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The role of human capital in the competitive platform of South

African manufacturing industries is investigated in this paper.

International competition is intensif ying following

international trade agreements, like GATT, and the effect of

modern technology and globalisation, while tariffs and trade

restrictions are declining. This exposes companies to

international price and cost structures, which can replace local

sales and with it local employment that manufacture those

commodities. On the other hand productive human capital can

provide a country with a competitive edge that could lead to

economic growth and enhance everyone’s welfare. 

Human resources are an important factor of production and

have a direct impact on the competitiveness of firms. Human

capital is those elements in humans that enhance the quality of

labour, such as skills, knowledge and wisdom, which make it

worth more in the production process. Improvement in the

quality of human resources can lead to lower unit costs of

production and sales and in that way decreases marginal cost

structures, enabling firms to trade products at lower prices and

better quality. A supply of quality labour in a country can then

lead to competitive markets and growth.

This paper commence with a theoretical discussion on the role

of human capital in the competitiveness of firms and the

country, followed by a review of the available literature of the

subject. Then the empirical results of a survey conducted among

South African manufacturers will be described. 

Human capital as a factor of production

In Economics, natural resources, capital goods, labour and

entrepreneurship are considered to be the four factors utilised as

inputs in the production process. Half off these: labour,

management and/or entrepreneurship consist of people. Their

knowledge, skills and ability to produce, present human capital

to the production process. The higher the stock of human

capital the more output can be delivered per labour unit and the

higher its value to the process. Labour is therefore an important

factor in a country’s industrial competitiveness platform. 

Competitiveness relate to a firm’s ability to enlarge its market

share. A firm can conquer a growing share of market demand by

selling more goods and services. This will be possible when the

firm can supply at lower prices or better quality, reliable supply,

low risk, providing a superior total sales package and a better

image. In all of these aspects human capital has a role to play. 

Improving labour productivit y enhances competitive-

ness. Although some st udies on price competitiveness 

ignore labour altogether (e.g. Siggle, 2001), others like

Mazumdar and Van Seventer (2004) estimate price

competitiveness solely considering labour. Productivity is

calculated as the total production per production factor 

input. (TP/Pfin). Labour productivity is then determined as the

average product, which is the output per labour unit (APL =

TP/L). The more output per labour unit the more valuable

labour becomes.

Optimal resource allocation is found at the point where the

marginal productivity delivered by a factor of production per

last Rand spent are equal in all factor markets. Thus MPL/w =

MPC/i, where MP are the marginal products of Labour and

capital, respectively, w is the wage rate and i the price of capital

(usually interest rates). When the additional product (MPL) yield

by labour increases without increase in price, the quality of

labour is improving and its worth increases (MPL/L�). In this

way labour makes the production process more competitive.

This might shift the total production function up to a higher

level, which Sollow saw as a prerequisite for sustainable

economic growth and development (Todaro & Smith, 2004, p.

130). This also makes labour more valuable than other

production factors. Capital will be substituted for labour,

creating more employment in the economy, enhancing

everyone’s wealth. 

When human capital becomes more valuable per unit of

production it implies that a firm’s cost functions is depressed.

Average and total variable costs shift down and the marginal cost

cur ve moves to the right. These down and rightward shifts of the

cost functions imply higher productivit y and a better

competitive position. 

As marginal cost curves represents the supply curve of firms,

added together to form the market supply curve, higher labour

productivity implies an outward shift of the total market supply,

which will usually persist sustainable into the future. 

Improved labour productivity can be due to better skilled

workers or better managerial efficiency. This can shift the supply

curve permanently to the right, increasing production, income,

employment and wealth on the macro-level, while the country’s

general price level declines, making the entire country more

competitive.  

EPJ KLEYNHANS
School of Economics, Risk Management & International Trade

North West University

eknepjk@puk.ac.za

ABSTRACT
The objective of this study was to investigate the role of human capital in the competitive platform of South African

industries and to determine the ability of their human capital to address the challenges of modern technology and

globalisation. Attention is given to the competitive strengths and investment opportunities, including the quality

and availability of human resources, labour cost, level of education and skills, vocational and industry related

training facility, work ethics, productivity, workplace regulations, as well as efficiency of the civil service; including

productivity and competitiveness indexes. The study found that the level of human capital in South African

industries is much higher than the general perception and not the worst element of South Africa’s competitive

platform. The findings also indicated challenges, like absentees due to AIDS and other factors, a shortage of artisans

and proficiency towards modern technology and innovation, which limits competitiveness.  

