Test of mettle for battling sector | Fin24
 
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Test of mettle for battling sector

Sep 05 2017 10:06
Kaizer Nyatsumba

Later this month, stakeholders in the metals and engineering sector will converge for the annual Southern African Metals and Engineering Indaba, with a single-minded focus on finding workable solutions to the various challenges facing the sector, and to devise concrete strategies that would ensure the sector’s growth and long-term sustainability.

The challenges facing the metals and engineering sector are well-documented. These include a flood of cheap imports, unfair competition from countries such as China where manufacturing is highly subsidised, rising production and labour costs, as well as stagnant economic growth. 

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) has long been vocal about the influx of cheap imports. Seifsa has done so because, like many others in the sector, its members are deeply concerned about job losses.
 
The sector has lost a total of 25 000 jobs in the three years between July 2014 and June this year. High levels of unemployment and poverty provide a fertile ground for social, economic and political instability. 

Job losses at that scale move SA away from the goals and objectives of the National Development Plan (NDP), which proposes the creation of 11m jobs by 2030 through, among others, the promotion of employment in labour-absorbing industries.
 
Sadly, a few years after the adoption of the NDP the federation now knows that this ambition is not supported by reality. Seifsa has seen a number of its member companies either scale down operations or shut down completely. 

The sector has been on the receiving end of negative sentiment about the local economy because of, among others, falling GDP and contraction in the secondary sector in the first quarter of this year. 

According to the Reserve Bank’s June 2017 Quarterly Bulletin, manufacturing production contracted for the third successive quarter in the first three months of this year. 

This was mainly due to weak domestic demand and low business confidence. The metals and engineering sector has contracted each successive year since 2013, with a cumulative contraction of 6% between 2013 and 2016.
 
Along with low production levels and weak demand, the unfavourable conditions in the local economy have led to poor new investments in the sector.
 
Therefore, it goes without saying that the fortunes of the metals and engineering sector are inextricably linked to the health of the local economy, since approximately 57% of the sector’s output is consumed in the domestic market. 

For that reason, Seifsa is deeply worried about what is happening in the economy. The continued erosion of business confidence concerns its members, like many others, because it has an effect on the investment decisions of their customers in the mining, automotive, construction and petrochemicals sectors.
  
International competitiveness is also of concern. While the bulk of the sectors’ output is consumed in the domestic market, a sizable portion of its output is still exported. For that reason, the recent lacklustre performance of exports is a worrying trend. 

Between 2015 and 2016, exports in the metals and engineering sector decreased by 12.4% in nominal terms and 17% in real terms. This compares negatively to the 2.1% contraction between 2014 and 2015.

In 2016, the bulk of metals and engineering exports were headed for the rest of Africa (37.3%), followed by Asia (27.8%) and Europe (20.9%). 

If SA is serious about enhancing export competitiveness in this and other sectors, it has no choice but to pay close attention to developments in these key markets.
 
This year’s Indaba takes place a few weeks after the metals and engineering sector sealed a three-year wage agreement with unions. 

The settlement was a compromise deal for all the parties involved and none of the parties walked away with what it had wished for. All those who were involved in these crucial negotiations are satisfied that they did what was best for the industry under the current circumstances.
 
The outcome of the negotiations encapsulates the positive spirit within the sector. Employers and labour may have their differences, but there comes a time when they have to put those differences aside for the sake of the survival of the sector. 

It is through that kind of maturity that players in the sector will overcome their challenges. 

For the first time in a decade, all stakeholders were able to reach a settlement agreement without any industrial action. This is remarkable when one considers that the sector experienced a week-long strike in 2007, a two-week strike in 2011 and a month-long strike in 2014.

Kaizer Nyatsumba is the CEO of Seifsa. For more information on the Indaba, click here

This article originally appeared in the 7 September edition of finweekBuy and download the magazine here.

steel industry  |  steel  |  engineering  |  manufacturing  |  seifsa
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