‘Unintended consequences’ of govt’s actions killing industry – MTMA

There is no improvement in demand from the South African manufacturing sector for machine tools imports, says Machine Tool Merchants’ Association (MTMA) chairperson Paul Savides, adding that government’s local content drive has been unsuccessful in increasing local manufacturing.

He told Engineering News in June last year that market volume had declined 30% a year over the past three years, owing to the depressed manufacturing sector.

“The reason behind the continued decrease in demand is mostly owing to the country’s political climate, which continues to impact on South Africa’s economic wellbeing.”

Savides says there are too many growth inhibitors in the country – such as fluctuating exchange rates and the rising cost of fuel, taxes, tolls and electricity, or a lack thereof. Down the line, these factors contribute to higher fees and, in turn, affect the inflation rate, presenting “enormous problems” for MTMA members.

According to SouthAfricanMi.com, a website focused on providing insight into the South African economy and the JSE, South Africa’s Economic Progress Index (EPI) has been depicting a downward trajectory for the country since 2010, although gross domestic product (GDP) figures paint a more positive picture of the economy. The EPI includes GDP, exports and imports, as well as volume of goods produced, population, exchange rate, current account and budget deficit and/or surplus.

Consequences

In engineering, there is no such thing as an “unintended consequence”, because risk is always factored into the design, says Savides, therefore noting that unintended consequences are a fallacy.

The reduction in machine tools imports has resulted in suppliers being forced to either close, or sell their companies, while growth can mostly only be achieved through acquisitions. Subsequently, the face of the industry is changing, says Savides.

To be a member of MTMA, companies need to have their own premises and supply a range of services, including stock, spares and maintenance. “It is also their duty to the industry to propagate and advise on new strategies and manufacturing solutions to help South Africa become globally competitive,” adds Savides.

However, there are individuals who are active in machine tools imports that do not meet these requirements.

“Armed with a brochure and price list, they have no overheads and can offer clients cheaper prices, but do not care about the product.

“Unfortunately, when the economy is in trouble, manufacturers buy from these individuals,” states Savides, further noting the emergence of a group that is focused on retrofitting machine tools to meet manufacturers’ new production requirements.

The change in the dynamics of the industry is the result of a large machine tools company restructuring and retrenching, creating more competition, with fewer resources.

“My job as chairperson this year is to determine how we can work within the new economic and industrial development of South Africa,” says Savides.

As the market started shrinking, machine tools supplier PBS Machine Tools, of which Savides is MD, has considered new ways of generating income. “If I ran my company according to the South African economy, I would just reduce my staff and unemployment would become worse.”

Advancing Growth

Manufacturers will require more complicated machine tools in preparation for the Fourth Industrial Revolution, which will focus on the cooperation between man and machine and enable customers to customise products according to their personal preferences, Savides points out.

“As manufacturers produce more bespoke products, we have to apply our machinery to facilitate this trend. This is where artificial intelligence (AI) comes in.”

In terms of AI adoption, Savides believes that South Africa is on par with the rest of the world; however, he adds that it is no use adopting new technology that cannot be implemented, owing to a lack of local demand.

“We have the technology and the ability to use it, but we don’t have demand for the technology.

“We need the potential retail customer base in South Africa and the rest of Africa to grow. However, the higher the volumes demanded by consumers, the fewer people will be involved in the production process, owing to the greater need for automation to remain competitive.”

Although the manufacturing sector is the biggest contributor to South Africa’s GDP, there is no correlation between increased manufacturing and job creation, notes Savides.

“You can’t grow manufacturing to increase jobs, but without manufacturing you won’t have retail and retail is where job opportunities grow.

“South Africa needs to become the hardware store of the world,” he adds.

Savides suggests that instead of “hammering away” at the production of high-tech products, such as automobiles, which is a small, niche market, the country needs to take advantage of its access to high-quality resources, such as metals and coal, to produce items with high volumes and demand, such as door handles and electric switches.