The approach of firms to skills and

training: evidence from the eThekwini

Medium and Large Manufacturers

Survey 2013/14)

Presentation to DTI ERAN Conference

9-10 March 2016 Glen Robbins*, Myriam Velia* & Claire

Vermaak**

*UKZN School of Built Environment and

Development Studies

** UKZN School of Economics and

Finance

1

What are we aiming to do in the paper?

• Give attention to manufacturing firm/enterprise level views and activities (perceptions and facts) in order to:

• Understand role of skills issues in firm constraints to growth;

• Explore skills matters faced by firms in relation to two critical processes: – Recruitment

– Training

• Consider policy ramifications at the sub-national/local and national level.

• Use the action-research process to inform ongoing local industry-government dialogues.

2

Why look at skills and manufacturing? • The supply, management and control of skills has been central to the

evolution of the manufacturing sector at various stages of industrialisation.

• “Varieties of capitalism” literature reflects, inter alia, on how historical and institutional variations have generated different approaches to managing the social relations impacting on skills supply and demand in a sector such as manufacturing.

• Countries with aspirations to advance industrialisation processes and firms eager to sustain and grow their operations will find that skills supply (through basic education as well as further education and training) can form an important, some would argue essential, element of choices.

• Skills are associated with both specialisation and technological enhancement in firms and the ability for firms and individuals in the labour market to effectively negotiate these processes.

• Supply efforts to generate skills in the labour force have no linear relationship with absorption of these skills in the public or private sector.

• Views of firms and their role in these processes are highly contested, but consensus does exist on their importance in efforts to enhance skills.

• Balance between entry-level skills and advanced skills is complex, but generally successful industrialisation needs both.

3

SETTING THE SA CONTEXT

4

Selected academic views of SA’s skills challenge • “Between 1970 and 1995, there was a deepening of capital in the economy, accompanied by a

shift away from primary sectors towards secondary and tertiary sectors. As a result, the primary sectors suffered steady employment losses, while most other sectors saw gains, with the financial and business activities sector showing the largest gains. This was accompanied by broad occupational employment shifts that were skills-biased in nature. Within sectors, this manifested in increased demand for high-skilled occupations in the primary and secondary sectors, while the demand for unskilled workers declined.” (Bhorat et al., 2013: 1)

• “Structural barriers include low levels of industrial competition because of concentrated industries with high barriers to entry; and volatile labour relations that are essentially a tax on investment and the scarcity of skills. The latter serve to raise the cost of doing business which may outweigh the high investment returns available in the South African market.” (Bhorat et al., 2014: 7)

• “State strategies in the post-school sector have been developed and implemented, but success rates are low, and attrition and drop-out are high. These state schemes – for example, the programmes offered by the FET colleges and SETAs – operate at a significant distance from the daily life experiences of unemployed youth. They also appear ignorant of the real employment requirements of local businesses. These state-funded organisations appear not to have succeeded in adapting their programmes to local conditions.” (Kraak, 2013: 93)

• “… if we are to have any chance of improving vocational education in South Africa, there are two important agendas for research and policy development. The one is locating vocational education policy in broader social policy... The other is, ironically, that in order for education to meet the long term needs of employers and the economy, there should be less focus on what employers say they need in the short term, and more focus on strengthening the educational side of vocational education …” (Allais, 2011: 2)

5

SOUTH AFRICA’S GOVERNMENT LED SKILLS APPROACH

6

The post 1994 period • Focus on basic education targets based on a case for stronger returns to investment

in primary and secondary education. • Envisaged expansion of post secondary education and training promoted but not

resourced in fiscally constrained environment … technical and vocation sector experience loss of capacity and decline of facilities as staff leave for private sector and parastatal support programmes shut down.

• Focus on constitutional and legislative reform informed by rights agenda and tackling of apartheid legacies (e.g. affirmative action, BCE, LRA).

• Moral pressure and union pressure on private sector for firms to attend to skilling of labour force (NEDLAC, summits etc.).

• Culminated in passing Skills Development Act (97 or 1998): – “To provide an institutional framework to devise and implement national, sector and workplace

strategies to develop and improve the skills of the South African workforce; to integrate those strategies within the National Qualifications Framework contemplated in the South African Qualifications Authority Act, 1995; to provide for learnerships that lead to recognised occupational qualifications; to provide for the financing of skills development by means of a levy-financing scheme and a National Skills Fund; to provide for and regulate employment services; and to provide for matters connected therewith.”

