In an address at the Steel and Engineering Industries Federation of Southern Africa’s (Seifsa’s) Presidential Breakfast on Friday, outgoing interim president Alph Ngapo expressed optimism that the political transition, which saw President Jacob Zuma replaced by President Cyril Ramaphosa earlier this year, would improve prospects for the country and the economy, particularly after the 2019 elections. However, Ngapo also stressed the importance of greater collaboration between business, government and labour in helping to lay the foundations for a return to economic growth. He said policy certainty and growth in the mining, construction and automotive sectors were particularly important to the health and survival of the metals and engineering sector. Ngapo's full address follows:
The state of our metals and engineering sector is a reflection of the performance of economic activity in South Africa. While there was a general increase in production in the broader manufacturing sector – including South Africa’s heterogenous metals and engineering cluster – for the period under consideration, the contribution to gross domestic product (GDP) was a cause for concern.
The role played by our metals and engineering sector towards economic growth is still fairly negligible when compared to the pre-economic and production crises years of 2009 and 2014 respectively. The lacklustre economic productivity of our sector reflects the very disappointing growth in domestic demand since 2007, during which GDP growth has been hovering around 1% per annum.
Through its representation of over 23 active member Associations, SEIFSA continues to interact with all stakeholders who influence economic activity. Notwithstanding some controversial resolutions adopted at the 54th ANC national conference in December, such as on land restitution without compensation, I remain confident that a Cyril Ramaphosa-led Government will do everything possible to revive the economy and to forge a working partnership among itself, business and labour. It is my hope that he and his team will work hard to undo the damage done to South Africa by his predecessor and to win back the international community’s respect for South Africa.
Just as in the year under review, going forward SEIFSA’s key focus will continue to be on facilitating the operation of strong, influential employer Associations which reflect the views of their respective memberships. In its valuable engagements with stakeholders, the Federation will continue to manage and represent the various views, needs, interests and objectives of all participating employers to advance the interests of our Associations and our industry.
BUSINESS AND ECONOMIC ENVIRONMENT
Although production in the metals and engineering sector is generally increasing alongside international commodity prices, the cluster is still going through a structural adjustment and its challenges are still prevalent. Its growth pattern still fluctuates, productivity is generally poor, capacity utilisation is still below the required 85% and investment and profit levels are low. Domestic production costs have also been rising alongside output levels.
Although these signal the resilient nature of businesses in our sector, regrettably, the optimism and hope for better future business prospects is not shared by all purchasing executives. There continues to be understandable concern among a number of stakeholders and observers that the country is de-industrialising. That concern is a direct consequence of the ongoing decline of broader manufacturing’s contribution to South Africa’s GDP over the past few decades, at a time when other sectors such as finance, real estates and business services and wholesale and retail trade, catering and accommodation grew at a higher pace.
The metals and engineering sector’s share of manufacturing in the first quarter of 2018 was 29.05%, effectively contributing 3.52% to the GDP. A slightly stronger rebound in production was recorded in the second quarter of 2018, with a marginal year-on-year improvement when compared to June 2017. On aggregate, the sector seems to have improved on the moderate growth (0,5%) recorded in the first quarter of 2017, posting an encouraging growth of 4,1% by the end of the second quarter of 2018.
All indications are that the positive output trajectory will be maintained even though growth in the sector is still volatile and trending below its 18-year average. Thankfully, however, ample political will and a recent turnaround in the business activity index, including all but one of its sub-indices, provide signs of green shoots.
The strategic role of SEIFSA in influencing policy cannot be underestimated. The Federation’s involvement with Business, Government, Labour and institutions like the International Trade Administration Commission is geared towards improving the business and regulatory framework for the sector. The trade wars triggered by the USA this year, which have the potential of significantly inflicting harm on the broader metals and engineering sector, has made SEIFSA’s advocacy and lobbying activities even more important.
The continued survival of the sector depends, as far as the domestic economy is concerned, heavily on the health and growth of the sectors which are drivers of its demand, namely mining, construction and automotive sector. Therefore, there is an urgent need for the long-drawn-out negotiations on the new version of the Mining Charter to be concluded speedily in order to improve South Africa’s chances of attracting much-needed investments across the board and boost domestic growth. There is also a growing need for South African businesses to gear up to take advantage of opportunities opening up to the north of our borders, thanks to both the Trilateral Free Trade Agreement and the African Continental Free Trade Agreement adopted by the continent’s political leaders.
Perhaps more importantly, here at home all stakeholders within the sector must show greater maturity, put their differences aside and collaborate more. Regrettably, hitherto the industry has been known to be more reactive than proactive when dealing with challenges. Although some intermediate products of the metals and engineering cluster are close substitutes, it is important that unscrupulous tactics are not used by one sub-industry over the other to gain competitive trade advantage.
