Breaking down the distrust in black competence
TO MANY economic transformation is a money spinner! The advent of Black Economic Empowerment (BEE) has seen the emergence of new consulting companies that become overnight experts on what is loosely referred to as “empowerment” and most of these are wholly white-owned companies. This presents one of the major market contradictions.
Many large companies with substantial enterprise development budgets prefer to entrust that spend with white dominated institutions ahead of black owned ones. Which means they cannot trust the many black owned companies and that the South African economy is still sitting on a cold afternoon apartheid stoep.
The economic power built out of historical wealth and carried by the captains of industry across various key industrial sectors has yet to be unleashed for the broader national interest. The custom of protectionist tendencies is highly embedded in our economic ecosystem and practised through sectoral monopolistic and collusive systematic manoeuvres.
The business leadership across the spectrum seems to be only reacting to major international market storms, rather than carving a long-term economic model that would bring a new economic epoch.
What is required is a new cadre of patriotic business elite that doesn’t only awaken after the Davos Christmas after party, but a leadership that knows and truly understands South Africa’s stark realties, whose elephant in the room is an old apartheid economic architecture that continues to stifle competitive market dynamisms and in the process fails to engender higher economic activities that could be broadened by new entrants and new investment prospects. We need to lift the conversations beyond rhetoric, and perhaps yes… an Economic Codesa!
Something has to break! Yes, first we need to break the strangleholds within the various industrial sectors that continues to perpetuate the “old boys clubs”.
Most sectors are still practising uncompetitive collusive behaviour with entrenched cronyisms and unfair market dominance.
This column will be focusing its subsequent editions on individual sectors each week, commencing with the automotive sector.
The aim is to look at the broader value chains of each of the key industrial sectors.
According to a report contained in the recent SA Automotive Export Manual 2017 compiled by Dr Norman Lamprecht on behalf of the Automotive Industry Export Council “the vehicle and component manufacturing production constitutes the country’s largest manufacturing sector, and in 2016 accounted for 33 percent of South Africa’s manufacturing output. The broader automotive industry’s contribution to gross domestic product was 7.4 percent (4.7 percent manufacturing and 2.7 percent retail). Exports of automotive products in 2016 accounted for R171 billion, a further record, representing 15.6 percent of total South African exports”.
One of the major requirement by the government is to see the sector undertaking drastic economic transformation, particularly in the original equipment manufacturing (OEM) segment.
There are more than 400 component suppliers in South Africa, with little participation by black businesses.
Of course the South African government’s policy warehoused by the department of trade and industry (dti) plays a pivotal role in instigating the development of the automotive industry, with its flagship programme, the Automotive Production Development Programme (APDP) having invested R 7.9bn in 2014 towards incentivising the sector.
One has to wonder why General Motors, with all the good news and record breaking performance of the sector, would instead elect to throw its toys in the air, pack its bag and go back home, is it failed competitor perhaps?, a topic for another day.
The one difficulty confronting the eco- nomic transformation process is that while the government generously supports the sector, it is overseas head offices of local international companies that decides who should be suppliers of which specific parts of the respective vehicles manufactured in this country.
Leverage
The dti should be using its leverage through the incentive schemes such as the APDP to force the sector to transform its component manufacturing sector, as part of the black industrialist programme.
Another component of the sector which is a cause for major concern is the panel beating and spray painting segment, otherwise referred to as the refinishing industry. This segment is highly lucrative but constituted like an unbreakable cartel with limited penetration for black new entrants.
According to industry expert George Booker, with almost 40 years in the sector, most of the problems the segment is facing are man-made and can be resolved. According to Booker there are now only two grades of panel beater shops available: non-structural repairer (NSR) and major structural repairer (MSR).
The NSR facilities are only allowed to do cosmetic work with no part replacements done.
Due to the grading system none of these NSR facilities are OEM approved and rely on out of warranty vehicles. More than 80 percent of insured and warranty work is being directed to MSR facilities but considering that 70 percent of current accidents are drivable vehicles that do not require any structural repairs these MSR facilities are packed to capacity with work that should in fact be redirected to NSR shops that remain empty and out of work.
The point being made here is that the OEMs are complicit to discriminatory practices that favours established players.
Inhibiting factors
Quite clearly these inhibiting factors preclude the participation of black panel beaters in the lucrative portion of the industry. According to Booker the approvals plan is controlled by two individuals who have the OEMs in their pocket. Insurance houses are thus forced to only use these OEM accredited facilities.
Booker contends that apprenticeship enrolment levels are at an all-time low in all areas of refinish operations.
At a time when there are millions of unemployed youth, we should be accelerating the expenditure on training more apprentices.
I am also informed that entry into this MSR market in terms of facility is in excess of R15 million, which seem to preclude most aspirant and emerging black panel beaters.
Booker brings one scary dimension in this whole ecosystem. He points to an approval system being used to accredit and grade facilities, which should be conforming to OEM standards so as to be able to repair vehicles within warranty.
His assertion seem to suggest that the system is highly questionable and at best cosmetic.
In digging further I came across a reported industrial disaster in Bhopal which was described as the biggest industrial disaster that claimed the lives of nearly 40 employees because of “methyl isocyanate toxity”.
The safety of employees is important and it is critical for OEMs to be closer to these processes and ensure a safer working environment.
I, therefore, wish to invite the leadership of the sector to engage in a much bigger conversation.
This platform therefore provides space and scope for that conversation to occur. It’s long overdue.
Another component of the sector which is a cause for major concern is the panel beating and spray painting segment, referred to as the refinishing industry.