Press Release - 2015/09/30 VULNERABILITY OF THE ENTIRE METALS AND ENGINEERING SECTOR VALUE CHAIN SHOULD BE CONSIDERED

SEIFSA Chief Economist Henk Langenhoven said that the Government should consider possible further protection measures across the entire value chain.

Mr Langenhoven said that price distortions of imported metals and engineering products were prevalent throughout the value chain. This was owing to subsidies and incentives given to manufacturers in some of the exporting countries, as well as market strategies to clear massive excess inventories that arose out of surplus production capacity worldwide.

“It is SEIFSA’s view that the entire value chain should be analysed and appropriate protection measures put in place to counter the wholesale destruction of the sector’s manufacturing capacity,” Mr Langenhoven said.

The current round of tariff announcements for basic steel products has been the result of a difficult trade-off between losing the whole sector – which represents 1,5% of GDP, R30 billion in foreign exchange earnings and employs 30 000 people – and causing some distortions of its own through the tariffs. The tariff protection was given with very strict conditions regarding domestic price increases and other obligations from the industry involved.

Mr Langenhoven said that fear did exist, however, that prices would increase, thus harming the downstream value chain, and that the measures would not do enough to stop the bleeding. Both results would be unsatisfactory.

“The reality is that companies in the downstream value chain are generally smaller than those in the upstream iron and steel industry. This is understood by all parties. Both the Ministers of Trade and Industry and Economic Development, as well as industry leaders within the basic iron and steel sector, have considered this and are keen to understand the impact on the ground. The producers stand to lose their markets if a proper balance is not attained,” Mr Langenhoven said.

SEIFSA, in collaboration with other industry associations, has embarked on an intensive process of analysis to understand the actual situation. The tariffs currently in place within the downstream value chain are interrogated, as well as the impact the new measures may have on the companies.

Mr Langenhoven said that in the bigger scheme of things, tariff protection remained a short-term solution, with potential side effects. In the long-run the sector needed to adjust structurally to the new environment.

“The sector has to adjust to exploit export market opportunities better, when these recover. It must also be allowed to supply domestic products to domestic infrastructure projects to a larger degree than is the case now. Domestic demand from the mining sector will only come after more stability, both in commodity markets internationally and labour relations internally, sets in,” Mr Langenhoven said.

He added that new and better ways also needed to be found to serve the automotive sector. Policy responses that support adjustment must take these dynamics into account.

by SEIFSA .

Press Release - 2015/09/23: SEIFSA WELCOMES RESERVE BANK’s DECISION TO KEEP INTEREST RATES UNCHANGED

Expected business conditions over the next 12 months have deteriorated, the allimportant business activity sub-index of the purchasing managers’ index declined in August and the Bureau for Economic Research’s overall business confidence index showed that sales of intermediary goods (chemicals, basic metals and metal products) and capital goods (transport and machinery and equipment) contracted in the third quarter.

“The fact that interest rates were kept unchanged means that the strain taken by metals and engineering companies to service their debts will not be exacerbated. The latter finally triggered the spate of retrenchment announcements in the sector, after profit margins have been under pressure since 2008,” Mr Langenhoven said.

He said that the fact that producer price index (PPI) numbers for intermediate manufactured goods released today showed a continued deflationary trend, recording - 0.4% when August 2015 is compared to August 2014 (down from the -0.3% recorded in July 2014), supported the MPC’s decision.

“This is very positive for the pass-through of price increase from the intermediate PPI to the final PPI and, finally, into consumer prices. It is, therefore, not contributing to the MPC concerns about future inflation. Unfortunately, it is also further evidence of the very weak domestic demand situation for the sector,” Mr Langenhoven said.

The metals and engineering sector depends on the international market for sales, and the Governor confirmed concerns about the weak and uncertain international economic recovery. The MPC decision brings South Africa in line with other commodity-dependent economies which are either lowering their interest rates or keeping them stable.

Mr Langenhoven said that today’s MPC decision is supportive of the weak domestic economy. Although the auto sector is also dependent on exports, a stable interest rate may support domestic car sales.

