Locals lose jobs when it’s foreign that’s lekker
World-class truck maker is South African — yet it’s offshore companies that get the municipal tenders
ONE of the biggest challenges facing South Africa’s largest manufacturer and distributor of heavy equipment, Bell Equipment, is the increasing cost of doing business in the country, says CEO Gary Bell.
This includes import duties, regulatory costs and the costs of BEE.
“We deal with these as best we can, but if it gets more difficult we will need to migrate some of our manufacturing to our European factories,” says Bell, who released his company’s interim half-year results on Friday.
When it set up its first plant in Europe 15 years ago, it was all about logistics.
Now “politics and the cost of doing business in South Africa are becoming more of a factor”, he says.
“We have to weigh this up and at some point the scale will tip and there will be a loss of jobs.”
This point is now “fairly close”, he says.
Bell Equipment, according to him, makes the best articulated dump trucks in the world.
They compete successfully in “the most demanding markets in the world” including the US, Germany and the UK.
“We’ve upgraded it and currently would rate it as the top product in the world from a technology and performance point of view,” he says.
“We’re pioneering new concepts ahead of the big-brand names.”
He says that what gives them the edge over competitors in the articulated dump truck market is that they are more focused on that one product.
“Some of the big-brand names spend their R&D dollars on 30 or 40 different products. We’re focused on the articulated truck product.”
Ninety-five percent of the company’s development dollars go into that product. Over the past five years, some R800-million has been pumped into the upgrade and expansion of the range, which is manufactured at its Richards Bay factory.
It imports Mercedes-Benz engines for its vehicles from Germany, but does its own software development and integration of systems in Richards Bay, where it employs 100 homegrown engineers, technicians and software specialists in research and development.
“It’s all clean sheet stuff. We’re not modifying Japanese or Scandinavian concepts or designs. We own the intellectual property. For our engineering people it’s proper engineering work.” That’s why the company can attract and retain the best.
“We compete internationally, which takes some doing,” says Bell.
Try going to a German construction site with a machine from South Africa, he says.
“It was a hard sell initially, but they set us up against a competitive product and we’ve been very successful in coming out on top.”
But when they bid to supply Richards Bay municipality with their world-class product, they lost out to a company that imported ready-made machinery from Hungary with no value add, local content or jobs.
Supposedly in the name of BEE, says Bell.
Bell Equipment employs 2 200 people in South Africa (and 900 abroad). It sources components and services from 980 companies around the country, 250 of which are in Richards Bay.
Every time the municipality imports finished equipment, the employees of these companies come another step closer to losing their jobs, he says.
“We have 250 companies in the town that rely on us.
“Local people paying taxes and shopping here who would benefit if our local municipality bought a machine from us instead of buying imports.”
But, in spite of South Africa’s high unemployment rate, regular assurances by President Jacob Zuma that creating jobs is his priority, and commitments to the ratings agencies that the government will prioritise job creation, having the right number of points on the BEE scorecard trumps jobs every time, he says.
Less than 3% of the business it does in South Africa comes from the public sector.
“We don’t get any preference at all from South African municipalities. Everything depends on whether you have the right BEE rating on your scorecard.
“The way these tenders are adjudicated has very little to do with local production or local jobs.”
He says the Bell Equipment division that covers the South African market and comprises 22 sales outlets around the country is BEE compliant.
They did a BEE deal six years ago which their BEE partner exited last year, and they’re about to confirm a new deal, he says.
But the bulk of its product comes from small and medium-size entities that are “not compliant to the same extent”.
He says this is largely a legacy of the past: “There’s a huge shortage of engineering skills. This starts at high school level where maths is a problem. It will be 20 years before we get the right number and quality of engineering people coming through our colleges and universities.”
Most of the product produced at its Richards Bay plant is for markets in Germany, the US, UK and Russia, where of course BEE compliance is not an issue.
The irony is that Bell would be more compliant if it shipped products from its German factory to its South African company.
“Because the product would then be imported and not made here we’d get a higher BEE rating,” he says.
“Any of our competitors who bring a product from overseas get a better BEE rating because they import,” says Bell. “If you procure from a local entity that does not have the highest BEE rating you’re disadvantaged.”
In BEE-speak, local procurement does not mean that the company concerned has to source anything locally. It simply means it has to be BEE compliant, which is not the same thing at all.
“In the tender process you get a very small benefit for local procurement,” says Bell. “The policies in place do not control the local procurement aspect very well at all.”
He would like to see BEE scorecards giving more preference to local products and local jobs.
“A lot of people don’t understand what our value add is in this country. We have a huge multiplier effect. Each time we sell a piece of machinery in this country there are 980 companies deriving some benefit.
“At a local government level there’s not a very good understanding of the multiplier effect.”
He says Trade and Industry minister Rob Davies and Economic Development Minister Ebrahim Patel “like what we’re doing, like the value add, like the ownership of the intellectual property, the job creation and [our] multiplier effect”.
But in spite of the much-vaunted manufacturing enhancement programme, the government’s BEE codes do not reflect this. What about pricing? “We need to be globally competitive,” says Bell. “We’re never going to be half the price of imports, but more importance needs to be given to the fact that we’re creating local jobs and have a huge multiplier effect.
“In all the BEE measures required today there’s no linkage to jobs,” he says. He concedes that “engineering is not a sector that has transformed to the same extent as mining or construction”, largely because of a shortage of technical skills.
Doing business only with companies that score the highest BEE points is “certainly not helping the bottom line, which is job creation”.
The Manufacturing Circle believes corruption rather than a pious attachment to BEE motivates many local government procurement decisions. It concedes manufacturing is “not a particularly transformed sector”.
This is because “traditionally it’s an industry that is very capital intensive and requires tangible, hard work and technical expertise built up over many years. It takes a long time to understand how things work, the technicalities. It so happens that quite a lot of these companies are white owned.”
Bell Equipment was started in the mid-’50s by Bell’s father, Irvine, a fitter and turner who served five years in the army engineering corps in World War 2. He grew it from a small, one-man operation servicing farm machinery.
About 55% of Bell Equipment’s revenue is earned offshore. Given local conditions such as the failure of government’s infrastructure spending plans, slow implementation of the National Development Plan, a mining slump (from 54% of its business four years ago to 16% now), and its exclusion from local public sector contracts on BEE grounds, this will “grow quickly”, says Bell.
Having the right number of points on the BEE scorecard trumps jobs every time