JOHANNESBURG, 25 FEBRUARY 2021 – The Steel and Engineering Industries Federation of Southern African (SEIFSA) welcomes the national budget presented by Finance Minister Tito Mboweni in Parliament yesterday.
SEIFSA Chief Economist Chifipa Mhango said it is clear the Government is trying to prioritise support for a rapid return to economic growth amid the COVID-19 pandemic and the associated national lockdown.
He welcomed the attention given to the COVID-19 vaccination programme as it is the only way to build sufficient business confidence that will allow production operations to resume at full capacity, noting that capacity utilisation within the M&E sector is currently around 68%.
Mr Mhango said Government’s commitment to support economic recovery by extending short-term economic support and undertaking reforms to lower the cost of doing business and stabilise public finances is encouraging, as is the move to lower corporate income tax to 27%.
SEIFSA is also encouraged by plans to foster growth by stabilising electricity supply, supporting industries with high employment, as well as potential and undertaking partnerships with the private sector: “Energy supply is one of the critical areas of concern for the M&E sector; addressing this challenge will go a long way towards benefiting the sector to ensure that there are no disruptions in supply,” Mr Mhango said.
Mr Mhango said the projected real economic growth rate of 3.3% in 2021 is too weak to provide a massive platform for higher demand for M&E sector products such as steel. He said a sustained economic growth rate above 5%, supported by growth rates of above 10% in the construction sector, is ideal. He advised producer companies to consider expanding their footprints beyond South Africa and take advantage of the African Continent Free Trade Area agreement.
Mr Mhango said he is encouraged that the Government has acknowledged the need to raise the level of fixed investment through infrastructure spending, considering the low levels of fixed investment to GDP of below 20%: “The Government is on the right track when it says that to grow the economy and reduce unemployment – and poverty, capital investment by the public and private sectors needs to increase.” He said between 2007 and 2009, public and private capital investment as a percentage of GDP had increased in response to various construction projects ahead of the 2010 FIFA World Cup, but has declined sharply since then, averaging 6.6% of GDP between 2010 and 2019.
He said the continued emphasis on infrastructure spending bodes well for the M&E sector and should stimulate demand. He added that, with State-owned companies projected to spend R293.7-billion over the next three years, it is important that companies in the M&E sector explore areas of opportunities to supply construction-related material for these Government projects.
Mr Mhango also welcomed the Government’s plans to boost local manufacturing production through various incentives to be provided through the Department of Trade, Industry and Competition, saying such efforts are likely to revive the economy and ease some of the pain experienced by the sector.
“The M&E sector should also take advantage of the reduced pressure on costs through the reduction of corporate tax by, among other things, focusing on improving competitiveness and efficiency of the production base by investing into new technologies. The COVID-19 lockdown measures that caused disruptions on production should be a lesson to speed up the fourth industrial revolution by advancing technology in production,” he said.
However, Mr Mhango expressed disappointment that there are still no concrete details around addressing logistical costs and rising energy costs, which are eroding the competitiveness of local producers in the M&E sector.
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