“The Governor revealed that domestic fixed investment (which includes construction sector activity) has slowed down. This is not good news at all. However, a stable interest rate may support a fledgling recovery in the residential construction market.

Mining companies under similar financing strain as those in the metals and engineering sector may also benefit from today’s decision,” Mr Langenhoven concluded.

by SEIFSA .

NUMSA’S INTENDED PROTEST ACTION ON 30 SEPTEMBER 2015

PROTEST ACTION AND THE LABOUR RELATIONS ACT

The Labour Relations Act (LRA) permits registered trade unions, such as NUMSA 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.

The primary respondent in the Section 77 application brought by NUMSA is Government, specifically National Treasury. However, Business has also been cited as a respondent.

NEDLAC received a notice of possible protest action on 8 July 2015 from NUMSA. The notice outlined NUMSA’s demands in respect of the increasing levels of corruption in South Africa, and cited the following respondents:

  • Government: The Presidency and National Treasury; and
  • Business Unity South Africa

The NEDLAC Section 77 Standing Committee met with NUMSA on 20 July 2015, in order to obtain further details on the notice. A revised notice was submitted by NUMSA on 5 August 2015. The Committee subsequently determined the notice to be compliant with the administrative requirements of the LRA.

The Committee convened a meeting, to consider the notice, jointly with NUMSA on 4 September 2015. At this meeting the Committee concluded that this matter could not be deemed as having been sufficiently considered.

The Standing Committee met again with NUMSA on 25 September 2015. At this meeting the Committee confirmed the notice as having been considered in compliance with Section 77 (1)(c) of the LRA.

The Committee further confirmed that should NUMSA wish to engage in any form of protected protest action, the requisite 14 day notice must take place within 14 days or later from today - 25 September 2015.

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 union concerned has given 14 days’ notice of its intention to proceed with such protest action on NEDLAC. In the absence of these conditions, any protest action would not be protected.

Consequently employees participating in any form of stay-away or protest activity on 30 September will not be protected by the normal rules regarding protected protest action to promote or defend socio-economic interest of workers, namely: no-work-no-pay and no-disciplinary action.

RECOMMENDED MANAGEMENT ACTION

In the absence of an urgent NUMSA review application to the Labour Court seeking to overturn this position, SEIFSA recommends that management adopt the following course of action in dealing with any stay-away and/or protest activity on 30 September 2015:

Inform all workers that any absences related to the protest action will be treated on the following basis:

  • ‘No work, no pay’;
  • A shift for leave pay and leave enhancement pay qualification purposes will be lost in respect of the day’s absence;
  • Any overtime worked during the course of the week will be paid at ordinary rates to make up for the lost ordinary working hours from Wednesday, 30 September 2015; and
  • Management reserve the right to take appropriate disciplinary action against employees who absent themselves from work without the proper permission and/or authorisation

SEIFSA will update this management brief if any further information comes to hand on the status of this matter.

The staff of SEIFSA’s Industrial Relations and Legal Services Division are available to provide further advice or assistance to management in this regard.

by SEIFSA .

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Topics

International Economic and Steel Environment

The world economy is growing slower than expected, markets for the sector’s exports have also grown slower and commodity prices are lower. Export earnings in dollar terms are down, but declining oil prices are positive for lower inflation.

South Africa is struggling with a balance of payments deficit and the metals and engineering sector contributes substantially to that deficit because of its own imports, but also imports replacing domestically-manufactured goods. It struggles to compete internationally owing to cost pressures and production disruptions (labour and electricity), despite a steadily-depreciating currency.

