Consulting and management services firm Deloitte has called for more action with regard to the implementation of South Africa’s Manufacturing Competitiveness Enhancement Programme (MCEP).
“South Africa has a wonderful strategic policy on beneficiation and manufacturing job creation, outlined in the Industrial Policy Action Plan 2012/13, and it recently introduced the R5.8-billion MCEP. The objectives of the MCEP are to promote competitiveness and job creation through the provision of production incentives and industrial financing loan facilities.
“Sadly, there is not enough action. What we need to do is take this existing policy to full implementation. We need to stimulate local manufacturing of final stainless steel products, thereby creating thousands of domestic jobs and developing a host of supporting industries that would evolve as a result,” says Deloitte consulting strategy and innovation manufacturing industry director Eugene de Klerk.
South Africa could easily create more than 4 000 direct jobs and, potentially, 10 000 indirect jobs by beneficiating iron-ore into mild steel versus stainless steel final products.
Instead, the country exports unprocessed raw material and semifinished products and imports finished stainless steel goods at prices below the cost of producing them locally, resulting in South Africa essentially exporting jobs, says De Klerk.
Deloitte adds that the hard sell by Chinese producers is not fully appreciated. Brazil, Russia, India, China and South Africa (Brics) bloc countries China and Brazil levy a surcharge on imports into their countries. This is a form of protection South Africa does not enjoy, as government has not imposed a similar surcharge.
De Klerk points out that China’s eco- nomic boom is driven by its strong local demand for products. The country also has the availability of skilled labour and resources, while its government plays a vital role in supporting the economic growth of the country.
He says the Southern African Stainless Steel Development Association (Sassda) can play a major role in alerting government about the inequities in the global market and South Africa’s declining competitiveness in the stainless steel market.
The Chinese are aggressively targeting Africa as the last untapped market and, in some countries, competitors are effectively excluded from the stainless steel market, as their products are imported from China.
This has also resulted in an overwhelming amount of Africa’s raw material production being exported, with little onshore downstream beneficiation.
“This means that South Africa is simultaneously becoming a less attractive and competitive environment in which to establish new businesses. Government and industry need to address the host of challenges impacting on the ease of doing business in the country,” says De Klerk.
Three years ago, South Africa was ranked twenty-second in the Global Competitiveness Index with every expectation of steadily improving from that base level to nineteenth position. Since then, several factors have contributed to the country’s ranking dropping even further.
“Instead of improving, our ranking on the index worsened to twenty-fourth. There are a host of structural weaknesses in South Africa’s economy that need to be reversed to make us more competitive. We have a skills shortage, highlighted by South Africa’s need for 45 000 qualified engineers, with only 4 500 in the country. Not only is productivity low among South Africa’s labour force, it is also declining in the face of high wage agreements,” states De Klerk.
Further, he adds that the cost of electricity used to be a positive differentiator for South Africa, but this advantage has been eroded in the face of not only price increases but also by power shortages. The poor quality of our infrastructure, currency volatility and challenges in respect of the country’s institutional frameworks are all affecting South Africa’s competitiveness ranking.
The stainless steel market is currently a tough market to restructure. The global market for stainless steel products is fairly depressed as a result of the eco- nomic slowdown in China and the recession in the European Union. Yet, production from Asia, particularly China, has continued to expand yearly by 14% to 16% as a result of the con- tinuous production of goods, which are flooding an already saturated market, explains De Klerk.
However, he points out that if Sassda works with government to devise a strategy that will clearly articulate the value of stainless steel production in supporting government’s MCEP programme, efficiency could be improved and a framework that encourages finding ways of protecting the market could also be ini- tiated. There is also a need to have a consistent institutional framework and legislation that will support job creation.
“Skills shortages mean that the country needs to rectify the education gap. The skills that are lacking and those needed to improve productivity and efficiency must be identified and promoted to drive economic growth,” De Klerk concludes.