• Followed by Skills Levies Act (1999) – 1% payroll tax to fund roll-out of partnership-based sector skills authorities.

• Net effect was one of growing market-based approach with state offering rhetoric but not programmes, although SDA and SLA announced a shift.

• 2001- onwards National Skills Development Strategies – initially SETA focused, but increasingly geared to allocate National Skills Fund (from levy) to supply driven programmes.

7

SA policy: supplying of skills for development & growth

• “It has been accepted that to achieve and sustain 6% plus growth in the economy we need to invest heavily in education and skills, amongst other things.” (G.Mantashe presentation to Nedlac http://www.nedlac.org.za/media/7076/speach%20by%20mr%20gwede%20mentashe.pdf)

• “Higher employment and economic participation would help make progress in reducing poverty and income inequality. But we cannot achieve high employment if we do not address the skills challenges.” (M. Macikama of the National Skills Fund http://www.iol.co.za/shortages-of-skills-blocking-economic-growth-1.1354201#.UJvITmakQXw)

• “Improvements in education and skills levels are a prerequisite for achieving many of the goals in this growth path. General education must equip all South Africans to participate in our democracy and economy, and higher education must do more to meet the needs of broad-based development. The growth path also requires a radical review of the training system to address shortfalls in artisanal and technical skills. (Dept. of Economic Development, 2011: 46 – New Growth Path)

• National Development Plan (2012) EMPHASIS ON Skilling the population as a social and state capacity imperative:

– Risk of a destabilising environment where young people cannot get work;

– Poverty & inequality.

– “A graduate recruitment programme and a local government skills development strategy should be introduced to attract high- quality candidates.” (NPC, 2012: 55)

– But some mention of skilling the population as an economic imperative [our focus]: - although only issue in urgent action list is to ease entry of skilled foreign workers!

• South Africa’s weak manufacturing performance, ‘has been compounded by South Africa’s generalised skills deficit and specific sectoral skills mismatches which, taken together, pose a profound developmental problem, with particularly serious ramifications for the skills-intensive manufacturing sectors.’ (Department of Trade and Industry, 2013: 15 – Industrial Policy Action Plan)

8

Industrial policy and skills

• Micro-Economic Reform Strategy (DTI, 2002) – Highlight imperative of getting the skills environment to perform to

help deliver industrial policy. – DTI commit to active engagement with NSDS.

• Integrated Manufacturing Strategy (DTI, 2003) – Express need for a more interventionist industrial policy approach.

Notes MERS commitments and sets out ambition for greater intra-government coordination.

• National Industrial Policy Framework (DTI, 2007) – Highlights skills challenges but not attended to in suggested

programmes … rationale for sector targeting.

• Industrial Policy Action Plans (DTI, 2007 - ) – Have identified skills responses in various industry plans but no

specific programmes other than those under sector support banners – implication is that industry, SETAs (and later on DHET) will respond.

9

SA actors in the skills field – the model

10

General Education

and training: Primary

and Secondary

Firms

Public & Pvt Universities & Universities of

Technology

Public & Pvt TVET (FET)

SETAs & SETA chambers (industry

specific)

Public influenced by fiscal & policy choices (Treasury, DBE (national and provincial), DHET, DoL, DST (NRF), NSF, SETAs, SAQA) Policy frameworks: NGP, NDP, NSDP, IPAP, NIS, Equity Act, BBBEE. Private influences via industry bodies (via accreditation), Boards, Councils etc and fee payers.

Management, Shareholders/owners, Unions, Workplace Forums, Bargaining Councils Customers, Suppliers, Regulators.

HR OHS

Production Commercial training providers

Public sector market response: e.g. tertiary

specialised courses

Firm collaborative efforts and industry

associations

Technology & input suppliers, customers

Public R&D institutions

Firms

HR OHS

Production

Firms

HR OHS

Production

Unions

BACKGROUND TO THE ETHEKWINI/DURBAN MEDIUM AND LARGE MANUFACTURING EMPLOYERS SURVEY (2013/14)

11

The eThekwini/Durban Medium & Large Manufacturing Employer Survey (2013/14)

• Funding from eThekwini Municipality, National EDD, DEDTEA, with additional support from UKZN & SARCHI + PSPPD [programme to support pro-poor policy development – European Union].