Key words

Labour productivity, Human Capital, competitiveness, production factor

THE ROLE OF HUMAN CAPITAL IN THE COMPETITIVE

PLATFORM OF SOUTH AFRICAN INDUSTRIES

55

SA Journal of Human Resource Management, 2006, 4 (3), 55-62

SA Tydskrif vir Menslikehulpbronbestuur, 2006, 4 (3), 55-62



KLEYNHANS56

The so-called Porter Diamond of Competitiveness (Porter, 1998)

emphasise input factors of production, output market

conditions, and firm structure, rivalry and management as well

as related and supporting firms and services. Modern profit

maximisation also requires production management, innovation

and marketing at a higher level. In all of this human capital is

involved. Utilising modern technology with such proficiency

that it leads to new innovations, builds competitiveness, while

managerial efficiency has to upgrade processes and apply

creative entrepreneurial activity. 

When legislation and trade union action push the wage rate up

the opposite happens and the industry will move towards self-

destruction, especially when cost structures of firms are

distorted in relation to international price structures. 

As human capital is involved in all the aspects of production

and trade the quality thereof plays a role in all processes. By

improving human capital, profit margins and competitiveness

increase, making sustain growth possible. This emphasise the

need for education and training, especially industry and

vocational related training. A large pool of productive workers

enable firms to grow as productive labour is available and this

will be an important factor when the location of firms is

determined (Krugman, 1998). As agglomeration takes place

more firms become available in the industrial districts or

computer net works and advantages of knowledge and

technological spill-overs occur. These spill-overs effects are

mainly conveyed by people between different firms which

come in contact with each other. Spill-overs effects, education

and training as well as experience and learning by doing all

enable human capital to accumulate and become more

productive. In this way the production function are pushed up

continually and diminishing marginal returns may not occur

or occur at much higher production levels as predicted by the

endogenous growth theory (Cypher & Dietz, 1997, p. 115). All

these aspects of South African industries will be investigated in

the empirical section. 

Studies on human capital and competitiveness

There exists an extensive volume of studies related to human

capital in the available literature. Mayikana (2002) states that

“the future of competition is human”, but focuses mainly on

human capital management. Very few considered the role of it

on the competitiveness of firms or nations and none on its role

in the South African Competitive Platform. On the other hand

productivity received a lot of attention and several authors

consider it to be synonymous, although it only entails a single

aspect of competitiveness. 

To name a few examples: De Jager (2004) st udied the

productive use of human capital and Yadavalli (2001) the 

value of human capital in productivity. Van Zyl (2004)

suggested cost-production dualit y as an instrument to 

measure labour productivit y, as well as a unique

microeconomic instrument that expresses productivity in

monetary terms (Van Zyl & Kleynhans, 1995). Mazumdar 

and Van Seventer (2002) described the application of a 

simple decomposition model to assess the trade off 

between employment growth and real wage growth, while

Wilson (2003) constructed an Input-Output Model of labour

productivity equations of the American economy. Several

authors estimated whether productivity is improving (like

Mantashe, 2004 & Lewis, 2002) and ways to enhance

productivity (e.g. Sigonyela, 2004). Schoeman (2002) argues

that the answer to higher levels of growth and development lies

in a balanced approach between government expenditures

aimed at increasing investment in human capital, research and

development and productivity.

Much is written on the enhancement of labour productivity

and managerial efficiency. Falkenberg (2005, p. 42), for

instance, st udied companies as learning organisations.

Pistorius (2004) studied the link between competitiveness 

and innovation, stressing that human resources are one of 

the most important components of a national innovation

strategy. The role of management is studied by authors like

Brooks (2004), while others discuss specific management

challenges, like managing knowledge (De Villiers & Michel,

2004; Redelinghuys, 2001).

Cascio (2005, p. 16) considered the economic benefits of

effective human capital management. Others in the similar

fields are Wright and Breytenbach (2004) and Horwitz (2005)

said “HR can advance competitiveness”. 

The Institute for Management Development's (IMD) studies

strengths and weaknesses according to world competitiveness

indices, ranking countries, stressing the importance of

marketing a country. Beisiegel (2003) emphasises that

productivity improvement will ultimately raise the standard 

of living of all South Africans as did Van den Berg (2003) 

who found that a country's standard of living depends on 

its productivity.

