The stiff competition challenging the global competitiveness of mass- manufactured South African metals fabrications would not be affected by even a 50% import levy on the importation of the Chinese products, speculates Steel and Engineering Industries Federation of South Africa (Seifsa) economic and commercial manager Michael McDonald.
He comments that South African fabricators of custom-made metal products provide a world-class product and are highly competitive globally. China, on the other hand, is providing very stiff competition in the mass manufacturing of metal fabri- cations. This is not only in respect of South Africa, but also the rest of the manufactur- ing world. China can produce mass-manufactured products at 50% less than South Africa can. There is some competi-tion from India, but China is by far pro- viding the most intense competition.
“The competition from China is so intense that metal manufacturing industries in certain parts of the world have been closing down. In Australia, for example, there are hardly any metal products manu-factured, but the Australians are content with selling raw materials to China and India,” adds McDonald.
This is not a feasible option in South Africa, where 30% of the gross domestic product is derived from manufacturing. The total steel manufacturing industry employs about 450 000 people, and closing down steel manufacturing would be a huge blow to the economy, creating substantial unemployment. It is, therefore, vital to keep the metal manufacturing industry going.
Seifsa conducted a survey among its members at the end of 2006 to ascerain the extent to which Chinese imports might be undermining the competitiveness of local manufacturing.
Nearly 80% of the respondents indicated that they were being adversely affected by Chinese imports, and just under 12% were being affected by imports from India. Those not being affected were mostly fabricators of customised metal products and converters of metal raw materials.
The survey further revealed serious price undercutting by China and to a lesser extent by India. Price undercutting ranged between 10% and 60% and in two cases by more than 100%, prices of imported products from China were on average 36% cheaper than local products.
In most cases, imported products from China and India meet quality standards. Respondents indicated that only 18% of import products were found to be sub-standard. Only one respondent indicated that products imported from India were substandard.
Thirty-five percent of respondents indicated that they were also importing products from China. Asked the reasons why they were importing products from China, 80% said they were importing because of lower prices and 23% were importing because of the higher quality of the imported product. A surprising outcome was that 40% of respondents were importing from China and India because of better delivery than from local suppliers.
Metal Sector Development Forum
In the Department of Trade and Industry’s (DTI’s) 2006 metal sector strategy document, six key action programmes were outlined to develop the sector. Seifsa helped develop the programme over a number of years, and it was finally signed off by all concerned parties, labour, business and government, in April.
McDonald says the next step is to implement the key action programmes, and to do that a two-tiered metal sector development forum is being established. One tier would be an oversight committee, which would comprise high-level Seifsa executive members and other industry members with whom Seifsa works in tandem. The task of this committee would be to investigate the current state of the metal sector industry and to oversee proposed changes which aim to improve industrial performance.
The second tier of the forum would be the formation of an implementation committee, whose task will be to oversee the implementation of the six key action programmes and to consider other programmes which may be required.
“Currently, Seifsa is working within Nedlac (National Economic Development and Labour Council) to produce a proposed constitution which will define how the committees will operate, as well as the composition of the two committees. Once this is achieved, the key action programmes will be able to move towards implementation,” says Mc Donald.
He states that the key action programmes are not overly ambitious, but are doable. One aim is to increase current exports by about 4%. Once this is achieved, the industry could be in a position to aim even higher. McDonald is convinced that all the six key action programmes are achievable.
The Motor Industry Develop-ment Plan (MIDP) review, was released last month as the new Automotive Production and Development Programme (APDP). The aim of the MIDP was to nurture and promote the local automotive sector into a globally competitive industry.
McDonald says that most of what was published was compiled with limited input from affected metal sector companies, and what was published in September was viewed by many for the first time only when the review was made public. “Seifsa and the Nedlac Trade and Industry Chamber were not directly consulted at all during the DTI’s consultation process. The component manufacturers, many of whom are Seifsa members, are not entirely satisfied with the new MIDP,” he adds.
Seifsa is asking that before the full implementation of the new MIDP, the new plan be properly debated with all industry members that will be affected. One of the concerns is that some motor components are included, but others are not, without any rationale given why there are inclusions or exclusions.
Seifsa has requested that before implementation, the new MIDP needs to be debated and agreed to through Nedlac.
The Export of Scrap Metal
A large amount of ferrous and nonferrous scrap metal is produced in metal manufacturing, as well as from metal products becoming redundant and through other processes. While this scrap is sorely needed in South African foundry production, most of the scrap metal is being exported by metal merchants to China and India, in particular.
Mc Donald says there is disagreement between the South African foundry industry, which produces products from scrap metal, and the recyclers and exporters of scrap metal. South Africa is exporting a large percentage of scrap, and com- panies which produce from scrap are in some cases only able to operate at 50% of their capacity, because they do not have sufficient access to the raw material.
Seifsa has been lobbying through Nedlac for the DTI to impose an export tariff on scrap metals. The DTI has committed to imposing an export tariff and are working with the National Treasury and the Department of Customs and Excise in this regard.
McDonald believes that in the face of the many challenges facing the entire metal sector, the industry is shrinking. The competition from China and India is a huge factor, but another factor is the recent call for a reduction in the use of electricity from State-owned utility Eskom.
The utility has been calling for a voluntary 10% energy reduction from companies, which is affecting the production output in the metals fabrication and other sectors of the manufacturing industry. Seifsa members have indicated that anything more than a 2% cut in electricity use would seriously affect production output. Manufacturing pro- duction has dropped this year, much of which is attributable to load-shedding, according to the manufacturing statistics produced by Statistics South Africa.
The metals sector is involved in the manufacture of products from raw material, using processes such as casting and forging, where a large amount of energy is required in production processes.
Labour Levels in Metals Fabrication
McDonald comments that there is a serious shortage of skilled artisans in the metals sector, partially owing to the con-tinued emigration of skilled workers.
A Harvard Group Report commissioned by the South African government, partly to consider the competitiveness of industry, in general, in South Africa, determined that the cost of unskilled labour in South Africa is the most expensive in the world. This is causing companies to shed lower or unskilled jobs because they are no longer affordable.
The most recent Seifsa wage survey, which is conducted on a quarterly basis each year, to determine the remuneration of different levels of workers, found that many companies are currently not employing lower- skilled workers at all. This is contributing to the national unemployment problem with more and more unskilled labourers becoming unemployed.
Technologically, the metals fabrication sector has always kept up with global standards, but the aim now is to become less labour intensive, with more investment in machinery.
Skilled workers currently comprise about 15% of the entire metals sector workforce, with lower-skilled workers repre- senting less than 30%. How-ever, the efficiency of mid-level skilled workers, who are not artisans but who represent the largest percentage of the workforce, has improved consider-ably over recent years.
With a chronic shortage of skilled artisans, Seifsa is working to improve the uptake of apprentices. After a period of about seven years of decline, there was an increase in the uptake of apprentices this year, with about 4 000 apprentices being indentured. Seifsa is looking to increase this figure substantially. The Metal and Engineering Industries Bargaining Council (MEIBC) charges industry companies a levy to assist in funding skills training. To encourage skills training, companies receive allowances from the MEIBC for training apprentices.
McDonald adds that the school system is still not deliver- ing adequately skilled maths and science students to qualify for artisan training. Seifsa does offer bursaries for tertiary students who elect to study maths and science. Seifsa encourages students to see this sector as a career opportunity and to look into engineering as a possible career path.
The federation sees one of its roles as lobbying on behalf of its members for government to create a more investment-friendly environment in the metals sector. The idea is to work with government to encourage foreign investment in South African manufacturing.