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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One of our leading economists Dawie Roodt has just published an excellent book entitled: Tax, Lies and Red Tape (Zebra Press). It provides an accessible, sometimes controversial, and entertaining look at a range of economic issues. Why weren’t there books like this when I was studying economics? ZA Confidential had a short chat with Dawie to learn more about this venture….

ZAC: A central theme of this book seems to be your mistrust of government, and firm belief in the private sector. How badly do you think the imbalance is in ZA?

DR: It’s quite bad and getting worse. In fact, in recent years politicians have been putting all sorts of pressure on private rights: nationalisation, the ‘secrecy law’, a clamp-down on the press, and so on.

ZAC: Is there any realistic hope that the tax burden on businesses or individuals could be eased?

DR: Not really. The reality is that pressure will increase on the state to provide more – inevitably meaning more taxes. But the good news is that eventually the tax burden gets so heavy that community simply revolts – France is a nice example of that happening now, and the opposition against the e-Tolls is an example in SA.

ZAC: You try in your book to explain complex issues and to make it possible for the man and woman in the street to understand. How worried are you that all too often economists don’t communicate their views effectively?

DR: I think it used to be a much bigger problem in the country. In the past, economists spoke a language nobody could understand – but today economics is much more of a braaivleis subject, thanks to guys like Mike Schussler, and hopefully myself.

ZAC: The plight of the rhino is a big concern currently. You suggest that rhino horns should be freely traded. How would that help ensure the survival of the animals?

DR: It will lead to the official price of a rhino – R250 000 to R300 000 – and the market price of over R10m getting closer to each other. The results will be better prices for farmers, and therefore a stronger incentive to protect rhinos, and a lower price for consumers – and most probably lower consumption because lower prices reduce the so-called Rolex effect, where expensive stuff is more attractive. Of course I am not advocating a free-for-all overnight, as some controls may be needed, and also education. But the reality is that nobody can fight the market indefinitely – and currently the market is trying to close the gap between the official and market prices. The pressure will remain until the gap is closed.

ZAC: DA leader Helen Zille wrote a foreword to your book. Does that mean the DA has the best economic policies?

DR: Most definitely not! I like Helen because I think she is a good leader and also an honest leader. But there are many instances where I have criticised the DA’s policies. I also think that they are moving away from their intellectual roots in their attempt to get more votes.

ZAC: This week we saw new tariffs on imported chicken. Is this an example of an over-active state, or the right response to predatory dumping in our market?

DR: It’s an excellent example of how a pressure group can establish themselves as rent seekers. The priority of the chicken producers will now shift to making sure this protection is maintained, by keeping up the pressure on the politicians. Under proper competition, their emphasis would have been on how to make their industry more competitive. Also, keep in mind, somebody dumping produce in SA means that somebody else is subsidising my consumption – what a bargain!

Tweet of the Day:

J Montana (@JMontanaPOTL): People try to live within their income so they can afford to pay taxes to a government that can’t live within its income.

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The seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) for September fell sharply by 7.4 points to 49.1 in September. The index is now below the key 50-point mark for the first time since March this year. What do our experts make of it? We give some extracts from their recent statements.

Abdul Davids, Head of Research at Kagiso Asset Management:
Intermittent mining sector disruptions and fears about future industrial action may be weighing on manufacturers. If this is the case, an end to the vehicle component strike and a quick resolution to AMCU’s strike in the platinum mining sector should see an imminent rebound in activity and orders.

Coenraad Bezuidenhout from the Manufacturing Circle:
The manufacturing recovery shock signalled by the Kagiso PMI for September must be laid squarely at the feet of the protracted industrial action we have seen in vehicle manufacturing, automotive components and the platinum sectors. It is a wake-up call that a myopic and reckless approach to industrial relations will lead to reversals in manufacturing recovery, and ultimately to job losses. If industrial peace does not prevail to support other positive developments in the manufacturing space (weaker rand, local procurement traction) this could impact the growth of the economy markedly, and lead to employment losses as manufacturers contract or mechanise to stay afloat. The way our dismal labour market outcomes undermine the ability of our economy to recover should be viewed as a national emergency that requires resolute political action. The fact that we have recently again seen 11th hour concessions to labour demands in Parliament for an even more punitive employment dispensation (in relation to labour relations and employment equity amendments, as well as the Employment Services Bill) means the ranks of the unemployed will grow and the sustainability of our economy will deteriorate. This environment will also limit any positive impact that the Employment Incentives Bill may have on growing youth employment, as it will undermine overall employment growth. Growing the economy and jobs require tough trade-offs. President Zuma will have to decide how long his government will shore-up organised labour at the cost of economic growth and jobs, and the growing exclusion of the unemployed and the poor. As the PMI illustrates, the negative impact for manufacturing is very real.

Conclusion:
A worrying indicator. However, things should pick up if there can be a speedy resolution to the latest wave of strikes. Trade data out yesterday show that ZA can ill afford a sick manufacturing sector.

Tweets of the Day:
Funny Tweets ™ (@Lmao): Someone: so what are you getting for Christmas? Me: fatter.

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