The latest Organisation for Economic Cooperation and Development (OECD) and International Monetary Fund (IMF) economic prospects concluded that global economic recovery will remain sluggish, with moderate recovery in the UK and the US. The Chinese economy is also steadily slowing down.
The slowdown in emerging economies and risks to their outlook seem to be centred on a few characteristics. World Bank studies since 2013 have confirmed this view:

  • The Chinese and Indian economies are huge markets for commodity-rich countries; any slowdown in growth in those markets hurts global exports (South Africa’s included). Slow economic growth in Africa means lower exports from SA to the continent, which makes about 20% of South Africa’s export market, as a second-round effect.
  • The huge oil price declines have put oil exporters’ growth prospects in jeopardy. This is particularly so in Africa. Although the lower price of crude oil has a positive impact on SA’s trade balance and inflation, lower African growth means lower exports.
  • Commodity and metal price declines will also harm SA and African exports, mining expansions and demand for M&E products.
  • Accommodative actions by central banks in the developed world, with the exception of the USA, cushioned continued capital market and exchange rate disruptions in emerging markets during 2014. However, the potential impact of further monetary policy tightening in the US, through strengthening of the dollar, has been compared to a wrecking ball that could play havoc with capital flight out of countries with large external and budgetary deficits.

The SA Reserve Bank has called the prospects “decidedly uncomfortable” and warned about the impact of labour market instability – and now electricity constraints – on SA production and the exports, particularly in mining, the auto manufacturing and M&E sectors.

There is more uncertainty about current and prospective GDP growth rates for the world economy than a year ago. Although demand for the sector’s products has recovered since the financial crisis in 2008, demand growth has levelled off in unison with overall world economic growth. SA seems to have lost substantial ground in international markets during the upheaval in the aftermath of the crisis and has not been able to regain market share.

Domestic Economic and Steel Environment

The South African market represents on average about 40% of total production/sales of the M&E sector. The value of this market in 2014 is estimated to have been in the order of R190 billion. The domestic market for the metals and engineering sector depends largely on intermediate products supplied to mining (10%), construction (10%), machinery and equipment manufacturers (45%) and the auto sector (8%). Of the R190 billion SA market supplied by domestic companies, 90% were intermediary products or gross fixed capital formation in the SA economy.

The South African economic growth for 2014 is estimated to have been around 1,4%. Overall gross fixed capital formation (GFCF) is expected to have grown by 3,3% during 2014. The outlook for economic growth in 2015 is around 2,5% (if not lower, depending on the electricity situation) and investment more or less the same as 2014. Expectations are that both will improve further in 2016.

Of more direct interest to the metals and engineering sector is the outlook for infrastructure expenditure (a recent report by Nedbank showed that announced projects halved since 2013), mining sector investment prospects (which have not fully recovered after the strikes last year and are hampered by low commodity prices) and the performance of the auto manufacturing sector (with mixed prospects). Imports remain a large part of supply to the SA economy.

The Position of the Metals & Engineering Sector 

Last year (2014) was disappointing, despite the fact that a better performance was expected, when compared to 2013, because of prospects for domestic and international economic recovery at the beginning of the year. Neither materialised fully and the month-long M&E strike (on top of the five-month mining sector disruptions) weighed heavily on the sector. It is estimated to have contracted by nearly 2%, producing R488 billion or R117 billion of value add during 2014. This means that its production levels are still between 25% and 30% below the peak during 2007. Employment declined, capacity utilisation remained below optimum and profitability declined.

Without demand – or the prospects of growth in demand – and idle production capacity, profits do not materialise and no investments take place. This seemed to have been the M&E conundrum at the beginning of 2015.

The Policy Environment

There has been an overload of mixed and negative signals around the country’s development challenges. Of late, the National Development Plan and the elaboration of action plans in the Medium-Term Strategic Framework have become rallying points that promise more harmony. This is to be welcomed, although the “execution deficit” or perceived deficit remains a stumbling block.

“Uncertainty” has been rising since 2005 (high growth phase and ASGISA), and since then neither elections nor new blueprints led to any significant improvement. This is an ominous sign and calls for renewed efforts to rebuild confidence. The concern is that, if not arrested, the inner contradictions and ambiguity in policy may become destructive.

Any policy response must recognise the complexity of the sector and the fact that it is highly exposed to international markets and import competition. The sector has the same domestic constraints as all other sectors, but it seems to be losing its competitiveness. The support for higher value-added products internationally seems to be overwhelming SA producers. The strategy to tax upstream (commodity and basic metal) producers to compensate for international subsidies of imported products lower down the production pipeline is not viable. The former are competitive and earning foreign exchange, while the latter are not.

