Load Shedding
Many member companies are experiencing power supply disruptions. SEIFSA recommends that the following course of action be taken in the event that a company experiences load shedding (the following is an extract from section 7 of the Main Agreement Handbook, 2014/2015, from page 18):
Load shedding and power outages
SEIFSA recommends that management adopt the following course of action in dealing with load shedding:
• where power is cut and management takes a decision to send employees home, then employees must be paid a minimum of four hours’ pay;
• should management require employees to remain at work until the power is restored, then employees must be paid in full;
• regardless of the fact that management has sent employees home, they will still be credited with a shift for the purpose of leave pay and leave enhancement pay calculations
Planned load shedding
The definition of short time has been amended to cater for the differentiation between planned or foreseen load shedding as opposed to unplanned or unforeseen load shedding.
This means that where short time has not been implemented in response to planned or foreseen load shedding and employees report for work and are sent home by the employer, they will be entitled to 8 hours payment.
For further information, please contact the Industrial Relations Division on 011 298 9400.
SOUTH AFRICA IS CRYING OUT FOR EFFECTIVE LEADERSHIP
We are among the most violent societies in the world, with all who can afford private security having been left with no option but to invest significantly in it. Twenty years into our democracy, by and large our police service continues to be aggressive in its approach and even violent, with its investigative capacity and professionalism not quite where they should be.
In 20 years of democracy, our Government and its allies in the trade unions have managed to reduce the country’s education system from a poor, racially-skewed one to one that is on its knees, with a growing number of schools in the country’s townships deserted en masse as parents and children lose confidence in them. Our health system is in no better shape, with public hospitals generally poorly resourced and running out of medicines, manned by an increasingly hostile nursing and medical cohort working under challenging conditions.
Now, for the second time under a decade, we find ourselves again confronted by rolling black-outs euphemistically called load shedding, in a country that has traditionally considered itself to be the premier economy on the continent. Since the first round of black-outs in 2008, when our economic underbelly lay cruelly exposed, our economy has not registered near-decent levels of growth.
And it will not do so for as long as the enormous challenge of sustainable energy supply has not been addressed. No economy constrained by unreliable energy supply can realise its full potential.
At the root of all our challenges is uninspiring leadership from those who run our country. Regrettably, increasingly it appears as though while good, impressive pronouncements are made from time to time by some in Government about the need to stimulate manufacturing, to improve South Africa’s international competitiveness, to grow our economy and to create much-needed jobs, by and large the priority for some is ensuring that politically-aligned individuals are placed in strategic positions in the civil service and the broader public sector, regardless of education and competence. Examples of the controversies in which the SABC, SAA and PetroSA boards have recently been mired come to mind.
In 1942 South African historian, CW de Kiewiet, coined the phrase that South Africa progresses “politically by disaster and economically by windfalls”. Thankfully, we have since succeeded in reversing this trend. The political disasters of the past were self-inflicted, but democracy brought a self-correcting mechanism that has so far stood us in good stead.
However, the electricity crisis confronting us suggests that the opposite became true in the case of economic windfalls: they have turned into disasters – and the tragedy is that these disasters are equally self-inflicted.
Until Eskom’s new base-load capacity comes on stream, energy will continue to be a significant growth constraint on our economy. While a myriad of plans have been made to solve the longer-term issues, these solutions will all take time.
The productive sector cannot continue subsidizing failing local authorities, through surcharges on electricity prices. With some municipalities relying for 40% of their income on this source, price increases dressed up as savings incentives – to be repeated when budgets again fall short – are a perverse cycle that slowly destroys the economic base in many local authority jurisdictions.
The collapse of the coal silo at Majuba came as a surprise because that power station is one of the youngest facilities in Eskom’s stable.
The conundrum is buried in a simple accounting term, called “depreciation”. When the fixed investment in power-generating capacity is dissected, it is important to take into account a continuously-adjusting trend allowing for new investment and depreciation. If allowance has not been made for sufficient maintenance, then this trend is downward.
This trend in the value of the total fixed investment in generating capacity relative to the size of the economy reached a peak in 1985/6 – and by 2006/7 it had deteriorated to 1960s levels. The trough has been reached, but we still have a long way to go.
What is the likely impact of the load shedding over the short term, such as a year?
