review whether the automotive policy was going to be appropriate when democracy occurred.
• They determined that the automotive industry needed to operate at global scale and the only way it could operate at global scale was if they created a complementation scheme. What that meant was that instead of creating lots of models in South Africa at low volume, they made one model or two models at scale and then supplied a certain volume to the local market and the balance they’d export.
• When you export, you earn duty credits and then you can import vehicles into the domestic markets. At that time our tariffs on vehicles were at 15% on any imported vehicle.
• Justin’s first experience of working with policy was in 2001 when he was asked to come and review the Motor Industry Development Programme (MIDP).
• Justin’s first job as a policy advisor was to advice the then-Minister to reduce the benefits that the catalytic converter industry was receiving.
• The MIDP worked really well but, unfortunately, Australia threatened to take South Africa to the World Trade Organisation (WTO).
• The MIDP was in breach of the core trade agreement under the WTO.
• South Africa had to defend the MIDP to the Australians and they agreed to remove the programme.
• They agreed to make it WTO-compliant.
• They then made the decision to adjust the MIDP to become the APDP (Automotive Production and Development Programme), which meant that they would convert the policy from being an export-oriented subsidy to a production-oriented subsidy.

15:48 – With the emerging opportunity of Industry 4.0, do we invest more in digitisation or industrialisation?

• Digitisation and industrialisation must not be separated. We need to invest heavily in digitisation in order to industrialise effectively.
• The challenge of policy development in South Africa is how do we build industrial capability?
• The Automotive Masterplan has six pillars and two foundational elements. The APDP is one of the two foundational elements.
  1. How do we develop our local markets?
  2. How do we develop the regional markets?
  3. How do we build world class infrastructure to support the industry?
  4. How do we deepen localisation?
  5. How do we drive transformation within the value chain?
  6. How do we build technology and associated skills?
• South Africa has to try and build a regional market dynamic.
• We have to ensure that the local environment’s health improves.
• Our big challenge is that our domestic markets are in trouble, which they were before the pandemic.
• The regional markets are showing very few signs of increasing in terms of vehicle demand in any substantial way.
• South Africa is in the right neighbourhood because all the data shows that, in the course of the next 20 years, the most likely growth driver of the global economy is in Sub-Saharan Africa.
• The long-term opportunities are substantial.
• The real value of economic activity is that high-level economic activity builds people.
• South Africa doesn’t have a money problem. It has a people problem.
• We don’t have enough skills, we don’t have enough people in gainful employment, we don’t have enough people living productive lives. So how do we create that?
• We do that by building industrial capability.
• Trade deals need to be framed by societal needs.

21:17 – What are the key things that manufacturing leaders should consider if they want to open their business in South Africa?

• Given the events that occurred in KwaZulu-Natal recently (rioting and looting), Justin says that he wouldn’t advise anyone to invest in KZN.
• KZN would not be a good place to invest in and it would be highly inappropriate for the investor.
• Justin says that he thinks foreign direct investment is not getting us out of anything and as a result we need to solve our own problems. Domestic direct investment is the future.
• Foreign direct investment never happens without domestic investment happening first.
• Multinationals follow the success of domestic capital.
• All investors are one of three things:
  • Seeking a market
  • Seeking an asset
  • Seeking a resource
• We need to stabilise the country politically to attract foreign investment in manufacturing.
• How do we use technology while creating jobs?
• If there is market opportunity but neighbouring countries end up providing better assets than we do then foreign investors will go there.

30:33 – Is the EV the green solution we have all been waiting for?