Trostel (2000) investigated micro evidence on human capital as

the engine of growth and its relation to endogenous growth. In

firm-specific studies Grimbeek (2005, p. 39) studied the

business philosophy of Nissan (SA), Schoeman and Roode

(2004) the importance of leadership for continuous growth of

Clover Industries, while Kaplan (2004) investigated

comparative industrial performance in the South Africa's

motor and textile industries. Aljuhani (2002) studied labour

utilisation and labour productivity of a gold mine in Saudi

Arabia, while Fedderke and Pirouz (2002) and Radebe (2002)

examined the labour cost and labour productivity in South

African mining sectors.

Focussing specifically on competitiveness Siggel (2000 & 2001)

studied industrial price competitiveness in India and Uganda,

while Mbaye and Golub (2002) studied unit labour costs,

international competitiveness and exports in Senegal. Mulder

and De Groot (2004) made an international comparison of

labour-productivity performance. De Jong and Soete (2005)

made a comparative description of the productivity in Belgian

and Dutch manufacturing, Cörvers (2005) considered the

impact of human capital on labour productivit y in

manufacturing sectors of the European Union and Galdon-

Sanchez and Schmitz (2003) studied labour productivity Atlantic

iron ore producers; to name a few. 

Van Dijk (2003) investigated South African manufacturing

performance in international perspective and compared the

labour productivity gap with that of the United States. Hooper

and Larin (1989) made an international comparison of labour

cost in manufacturing and Van Seventer (2002) a decomposition

of the source of cost distortion for South African Industry, while

Mazumdar and Van Seventer (2004) investigated real wage

growth for South African manufacturing, based on price

competitiveness. 

The above gave a sample of an enormous volume of recent

publications on human capital that exists. It also indicated 

that a study of the role of human capital in the South 

African industrial competitiveness platform was still not

adequately investigated and that is the reason why this study

was conducted. 

Aim of the study

The objective of this study was to investigate the role of human

capital in the competitive platform of South African industries

and to determine the ability of their human capital to address

the challenges of modern technology and globalisation.

The following section gives attention to an empirical study that

was conducted among South African manufacturers.  



HUMAN CAPITAL IN THE COMPETITIVE PLATFORM 57

RESEARCH DESIGN

Research approach

An empirical investigation of the competitiveness platform of

manufacturers was conducted to determine South Africa’s

abilit y to address the challenges presented by modern

technological development and globalisation. A survey design

was utilised to reach the research objectives. The specific design

was the cross-sectional design, where a sample is drawn from a

population at a particular point in time (Shaughnessy &

Zechmeister, 1997).

Research methodology

Participants

From a database of 14 000 manufacturing firms 450 firms were

randomly selected and a questionnaire was posted to them

during 2002. The response was 16,7 per cent, which is regarded

as satisfactory for a mail-based survey in Africa. Although the

author would prefer to report only on the responding firms of

the survey as a case study, most findings correlate with earlier

studies like those of the South African Netherlands Programme

on Alternative approaches to Development (SANPAD, 1999,

2000), Roberts and Mohamed (2005) and Koch and Ntege (2005)

and some generalisation might be in order.

The response to the questionnaire covered a good spread of

firms. Most respondents were from small firms (45,5%)

employing less than 50 employees, while 28,8 per cent were

from large firms, employing more than 250 workers. The

number of employees ranged between one and 8 400 employees.

A total of 47,6 per cent of the responding firms have an annual

turnover in excess of R10 million, 27 per cent were between one

and five million and 15,9 per cent have a turnover of less than a

R1 million annually.

Considering the various sub-sectors of manufacturing the largest

response of 22,4 per cent was from the sub-sector manufacturing

products of basic metals, machinery and office equipment,

followed by 20,7 per cent from food processing and beverages,

12,1 per cent by producers of chemicals, chemical products,

coke, petroleum products, nuclear fuel, and products from

rubber and plastic, 21,1 per cent from textiles, clothing and

leather products, and 10,3 per cent came from the sub-sectors of

electrical and electronic equipment taken together.

Considering the spatial response from the nine provinces 

in South Africa; the largest response of 39,6 per cent was 

from Gauteng, compared to 13,6 from the Eastern Cape, 12,1

from North West and 10,6 per cent from the Free State. From

some provinces the response was so small, making

generalisation impossible. Some firms were visited in person 

to complete and collect questionnaires making the response

from Gauteng disproportionally higher than the other

provinces. Gauteng is, however, the most important centre 

of manufact uring, producing more than half of South 

Africa’s GDP.

