SEIFSA AND AURIK BUSINESS ACCELERATOR SIGN PARTNERSHIP AGREEMENT TO BOOST SMALL BUSINESSES

The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) today concluded an important Partnership Agreement with Aurik Business Accelerator to boost small businesses in the sector.

Signing the agreement in Marshalltown, Johannesburg this morning were SEIFSA CEO

Kaizer Nyatsumba and Aurik Business Accelerator Chairman Jackie Mathebula, with Aurik Business Accelerator CEO Pavlo Phitidis in attendance. This important partnership seeks to bring big and small businesses together in order to catalyse Enterprise Supplier Development (ESD) in the Metals and Engineering Sector.

Small businesses have traditionally struggled to sustain their businesses in a particularly hostile economic environment. Bigger businesses are challenged to find the correct business partners to become part of their supply chain. Through this partnership, SEIFSA and Aurik will attempt to address these issues and podcasts of Mr Phitidis’s radio broadcasts will be uploaded onto the SEIFSA Small Business Hub’s website (smallbusinesshub.seifsa.co.za).

Mr Nyatsumba and Mr Phitidis expressed great excitement about the partnership, which they have committed to implementing successfully as a matter of urgency.

Mr Phitidis will also participate prominently in the Southern African Metals and Engineering Indaba which will take place in Sandton in September 2018.

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EASING INFLATION BODES WELL FOR BELEAGUERED BUSINESSES IN METALS AND ENGINEERING SECTOR – SEIFSA

Johannesburg, 20 June 2018 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is encouraged by the latest Consumer Price Index (CPI) figures released by Statistics South Africa (StatsSA) today, which indicate that the pressure on consumers is easing, despite the recent increases in VAT and fuel prices, the Federation’s Economist, Marique Kruger, said this morning.

According to the StatsSA data, the annual CPI was 4,4 percent in May 2018, down from 4,5 percent in April 2018. The index increased by 0,2 percent month on month in May 2018.

Ms Kruger said the latest inflation data bodes well for beleaguered businesses in the metals and engineering sub-sectors and the broader manufacturing sector, which are facing continuous headwinds.

“High fuel prices, increasing input costs and low levels of demand impact negatively on the margins of businesses, thus negatively affecting profitability. The situation is of great concern, especially given that this may signal the end of an interest rate cutting cycle by the South African Reserve Bank, which would have helped in boosting domestic demand. That is why the official data released today is welcome.”

In conclusion, Ms Kruger said it was encouraging that the data place the official inflation numbers lower than the mid-point of the South African Reserve Bank’s inflation target range of 3 percent to 6 percent.

 

Issued by:

Ollie Madlala

Communications Consultant

Tel: (011) 298 9411 / 082 602 1725

Email: ollie@seifsa.co.za

Web: www.seifsa.co.za

 

SEIFSA is a National Federation representing 23 independent employers. Associations in the metals and engineering industries, with a combined membership of 1600 companies employing around 200 000 employees. The Federation was formed in 1943 and its member companies range from giant steel-making corporations to formed in 1943 and its member companies range from giant steel-making corporations to micro-enterprises employing few than 50 people.


TWENTY-FOUR YEARS INTO OUR DEMOCRACY,
THE YOUTH’S STRUGGLE TO BREAK THE CHAINS
OF POVERTY CONTINUES
argues Bridgette Mokoetle

South Africa’s Youth Month is upon us. In song and dance, we will commemorate and celebrate the enormous contribution made by the young people of 1976 against the apartheid regime. The struggle for political freedom might, indeed, be over, but the truth is that for the majority of the young people of our beloved country, a different kind of struggle continues – young people are bound in chains of unemployment and poverty.

Unemployment figures from Statistics South Africa indicate that over the period 1994 to 2018, the number of unemployed people more than doubled from 2.5 million to 6.2 million, using the narrow definition of unemployment. This puts the unemployment rate at 27.7%. However, if one uses the expanded definition of unemployment, which includes discouraged workers, the figures increase to 36.6%. The picture becomes even gloomier when one considers that of the 36.6%, the youth unemployment rate for those younger than 25 years is 67.4%.

