Break­ing down the dis­trust in black com­pe­tence

The Star Early Edition - - OPINION & ANALYSIS - Xolani Qubeka Xolani Qubeka is the chief ex­ec­u­tive of the Small Busi­ness De­vel­op­ment In­sti­tute, and he writes in his per­sonal ca­pac­ity. E-mail ad­dress: xolani. qubeka@sbdi.org.za

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.

PHOTO: SUPPLIED

Gen­eral Mo­tors’ car man­u­fac­tur­ing plant in South Africa. Why did GM, with all the good news and record break­ing per­for­mance of the sec­tor, elect to throw its toys in the air, pack its bag and go back home, asks the writer.

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