Collective Bargaining: Probing metals and engineering job losses

The investigation into the growth and employment in the South African metals and engineering industry was conducted by FRIDGE in association with NALEDI and Bentley West Management Consultants. Karl Cloete summarises their findings which were released on June 25, 2003 .

The research findings remark that the Metal and Engineering industry is one of the most significant contributors to South Africa 's manufacturing employment and performance. According to statistics (IDC 2002) this industry constitutes 29.3% of formal manufacturing employment which totals 371 000 jobs.

Job Losses in the industry: Whilst there are components of the sector that are creating jobs, employment loss is still a defining feature of the sector. The research shows that job losses over the period 1992 – 2002 amounted to 173 960.

Structure of employment: Whilst the report shows permanent employment is at 90% of total employment in the industry, atypical or casual employment has risen rapidly. The sectors (sub-sectors) within the metals and engineering industry contribute to total employment as follows:

Metal products & fabrication (21%) Automotive components (19%) – Basic metals (19%) Machinery and equipment (16%) Electrical engineering (11%) Plastic converters (10%) Electronic engineering (5%)

The report states that within these sectors, automotive components grew permanent employment most rapidly, while most of the employment growth in metals products and fabrication sub-sector came from increases in atypical or casual employment.

Factors affecting employment

• Input costs:

Import parity pricing (IPP)* was consistently raised by employers as an impediment to employment creation.

Import Parity Pricing

The IPP is a practice adopted by firms where they link the selling price of their products with, or fix them at, the same level as if they were importing that product or similar products. Other costs, such as freight, insurance, harbour charges, import duty, surcharges and others are also added.

Costs of salaries and wages was another impediment raised by employers. Capital intensive sectors like basic metals were less affected by this while machinery and equipment and heavy and light engineering were the most affected.

• domestic market demand

The report describes this as the "lynchpin of any strategy to grow the employment creating capabilities of the sector". However the conditions in the domestic market have worsened because of:

increasing levels of import penetration and the absence of a clearly articulated and implemented government and parastatal procurement policy favouring domestic manufacturing.

• export market demand

It also notes that even though the export market has shown dramatic increases since 1994, "only a few leading companies" are managing to be exporters.

…skills The research found that where SA has an advantage – in "design-intensive" sectors because our engineering costs are internationally competitive – the lack of these skills are precisely the ones that are constraining employers from creating new jobs. The report notes that "strengthening" these skills is not just important for creating employment but also for maintaining the existing manufacturing base.

…lack of information If SA companies are to expand and employ more people, then more information:

showing where imports were undermining or replacing locally produced goods showing in which countries and with which products SA may be able to grow markets, is needed.

• operating environment

The overall environment can also affect growth in employment. The report highlights the importance of "collaboration between downstream and upstream sectors".

It also spells out government's role in:

integrating its operations with leading companies in the metals and engineering sector targeting its policies, programmes and operations "in areas that have employment creation potential".

Where government has incentives in place, it must market these more effectively.

The growth of atypical employment

While total employment has shrunk by 173 960 jobs over the period 1992 – 2002, 10% of the 371 000 workers currently employed, are employed on a casual, contract basis. These factors are discouraging the creation of permanent jobs:

erratic demand In sectors like metal fabrication, projects drive work. Consequently these companies have shifted to atypical employment to protect their balance sheets during the times when there are no projects. unpredictable exchange rate Companies that export have also employed more atypical workers instead so that if the value of the Rand increases, and their markets disappear, they can more easily get rid of their labour and cover their costs. labour legislation Employers perceive that there are risks attached to permanent employment in respect of retrenchment costs, CCMA cases, etc. Hence the shift to atypical employment.

Proposals to create jobs

The report makes these recommendations:

Prioritise the metal products and fabrication sector for employment creation. Attend to the machinery and equipment sector urgently to avoid large employment losses in the near future.

…dealing with supply side factors (i) Raw materials and import parity pricing:

Promote collaboration between downstream manufacturers and raw material suppliers in return for the guaranteed purchase of particular products from these suppliers. Remove existing tariffs on basic metal sector products. Intervene in the export of scrap metal so that domestic manufacturers' requirements are met before scrap is exported.

(ii) Labour costs and the structure of employment:

Grant a 3-year exemption to labour-intensive companies that can show they cannot pay MEIBC wage rates. Provided that these employers pay workers more than what labour brokers are paying and undertake to reduce levels of atypical employment over time.

(iii) Skills development:

The Merseta must:

prioritise those sectors where jobs are likely to be created, especially in design-intensive sectors play a more active role to "promote apprenticeships, learnerships and SMME projects" work with Department of Education to attract more youngsters into the industry "by influencing their subject choices and careers" ensure that engineering firms take its bursary recipients.

…dealing with demand factors

Government (at all levels) must buy from local manufacturers. If government chooses foreign sources, they must prove that no local capacity exists to meet the order. Government departments and industry associations must register companies as exporters and supply them with information on "significant export markets" Presidential “employment creator" awards must be established.

Who will drive the process?

The report recommends "that each sector convene a forum composed of business, labour, Merseta, MEIBC and Trade and Industry SA (TISA) representatives to ensure the implementation of the strategy," including the promotion of employment equity.