10 STEPS TO GET SKILLS DEVELOPMENT RIGHT IN ANY SOUTH AFRICAN COMPANY
Smart companies know that in order to prevail in a globally competitive environment, the development and retention of employee talent is a critical business imperative. Depending on the type of company, its size and the context of its business, it can provide a plethora of training opportunities to employees. These can be undertaken to develop competence in numerous areas of its business, from on-boarding to career development and even professional development.
It is in the interest of a company to ensure that, in providing its service and products to a customer, competence is entrenched, whist concurrently providing and creating value for the customer. A company often needs to provide continuous learning programmes to develop a core of well-trained individuals whose performance will enhance its abilities to perform at a level that is consistent with its growth and profitability objectives. Focused training and development processes with certain key deliverables should be applied to assist any company to attain this objective.
In an ideal world, companies should be committed to lifelong learning and provide an environment and a range of opportunities for staff to maintain and develop professional knowledge, skills and expertise.
Training is a valuable tool, whether it is institution-based or on-the-job learning. The value proposition of further training and skills development impacts all areas and interests of a business, with considerable long-term benefits. Therefore, using the mechanisms made available by the South African Skills Development Act, companies are able to facilitate sustainable training and skills development practices that benefit industry on a national level.
The following basics are key to sustainable skills development within a company:
Step 1: Align Planned Training to the Organisation’s Strategy
A company’s skills strategy should directly address skills shortages that impact the business objectives. By ensuring that the identification of skills gaps throughout the company’s future planning process takes place, one is able to ensure that there is alignment with business objectives and the skills required for performance delivery against those objectives.
Step 2: Changes in Technological Aspects
Many companies are transitioning from older platforms of product and service delivery to more technologically advanced mechanisms of manufacturing, supply and delivery. These planned changes in the organisation’s processes will require various new skills and competences within its workforce. These changes will most definitely necessitate re-skilling and up-skilling on various levels in the company. Rapid change is usually a major cost driver in the business sustainability planning. Therefore, it is important that the right emphasis be placed on these types of training interventions within the budgeting and planning for such training.
Step 3: Skills Audits
The main purpose for conducting a skills audit in an organisation is to identify the skills and knowledge that an organisation requires, as well as the skills and knowledge that an organisation currently has. Skills audits help ensure that training is targeted and addresses a specific need, rather than training employees for training’s sake.
Step 4: Training Needs Analysis
Training needs analysis is a process that a business goes through in order to determine all the training that needs to be completed in a certain period to allow team members to complete their jobs as effectively as possible and to grow and progress. Sometimes staff members may need to undergo additional training in order to ensure on-going compliance with new legislation. Employees may also need to keep up to date with the newest technologies that allow them to do their jobs to the best of their ability, thereby maintaining the company’s competitive edge.
Sources of information that will be assimilated into the training needs analysis may be gathered from the strategic skills needs, the current competence gap analysis, the individual development plans and from succession plans.
Step 5: Develop Your Annual Training Plan
The process of developing the company’s annual should involve consultation with all stakeholders in order to optimize limited resources and timing since these are usually of a one-year duration. A skills committee that comprises employees and management representatives who constitute a consultative forum is necessary.
There is also a compliance requirement that needs to be fulfilled by organisations in submitting the Workplace Skills Plans and preceding year’s reports to the relevant SETA on an annual basis. This is done in order to access grant funding from the SETA for training and development. Another useful resource is a Skills Development Facilitator (SDF), which can be an internal or external resource. An SDF is a specialist in Skills Development for performance optimization. They are also very capable of assisting organisations with the development and sourcing of quality-assured training delivery initiatives to address the company’s requirements.
A company will aim to ensure that there is an active training plan in place covering every 12-month period during the financial year. The company also needs to ensure that there is sufficient funding to cover the planned training expenditure per financial year. This will also require taking into account transformational objectives.
Step 6: Transformational Alignment
Companies should take into account their transformational objectives and take reasonable steps to address these in their Annual Training Plans. In the new codes of practice in terms of the BB-BEE Act, skills development has been made a priority element. In order to achieve the objectives of this element, a sub-minimum score of 40% of the targeted 20 points must be met. If this is not met, the company risks dropping a level rating in its final scoring. The minimum to be achieved is 8 points. In order to achieve this, companies need to focus on aligning skills development needed in the organisation with training initiatives listed on the Learning Programme Matrix for maximum scorecard benefit.