As young people, we feel a sense of alienation from the larger society and a sense of betrayal by the Government and its policies, which have failed to address the serious challenges and social ills that come as a result of being unemployed, such as poverty.  Poverty is not only about lack of access to basic services, but it is also about being excluded from interaction, decision-making processes and, most importantly, from participating in the goods and services market.

Not so long ago, the Government called on young people to make education fashionable – and many of us heeded the call. However, the unemployment rate even amongst the educated and skilled young people is continuously rising.

In today’s ever-competitive world, we regard work as one of the most important aspects of being human. From an early age, we are taught that work gives us purpose. As a child, I remember being often asked: “What would you like to be when you grow up?” Likewise, as an adult today, when I meet people, the question is often “What do you do for a living?”

This means that in today’s world, a job engenders a sense of purpose and value and shapes a person’s identity, principles and self-esteem. Work is, therefore, an integral part of being human and gives structure and meaning to people’s lives.

While the economic effect of unemployment in youth is mostly emphasized, the psychological effect is also extremely important since being unemployed influences the total well-being of a person in a very negative and almost destructive way. Unemployment puts mental health at risk since most unemployed people show a constant decrease in overall life satisfaction, general well-being and self-esteem. This often leads to depression.

According to various studies, other psychological effects include anxiety, lack of self-confidence, pessimism, fatalism, alcoholism, apathy, suicide, as well as stress-related psychosomatic disorders. Youth unemployment has a negative effect not only on the individual and the family, but also on the broader community in the form of serious economic and social consequences.

So what, then, can South Africa do to confront the serious challenge that is youth unemployment?

While there is no single silver bullet that can solve this problem, I believe that the solutions start with Government at policy level. Just as there are B-BBEE codes that reward companies’ transformation efforts, the Government should also dictate to the private sector and make it compulsory that a certain percentage of a company’s staff compliment should be made up of young people.

The Government should also involve young people in its decision-making processes, especially when formulating policies that would have an impact on their employability. South Africa has no shortage of bright young minds that can contribute towards the formulation of policies that will impact positively on them.

 

Most importantly, however, young people must continuously challenge themselves and take advantage of opportunities presented to them by both the public and private sectors. They must also strive to make their voices and discontent heard by policy makers.

In conclusion, I make a heartfelt plea to President Cyril Ramaphosa, as he reconsiders the structure, size and future of government and governance in South Africa: please ensure that the youth is included. The youth has also been at the forefront of the struggle for freedom and emancipation. They participated in demonstrations at grassroots level in protest against the apartheid regime and many lost their lives in the process. It cannot be right that 24 years into democracy, the youth remains oppressed by policies that continue to sideline them and alienate them in their country, whose future rests in their hands.

This is our country and we want to serve it! Mr President, there is a lot of capable and willing young people in South Africa eager to respond positively to your “thuma mina” call to improve the South African economy, who are innovative to rise to the technological era, who are competent to serve in Government Ministries, the Boards of State-owned companies and positively turn around the future of South Africa for coming generations.

Bridgette Mokoetle is the Industrial Relations and Legal Services Executive at SEIFSA.


NUM AND NUMSA LUNCH-TIME PICKETS AT ESKOM ON 14 JUNE 2018

Introduction

As you may be aware from recent media reports, the National Union of Mineworkers (NUM) and the National Union of Metalworkers of South Africa (NUMSA) are preparing for a national day of action in the form of lunch-time pickets at various Eskom sites in protest against Eskom’s 0% wage increase offer.

Protest Action and the Labour Relations Act

The Labour Relations Act (LRA) permits registered trade unions such as NUMSA and the NUM to undertake protected protest action to promote the social and economic interests of workers, provided that they observe the procedural requirements contained in Section 77 of the LRA.

It is important to note that, on this occasion, no such application has been submitted to NEDLAC. Consequently, employees participating in any action today will not be protected by the normal rules regarding protected strikes, namely no work, no pay and no disciplinary action.

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SEIFSA recommends that Management adopts the following course of action in dealing with any absence from work today:

  • a shift for Leave Pay and Leave Enhancement Pay qualification purposes will be lost 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 loss of any ordinary working hours today.

