FIFI PETERS: The large story of the day is the strike at Transnet – and it appears to be like like issues are getting ugly over there actually shortly. The rail and the ports operator owned by the federal government has declared drive majeure, which means it has advised its shoppers that it received’t be capable of make [what is] due on sure commitments that it had mentioned it will beforehand, as a results of the strike motion now going down. It is inflicting a little bit of ache.
We’ve seen a little little bit of ache being mirrored on the JSE when it comes to the declines of a number of the main mining corporations, however the softening of commodity costs in at this time’s session. But Kumba Iron Ore got here out with a assertion to say that it’ll trigger a little bit of ache on its exports.
Read: Kumba Iron Ore says Transnet strike will hit exports
Also the CEO of the organisation representing metal and engineering corporations, Seifsa, is saying that the strike at Transnet, if not resolved, may very well be as dangerous as load shedding for the economy.
We have Seifsa on Market Update proper now, COO Tafadzwa Chibanguza, for extra on this. Sir, thanks a lot to your time. I simply need to know, for individuals who might imagine that Seifsa is doubtlessly being alarmist in likening the Transnet strike and the impression on exports and imports to load shedding, why do you assume that the 2 occasions may very well be comparable when it comes to the financial harm to South Africa?
TAFADZWA CHIBANGUZA: Fifi, thanks for the query and thanks for having us. Good night. I feel one method to elaborate that time – that we aren’t being alarmist in any respect – is that when you take into account that South Africa’s GDP is just about 60% decided by commerce, and I’m speaking each imports and exports there, that 60% of the nation’s GDP in a single type or one other is influenced by exports and imports. So in essence that signifies that a dent in that course of through which Transnet is a large participant, has actual financial penalties.
I’ll discuss our sector, metal and engineering. We export in worth phrases about 30% of whole manufacturing. So our incapability to get product to shoppers, one, has a reputational danger; two, it cuts our revenue. So once more that has an hostile impact on the sector’s efficiency. So it’s not alarmist in any respect. It’s simply that load shedding could be very evident. If you’re in your home and the lights go off, you’re feeling it. These are difficult worth chains getting merchandise left, proper, and centre throughout the nation and internationally, and a break in that chain has dire financial penalties.
FIFI PETERS: It’s early days, however I’d wish to know if any of the businesses that you simply signify as Seifsa have been impacted – round 1 200 corporations that you’ve within the organisation. And has any change needed to occur simply as a results of the drive majeure that Transnet has declared?
TAFADZWA CHIBANGUZA: At this level it’s early days. So I agree along with your level when it comes to having concrete impression. But what we do have is we’re getting communication from a lot of our member corporations that they’re beginning to take into account what contingency plans they might make. For instance, if you’re operating a massive furnace like our members do once they make metal, you want a constant and fixed provide of iron-ore coking coal to come back to your furnace, as a result of this isn’t a machine that you could simply swap off. You want that constant provide.
Read: ‘The Transnet strike is going to cost the economy billions’
So what this does for these members is that it creates a actual manufacturing danger the place they should make contingency [plans]. Putting it on street to get it to the furnaces on a unit-cost foundation is far more costly, so already that feeds into prices which eat into competitiveness. Why I handled that individual a part of the worth chain being the metal mode is that in essence that’s the place you would say the worth chain for beneficiation begins.
And then we additionally signify the downstream heavy-engineering sector, which depends on the identical metal from upstream. Any challenges confronted on the upstream trickle all the way down to the remainder of the sector. So at this level what we’re actually seeing is our members beginning to take into account contingency – and what we proceed to name for is a very speedy decision to this deadlock.
FIFI PETERS: You’re speaking about using [alternative] types of transport and shifting issues to the street that must be maybe directed by rail. But I additionally know that the challenges that Transnet is experiencing aren’t completely new. Of course, they’re a lot extra aggravated proper now as a results of the strike, however I do know that Transnet had doubtlessly been dropping out to different port operators on the continent, a part of these contingency plans you’re speaking about being corporations utilizing different routes, utilizing different ports on the continent, whereas Transnet was going via the strikes … that it nonetheless is. Is that additionally one thing that you’re as Seifsa members, or is that simply too costly at this stage?
TAFADZWA CHIBANGUZA: Fifi, what occurs naturally in creating these contingencies is you begin to value out the completely different teams.
And proper now what we’re seeing is that Maputo out in Mozambique is beginning to appear to be a extra enticing different.
The danger, although – and I feel you made a the purpose – the danger right here is that after that route is being utilised and entrenched, it’s truly typically very troublesome to get it again. So South Africa loses its place as a prime exporter in utilizing these terminals; as soon as these routes are entrenched it’s very arduous to show again. And additionally then in there there’s reputational danger for our corporations which have to satisfy worldwide worth chains.
Read:
Industry calls Transnet out on newest drive majeure
Grindrod flags expansions at Mozambique’s Port of Maputo
As I mentioned, they complement the worldwide worth chains that they feed into. So to handle that reputational danger, what you nearly then do is to lean in your contingency, on this case different choices overseas, simply to get product in or out. And once more, like I say, as soon as it’s entrenched, South Africa in essence has misplaced that. Much more work must be carried out to achieve again these routes. So there’s a actual financial danger right here – present and future.
FIFI PETERS: All proper. Let’s hope that the state of affairs may be speedily resolved. But we’ll depart it there for now. Tafadzwa, thanks a lot for becoming a member of us with that element. Tafadzwa Chibanguza is the COO at Seifsa.