Furthermore, the provision of opportunities to unemployed persons and graduates for experiential training and bursary support will strongly benefit a company’s BB-BEE scoring objectives.
Step 7: Implementation of the Training Plan
Training should be delivered as per the Training Plan and opportunities optimised during productive peaks for the delivery of these training and development initiatives. Accurate records, registers and documentation should be retained for reporting purposes. Initiatives should be evaluated for both the effectiveness of the programmes to address the skills gaps and also for assessing the return on the investments made into these initiatives. Feedback should be provided to stakeholders who were part of the planning decision making. Improvements should be fed back into the next phase of the cycle of training needs analysis for the next period.
Step 8: Succession Planning and Talent Management
Although the planning of training is usually monitored on an annual basis, Succession and Talent Management may be planned and monitored for a slightly longer period of two, three or five years. Succession planning is a talent management process that builds a pool of trained employees who are ready to fill key roles when leaders and other key employees step down. Companies with succession planning programmes in place foster a talent-oriented culture by recruiting skilled workers and top talent.
Step 9: Graduate Development Programmes
A graduate training programme is a way of bridging the gap between academic training and business skills and experience. Graduate training programmes ease candidates into the practical work environment and give them the skills necessary to become part of the larger team. They tend to last either one or two years. These candidates may also rotate between various divisions in a business. As a talent management process, these programmes provide a pool of qualified candidates who can mitigate employee turnover in a company.
Step 10: Tax incentives
Training staff members through learnerships, internships and skills programmes with accredited training companies benefits a company financially in several ways. The South African Revenue Service (SARS) and the Sector Education and Training Authority (SETA) relevant to your industry have structured financial benefits for companies which train their employees through accredited providers. The Income Tax Act provides employers with a tax allowance for the provision of Learnerships and apprenticeships to employees.
There is also an Employee Tax Incentive (ETI). It is an incentive aimed at encouraging employers to hire young work seekers between the ages of 18 and 29 years. It reduces the employer’s cost of hiring young people through a cost-sharing mechanism with government by allowing a company to reduce the amount of Pay-As-You-Earn (PAYE) they pay while leaving the wage received by the employee unaffected. Employers will be able to claim the incentive for a qualifying 24-month period for all qualifying employees.
If you need help with implementing Skills Development in your organisation, contact the Human Capital and Skills Development Division at SEIFSA today.
HUMAN RESOURCE PLANNING PUTS EMPLOYEE TRAINING IN SHARP FOCUS
What HR Managers Need to Know
Human Resource Planning is a process of ascertaining the future human resource requirements of an organisation and reviewing how the existing capacity can be best prepared to fulfill these requirements, or how these may be acquired externally to address this organisation’s needs. This planning process is what assists in ensuring that that organisation will have the appropriate competent and trained resources, in the required numbers, at the required places and time, in order to ensure the organisation is able to meet its strategic objectives. This process, therefore, requires proper analysis of the current and future state situations of the organisation. Although the process may sound simple enough, it is not always so in practice. Many complex factors need to be taken into consideration.
The most relevant factor in context of the South African labour demand and supply market is the mismatch between current and future skills requirements for economic growth. The supply of these skills by our lagging educational institutions also leaves organisations to bear the burden of planning for them into their human resources planning processes. Learning and skills development are internal mechanisms to address this as part of human resource planning and have thus become an extension in this process.
The fact that the current BB-BEE Act and the amended codes place Skills Development as a priority element recognizes that in the South African context, skills development is and will be an essential mechanism to effect economic empowerment in the transformation mission and objective.
When HR professionals embark on the planning process, the first point of call is to assess internally the current skills, experience and qualifications available in the organisation. Most often, at this point there is already a shortfall in the current competencies to meet the organisation’s current objectives. For this reason, many organisations have an internal or customized development structure to make up for their shortages.
Next, when analyzing the future requirements of an organisation, factors such as technology, systems and processes that would make the organisation more competitive may not be easily implementable as the gap between the current competence and required competence for implementation and operation may be extremely wide.
Furthermore, this lack of skills and experience in the wider labour market is experienced by most organisations, hence competition for these limited resources has an impact on the cost that one would have to pay for this competence. It drives labour costs up and, thus, the cost of delivery and productivity.