The Staff of the SEIFSA 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.


WAGE INCREASE EXEMPTIONS DUE – 31 JULY 2018

Members of Associations affiliated to the Steel Engineering Industries Federation of Southern Africa (SEIFSA) which are unable to implement the agreed wage increase are encouraged to submit an application for exemption to their Local Regional Bargaining Council on or before 31 July 2018. SEIFSA is aware that the current economic environment may pose severe constraints on certain member companies’ ability to implement the increases, and these members are advised that the industry’s wage exemption procedure continues to apply.

On behalf of its affiliated 21 employer Associations, SEIFSA signed an agreement with all the trade unions on 23 August 2017. This agreement covers the terms and conditions of employment for a three-year period ending on 30 June 2020, called the updated Main Agreement.

It is important to note that the Bargaining Council is obliged to consider all applications for exemption, irrespective of the basis on which they are founded. This effectively means that financial reasons are not the only criteria which must be considered.

SEIFSA anticipates that applications for exemptions will primarily be founded on the grounds of affordability, job retention and/or job creation. However, employers may apply for an exemption on any one or more of the following reasons, but not limited to:

  • Increased competitive threats;
  • Inability of employer/s to pass on cost increases to final customers;
  • Technological changes threatening business survival;
  • Inherently high difference between wage rates actually paid and current affordability of market competitive considerations facing an employer;
  • Market decline, projections, etc.;
  • Loss or potential loss of business;
  • Existing/ current unprofitable contracts the consequences of which are only likely to manifest themselves in future/ current (unreported) accounting periods;
  • Expansion opportunities (including capital investments) where cheaper labour costs could influence investment decisions; and/ or
  • New ventures/ operations which justify retention or creation of job opportunities at reduced wage costs.

Companies wishing to apply for an exemption have until 31 July 2018 to submit their applications.

WAGE EXEMPTION APPLICATION QUESTIONNAIRE

A company wishing to apply for an exemption must complete the questionnaire in its entirety and return all the necessary documentation to the bargaining council.

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Businesses wanting to apply must take note of the importance of the council’s requirement that an application must be accompanied by the following important information in order for the application to be considered:

  1. A fully detailed motivation explaining the difficulties that the company is experiencing, hence the need for the application.
  2. Audited Financial Statement for the financial year ending 2017/2018. In the case of a closed corporation, a full set of Financial Statements which are to be signed by an Accounting Officer and the latest Management Accounts for the last three months. If the Financial Statements are older than six months, then the Management Accounts for the recent three months are required.
  3. Formal confirmation that employees were informed of the company’s decision to make an application for exemption.
  4. Where employees reject the company’s approach, they are to be informed of their right to submit written reasons for objecting to the exemption application, and such reasons should be attached as an annexure to the company’s application.
  5. The signature of at least two employees who accept being the representatives for the workforce and who will be affected by the application. Representatives of the workforce are to sign the form, contained in the exemption application questionnaire, consenting to the application.
  6. The signatures of employees accepting that they have been informed of the implications of what the firm is proposing to the Council.
  7. Where the employees are trade union members, the company should inform the local trade union office of the intention to apply for an exemption and request, in writing, a meeting with the local official to discuss the impact of the exemption on the company and the members of the union.
  8. Where employees have elected a trade union representative or representatives   (shop stewards), these persons should be requested to sign that they were consulted and that they understand the need for applying for the exemption. Where the local trade union official and/or shop stewards have been consulted and where they reject the application, such refusal must be recorded in the application and countersigned by at least two witnesses.
  9. Where the local trade union official and/or shop stewards and affected employees support the exemption application, this signed agreement should be included with the application.
  10. It is recommended that all meetings in this regard between management, employees, shop stewards and union officials be minuted and that the minutes of such meetings be submitted with the exemption application.
  11. The application itself is to be signed by either a director of the firm, member, owner or a senior accountant – neither a bookkeeper nor the human resources manager’s signatures will be acceptable.

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IMPORTANT NOTE

  • The exemption application will not be considered or processed by the bargaining council unless all the above requirements are met.
  • It is not a condition of the exemption that employees accept the proposed wage increase exemption.
  • All that is required is that employees and their representatives are fully informed of the company’s intention to apply for exemption and that this consultation process and their response thereto is formally recorded and submitted with the application.