The metals and engineering sector remains our reference point in answering the question. At the end of the month-long metal workers strike in July, SEIFSA calculated that during those 20 working days R6-billion worth of direct value add to the economy was lost. In its Quarterly Bulletin for the third quarter of this year, the SA Reserve Bank reported that, after the numbers have been plugged into their models, the estimated total impact of the strike on the economy amounted to half a percentage point loss in GDP growth.
This was the result of one sector being taken out of production.
SEIFSA’s calculation is that for one month, with an induced electricity demand management saving of 10% (our sector is highly electricity intensive), with two hours (stage 1) of load shedding, and allowing for the differential impact on the sub-industries within the sector, 23% of output (R6-billion of R26,5-billion) and value add (R1,5-billion of R7-billion) have been lost. This means that for the metals and engineering sector alone, four months of load shedding will have the same impact as the month-long strike.
We have not bothered with the multiplier effects circling out from metals and engineering, as it is assumed that all sectors will be affected. We have also not taken account of opportunity costs, such as investments in energy efficiency or the costs of standby capacity, or the repair costs for damaged electronic control systems, amongst others.
However, there are even more important long-term consequences. The most severe potential loss is that of markets due to production uncertainties. For metals and engineering, exports constitute 60% of production and imports have captured a similar share of the domestic market. Markets lost due to non-performance may never be regained.
The key factor is global competitiveness. Without a sufficient and secure supply of energy, specifically electricity, this is extremely difficult. When investment patterns in manufacturing and metals and engineering are overlaid on electricity supply, the inconsistency of supply and the cost of energy trends, it is patently clear that investment is held back by this constraint. SA manufacturers are importing more and more components for assembling locally due to cost advantages and security of supply.
Actual or realized economic growth in the SA economy has fallen substantially below its potential. While energy provision should be in support of growth, we are now in danger of a decoupling or reversal of the causality between the two factors.
Two definitive studies published in 1984 and 1993 respectively estimated the potential growth rate of the SA economy to be in the order of 3,5%. Two more studies conducted in 2013 and 2014 respectively subsequently found that the country’s potential growth rate had declined to 2,5%.
The energy constraint is potentially crippling and can relegate SA to the pedestrian growth-trap league in which so many middle-income countries find themselves. The opposite is also true: having sufficient supplies of energy should result in substantial, long-term productivity improvements in the economy. It should free up tremendous resources currently employed by electricity users to provide their own energy. It will allow for certainty, flexibility and expansion in productive capacities, which is the only sustainable avenue to longer-term growth and employment in the economy.
As a country, we waited too long. Now we are bearing the brunt of waiting too long with these base-load investment decisions.
What we need desperately is inspirational leadership, with men and women of integrity – whose qualifications are beyond question – appointed into strategic positions.
Kaizer Nyatsumba and Henk Langenhoven are respectively the CEO and the Chief Economist of the Steel and Engineering Industries Federation of Southern Africa.
Press Release - 2014/12/10: MODERATING CONSUMER INFLATION PROVIDES MUCH-NEEDED RELIEF TO CONSUMERS AND POLICY MAKERS
Speaking after the release of the figures, SEIFSA Economist Tafadzwa Chibanguza said that a further moderation into the inflation target band gave room for a more gradual policy response from policy makers.
The CPI increased by an annual rate of 5.8% in November 2014, down from the annual 5.9% recorded in October 2014. The source of the moderation, in terms of contribution to the annual increase, was the transport sub-component of the index, which is the only sub-component that decreased. The other sub-components remained unchanged.
“On average between October and November this year prices remained unchanged, resulting from the fact that we are beginning to observe upward pressure in the food and beverages sub-component of the index, which offset the transport decreases,” Mr Chibanguza said.
He added that while further easing in the CPI was expected to be assisted by falling brent crude prices, not much should be read into today’s figures since November was usually a low-survey month for Statistics South Africa.
Mr Chibanguza said that the CPI profile was likely to continue to be dictated largely by two important variables: brent crude oil prices and the exchange value of the rand.
“The current dynamics playing out in the brent crude oil market are expected to persist for a while longer. This week alone the price of brent crude has continued to test fresh multi-year lows in the US$65/bbl region. The longer these current levels persist, the better for the South African inflation profile,” said Mr Chibanguza.
However, the rand posed upward risk to inflation. In the past few days it has slid significantly to touch a post-crisis high of $1/R11.57, in response to both global and domestic data releases.
