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From the Chief Executive Officer’s desk – October 2014

By 9th Nov 2014Sep 20th, 2019No Comments

This is so despite the fact that, as already indicated above, manufacturing has since fallen on very hard times in South Africa, even though a cursory glance can be very deceiving. According to the South African Reserve Bank, manufacturing is 29% larger today than 10 years ago, 66% larger than 20 years ago and 71% larger than 30 years ago.

However – and this is the all-important point – manufacturing’s share of the economy declined first from 20% in 1983 to 19% in 1993, and then further still to 18% in 2003 and eventually to 16 % in 2013. So, over a period of four decades, manufacturing’s share of the economy declined from an impressive 20% right at the height of apartheid South Africa’s isolation from the international community through to 16 percent at the end of our second decade of democracy.

Surely something must be terribly wrong with this picture. Yes, global tourism and the hospitality sector as well as the international capital markets are now bigger contributors to our Gross Domestic Product (GDP) than was the case in the midst of punitive international economic sanctions against Pretoria, but they alone do not explain the considerable decline of manufacturing’s contribution to our GDP.

For some reason, it is as if South Africa, as a country, simply turned its back on manufacturing and decided, instead, on importing most of its products and intermediary goods that used to be manufactured here at home. Just as the Government’s policy of complete or near-complete transparency to international competition until now has not helped matters, so, too, has South Africa’s hard-line labour relations regime that has been characterised by conflict and growing aggression on the part of labour. Sadly, as a result, we lag behind in a number of areas when it comes to international competitiveness.

Economists and operations executives tell us that many factors determine the health of manufacturing. High capacity utilisation due to strong domestic and/or export demand leads to higher profit margins and higher levels of fixed investment in the sector. In South Africa, manufacturing exports represent an estimated 35% of production, while imports have captured nearly 45% of the domestic market. On the other hand, the metals and engineering sector exports 60% of its products and competes with imports for 60% of the domestic market.

Reintegration into the global economy has huge benefits due to access to bigger markets, but can develop into a mortal battle for survival between competitors and importers. Higher imports replacing domestic suppliers lead to lower capacity utilisation, lower profit margins and, eventually, lower domestic investment in the sector.

However, the investment patterns within the sector and the size of production capacity show very worrying signs. The value of capital stock in manufacturing relative to output has been declining since the early 1990s. Annual fixed investment, as a percentage of output, has declined by about a third over the last two decades when compared to the 1980s. These patterns are much more profound in the metals and engineering industries where fixed investment relative to output has declined by two thirds of the levels where they were at the beginning of the 1990s.

The key factor is global competitiveness. Without a sufficient and secure supply of energy – and, in this case, electricity – it is not possible for South Africa to be globally competitive. As we all know, electricity supply in the country reached its lowest levels between 2000 and 2008. When investment patterns in manufacturing and metals and engineering are overlaid on electricity supply, the inconsistency of supply and the cost of energy trends, one cannot but conclude that investment is held back by this constraint.

Instead, South African manufacturers are importing more and more components for assembly here due to cost advantages and security of supply which their own domestic investments cannot guarantee. The physical value of production capacity in both manufacturing and metals and engineering reached its lowest points after the year 2000.

We at SEIFSA are gravely concerned about this situation. In fact, so concerned are we that we have decided to introduce two vital initiatives in the current financial year. In an effort to stimulate manufacturing, we will launch an annual, two-day Southern African Metals and Engineering Conference to take place in Johannesburg each year, and we will also introduce annual SEIFSA Awards to celebrate excellence in manufacturing.

The mining sector has the annual Mining Indaba, which has become synonymous with Cape Town and is attended by all players in the mining sector and the relevant Government stakeholders from different parts of the world, but especially the African continent. The metals and engineering sector, which is a vital supplier to the mining, auto and construction industries, has no such international conference of its own.

We are about to correct that terrible omission. Our inaugural Southern African Metals and Engineering Conference, organised and brought to you by SEIFSA, will take place on 28-29 May 2015 in Johannesburg. It will bring together experienced business leaders and executives, enterpreneurs, policy makers and investors in a major conference that will become a major feature on the calendar of the steel and engineering sector in the Southern African Development Community.

Invitations to speakers, sponsors and exhibitors will soon be going out, so don’t miss out on this wonderful opportunity. Among the key focus areas of next year’s inaugural conference will be an update on and concrete plans related to the Government’s ambitious National Development Plan. Interested attendants, speakers, sponsors and exhibitors should make contact with our Marketing and Communications Executive, Adelia Pimentel, while there is still space.
Government Departments like Trade and Industry, Economic Development and even Small Business Development are hereby encouraged to partner with SEIFSA at their very earliest convenience.

The Southern African Metals and Engineering Conference is one of three vital innovations that began with the current CEO’s tenure in November 2013. First we extended the Federation’s reach beyond our borders to Southern Africa and profiled it in the March issue of Financial Mail. Now, in addition to the aforementioned Southern African Metals and Engineering Conference, we are also introducing annual SEIFSA Awards.

Intended to encourage manufacturing and to foster a culture of innovation and excellence, the Awards are open to all metals and engineering manufacturers and will be offered in the following categories:

Most Innovative Company of the Year

Criterion: To be awarded to a company that has shown the best level of innovation in Research and Development or Production, in the process either gaining market advantage or reducing production costs

Health & Safety Award of the Year

Criteria: To be awarded to a company with the best legal compliance record when it comes to Health and Safety or the lowest Lost Time Injury Frequency Rate (LTIFR)

Best Corporate Social Responsibility Programme of the Year

Criterion: To be awarded to a company with a CSI project that makes the biggest impact on the lives of its beneficiaries

Customer Service Award of the Year

Criterion: To be awarded to a company with the best/highest rating by its customers for its performance in customer service

Most transformed company of the Year (X2)

Criterion: To be awarded to the most transformed company in terms of the composition of its Board of Directors, Executive Management and Managerial Team: one category will pit companies employing fewer than 100 people against one another, and the second category will pit companies employing more than 100 companies against one another

Decade of the Artisan Award

Criterion: To be awarded to a company with the highest number of artisans trained each year (for itself and/or the industry)

CEO Awards

  • Gold Awards – 50-60 years membership and in good standing
  • Platinum Awards – 70-plus years membership and in good standing

Potential sponsors, among whom we hope will be the Departments of Basic Education, Higher Education, Science and Technology and MerSeta, are again invited to contact Adelia Pimentel (Adelia@seifsa.co.za) as a matter of extreme urgency.
Finally, from 2015 the annual SEIFSA Golf Day, which takes place in August each year, will be open to all sponsors, and not only SEIFSA members (as has been the case so far) or only to companies in the metals and engineering sector. Here, too, the message is clear: go big, or go home. Sponsors, first come, first served.
Details on all these events will carried in SEIFSA News and the mainstream media over the next few weeks and months.

 

Kaizer M. Nyatsumba
Chief Executive Officer

 

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