• Done with the guidance of multi-stakeholder project steering committee. • Survey:

– Representative sample of medium and large employers in the greater Durban manufacturing sector with a focus on medium & large establishments (50 employees and above)

– Survey seeks to provide quantitative and qualitative evidence to inform policy-makers & others on a number of issues confronting establishments

• 360° approach (Production; Financial data; Purchasing (from where, why, imports); Sales and marketing; HR and skills)

• Survey has a strong policy dimension directly (labour, awareness of & access to support instruments/measures, etc) … and indirectly

– Used a similar method to World Bank supported 2002-2003 Johannesburg and Durban firm surveys. Possibility for some panel analysis.

• Data to be placed in public domain in 2016 for others to analyse.

• Ongoing policy feedback to eThekwini local government. 12

Project: Key Data

13

Manufacturing Sub-sector

Population totals # est

[1]

Sector % of total # of

est [2]

# of establishments in

cross-section

[3]

# of firms approached

- data collected

[4]

Data weight

[5]=[1]/[3]

Food & bev 55 12.7 9 14 6.1

T & C 97 22.4 32 35 3.0

Paper and furniture 63 14.5 17 19 3.7

Chemical products 92 21.2 21 27 4.4

Iron and steel 19 4.4 6 7 3.2

Metal products 24 5.5 3 6 8.0

Electrical and electronic machinery

14 3.2 5 6 2.8

Vehicles & automotive components

24 5.5 7 10 3.4

Leather and footwear 17 3.9 2 2 8.5

Non-metallic mineral products & OTHER miscellaneous products

28 6.5 4 6 7.0

Total 433 100 106 132 4.1

14

FINDINGS

15

Skills as a constraint

• Availability of technical/vocational skills identified in the eThekwini/Durban Medium and Large Manufacturers survey (2013/14) as the 4th most significant constraint to firm growth:

– almost 80% of firms reported “major” or “moderate” challenges

– 50% of the firms identifying the challenge as “major”.

16

eThek - Constraints to growth 2013/14 – High ranking

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Depreciation of rand/dollar exchange rate

Low rates of economic growth in SA

Cost of energy

Cost of transport

Availability of technical/vocational…

Crime and theft

Energy provision & quality

Inefficiencies in national govt

Labour regulations and relations

Inefficiencies in local govt

Inefficiencies in provincial govt

Corruption in govt

Changes in govt policies

Private sector corruption

HIV / AIDS

Major Problem

Moderate Problem

Not a Problem

Not Applicable

17

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2003/04

2013/14

18

Advantages of operating in South Africa

• Percentage of establishments reporting an advantage:

– 12.5% - available infrastructure

– 14% - labour skills and productivity

– 15% - government policy and programmes

– 6% - proximity to African markets

– 6% - access to national customer base

– 8% - access to suppliers

– 30% - indicate no specific SA advantage

19

Skills responses in broader firm strategy • In parallel, firms reported that “accelerating skills and training development” was the

3rd most significant recent change in firm strategy (after equipment investment and internal re-organisation of production processes) – with over 80% of firms noting this response.

20

0%

10%

20%

30%

40%

50%

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Enga

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tern

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& t

rain

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Reduced focus area

Not undertaken/NA

Moderate change

Major change

To expand employment by 10% firms would need …

21

THE ETHEKWINI/DURBAN MEDIUM AND LARGE MANUFACTURING FIRM SURVEY 22

RECRUITMENT

23

Why analyse recruitment?

• Availability of skills presents as a constraint through challenges in recruiting new staff, replacing old staff and also in terms of challenges experienced in training existing staff.

• South Africa’s NSDS’s have moved to identify institutional supply of skills and employability as a key focus. Recruitment approaches might reflect some firm responses.

• Also note other research – for example suggesting that future training investment for very low skill recruits is likely to be low, it will increase with completed school + some post schooling and then decline again with advanced skill recruits.

• What to look for: – Preferences (skills, age, gender, race, social networks) – How firms recruit – Challenges in recruitment – What variations in the above present (size, employment growth or

not, sector, etc.)