Therefore, employee training is placed in sharp focus within organisations. Much more effort to give structure to the interventions that address gaps must be prioritised, with a view to optimize human resource planning for future training needs. Organisations find that they need to have structures that emphasize lifelong learning within the training and development processes, from adult basic education and learnerships at operational levels, through to graduate, leadership and executive development programmes.
Where organisations cannot carry the cost of these interventions within their internal capability, many find themselves pooling resources with industry partners and educational institutions to leverage off economies of scale. While the Sector Education & Training Authorities (SETAs) are looked upon for this type of support, funding remains a challenge as most of the discretionary grant efforts require a co-funded approach. Furthermore, administration issues at these SETAs make the carrying of these costs by organisations very taxing.
Organisations may implement succession planning and talent management processes which build a pool of trained employees who are ready to fill key roles when leaders and other key employees step down. Companies with succession planning programmes in place foster a talent-oriented culture by recruiting skilled workers and top talent.
Graduate training programmes are a way of bridging the gap between academic training and business skills and experience. These programmes ease candidates into the practical work environment and give them the skills necessary to become part of the larger team. They tend to last either one or two years. These candidates may also rotate between various divisions in a business. As a talent management process, these programmes provide a pool of qualified candidates who are often integral to the HR planning process.
It is also for this reason that many organisations find themselves falling short in planning and preparing for upskilling and re-skilling attempts to address future skills requirements in terms of the Fourth Industrial technologies, or green skills development.
Digital transformation is also having an impact on human resource planning, thus HR professionals find that they need to include organisational re-design for agility in their planning process as structures are being revised to accommodate these changes. The HR planning process may now also include skills available in the contracting, micro-jobbing and Gig work markets as these are known to provide specialist skills and knowledge not easily developed through ordinary training mechanisms available to organisations.
Employee training and mechanisms for funding of this development will remain a focus in the coming years, with even more focus applied to scarce and critical skills gap closure. If we are to be agile and competitive, HR planning will have to continue to take training and skills development planning as a necessary extension in its HR planning process, both internally as well as externally on an industry and sector level.
Contact the SEIFSA Human Capital and Skills Development Division if you need help with planning your next training intervention.
Volatility in Manufacturing Production to Continue As Recession Deepens Amid Covid-19 Pandemic, Says SEIFSA
JOHANNESBURG, 12 OCTOBER 2020 – The latest production data for the manufacturing sector released by Statistics South Africa today reflects the resilience of the Metals and Engineering (M&E) cluster of sub-industries on a month-on-month basis, said Steel and Engineering Industries Federation of Southern Africa Chief Economist Michael Ade.
However, he said, the figures painted a worrisome annual trend as the recession deepened amid the COVID-19 pandemic.
Dr Ade said although the seasonally-adjusted monthly manufacturing output data had surprisingly continued to trend in positive territory from May, underpinned by improving business sentiment, the presence of headwinds from the months of the COVID-19-induced economic lockdown, the fear of contagion, a generally weak exchange rate and a stubbornly stagnant economy had led to poor year-on-year data.
“Nevertheless, the official monthly output statistics released today are still better than those of April, May and June, and provide a light at the end of the tunnel for beleaguered businesses during these tough economic times characterised by unease and uncertainty,” Dr Ade said.
According to the data, unadjusted manufacturing production decreased on an annual basis by 10,8% in August when compared with August 2019. The largest contributors to this decrease year on year in the M&E industry were the motor vehicle parts, accessories and other transport equipment sub-industries, which recorded -30.6%, followed by the steel, metals and machinery sub-industries which also recorded -11.7%. The annual performance of the sub-industries was generally in line with broader manufacturing production, which also decreased.
Dr Ade said it was, however, encouraging to note the auspicious month-on-month performance of manufacturing output, which forms a firm basis to build on and further improve business activity
He noted that the improvement in monthly manufacturing output was generally good for local businesses going into the festive season as they could make up for financial losses from the lockdown through improved sales and profits. This was generally reflected in the seasonally-adjusted data.
Dr Ade called on indigenous businesses to take advantage of improving business sentiment among purchasing executives after the economic lockdown, as well as firming selling prices, to further enhance margins and ensure their sustainability, which would come with positive implications for existing jobs.
He said this was important as the current subdued domestic demand was likely to increase volatility in manufacturing production in the near future. Additionally, the expectation was for the broader manufacturing sector, including the cluster of M&E sub-industries, to position itself to benefit from a possible uptick in domestic demand during the last quarter of 2020 as all industrial sectors progressively opened up.