“This certainly does not paint a good picture for the inflation profile, especially with the general consensus that $1/R12 may now be an option before the end of this year and an even greater probability when the United States Federal Reserve begins to increase its interest rate,” said Mr Chibanguza.
Improving data releases from the United States, such as upward revision of the United States GDP growth and successively good payroll figures, only serve to bring the first interest rate increase out of the US closer than previously anticipated.
SEIFSA LAUNCHES AWARDS CELEBRATING EXCELLENCE IN STEEL AND ENGINEERING INDUSTRY
The Most Innovative Company of the Year will be awarded to a company showing the highest level of innovation in research and development or production.
The Health and Safety Award of the Year will be offered to a company with the best legal compliance record in Health and Safety or the lowest Lost Time Injury Frequency Rate.
- Entries are also called from companies whose Corporate Social Initiative programme bears a major impact on the lives of its beneficiaries.
- Companies rated the highest in customer performance by the industry will receive the Customer Service Award of the Year.
- Most Transformed Company of the Year award will be received by a company that shows the highest transformation in the composition of its Board of Directors, Executive Management and Managerial Team. This award allows for companies employing fewer than 100 people, and companies employing more than 100 companies.
- This is the Decade of the Artisan, and an award will be made to the company that has trained the highest number of artisans.
- The Environment Stewardship Award will be awarded to a company that has made the biggest and best strides towards conserving the environment, and in mitigating the impact of its operations on the environment.
- SEIFSA’s member companies and affiliated Associations will also be honoured at the Awards function taking place in March 2015.
- Commenting on the need to introduce the industry awards, SEIFSA Marketing and Communications Executive Adelia Pimentel said: “it is of paramount importance that companies play a crucial role in socio economic upliftment and are recognised for their contributions and encouraged to continuously do more.”
Companies operating in these vital economic sectors are encouraged to not only enter proposals for any one of the categories offered, but to also consider taking up the various marketing opportunities available at www.seifsaawards.co.za
For further information please contact Alison Spratley, SEIFSA Awards Programme Director on alison@brandivison.co.za or mobile +27 (0) 82 467 1213
Background to SEIFSA
SEIFSA is a national federation representing 27 independent employer associations in the metal and engineering industries, with a combined membership of over 2 000 companies employing over 200 000 employees. The federation was formed in 1943 and its member companies range from giant steel-making corporations to micro-enterprises employing fewer than 50 people.
Press Release - 2014/12/08: R6-BILLION WORTH OF OUTPUT LOST IN THE METALS AND ENGINEERING SECTOR ALONE AS A RESULT OF THE CURRENT POWER OUTAGES
Commenting on the power outages that have been going on in the past three weeks, culminating in a serious, stage-three load shedding last week, SEIFSA Chief Executive Officer Kaizer Nyatsumba said that it was totally unacceptable that a country with South Africa’s level of development found itself in the midst of a load-shedding crisis “right in the middle of summer”. He said not only did the situation damage South Africa’s reputation as an investment destination, but it was also causing untold harm to the economy.
SEIFSA estimates the damage done by the current outages to the metals and engineering sector alone to be estimated at R6-billion.
Mr Nyatsumba reiterated his statement, first made at a conference on sustainable power supply three months ago, that South Africa needed to tackle the current challenge of recurring power outages with a single-minded determination “as though we were going to war”. He said that failure to do so would amount to irresponsibility and cause even greater harm to the economy, which desperately needed to grow in order to create jobs.
Mr Nyatsumba said that frequent energy supply shortages and uncertainty about the security of power supply were bound to affect South Africa’s international perception as an investment destination.
“Without a sufficient and secure supply of energy, it is simply not possible for South Africa to be globally competitive,” Mr Nyatsumba said.
He added that reliable energy supply was of vital importance for a thriving business environment in general and the metals and engineering sector in particular. On average, energy costs in the metals and engineering sector account for about 8% of intermediary input costs. It stood to reason, therefore, that without reliable energy supply, the sector could not exist or expand.
SEIFSA Chief Economist Henk Langenhoven said that the metals and engineering sector’s total production for 2014 was estimated to be in the region of R320-billion, with value added to the economy estimated to be R84-billion.
“It is further estimated that the sector produced R26,5-billion worth of turnover in November and added about R7-billion to the South African economy.
