After a decade of rolling with the punches, local industrialists have started to speak out strongly against a range of government policies, which, they claim, could lead to further de-industrialisation in the years ahead unless checked.

Their criticism comes at a time when government is undertaking a far-reaching review of its industrial strategy and policies, and as plans for a far more forthright and selective incentive regime begins to evolve.

This work is being led by Trade and Industry Deputy Minister Dr Rob Davies and is viewed as one of the key ingredients to a higher growth trajectory for the country.

This new industrial policy would endeavour to create a more targeted support system for selected sectors as well as exploit the ever-shrinking, but still present, policy space between national priorities and a developing country's international commitments.

In a no-holds-barred address last week, outgoing Steel and Engineering Industries Federation of South Africa (Seifsa) president Helmuth Fischer, who is also MD of low-voltage switchgear group CBI, offered a downbeat assessment of local manufacturing, which he indicated was under siege.

"Growth in the South African economy is due largely to local consumer demand and belies the fact that there are a number of serious challenges that manufacturers in the metals and engineering industry are facing," he said.

He was extremely critical of South Africa's exchange-rate policy, saying that, at current levels of around R6,50 to the dollar, many manufacturers had been forced to scale back production and stop exporting.

He pointed to research undertaken by Seifsa, which indicated that a more competitive currency of around R7 to R9 to the dollar could help ensure that exporters in the industry remained profitable, while not inhibiting necessary imports.

His comments were backed by Investec Asset Management's Michael Power, who argued that South Africa had been growing "back to front" for the last four years by "letting the consumer run riot, while producers have been living in a strange world where the euphoria that surrounds their personal lives is not matched by what surrounds them in their professionals lives".

Power said the country was running a real risk of 'Dutch disease' (the term used to describe the de-industrialisation of the Netherlands in the 1970s, after the windfall North Sea oil discoveries led to a material strengthening in its currency) unless a new approach to exchange-rate policy, allowing for protection of manufacturers and exporters, emerged.

"The worst thing about the 'Dutch disease' is that it is a curse in the disguise of a blessing . . .and South Africa appears to have a horrendous dose at present," Power argued.

Over and above his call for a more defensive monetary policy, Power also appealed for the country to stand back and re-examine its true competitive strengths when considering an industrial strategy.

"I think we will conclude that we have phenomenal geology, a phenomenal landscape and potentially phenomenal growing conditions for agricultural products. I think mining, agriculture and tourism, particularly, will become the bedrock of South Africa's economy moving forward, with the manufacturing industry reinforcing the mining and agricultural sectors and, tangentially, the tourist sector. The idea that mining and agriculture are yesterday's industries is basically to throw away the two strongest suits we have in South Africa," Power argued.

He was also acutely critical of government's current industrial interventions, particularly the Motor Industry Development Programme (MIDP).

"One of the saddest stories of South Africa today is the MIDP. It is said by many to be a wonderful success story but, in fact, it is an absolute catastrophe for South Africa. This year, our auto deficit will run at R32-billion. That's a success story? I beg to differ," Power said.

These comments gelled with those of leading economist Dr Azar P Jammine, who, earlier in the year, lamented South Africa's growing current-account deficit and falling export diversification.

He calculated that the growth in production had been lagging growth in expenditure for more than a year and pointed to a huge divergence between growth in gross domestic product and growth in gross domestic expenditure. Against that background, Jammine said it was legitimate to query rand strength.

Strongly coupled to the currency issue was Seifsa's growing concern about the threat posed by China, which Fischer argued was placing local industry in jeopardy.

He suggested that a trade agreement with China might be the only way for South Africa to negotiate a limit on imports.

Power pointed out, meanwhile, that, as of last year, the bilateral trade deficit between South Africa and China was R12-billion, or 120% of the country's entire R10-billion deficit.

But the disquiet of the 2 500-firm-strong Seifsa did not end with monetary and trade policy. There were also domestic policy issues - ranging from black economic empowerment through to input costs and skills constraints - distressing it.

Losing business to BEE importers

Seifsa's incoming president, Michael Pimstein, suggested that the unfolding broad-based black economic-empowerment (BBBEE) strategy had the potential to seriously undermine local manufacturing as well as job creation and retention.

Pimstein, who is CEO of Macsteel Service Centres South Africa, claimed growing evidence of Seifsa members losing business to "higher-ranking black-empowered business", which, he asserted, often "has no infrastructure, operates without recourse, has no obligation to labour, trains no people and offers no value creation or improvement, except perhaps, to a few individuals".

"This extends to the very disturbing area where competitively-priced finished goods are being imported into South Africa at the risk of the local manufacturing sector," Pimstein added.

"We strongly believe that the all-consuming focus on equity as the single criterion for recognition of black-empowered businesses needs review at the highest level. We must advance and allow due recognition for capital investment, training, skills development, employment, social investment, and endeavours in support of small business."

