f the South African metals and engineering sector were a hospital patient, it would be in intensive care, and doctors would be advising its relatives to be merciful and pull the plug.
That’s the message that comes from an assessment of the sector this week by Henk Langenhoven, the chief economist of the Steel and Engineering Industries Federation of Southern Africa.
He opens with an urgent plea for a strong partnership between government, business and labour “to prevent the metals and engineering sector from withering into oblivion”.
“Without doubt, the metals and engineering sector is going through a fundamental structural adjustment, and not just a cyclical correction,” he says.
This, coupled with an analysis of how the sector has struggled to recover from the global financial crisis of 2008/09, and fears that depressed markets for both commodities and metal products may last for between 10 and 20 years before the cycle turns, is bad news for everyone in South Africa, from government to the armies of the unemployed.
Balanced against the unrelenting bad news dragging the manufacturing sector down, government’s claims that it is reindustrialising the country seem empty, and plans to create 100 industrialists are little more than good intentions.
Between 1994 and 2008, the sector reaped a postliberation dividend, growing by 94%, until 2008’s crisis pulled the rug out from underfoot.
In the year of the global financial crisis, the sector contracted by a devastating 21%.
“Since then, the sector expanded by about 6%, but the level of value added to the economy today is still 16% lower, and output is 25% lower than at the peak of 2007/08,” says Langenhoven.
“Profit margins peaked in 2005 and thereafter halved from an average of 10% to 5% [over the years from 2006 to 2014]. Fixed investment in the sector halved from its peak of more than 6% in 1994 to 3% since 2000.”
If the numbers seem dry and depressing, it is because they are.
The many reasons for dreadful performance now and into the future pile up like IOUs in Greece, as Langenhoven draws a bead on export markets.
“Prices for South African exports are also depressed, and may continue to be so for a long time.
“Research shows that metal-price cycles last, on average, for 35 years: the latest cycle started in 1999
THE CONTRACTION EXPERIENCED BY
THE SECTOR AFTER THE 2008 FINANCIAL CRISIS. BETWEEN 1994 AND 2005, THE SECTOR GREW 94% THE MAXIMUM NUMBER OF YEARS THAT THE DEPRESSED COMMODITIES MARKET MAY LAST
BEFORE IT TURNS