Economic self-sabotage: SA exporting jobs, wealth to China

When it comes to ruining its own economy, South Africa plays in the big leagues, with large factories and industrial operations being forced to close down by collapsing municipal services and the high price and unreliability of electricity.

Dairy giant Clover has recently announce its plans to close its biggest factory in North West, due to poor service delivery, and economist Mike Schussler believes the company is not the first, nor will it be the last to take such a drastic measure. He believes, however, that clear solutions are at the country’s fingertips.

Poor service delivery literally killing jobs

Clover closed its cheese factory in Lichtenburg, North West – the largest in the country – due to ongoing poor service delivery by the Ditsobotla Local Municipality, leading to large losses due to long-standing water and electricity disruptions.

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“It is crazy that a whole factory had to close down because of service delivery. Believe me this is not the only city or town where it is happening. So now you have a situation where poor service delivery is linked to job losses,” he said.

Schussler was perplexed by what could be so difficult for the local government to get its house in order.

He said the country has had 13 years to sort out the load shedding crisis but nothing had been done, and instead, the steep price of electricity was making large operations such as mining smelters increasingly impossible to operate profitably.

“I am worried about the future of my country. Any businessman is in it to make money, not to rip off everybody, so he could pay their workers, shareholders and banks. With the high cost of electricity and unreliable power, it becomes more difficult to make money. I would have thought this would be fixed by now but no,” Schussler added.

Exporting jobs and profits

Advocacy group Save SA Smelters has warned that about 80,000 more jobs are on the line in the coming months, as government continues to fail to implement a tax on the export of raw ore, as announced last year.

The group said in October, in his Economic Reconstruction and Recovery Plan, President Cyril Ramaphosa announced measures to support the domestic ferrochrome industry, including implementing a tax on the export of chrome ore, but to date nothing has been done.

Smelters use large amounts of electricity, making it unprofitable to operate them in the current reality of constant power cuts and steep electricity prices.

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According to the group’s co-convenor, Lindelani Nyathikazi, last year the Lydenburg and Meyerton smelters shut their operations, leading to thousands of job losses.

“The country faces the closure of even more smelters and even more retrenchments should it fail to act on this crisis in the sector,” he said.

The group said before 2012, South Africa was the biggest producer of ferrochrome and currently has 80% of the world’s chrome raw material.

Nyathikazi explained that China, which gets almost its entire raw chrome ore from SA, was today the largest supplier of ferrochrome, used to make stainless steel, to the world market.

“There has been no export duties on raw ore. The situation was that SA had the capacity to export ferrochrome because it could run the smelters profitably but with the energy crisis, these had to be mothballed. Now SA exports raw ore to China at no export tax. Basically SA is exporting jobs to China,” he said.

We should be exporting finished products instead of ore

According to Nyathi, the introduction of tax on raw ore export would enable SA to restart her furnaces and export the finished product, save and create more jobs and provide a subsidy to Eskom.

“This will keep electricity prices low and encourage the entrance of independent power producers into the market, and in turn make load-shedding a thing of the past. While government dilly-dallies in introducing the tax, China is hoarding our raw ore as much they could,” he said.

Government too busy with accumulating power

Economist Lumkile Mondi said Ramaphosa and Cabinet were preoccupied with questions of power, accumulation and their institutional disdain for business and society.

He said the call for beneficiation, economic recovery and inclusion ring hollow because of cadre deployment across the state and public institutions which is part of accumulation through a patronage system that benefits this elite.

“With unemployment at 32.5% of the population, the collapsing road, rail, energy, health and telecommunications infrastructure, which is now destroying the mining, industrial and tourism sectors is of little concern for Ramaphosa, except through well written public relations speeches. How many ministers and bureaucrats can be suspended at full pay?

“What it would take for economic development and inclusion in SA is a political regime change, which the people of Nicaragua prioritised by voting them out in the face of a corrupt and incompetent Sandinista regime,” he said.

Mondi added that SA was sliding towards being a failed state, ruled by an incompetent, corrupt regime which was allowed to misgovern in a constitutional democracy.

The Department of Mineral Resources is yet to respond to questions sent to it regarding the calls by Save SA Smelters.

siphom@citizen.co.za