In his address during the 2020 edition of the Steel and Engineering Industries Federation of Southern Africa's (SEIFSA) presidential breakfast on October 9, outgoing president and chairperson Elias Monage reflected on what has been another difficult year for the metals and engineering sector. He expressed some optimism, however, that the Infrastructure Investment Plan for South Africa and the Steel Master Plan could help stimulate the sector in future. The full speech follows:

Ladies and Gentlemen, we meet at a very difficult time in our country’s history. We meet at a time when our economy continues to bleed and many compatriots continue to lose their jobs. Of necessity, we find ourselves all called upon to contribute to our countries as leaders, whether we be in business (as is the case with us), in labour or in government.

Thank you for setting time aside to attend the SEIFSA Presidential Breakfast. Before I deliver my report, I would like to congratulate those men and women who were elected onto the Board of Directors at our Annual General Meeting a few minutes ago and to thank those who served with us on the Board in the past year, but who are not returning for another term.

The metals and engineering sector remains a strategic sector of the general South African economy, which is also crucial in creating both labour-intensive and capital-intensive jobs. It has important direct linkages with the primary sector, other key industries and the tertiary sector of the economy, with the level of interdependence increasing over time.

The Steel and Engineering Industries Federation of Southern Africa (SEIFSA), through its representation of over 20 employers’ associations in this sector, has advocated actively for these Associations and lobbied for policies aimed at improving the business conditions in which its member companies operate.

The initiative is in line with SEIFSA’s main focus, which is to continue to build strong employer associations reflecting the views of their respective members and supporting the needs, interests and transformation objectives of responsible employers in the industry. SEIFSA is increasingly being relied upon to assist government, labour and civil society in navigating the plethora of challenges facing our economy in the face of local and international shocks, including the coronavirus-induced economic crisis.  

COVID-19 A TOTAL GAME CHANGER

Ladies and Gentlemen, the metals and engineering sector continued to find itself in the doldrums over the period under review as the economic environment remained depressed, underpinned by both poor business confidence and low expectations from business leaders. At the time of the AGM last year, we were hoping for the sector to rebound slowly during the year ahead. However, the reality turned out to be quite disappointing. Though unexpected at the time, the advent of the COVID-19 pandemic and the subsequent lockdown in March 2020 was a total game changer which turned out to be the proverbial last straw which broke the camel’s back.

Even before COVID-19 reached our shores, our economy was already in trouble. The economic contraction in Q4 2019, as a result of Eskom’s unprecedented level-6 load shedding in November, increased the likelihood of Moody’s, the last agency still to have had our sovereign credit rating at investment grade, joining the ranks of Fitch and S&P in junking us. The inevitable happened just as the country started its total shutdown at the end of March 2020 to slow the COVID-19 pandemic, when Moody’s downgraded the country from BA-1 to BAA3 and maintained a negative outlook. The shutdown gravely worsened the situation.

The instability in which a growing number of our State-owned companies (SOCs), which have repeatedly taken a begging bowl to the National Treasury, has not helped matters. We are very concerned that increasingly the country’s SOCs have become major liabilities on the fiscus, instead of being drivers for economic growth. It is also deeply worrying that, where they and the different spheres of government have had infrastructure projects with the potential to stimulate the economy, conveniently they have tended to forget about designation and imported goods which local manufacturers have the capacity to manufacture. 

It is not surprising, therefore, that in  the past year metal sector average output declined by 3%, net operating surplus dropped by 1.3%, formal employment declined by roughly 21,000 and the sector’s fixed investment cumulatively contracted by 19%, contributing to a sector trade deficit of R23 billion.

What does the future hold? What does life have in store for us after the COVID-19 pandemic? Answering these questions is not simple; it is better to look at the short and longer term separately.

The short term is mainly about unfair competition from highly-subsidised Asian economies, which resulted in accelerated import penetration of their products into the South African market over the last year. This holds true for many producers over the whole spectrum of metals and engineering sector products.

