JOHANNESBURG, 17 SEPTEMBER 2020 – The decision to move the country to level 1 of the national lockdown put in place to fight the spread of COVID-19 will give struggling businesses in the Metals and Engineering (M&E) industry much-needed momentum in their recovery efforts, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Chief Economist Dr Michael Ade said today.
After nearly six months of lockdown restrictions that included, among other stringent measures, the closure of the country’s borders, businesses will finally be able to ramp up their importing or exporting activities. However, as President Cyril Ramaphosa conceded during his address to the nation last night, global demand for goods will remain constrained in the medium term, Dr Ade said.
“The anticipated increased in export activity bodes well for export-oriented manufacturing, in line with the national industrial policy framework, as it will result in increased production activity and access to global markets, enabling businesses to ramp up their recovery,” he said.
Dr Ade noted that businesses that rely on imported raw materials have been significantly set back by restricted access to supplies due to border restrictions.
“The year 2020 has resulted in unprecedented pain for many businesses in the M&E sector, especially those that principally import raw materials as they have been producing under increasing costs and diminishing returns due to the higher cost of raw materials. The move to level 1 and subsequent liberalisation of international travels on October 1 means that executives will be able to travel and conclude contracts towards selling or importing raw materials at cheaper prices in order to manufacture and sell, thereby improving their margins and profits,” Dr Ade said.
He said while the latest developments imply that there will be a boost to business activity towards total reinstatement of supply chains, enabling companies to carry out trade and production activities without disruptions, it is up to South Africans to ensure they create an enabling environment for business recovery. He said that, based on necessary anti-COVID-19 precautionary measures like social distancing remaining in place longer, SEIFSA has revised its growth forecast for the sector for 2020/21 from the initial 0,6% to -9,1%.
Dr Ade said while it was important for business to take advantage of the Government’s R500-billion loan guarantee scheme by seeking low-interest loans to stay afloat, business recovery would require State-owned entities like Eskom and Transnet “also to come to the party”. He said it was vital that Eskom ensured reliable power supply at all times.
Dr Ade also stressed the importance of increased logistical support for companies seeking to export to regional markets. He said municipalities and State-owned companies had to procure South African designated products for local production to stimulate economic recovery.
“There is no doubt that South Africa is headed down a long, difficult path to economic recovery. However, we are cautiously optimistic that business and Government will continue to work together as the Government concludes its economic reconstruction and recovery plan which should ensure not only the preservation of jobs, but also the creation of additional opportunities for sustainable employment,” he concluded.