The industry, which is an important pivot between the sectors of manufacturing, mining and construction, will next month – through the auspices of Seifsa – hold its first ever indaba to bring to the fore matters of concern which, if well addressed, would help it to contribute to the growth of the economy.
Seifsa chief executive Kaizer Nyatsumba highlighted to Business Report that it was time the sector was proactive in putting itself in the eye of policymakers, industry, the government and business.
Seifsa is planning an indaba next month, the question is why now, what has brought about the need for an imbizo for the engineering and metals sector?
The manufacturing sector in South Africa, of which the metals and engineering sector is part, has not done very well since we had the economic challenges in 2008 around the world, which manifested in South Africa from 2009 onwards. There have been more challenges economically – we have fewer jobs today than we did in 2009 in the metals and engineering sector and manufacturing generally, we also have a flood of cheap imports that make things more difficult but going even beyond 2008/2009, we had the global recession. We have had a situation where the contribution of the manufacturing sector to the country’s GDP (gross domestic product) has been declining gradually by a percentage point each decade.
This is a concern, and we believe it is critically important for industry players, business leaders, captains of industry, policymakers, the government and labour to come together to talk about what it is that can be done and should be done, to revive manufacturing in South Africa specifically in the metals and engineering sector.
There has not been an opportunity in this sector to bring stakeholders together annually to talk about matters of mutual interest, we are a very strategic sector and it hasn’t had this opportunity, and we thought it important to correct it.
We supply the auto manufacturing sector, mining and construction and whatever happens there, affects us.
Going into the indaba itself, what are the most prominent issues that need to be tackled?
The first is whether in this country there is in fact a future for manufacturing. A very legitimate question given what I have just said about the flood of cheap imports into the country.
There are many things that used to be manufactured entirely in South Africa, not just in the post-apartheid era when there were these high Chinese walls in the form of tariffs, but after that South Africa was doing quite well.
It has, however, lost much of that capability because the tariffs were not just reduced but in most cases eradicated.
South African manufacturers found themselves competing with the rest of the world, where most of whose manufacturers had higher degrees of efficiencies than we don’t and some of whom are at the cutting edge of technology.
A significant number of them, particularly from Asia are also subsidised and we are not, and that saw a number of manufacturers going out of business while struggling to be competitive in the local market.
A significant number of them resorted to importing, where there used to be a manufacturing here, or certainly imported components and assembled them here before selling them.
The situation is that dire, we believe it is important to talk about what we need to to as different stakeholders, policymakers, business and labour to arrest that situation.
So, whether or not manufacturing has a future in South Africa, is the main discussion on the agenda. In this country there is a great deal of industrial instability, among other issues.
When people sit in London, Paris, New York or wherever and look for places to invest in, they must of necessity be concerned of the number of strikes here, which tend to be violent.
Can we find, can we agree as stakeholders and business and labour with the assistance of the government to work together to attract investment, to ensure that the businesses that are currently in existence continue to survive.
Given the extent of the importance of this sector, why does it seem to be more of a victim when a lot hinges on it?
A whole lot of factors, by far the most crucial is the eradication, not gradually but overnight, of import tariffs. Many countries protect their strategies and industries, and manufacturing is one of them. The World Trade Organisation is there to ensure that there is free trade around the world, but it recognises the need for tariffs that it deems acceptable.
So, we have moved from one extreme where there is high tariffs to the other where there are no tariffs at all. And we are extremely vulnerable.
Local companies have been undercut and driven out of the market in valve manufacturing, for example, by Chinese and Indian companies which come from subsidised environments, which is unfair competition.
South Africa has removed tariffs here so there is equal competition, but if there are no tariffs offered here those companies where the cost of labour is much cheaper than it is here and are subsidised, have more of a competitive advantage.
The cost of labour, compared to the countries I have mentioned, its important for us given where we have come from as a country to make sure that people are paid decently, because we had to address the legacy of apartheid. But countries like India and China that are vast and where labour is cheap because of the abundance. We don’t have the labour-cost advantage they have.
Some countries, especially the Western countries, have adopted mechanisation and are much more efficient in terms of their manufacturing. The unit about costs are much lower.
We are a small country, bigger than some neighbouring countries, but in the bigger scheme of things we are a small country and therefore the market here is smaller.
Where factory utilisation capacity is lower, we have to, in order to reduce costs have machines running 24-hours a day so that the unit costs come down. But if you start and stop your machines and your capacity utilisation is therefore 40 to 60 percent, it sometimes means that the unit cost of production is much higher. All these factors affect the degree to which we are able to compete, not just internationally, but also within our markers too.
We haven’t yet fully as a country, especially as a sector, taken advantage of the opportunities that exist on the African continent, because frankly, that is where we can be competitive, where opportunity lies for us.
Infrastructure development in those countries is not where it should be, and we supply to industries that are in infrastructure development and so we need to penetrate the African market, which we are encouraging our members to do.
And regrettably, if I may say that what has been happening in our country, the attacks on fellow Africans by South Africans makes things more difficult for us to penetrate those markets and to be welcomed with open arms. It makes things extremely difficult, it’s unfortunate and deplorable.
What would be Seifsa’s ideal in the regulatory environment?
By lobbying in the interests of business. We keep saying that South Africa wins where business wins. Business and labour and the government are not enemies and should never regard themselves as such, because when business shrinks, when its not doing well, people are laid off and the unions are affected and less taxes are paid to the government.
But if business booms, the converse is true. It is a delicate partnership, and you always have to look at it in that way, and we get the sense that it’s not always done that way.
We have to lobby the respective departments and ministries in government on a number of issues, and we have mutual interests with labour.
It’s in all our interest to make sure there is more investment here, companies here need to do more than survive, they need to thrive, it’s a mutual interest.
Unfortunately when it comes to discussions and negotiations there is this adversarial attitude. Do we have the ear of the government? Yes, we do, in some departments and not in others. You will find that the Department of Trade and Industry is very receptive, but there are ministers who are not available, regrettably.
We also observe the existence of policy incoherence. Sometimes within the same ministry you find the deputy pushes in one direction and the minister in another direction, we have noticed that.