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
Press Release - 2014/11/11: EFFECTS OF MONTH-LONG STRIKE CONTINUE TO BE FELT IN THE METALS AND ENGINEERING SECTOR
Speaking after Statistics South Africa’s release of the manufacturing figures, SEIFSA Chief Economist Henk Langenhoven said that neither the +16% promising recovery in August, nor the 1% further recovery in September could repair the damage.
This, coupled with the October Purchasing Managers’ Index (business activity sub-index) released earlier this month, reflected the difficult recovery dynamics in the sector.
The October 2014 PMI showed a 9% decline on a year ago and a 6% decline on a 12- month basis.
“If the typical lag time of 12 to 18 months holds, the sector will only show material recovery towards the third quarter of 2015,” Mr Langenhoven said.
He added that capacity utilisation figures released by Statistics South Africa earlier showed no improvement for the three quarters of 2014. The average levels of 78% recorded are far below the benchmark of 85% and explain the low levels of investment in the sector.
Official third-quarter employment numbers for the metals and engineering sector have not been released yet. The preliminary estimates from consolidated data emanating from SEIFSA’s members and other sources, covering 10 233 companies, show a 2% decline in employment since June 2014. The estimated number of employees made redundant by the end of October (since June) in the sector is 7 000.
Metals and engineering production increased in September by a mere 1%, but production for the year to date was 3% lower than a year ago and 2% lower on a 12-month basis. Production in September 2014 was 0,5% lower than production in September 2013.
“Any source of uncertainty would be detrimental to the sector’s recovery. Representing 34% of manufacturing production, these numbers drive home the importance of recovery in the sector for manufacturing to gain momentum,” concluded Mr Langenhoven.
Annual shutdown: leave pay and leave enhancement pay calculations 2014
- The dates of the annual shutdown are determined by the firm’s management, however, the shutdown must take place as close as possible to the previous year’s shutdown, as stipulated in clause 16 of the Main Agreement.
- The three consecutive weeks’ paid leave must be taken over an unbroken period and must include four weekends. In addition, the three weeks’ leave must be extended with full pay for each public holiday which falls during the shutdown period and which would otherwise have been an ordinary working day. This year, depending on the start of the annual shutdown, the following public holidays fall into this category:
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Day of Reconciliation | |
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Christmas Day | |
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Day of Goodwill | |
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New Year’s Day |
- All employees are entitled to their full leave pay and leave enhancement pay on completion of 234 shifts worked on a five-day week basis or 283 shifts on a six-day week basis, excluding overtime.
PRESS RELEASE - 2014/10/31: SEIFSA WELCOMES MODERATING PRODUCER INFLATION, BUT WARNS OF A POTENTIAL UPSIDE
“We have previously cited weak domestic fundamentals as contributing significantly to this easing production inflation, a view we still hold. Lower international food prices and easing commodity prices can also be attributed to this trend,” said SEIFSA Economist Tafadzwa Chibanguza.
The PPI for intermediate manufactured goods rose by 7% when September 2014 is compared to September 2013. This is up from the year-on-year 6.7% recorded in August.
Mr Chibanguza said that given sharp depreciation in the currency in September, this increase in the index was largely to be expected.
On a trade day weighted-average basis, the Rand depreciated by about 3% between August 2014 and September 2014 and by about 6% when the first and last days in September are compared.
“Chronologically, the impact of the variables affecting prices would first be observed in the PPI for intermediate manufactured goods, domestic producers would then pass through those costs into the products they produce, which is when we would see upward pressure in the final manufactured goods and, lastly, the final pass-through would be to the consumer, observed in the consumer price index,” Mr Chibanguza said.
Muddying the waters further were recent developments in the United States (US), with the US Federal Reserve stopping its quantitative easing (QE) programme and adopting a hawkish approach to the US economy.
“While the expectation is to start increasing their interest later in 2015, the end of the QE programme will undoubtedly place significant pressure on emerging-market currencies, with the tap of cheap money from the US drying up,” Mr Chibanguza said.
Therefore, the risk to domestic inflation was inherent in currency fluctuation for the foreseeable future. However, the declining brent crude oil prices were expected to create a counteracting effect.
“Transport makes up a significant input cost for producers and will, therefore, offer some reprieve to domestic production costs,” concluded Mr Chibanguza.
Press Release - 2014/10/22: EASING OIL PRICES HELP TO CURB CONSUMER INFATION
“We welcome this move not only because it brings consumer inflation into the Reserve Bank’s 3% to 6% target range, but also because it is a positive development given the difficult position in which South African consumers find themselves and the weak state of the domestic economy,” SEIFSA Economist Tafadzwa Chibanguza said.
Mr Chibanguza added that September’s disinflationary trend could be attributed to the easing price of brent crude oil, which has continued to surprise downward, touching multi-year lows. The impact of the brent crude oil decline has been far greater than the opposite effect of the weakening of the Rand. This was reflected in the 67c/litre decrease in domestic oil prices.