The protective measures already in place and those still in the pipeline for basic steel producers are likely to help, but they will not be enough. Primary steel producers are in such distress that short-term downscaling is unavoidable. For various reasons, South African production costs are higher than the lowest-cost quantile of producers in the world, who are simply overrunning our market. Protection seems to be a choice between losing the entire sector or trying to ride the short-term storm and adjust for the future.

Longer-term recovery is a different story. The sector is intimately linked to the fortunes of the mining, construction and auto sectors which, as a group, contributed 15% (R466 billion) to the GDP in 2019 (directly) and, depending on the indirect and induced multipliers, up to twice this number. On its own, the metals and engineering sector contributed R110 billion to the GDP. These four sectors export and earn a huge proportion of the country’s foreign exchange, and employ directly about 1,5 million people.

Recovery in each of these three sectors and of export demand is crucial for the metals and engineering sector over the longer term.

The Government has limited policy options. Economic growth has to improve, inflation has to be kept in check and the balance of payments dare not go into a bigger deficit. As COVID-19 continues to wreak havoc on our socio-economic landscape, the scope for fiscal stimulation is tighter than ever before due to lower tax revenue collection.

Crises often enhance decision making. The process embarked upon through the various Industry Forums has inadvertently been given huge impetus by this period of massive and painful structural, economic and social challenges. The excellent working relationship built between labour and SEIFSA, and then with the Government, as well as various strategic initiatives and think-tanks as a result of the COVID-19 crisis, have been enormously encouraging. We have to thank our social partners for joining hands during this time and putting the survival of the sector before any other objectives. We hope that we will be able to build on this sound foundation in future.

As the COVID-19 pandemic raged on and the economy sank deeper into a recession in the first half of 2020, the foremost issue is what should be done to ensure that the sector remains competitive, attractive for investment and reflects prolonged profits underpinned by increased employment.

The sector’s continued survival depends, as far as the domestic economy is concerned, heavily on the health and growth of the sectors to which it sells its output: namely, the construction sector (20.9%), the mining sector (9.3%) and the automotive industry (8.3%). Alternatively, the top industries from which the sector buys its inputs are mining (27.8%), petroleum and chemicals (11.2%) and construction (1.1%). Some of the intermediate products from the sector are sold back into it and are purchased to be used as inputs in subsequent stages of transformation in the value chain, accounting for 59.4% of the intra-sectoral purchases. This evidence aligns with the observation that, apart from the existing forward and backward linkages between the metals and engineering sector and other industrial sectors, there is also a fair degree of within or lateral linkages.

PRESIDENTIAL INFRASTRUCTURE PLAN TO THE RESCUE?

However, despite limited scope for policy manoeuvre, ongoing initiatives such as the implementation-oriented Infrastructure Investment Plan for South Africa and the Steel Master Plan, which are aimed at reigniting business activity via improved trade, domestic demand and competitiveness, hold huge potential for the metals and engineering industry

Ladies and Gentlemen, the Presidential Infrastructure Plan is an all-encompassing infrastructure agenda for the benefit of domestic communities.  President Cyril Ramaphosa has explicitly directed that the infrastructure pipeline should be aimed at stimulating industrial activity and impactful investment for key sectors such as Energy, Water and Sanitation, Human Settlements, Agriculture and Agro-processing, Digital Infrastructure and Transport.

Although the prioritised six sectors do not include the metals and engineering sector, the expectation is for companies to benefit directly or indirectly from impactful investments made, due to the existence of high levels of inter-linkages or inter-sectoral trade. The development of the Infrastructure Plan is good news for the industry. If managed properly, the initiative will trigger massive growth opportunities for beleaguered businesses.

We support the Infrastructure Plan and note that the strong pipeline of infrastructure projects warrants rapid and well-managed execution of the delineated projects in order to ensure quick and sustainable impact on demand and overall confidence in the economy. Given our view that the Plan will only work if there is enhanced cooperation from captains of industry and stakeholders, we commit to ensuring that our members are proactively positioned to tap into emerging opportunities.

There continues to be a great need to enforce designation among State-owned enterprises, in addition to attracting investment. These domestic interventions will help cushion the effects of negative external supply-and-demand shocks, emanating from key foreign trading partners.  