Measuring instrument

A questionnaire was designed with the assistance of the

Industrial Development Corporation (IDC), in which most

questions expected respondents to rate aspects of

competitiveness on a five-point scale between “poor” and

“excellent”. In compiling the questionnaire the Porter’s

Competitiveness Diamond was taken as the basis, taking into

consideration input factors, demand conditions, firm strategy,

structure and rivalry, and related and supporting firms, which

represents the industrial competitive platform. The

questionnaire was extended to include questions measuring

specific aspects, like location and expectations. In calculating

indices, the methodology was similar in principal to that

applied by the International Instit ute for Management

Development (IMD) in calculating the annual World

Competitiveness Indices. 

Data Analysis

The data was analysed in co-operation with the Statistical

Consultation Service of the North-West University. The data

were mostly descriptive, although correlations and regression

analysis were estimated where applicable. 

Affirmative factor analysis was done and the significantly high

values of Cronbach-Alpha coefficients that were obtained

indicated that the questionnaire was a reliable measuring

instrument to measure the proposed objectives. Table 1 indicates

some of the most important Cronbach-Alpha coefficients of the

various groups of questions. To be reliable Cronbach-Alpha

coefficients should exceed 0,5 and Table 1 indicates that all

values were satisfactory, most exceeding 0,8 (Kleynhans, 2003a,

p. 242). The high Cronbach-Alpha values and the consistency of

the responses to the items in the survey suggest that respondents

completed the questionnaire with great care and a high degree

of accuracy. 

TABLE 1

CRONBACH-ALPHA COEFFICIENTS

Question Groups Coefficients

Human Capital 0,855

Resources 0,892

Demand Conditions 0,815

Related & Supporting Indust. & Instit. 0,878

Firm Strategy, Structure & Rivalry 0,873

Technology & Innovation 0,914

Quality & Environment 0,801

Perspective & Expectations: Current 0,868

Perspective & Expectations: Future 0,789

Shortages: Current Quarter 0,917

Shortages: Future 0,863

RESULTS

General Findings

The most important findings regarding the competitive

platform of South Africa are represented in Figure 1. Most

questions of the questionnaire expected respondents to rate

their response on a five-point scale where 5 is excellent, 4 is

good, 3 fair, 2 poor and 1 very bad. Although South Africa is a

less developed country, all categories were on average rated

about fair, but none of the main constructs of the

questionnaire was rated good or excellent. Human resources

rated much higher than expected. The survey affirmed the

perception that the country’s human capital is between “fair”

and “poor”, especially low on productivity, motivation and

work ethics. The country’s managerial shortage is a stylised

fact, but the survey also highlighted a shortage of artisans,

which merits attention (Kleynhans, 2003b, p. 16). The supply

of unskilled labour is as can be expected fairly well, and that 

of technical and managerial staff fair. Very few responding

firms rated the availability of any component of labour as 

very poor. Vocational and industry related training facilities 

are also insufficient.

The findings revealed that human capital is not the worst

element of South Africa’s competitive platform. As illustrated in

Figure 1 most respondents perceive the human capital base in

South Africa to be fair. None of the main constructs were seen as

poor but there is much room for improvement, as none were

regarded as good or excellent ether. “Other recourses”,

“technology” and “quality” are stronger elements of the

competitiveness platform in South Africa, as is “strategy,

structure and rivalry”, and this includes managerial

performance, which is also part of human capital. 



KLEYNHANS58

Figure 1: Strengths and opportunities

It is further indicated in Figure 1 that the country’s

technological base is rated between “fair” and “good”, as is

management strategy and quality, where human capital also has

a role to play. In some industries, like electronics, a poor

technological platform is still hampering competitiveness

though and the technological base was not rated as good in any

industry. The provision of support services, like cold storage and

harbour facilities, for example, is inefficient and where they do

exist, it is not utilised. 

All firms have a very poor perception of the government and

civil service, rating them between poor and very bad. The worst

rating was that of civil servants that is regarded as poor with a

standard deviation of only 0,9 on a five-point scale and none of

the respondents viewed them as being very efficient. They are

regarded as inefficient and non co-operative. Competitivity is

also retarded due to a lack of government assistance,

information, aid and incentives, political and policy instability.