• International and national manufacturing industries have to decarbonise.
• Factories have to be carbon neutral in the production cycle and in the use cycle of the product.
• The automotive industry is one of the biggest contributors of carbon emissions worldwide both in its product form and its product use form.
• The automotive industry has to be more green.
• Justin says that the hydrogen fuel cell vehicle, with water as a by-product, was what impressed him when he was in Japan.
• In the long run, green hydrogen is what will win.
• The techology around EV doesn’t compete well against the internal combustion engine.
• The battery-powered electric vehicle appears to have a shorter term advantage.
• The first problem we have in South Africa is that we don’t have money.
• The middle class people in South Africa are poorer than those in Europe or North America.
• That results in price sensitivity to price movements in vehicles, which means that we can’t afford expensive electric battery vehicles.
• The second problem is that our electricity is provided by Eskom and most of our energy comes from coal, and it is dirty coal.
• We have one of the most polluting economies in the world.
• We have places in Mpumalanga that have some of the highest air pollution readings in the world.
• The battery-powered electric vehicle value proposition is an ecosystem in that it’s not about the vehicle; it’s where the energy comes from.
• If the energy supply is coal, then you are much better off with a small internal combustion engine.
• If we choose to do nothing, we will have a major problem in the industry because we export 65% of what we produce.
• The single biggest market for the South African automotive industry is not even South African, it is the economic arena of Europe.
• We supplied 100k more vehicles into the European market than we did our own markets.
• The European market is working towards banning the internal combustion engine in the near future.
• Justin thinks that the initial phase for EV in South Africa needs to focus on soft hybrid vehicles and plug-in hybrids and then we will go battery electric on a broader scale.

37:00 – How do SMEs get involved in future manufacturing technologies?

• The automotive industry is a bit difficult because it is a multinational-driven industry.
• The licence to operate is expensive and there is a list of standards that need to be adhered to.
• SMEs can participate at a lower tier of activities because suppliers do not necessarily have the same pressures.
• There is a big opportunity for enterprise development in an industry like the automotive industry to develop SMEs.
• The biggest challenge with digital is that there is an entirely new set of economic activity.
• The biggest opportunity is, once you have created a digital package, you can scale it up instantly.
• Uber, AirBnb and Lyft were all once SMEs but they were able to scale up so rapidly because of the digital business model on which they operate.

40:11 – Why is there a general misconception around 4IR?

• Looking back into economic history, the 1st Industrial Revolution emerged in the UK when the weaving mills were using steam engines to massively improve efficiency.
• Many people lost their jobs and then there were the Luddites who went around with axes and hammers to destroy machines.
• If you ask anyone what the jobs of tomorrow are, they cannot tell you, and if you asked it 20 years ago everyone would have gotten it completely incorrect.
• Looking at demystifying Industry 4.0, the takeaway is that, looking back, we have to recognise that innovation always creates new employment.
• The notion that Industry 4.0 is the future of AI in the form of a singularity, as the coming together of people’s consciousness and intelligence to control us is great for science fiction movies but it is not reality.
• Technology doesn’t exist by itself; it is socially constructed.
• The history of technological innovation is about improving the lives of people and when it doesn’t, there is a negative kick-back, as we have observed in the past.
• The world has to operate to do the best for the most people and it cannot be that technology can function autonomously of that driver in society.

44:09 – What should we be looking out for in the space of 4IR?

• We need to embrace experimentation. The problem with technology is that it remains alien until you understand it.
• It is crucial to understand the new technologies but the challenge with Industry 4.0 is that it is a basket of many technologies, some of them are mature and some of them are highly immature.
• Some of the technologies have great futures dependent on the associate technologies. For example, the ambiguity of data makes AI so much more powerful.
• It is important to experiment and do so across the “4 P’s” framework.
• All businesses will have to change and the question is how much they do. Will they change their product, their processes, their position within the value chain, or the paradigm?
• The majority of senior business leaders are the victims of their own success and the question is how to bring in the youth who do not have the experience.
• How do organisations create the space to bring in those young professionals, who are much more digitally capable and much more digitally comfortable?
• It’s about experimentation on one side and then bringing a new set of skills to challenge the higher ordered skills that have already framed the success of that business, and that is quite a difficult thing for senior managers to do.

49:28 – What is the legacy that you want to leave in the tech space?

• Justin says that he would love to leave the legacy of TWIMS in the tech space.
• Institutionally, we need to create a space for people to get comfortable with technology.
• TWIMS is working towards ensuring that there is academic engagement with these technology disruptors because we need to understand them technically.
• We also need to bring Industry 4.0 into the strategy space and to do that we need to make the managers who are responsible for the strategy space comfortable with the technology.
• It starts at demystifying technology.
• Every firm and the management of firms need to travel the journey of discovery and TWIMS want to support firms in that discovery because it will speed up the learning journey and reduce the cost of learning.