Without the constraints, taking these assumptions into account, it is estimated that R6-billion worth of output and R1,5-billion in value added has been lost. These figures amount to a 23% loss of production and value add respectively to the economy,” Mr Langenhoven said.
However, the most serious potential loss was that of international markets owing to production uncertainties. Exports constitute 60% of production and imports have captured a similar share of the domestic market.
“Markets lost due to non-performance may never be regained because the perception is created that these shortages will continue for years. The resumption of gross fixed investment in the sector and, therefore, faster growth is unlikely,” said Mr Langenhoven.
Mr Nyatsumba said that it was a known fact that the South African economy has been seriously under-performing over the past few years. He said that while energy provision should support the country’s growth ambitions, there appeared to be a real danger of the two gradually drifting apart.
“Regrettably, electricity generation has become a significant physical constraint that hampers the economy’s ability to grow at a faster rate. This situation runs counter to the Government’s stated intention to stimulate local manufacturing and value addition,” Mr Nyatsumba said.
He added that manufacturing’s share of the economy had been steadily declining over the last three decades, with investment patterns in the sector far more worrying than the former.
“Reliable energy supply is absolutely vital to turn the situation around,” he concluded.
Press Release - 2014/12/01 : STRONGER PRODUCTION PATTERNS LIKELY IN THE METALS AND ENGINEERING SECTOR IN MID-2015
November’s manufacturing confidence was 6,5% higher than that in October 2014, and 2% better than in November 2013. The average decline since the beginning of 2014 and over a full 12-month period is now only 4%, progressively better than over the last few months.
SEIFSA Chief Economist Henk Langenhoven said that the trend in the level and rate of change of the business activity sub-index seemed to have bottomed. The index leads production trends in metals and engineering by 12 to 18 months.
However, Mr Langenhoven said that this was very tentative:
- It seemed as if July 2014 recorded the lowest turning point, with steady improvement since then. November improved by 11%, when compared to a half a percent decline in October.
- The year-to-date, 11-month and 12-month readings are now only 6% lower than during the same periods earlier. This also points to an improvement from a 9% decline previously.
- The month of November 2014 is now 4,% higher than 2013 (against a 7% decline when October is compared between the two years).
Mr Langenhoven advised caution owing to the fact that improvement seemed to be entirely linked to the “bounce back” in domestic activity after the strikes. Many contradictions also emerged from the sub-indices, such as:
- The employment index improved by 4,6% in November, but hardly moved over the 11 months.
- New sales orders increased by 9,5% in November, but declined by 8% over 11 months.
- The order backlog increased by 21% in November, but only 6,5% over 11 months.The purchasing commitments improved by 12% in November, but declined by 5% over 11 months.
- Expected business conditions in 12 months declined by 16% in November, and are 15% lower than in November 2013.
International demand for South African exports was also soft and was expected to deteriorate judged by the weak confidence reflected in purchasing managers’ indices around the world.
Mr Langenhoven said that the most positive windfall in terms of cost pressures was the lower and seemingly falling oil price, reflected in an 11% drop in the PMI price sub-index, compared to October and to November 2013.
“With these tentative confidence trends, SEIFSA stands by its earlier conclusion that the middle of 2015 might see stronger production patterns in the metals and engineering sector,” Mr Langenhoven concluded.
Press Release - 2014/12/01 : SEIFSA – Steel and Engineering Industries Federation of Southern Africa • Reg. No. 1949/034221/08 6th Floor, Metal Industries House, 42 Anderson Street, Johannesburg, 2001 • PO Box 1338, Johannesburg, 2000 Tel 0861 SEIFSA • +2
“The Federation has always insisted that it was the bona fide representative of its member Associations, whom it has represented in the structures of the MEIBC throughout 70 of its 71 years of existence. We are delighted that the Labour Court has yet again upheld the rights of our employer Associations to designate SEIFSA as their representative in negotiations with labour,” SEIFSA Chief Executive Officer Kaizer Nyatsumba said today.
The arbitration process regarding the determination of a formula to populate employer seats on the MEIBC started in September 2012 and is set to resume in January 2015.
“Associations affiliated to SEIFSA look forward to the conclusion of the arbitration process to bring stability within MEIBC structures in the country. We are confident that the formula used in other Bargaining Councils, in terms of which seats are allocated to employers on the basis of the number of people in their employ, will also apply in the MEIBC,” Mr Nyatsumba said.