The industry body called for the finalisation of the codes of good practice and the scorecards relating to empowerment, which have been under development for two years.

"Unfortunately, the codes for the various elements of the scorecard have, up until now, been released in a piecemeal fashion, which has made negotiations difficult and compliance impossible," Pimstein lamented, pointing out that the first draft was released in December and a revised version in June - the final codes and outstanding elements of the scorecard are still awaited.

"During negotiations with the Department of Trade and Industry, Seifsa has expressed its concerns that the BBBEE strategy and the scorecard demand attention. This includes the complexity of the scorecard and the management and audit consistency to be attained therefrom."

Pimstein said that the ability of small and medium-sized businesses as well as family-owned businesses to comply, especially in the areas of ownership and management, was also of concern.

Seifsa's comments come at a time when criticism of the current trajectory of BEE transactions - now spanning the social, business and political spectrum - is becoming increasingly strident.

Last week, Finance Minister Trevor Manuel criticised narrow equity transactions and called for a new discourse on the issue of economic transformation.

He said that dealmaking alone would 'sell the country short' and that equity transactions that were not founded on value addition would come unstuck.

He argued that South Africans needed to re-engage in a discourse to find a rational basis for economic growth and equity.

Narrow focus on steel prices 'short-sighted'

Meanwhile, Pimstein also questioned prevailing assertions that import-parity pricing (IPP) of primary steel was crimping downstream competitiveness and enterprise development.

The contentious issue of pricing has been identified as a concern by the Department of Trade and Industry, and Cabinet is likely to make a determination on an alternative pricing structure for primary products, including metals and chemicals, some time next year.

Government is also in talks with South Africa's leading steel producer, Mittal Steel South Africa, over a proposed 'developmental pricing model', and the National Economic Development and Labour Council (Nedlac) is currently advancing a study of IPP in the chemicals sector.

The DTI has indicated that it would like to replace IPP - which is based on a selected international selling price, but also includes all freight, handling and tariffs in the final price determination - with a model that is still market-sensitive, but also more cost-reflective.

Pimstein argued that IPP remained the mechanism of choice, with only a few exceptions inter-nationally, and was especially relevant where a country was seeking to apply international best practice.

The Macsteel head's intervention was somewhat surprising, given that Seifsa had hitherto steered a neutral course on the issue, due to the fact that its membership cuts across both sides of the debate.

However, Pimstein argued that the subject was a "hot potato" and "demanded attention".

"Government intervention to replace IPP is being heralded as the answer to the industry's problems and weaknesses. This is extremely short-sighted and is also unrealistic, as there are a number of other important matters constraining the performance of our businesses that demand equal attention," he contended. Pimstein went on to list the other constraints as being volatility in demand and throughput inefficiencies; logistical costs and inefficiencies; labour costs; the shortage of design and engineering skills; insufficient market intelligence and knowledge of selling-price patterns; and the stronger South African exchange rate.

He also slammed the lack of leadership from government, saying that the industry had been in a 'state of inertia' on the issue since 2001, when the microeconomic reform strategy identified the sector and pricing for special attention.

He labelled statements that steel is priced 30% to 50% higher in South Africa as misleading. "And, even if that price were correct, can the steel price alone be the only constraint when that steel content makes up less than 20% of the finished-goods price of the article?" he asked.

Pimstein urged Seifsa members to embrace a leadership role over the process: "We need to find the solutions in the right way, with government, where relevant, so that we meet our growth challenges and the great opportunities that South Africa offers and the full potential for the significant growth of our sectors."

Skills and labour challenges

Another key terrain of struggle for industrialists led by Seifsa was that of training and employment practices.

Fischer was highly critical of the sector education and training authority system, arguing that it was being further constrained by de-industrialisation in South Africa, which had resulted in fewer training opportunities and a reduction in the number of trainers.

He called for a major employer initiative to improve skills levels, technical as well as administrative.

His successor added that the shortage of artisans was of grave concern, as was the quality of training on offer.

Pimstein was also forthright in his views concerning the current Nedlac negotiations around the so-called atypical employment practices in South Africa, arguing that the existing legislative framework adequately protected the interests of employees engaged in various forms of atypical employment and that government's and labour's proposed amendments were neither justified nor necessary.

"We are also concerned about the absence of any form of research into the benefits that temporary employment offers to individual workers in terms of job creation, providing access to permanent employment and the development of specific work-related skills," Pimstein said, noting that Australia had recently announced sweeping changes to labour laws in that country, which include protecting the status of labour brokers.

Overall, the message emerging from South Africa's industrialists is an unhappy one.

There is deep concern about current policy thinking and it appears that the long-suffering manufacturing community is no longer willing to simply grin and bear it.

Given that government is also beginning to show a propensity to alter the industrial-policy course, perhaps the public-private planetary alignment is now more condusive than ever for an honest, but, undoubtedly, robust dialogue. Leadership and maturity will be required from both sides for this engagement to succeed.