HOW CAN WE HELP YOU

SEIFSA’s Industrial Relations and Legal Services Division staff members are available to assist management in the completion of their wage increase applications. SEIFSA also offers a wide range of training on the Main Agreement, including:

  • Introduction to the Main Agreement
  • The New Main Agreement
  • The Main Agreement vs the Basic Conditions of Employment Act (BCEA)


THE MAIN AGREEMENT

WHAT IS THE MAIN AGREEMENT?

The Main Agreement is a collective agreement between the employer organisations and trade unions that constitute the Metal and Engineering Industries Bargaining Council. This agreement provides comprehensive conditions of employment for some 320 000 scheduled workers (including workers supplied by labour brokers) employed at over 10 000 companies in the industry. “Scheduled workers” are employees who are covered by the technical schedules in the Main Agreement.

The terms and conditions of employment in the Main Agreement are derived from the mandated and negotiated positions of the employer organisations, trade unions and their respective members.

When the agreement is published in the Government Gazette, it becomes legally binding on all employers engaged in the industry and those employees who fall under the scope of the Main Agreement. This gives rise to the next important question.

WHICH EMPLOYEES ARE COVERED BY THE MAIN AGREEMENT?

The Agreement provides legally binding and comprehensive conditions of employment, including minimum wage structures for all employees whose jobs are described in the Agreement. The Main Agreement contains 38 separate technical schedules, each one applicable to a particular sub-sector of the industry. These technical schedules detail the specific jobs, tasks and technical activities undertaken by employees engaged in the direct production process in those sectors.

In general, the Agreement’s scope of application is confined to all workshop, production, construction and site-based employees at the level of general labourers up to and including qualified artisans. It does not cover other categories of employees, such as office, administrative, sales, clerical and managerial staff.

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WHAT IS THE FUNCTION OF THE MAIN AGREEMENT?

The purpose of the Main Agreement is to regulate the employment conditions of those employees engaged in manufacturing processes in the metal industry.

The existence of the Agreement plays a large part in ensuring stability and industrial peace in the industry – essentially because of the following:

  • The terms and conditions of employment in the Main Agreement are derived from regular negotiations between mandated employer organisations and representative trade unions in the industry. The employment conditions are not unilaterally imposed by management on employees, and these conditions also reflect current realities – for example, the annual wage increases are benchmarked according to inflationary trends.
  • The Agreement provides comprehensive conditions of employment, thereby obviating the need for company-level negotiations on conditions of employment.
  • It is legally binding on employers and employees. Any form of contravention – for example, an underpayment of wages – is investigated and remedied through action implemented by the bargaining council.
  • No form of protected strike or other form of industrial action is permitted during the operation of the Agreement.

ADVANTAGES OF THE MAIN AGREEMENT

In addition to the above, the Main Agreement provides the following advantages to employers and employees in the industry:

  • “A level playing field” in respect of employment conditions throughout the industry. This means that companies are unable to gain competitive advantage by undercutting wages or other employment benefits such as not contributing to the metal industry pension or provident funds.
  • Certainty with regard to the wage rates and specific conditions of employment applicable to the workforce. Nothing is left to chance, interpretation or debate.

Protection against approaches from employees and trade unions at company level to bargain wages and other conditions of employment. The stressful and time-consuming negotiation process takes place at industry level and is conducted by the full-time officials of the employer organisations and trade unions.

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Main Agreement – Summary of Key Provisions

The key conditions of employment in the Main Agreement are:

  • A 40-hour work week.
  • An employer is permitted to implement short-time working due to a shortage of work or materials or any other justifiable circumstances by serving five clear calendar days’ notice of this intention to the bargaining council, the affected employees and their trade unions.
  • Employees with more than one year’s service with the same employer are entitled to a maximum of six months’ unpaid maternity leave.
  • Employees in the industry are entitled to three consecutive weeks paid annual leave which must include four weekends and be for one unbroken period.
  • All qualifying employees are entitled to a leave bonus equivalent to 8.33 percent of their actual annual earnings.
  • The minimum notice period to be given by an employer or employee upon termination of employment is one week’s notice for employees with less than six months’ service and up to four weeks’ notice for employees with more than one year’s service.
  • Employers are entitled to apply to the bargaining council for exemption from any provision of the Main Agreement.
  • An employee is entitled to 30 working days’ paid sick leave in each three-year sick leave cycle.
  • The council is the only forum for negotiating matters contained in the Main Agreement.
  • The Main Agreement provides detailed security of employment provisions.
  • Employees who have been in the employ of the same employer for four months or longer must be granted three days’ paid family responsibility leave each year for childcare, compassionate leave, paternity leave and/or spouse illness reasons.

ENFORCEMENT OF THE MAIN AGREEMENT

Once gazetted, the Main Agreement becomes legally binding on all employers in the industry and any contraventions such as the underpayment of wages or non-payment of public holidays are enforced by the staff of the bargaining council.

These contraventions may be identified as a consequence of an agent’s routine inspection of a company or a complaint lodged by an employee or ex-employee. Where the bargaining council agent identifies that a contravention of the Main Agreement has occurred, then this is initially discussed with management and an attempt is made to have it rectified. The following steps will be put into place if the contravention is not rectified at that level:

  • The agent will issue a formal assessment to the employer, identifying the contravention and giving the employer a specified time period within which to address the contravention. This generally is in the form of a requirement to pay a stipulated amount to the bargaining council (for transmission to the affected employee/s).
  • Failing appropriate action by the employer, the agent will issue a compliance order to the employer requiring compliance with the Main Agreement.
  • Where the company fails to comply within the stipulated period in the compliance order, the bargaining council will declare a dispute against the company.
  • An attempt will be made to conciliate the dispute. If unsuccessful, the dispute will be referred to final and binding arbitration.

MAIN AGREEMENT HANDBOOK

The conditions of employment in the Main Agreement are summarised in the Main Agreement Handbook. Order yours today.

The Main Agreement Handbook is of great relevance to all employers in the metals and engineering sector, and not only those who are members of Associations affiliated to SEIFSA.

SEIFSA MAIN AGREEMENT TRAINING

Through its Industrial Relations and Legal Services Division, SEIFSA offers comprehensive training on the Main Agreement. The Federation’s Industrial Relations and Legal Services staff members have specialized knowledge of collective bargaining, bargaining council agreements, dispute resolution and labour law. They are always on hand to guide members through South Africa’s maze of complex and ever-changing labour laws and bargaining council provisions.

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SOUTH AFRICA’S CONTINUOUS GENDER WAGE GAP CALLS FOR GOVERNMENT TO DO MORE TO ENSURE WOMEN’S EMPOWERMENT IN THE WORKPLACE

There is no denying that although women in South Africa have, since the dawn of democracy, come a long way and made significant advancements in business and politics, among other spheres of life, they still lag far behind their male counterparts in many ways – including when it comes to gender equality at the workplace.

The World Economic Forum’s (WEF) 2017 Global Gender Report findings revealed that gender parity is over 200 years away. South Africa is ranked 19th in the global index report on gender inequality, with men still earning 27% more than women. According to another study conducted at the University of Johannesburg, the South African gender pay gap is estimated, on average, to be between 15% – 17%. It is said that one of the implications in this regard is that a South African woman would have to work two months more than a man to earn the equivalent salary that he would earn in a year.

The National Bureau of Economic Research reported that it takes women 10 more years to earn a man’s pay. This means that when a man retires at the age of 60, a female counterpart would have to work ten more years, to the age of 70, to make up the difference and close this lifetime wage gap. Therefore, there is no question that a gender pay gap remains a reality in South Africa, 24 years into democracy.

One can’t help but question whether gender parity is even possible in our lifetime.

Gender inequality in the workplace is a topic that has been instantaneously beaten to death in public discourse and yet very little or no action results in redress, particularly in the private sector. Women are still likely to be paid less or passed over for some jobs or promotions because of the way employers perceive existing or future family commitments. As the corporate environment becomes more competitive and the need grows for efficiency rates to increase, most employers are looking for “an ideal worker”, with that being someone who is flexible to the employer’s convenience and is available 24/7, with no child caring or family responsibilities. Unfortunately, in most cases, this is a male.