The metals and engineering sector has experienced slow and unstable growth since the financial crisis in 2007. The recent demand and production disruptions through various strikes have exacerbated already alarming trends, resulting in the sector contracting during 2014.

Industrial policy is caught between threats (international competition) and constraints (domestic infrastructure and logistics). These constraints are often under-estimated as physical restrictions on business. Without secure electricity supply, production cannot expand. Therefore, the impact of policies often has the effect of compensating for these constraints, instead of stimulating performance in the sector.
 

2015 and Prospects for 2016

The domestic economy is expected to grow by less than 2,5% during 2015 and closer to 3% in 2016. Fixed investment is expected to grow just over 3% in 2015 and by 4% in 2016.

The SARB leading indicator has been moving sideways for some time, which is in line with previous expansion periods. The Bureau for Economic Research (BER) general confidence index shows the same patterns, also for quite a few quarters. Both of these indicate slow growth for the future, which could be exacerbated by further policy uncertainty, labour unrest and the electricity constraint.

The two general manufacturing confidence indicators show ambivalence. Actual and expected manufacturing confidence showed declines. The business activity sub-index show growth in the fourth quarter of 2014, but the December number declined strongly, indicating the first signs of the impact of the electricity constraints on the M&E sector.

Prospects for international market growth depend a lot on economic recovery in Asia (40%), EU (35%) and Africa (22%) and North America (14%) of the market. Purchasing managers’ index indicators for all these regions, except the US and the UK, have been moving sideways or declined recently. Only the US growth performance seems to be sustainable, although Asian (Chinese) growth out-performs the rest, but at a slower pace than in the past.

Not surprisingly, growth in the demand for steel and related products has been moderating recently and is expected to be about 2%, with much lower prices and heavily-contested markets.
Imports of final and intermediary products have been crowding out domestic suppliers. Domestic manufacturers in the M&E sector are also more inclined to buy components from importers, thus decreasing domestic production.

International Trade dynamics

 

The sector recorded an overall improvement in its trade balance with the rest of the world in 2014. It meant that the sector’s trade deficit with the rest of the world shrunk.
This net result was achieved with the depreciating rand acting as shock absorber, countering falling export prices in dollar terms (in sympathy with the depressed commodity price cycle) and sluggish international demand.

Imports became more expensive (in rand terms), caused by the exchange rate depreciation. However, imported products became cheaper (in dollar terms), also due to lower international commodity prices. The price effect (higher rand cost for imports) and lower import volume demand within SA (due to sluggish growth) had the net result of imports not growing as much as they did in the years preceding 2014.

Africa continued to be a strong export market for the metals and engineering sector during 2014, particularly Southern African Development Community and West Africa. However, Africa’s growth is likely to slow down due to continued sluggish commodity demand internationally, significantly lower oil revenues and the drastic curtailment of investment in new ventures by companies and probably governments.

Despite some respite in terms of the trade balances not deteriorating as much as before, the sector as a whole is still overwhelmed by imports, primarily from Eastern Asia and Europe. Generally this is due to low international competitiveness, which cannot be solved by a continually-depreciating exchange rate. The more complex production becomes and the greater the share of domestic input cost (labour, electricity, transport, etc.), the less competitive the industries become. This is reflected in the sector’s long-term trade balance trend.

The medium- to longer-term impact of instability of domestic production (industrial relations, electricity etc.) disruptions and, therefore, security of supply to international customers has not been discounted yet and should be of added concern for the future.

Electricity constraint and its impact on South Africa’s economic growth

There is very little doubt that reliable energy supply is of vital importance to the growth of any country’s economy. Unstable electricity supply brings business operations to a standstill and hampers long-term economic growth.

South Africa has, over the years, experienced frequent energy supply shortages. In addition, uncertainty about the security of its supply going forward as well as constant reports of delays in solving supply challenges are bound not only to impact negatively on South Africa’s already ailing economy, but also to change how the country is perceived as an investment destination.