“The continuous improvement in manufacturing output and consequently domestic demand in the medium to long term will depend – among other factors – on the rapid implementation of both the Steel Master Plan and the Presidential Infrastructure Plan, with spill-over benefits to the metals and engineering industry,” Dr Ade concluded.
Ends
Issued by:
Mpho Lukoto
Communications Manager
Tel: (011) 298 9411 / 082 602 1725
Email: mpho@seifsa.co.za
Web: www.seifsa.co.za
Government leadership holding South Africa back, says top academic
JOHANNESBURG, 9 OCTOBER 2020 – Weaknesses in government leadership is holding South Africa back, to the detriment of current and future generations, academic Khaya Sithole said at a Steel and Engineering Industries Federation of Southern Africa (SEIFSA) function today.
Addressing the annual SEIFSA Presidential Breakfast this morning, Mr Sithole said the COVID-19 pandemic had brought into sharp focus the leadership problems facing South Africa, which would affect South Africans politically, economically and socially for generations to come. He bemoaned the facts that South African politicians did not appreciate the fact that they were the servants of the people, and that members of the general public did not punish the current Government by exercising their rights to vote for other parties which offered different visions for the country.
Mr Sithole said voters needed to shoulder the responsibility for the lack of leadership and the decay in which the country finds itself. “You get the government you deserve,” he said.
He said the only way to get the Government to deliver on its mandate these days was to litigate, as had been previously done by organisations such as Equal Education, which had taken the Department of Basic Education to court to force it to eradicate pit latrines.
Also highlighting weaknesses in Government leadership, outgoing SEIFSA President Elias Monage pointed to Government entities’ inability to support Metals and Engineering (M&E) businesses as a contributing factor to the sector’s troubles, saying State-owned companies (SOCs) had become liabilities on the fiscus, instead of being drivers of economic growth.
Mr Monage said it was worrying that where SOCs and different spheres of government have had infrastructure projects with the potential to stimulate the economy, they have tended to conveniently forget about designation and imported goods which local manufacturers have the capacity to manufacture.
“It is not surprising, therefore, that in the past year metal sector average output declined by 3%, net operating surplus dropped by 1.3%, formal employment declined by roughly 21,000 and the sector’s fixed investment cumulatively contracted by 19%, contributing to a sector trade deficit of R23-billion,” Mr Monage said.
He emphasised that the M&E sector remained strategic to the local economy and was crucial in creating both labour-intensive and capital-intensive jobs. It had important direct linkages with the primary sector, other key industries and the tertiary sector of the economy.
Mr Monage said the M&E sector was facing unfair competition from highly-subsidised Asian economies, which had resulted in accelerated import penetration of their products into the South African market over the last year.
“The protective measures already in place and those still in the pipeline for basic steel producers are likely to help, but they will not be enough. Primary steel producers are in such distress that short-term downscaling is unavoidable.
“For various reasons, South African production costs are higher than the lowest-cost quantile of producers in the world, who are simply overrunning our market. Protection seems to be a choice between losing the entire sector or trying to ride the short-term storm and adjust for the future,” he said.
Mr Monage said long-term recovery would not be easy. He said the sector was intimately linked to the fortunes of the mining, construction and auto sectors which, as a group, directly contributed 15% (R466-billion) to GDP in 2019 and, depending on the indirect and induced multipliers, up to twice this number. On its own, the M&E sector contributed R110-billion to GDP. These four sectors exported and earned a huge proportion of the country’s foreign exchange, and employ directly about 1,5 million people, he said.
“Recovery in each of these three sectors and of export demand would be crucial for the M&E sector over the longer term,” he said.
Meanwhile, Parc RGM Chief Financial Officer Alpheus Ngapo was elected SEIFSA President yesterday. The Federation’s Vice-Presidents are Monage, MphoNo Energies Managing Director and KSB Pumbs Director Nonhlanhla Ngwenya and Auto Industrial CEO Andrea Moz.
Other Board members are Zimco Group Human Resources Manager Ellen Veldhoven, Dynamic Fluid Control CEO Tumi Tsehlo, Reinforcing Steel Contractors Operations Director Ernst Volschenk, Rheinmetal Denel Munition Senior Human Resources Practitioners Ntobeko Panya, South African Mint Company Managing Director Honey Mamabolo and Frigoglass South Africa Human Resources Practitioner Ryan Haynes.