24

25

Preferences for the largest category of prod emp

Work experience only OR with other: 64% VS education: remaining 36%

And significant sectoral differences:

Education only:

Metal, iron & steel

Vehicle & miscellaneous diverse pdcts

Other sectors prefer work exp+ notably paper & furniture & food & bev

37% of est find that resignation of recently trained emp a problem

No age difference but period set up differences: pre-1994 (in fact much older) and post 2007 est, prefer educ+ only No emp but size class differences: Less than 100FTEs est prefer work exp+ No export status difference but importers prefer educ+ over work exp+ BUT work experience required by trading firms

Level of difficulty associated with recruiting new staff/ filling vacancies

26

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Man

age

rs

Pro

fess

ion

als

Tech

nic

ian

s &

ass

oc

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als

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yee

s

Cra

ft &

re

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mac

hin

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p &

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mb

lers

Lab

ou

rers

& r

ela

ted

occ

up

atio

ns

Extremely hard Moderately hard

Not hard at all N/A

% of est reporting - Significant sectoral differences:

Pb with managers for:

T&C&L&F

Paper & furniture

Iron, steel, metals

Pb with professionals:

T&C&L&F

Paper & furniture

Vehicles

Pb with technicians & related:

Food, processing & bev

Paper & furniture

Chemicals

Vehicles

TRAINING

27

Why analyse training?

• As noted the skills constraint can also present itself in terms of challenges firms might have in terms of training existing staff. – Supply issues of public and private skills training

– Internal capacity matters (skills and resources)

– Employees preferences (individual or collective)

– Trade off between staff mobility risks and training investment (in low skill context)

• National policy sees skills in the workplace as core to equity, decent work and ongoing economic development. How does the system work for firms?

28

Demand for training

Excluding joint training, 85% of est. train internally.

59% of est. train those with low-skill internally.

Excluding joint training, 75% of est. train externally.

About 40% of est. train those with low-skill externally.

29

30

Sectoral nuances:

Regulatory compliance NB for:

Chemicals

Paper & furniture

(Moderately important for vehicles & auto)

Productivity NB for:

Food processing & bev

T&C&F&L

Vehicles

Misc diversified product group

Regulatory compliance: NB for pre-1994/pre-2000 est; NB for +99FTEs est; NB for exporters & importers;

Productivity: NB for pre-2000 and for young est (e.g. set up or moved post crisis); NB for +99FTEs est; NB for exporters (not importers);

External training preferences

31

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%

Univ of tech

Other univ

Bus partners (other firms)

FET colleges

Private training providers excl FET coll

Outside Training Sources

Most important Moderately important Not important

Exclude ≈ 16% of est that do not engage with outside training

Sectoral nuances:

FET colleges NOT used by food & bev; paper & furniture & misc pdct group

Most NB for iron, steel & metals

Private training providers NB for misc pdct group; vehicles & auto; chemicals

On FET colleges no size class difference

Private training providers tend to be used by FTEs100+ est

Views on the SETA system

32

% OF EST % OF EST

No benefit to the SETA training system 17.8 No Disadvantage to the SETA training system 29.3

No Dealing with SETA (incl not registered) 22.4DNK 7.8

standardisation of skills type benefit 3.0 Paperwork, admin inefficiency 30.6

centralisation/coordination of skills planning benefit

4.7Communication/information issues

16.5

accreditation/regulation on training quality benefit

15.4

Relevance skill training type comment 10.0 Money/funding/reimbursement issues 31.7

relevance to industry 3.7 General funding issues 11.4Money/ reimbursement delays 13.0

Funding/financial

incentives/reimbursement46.2

Insufficient/reduced funding/reimbursement20.6

Tax on firm dimension 11.4

Dvtal and/or growth elements 18.9Poor quality of training/inadequate training 26.1

General est benefit – employer & staff 9.8

production related benefit 12.0 Training generates an internal cost onto est 16.1

Trainee benefit 3.6

SOME TENTATIVE CONCLUSIONS

33

Findings - preliminary • Firms are becoming more skills intensive as a key to survival and

expansion – Driven by customers, competition, technology and structural factors

• Availability of technical skills a major constraint – Constraint presents differently for different sectors – Outlined as an issue for firms wanting to expand employment – Maybe explain smaller firms showing lower growth trajectory

• Recruitment focused on youth with basic education + some post-secondary training + some work experience – Variations notable by sector

• Training driven by regulatory compliance, productivity/quality & technology

• Most training in house (except for lower skill) with low confidence in external SETA and public sector provision

• If outside training the preference is for private trainers (note link to GVC and tech supplier certification)

• Firms are active in working to confront skills challenges for recruitment and training but find the public policy environment a major challenge.

• Coordination and regional specificity factors demand new approach to coordination and policy.

34

THANK YOU

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