The metals and engineering sector collective agreement entered into between SEIFSA – which represented 22 employer Associations –and six trade unions provides for amendments to wages and related terms and conditions of employment for the period 1 July 2014 to 30 June 2014.
The agreement was concluded following an exhausting and gruelling round of collective bargaining negotiations culminating in a four-week strike, which brought the metal industries to a virtual standstill.
“Todays Court Judgment restores some certainty and stability into the system and places the prospect of further unnecessary labour relations disruptions and economic harm on the back-burner,” said SEIFSA Operations Director Lucio Trentini.
Mr Trentini added that SEIFSA will continue to support the Bargaining Council in seeking the promulgation of the Agreement by the Minister of Labour.
“We will do everything in our powers to offer assistance and guidance, through the Bargaining Council national exemptions policy, to individual employers who find difficulty in implementing elements of the agreement,” Mr Trentini said.
Press Release - 2014/11/25: SEIFSA CONCERNED ABOUT CONTINUING SLUGGISH ECONOMIC GROWTH
Statistics South Africa reported that the economy grew by an adjusted 0,5% in the second quarter to 1,4% in the third quarter.
Mr Langenhoven said that the latest restated and rebased manufacturing data showed stagnation in the sector’s growth rates since 2010. The 2010 data reflected recovery after a contraction of 10,6% in 2009. Annual expansion slowed down from 5,9% in 2010 to 2,9% in 2011, 1,9% in 2012 and 0,7% 2013, with the three quarters of 2014 contracting by 0,2%. It is only now that manufacturing production has recovered to the same level as in 2008.
“However, the volatility is something to behold. In 2012 seasonally-adjusted quarterly growth fluctuated between +6% and -1,2% and between +12,3% and -8% in 2013. 2014 simply recorded contractions to different degrees: quarter one was -6,4%, quarter two was -4% and quarter three was -3,4%. These are, indeed, very concerning trends,” Mr Langenhoven said.
He said that a similar trend was evident from figures for the metals and engineering sector: there was a contraction of 21% in 2009, recovering by 4,3% in 2010, then growth slowed to 4,1% in 2011 and 0,2% in 2012, before improving by 2,6% in 2013.
Mr Langenhoven said that an estimated further contraction of 2% was evident over the first three quarters of 2014, leaving metals and engineering production still 12% below the 2008 peak.
“Coinciding indicators such as capacity utilisation and employment numbers confirm the difficult trading conditions within the sluggish domestic economy (demand from mining, construction and the auto sector) and tentative world economic recovery,” said Mr Langenhoven.
He added that recovery was only likely to be seen towards the middle of 2015, if the typical lag of 12 to 18 months holds between confidence recovering and productive activity following suit.
“The trends in the main confidence indicators measured by the Bureau for Economic Research’s manufacturing survey and the business activity sub-index of the Kagiso/BER Purchasing Managers’ Index have shown lower turning points in their respective troughs. General business conditions for the economy, also measured by the BER and released a few hours ago, show the same fragility,” Mr Langenhoven concluded.
Press Release - 2014/11/20: STABLE HAND AT THE HELM SHOW QUEST FOR STABILITY
Speaking after the Reserve Bank Governor’s announcement this afternoon, SEIFSA Chief Economist Henk Langenhoven said that the Governor’s decision was motivated by the perceived lower inflation risks coupled with sluggish national and international economic growth.
“The MPC clearly wants monetary policy to be a stabilising factor in the economy, with fiscal policy having to be reined in from previous excesses. On balance, it seems as if an even keel has been reached as far as the domestic economy is concerned, and the expected positive impact on inflation from lower oil prices has been important considerations,” Mr Langenhoven said.
He added that the MPC was acutely aware of the fact that international monetary policy stances would have to ‘normalise’ after the expansionary phase and that South African interest rates will have to follow suit, but the slower than expected recovery in international growth performances seemed to have postponed this for the time being.
“Although detrimental to demand for South African exports, this gave some breathing space not to add insult to injury by having to raise interest rates. Capital flows are under intense scrutiny, as well as the commodity trade situation, so as to anticipate the impact on the rand exchange rate,” Mr Langenhoven said.
