on the demand for final products. This implies that businesses must move with the times and support the Government in collectively seeking solutions to the constraints of transformation and unemployment, including youth unemployment. Given that domestic demand seemed to have tanked, a collective approach in dealing with the aforementioned challenges will provide new possibilities and benefits to companies in the M & E cluster. There is no doubt that a stronger purchasing power of consumers will increase domestic demand and expand the market for final manufactured goods. Given that the demand for intermediate products of the M & E sector is a derived demand, the cluster will also benefit from the increased consumer demand. Companies must continue to improve on export competitiveness, with increased focus on other parts of the African continent. Also, firms should consider going beyond the Southern African Development Community( SADC) regional economic community and conduct due diligence studies on other sub-Sahara African countries with the intention of investing in these countries, as the continent holds huge opportunities. Companies should also approach their financial advisers for guidance on how to protect their businesses from unexpected fluctuations in currency prices by means of forward exchange contracts. This will ensure that reserves are built to be tapped into, in adverse times.
There is a need for all stakeholders within the industry to collaborate more and find common solutions to challenges they face, rather than squabbling amongst themselves. Improved collaboration can unleash more business prospects and propel trade to higher heights, especially given the extent to which companies already trade amongst themselves in the cluster or the existing level of lateral linkages.
The existing forward and backward linkages between the M & E cluster and other industrial sectors such as the agricultural, mining, automotive and construction sectors offer more opportunities for growth. The mining sector, for example, was earmarked amongst other sectors in a set of policy reforms that the Treasury outlined in February’ s Budget review for structural reforms aimed at lifting the economic growth rate. This is good for the cluster as companies will benefit from any trickledown effects, especially given that roughly 41 % of inputs into the M & E cluster are sourced from the mining sector.
Continuous support from the Government and policy makers is also key to ensuring the continuous survival of the cluster, which is a small, open sector. It is active in international trade, but without the ability to influence the movement of international variables such as interest rates and the exchange rate. It is also involved in international financial transactions, bringing in vital foreign exchange for the country.
Q
: Are we well-equipped to take advantage of the opportunities presented to the M & E sector?
A
: Apart from the challenge of having to import some inputs that were previously sourced locally, due to the closure of local plants, I would say yes, companies within the sector are largely equipped. The infrastructure for expanded trade into the SADC region and most other African countries already exists. Some businesses are already taking advantage of existing opportunities on the African continent, but more businesses need to join them. Increasing transport costs and payment challenges are often cited as some of the impediments of doing business in Africa, and these are the issues that we need to systematically address. SEIFSA is currently leading a joint working group initiative with Transnet aimed at improving efficiencies and the competitiveness of our member companies in order ultimately to reduce costs. The working group has identified various specialised workstreams led by industry experts and we are very confident that, collectively, we will seek ways of improving on efficiencies. The initiative also presents an opportunity for the cluster to sharpen the saw and be ready to take advantage of more opportunities when they present themselves.
Q
: If implemented, how will the tariff imposed by the US on imported steel and other products affect South Africa’ s M & E sector?
A
: The imposition of a 25 % import tariffs on steel products and 10 % import tariffs on aluminium products by the US under section 232 provision aimed at protecting their national security will have some negative effects on the local M & E cluster. It will increase exporting costs to the US and negatively affect a key export market for finished intermediary products from the M & E cluster. This will also impact on the export competitiveness of the sector.
The sector will be starved of foreign earnings, which will eventually negatively affect the ability of South Africa to build on its foreign reserves. It will constrain production in the M & E cluster, given the more expensive route of exporting to a key market. Although exports of steel and aluminium products to the US make up 1,4 % and 1,6 % respectively, there is huge potential for improved exports given the low levels of capacity utilisation. The tariffs may, therefore, reduce the potential for exporting to an expanding US market, also impacting negatively on the established trade relationship between SA exporters and US importers. This is especially given that SA exports to the US are mainly of intermediary nature and are principally used by the US steel-consuming manufacturers, where demand is always growing.
Constraints to local production capacity may also negatively impact on employment in the medium term. Given the already high rate of unemployment in the country, any additional job lost will be devastating. Also, a permanent imposition of the US import tariffs is counterproductive to the objectives of our macroeconomic policy documents, especially as captured in the New Growth Path( NGP), aimed at reducing unemployment to 15 % by 2030.
The tariffs will mean a reduction in demand from the US, which is the largest global importer of steel. This, combined with the oversupply from China, may lead to a fall in commodity prices. This is worrisome, given the recent uptick in commodity prices from the lows recorded in December 2015. Improving commodity prices and world trade are two key drivers of global growth and enhanced protectionism from the US does not augur well in the medium term.
South Africa may again be faced with the challenges of dumping as excess steel and aluminium products could find their way into SA markets at cheaper prices, due to oversupply from China and other emerging markets. Although exempted from the US imports tariffs for a period of 30 days, Brazil has already set up a steel imports monitoring mechanism to gauge any unusual spike in steel and aluminium products into the country. SA can follow the same process rather than reacting afterwards when dumping is rife.
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SEIFSA AT 75- SPECIAL COMMEMORATIVE MAGAZINE