This is a matter that merits serious attention from the

government. As usual respondents are unhappy about high

costs, taxes and interest rates. There are sometimes shortages of

raw materials but it is not serious. Finally poor market demand

restricts the competitiveness and growth of manufacturers.

Most respondents regard wage rates, unit labour costs and

workplace regulations to be fair, while their perception of

productivity is poor, impeding the competitiveness of firms.

Respondents do not expect the average working hours per

factory worker, the average total cost per unit of production or

the average labour cost per unit of production to change in the

near future.

Considering the four corners of the Porter Diamond,

competitiveness of South African manufacturers the quality 

of human capital and the civil service needs lots of attention.

It was found that the availability and quality of most input

factors were found satisfactory. Some capital goods are

imported at very high prices and a shortage of skilled labour

and managers are sometimes a problem, though not a 

serious obstacle and shortages do not hamper production. The

all over rating of human resources was, however, poor, pushing

cost curves up.

Considering the measures of globalisation the availability and

quality of skilled labour is low and not enough is being done to

improve human capital. It does not seem that South African

firms are adequately equipped to compete in the new economy

yet. Although the level of technology is fair, the supporting

labour is lacking and unproductive. As most workers lack the

necessary skills modern equipment cannot be optimally utilised

in many instances. 

Government Assistance and Legislative Issues

Some manufacturers suggested that the government should

support manufact uring much more, especially through 

direct measures. There is a need for more incentives to local

manufact uring. Some asked for subsidies on transport 

and wages, like those that existed in the past. More should 

be done to promote exports, training and manpower

development. Attention should also be given to local value

added services such as consultants, design, building, education

and maintenance. 

Some respondents expressed concern against the growing power

of trade unions. Some manufacturers regard the current labour

laws as being “draconian”, which together with affirmative

equit y laws are onerous and hostile towards industrial

development and need to be addressed. Black empowerment

programs are seen as restricting industrial expansion and

investment and some manufacturers suggested that it should be

suspended. Labour laws make it difficult for small businesses to

control their own businesses and remain competitive. Healthier

labour relations with manufacturers and deregulation of

employment practices are requested. Current labour legislation

is not seen as an incentive to employ more people, but increases

unemployment (this perception is also expressed in current

literature; see e.g. Maziya, 2001:211). 

Trade union demands and other rising costs present other

countries like China with opportunities to compete favourable

in the South African market, especially with labour intensive

business. Local manufacturers therefore plead for a surcharge on

import based on the difference in variable costs such as labour,

energy and transport. A national drive towards awareness of and

commitment to productivit y to increase international

competitiveness was suggested including training courses,

advertising, propaganda and a national productivity day. 

It is suggested that the skills development levy should be

cancelled as firms can effectively only claim fifteen per cent of

the levy back. Respondents also suggested that annual wage

increases should be linked to the geographical area. 

Education and Training

The educational level of labour in general should be improved.

The low levels of literacy restrict the trainability of most

unskilled workers. People should also be trained to acquire

quality skills. Vocational and industry related training facilities

are insufficient and there are a serious shortage prospects for

artisan training. Development of workers skills should receive

more attention and the authorities may consider the sub-

contracting of private developers. Continued investment,

development and upgrading of human capital are crucial to

obtain and expand competitiveness. On average, respondents

view the vocational and industry related training facilities in

South Africa to be poor. 

Figure 2: Education of unskilled labourers

The educational level of unskilled labour of the survey is shown

in Figure 2. The highest level is on average about ten years of

school education and only 6,1 per cent of the firms employ

mostly workers that are totally illiterate. Nearly half (49%) of the

unskilled workers have ten years or more, which are far higher

than would have been expected. 

Figure 3: Qualifications of skilled personal

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HUMAN CAPITAL IN THE COMPETITIVE PLATFORM 59

On the other hand the average level of education among skilled

personal is not very high. Figure 3 shows the average level of

education among skilled labourers in the firms studied. Almost

half (47,4%) of the workers in this category have only matric and

about a quarter (24,6%) has technical diplomas or are skilled

artisans. Twelve per cent have degrees and another 12,3 per cent

tertiary training of some sort although those respondents did

not specif y.

Reasons for Absenteeism 

Main reasons why employees are absent from work is 

illness. The kind of illness was unfortunately not specified.

Figure 4 shows the main reasons for absence according to

respondents. The largest reason following unspecified 

illness is problems with transport and HIV/AIDS. Many of 

the other reported illnesses could also be AIDS related.

