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[Opinion] Why local businesses need protection (by Kaizer Nyatsumba – SEIFSA)

January 25, 2014


As South Africa enters the 2014 election season, it will be raining election promises everywhere. The ruling party was the first to launch its election manifesto, and its opponents will soon follow suit.

For a variety of reasons, our country has under-performed considerably on a number of fronts, including on the economy. At a time when the army of the unemployed has been growing at a worrying pace, our economy has ambled along gingerly, apparently with nary a care in the world.

Despite bold promises from the Government and the opposition to ensure economic growth that would lead to people being absorbed into the job market, start-up companies have folded and big ones have been forced by circumstances to let some employees go. Not only listed companies like Sasol, Anglo Platinum and Telkom – giants in their respective industries – have been talking restructuring and cutting back on staff numbers, but so, too, have some State-owned enterprises like South African Airways, as part of its turn-around strategy.

It was to be expected, therefore, that job creation would feature prominently in the ANC’s election manifesto. At the launch of its manifesto in Nelspruit this month, the ANC pledged to create six million “job opportunities” over the next five years. According to media reports, these “job opportunities” are part-time jobs to be created by the Government through its Extended Public Works Programme.

For anyone who is unemployed – and, indeed, for our economy – even such a “job opportunity” is to be welcomed. British economist John Maynard Keynes, who propagated the employment of people to dig holes and later to close them, would approve.

However, such interventions are ephemeral, at best. Although the experience gained through such jobs is likely to place the incumbent at an advantage when it comes to similar or related job opportunities in future, nevertheless they do not present a solution to our challenge of poor economic growth.

Although it employs people in its administration, a government’s responsibility is not to create jobs, but to create an environment that encourages entrepreneurs and investors to start businesses that will produce goods and services required by the market. To produce those goods and services, entrepreneurs and investors employ people to help them to satisfy the market’s needs.

We need to recognize, therefore, that South Africa is not owed any investment. Instead, South Africa is daily involved in acute competition with other countries for investment. Stability – political, labour, economic and judicial – is among the main things that investors look for when they choose an investment destination.  Ensure this stability, and half the battle for investment will have been won.

This is a point that President Jacob Zuma acknowledged on Saturday when he addressed South African business leaders on the eve of their departure for Davos, Switzerland to attend the annual World Economic Forum: “Looking to the State only to create jobs … is a non-starter. Our role as the Government is to create a conducive environment for growth.”

Among the things implied by the President’s statement is the need for all levels of government and State-owned enterprises to support South African businesses, and for big local business to support small business. Where expertise, products and services exist in South Africa, they are supposed to be procured locally, in the process helping to create or maintain jobs in the country.

And yet, that does not happen to the extent that it should. In the words of Leon Viljoen, Chairman of the Electrical Engineering and Allied Industries Association: “Generally localization is not happening to the extent that it should. Localization is talked about a lot, but we don’t see it happening.”

Equally importantly, a culture of supporting South African businesses needs to be cultivated. This goes as much for Government and State-owned enterprises as it does for big South African businesses. Instead of enabling small enterprises to establish themselves and to grow as local businesses and employers, quite often big businesses squash the local players and import similar goods or services from abroad.

Many members of the Steel and Engineering Industries Federation of South Africa have been victims of such practices. Generally manufacturing in South Africa faces serious challenges, so much so that metals and engineering businesses in the Border region of the Eastern Cape talk about “de-industrialization on a big scale”. Companies competing with cheap imports from the East are going out of business, in the process inevitably laying off their employees.

Metals and engineering businesses in the Border region blame their problems on the Government’s Motor Industry Development Programme, which sees car makers being subsidised generously to manufacture from South Africa, while they themselves do not benefit from the same or a related programme. They argue that instead of supporting them, the vehicle manufacturers rely on their head offices’ international supply chain in order to benefit from economies of scale.

“Every manufacturing, outside of the auto industry, is gone,” Eastern Cape Economic Development, Environment Affairs and Tourism MEC Mcebisi Jonas told me in December.

Jonas felt strongly that the national Government had to find ways to incentivise manufacturing in the Border region. Based on the devastation that I witnessed when I was driven around the area by a local businessman, I cannot but agree with him.

The Federation knows of municipalities and State-owned enterprises awarding tenders in the metals and engineering space to foreign companies, thus exporting both South African capital and jobs, at a time when the country has the required experience and expertise. Our Association of Electrical Cable Manufacturers of South Africa knows of an important para-statal entity that awarded a lucrative tender to a Chinese company which, upon winning the tender, established a presence in Johannesburg and employs only people that it has brought out here from China.

Ordinarily being endowed with resources would be a blessing, but that is provided the endowment in question benefits primarily the country. Regrettably, that is not always the case. Venezuela, for instance, has the biggest oil reserves in the world, and yet it imports its fuel from its political nemesis, the USA.

South Africa, on the other hand, has copper produced by the Limpopo-based Palabora Mining Company, which is jointly owned by the Chinese and the Industrial Development Corporation, and yet electrical cable manufacturing companies in the country have only some of that copper available to them, with the bulk of it exported. Aberdare Cables, for instance, used to get 140 000 tons of copper rod from the Limpopo-based copper company when it was still locally owned, but now receives only 40 000 tons. As a result, the company now imports 55% of its copper.

“South Africa imports all of its aluminium, and the country will soon find itself importing all of its copper,” said Aberdare Cables CEO Keith Edmond, who chairs the Association of Electrical Cables Manufacturers of South Africa.

In order to survive and/or thrive, South African metals and engineering companies need the Government’s help. It is important for their products to be designated, thus ensuring that local businesses procure a significant percentage of their metals and engineering products and services domestically in order to protect jobs.

More importantly, once they have been thus designated, it is important for the Government to enforce the designation so that those who cock a snook at the country’s laws do not get away with it. For instance, scrap metal merchants required by law to sell scrap metals domestically first at a preferable price are refusing to do so – and are getting away with it.

Kaizer Nyatsumba is the Executive Director of the Steel and Engineering Industries Federation of Southern Africa.


From → Economy, Opinion

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