Mr Langenhoven added that the Governor’s understanding of the trends in manufacturing and specifically the metals and engineering sector was heartening. The stable hand at the helm was greatly welcomed.
Letters from Luristan; 20 of 2014
Coupled with ESKOM’s acknowledgement that it cannot guarantee electricity over the next five years, the medium and long term impact on investment in the economy is potentially crippling. Given the fact that ‘potential economic growth’ is calculated by taking into account the growth in capital investment, human capital and productivity, the much quoted 3,5% number must be in serious doubt. On the other hand, Transnet’s resolve, and actions, to continue investing in infrastructure ‘for the next 15 to 25 years’ is what is needed. If the controversy around SANRAL’s funding could be resolved once and for all, the equation for investment’s contribution to growth could decidedly turn positive.
Initiatives to raise SEIFSA members’ profile in debates/support for the sector’s development
The SEIFSA Economics and Commercial division constantly goes out to seek initiatives and create relationships that will benefit SEIFSA members and the metals and engineering sector in South Africa.
On 14 October we attended the biannual meeting of the Customs Operations ‘key stakeholders’ forum’ in Pretoria. Again, much effort is going into plugging the holes in our borders in terms of smuggling and dumping, with greatest successes in clothing and textiles. The latter has set up a ‘Textile Compliance Centre’ which coordinates all sub groups/industries in their sector with Customs, ITAC, the national compulsory registration council, and procurement institutions and any other government institutions. We thought this to be a good model to perhaps emulate within our sector. We have asked Nick Steen, head of this unit, to meet with us. (More info: henk@seifsa.co.za)
On the outcome of the outgoing Governor of the SA Reserve Bank invitation, we (SEIFSA CEO and chief economist) met on the 3rd of November at the Bank. The full management team of the Bank attended the meeting; Ms. Gill Marcus, the Governor Designate, Mr. Lesetsa Kyanyago, three of her special advisors, the head of research, the head of the economics department and three other researchers. The Bank was interested in the economic dynamics underlying the trends, as well as developments in the industrial relations field. Our ‘Half Year Review 2014’, and questions and discussions centered around the international trade and competition situation, employment trends, investment trends, the distribution of value added in the sector amongst remuneration, profits and investment, and the impediments of transport and logistics. The Bank wished to make these meetings a regular occurrence in future. It was a unique opportunity to raise understanding of our sector at such an influential institution in the country. More info; henk@seifsa.co.za)
The Minister of Finance delivered his Medium Term Budget Policy Statement (MTBPS) on 22 October. The MTBPS has been eagerly awaited to ascertain government’s perceptions of the long and short term challenges facing the economy, and the remedies needed. The minister’s analysis of these were realistic and without mincing of words. The clear distinction between short, medium and long term (structural) challenges and solutions is welcomed. It is clear that the Medium Strategic Framework (published by the Presidency earlier this year) has been instrumental in shaping these statements. Government wants/must get its household in order to avoid dragging the country into a debt trap, and possible confidence vacuum, that could effectively paralyse any hope of a better life for all. Short term fiscal measures have been announced. The two biggest risks are success with the savings measures and the governments wage bill containment. Medium term measures have started and possibly need refinement but will start to bear fruit. The longer term projects are getting deserved and increasing attention, which is refreshing. Unfortunately the short term impact of the associated problems are very debilitating; stabilising the supply of electricity, fixing the quality of the health and education system, building capacity and strengthening accountability in local authorities, emphasis on supporting urban renewal and fixing increasing dilapidated infrastructure, and the same applies to transport and logistics improvements. These are all needed to achieve the structural adjustment in the economy, and to break out of the declining growth performance. (SEIFSA’s full report on the MTBPS will appear in the SEIFSA News and is available on request (henk@seifsa.co,za).
The possibility of designating transformers has been mooted a while back, but was turned down by the Dti, mainly on objections from ESKOM. Large importation of transformers by local authorities since, has focussed the minds and the designation idea has been revisited and more or less accepted. SEIFSA helped the Dti to coordinate and collate the latest updated data for this process. A session took place at the Dti on 23 October to hand over all the data and discuss the way forward. Robust discussions were had, and we offered to convene a meeting with the industry once decisions have been firmed up. (More info: taffie@seifsa.co.za or henk@seifsa.co.za).
