Continued rolling blackouts – at the time of writing, Eskom had resorted to Stage 4 (of 8?) – renewed strike action, and the continued decline of Transnet’s ability to move freight all put paid to the government’s much-hyped Localisation Master Plans.
Without a cheap and reliable energy supply it is highly unlikely that manufacturing and mining will ‘re-industrialise’ the nation to any significant extent. Instead of Localisation Plans that will only increase import and export costs and generally discourage trade with South Africa, government should be focusing on fixing basic structural issues, such as the mining licence system, and privatising Eskom and Transnet.
The current global commodities boom will not last forever; in any case, it is irrational to presume that one’s country will always have global events running in its favour. While the fiscus has benefited from the boom, the benefit is nowhere near as much as it should have been, had the country’s ports and rail networks been operating at required efficiency. At present commodities contribute more than 70% to the country’s total exports. However, if the country’s infrastructure issues persist, those foreign businesses and manufacturers looking for coal, iron ore, gold and platinum may well look elsewhere to fulfil their needs.
Speaking at the Mining Indaba in Cape Town on 10 May, President Ramaphosa said that the destruction of the country’s railway system needs urgent attention. Indeed, the President and the various government departments involved should probably focus on protecting the rail infrastructure that remains – instead of trying to play kingmaker and providing subsidies and other protections for businesses as part of Localisation plans that will only lead to higher costs later down the line.
Regarding mining specifically, at last count more than 4 000 mining and exploration licence applications were waiting to be processed at the Department of Mineral Resources and Energy. The Minerals Council indicated that almost R100 billion in projects are currently in limbo, because of bureaucratic problems at the Department. How any of the proposed industry Master Plans will resolve this backlog, is unclear.
On 9 May the National Union of Metalworkers of South Africa (Numsa) served ArcelorMittal SA with 48 hours’ notice of a strike; the strike is in support of a 10% wage increase demand, with the steel company offering 5%. Numsa is not alone in its strike action; the Association of Mineworkers and Construction Union and the National Union of Mineworkers are currently on a nearly three-month strike at Sibanye-Stillwater. For as long as unions have the influence and power to hold business and industry hostage, there is little chance that government’s Localisation plans will bring about great new capital investments.
According to Transnet’s own latest annual report, rail freight volumes dropped 13.3% and port container throughput was down by 10.5%. These latest drops come after years of businesses and freight companies shifting their preferred method of transport to road. They simply cannot rely on Transnet, and furthermore the rail networks upon which they would have relied in the past may well simply not exist anymore. With the decline of the railways, there is ever more pressure on the roads; no wonder many of these cannot take the added tonnage, and break down into something hardly resembling what one would properly call a ‘road.’
We can also point to the effect of increased rail tariffs, driving companies to pursue other options. Between 2005 and 2010, rail tariffs increased by more than 191%; it therefore becomes all the more difficult and expensive for exporters to accommodate such costs, and they have no choice but to put their materials and goods on trucks.
Localisation plans are not going to solve any of the basic infrastructure issues that have been touched on here. Furthermore, once they are imposed they are likely to increase trade costs across the board, further affecting low-to-middle-income consumers who are already struggling greatly as a result of higher inflation, and increased fuel and food prices.
If South Africa is to attain meaningful growth any time soon (much more than the 1.8% projected for the next few years), the government will need to adopt reforms and policies that are focused on paring back its controls. Additional barriers to trade are going to impede the flow of goods and services, and inhibit the growth of organic manufacturing and industrial activity. Absent these necessary reforms (which are in any case unlikely to happen), exporters and businesses across value chains need to take stock of the reality that the government is likely going to pursue policies that will make their operations yet more difficult – and they should plan accordingly to ensure that their work can continue.
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