On average, energy costs in the metals and engineering sector account for about 8% of intermediary input costs. It, therefore, stands to reason that, without reliable energy supply, the sector cannot grow. It is very unfortunate that even right now the sector cannot operate at full capacity as a result, among other things, of energy constraints.

Actual or realized economic growth in the South African economy has fallen substantially below its potential. While energy provision should support our growth ambitions, there appears to be a real danger of the two gradually drifting apart.

South Africa is now seriously in danger of falling below a 2,5% average in this decade. This is mostly owing to the fact that although the economy had grown faster in the past decade (2000/2010) than recorded during the seventies, South Africa missed the last super cycle and completely under-estimated the economy’s accelerated energy demand over this period.

As a country, we need to tackle this challenge with a single-minded determination as though we were going to war. Without a sufficient and secure supply of energy – and, in this case, electricity – it is not possible for South Africa to be globally competitive.

 
 
 

by SEIFSA .

Press Release - 2015/09/11: NO END IN SIGHT FOR METALS AND ENGINEERING SECTOR WOES

The data for the latter month declined by 18, 5% on June 2014, while the July 2015 figure improved by 17,1% on July 2014.

SEIFSA Chief Economist Henk Langenhoven said that the year to date (January to July) production data show a slight decline when compared to the same period last year.

“Therefore, 2015 has so far been marginally worse than the turbulent first seven months of last year. When the 12 months ending in July 2015 are compared to the same period last year, a 1,1% contraction is still evident. This shows the weakness in the sector,” Mr Langenhoven said.

He added that forward-looking confidence indicators were pointing in different directions:

  • If the Bureau for Economic Research’s (BER) third quarter manufacturing survey data are anything to go by, confidence in manufacturing has improved slightly for the third quarter, but expected business conditions in 12 months have deteriorated;
  • The all-important monthly business activity sub-index of the purchasing managers’ index has declined in August, again showing fragility and volatile expectations changing from one period to the next;
  • The above is supported by the BER’s overall business confidence index, which showed that sales of intermediary goods (chemicals, basic metals and metal products) as well as capital goods (transport and machinery and equipment) contracted in the third quarter – as a result, August and September production numbers are expected to move sideways or contract again.

Comparing the July 2015 production numbers with those for July 2014 for the subindustries in the sector shows “wild improvements” (ranging from 2,1% to 56%).

However, comparing July with June this year shows contraction in non-ferrous metals (- 5,7%), other fabricated metals (-3,8%), general machinery (-0,7%) and household appliances (-5,5%).

Mr Langenhoven said that over a 12-month, seasonally-adjusted period, which is the best way to make sense of the latest data, the component industries achieved as follows:

  • Electrical machinery and equipment – 3,2%;
  • Special Machinery – 2,9%;
  • Basic iron and steel – 1,8%;
  • Other fabricated metal products – 0,8%;
  • Rubber – -1,5%;
  • Household appliances – - 2,1%;
  • Plastics – 2,1%;
  • General purpose machinery – -5,2%;
  • Structural steel – -5,7%;
  • Non-ferrous metals – -6%;
  • Rubber products – -6,2%.

“The question remains of how much longer this will continue. The metals and engineering sector depends on the international market in the form of exports, mining, the auto sector and construction as its biggest markets,” Mr Langenhoven said.

Later data sources than those mentioned above indicate that the confidence for both export and domestic sales orders is declining. Mining production numbers for June, released earlier, showed a 4% improvement on a year ago, but the month of June was only 1,1% better than May 2015. Annualised and seasonally-adjusted three months’ data show contraction (-2%).

Mr Langenhoven said that the only thing that could be said with certainty was that “the outcome for the sector is very uncertain.”

by SEIFSA .

GRANT REGULATIONS 2012 declared invalid

BUSA’s various attempts to persuade the Minister against these measures and to avoid litigation were unsuccessful, and BUSA ultimately resorted to court proceedings to review and set aside both of the offending regulations. In its judgement the Labour Court declared both regulations to be invalid, and it set them aside with effect from 31 March 2016.

