BMW: Strikes Kill Investment

BMW ZA has revealed what many of us had feared for a long time. That industrial action is a deterrent to investment. Specifically, the current strike has scared off the German parent from investing in a new production line at the Rosslyn plant, near Pretoria, which would have meant more exports, more jobs, more taxes paid and more wealth for the country. What do our experts make of it?

Mario Pretorius from Telemasters:
The time has come for implementing economic sabotage legislation, and for enforcing it without mercy. The entire concept of ganging up, via labour OR management, against shareholders reeks of an ancient age and a primitive economic world. Labour unions may look after their workers, but merit alone should determine the remuneration of each. Any attempt to go slow, go rogue, or go against the economic interests of the country should be treated as treason to our common economic interests, as sabotage, and with the harshest penalties possible. Ditto for management when doing the Nokia-Microsoft type of deals, where workers and shareholders get shafted.

Frans Cronje from the SAIRR:
Sentiment in that industry is changing. It’s a competitive global market, and plants in other regions compete with South Africa for production quotas. On a few occasions those plants have had to bail out South African plants laid low by union action. The risk is that that South Africa loses its quotas or that the manufacturers walk out. If one goes, we should expect some others to follow. It is already the case that new investment now seems to be off-limits, and will go to other global plants. Our trade unions can be directly blamed for this and it is a good example of what reckless union leaders are costing both SA and their own members. My sense is that such negative consequences are driving the ANC’s apparent increasing hostility to some of its union allies.

Jeff Osborne from Gumtree Auto ZA:
As a source of automotive manufacture, SA is far from the global markets. We therefore must be reliable and competitive if we are to retain our status as a source of automotive supply. There is no shortage of manufacturing capacity around the world for vehicles; in fact there is an over-capacity. These strikes, which seem to have become an automatic part of negotiations, are crippling for the SA auto industry. Exports for September this year plummeted by 75% compared to September last year. Vehicle manufacturers will simply not continue to expose themselves to this type of practice, which devastates their companies. This also profoundly affects levels of investor confidence and will almost certainly compromise not only future investment, but also existing operations. From an SA economic perspective, the automotive sector is a major exporter, and is very important in reducing our balance of payment deficit. We need to move away from rhetoric such as "strike season" every time negotiations take place, and can’t afford to make strike action an automatic part of the process. If not, we can expect more of this type of reaction from multinational vehicle manufacturers.

Craig Pheiffer from Absa Investments:
There is no doubt that protracted strike action – with lost production that can’t be made up – tarnishes perceptions of an affected industry. Where foreign investment has set up that original factory/industry it is susceptible to being repatriated when output is compromised and orders can’t be filled. Where foreigners have been eyeing potential industries for investment, then news headlines of irrecoverably lost production or unfilled export orders simply divert that investment to alternative, less hostile, destinations. Strike action may have short-term benefits for the work incumbents if wages are raised but it may prevent additional job creation through higher operational costs – and it may well prevent additional job creation through potential foreign investment that is lost. Additionally, lost production and activity hampers economic growth and it is no secret that global capital follows growth opportunities, not contracting industries and economies. The rand is really the barometer of the situation and at R10/$ it doesn’t paint a rosy picture.

Mike Schussler from economists.co.za
The fact is Companies need to make profits to stay in SA and they need to deliver on the contracts. No-one in the world has six to seven weeks disruptions to an industry. That was last the case in the Brittian of the late seventies and early eighties. We lose more man days per 1000 workers than the UK did in the winter of discontent in 78/79! We will not create the jobs or the wealth we need – that is fast becoming a future fact. We are now in danger of losing the jobs we already have! The Madness of strike after strike in a particular industry must stop. If the leaders of our country do nothing then we will be talking extreme poverty in 2050. The ultra leftwing NUMSA who get Ultra Leftwing monies via the Rosa Luxembourg foundation do not even know that they are being used to get jobs going in Germany again!

Duane Newman from Cova Advisory:
I suppose the day had to come. It is a pity, but up to now there had been no real visible consequences to strike action. I believe Unions got away with lots of unnecessary strikes, as it seemed as if business was "crying wolf". The loss of automotive investment is very significant as it is seen as a special case investor, due to the overall confidence it gives to all other investors. This is why the automotive sector receives such generous ongoing incentives. I hope this is a signal for government to start taking a firm stand on strikes, especially illegal strikes, and we start arresting the union leaders for breaking the law. As Trevor Noah joked in his show last night, we have so many strikes in SA that next we will be having babies striking for a 12% increase in breast time.

Conclusion: BMW has spoken clearly and forcefully. Government cannot ignore this. But we need more courage and more comment from our business community. NB: ZA Confidential did seek comment from the dti and from Cosatu. If it is forthcoming,or other commentators come back to us, this newsletter will be updated on the www.zaconfidential.com website.

Tweet of the Day:

Lord Skip Licker VC: Why can’t NASA source their own funding? It’s not rocket scie….. Oh.

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