STEEL MASTER PLAN

Equally, the Steel Master Plan holds huge potential to trigger green-field investment and demand for manufactured goods from the metals and engineering sector. Investment in the industry has been stagnant for many years, partly because of the lack of a long-term vision or sustainability as profits dwindle, and partly due to lack of demand. Most companies in the industry have been unprofitable, hence they were unattractive to both current owners or stakeholders and future owners or investors.

The Steel Master Plan aims to reverse negative perceptions regarding the steel industry. It is our hope that the Steel Master Plan, which was still in development at the time of compiling this report, will address constraints to demand arising from designation and local procurement, localisation, public and private sector projects, transformation and competitiveness.

However, initiatives to localise production do not imply that the local industry can produce at any price and expect preferential treatment. Instead, our industry must improve on local and international price competitiveness and boost quality, innovation and investment. Only then will it stand a good chance to grow sustainably.

These and other initiatives, as outlined in the much-anticipated Steel Master Plan, will ensure that there is increased output and demand for our sector’s intermediate or final products. We will progressively highlight key areas for growth and business opportunities to companies within our industry under the Steel Master Plan, as these become available. 

The African Continental Free Trade Area (AfCFTA) agreement, whose launch was postponed to early 2021, holds prospects for increased trade and interdependence with the rest of Africa. We urge all member companies to gear themselves to take advantage of the opportunities which will open up to them on the continent.

OPPORTUNITIES CREATED BY THE METALS AND ENGINEERING INDABA

I will now take a minute to talk about SEIFSA’s annual Southern African Metals and Engineering Indaba. As you know, it is my firm view that the Indaba offers a great platform for industry players to put their heads together, deliberate on matters of common interest and seek to influence Government policy. We continue to urge all industry players in the metals and engineering sector, and not only companies in Associations affiliated to SEIFSA, to embrace the Metals and Engineering Indaba fully and to ensure that it grows to rival the annual Mining Indaba in future years. This is our very own conference – let us support it and see it grow phenomenally, as it has done so far from year to year.

2020 NEGOTIATIONS ON WAGES AND CONDITIONS OF EMPLOYMENT  

Ladies and Gentlemen, regrettably, efforts to extend the 2017-2020 MEIBC Main Agreement to non-parties were not concluded during the year under review. That meant that those that were not party to the Agreement continued to enjoy an unfair advantage when it came to input costs, thanks to much filibustering on the MEIBC Management Committee when it came to extending the Agreement.

As the industry prepared itself for the 2020 negotiations, in February 2020 the SEIFSA Council elected a Main Agreement Negotiating Team in anticipation of a tough round of bargaining. However, the advent of COVID-19 put paid to any possibility of a normal round of bargaining. As a result, collective bargaining was put on hold.     

METAL AND ENGINEERING INDUSTRIES BARGAINING COUNCIL (MEIBC)

The MEIBC came out of administration at the end of February 2020, with the Court-appointed Administrator formally ending his tenure at the Council’s Management Committee Meeting of 18 February 2020. There is no doubt that business rescue and administration prevented the Bargaining Council from entering full-blown liquidation.

During his term, the Administrator appointed a Council Secretary with strong accounting and corporate governance skills, presented a rehabilitation plan and budget and oversaw the gazettal and extension of the Bargaining Council’s Administration and Dispute Resolution Levy Agreements, which account for over 95% of the Council’s income. The Administrator was also effective in reducing overheads and stabilising the Council’s finances.

The majority of stakeholders represented on the MEIBC believe firmly that a properly-resourced and well-functioning Bargaining Council is in the best interests of employers and employees in the industry and that it continues to be critical for the maintenance of labour market stability.

BUSINESS SUSTAINABILITY

On the business front, challenges of different kinds remain. At the top of our list is our country’s poor economic performance, followed by continuing significant imports of competitive products and skills and our manufacturing sector’s continuing lack of international competitiveness.

These challenges, in addition to the effects of the COVID-19 pandemic, 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 implements the solutions agreed to.

To this end, the metals and engineering cluster of industries needs more support from both the Government and captains of industry in order to trigger a turnaround in 2021. Increased export volumes and export competitiveness are pivotal if companies in the cluster intend to gain from the AfCFTA agreement and to maximise benefits from preferential rates of goods originating from the continent.