Influenza and TB respectively were both given by 9,6 per 

cent of the manufacturers as major reasons for absentees.

Respondents viewed low work ethics as an important factor

causing absentees, 9,6 per cent saw workers being

unmotivated as a major reason for absentees and another 11

per cent explicitly named laziness and 1,4 per cent disloyalty

as major reasons. On the specific questions on work ethics

and productivity, most employers rated it as being poor,

although some manufacturers also have excellent motivated

and productive workers. This should be addressed as 

workers that do not feel satisfied in their working conditions

are neither committed nor productive, pushing marginal 

cost curves in the wrong direction. Manufacturing-labour is,

however, newer rated as inefficient as civil servants. 

Although family responsibilities was only seen as a major

problem by about 10 per cent of the respondents, tradition

was only in 4,1 per cent of the cases a major cause of 

absentees and trade action was only in 1,4 per cent of the

firms a major reason for absentees.

Figure 4: Absent from work

Social Infrastructure

The next aspect investigated (not shown on the graph) was

social infrastructure near their premises, which was rated by

respondents on average, to be fair but they rated the

availability of health services to be poor. This probably implies

that they feel satisfied with their social infrastructure but view

the availability of medical assistance to their employees to be

insufficient. The availability of schools, colleges, universities

and other industrial training facilities near the premises of

manufacturers is a problem and leads to problems obtaining

skilled labour. They are satisfied with their managerial skills

and practices, but feel that the proximity of professional

services is in most cases inadequate.

Locational Factors

The New Economic Geography emphasises a pool of skilled,

intermediate inputs, knowledge and technological spill-overs

as the most important factors of industrial location. Regarding

locational aspects of their premises, respondents on average

rated both traditional factors of location and modern factors to

be poor. Neither factors like proximity to markets, low taxes,

the availability of land, financial and trucking services, nor

modern factors like the proximity of support services, the

availability of skilled labour and industrial training facilities

are seen as enhancing their efficiency and competitiveness

due to their location. 

Management

Respondents rate the availability of managerial staff as being

poor but rate the abilities of management to be on average

higher than that of other labour and contributing towards

higher competitivity. Management is competent and has goods

contacts leading to strategic positioning in the market

competing successfully with rivals. The most important aspect

hampering their activities is shortages of raw material, followed

by shortages of skilled labour, machinery and equipment,

maintenance and supporting industries.

Co-operation with competitors was seen to be poor but all

other factors relating to firm strategy, structure, and rivalry in

the South African economy were perceived by the respondents

to be fair to good. As businesses usually try to please their

customers, respondents saw co-operation with clients to be the

strongest factor. Other factors that were seen to be between fair

and good were co-operation with suppliers, managerial

practice, and managerial skills in the integration and

innovation of business activities, employee performance

incentives and business contacts. The ability of firms to enter

foreign markets, their growth in exports, and profits were also

seen as being satisfactory. 

Competitiveness and the Size of Firms

Figure 5 illustrates that all aspects of competitiveness grew with

firm size, except human resources. Smaller firms are more

labour intensive and this might be the reason why the largest

companies are not so competitive when human capital is

considered. Demand for skilled and specialised labour increases

as firm size increases and this might also be a reason why

respondents of the largest firms rate the quality of their labour

input as less efficient. Larger companies can achieve scale

economies, as they are more efficient and more competitive,

utilising higher technology.

Figure 5: Competitiveness and firm size

The factors of which large companies are experiencing a slight

shortage of are skilled labour, managerial staff, raw materials,

machinery and equipment and technology and knowledge

support services. The only factors that large companies expect to

decline in future are electricity and the availability of factory

workers, including skilled labour, probably due to the effect of

HIV/AIDS. 

Small firms rate all aspects of their human capital to be poor. The

only aspects that are satisfactory are the availability of unskilled

workers and workplace regulations. The worst aspects are the

efficiency of civil servants, which none rated as excellent,

followed by a shortage of managerial staff and artisans and

industry related training facilities. Medium sized firms also

experienced problems with the inefficient civil service and

inadequate training facilities, but also with the work ethics of

the workforce that are unmotivated, neglected and not

conscientious. The respondents of medium sized firms rated all

other factors relating to human capital as fair. Large companies

also found inefficient civil servants to be their greatest obstacle

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KLEYNHANS60

to competitiveness when considering human capital, followed

by high unit costs per worker. Other factors were all satisfactory

and the best factor was the availability of unskilled labour.

