Manufacturers say they are making progress in their talks with the government about the possibility of electricity subsidies.
Following Eskom’s admission last month that BHP Billiton paid lower rates for electricity than domestic users because of a special deal, manufacturers have been clamouring for similar discounts. Eskom has applied to the National Energy Regulator of SA for tariffs to increase 16% a year over the next five years.
Stewart Jennings, chairman of industry body the Manufacturing Circle, said on Thursday the proposed hike would cripple the sector that accounted for 12.7% of employed South Africans. It would further reduce its ability to hire more workers.
› Strike wave drag rand near R9/$
› The change in South African wine
"At this stage, they (government) are sympathetic and are looking for processes by which heavy energy users could be subsidised, but there are no firm commitments yet," Mr Jennings said. "Our effective electricity increases over the past five years have gone above 200%.
"We cannot digest that and now they are looking for another 16% (increase). You cannot continue to do that."
Eskom’s application for another above-inflation increase was identified as one of the factors that contributed to a decline in manufacturers’ confidence in the third quarter. The Manufacturing Circle conducted a survey of 73 leaders of small, medium and large manufacturing companies and found that 45% of them considered business confidence to be fragile or weak in the quarter.
The mining and transport strikes in August and September also dented confidence. Manufacturers cited the transport sector strike as the biggest factor that negatively affected their operations during the quarter.
One CEO, who participated in the survey, said the transport sector strike had significantly constrained his company’s ability to obtain raw materials, while another complained that it had delayed the shipment of containers to the Durban port.
Pan-African Capital CE and economist Dr Iraj Abedian said yesterday that because of the close link between mining and manufacturing, strikes in the mining sector would also negatively affect third and fourth quarter output figures. Dr Abedian forecast that the country’s economic growth would slow to between 1.5% and 1.7% in the third quarter from 3.2% in the second, largely as a result of strikes in the transport and mining sectors.
Lower growth could imply inhibited employment opportunities for the 4.7-million jobless people. Many of the government’s policies aimed at addressing the 25.5% unemployment rate could be rendered ineffective if there were no adequate plans to equip people with "skills that are relevant", Dr Abedian said.
The Manufacturing Circle’s employment figures tallied with those released by Statistics SA recently, which showed that jobs in the sector rose by 49 000 in the third quarter.
Manufacturers identified mergers and acquisitions, the implementation of new projects, increases in the number of work shifts, and the recruitment of critical skills as some of the reasons for the growth in the number of employees hired.
The Manufacturing Circle’s survey further showed that the proportion of respondents who reported a positive growth in the value of domestic sales declined from 70% in the second quarter to 60% in the third. However, domestic sales continued to outperform export sales in the third quarter, reflecting depressed global demand.
Depressed demand in SA’s main trading partner countries has led to a refocus by manufacturers of growth opportunity markets in Africa.
Dr Abedian said some of the survey’s respondents suggested that Africa presented better opportunities because of the increase in mining activity and infrastructure-related projects.