SEIFSA’s strategic role in influencing policy cannot be underestimated. The Federation’s involvement with business, Government, institutions like the International Trade Administration Commission and Business Unity South Africa and labour is geared towards improving the business and regulatory framework for the sector.

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, SEIFSA’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.

ADVOCACY AND LOBBYING

One of the most important roles played by SEIFSA is to be the voice of the metals and engineering sector in dealings with various stakeholders. The Federation performs this important role through advocacy and lobbying, which is performed by the leadership of the Chief Executive Officer and his Senior Executives. They do this both directly, through engagements with policy makers in Government, and through Business Unity South Africa, where they are active in the various committees.

Having worked closely with the CEO, I know for a fact that, during the year under review, SEIFSA has worked closely with the Department of Trade, Industry and Competition on the aforementioned Steel Master Plan and, through the Presidency, in securing a role for our sector in the Presidential Infrastructure Plan.

I am also pleased to report that, during the year under review, SEIFSA assumed responsibility for the coordination and leadership of the BRICS Business Council’s Manufacturing Working Group (MWG), which is now chaired by the SEIFSA CEO. It is my hope that the crucial importance of that structure, which interfaces with Manufacturing Working Groups from the other BRICS nations (Brazil, Russia, India and China), is patently obvious to all our member companies, especially those involved in manufacturing.

I would like to encourage our members to take a keen interest in the work of the MWG and to participate in its activities, including its planned BRICS Manufacturing Conference.

TRANSFORMATION

The slow pace of transformation in the country, including in the metals and engineering sector, continues to be of great concern. The Employment Equity Act and the 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 and the composition of Boards of Directors.

Employment and Labour Minister Thulas Nxesi has expressed concern at the slow pace of workplace transformation and has threatened that the Government will now be forced to resort to harsh measures to ensure transformation in the workplaces.  Minister Nxesi said the amending of the Employment Equity (EE) Act, which was submitted for amendment during the last Parliament, will be fast-tracked.

Minister Nxesi was speaking at the official launch and hand-over of the 19th Commission for Employment Equity (CEE) Report in Pretoria, where CEE Chairperson, Tabea Kabinde, presented him with the report.  Entitled Transformation Makes Business Sense, the 19th CEE report shows that at top management, 65.5% of the positions were occupied by whites, followed by Africans at 15.1%, Indians at 9.7%, coloureds at 5.3% and foreign nationals at 3.4%, as illustrated below. 

Over the past 20 years, there has been a 3.2% decline in white incumbents in senior management. The African population occupies 23.2% of senior management, while the Indian community sits at 11.1%, the coloured population sits at 8% and foreign nationals at 3.3%.

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 to create meaningful opportunities for all South Africans to play a crucial role in taking our industry to new heights.

STATE OF THE NATION

The year under review has been characterised by a series of hearings into State capture chaired by Deputy Chief Justice Raymond Zondo. We welcome the fact that some high-profile arrests have now begun to take place. We hope that these will lead to successful prosecution 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 continues to be done by the State Capture Commission 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.

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.

APPRECIATION

There is no doubt that a focused effort is required to navigate SEIFSA and its member Associations through increasingly challenging circumstances, socio-economic difficulties, political indecisiveness and, most recently, the impact and consequences of COVID-19. To achieve its objectives, SEIFSA requires well-informed, strong, respected leadership, a united and effective Board of Directors and Council and a presence and voice with all stakeholders.

I would like to express my thanks to the SEIFSA membership, which supported my appointment as President. This has been an eventful year and there have been many outstanding contributions by individuals to the successes that SEIFSA has achieved, negotiated and influenced.

My sincere thanks go to all SEIFSA Council Members for their support and active participation at our meetings. 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. Your contribution, professionalism and dedication are greatly appreciated.

Once again, congratulations to the men and women who were elected onto the Board of Directors at the Annual General Meeting earlier this morning. Congratulations to them and to my successor as President, Alph Ngapo. I look forward to working with them in the year ahead.

Elias Monage - President and Board Chairman