HPL has made several presentations to individual companies, associations and to the Western Cape provincial government demonstrating SEIFSA’s ability to tailor-make research for planning and policy purposes, or to provide a strong basis for such research. The latest one was at the Aluminium Federation of SA on the 22nd of October. We showed what data is available and what type of in depth analysis could be done. In most such cases, customisation is often needed in close cooperation with the entity. In the aluminium case, the dominance of the primary producers in the data makes its usefulness for the secondary producers less attractive, but could be fine-tuned with industry knowledge and developed into a powerful tool for company and policy advocacy applications. (More info: henk@seifsa.co.za)
The latest amendments to the Codes of Good Practice on B-BBEE (published by the Dti) are open for public commentary from 10 October until 14 November 2014. BUSA organised a workshop on 3 November with the objective to increase understanding of the changes and agree on issues that will be included in the BUSA submission to the Dti. The workshop was presented by Murray Chabant from Signa. The workshop covered the following: Qualifying Small Enterprise statements (Code 600), Guidelines for developing Sector Charters (Code 000: Statement 003), Specialised Enterprises (Code 000: Statement 004), Sale of Assets (Code 100: Statement 102), and Equity Equivalents for Multinationals (Code 100: Statement 103). SEIFSA will be part of the BUSA delegation to attend a Dti workshop on 12/11/2014 that will be held at the Department of Tourism offices in Pretoria. SEIFSA had a Dti official lined up for an information session and workshop on the subject to precede the comment closing date, but could not raise enough interest for the event. For further information or any comments, please contact Thakhani Khalushi (thakhani@seifsa.co.za). SEIFSA has planned workshops as follows; 20 November 2014 in Johannesburg, and 14 November 2014 in Durban.
SEIFSA’s commercial manager (Mashirane Matheba) has been actively pursuing the National Empowerment Fund with the intention of establishing a dedicated empowerment fund facility for SEIFSA members. In broad terms it would entail a facility for members to deposit their corporate social investment and/or enterprise development funds in terms of their B-BB EE scorecard commitments, which will attract a R1,50 contribution from the NEF for every R1 committed. These funds will be ring-fenced for application in the metals and engineering sector. This is potentially a powerful, focussed conduit for fostering human resource and small company development. For more information, please contact Mashirane (mashirane@seifsa.co.za).
Transnet Freight Rail (TFR) held an inaugural Steel Industry Forum on the 21st October 2014. The workshop was attended by TFR’s customers, suppliers, TFR staff and industry bodies, including SEIFSA. Transnet wants to move transportation of steel from road to rail. The purpose of the forum was to seek strategic alignment on Transnet’s Market Demand Strategy (MDS) and the Steel Industry’s supply chain optimization, and also to harness customer insights for collaboration in pursuit of improved service delivery. The MDS aims to expand and modernize the country’s ports, rail and pipelines infrastructure over a period of seven years in order to promote economic growth in South Africa. The MDS has an investment program of R300 billion to achieve; efficient supply chains, global competitiveness, growth within SADC countries, reduced costs of doing business, and improved customer satisfaction. Transnet is asking the Steel Industry to; commit to volumes to support the capacity investments, to invest in siding capacity (rehabilitation and expansion), to identify consolidation opportunities and to foster closer relationships downstream in a mutual spirit of partnership. These meetings will take place once per quarter. SEIFSA members are encouraged to contact Mashirane Matheba, Commercial Manager at SEIFSA if there is any possible collaboration or assistance required regarding Transnet Freight Rail.
An Anglo American sponsored Enterprise Development Conference was held at Gallagher Convention Centre on 27th and 28th October 2014. The conference was sponsored by Anglo American in association with Property Point and Transnet. The conference showcased different inspirational keynote speakers and panel discussions featuring some of the country’s experts in the Enterprise and Supplier Development space. Taffie Chibanguza is also working with Anglo American on their enterprise development program, training their suppliers in the use of the price escalation indices and processes. Any member who has suppliers that they would like to development (and could enhance their BEE scorecards) should contact Taffie (taffie@seifsa.co.za) Mashirane (mashirane@seifsa.co.za) or Thakhani (thakhani@seifsa.co.za) for more information and support.
