Strikes Confirm Business Environment Fears
A strike by the National Union of Metal workers of South Africa (NUMSA) has reportedly impacted the production of several major carmakers in the country and is losing the industry output of around 3,000 units a day. The ongoing action serves to justify the concerns of carmakers, who have questioned the business environment in South Africa recently. It also echoes the reduction in the country's score in BMI 's Industry Risk/Reward Ratings for the autos sector in Sub-Saharan Africa (see 'Top Two Hang On But Risks Weigh On Scores', July 8).
An estimated 30,000 NUMSA members have joined the industrial action, as the union calls for a 20% pay increase. The National Association of Automotive Manufacturers of South Africa (NAAMSA) expects the strike to cost the industry around ZAR600mn a day, including the impact on the component sector. While the strike is disrupting production operations in South Africa, it is also likely to have an impact on sales in other countries if prolonged, as the majority of carmakers have a significant export programme in order to meet minimum output requirements for the Automotive Production and Development Programme.
This could threaten South Africa's production industry in the longer term, if labour issues continue to be enough of a problem to deter investors. The auto sector is just one industry to be at risk from labour tensions. Over the last 18 months or so, the mining industry has been plagued by a series of strikes, with the National Treasury announcing in February that the series of strikes and stoppages in 2012 lost the country ZAR15.3bn (US$1.7bn) in mining production.
For the autos sector, the situation is worsened by the fact that strikes are considered a normal part of conducting business. When questions about labour relations surfaced during a visit to South Africa by the Automotive Component Manufacturers Association (ACMA) of India, Roger Pitot, executive director of the National Association of Automotive Component and Allied Manufacturers (NAACAM), admitted that strikes in the autos sector occur every three years on average, as this is the usual length of wage agreements.
It could be too soon to see a sudden shift away from investing in South Africa, as it would take a reasonably developed production and export market to take its place in the local operations of carmakers. However, as other markets in the region develop, especially in terms of production capabilities, there will be more alternatives available.
We have already seen the beginnings of carmakers reducing their reliance on South Africa with BMW South Africa adding the port of Maputo in Mozambique to its export operations. While this is initially to cope with the company's increased exports as it ramps up production, BMI believes the move also goes some way to reducing BMW's risk from similar labour action in the transport sector, which has previously disrupted the industry (see 'BMW Port Alternatives Reduce Risk', August 15).
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