MUST WATCH: Invicta Holdings CEO joins dots – NUMSA killing manufacturing

CEO of Invicta Holdings, Arnold Goldstone spoke to Alec Hogg about uncertainty in SA's industrial sector and the impact that it is having on Invicta, its shareholders and its future prospects. Arnold provided some sobering words for South Africa, its leadership, and its unions. If there is one thing that you should watch today, it is this interview. The facts regarding labour unrest, instability and ever rising wage demands are simple – SA  is trying to compete globally. If a company's shareholders will be better served by the company investing elsewhere then it is certain to do that. Business will take their investment elsewhere, as will international investors. South Africa's manufacturing industry has the potential to be a competitive value adder internationally, but is being handicapped by all the striking. Something has got to give. – LF  

ALEC HOGG: Consequences also happen inside a company because shareholders in Invicta Holdings have been experiencing some uncertainty about the future direction of the company. Arnold Goldstone was in the studio a little while here with us, to tell us that Invicta is looking to go more aggressively into the global environment. He's in our Cape Town studios and we wanted to pick up with him on a couple of issues, and Arnold, I know you have been listening in to the discussion we had with Pietman, about the NUMSA strike and collective bargaining and where the whole labour issue is heading in South Africa. You're a major engineering, industrial company, how are you reading this?

ARNOLD GOLDSTONE: Thanks Alec. Yes, I think Pietman was correct. The effect of NUMSA strike has been extensive. In our instance, we are not as unionised as one would imagine but nevertheless, the Union has managed to stop many of our operations by intimidating our workers. Although you asked him the question 'how many members does NUMSA have', it almost becomes irrelevant, because NUMSA has gone to facilities of ours where they have absolutely no representation; and stopped our works by arriving with a mob of 100/150 people armed with pangas, machetes, and axes, threatening our staff and forcing us to close the facilities. It's not a happy situation. Everybody has the right to strike. We're happy with that but I don't agree with the intimidation of non-unionised people who want to work, so that's a problem for us.

ALEC HOGG: We have wonderful laws in this country, as I've mentioned earlier, but that's totally unconstitutional. It's illegal. Would the police not come and arrest these mobs of a 100 people?

ARNOLD GOLDSTONE: We haven't enjoyed great support from the police, in the instances that we've had. One of our staff members was seriously injured. He was attacked with a panga as he tried to escape on our own premises from the mob. The police were absent and when we called them, the response time wouldn't have been quick enough, so the one instance that we've had a mob marching down the road in one of our facilities in Johannesburg, the police were escorting them, and so it was a relatively peaceful event. We've had damages done to our buildings and some cars and so on, but nothing major. Unfortunately, the threats to staff and the potential that people could be seriously injured, and also they were threatened with their homes being burnt while they were at work – that was a deterrent. The police are not really very visible and on the one or two occasions that we've had to call for help they wouldn't have been there quick enough, so we were very much at the mercy of the mob, unfortunately.

ALEC HOGG: Sounds a little like anarchy but from a businesses' perspective, you act rationally, you view what is happening, and you take appropriate decisions. What decisions are you taking as a consequence?

ARNOLD GOLDSTONE: Well, Alec, you know a few years ago, we looked at the market in South Africa, and we nominated that South Africa was slowly de-industrialising and I was taken to task at the time – it was about three years ago – but that was our perception. We could notice a pervasive lack of competitiveness in the market. At the end of the day, we are competing with the rest of the world, whatever we manufacture in South Africa, so it became obvious to us that South Africa didn't have the environment that would encourage competitive manufacturing, so we started looking abroad. We've publically stated we would like 50 percent of our income to be, generated from non-South African sources within five years. We are currently at about 22 percent of our revenue, coming from abroad, so we are fishing in international waters for the diversification that we want outside of South Africa.

Also, Invicta's market is fairly limited in the country because we are relatively large, in whichever industry we operate in, which makes it difficult to make game changing acquisitions in our industries. There are competition commission restrictions that would prevent us from making the game changes here, so we embarked on this path some years ago. Perhaps a bit prophetic, sad for the country, unfortunately that we have a big industry, like the manufacturing industry, which is on a slow decline, so as a South African, it is very sad for me to be an observer.

ALEC HOGG: It's extraordinary on two points. The first of those being we have a Government, which is promoting an industrial policy, in other words the re-manufacturing or the growth of manufacturing in South Africa, and as you've said, you're in the industry and there's a decline. Then the second point, I guess, is well you are a custodian of shareholder's funds, you need to apply shareholder's funds in a way that you get the best possible return, and it appears as though that isn't in this country.

ARNOLD GOLDSTONE: Sadly, you're right. It's not in this country and it's frustrating for us because we have good talent in the country. We have resources, so there's no reason why we can't be competitive, on a global scale. As you've said, we are the custodian of other people's money, so we need to find the best opportunity for that money and, in the industrial or mining world it certainly is not in South Africa at the moment. It doesn't mean that South Africa is doom and gloom, you know. Many people have written, the world has written South Africa off, over the past, if you think of it, 20 years. From 1976 through to 1984, the Rubicon Speech, in 1990 we were written off, 1994 and then, with all the emerging market crises, etcetera, we've been written off as a resourceful country. What we lack is decisive leadership from Government that says 'listen, we see a path, going forward'.

Let's plot a reasonable roadmap that enables us to become more competitive globally," and perhaps relax some of the very stringent labour regulations, which almost flies in the face of where we're at in South Africa, at the moment, but we need that kind of decisive leadership. Otherwise companies like Invicta, will have to invest abroad. We need to look after our shareholder's money.

ALEC HOGG: And that's exactly what you're doing, but it is interesting the point you were making, just a moment ago, is that you have this hypocritical situation in organised labour. On the one hand, they'll sit around the table and negotiate like gentlemen, but if they don't get their way then 'mob rule'.

ARNOLD GOLDSTONE: Well, unfortunately, the mob has ruled quite extensively this year. There was a NUMSA strike last year, which although it did affect us a little bit, we didn't miss a beat. We were able to call in help from branches where we weren't having strikes. Get staff on site to the facilities, the major facilities, and continue operations. There was a little bit of intimidation at the gate and a little bit of posturing but nothing serious. This year it's completely different. It is almost as though there's been a call to arms amongst the strikers, where they are belligerent, they intimidate, and they try and be as disruptive as possible, so unfortunately, it is not just a strike. It's a flexing of muscles and, for one; I think it is really damaging South Africa.

ALEC HOGG: What's the endgame in all of this, Arnold?

ARNOLD GOLDSTONE: Look, I think things will return to normal. You know, it's inevitable. I think there will be peace that will be, made, and from an Invicta point of view, we've lived through crisis, and we have a steady hand at the helm. We're not panicking. We have advised our shareholders that if things don't improve we expect a decline in our first half earnings but we've lived through all sorts of crisis in the past, and we know that we'll recover. As far as operations in South Africa are concerned, I don't think that this will be a major setback, but it is just another step on the journey of a gradual decline of industrialisation in South Africa. You know, the foreign investor has an opportunity to invest anywhere in the world, so he looks very simply and says 'where do I get my best bank for my buck'. Quite honestly, South Africa isn't representing that at the moment, so until we have a proper change of heart, where there's decisive leadership leading us into a more industrialised, globally competitive kind of environment, I fear for the future of manufacturing in the country.

ALEC HOGG: Arnold Goldstone is the Chief Executive of Invicta Holdings, giving us his perspectives on the continued deterioration on South Africa's industrial competitiveness, aided and abetted by poor leadership. I think that's the crux of what Arnold was telling us. Remember, you can email us on powerlunch@abn360.com.