SEIFSA .

SEIFSA Welcomes Move To Level 1 Of National Lockdown

JOHANNESBURG, 17 SEPTEMBER 2020 – The decision to move the country to level 1 of the national lockdown put in place to fight the spread of COVID-19 will give struggling businesses in the Metals and Engineering (M&E) industry much-needed momentum in their recovery efforts, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Chief Economist Dr Michael Ade said today.

After nearly six months of lockdown restrictions that included, among other stringent measures, the closure of the country’s borders, businesses will finally be able to ramp up their importing or exporting activities. However, as President Cyril Ramaphosa conceded during his address to the nation last night, global demand for goods will remain constrained in the medium term, Dr Ade said.

“The anticipated increased in export activity bodes well for export-oriented manufacturing, in line with the national industrial policy framework, as it will result in increased production activity and access to global markets, enabling businesses to ramp up their recovery,” he said.

Dr Ade noted that businesses that rely on imported raw materials have been significantly set back by restricted access to supplies due to border restrictions.

“The year 2020 has resulted in unprecedented pain for many businesses in the M&E sector, especially those that principally import raw materials as they have been producing under increasing costs and diminishing returns due to the higher cost of raw materials. The move to level 1 and subsequent liberalisation of international travels on October 1 means that executives will be able to travel and conclude contracts towards selling or importing raw materials at cheaper prices in order to manufacture and sell, thereby improving their margins and profits,” Dr Ade said.

He said while the latest developments imply that there will be a boost to business activity towards total reinstatement of supply chains, enabling companies to carry out trade and production activities without disruptions, it is up to South Africans to ensure they create an enabling environment for business recovery. He said that, based on necessary anti-COVID-19 precautionary measures like social distancing remaining in place longer, SEIFSA has revised its growth forecast for the sector for 2020/21 from the initial 0,6% to -9,1%.

Dr Ade said while it was important for business to take advantage of the Government’s R500-billion loan guarantee scheme by seeking low-interest loans to stay afloat, business recovery would require State-owned entities like Eskom and Transnet  “also to come to the party”. He said it was vital that Eskom ensured reliable power supply at all times.

Dr Ade also stressed the importance of increased logistical support for companies seeking to export to regional markets. He said municipalities and State-owned companies had to procure South African designated products for local production to stimulate economic recovery.

“There is no doubt that South Africa is headed down a long, difficult path to economic recovery. However, we are cautiously optimistic that business and Government will continue to work together as the Government concludes its economic reconstruction and recovery plan which should  ensure not only the preservation of jobs, but also the creation of additional opportunities for sustainable employment,” he concluded.

by SEIFSA .

Second-Quarter GDP Numbers a Harbinger of More Dismal Data Due To National Lockdown, says SEIFSA

JOHANNESBURG, 8 SEPTEMBER 2020 – As expected, the countrywide lockdown to fight the spread of COVID-19 from 27 March 2020 severely affected economic activity in the second quarter as real output contracted, plunging the economy deeper into depression, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Chief Economist Dr Michael Ade said today.

“The impact of the nationwide economic shutdown is visible in the numbers as there was virtually no economic activity in April, spanning lockdown alert level 5. Many companies, including the large entities, were not ready for the sudden shock that impacted negatively on supply chains and on global demand and exports,” Dr Ade said.

He said the data, which provides a fair depiction of overall domestic consumer-derived demand and industrial production, provides insight to what we can expect in terms of other macro-economic data, including the employment numbers, the release of which has been postponed to later this month. He said as unemployment rises, middle-class income stagnates or even declines, reducing the pool of buyers for goods produced by business, which leads to reduced business activity and investment.

Alarmingly, South Africa’s real gross domestic product (GDP) decelerated to 51% in the second quarter of 2020, down from a revised 1,8% quarter-on-quarter (q/q) decrease recorded in quarter one of 2020, extending the economic recession into its fourth quarter. Nearly 91% of industrial sectors performed poorly, with the manufacturing sector recording the largest negative contribution to GDP growth, with a -10,8 percentage point decrease.