Continuous Improvement In Manufacturing Business Activity As Lockdown Restrictions Ease Is Reassuring
JOHANNESBURG, 1 OCTOBER 2020 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) today welcomes the continuous rise in overall business activity for September, as proxied by the composite Absa Purchasing Managers’ Index (PMI), with the data providing a positive outlook to companies in the Metals and Engineering (M&E) sector.
The latest seasonally-adjusted preliminary PMI data shows the composite index remaining above the benchmark level of 50, recording 58.3 index points in September 2020 from 57.3 points in August.
SEIFSA Chief Economist Michael Ade said the trend offered hope and modified expectations for broader manufacturing and could be seen as a preview to enhanced industrial activity. He said it was encouraging that the majority of the sub-indices had performed well in September when compared to August.
A total of four sub-indices are trending comfortably above the neutral level of 50 points. The best performing sub-index in September was the new sales orders index, from 71.1 points in August 2020 to 70.5 points in September, while the employment sub-index was disappointing by trending in the contractionary zone, with 44.5 index points in September.
Dr. Ade said the continued robust performance of the headline PMI was consistent with the recent rise in the Producer Price Index (PPI), which should enable companies to increase selling prices against the backdrop of firming business activity.
“There is a need for continuous improvement in business activity, given the challenging operating business environment, amid prevailing low levels of domestic demand and increasing input costs, as a result of a generally weak exchange rate. This is important as the extended benefits will include an increase in employment in the various sub-components of the M&E industry,” Dr. Ade said.
He added that he was hopeful that businesses in the industry would take advantage of the volatile exchange rate and the subsequent move to lockdown alert level 1 to strategise and boost exports and overall trade, with extended benefits to the broader manufacturing sector.
Manufacturing Jobs Bloodbath Due To Covid-19 Pandemic Underlines Mammoth Task Facing Policy Makers – SEIFSA
JOHANNESBURG, 29 SEPTEMBER 2020 – The disappointing employment data released by Statistics South Africa (Stats SA) today highlights the mammoth task facing stakeholders and policy makers in their efforts to seek sustainable solutions to the growing crisis, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Chief Economist Michael Ade said.
Dr Ade said the results of the quarterly labour force survey (QLFS) – which is a household-based sample survey that captures labour market activities of persons aged 15-64 – highlights the urgency that is needed to address the fundamental factors inhibiting job creation in the country.
The employment data showed that the manufacturing sector, of which the metals and engineering (M&E) sector is a part, lost 14% of total employment – or an alarming 250,000 jobs – between Q1 2020 and Q2 2020, with employment decreasing from 1,706,000 during the period spanning January to March 2020 to 1,456,000 during the period spanning April to May 2020.
The quarterly labour force statistics showed that 334,000 jobs in total were lost year on year between April and June 2019 and during the same period in 2020, amounting to an 18,6% year-on-year decrease.
Dr Ade said the general South African working-age population had decreased by 13,6%, and the number of employed persons correspondingly had declined by 2,164 year on year, and by 2,234 quarter on quarter.
He said this was cause for concern because although the data officially placed the domestic unemployment rate at a lower 23,3%, this still ran counter to the objectives of the National Development Plan to reduce the unemployment rate to 15% by 2030.
“Considering the official unemployment rate for Q2 2020, which is a lag indicator, it is difficult to predict a huge turnaround in the numbers in the near future, especially with the on-going COVID-19 pandemic and fear of contagion, which warrants the need for businesses to still maintain social distancing and encourage the wearing of masks,” Ade said.
He said although the decrease in employment was mainly underpinned by the COVID-19 economic lockdown spanning alert levels five, four and three, which also distorted production levels, other key contributing factors were trade and consumption patterns, persistent insufficient domestic demand conditions, structural challenges and uncertain global trade dynamics faced by most industrial sectors.
He said the situation was not helped by the fact that local companies had been operating below production capacity and at sub-optimum production levels as they tried to minimise input costs, including uncontrollable fuel and energy costs, despite not trading and selling during the lockdown. These alarming dynamics had negatively impacted on both formal and informal employment numbers in the manufacturing industry and the M&E sector in particular.
“The numbers further highlight the existing corollary between two key macro-economic variables, employment and economic growth, given the very alarming performances of both jobs and GDP numbers,” he said.
Dr Ade said employment levels are generally supposed to increase or decrease on the back of higher or lower economic activity, but this has not been the case for a long time, with the economy sinking deeper into recession.
