19 Feb 2010
SA industrial policy
By Summit, Business Day, Semeyi Zake
Summit TV takes a look at South Africa’s industrial policy for the next three years with Azola Lowan from Advantage Asset Managers and whether we can dent the unemployment problem
Semeyi Zake: Welcome to Face to Face. South Africa has released its three-year industrial policy that seeks to bolster manufacturing capacity, improve the trade balance, and create some 825,000 jobs and 2.5 million indirect jobs within 10 years. Azola, what is your general take on the industrial policy that’s now been presented?
Azola Lowan: In terms of the policy I think it’s fine - but what one finds is that we have had lots of different types of policies and initiatives, that are always promising to deliver millions of jobs but thus far we haven’t really seen that coming through. I think with this again it’s lacking with respect to quite specific detail so one would rather wait it out and see what happens rather than place too much confidence in it at this stage.
Semeyi Zake: Do you have any idea when we will be getting the detail?
Azola Lowan: I believe that’s still under wraps.
Semeyi Zake: Do you get the feeling that perhaps government is protecting industry that it shouldn’t be at the moment?
Azola Lowan: There is some concern around that especially the automotive industry - I think government has basically been funding that for up to 20 years now. One would think that at this stage they should be able to continue on by themselves. Also, the textiles industry is another one that government has been supporting quite strongly. I think the problem is that one needs to look at what are the underlying issues, why can’t these industries stand up on their own and be competitive globally? Another one of the main issues is labour flexibility and high labour costs. That is something that we need to deal with as a country and that’s what will keep industry under pressure.
Semeyi Zake: Something that comes out of this is the potential conflict between the Department of Trade and Industry and this policy - what is your take on that?
Azola Lowan: The most obvious one is that the DTI has been saying the rand is too strong. What we found from the Budget was contrary to that they’re saying we want a stable and competitive exchange rate where the DTI seems to be leaning towards fixing the rand to help the economy to become more competitive relative to its partners. Then again I believe that you can’t just say the rand is the only solution - you need to consider issues like a very weak rand is highly inflationary and there are other factors. Rather deal with the underlying and don’t focus too much on the rand alone…
Semeyi Zake: The other thing was of course jobs the target being to create some 825,000 jobs with 2.5 million indirect jobs within 10 years - what’s your take on that? Are those jobs sustainable?
Azola Lowan: I think again it just goes back to we’ve had so many growth targets and we haven’t seen them come through so it’s very difficult to put confidence in the numbers they’re actually putting out so I’d say let’s wait and see what the exact detail is of this policy and how it’s actually to be implemented. Another issue is that government can work quite slowly and it’s not entirely responsive to what’s happening so we will find that things like job creation can be quite slow.
Semeyi Zake: Given the numbers that they’ve given are they enough to deal with the unemployment we currently have?
Azola Lowan: Absolutely not. We have an exceptionally high unemployment rate at about 23% to 24%. The thing with the unemployment numbers is that in the survey they actually ask you did you look for a job last week? If you say you didn’t that means you are happy to be unemployed so “discouraged” work seekers aren’t actually included in the unemployment numbers so the figure is closer to 40% and that’s millions of people so 800,000 jobs and 2.5 million indirect? I’m not even entirely sure what we mean by indirect jobs? Those job opportunities might be for three days or three months so I think the numbers are clearly insufficient…
Semeyi Zake: One of the biggest threats to all of this will be the issue of Eskom and the tariff hikes we are all waiting to see…
Azola Lowan: That’s another thing - because as I was saying there’s too much focus on saying we are not competitive because of the rand - now with Eskom saying they want to increase tariffs by something like 35% what happens to unit prices? Obviously that goes up and impacts on global competitiveness so Eskom is a really serious issue. I was listening to the chief executive of ArcelorMittal - she was saying that their current electricity bill is something like R1.6billion but if Eskom gets their hikes that bill can go up to R3.2 billion. That’s a massive shift and obviously that impacts margins and costs. That takes us away from being competitive as a nation...
Semeyi Zake: Do you think that this Eskom issue has been factored into these projections that they’re giving us?
Azola Lowan: Presumably. What’s really interesting is that if you think of the SA Reserve Bank they’re only factoring in 25% so you’re actually not sure if the South African Reserve Bank has information that we don’t know about. We can’t say what exactly government is factoring in until it finally comes to 24 February? when we will hear from the National Energy Regulator (Nersa) what the final determination is that will settle that controversy.
Semeyi Zake: Looking briefly at the Budget some have been calling it an “eerie calm” before the storm and that’s concerning the issues like inflation targeting and the SA Reserve Bank mandate - do you think we are settled on this matter?
Azola Lowan: That’s a tough one. I think the markets breathed a sigh of relief when the inflation targeting range came out reaffirmed at 3% to 6%. I believe the rand actually strengthened by 10 cents immediately which was a very positive signal from overseas investors. With respect to that definitely the business financial markets won this round with respect to inflation targeting - but one can’t be complacent because there are millions of unemployed South Africans where during the years of good growth unemployment only shrank by 2% or 3% and not commensurate with the amount of growth that we actually had. There’s a lot of people who are dissatisfied and unemployed. That’s always bubbling under and keeping the trade unions alive so I think we need to watch that space.
Semeyi Zake: So we are expecting a bit more action on that front…
Azola Lowan: Definitely. We’ve seen that in the week with Cosatu basically saying the speech says things are changing but in reality nothing changed…
Semeyi Zake: In the coming week we are expecting some GDP data - your thoughts on that?
Azola Lowan: The GDP numbers I think we could have a bit of a positive surprise - in the third quarter that was up 0.9% and I think for the fourth quarter we are looking at a number in excess of about 2.5% which is very strong. We saw the manufacturing numbers - they’ve come out rebounding into positive territory. Government spending was quite strong and construction as well so I think those three will continue to add positively to the GDP outlook. I think on the retail trade and hotels and restaurants there’s still quite a lot of pressure there so I think we will see a detractor in that number. The others will just recover as well so I think that will be very positive. Just to link that to views around monetary policy - if we have that very strong rebound in growth it will be very hard to actually say let’s have another interest rate cut in March. There is a bit of talk around that there might be another opportunity for rate cuts in March but if that number is very strong I think one would need to forget that.