Recent data from the Manufacturing Circle shows that, perhaps unsurprisingly, confidence among South Africa’s manufacturers has remained weak in the three months to the end of September. As the wave of strikes continue – the latest being a strike among transport workers – manufacturers, and their peers in the mining sector, are facing major challenges. As Pan-African Capital Holdings CEO Iraj Abedian points out, when strikes stretch into several-week-long affairs, companies lose a significant chunk of their 52-week production. The pressure of lost revenue and, usually, increased costs thanks to inflated wage settlements, can drive companies to shed jobs and turn to mechanisation to protect against the risk of future strikes, serving no one. Abedian also discusses the impact strikes can have on wage-earners, who must sacrifice a significant proportion of their yearly earnings when they strike for several weeks, and the role of unsecured loans in enabling such workers to make ends meet. – FD
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ALEC HOGG: The Manufacturing Circle’s third-quarter survey reveals that business confidence in the manufacturing sector remained weak during those three months to the end of September. However, manufacturers do expect greater levels of stability over the next year or two. Iraj Abedian, Chief Executive of Pan-African Capital Holdings joins us now for more. Not only are you an economist Iraj, but you’re also a businessman and clearly, very tapped into what’s going on in the manufacturing sector. The Manufacturing Circle does some quite good work in their business review, but how seriously should we be taking these numbers?
IRAJ ABEDIAN: I think very seriously. The survey that we started three years ago has grown to become part of the statistical establishment relatively quickly, simply because the manufacturers find it useful. They participate, and if you look at the profile of participation, it’s fairly representative of the manufacturing sector in South Africa. Sixty to seventy-five participants answer questions. The highest we have is three and this last quarter 60 manufacturers participated, predominantly on the medium to smaller side, as well as representation from the large manufacturers.
ALEC HOGG: Is that statistically relevant?
IRAJ ABEDIAN: It is absolutely relevant. We don’t just rely on the questionnaire. We also put it in the context of what stats they put out, what PMI indicates. So we blend the so-called quantitative historic trends with real-time impressions of the Chief Executives as they run their businesses. When we look at the past three years, throughout operations, it’s fairly solidly representing what’s happening in the sector and therefore we need to take it seriously.
GUGULETHU MFUPHI: What is happening in the sector?
IRAJ ABEDIAN: These past quarters as you can imagine, have been a really horrid time for manufacturers. They’ve had industrial stoppages and labour issues not only in the manufacturing sector, but also in the mining sector. Bear in mind that South Africa’s mining and manufacturing are very closely interlinked. Manufacturers contribute part of the supply into mining and vice versa, so a stoppage in mining stops the manufacturer and a stoppage in manufacturing disrupts some of the miners and therefore it hasn’t been an easy time – not just because of the strikes. It’s just that the strikes have gone on forever: two week/three weeks. Look at 52 weeks of operations. If you have two to three weeks of disruption, you can catch up, but if a strike lasts for eight or ten months, how do you catch up and how do you compete? Disruption to production is a real costly business. We always talk about labour costs, electricity costs, rates and taxes etcetera, but anybody in business knows that disruption to production is a major cost that you cannot easily recover. If it goes beyond two or three weeks, then it’s tough to recover.
ALEC HOGG: How do they maintain that? How do striking workers who tells us clearly that they’re very close to the breadline, maintain being off work for that entire period? Who pays them? Who funds them?
IRAJ ABEDIAN: They don’t. That’s why there is this disconnect in many areas between the workers and the so-called leaders, because leaders get their salary regardless. Workers – every month that they don’t go to work – it’s like having eight and a half percent reduction in your income so you have to get at least eight and a half percent to make up for what you’ve lost, so there is this disconnect. It’s becoming part of the problem, and what has in the past few years been a bridging finance for the poor workers, has been the so-called unsecured lending. That, at a community level, is another source of causing social tension with huge financial impact on the families. Therefore, a complex web has evolved around this mining and industrial working class.
GUGULETHU MFUPHI: Doubtless, there are repercussions for their actions Iraj, because according to the survey some manufacturers are looking to cut back on their work staff by as much as 15 percent.
IRAJ ABEDIAN: Never mind that: the actual stats show that in the past quarter we’ve had 68 thousand job losses. Those are not plans. Those are actual, and to some extent, you see the impact of it in the retail numbers. When you have high unemployment and another 68 thousand jobless – without income – it’s bound to show in the ability to purchase. On top of that: if we look at the survey for the next three months and 12 months – that’s the type of questions that we ask them – the predominant majority is thinking of a reduction of between one to 15 percent and the rest is in a holding pattern. There is little to no plan regarding job creation or expansion.
ALEC HOGG: Even with the rand weakening?
IRAJ ABEDIAN: The rand weakening, firstly, is not the only contributor. With the weakening, has come huge volatility. If the currency is 1020/1030 one day and the day after its 890 and it vacillates in between… In order to manage your business you have to hedge it, which takes the entire margin out of it. If you don’t hedge it, the losses reflect on your books so weakness has come with volatility. The second point of weakness is that our manufacturing is relatively, for many industries, interdependent as well. It’s not all the same ratio, but the more your input intensity, the more the weakness of the currency costs both ways. It’s a difficult situation.
GUGULETHU MFUPHI: Iraj, what about mechanisation – could we see that take place in the manufacturing industry?
IRAJ ABEDIAN: It has happened and doubtless, with the level of disruption we’ve had, the intensity, and the violence with which labour relations have been managed – those who plan to stay, and those who plan to expand will use every bit of technology they can. I’m as concerned about the mining sector because the manufacturers – believe it or not – have done a great deal of automation already and the mining sector hasn’t done as much. My concern is that the way industrial relations panned out during the past year is leaving the miners with no option but to mechanize, and that means job losses of between 120 to 150 thousand jobs, which is a massive proportion of…
ALEC HOGG: With how many people dependent on each of those jobs…
IRAJ ABEDIAN: Exactly – you just look at that and the fact that it takes nearly one third or a quarter of your labour force out of this one sector, with this entire multiplying effect: the social tension that it brings on top of a high level of unemployment – it’s really a serious national issue that needs proper consideration.