He said SEIFSA was also concerned about the socio-economic impact of high levels of unemployment compounded by decreasing GDP-per-capita since 2016.
He said a collegial approach was needed to ensure that delineated interventions aimed at reducing the persistent unemployment situation in the country were successful. He called for all hands on deck to stop the predicament, saying that the responsibility fell on all South Africans and not just on the Government, the labour unions or captains of industry.
“The high unemployment rate provides food for thought for all South Africans, who have to collectively seek sustainable solutions to the unemployment problem. Policy makers should also continue to provide support specifically for small business and start-ups, and also boost economic activities in all 513 townships in South Africa. Accordingly, specific focus should be channelled at encouraging opportunity-driven entrepreneurship, rather than necessity-driven entrepreneurship, since the former will lead to sustainable informal employment,” Dr Ade said
Cosatu, Fedusa, Nactu and Saftu to embark on joint protest action on 7 October
Introduction
Management will be aware, from recent media reports, that the Congress of South African Trade Unions (Cosatu), the Federation of Unions of SA (Fedusa), the National Council of Trade Unions (Nactu) and the SA Federation of Trade Unions (Saftu) have elected to come together to protest jointly against the harsh socio-economic conditions, high levels of poverty, crime, corruption and unemployment currently being experienced in the country. The planned national economic protest action or strike will take place on Wednesday, 7 October 2020.
This Management Brief provides some basic background to the issue and guidance to Management in dealing with the intended protest action.
Protest action and the Labour Relations Act
The Labour Relations Act (LRA) permits registered trade unions or a federation of trade unions, such as those listed above, to undertake protected protest action to promote the socio-economic interests of workers, provided that they observe the procedural requirements contained in Section 77 of the LRA.
It is important to note that protest action in terms of Section 77 of the LRA is only protected if the issue in dispute has been considered by Nedlac and the applicant/s concerned has/have given Nedlac 14 days’ notice of their intention to proceed with such protest action. In the absence of these conditions, any protest action would not be protected.
We can confirm that Cosatu filed a Section 77(1)(b) notice with Nedlac on 22 September 2020, advising of its intention to participate in a socio-economic strike action on 7 October 2020.
The Nedlac Section 77 Standing Committee has determined the notice to be compliant with the administrative requirements of the LRA, opening the way for employees to take part in the intended protest action.
Consequently, employees participating in any form of socio-economic protest action on Wednesday, 7 October 2020 will be protected by the rules regarding protected protest action to promote or defend the socio-economic interest of workers, namely: no-work, no-pay and no-disciplinary action.
Recommended management action
SEIFSA recommends that Management adopts the following course of action in dealing with any stay-away on Wednesday, 7 October 2020:
- Inform all employees that any absences related to the protest action will be treated on the following basis:
- No work, no pay;
- No disciplinary action;
- A shift for leave pay and leave enhancement pay qualification purposes will be forfeited in respect of the day’s absence; and
- Any overtime worked during the course of the week will be paid at ordinary rates to make up for the lost ordinary working hours on 7 October
The Staff of SEIFSA’s Industrial Relations and Legal Services Division are available on (011) 298-9400 to provide any further advice and/ or assistance to Management on the contents of this Management Brief.
Businesses Set To Benefit From Uptick In Economic Activity As Product Selling Prices Continue To Rise
The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes the increase in the Producer Price Index (PPI), as per the data released by Statistics South Africa (Stats SA) today, and hopes that businesses will benefit from the positive trajectory via higher selling prices.
SEIFSA Chief Economist Michael Ade described the data as encouraging, especially considering that selling prices have been rising since April and May, spanning the COVID-19 pandemic-induced economic lockdown levels four and five. He said the selling price inflationary trend augurs well and should help in reducing operational cost pressures on businesses and boost margins, since companies will now have a leeway to pass cost increases to intermediate and final consumers.
The data released by Stats SA indicates that the annual percentage change in the PPI for intermediate manufactured goods increased from 2.4% in July to 3.2% in August. The increase is consistent with the annual change in the PPI for final manufactured goods, which also increased from 1.9% in July to 2.4% in August, generally spelling good news for local manufacturers.
“It has been a tough year for local producers. Businesses have operated under increasingly difficult conditions, unpredictable electricity supply, distortions in the local and regional supply chains, insufficient domestic demand, variable input cost prices and persistent operational costs, despite not manufacturing or selling,” Dr Ade said.
