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CityPress - - Business - PETER DE IONNO peter.deionno@city­press.co.za

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

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