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May 18, 2012

18/05/2012 (On-The-Air)

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Every Friday morning, SAfm’s AMLive’s radio anchor Xolani Gwala speaks to Martin Creamer, publishing editor of Engineering News and Mining Weekly. Reported here is this Friday’s At the Coalface transcript:

Gwala: The great China-led economic supercycle that has been boosting global economies for a decade appears to be coming to an end.

Creamer: It appears to be coming to quite an abrupt end if you take the example of some of the biggest companies in the world. Those that have been supplying China and relying on this very big resources supercycle, including South Africa, of course, suddenly putting on the brakes.

I’m talking now about the world’s biggest mining company, BHP Billiton, also has its headquarter down the road in Johannesburg. BHP has decided that it is going to relook and review its big expenditure programme. We are talking about $80-billion over five-years.

They are saying that they are no longer going to spend that. It is against the background of people demanding cash from these companies. It has gone back to that type of atmosphere that we had before the last economic meltdown where the investors say that you don't spend our money on new growth, you give us our money back in the form of dividends or share buy-backs.

We are back in that era that we were just 2008 where people are not looking at growth. The big five world mining companies that were looking to expend about $200-billion, I mean I’m talking close to R2-trillion in the next five-years.

Now they are under pressure from their shareholders not to do that, because people see that this supercycle is either come to an end or there is a huge interruption within it that makes them rethink. You get from the chairman of BHP Billiton speaking in Sydney Jac Nasser saying that improvement is not really underway in the world.

He says it is going to feel as if the ground is slipping under your feet. That is quite a statement from a person leading a company like that. So there is panic around and it is clearly going to effect expenditure on big growth projects, which will have a massive knock-on affect down the line.

Gwala: Some six-billion-rands in government help will be available to local manufacturers from June 4.

Creamer: And not to soon either, because we also have this uncertainty in the world with our manufacturers having reported a very bad month in March, a dismal performance there where things were down.

There has been a contraction of our manufacturing footprint for decades now. We have had this deindustrialisation and the government is coming in pretty quickly and saying look we do want you to compete, we do want you to put in that new machinery, don’t decide now to just operate as a cash-cow.

There are headwinds, your trading partners are not performing as well as they were in Europe, but make sure that you remain competitive now. In order to that, we will assist you. Nearly R6-billion will be available from June 4 and there will be an online system where people can work very efficiently.

The production incentives are being managed by the Department of Trade and Industry and then the working capital side of it will be managed by the State-owned Industrial Development Corporation.

Specifically to try and make sure that they do across a broader front what they have been doing in the clothing and textile industry. We know manufacturing shed 200 000 jobs during the 2009 recession, 200 000 out of a million in total.

They want to make sure that this particular part of the economy now stabilises and they are prepared to put their money where their mouth is and its close to R6-billion available. From June 4 people can apply to have this production incentive.

Gwala: The South African Navy is now allowed to operate in Tanzanian and Mozambican waters to stop piracy.

Creamer: This piracy is hitting the real economy. We have got enough headwind at the moment, we don’t need something like piracy.

We see that GDPs of islands around us like Seychelles at the height of this piracy fell 8%, because people don’t want to tour, trade is affected. We know that there are 100 000 cargo ships sailing through the Indian Ocean a year and we have been having an average of 200 piracy attacks a year since 2009 and 1 000 taken hostage.

This again, trading is becoming more difficult, our trading partners aren’t doing what they used to do. We don’t want anymore interruptions. There is a situation where our navy overheads are covered. We’ve paid for these ships, now they need to do their job.

They can’t do it very affectively unless the have a legal framework in which to work. The South African Navy has now made sure that it is allowed to operate within Tanzanian and Mozambican waters to stop this piracy.

They are also calling for even more amendments and adjustments to international legal frameworks to make sure that this becomes a smooth passage in combatting this maritime crime, which is ripping off billions of dollars a year from peoples’ purses.

Hopefully this won’t be another impediment. Interestingly in April, the South African Navy did assist in the tracking down and detention of seven Somali-based pirates and they were able to also assist with the freeing of six fisherman who were being held captive. So, it is also the fishing industry that is badly affected. By being there, the Navy can stop not only the piracy, but they can also stop all the smuggling.

Gwala: Thanks very much. Martin Creamer is publishing editor of Engineering News and Mining Weekly, he’ll be back with us at the same time next week.

Edited by: Creamer Media Reporter
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