And then, the last worth mentioning is the momentum building up within the Industry Policy Forum process, both in the main agreement and trade and policy challenges workgroups. We hope to have a draft report on the latter to be discussed shortly and then taken further with the unions and other partners. In the light of the dire economic trends, we better make headway in trying to formulate our suggestions for solutions. (More info: henk@seifsa.co.za or lucio@seifsa.co.za)
Understanding the Economic environment:
Three datasets of specific importance for the metals and engineering sector were released recently.
• The Medium Term Budget Policy Statement contained important data on government’s expectations about the economy. The minister has to achieve four different policy objectives simultaneously, but the remedy for each jeopardizes the accomplishment of the others. He lowered government’s economic growth forecast for the next number of years to 1,4% (2014), 2,5% (2015), 2,8% (2016) and 3% (2017). This seems to be more realistic than before; the economy is growing far below its potential. The widening balance of payments deficit and increased dependence on foreign financing pose risks which are clearly understood. He announced measures to curtail government spending and lower the borrowing requirement to address this problem. SA’s infrastructure program requires large imports, which cannot easily be curtailed. His projections for the balance of payments deficits (relative to GDP) reflected this; 5,6% (2014), 5,4% (2015), 5,2% (2016) and 5% (2017). Government spending levels have been maintained to underpin growth despite declining tax income. The brakes were applied heavily; his estimates for the borrowing requirement of government as a percentage of GDP are 4,1% (2014/15), 3,6% (2015/16), 2,6% (2016/17) and 2,3% (2017/18). If this is achieved, government debt to GDP will only rise from 42,8% to 44,6%, to 45,4% and 45,9% in the respective years. These announcements were probably the most eagerly watched by rating agencies internationally. The curtailing of the government wage bill is crucial for success. The minister’s inflation targets are realistic and to the upper end of the SARB target range; 6,2% (2014), 5,9% (2015), 5,6% (2016) and 5,1% (2017). So many factors can influence these numbers, the downside mainly linked to oil prices and the upside due to exchange rate depreciation.
• Metals and engineering production data for August were released on the 9th of October (with the next release on the 11th of November). Production grew by 16% in August after the month-long strike and losses of 17% in July. All sub industries recovered some ground in August with ‘electrical machinery and equipment’ faring the best, resurging by 30% with the least recovery in ‘special machinery’ production (7%). The magnitude of the challenges facing the sector is borne out by the following facts;
o Despite the significant recovery of production in August (on July), compared to August 2013, the sector still contracted by nearly 4%.
o Production for the eight months of 2014 was 3,5% lower than the same period last year.
o The recovery was also not enough to change the course of the year, yet. Production for the 12 months ending in August compared to the same 12 months ending in August 2013, contracted by nearly 2%.
The result has been further underutilisation of production capacity and more strain on profit margins, company closures and job losses. There are more serious longer term consequences though. The fragility of the inter-relationship between metals and engineering and the auto sector, and the real possibility of losing out on supply chains is significantly illustrated by the August growth numbers. Whereas ‘motor vehicle’ production recovered by 32% in August, the production of ‘vehicle bodies and trailers’ recovered by only 5%. Even more concerning is the fact that the production of ‘parts and accessories’ did not recover at all (the latter is part of, or a significant market for metal products). It is quite clear that auto components can, and will be imported if need be. The consequences will be dire.
• The Kagiso/Bureau for Economic Research’s Purchasing Managers’’ Index is an important leading confidence indicator. The overall PMI for October reached 51.8 index points indicating very slow improvement in manufacturing confidence (above 50). The performance of the ‘business activity’ sub index, however, is the important one for metals and engineering. This index leads production trends by 12 to 18 months. Not only did;
o The index decline during October on September by half a percent, but
o The year to date (10 months) was nearly 9% lower than the same period during 2013.
o On a 12 month basis, the index was more than 6% lower than the same 12 months during 2013.
o The month of October was more than 7% lower than October 2013.
Trend analysis of these numbers leads us to the (sobering) conclusion that that the contraction has probably been arrested (we are not falling as fast any more ..!) These are the first signs of a possible bottoming of the trough (recovery) but difficulties to gain momentum are very evident; the October data illustrates this for the manufacturing sector generally, and metals and engineering specifically. Hopefully coming months will see actual recovery.
Our offer stands if you need us to share the important trends in the sector, or your specific sub-industry individualised , in support of your planning/budgeting process, please contact us. Research is ongoing and available.
Have a great week ahead. The Economics Team