It is said that women are also seen to be less loyal to the company and more likely to exit the workplace in their child-bearing years, and this has also led to most women trading off money for family-friendly working conditions.

Pay inequality is most blatant in most industries in the private sector. Previously, this inequality was attributed to education and experience. However, this has since been addressed and there is significant research data that has shown that over the years more females have graduated with university qualifications and have the professional experience, still remain sidelined.

In 2014, we saw the Government take a stance towards women’s economic emancipation through the introduction of the principle of “equal pay for work of equal value’’ in the Employment Equity Act.

However, it is clear from the statistics that this has made little difference, if any at all. South Africa can learn lessons from Iceland, which had similar challenges with gender disparity. To tackle the challenge head on, the Iceland government promulgated a law that makes it illegal for organizations to pay women less than they pay men.

I am of the firm view that we, as a country, really need to emulate countries such as Iceland that take gender equity seriously. For the past nine years, Iceland has, in fact, been ranked by the WEF as the world’s most gender-equal country, as evaluated by The Global Gender Gap Report, a worldwide survey that evaluates a nation’s state of gender equality using measures such as economic opportunity, political empowerment, as well as health and survival.

Another piece of legislation that has been passed by the South African Government to emancipate women is the Broad-Based Black Economic Empowerment (BBBEE) codes. However, the women emancipation agenda in South Africa is much bigger than mere quotas that private companies can choose to ignore. The Government will have to implement better policies and legislation that make it mandatory for companies to take part actively in advancing women and particularly closing the wage gap between the genders.

Bridgette Mokoetle is the Industrial Relations and Legal Services Executive at the Steel and Engineering Industries Federation of Southern Africa. The Division offers the following training:

  1. A-Z of the Main Agreement
  2. Understanding the Technical Schedules of the Main Agreement
  3. Business Contracts and SLAs
  4. CCMA Bargaining Council and Labour court processes and applications
  5. Chairing a Disciplinary Hearing
  6. Effective Industrial Relations on the Shopfloor
  7. Employment Contracts
  8. Fair and Effective Discipline at the Workplace
  9. How to effectively prepare for an arbitration
  10. How to Tender Successfully – Beginners Course
  11. Key Aspects of the Labour Relations Act
  12. Key Aspects of the Labour Relations Act
  13. Law of Evidence
  14. Managing Absenteeism and Sick Leave at the Workplace
  15. The New Equal Pay for Equal Value Provisions

The Protection of Personal Information (POPI) Act

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SEIFSA DISAPPOINTED BY METALS AND ENGINEERING SECTOR PRODUCTION DECREASE IN APRIL

Johannesburg, 7 June 2018 – The decrease in metals and engineering sector production output in April,  following a positive trajectory during the early months of the year, is very disappointing, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Economist Marique Kruger said today.

Speaking after the  the release of the latest preliminary seasonally-adjusted production data, which indicated that output in the Metals and Engineering (M&E) sector decelerated in April, Ms Kruger said , the Federation’s wad deeply concerned. She said this was especially so because “a vast majority of the sub-sectors performed poorly, recording negative output levels”.

After adjusting for the sectoral weights, the Statistics South Africa (Stats SA) data indicated that production for the M&E sector decelerated to -7.7 percent in April 2018 on a year-on-year basis. On a month-on-month basis, the sector also failed to perform well, registering a growth of -11.8 percent in April 2018 when compared to March 2018. This is despite an increase of 1.1 percent in output for the broader manufacturing sector in April 2018.

Ms Krugersaid notwithstanding  the general improvement in sentiments including business and consumer confidence in recent months, producers have found it very difficult to take advantage of existing buoyancy, as evidence by the contraction in the real Gross Domestic Product (GDP) during the first quarter of 2018.

She said this was  indicative of continuous lack of demand for final and intermediate manufactured goods, impacting negatively on production within the sector.