The court found that the Minister of Higher Education had failed to consult the National Skills Authority as required. The court also found that the Minister had acted irrationally by reducing the mandatory grant to employers since this would not assist in achieving the training and education objectives set out in the Skills Development Act. In relation to the sweeping mechanism, the court held that the Minister had exceeded his powers by prescribing that surplus SETA funds be moved to the National Skills Fund. The Skills Development Act did not give the Minister any authority to prescribe that these funds be disposed of in this way.

The order of invalidity has been suspended until 31 March 2016, and the Minister was ordered to pay BUSA’s costs in the application.

This means that SETAs now have a period of approximately six months to prepare for the return to the previous skills funding regime that will be in place when the offending regulations are invalidated.

SEIFSA will communicate further about the precise implications of the judgement on the SETA grant funding regime, so that members can participate actively in the further steps that will be necessary to give effect to the judgment.

The Minister of Higher Education and Training appealed the outcome on 28 August 2015. SEIFSA will keep its members updated with any further developments in the matter.

by SEIFSA .

Press Release - 2015/09/01: AUGUST PMI INDICATES RENEWED PESSIMISM

“The August 2015 level is 8,6% lower than July, and although about 7% better than August 2014 (one month after the strikes had ended) it is still nearly 13% lower than August 2013. The distortive effects of the instability during 2014 are still obvious,” MrLangenhoven said.

Of concern however, is the fact that both the overall index and the business activity subindex shows that confidence in August this year was lower than July;

The overall PMI declined by 5%;
Expected business conditions for the next 12 months declined by 17%;
Business activity is lower by 9%;
Suppliers’ performance is lower by 5%; and
The Employment indicator is down by 3,6%.

The only ray of light was that a new balance seems to have been found between ‘new orders’ and ‘inventories’. The former has improved by 6,5% for the year (albeit only 1,6% in August) and the order backlogs have been worked down (-12%), while inventory levels have declined over the year by 15,4% (with a slight increase in August).

As a result the so-called ‘leading indicator’ of the PMI (ratio of new orders to inventories) has improved by 20% in August and is close to 1 (which means that new orders and inventories are in balance).

“Future data releases will tell us whether a lower turning point has been reached or more pain is in store for the sector,” Mr Langenhoven concluded.

by SEIFSA .

Press Release - 2015/08/27: JULY PPI CONFIRM TOUGH TIMES AHEAD FOR METALS AND ENGINEERING SECTOR

In July the PPI for Final Manufactured Goods recorded a disinflationary reading, with the index recording a 3.3% increase when July 2015 is compared to July 2014. This is down from the 3.7% year-on-year reading recorded in June 2015.

Of concern to the metals and engineering sector was the deflationary pattern in the PPI for Intermediate Manufactured Goods, which recorded a -0.3% when July 2015 is compared to July 2014. This reading is a continuation of the -0.4% recorded a month earlier.

“We continue to observe a very similar pattern in the in-house data that we track at SEIFSA. If we consider steel prices alone, they are down on average 10.2% between January 2015 and July 2015,” Mr Chibanguza said.

He added that when the first seven months of 2015 are compared to the same period in 2014, the prices are down 5.1%. On an annualised 12 months to July 2015 compared to 12 months to July 2014; prices are down by 1.2%.

“This is deeply concerning because, to the metals and engineering sector factory gate prices are the selling prices of the sector, which also entails profit margins.

Manufactures in the sector face headwinds from multiple directions namely: the weakening currency, electricity disruptions, the cost of alternative energy sources and decreasing labour productivity. Furthermore, their margins are further squeezed by the decline in their selling prices,” Mr Chibanguza said.

by SEIFSA .

Press Release - 2015/08/28: SEIFSA WELCOMES GOVERNMENT'S DECISION TO IMPOSE A 10% TARIFF ON IMPPORTED STEEL

Mr Langenhoven said that while the country’s priority needed to be to grow the economy by ensuring that South Africa was more competitive internationally and attractive as an investment destination, it was to be welcomed that the Government appears to have come to the realisation that it needed to impose the import tariff to give local manufacturers a chance to enhance their ability to compete and to save jobs albeit in the long-term.