He added that the latest PPI data would build on last month’s progressive data and continue to provide distressed businesses with the opportunity to manoeuvre around cost-push inflation, towards their sustainability.
However, Dr Ade said companies cannot invariably increase selling prices due to countervailing factors like insufficient demand and poor consumer spending. These factors remain significant challenges to the Metals and Engineering (M&E) cluster of industries, where the demand for their intermediate goods is a derived demand. This means that the demand for the goods produced in the industry is usually based on the demand for consumer goods, which they help to produce. Therefore, an increase or decrease in consumer demand and a corresponding increase or decrease in consumer spending will further boost or hinder production in the M&E sector, he explained.
Dr Ade cautioned that the prevailing uncertainty from the Coronavirus pandemic and a significant decrease in household final consumption expenditure by 49.8% in the second quarter of 2020 could pose major challenges to the M&E industry since the highlighted constraints may lead to a further slowdown in growth, employment and gross fixed capital formation.
“Nevertheless, we recommend that business executives continue to prioritise both the economy and the health of all employees, given the need to remain sustainable in the so-called ‘new normal’ environment. Companies should take advantage of rising selling prices and the impending uptick in demand from inter-linked industries in order to boost capacity utilisation and production,” Dr Ade said.
He said SEIFSA remained hopeful that South Africa’s transition to lockdown alert level one and the opening up of more local businesses will have positive implications for the M&E sector. He said the resumption of regional and internal flights this week is bound to lead to a significant improvement in the M&E sector trade, with more goods being exported.
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Unchanged Repo Rate a Missed Opportunity to Cushion Businesses Against COVID-19 Impact – SEIFSA
JOHANNESBURG, 17 SEPTEMBER 2020 – The decision by the South African Reserve Bank’s (SARB) Monetary Policy Committee to leave interest rates unchanged generally aligns with market expectations and comes as no surprise as the economy continues to splutter, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Chief Economist Michael Ade said today.
Commenting on the MPC’s decision to leave the repo rate unchanged at 3,50%, Dr Ade said the SARB had missed an opportunity to cut interest rates by a further 25 basis points, a move that is undoubtedly disappointing for embattled and over-indebted consumers and businesses. He said “further reduction of the repo rate would have further cushioned the economy from the impact of the COVID-19 pandemic”.
Dr Ade said the pandemic’s blow on the economy had been devastating, with extended negative implications for the Metals and Engineering (M&E) cluster of industries. He noted that household final consumption expenditure had decreased by -49,8% in the second quarter, with the largest decreases reported for expenditure on durable goods produced by sub-components of the industry, as the sale of these goods was largely restricted during the lockdown. These had significantly affected cashflow and liquidity, constricted margins and procurement expenditure and increased the chances of closure of indigenous companies.
The decision would have built on an encouraging trend of repo rate reductions since the start of 2020, bringing the interest rate to its lowest point since its inception 22 years ago. This would have led to a corresponding reduction in the prime lending rate, also impacting on the rates pegged to the various types of loans offered by commercial banks, as these rates would have been adjusted lower, Dr Ade said.
“A repo rate cut would have helped not only to reduce borrowing costs for embattled consumers and stagnating businesses, but also provide much-needed injection into the economy. The present scenario of low growth, volatile production levels, declining productivity and low consumer and business confidence does not provide comfort to both direct and anchor investors,” he said.
Dr Ade said although third-quarter real GDP growth is likely to be better than expected, there is not likely to be significant contribution from key industrial sectors such as the mining sector, the M&E and broader manufacturing sector and the utilities sector. He argued that the SARB has missed an opportunity to further pursue an expansionary monetary policy stance aimed at broadly stimulating growth and improving on the negative output gap, given the continuing existence of downside risks to the growth outlook.
“There is no doubt that the broader metals and construction industries would have benefited from such a decision. However, we understand and accept the outcome of the MPC’s deliberations, given the existence of upside risks to inflation outlook, which has been increasing – albeit at a slow pace – from May this year,” he said.
Dr Ade said the SARB’s decision to leave the repo rate unchanged was sensible, particularly given the need to be flexible and accommodative when using monetary policy as a tool to achieve and maintain price stability, while also being cognisant of changes in underlying market forces as they unfold over the coming months.
Ends
Issued by:
Mpho Lukoto
Communications Manager
Tel: (011) 298 9411 / 082 602 1725
Email: mpho@seifsa.co.za
Web: www.seifsa.co.za