JOHANNESBURG - When a combination of tough economic conditions and unfavourable or unpopular policy decisions collide to create a “perfect storm” we can be certain that affected industry sectors will find themselves “in distress” and that factory closures and job losses will ensue.
We have seen this pattern repeat itself in a number of previously labour intensive industries, including the steel sector.
From an all-time price high of $1265 (R14582 at present conversion) in 2008 to its lowest levels of $90 in March 2016, steel is a commodity in oversupply around the world. Our steel industry's crisis is not the world’s only one - in the UK the situation is similarly dire. In 2015 in South Africa alone, 11000 jobs were lost and the industry continues to bleed today.
Companies struggling to remain afloat have been forced to increase their steel prices - in a move that would seem to be counter-productive, when faced with cheaper imports.
Another good example is in the pharmaceutical sector, whose buying power, between both the public and private sectors, represents R49billion.
Private pharmacies, hospitals and clinics account for R41bn and the public sector only R8bn. The sector is currently facing a trade deficit of R16bn.
We can propose various measures and policies to assist these and other industries from being ravaged by foreign alternatives to locally manufactured goods, and from facing damage from which they will take decades to recover, if in fact they ever do.
Dumping
These include increased import tariffs to discourage the immoral dumping of goods below the cost of production, and/or emergency safeguard measures which can be introduced if an industry is deemed to be threatened or in distress.
But these tariffs and percentages need constantly to be reviewed and adjusted and in the world of economic diplomacy, can be a tough path to navigate when so many countries’ and industry sectors’ interests are at stake.
So why do buyers take these import decisions? Of course, best value for money is a key driver - the need to maximise financial resources in order to remain competitive in the marketplace and return profits to shareholders, whether that shareholder is the government or private individuals and entities.
And the end consumers’ pockets are also a consideration, whether the consumer is a manufacturer with a massive order for raw materials or a family with a modest shopping trolley.
Buying choices that favour foreign imports are taken at the expense of domestic jobs. As we import the products, we are exporting the jobs to those countries whose products we are procuring.
What should and could be done to assist sectors in distress? In his mid-term budget statement late last year, the finance minister spoke about increasing levels of local procurement, stating that the government cannot shoulder the burden alone.
There are already a number of designated sectors from which all three tiers of government and state-owned enterprises are mandated to procure locally. We also challenge them to ramp up their consumption of many more products, including steel for large infrastructure projects, as per the current designations.
Responsibility
In the private sector, those with significant procurement budgets have the capacity - and indeed we would argue - the responsibility - to start thinking and acting differently.
We, as Proudly SA, can substantiate that changing purchasing decisions to favour local products can have a massive positive impact on jobs and the economy.
While real job creation may be slow to effect, buying locally grown, produced or manufactured goods and services can have an immediate effect on job retention.
What if our local private health service providers spent more of their collective R41bn on locally manufactured medicines? How many more jobs would be created at many skill levels? Not only are some of our most distressed sectors labour intensive in themselves, their multiplier effect in peripheral service sectors, for example delivery and haulage, warehousing and stock management, is significant.
A change in sourcing strategy and procurement by shareholders and executives towards giving preference to local goods and services is good corporate citizenship. This is one measure that can consistently be employed to turn these distressed and other sectors around and which does not need intense negotiation with other trading partners. The current crisis in which the steel sector, pharmaceuticals, poultry and textiles find themselves, (to name only a few) requires each of us to heed the president’s call to #SendMe to serve the country, and this starts with making decisions to put the country first.
As the song says: “I want to be there when the people start to turn it around.” Let us be the generation that turns it around. As the clarion call of Proudly South African says: “Be Proudly South African. Buy local to create jobs”.
Eustace Mashimbye is the chief executive of Proudly South African.
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