Dr Ade said the poor GDP figures are underpinned by poor year-on-year growth in manufacturing production data, low sales and a generally poor business expectation for the relevant quarter, despite an uptick in the manufacturing purchasing managers index (PMI) in May and June.

“In addition, production costs in the second quarter of 2020 were higher than in the first quarter, as scarcity and higher demand for inputs pushed prices and operational expenses up. Companies were in uncharted territory where they had to still incur costs, despite the lockdown, but could not produce and sell. The situation was made precarious by prevailing subdued domestic demand and the companies’ inability to explore new markets or export. These impediments also affected their margins negatively,” Dr Ade said.

He added that the majority of companies in the Metals and Engineering (M&E) cluster were expected to benefit from higher domestic selling prices as captured by the producer’s price indices (PPI) for intermediate manufactured goods, enabling them to improve on margins and profits.

“However, the PPI also measures selling price inflation for final manufactured goods and its poor performance in quarter two of 2020, relative to quarter one, constrained companies from invariably increasing selling prices. The constraint on increasing selling prices, together with lower output in the M&E cluster, negatively impacted on firms’ total revenue, while also negatively affecting profitability, thus leading to a vicious cycle,” he said.

Still, Dr Ade lauded ongoing initiatives to improve supply-side dynamics that could boost third-quarter growth in 2020 as the economy opens up, further supporting   the expansion of the M&E sub-components in the short to medium term. He cited the implementation-oriented Infrastructure Investment Plan for South Africa and the Steel Master Plan, which are aimed at reigniting business activity via improved trade, domestic demand and competitiveness, as holding huge potential for the M&E industry.

Dr Ade pointed out that the economy was already under pressure before the commencement of the nationwide lockdown at the end of March, with the level of real GDP 0.1% lower in the first quarter of 2020 than a year earlier. He said although manufacturing production levels dropped significantly in April, May and June of 2020, the expectation is for a better performance in quarter three of 2020.

“Industrial production can only go up from the abyss businesses found themselves in because of the COVID-19 pandemic. Broader recovery is a must, given the importance of the manufacturing sector – including its M&E sub-cluster – in boosting local jobs and economic growth,” Dr Ade said.

Ends

Issued by:

Mpho Lukoto

Communications Manager

Tel: (011) 298 9411 / 082 602 1725

Email: mpho@seifsa.co.za

Web: www.seifsa.co.za

by SEIFSA .

SEIFSA Encouraged By Uptick In PMI As Lockdown Restrictions Ease

Overall business activity in the manufacturing sector, as captured by the headline ABSA Purchasing Managers’ Index (PMI) for August 2020, provides some level of reassurance to companies in the Metals and Engineering (M&E) sector, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Chief Economist Michael Ade said today.

Dr Ade said the  PMI’s performance in August, despite a tough domestic operating environment, provides insight to the improving perception held by company executives, as they aim to further improve on production with the easing of COVID-19 restrictions.

Dr Ade said the leading indicator, which acts as a preview to industrial activity before it happens, is slowly picking up and provides a basis for businesses to use excess capacity, boost production and increase overall contribution to economic growth. Correspondingly, the increase in the PMI is important in influencing how producers and relevant stakeholders in the broader manufacturing sector view the coming month, enabling them to confidently place orders in advance.

The latest seasonally-adjusted preliminary PMI data shows the composite PMI increasing to 57.3 points in August 2020, from 51.2 points in July 2020.

Encouragingly, all the sub-indices performed well in August when compared to July, with the new sales orders sub-index increasing from 53.4 points to 71.7 points, the employment sub-index increasing from 33.0 points to 39.0 points and the production sub-index rising from 62.9 points to 67.0 points.

“It is important for companies to build on the encouraging signs of green shoots in industrial activity to improve their chances of survival and maintain existing jobs,” said Dr Ade.

He said the uptick in industrial activity was in line with broader domestic economic activity, which is slowly picking up with the easing of lockdown restrictions, as evidenced by the latest set of business-cycle indicators from the South African Reserve Bank. However, he cautioned that it was still important for employees to remain vigilant and not drop their guard and that employers should place an emphasis on both the economy and the health of their workers since the worst of the Coronavirus pandemic is not yet over.