TABLE 2 

OVERHEAD COST PER LABOURER: FIRM SIZE

Large 37757

Medium 116896

Small 128837

Total Sample 109316

All firms find labour cost to be a fair obstacle, to small firms this

is a little bit higher, but there are no significant differences

between firms of different sizes. The overhead per worker in

smaller firms are higher and declines with firm size. This might

be because larger firms have more employees. This might

suggest that smaller firms are not as productive; it also correlates

with the productivity indices of Table 4, which indicates that

productivity rises with firm size. It is, however, doubted that the

overhead cost per labourer could be interpreted as a measure of

productivity as fewer people have to handle more overheads in

smaller firms.

DISCUSSION

The role of human capital in the competitive platform of 

South African manufacturing industries is investigated in this

paper. Attention was first give to a theoretical background to

the role of human capital in enhancing competitiveness,

followed by a review of the current literature. Then attention

was given to a survey conducted among South African

manufacturing industries.

This paper reported on an empirical study conducted among

manufacturers, which investigated human capital’s ability to

answer to the challenges of modern technolog y and

globalisation. Attention was given to the competitive strengths

and investment opportunities, including the quality and

availability of human resources, labour cost, level of education

and skills, vocational and industry related training facility, work

ethic of labour force, productivity of labour force, workplace

regulations, as well as efficiency of the civil service, including

productivity and competitiveness indexes. Other aspects like

social infrastructure near their premises and health services

were also included in the study, as well as the situation in the

various provinces, firm-sizes and sub-sectors of manufacturing

were compared. 

The study found that the level of human capital in South African

industries much higher than generally perceived and not the

worst element of South Africa’s competitive platform. The

findings also indicated challenges, however, like absentees due to

AIDS and other specific factors, a shortage of artisans and

proficiency towards modern technology and innovation. The

following section gives some recommendations following the

results of this study.  

RECOMMENDATIONS

The study indicated a negative perception of the civil service 

and government by manufacturers. Government should provide

in service training in an effort to transform the civil service 

into a more efficient and consumer friendly service. Services

should be improved and benefits to workers and industry 

should be obtained much easier cutting unnecessary

bureaucratic procedure. 

To some extend the criticism against government and the civil

service is unfounded, but the existence of such perceptions

indicates that government should provide much more

information to workers and industry. From the existing

perceptions it can be presumed that government’s

communication channels are insufficient. Improving effective

communication and to some extend positive propaganda might

be to everyone’s advantage.  

To answer the challenges of globalisation, modern technology

and economic growth industries need well trained personnel.

Since 1994 the training system of artisans in the country has

collapsed. Government should, in co-operation with technical

colleges and large industries, like mining, construct a new

system of artisan and other vocational and industrial training,

which would supply in the needed demand for trained

personnel, quality labour in the shortest possible duration of

training. Companies need more incentives to provide training

of their people. Other adult educational training schemes, like

reading classes and courses to complete matric and higher

education should also be promoted. 

Companies should make an effort to motivate their workers 

in such a way that they would feel part of the company. The

large number so-called lazy and unmotivated workers are

an indication that people do not associate with their 

vacations in a way that can lead to higher productivity 

and industrial growth. Expecting more responsibilit y,

empowerment, company shares as part of their remuneration

and various training programmes might be of advantage in

this regard. 

The study also revealed much detail that should be followed up,

like the fact that there is a need for cold storage facilities, and

specific artisans, like toolmakers in the plastics industry and

carpenter in the wining industry.   

The role of human capital in the competitive platform of

South African industries should be further investigated to

enable generalisation of the findings and determine whether

trends persist over time. Further research, especially with

larger samples, can enable comparison of firms in the various

sub-sectors of manufacturing, like food processing, basic

metal products and textiles, as well as the various provinces.

The study should be conducted annually and on a larger scale,

when funds permit, to determine whether structural changes

occurred. This will yield more reliable data and provide

policymakers, industries and researchers with instruments to

design better industrial development programmes and

policies, especially in a spatial context. 

This study estimated competitive indices for provinces and its

various sub-divisions, like management, resources, technology,

and these findings correlated well with productivity indices, as

is illustrated in tables 3 and 4. The same apply to sub-sectors of

manufacturing, and different firm-sizes; but as the response

rate was too small to differentiate the sample into such small

units, it can at this stage only be regarded as an academic

exercise. The instruments were, however, developed in this

study and can now be implemented in further investigations. 