Competition is important, but so, too, is co-operation – and definitely not collusion – among industry players. Without co-operation, businesses – both large and small – cannot flourish and expand. Intra-industry squabbles are counterproductive to the objectives of the National Development Plan (NDP) and impact negatively on the implementation of the NDP and its long-term socio-economic road map, with dire consequences on jobs and economic development, to name a few.
Opportunities like SEIFSA’s annual Southern African Metals and Engineering Indaba offer a great platform for industry players to put their heads together, deliberate on matters of common interest and seek to influence Government policy. It is crucially important that the Indaba, which enters its fifth year in 2019, enjoys the full and enthusiastic support not only of companies in Associations affiliated to SEIFSA, but also that of all industry players, including their suppliers and customers.
THE 2017-20 WAGE NEGOTIATIONS
Given the severe impact of economic conditions on the manufacturing sector and the associated difficult trading conditions facing most companies, member companies will no doubt have taken comfort in the knowledge that there were no wage negotiations this year. This was of particular significance, in view of the widespread industrial action and strikes experienced in many other sectors and the wage settlements agreed to.
SEIFSA signed an agreement with all the trade unions in our industries in 2017 on terms and conditions of employment for a three-year period ending on 30 June 2020. Although not perfect (no negotiated agreement ever is), the final settlement agreement contained the following direct benefits to the membership:
We managed to secure a three-year wage deal. This guarantees industrial peace, certainty and stability for all member companies from now until June 2020; and
The wage increases agreed upon for next year are clear and not dependent on any further negotiations. Therefore, strike action on the increases is not possible, and there are no other changes to employment conditions over these three years.
SEIFSA and all the trade unions have committed to continuing discussions on crucial and urgent challenges facing the metals and engineering industries, such as the difficulties faced by small businesses, modernising the Main Agreement, deepening the discourse on the future format and structure of collective bargaining and reviewing the current exemptions policy to accommodate businesses in need.
Finally, in view of recent Labour Court Judgements setting aside the applicability of the 2011-to-2014 and the 2014-to-2017 MEIBC Main Agreements to non-parties, SEIFSA and all the trade unions have, as a fundamental element of last year’s agreement, committed to taking steps to prepare a New Consolidated Main Agreement for gazettal and extension to non-parties.
Although we have every reason to be relieved that we did not face another round of wage negotiations in 2017/ 2018, challenges of different kinds remain. At the top of our list is our country’s lacklustre economic performance, followed by continuing significant imports of competitive products and skills and our manufacturing sector’s apparent lack of internationally competitiveness.
These challenges will continue to stare us in the face, and maybe even worsen, until such time that South Africa Incorporated – Government, business and labour – gets together to address them constructively, putting the country’s interests above all else, and then implementing the solutions agreed to.
To this end, SEIFSA welcomes the soon-to-be-promulgated amendments to the Basic Conditions of Employment Act and the Labour Relations Act and the coming into effect of the National Minimum Wage Act. These ground-breaking developments agreed upon by business, labour, Government and community representatives will provide the foundation for a profound and much-needed shift in the tone of labour relations in South Africa.
As part of the package of agreements, the social partners at NEDLAC have agreed to a National Minimum Wage (NMW) and a suite of measures which will promote greater stability in labour relations. The parties have reaffirmed the right to fair labour practices and the important roles of the private sector and the State in creating the necessary conditions to drive productivity-led, inclusive growth and employment.
These Agreements recognise that employees should be paid a fair minimum wage for productive work, that strikes should be peaceful and functional, that all stakeholders have a leadership role to play in bringing stability to the labour market and that productive employment is essential for inclusive growth. It is hoped that these agreements will lay the basis for putting South Africa on a more sustainable labour relations footing in addressing a key and important concern expressed by business: namely, labour market stability.
Internally, we have to ensure that SEIFSA continues to be equal to the challenges that confront it, including on our approach to collective bargaining and the mandating process. The ongoing challenge facing the Federation is to demonstrate that it has the interests of all players, big and small, in the metals and engineering sector and that, as much as possible, it represents or speaks for all of them. To that end, the Federation’s Small Business Hub (SBH) is of critical importance. I encourage many companies – large, medium-sized and small – within and outside the broad SEIFSA membership to make use of the impressive suite of services offered by the SBH.
The slow pace of transformation in the metals and engineering sector continues to be of great concern. The Employment Equity Act and Skills Development Act provide the basis for addressing other indicators of inequality in the labour market. These two pieces of legislation complement each other in addressing inequalities and unfair discrimination in human capital development, thus helping this country to harness fully the potential of its diverse human capital.
The manufacturing industry in general and the metals and engineering sector in particular are very much in need of transformation. This is the case not only when it comes to general business ownership, but also with regards to occupation of senior leadership positions.