Dr Ade said it was crucial that industry stakeholders and policy makers jointly address the issues that may constraint short-term growth drivers, such as trade and logistical issues relating to the pandemic, in order to limit the pandemic’s effects on people and the economy.

“Trade determines the demand for a commodity and the over-arching challenge of poor demand can only be addressed through increased inter- and intra-industry trade. This implies that more attention should be directed at improving logistical constraints and boosting supplier deliveries in the M&E value chain towards improved trade. For perspective, supplier deliveries carry the highest weighted average (0.40) of all the sub- PMI indices, highlighting the importance of having a functional logistics process towards boosting supply chains activities and trade in the M&E sector,” he said.

by SEIFSA .

SEIFSA And Trade Unions Adopt Historic, Stand-Still Main Agreement

JOHANNESBURG, 1 SEPTEMBER 2020 – The 19 employer associations affiliated to the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) and the industry’s five trade unions today formally adopted the historic 2020-2021 stand-still Main Agreement concluded last month.

The collective agreement, adopted in line with the Labour Relations Act, now enjoys the status of a collective industry agreement and marks a watershed moment in which business and labour together recognised the devastating impact the COVID-19 pandemic has had on companies and employees across the Metals and Engineering (M&E) sector.

The five trade unions that are signatories to this agreement are:

• The National Union of Metalworkers of South Africa (NUMSA);
• Solidarity;
• United Association of South Africa (UASA);
• The Metal and Electrical Workers Union of South Africa (MEWUSA); and
• The South African Equity Workers Association (SAEWA).

Collectively, the membership of these trade unions accounts for 49,8% of all workers employed by employer organisations on the bargaining council. The SEIFSA-affiliated employer associations represent 56% of all workers employed by employer parties on the bargaining council.

SEIFSA Operations Director Mr Lucio Trentini, who represents the federation on the MEIBC Management Committee, said the agreement was significant because it was an acknowledgment by all the negotiating parties of the devastating impact of the COVID-19 pandemic on companies and on the livelihoods of employees in an economy that was already in recession.

The pandemic and the resulting nationwide lockdown to curb its spread have pushed many businesses to the brink of collapse, with unemployment reaching a record 30,1%.

“In response, we have all agreed to lock in existing terms and conditions of employment over a 12-month period, freezing the current wage rates until 30 June 2021 to enable the industry to adjust to a post-COVID-19 reality. This is unprecedented not just in this sector, but in the country in general,” Mr Trentini said.

The agreement, he said, was the result of a collective bargaining partnership founded on understanding, respect and trust, which SEIFSA has played a key role in nurturing since its founding nearly 80 years ago.

“The agreement gives our industry an opportunity to preserve jobs while seeking solutions that will help to turn around not only the fortunes of the sector, but the economy as a whole,” Mr Trentini concluded.

by SEIFSA .

SEIFSA Calls For Urgent Support For Struggling Businesses Following The Easing Of Lockdown Restrictions

JOHANNESBURG, 20 AUGUST 2020 –  As South Africa ends its first week under alert level 2 of the national lockdown to curb the spread of the COVID-19 pandemic, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is hopeful that increased economic activity from the reopening of key sectors will boost the recovery of metals and engineering businesses brought to their knees by the pandemic, SEIFSA Chief Economist Dr Michael Ade said today.

The demand for metals and engineering products was derived from a demand for finished or final products manufactured by other industries, Dr Ade said. He hoped that increased business activity from other industries and the consequential demand for consumer goods due to people now being able to earn some level of income would, in turn, result in higher demand for intermediary goods.

He gave, as an example, increased demand for vehicles, which was likely to have positive implications for the Metals & Engineering (M&E) sector since, on average, 900kg of steel is used per vehicle manufactured, with components spanning the body structure, panels, doors, trunk, engine block cast iron and fuel tank.

“Manufacturing activity may need to be ramped up as demand consistently increases, but this could be a difficult challenge, especially for small and medium enterprises (SMEs) in the M&E and the broader manufacturing sector, as cashflow has been drastically reduced as a result of little or no business activity during the lockdown period,” he said.