The competitiveness indexes calculated for various provinces is

similar to the World Competitiveness Index of the

International Institute for Management Development and

tested to determine whether the groups form a reliable

instrument and whether it is statistically significant (IMD,

2001, pp. 516-7). The values of Cronbach alpha coefficients

calculated were again averaging between 0,7 and 0,9 indicating

that the groups of questions probably serve as a reliable

measuring instrument. Among the manufacturers investigated

spatial differences in human capital were found among the

various provinces as illustrated in Table 3. Very little

differences exist, however, between human capital in the



HUMAN CAPITAL IN THE COMPETITIVE PLATFORM 61

various sub-sectors of manufacturing and their influence on

competitiveness. 

Literature of the IMD on their calculation of the World

Competitive Indices is not very clear and it was decided to base

the calculations on their methodology but alter it to suit the

need of this study. Basically the method calculates a group

average and compares, firms or groups of firms in provinces or

industries using their standardised standard deviation from the

average. A higher value implies higher competitiveness, while

a positive value implies competitiveness above the average and

a negative value indicates a level of competitiveness that is

below average. 

These indices can suggest an agenda for development. Finance,

management and infrastructure deserves attention in Gauteng,

for instance, while the local economy, internationalisation and

people need attention in North West and the Western Cape

should focus on the local economy, business efficiency,

internationalisation, infrastructure and human capital.

Limpopo, Western Cape and the Northern Cape have the lowest

productivity indices and attention should be given to the

development of human capital, science and technology to

enhance efficiency and productivity. 

TABLE 4

PRODUCTIVITY INDEX

Provincial Indices Sub-Sector Indices Firm Size 

Indices

KwaZulu Natal 0,802 Food -0,199 Large 0,687

North West 0,966 Textiles -0,563 Medium 0,119

Mpumalanga 0,604 Paper & Wood -1,378 Small -1,054

Eastern Cape -0,208 Chemicals 0,771

Gauteng 0,383 Non-Metal Mine 1,561

Northern Cape -0,434 Basic Metal Prod 0,995

Free State 0,731 Electrical -1,897

Western Cape -0,681 Electronics 0,178

Limpopo -2,164 Transport 0,1778

Furniture 0,1778

Cronbach Alpha Coefficient: 0,741

An alarming aspect was the low level of technological

proficiency, expertise and innovation in the science- and

technology-based industries like chemicals and electronics. If

South Africa is to survive in the new economy its level of

technological expertise, capabilities and capacity will have to be

improved considerably.

Much research is conducted on SMMEs, but larger firms are

neglected and deserves further investigated. The synergy

bet ween small, medium and large firms also deserves

attention. When considering the theory of production it was

shown that the most important aspect in enhancing industrial

competitiveness was in addressing the cost structures of firms.

An important extension to this study will be the calculation of

cost competitiveness, like the studies done by Siggel (2000 &

2001), Van Seventer (2002) and Van Seventer and Molate

(2002). These studies could, however, be contradictory and

focus only on productivity as comparative unit cost ratios are

calculated as the ratio between total costs and the value 

added (Siggel, 2000, p. 13). A problem when determining 

cost competitiveness is the availability of detailed data and 

the estimation of shadow prices. Further study of the role 

of human capital in the competitive platform of South African

industries would contribute towards everyone’s welfare and

prosperity.

AUTHOR’S NOTE

This paper was delivered at the 2005 Biannual Conference of the

Economic Societ y of South Africa. Durban and

recommendations were incorporated.

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REVIEW PANEL EDITION 4.3

Mr Giel Bekker (M. Eng) University of Pretoria

Prof WJ Coetsee University of Johannesburg

Prof J Degadt Katholieke Universiteit, Brussels, Belgium

Dr Derrik de Jongh UNISA

Prof Piet de la Rey Emeritus Professor  – University of Pretoria

Dr Y du Plessis University of Pretoria

Prof LTB Jackson North-West University

Prof J Kroon North-West University

Mr Ivan Latti HR Practitioner

Prof S Rothmann North-West University

Mr Michael Routledge (Industrial Psychologist) Rhodes University 

Prof AMG Schreuder UNISA

Prof AJ Smith University of Pretoria

Dr M Ungerer ABSA

Prof JS Uys University of Johannesburg

Dr M Venter (Economist) Private Practitioner

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