“The basic steel producers are in such distress that short-term downscaling is unavoidable. Gearing ratios for basic steel producers worldwide have shot up since 2010, and South Africa is no exception. Several of the companies have stated that they cannot service their debt at the lower scale of production, they are simply not profitable, and cost cutting is inevitable in the short-term,” Mr Langenhoven said.

He added that production costs in South Africa, for various reasons, were higher than the lowest cost quantile of Chinese producers. The domestic market for steel has contracted due to construction and mining activity slowing down. The auto sector in the country is faring better due to exports to the US, primarily, but other steel exports (up to 50% of production) are suffering due to depressed world markets.

“Protection, in this scenario, is a choice between losing the entire sector, as we have seen happening in Australia or trying to ‘ride the short-term storm’ and adjust for the future,” Mr Langenhoven said.

The Minister of Trade and Industry’s decision to impose tariffs comes a week after a watershed meeting took place between labour, business and government behind closed doors in Pretoria.

The meeting, which was a shared initiative of labour and business was an attempt to put the brakes on the looming job loss bloodbath in the primary steel and related industries.

by SEIFSA .

Press Release - 2015/08/24: JOINT STATEMENT BY LABOUR AND BUSINESS ON OUTCOMES OF THE MEETING WITH GOVERNMENT

The labour delegation was led by Numsa General Secretary Irvin Jim and included the leadership of Solidarity, Uasa- the Union and Mewusa. The business delegation was led by the CEO of ArcelorMittal (AMSA), Paul O’Flaherty and included the CEOs of Evraz Highveld Steel, Cape Gate, The Scaw Metals Group and Macsteel Coil Processing. Seifsa’s President, Ufikile Khumalo, led the industry associations, while government’s delegation was led by Minister’s Rob Davies and Ebrahim Patel and included senior government officials from Public Enterprises; Trade and Industry; Transport and National Treasury. Transnet leadership was also in attendance.

The meeting was necessitated by a clear agenda of seeking government’s firm commitment to reassess their policies which are contributing to sweeping away jobs in the steel industry.

The meeting was significant in relation to the fact that we had approached government with one voice, irrespective of our differences. Together, labour, business and the steel industry associations concluded a joint 10-page submission to government in which we sketched out our collective call for government to urgently address the current crisis in the steel industry, failing which we will be faced with a disastrous and devastating impact on our economy. The effects of which will be acutely felt by workers employed within the industry, the families they support and the many communities who rely on the industry for their livelihoods.

Our submission provided carefully researched information on the significant role played by the steel industry in the South African economy in particular the industry’s’ contribution in sustaining other industries of which the top 5 (automotive, mining, construction, energy, and infrastructure) contributes 15% to our country’s GDP annually. We explained how the top 5 industries employ more than 8 million workers, contributing some R600 billion to our economy annually.

We pointed out that steelmaking accounts for approximately 190, 000 jobs directly and a further 100, 000 jobs through suppliers. We demonstrated that the steel industry is a core employer in Vanderbijlpark, Saldanha, Newcastle, Germiston, eMalahleni and Nkandla districts, with 75% of households in Vanderbijlpark and Newcastle and 25% of those in Saldanha being dependent on the local steel industry for their livelihood. Among these and many more facts on the centrality of steel to our economy, we emphasised that all of these were at stake in the next 6 months to a year if not urgently addressed.

While as labour and business we have our own issues and demands, we managed to agree on 10 core collective demands in our submission to government. In brief these were:

  1. Immediate trade remedies for steel
  2. Designation of steel for local government infrastructure spend
  3. Urgent rollout of government’s infrastructure programmes
  4. Transparency of current State Owned Enterprises (SoEs) capital programmes
  5. Fair pricing for steel versus Import Price Parity (IPP)
  6. Monitoring of imports
  7. Urgent advancement of government’s beneficiation strategy
  8. Banning of steel scrap exports
  9. Delaying the implementation of Carbon Tax
  10. Establishing a steel crisis committee

The meeting with government afforded us the opportunity to share our submission on the key challenges facing this ailing sector, as well as our intervention proposals to save the industry from total collapse.