The COVID-19 pandemic has added to the plethora of challenges already faced by SMEs in the M&E sector, such as high operational costs and reduced demand for their goods, thus impacting negatively on production, margins and profits. SMEs represent 66% of the member companies SEIFSA represents as a national federation of employer associations.

Dr Ade said generally, SMEs made up the majority of employers in South Africa. He cited research by McKinsey, which showed that SMEs made up more than 98% of businesses in South Africa and employed up to 60% of the country’s workforce across all sectors. As a result, he said, it was important for policy makers to provide relevant support to SMEs, which would enable them to navigate this critical time and sustain production as economic activity gained momentum.

“SMEs are in deep crisis and desperately need financial assistance in order to stabilise operations and improve margins. Cash flows are extremely tight and some businesses have closed down. Any further delays may complicate matters, leading to significant job losses and even more company closures,” Dr Ade said.

He said the Federation believed that liquidity or cash flow was the most significant area where the Government could intervene urgently to support the industry. He proposed that the Government, through one of its funding institutions, created a temporary lending/bridging facility for SMEs to allow them to continue operating.

Dr Ade said while there had been various COVID-19 relief funds made available for SMEs during the pandemic, many companies could not take advantage of these funds for a number of reasons, including BEE status and credit-qualifying criteria. He said it was important that the Government created a fund that would enable those businesses that had fallen through the cracks to secure funding.

Dr Ade said there was also a need to promote access to competitively priced inputs for the mid- and downstream sectors: “Locally-produced steel is considerably more expensive than imported steel (especially prior to the imports tariffs), putting local producers on the back foot when trying to compete with the cheaper Chinese imports. The loss in competitiveness is driving most sub-industries to import components, leading to high import penetration of components and standard parts.”

Dr Ade also called for an immediate review of the quantity of imported products that could be manufactured locally to prevent a flood of products into the market from countries that had opened up earlier after their respective COVID-19 lockdowns and had surplus inventory which could then be dumped into the South African market.

“We believe that it is critical that the Government provides immediate support to businesses – and SMEs in particularly. It is this short-term assistance that will arrest ongoing de-industrialisation and ensure a need for the long-term support proposed by the Government,” Dr Ade said.

by SEIFSA .

Historic Standstill Agreement Reached

Given the unprecedented socio-economic challenges brought about by the COVID-19 pandemic, the SEIFSA-affiliated Employer Organisations and the sector’s five biggest trade unions today concluded an unprecedented stand-still agreement which will see the retention of all existing Main Agreement terms and conditions of employment and the freezing of the current wage rates until 30 June 2021.

The SEIFSA-affiliated Employer Organisations represent 56% of all scheduled workers employed by the Employer Organisations on the Bargaining Council, while the five trade unions collectively represent 49,8% of all scheduled workers employed by all the Employer Organisations on the Bargaining Council.

The conclusion of this historic standstill agreement, which will see workers not receiving an increase over the next 12 months, is the first of its kind in traditional industry collective bargaining arrangements. It marks a watershed moment when business and labour together recognised the devastating impact which the COVID-19 pandemic has had on companies and employees alike across the sector as the economy found itself in a deep recession.

We at SEIFSA are immensely grateful both to the employer representatives nominated by their respective Associations to be part of the SEIFSA Negotiating Team, ably led by Operations Director Lucio Trentini, who gave unstintingly of their time to play a crucial role in the process. Our thanks also go to the SEIFSA Board of Director for its direction and to the SEIFSA Council, the mandating body which represents our member Associations.

This unprecedented standstill agreement – built on understanding, respect and trust – would not have been possible without the cooperation of our labour partners. We are also grateful to them for the spirit with which they have approached this difficult task at hand.

Kaizer M. Nyatsumba

Chief Executive Officer

For Information:

Lucio Trentini

Operations Director

Direct | Tel: 011 298 9414 | Cell: 082 449 6270 I

E-mail: lucio@seifsa.co.za

by SEIFSA .