 

Issued by:

Ollie Madlala

Communications Consultant

Tel: (011) 298 9411 / 082 602 1725

Email: ollie@seifsa.co.za

Web: www.seifsa.co.za

SEIFSA is a National Federation representing 23 independent employers. Associations in the metals and engineering industries, with a combined membership of 1600 companies employing around 200 000 employees. The Federation was formed in 1943 and its member companies range from giant steel-making corporations to formed in 1943 and its member companies range from giant steel-making corporations to micro-enterprises employing few than 50 people.


DROP IN GDP INDICATIVE OF PERSISTENT ECONOMIC DRAG, SAYS SEIFSA

JOHANNESBURG, 5 MAY 2018 – Despite the positive shift in political will, improved consumer and business confidence and generally lower inflation in the first quarter of 2018 when compared to 2017, domestic demand has yet to catch up with improving sentiments as evidenced by the decrease in real gross domestic product (GDP) in quarter one of 2018, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.

“This is indicative of economic drag characterised by a less-than-expected increase in consumer spending, high unemployment and low investment,” said SEIFSA Chief Economist Michael Ade.

“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 investment,” he said.

South Africa’s real GDP contracted by 2,2% in the first quarter of 2018, down from a revised 3,1% quarter-on-quarter (q/q) increase recorded in quarter four of 2017. The manufacturing sector was amongst the largest negative contributors, decreasing by 6,4%.

Dr Ade said that the poor GDP figures are underpinned by poor performance of high- frequency data, including the manufacturing purchasing managers index (PMI) and mining data in relative terms.

“Although production costs in the first quarter of 2018 were lower than in the same period in 2017, prevailing subdued domestic demand, lack of new markets and low export volumes and reduced exports market share constrained companies from benefitting from a comparatively lower trending cost curves,” Dr Ade said.

He added that companies in the broader manufacturing sector and its M&E cluster were expected to benefit from lower-trending domestic production costs as captured by both the producers price indices (PPI) for final and intermediate manufactured goods improve on output and result in better margins.

“However, the PPI also measures selling price inflation and its performance in quarter one of 2018, relative to quarter four of 2017, 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.

Dr Ade also cautioned on supply-side concerns that could slow quarter two growth in 2018 and further impede the expansion of the M&E sub-component in the short term. He cited the impact of the steel and aluminium imports tariffs imposed by the US on South Africa amongst other countries, effective June 1, and the second-round effects of an impending increase in fuel prices which may lead to higher transportation costs for businesses.

“Slowly rising variable costs in the broader manufacturing sector and the M&E cluster in particular are also indicative of gradually increasing output levels, given the close positive correlation between the two variables. Although manufacturing production levels increased in the first two months of quarter one of 2018 and decreased in the last month, the expectation is for a better performance in quarter two of 2018. This is necessary, given the importance of the manufacturing sector –  including its M&E sub-cluster – in boosting local jobs and economic growth,” Dr Ade said.

 

Issued by:

Ollie Madlala

Communications Consultant

Tel: (011) 298 9411 / 082 602 1725

Email: ollie@seifsa.co.za

Web: www.seifsa.co.za

 

SEIFSA is a National Federation representing 23 independent employers. Associations in the metals and engineering industries, with a combined membership of 1600 companies employing around 200 000 employees. The Federation was formed in 1943 and its member companies range from giant steel-making corporations to formed in 1943 and its member companies range from giant steel-making corporations to micro-enterprises employing few than 50 people.


RECESSION REBOUND IMMINENT IN LINE WITH WORLD TRENDS

Export competitiveness in the metals and engineering sector is pivotal for economic growth and synchronised upswing in the world economy. Our review of the State of the Metals and Engineering sector in the first quarter of this year reaffirmed the low-growth scenario, which saw a second consecutive contraction in gross domestic product (GDP), technically catapulting the South African economy into a recession.

However, the latest prediction by the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) captures an adjusted annual economic growth trajectory, highlighting a moderate turnaround in GDP growth this year of 0.8 percent, which is generally congruent with a global positive outlook.

The recovery – albeit slowly – of some economic fundamentals provides some comfort and basis to argue that the South African economy is gradually weathering the depression. Indications are that the trough in the current business cycle may have finally been reached and a rebound is imminent. There is optimism that second-quarter GDP growth figures will provide a mild impetus for slightly robust growth from the second half of 2017 onwards.