Fuel costs have a significant inflationary impact since most products have to be transported in one form or another. Increases or decreases in fuel prices, therefore, had a blanket impact on inflation and the overall economy.
The majority of the sub-categories in the CPI remained unchanged. This also assisted with the downward pressure in the index.
Mr Chibanguza said that the easing in inflationary pressure was expected to persist until the beginning of the festive season, which will see increases in the food and beverages sub-components.
“However, we should sound a caveat for the interim period. The current easing in inflation is the result of variables that are outside of South Africa’s control. The easing brent crude oil price is largely a function of slow global growth and concerns that crude oil markets are over-supplied. The exchange value of the Rand is very sensitive to global and domestic economic events,” he said.
Mr Chibanguza said that the exogenous nature of these variables made it very difficult to anticipate the future trajectory of inflation. A change of these variables in either direction would have a corresponding impact on the domestic inflation path.
Press Release - 2014/10/22: SEIFSA WELCOMES GOVERNMENT’S COST-CONTAINMENT MEASURES
Commenting on the Medium-Term Budget Policy Statement delivered by Finance Minister Nhlanhla Nene in Parliament this afternoon, SEIFSA Chief Executive Officer Kaizer Nyatsumba said that the Government’s acceptance of the fact that, in the words of Minister Nene, “fiscal consolidation can no longer be postponed … [and that] the culture of doing more with less is required” was critically important for South Africa.
Mr Nyatsumba said 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 cut its cloth according to its size.
“Minister Nene and his team had to engage in a delicate balancing act. It now remains to be seen if the financial discipline, efficiency and responsibility correctly identified by the Minister will be evident throughout all tiers of Government, with all instances of corruption ruthlessly dealt with. Failure to act against those who do not implement these much-needed cost-saving measures can only undermine Minister Nene and his team,” Mr Nyatsumba said.
He also welcomed the Government’s continued commitment to the National Development Plan and its ambitious infrastructure development programme, but stressed the need for the Government, labour and business to work more closely together in the country’s best interests.
However, Mr Nyatsumba cautioned that the answer to generating the additional R15-billion required in the next financial year lay in making South Africa more business friendly and attracting new domestic and international investment, and not in increasing corporate and personal tax rates.
Press Release - 2014/10/10:METALS AND ENGINEERING SECTOR BEGINNING TO SHOW SIGNS OF RECOVERY
Metals and engineering sector production grew by 16% in August after a month-long industrial action and losses of 17% in July.
However, SEIFSA Chief Economist Henk Langenhoven cautioned that the recovery was not uniform with electrical machinery and equipment, which resurged by 30%, with the least recovery in special machinery production (7%).
Mr Langenhoven said the magnitude of the challenges facing the sector was borne out by the following facts;
- Despite the significant recovery of production in August, when compared to August 2013, the sector still contracted by nearly 4%.
- Production for the year to date was 3,5% lower than the same period last year.
- The recovery was also not enough to change the course of the year; and
- When compared to production for the same 12-month period ending in August last year, there was a contraction of nearly 2% in the 12 months ending in August this year.
“The industrial unrest was the last thing the sector needed. Further under-utilisation of production capacity and more strain on profit margins have been the result. The short- term consequences of these numbers are company closures and job losses,” Mr Langenhoven said.
He added that there were more serious longer-term consequences.
“The fragility of the inter-relationship between metals and engineering industries and the auto sector and the real possibility of losing out on supply chains to the latter 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%,” said Mr Langenhoven.
Even more concerning was the fact that the production of parts and accessories did not recover at all.
“We hope sincerely that these facts will be sobering enough to force new thinking and leadership from all stakeholders so that we all work cooperatively together in the search for remedies,” Mr Langenhoven concluded.
Press Release - 2014/10/01: CAUTIOUS OPTIMISM AS PMI TURNAROUND CONTINUES
Speaking after the release of the PMI figures today, Steel and Engineering Industries Federation of Southern Africa Chief Economist Henk Langenhoven said the latest figures gave more certainty that manufacturing production levels would begin improving in the near future. The seasonally adjusted index improved 3,5% when September is compared with August.
The business activity sub-index of the PMI improved by a further 12% in September, on the back of 20% in August on the preceding month. Mr Langenhoven said that this was of great interest to the metals and engineering sector, as it led production trends by between a year and 18 months:
- The lower business activity index turning point in the middle of 2007 resulted in a production turnaround point at the beginning of 2009;
- The peak at the beginning of 2011 caused a peak in production in the middle of 2013, and the contraction is still continuing;
- The latest business activity index numbers show a turning point in the middle of 2014, indicating a production turning point towards the second half of 2015 (accepting the same time lags).
“Confidence levels are highly volatile and very fragile. However, the monthly improvement was 12% on August. Compared to August 2013, the improvement was just over 10%,” Mr Langenhoven said.