The 18th Commission for Employment Equity Annual Report found that 20 years since the enactment of the Employment Equity Act, the top and senior management positions in the workplace are largely still occupied by white people, mostly males. The picture in terms of gender remains particularly discouraging. The highest increase (18,8%) in representation of women is noted at Senior Management level. This is a bleak picture that should concern all business leaders across all sectors, starting with ourselves in our sector.
Statistics from the Commission of Employment Equity (CEE) indicate that the white population group remains favoured for training and development, while males remain favoured in terms of gender. This indicates that the aforementioned two pieces of legislation intended to be supportive of each other in driving transformation are still not achieving the desired outcome.
During the 2017 employment equity reporting cycle, 27 163 employment equity reports were submitted by designated employers, which included 7 299 428 employees. Five thousand and sixteen (5 016) reports were received from manufacturing, representing 895 743 employees. The make-up of the manufacturing sector in terms of the national economically active population when it comes to population groups and gender is as follows: Africans constitute 60,3 percent (43,1% male, 17,2% female), ; Coloureds constitute 10% (8,8% male, 5,8% female), Indians make up 6,0% (4,0% male, 2% female) and Whites make up 17,3% (11,9% male and 4,4% female).
In terms of workforce profile at the top management in the manufacturing sector, whites constitute 70.9% for all genders, compared to Africans at 8% for all genders. Foreign nationals sit at two percent of permanent employees. The disproportionate situation is the same in terms of recruitment, skills development and promotion, where whites still dominate in comparison with other population groups.
In its 17th Annual Report, the CEE explored various options for the promulgation of Section 53 of the Employment Equity Act. Section 53 requires every employer that concludes an agreement with any organ of the State to comply with the requirements of the Act.
Compliance to Chapter II of the Act (i.e. the elimination and prohibition of unfair discrimination) applies to both designated employers and non-designated employers, with only designated employers required to comply with Chapter III (i.e. affirmative action for the equitable representation of the designated groups). This has led to proposals for amendments to the Employment Equity Act and its Regulations.
Key amendment proposals include the revisiting of the definition of designated employers, setting of sector targets as an enabling provision to monitor and measure compliance and, at the same time, allowing for a rapid certification process in terms of the requirements of Section 53. The proposed amendments in the Act are designed for easy regulation and digitization, particularly when it comes to the certification process.
As a sector, we need to stand up and embrace change and advocate transformation. Not only is it in South Africa’s interest for that to happen, but it is also fundamentally in business’s own long-term interest. It is of critical importance that a concerted effort is made by the sector towards creating meaningful opportunities for all South Africans to play a crucial role in taking our industry to new heights.
STATE OF THE NATION
The change that took place in February 2018, which saw Jacob Zuma replaced by Cyril Ramaphosa as Head of State, was most welcome. While the initial euphoria occasioned by this transition has since dissipated, there is every reason to believe that the country will be much better run in the new dispensation, especially after the 2019 general elections. We look forward to a reduction in our bloated Cabinet and the general public sector and to the implementation of the many undertakings made by President Ramaphosa.
The next year will be characterised by a series of hearings into State capture and, hopefully, a number of prosecutions of those alleged to have been involved in various acts of corruption both in the public and the private sectors. In particular, the work that will be done by the State Capture Commission led by Deputy Chief Justice Raymond Zondo will be of vital importance in ensuring both that South Africans get to appreciate fully the extent to which their country was taken advantage of and that the country cleanses itself. I urge anybody with information that may be helpful to the Commission in the execution of its work to cooperate fully with it and its investigators.
All of us – as citizens, business and labour leaders, elected public officials, etc. – have a collective duty to eradicate the terrible scourge of corruption and to place the country on an upward, growth trajectory. We dare not fail our country and future generations.
There is no doubt that focused effort and planning is required to navigate SEIFSA and its member Associations through increasingly challenging circumstances, socio-economic difficulties, political and regulatory uncertainty and the weak business landscape. To achieve its objectives, SEIFSA requires well-informed, strong, respected leadership, a united and effective Board and Council and a presence and voice with all stakeholders.
I would like to express my thanks to the SEIFSA membership, which supported my Acting appointment as Interim President, after the resignation of my predecessor.
This has been an eventful year and there have been many outstanding contributions by individuals to the successful outcomes that SEIFSA has negotiated and influenced.
My sincere thanks go to all the Council Members who joined various of our interventions and committees and gave so generously of their skills and their time. My thanks also go to fellow Directors on the SEIFSA Board and to the SEIFSA Executives. I am grateful to the entire SEIFSA team for its collective and individual energy, enthusiasm and passion for the Federation – even in the face of significant challenges. Your contribution, professionalism and dedication are greatly appreciated.
Finally, I wish the men and women who will be elected onto the Board at the Annual General Meeting in October the very best of luck in the year ahead.
Outgoing Interim President