This is possible given the generally improving international economic environment, underpinned by moderate recovery of investment and exports.

Moreover, developments in key external markets – such as the SADC, the rest of the African continent, Europe, Asia (particularly China) and the US – for locally manufactured products are important in gradually improving demand conditions, regionally and globally. These should be beneficial to local exporters over the medium to long term.

Also, it is expected that an improvement in the socio-political environment (including a clearer government economic policy stance) and international commodity prices will translate into better business opportunities and improve the financial positions and performances of local companies

M&E sub-sector benefit

This is potentially good news for the manufacturing industry at large and the metals and engineering (M&E) sub-industries in particular. SEIFSA’s first-quarter revised growth outlook for this year specifically simulates the M&E sub-sectors benefiting from these developments and expanding by 0.9 percent in the second quarter, thereby contributing to a revised predicted annual outlook of 1.2 percent. This figure was revised downward from 1.4 percent, due to weaker than anticipated first-quarter results and deterioration of the outlook is 60 percent of the sub-industries.

Although there is confidence for medium-to-long term economic activities in the M&E sub-sectors, the short-term figures are cause for concern.

SEIFSA is of the view that increasing pessimism about current business conditions and poor performance of key economic indicators does not presently bode well for production activity. Both the Absa Purchasing Managers Index (PMI) and the Producer Price Index (PPI) reduced by 4.8 percent and 1 percent, respectively, from May 2017 to June 2017. This was accompanied by a reduction in the Unit Value Index for exported commodities from 2.2 percent in April to -2.8 percent in May 2017.

Additionally, an oscillating rand does not provide confidence to businesses. A weak rand translates to high cost of exchanging currencies, resulting in increasing import costs (including costs of inputs). Input costs are a fundamental component of manufacturing input cost inflation and a trade-off between rising input cost inflation and the reducing PPI (including the PPI of stage of processing) impacts negatively on the margins of companies.

SEIFSA closely monitors these indicators, as their performance at the moment is a cause for concern to the M&E sub-sectors. A consistently poor performance may dampen the outlook and present a basis for further revision of our estimates.

Contemporaneous to the need for improved economic indicators towards economic growth is exports competitiveness in the M&E industry. SEIFSA strongly believes that export competitiveness will ensure that output growth is consistent and sustainable, generally translating to better employment opportunities as companies rally to boost productive capacity in anticipation of higher than expected demand for their products.

Dual approach will benefit

Indeed, an imperative need exists for all companies in the M&E sub-sectors to be both inward looking (that is, sell within South Africa, in addition to intra-company transactions to upstream local companies) and outward looking (that is, sell beyond our borders and reduce dependence on the local economy in order to benefit from an expected economically buoyant aura.

In our first-quarter review of the State of the Metals and Engineering sector, we noted that the M&E production capacity expanded by 0.5 percent in Q1 2017, against our forecast of 1.3 percent. Total exports decreased by 8.4 percent in real terms. Despite a stronger rand in Q1, imports also decreased by 7.9 percent (real), which is indicative of a weak domestic economic environment. The table of export-to-output ratios of the metals and engineering sub-industries shows that 87 percent of demand for plastics, 77.5 percent of that for electrical machinery and 67 percent of that for metal products is derived domestically.

An interesting observation is that sub-industries with the most significant exposure to the domestic economy experienced the most severe contraction in output, while the opposite mostly held for sub-industries with higher export-to-output ratios. In addition, sub-industries contracted the most in Q1 2017, confirming a cyclical output pattern to that of the domestic economy.

A paradigm shift and new strategy is needed in doing business in the M&E sub-industries. Rather than conducting business as usual, a focus on improving export competitiveness is needed in order to enhance profits and act as a buffer during difficult times and sustained economic downswings. Export competitiveness is pivotal if M&E companies want to benefit from expected domestic green shoots (given the current expansionary monetary policy stance) and increasingly optimistic global outlook. It is necessary to ignite and sustain economic growth as South Africa seeks to benefit from the broadest synchronised upswing the world economy has experienced in the last decade.