He said that the explanation was twofold.
“Firstly, confidence is improving and expected business conditions are 6% higher and, secondly, the protracted declines in the trend since the end of 2012 caused a base effect. This means that we are comparing today with very low levels before. The signals coming from the new orders, inventories and purchasing commitments all show how fragile the situation is still,” said Mr Langenhoven.
Longer-term comparisons confirmed the latter. Looking at the nine months of 2014 relative to last year, the index was still nearly 10% lower. Comparing the 12 months ending in September against the same period last year, it is 4% lower. However, both numbers show that the contraction is slowly arrested, which is the first sign of improvement to follow and is, therefore, very encouraging.
“The signs of recovery are clearly stronger, both for the manufacturing sector generally and the metals and engineering industries specifically,” Mr Langenhoven concluded.
Press Release - 2014/09/25: EASING PRODUCTION INFLATION REFLECTS WEAK DOMESTIC FUNDAMENTALS
The producer price index (PPI) for final manufactured goods rose 7.2% when August 2014 is compared with the same month last year. This is down from the year-on-year 8% recorded in July. More shockingly, the PPI for intermediate manufactured goods increased by 6.7% when August 2014 is compared with August 2013, down from the 8.5% increase recorded in July.
“Theoretically, amongst other variables, strong economic growth causes inflation. At a macroeconomic level, if aggregate demand is greater than aggregate supply, the result is upward pressure on inflation. The reverse is true that if you cannot sell a product at a specific price, then you have to reduce the price of the product. This fact is evident in the PPI figures, given the lacklustre growth in the manufacturing sector and the broader South African economy,” SEIFSA Economist Tafadzwa Chibanguza said.
Compounding this disinflationary trend in August would have been a number of additional factors. Firstly, the exchange rate held a relatively stable level in August (averaging $1/R10.66 for the month), thus easing the inflationary pass through.
Secondly, recovering production levels as companies returned to production after the July strike in the metals and engineering industries meant that companies were still far from full capacity. Lastly is the softer brent crude oil price, which decreased by about four percent in dollar terms in August.
“All these factors would have contributed to the easing in production inflation,” said Mr Chibanguza.
He added: “While we certainly welcome this disinflationary pattern in producer inflation and the knock-on effects that it will have on consumer inflation and relief to a fragile economy, it is the underlying pattern causing the trend that is of concern.”
Mr Chibanguza said that a further concern was that the disinflationary trend could be very quickly reversed owing to the fact that it was not based on strong domestic fundamentals such as higher productivity and/or improving efficiencies like transport infrastructure and electricity supply constraints.
“Currency fluctuation (accounting for just under 50% of the movement in domestic production prices) poses the greatest risk to producer inflation. The recent bout of the $1/R11.00-R11:18 does not bode well for inflation, and will most certainly reverse the trend to an inflationary one in the next reading,” Mr Chibanguza concluded.
Press Release - 2014/09/25: THE GOVERNMENT IS TERRIBLY ILL ADVISED TO INTRODUCE CARBON TAX
Commenting on a joint statement by the Departments of Environmental Affairs and Trade and Industry that they were currently finalizing an approach to carbon tax, Mr Nyatsumba said that it was most unfortunate that the Government appeared to be more concerned about squeezing the economy to generate even more taxes than it was about our under-performing economy and the growing army of the unemployed. He said it was inevitable that the introduction of a carbon tax would further stifle the economy and render South Africa even less competitive internationally.
Mr Nyatsumba said that South Africa, whose economic outlook had recently been downgraded both by ratings agencies and the revered World Economic Forum, needed to follow the worthy example set by Australia early this year which announced the repeal of carbon taxes with effect from 1 July 2014.
“Our view is simple: a developing country like South Africa cannot afford to constrain the economy even further, at a time when more jobs need to be created, by introducing carbon tax when far more developed countries like the United States of America and Australia have not done so,” said Mr Nyatsumba.
He said that while SEIFSA encouraged responsible corporate conduct and supported sustainability, the Federation nevertheless remained firmly of the view that there was no reason for South Africa, which contributes less than 1% to global emissions, to take the lead in climate change mitigation by being one of the few countries to introduce a carbon tax.
“South Africa’s economy is currently doing very badly. We are a Third-World country which needs to attract investment that will, in turn, stimulate economic growth. The introduction of carbon tax will not help us achieve this goal,” Mr Nyatsumba said.
He strongly urged the relevant Government departments to abandon their ill-advised plan to introduce carbon tax – just as Australia wisely did two months ago.
“The South African economy has been under siege in recent years, with fairly negligible growth at a time when higher levels of growth are needed in order to create much-needed jobs. It makes no sense at all for the Government, which professes to be committed to job creation, to seek to burden local business even further through the introduction of carbon tax,” Mr Nyatsumba concluded.