Government, through the Departments of Trade and Industry (DTI) and Economic Development (EDD) provided us with the work and initiatives underway on their end.

As government, business and labour we agreed that an urgent solution to the current crisis in the steel industry was required and further agreed that any solutions found should not negatively affect jobs in the downstream manufacturing industries.

While government recognised the challenges confronting the industry and indicated a clear willingness to support initiatives aimed at saving the industry, it pointed to the need to be mindful of ensuring that any interventions are not in breach of necessary regulations. At the same time government expressed its recognition of the slow speed in processing remedies. To address this government committed to setting up a joint DTI and EDD committee to explore the expedition of legal, regulatory agreements required to protect the industry from job losses.

The representatives from government present also indicated that they could not speak to the demands impacting on government Ministries not represented at the meeting.

In express relation to our demands and through our engagements with government, we have delivered the following partial victories;

A. On trade remedies:

Government indicated that they are happy to proceed with our demands, specifically:

  • The first application for tariffs at 10% of the WTO bound rate will be signed off next week with conditions which are not yet finalised, but which will include a demand for industry not to raise the price of steel to unaffordable levels.
  • The rest of tariff applications will be pushed through ITAC without prejudicing the process.
  • AMSA will submit their first of 5 anti-dumping applications by the end of August 2015 and the rest as soon as possible thereafter.
  • AMSA will investigate with DTI and EDD what other avenues are available to fast track anti-dumping measures, e.g. “provisional” anti-dumping, safeguard duties etc.
  • Further, government committed to looking at any other avenues to ensure protection of the industry.

B. On designation of steel, localisation and government infrastructure programmes:

Government indicated its commitment to support for the local steel industry through designation and localisation in this regard:

  • A group will be set up through the Department of Public Enterprises to look at how localisation could be created with SoEs. Transnet committed to meet on their 1,000km p.a. rail upgrades.

C. On the banning of export of scrap metal:

  • Cape Gate and Scaw Metals will provide EDD with evidence as to where ITAC is not following the agreed directive and is allowing export permits as part of working towards the ban on the export of scrap metals.

D. On the training lay-off scheme:

Government indicated that it would support processes more expeditiously if industry committed to alternatives, particularly training lay off schemes, rather than proceeding with retrenchments. In this regard:

  • Government will facilitate the process of establishing a government, labour and business task team on the training lay off scheme, particularly to address the bureaucratic processes around the available scheme and to see how this could be used effectively for avoiding the imminent retrenchments.

E. On section 189 / retrenchments:

  • Business and labour would continue to work for solutions regarding the S189s already issued and the impending ones. Processes being followed by individual companies to find solutions will continue.

F. Steel crisis committee

  • While we would not set up a separate steel crisis committee the team that met on the 21 August will meet again in 3 to 4 weeks’ time to assess progress on agreements reached and plan further.

These partial gains we have secured will be shared with our individual constituencies, as we continue to navigate solutions to avert the imminent job loss bloodbath.

While working together, as labour, we will continue planning our campaign actions focusing on issues that we feel employers must do to avert retrenchments at all costs. We remain firm that no worker deserves to be retrenched, amidst the triple crisis of poverty, unemployment and inequality, ravaging working class and poor households in South Africa today.

We will continue to engage with employers in various levels to stop job losses in this sector. Where we feel that retrenchments are unjustifiable we will be forced to remain true to our trade union fighting approach of “what has not been won in the boardroom, shall be won on the streets”, through embarking on actions and demonstrations to exert much needed pressure from below.

Lastly, as labour, we want to thank the CEOs and SEIFSA, for embarking on this noble journey with us to save this strategic sector of our economy from collapse. This journey has called on all of us to take collective action to avoid jobs being shed. We hope business will go back and rethink their decisions in the interest of our members and society at large.

We too thank government for their commitments in this regard and hope that they act as expeditiously as committed to in our meeting on Friday.

by SEIFSA .