OPINION

A factual response to BMW crying wolf! - Karl Cloete

NUMSA DGS says SA citizens have contributed handsomely to profits of multi-national corporations

Open Letter - A factual response to BMW crying wolf!

October 10, 2013

We must from the outset re-affirm our statement that BMW's public posture with respect to no further investments in South Africa amounts to political and economic blackmail (see report).

We are prepared to defend our stance in the public discourse because Numsa work on facts and not emotional blackmail.

Before getting into the factual intervention this open letter seeks to make, the public ought to know that when BMW was to be excluded from APDP incentives because of the volumes vs. the exclusive cars matter they came on their knees to Numsa's national leadership to seek our intervention which we responded to positively without making any public statement because Numsa's intervention was in the interest of our country, job security and job creation. They did not then announce leaving the country or disinvesting nor did they publicly announce Numsa's intervention.

Information from an insider

In seeking to unmask BMW's posture, we wish to draw on information from a person who was once in the employ of BMW. Chris Moerdyk, the former BMW public relations officer, has made some revealing comments about BMW's rhetoric.

As Moerdyk wrote this week, "Most big businesses in South Africa, tend to inundate the media with how much money they and the country are losing due to strikes and how it is hammering the exports and upsetting overseas customers. The trouble is, once the strikes are over, nothing has changed. It's business as usual."

He continued, "It's all smoke and mirrors. In the past, the spin employed by big business in this country during times of labour unrest has proved to be about as credible as the worst that Mac Maharaj can offer. This is nothing new. It happened year after year when I worked in the motor industry."

Some Facts about the Auto industry in South Africa;

1. The South African automotive industry emerged in the early 1920s, with Ford Motor Company and General Motors being the first to establish production presence in the country. This industry developed under a series of Import Substitution Industrialisation (ISI) programmes, with high levels of protection based on local content promotion. The industry, therefore, owes its existence in South Africa to the role that the Apartheid state has played to build and develop its presence. Numsa has been the proponent of industrial policy. None of the world's leading economies have developed without the state playing a role in their development, industrialization in particular.

2. Post 1994, the auto industry in South Africa would not have survived without state industrial policy if it was not for the Motor Industry Development Programme (MIDP), which is with effect of January 2013 fully replaced by the new automotive industry policy which was implemented progressively since 2009, the Automotive Production Development Programme (APDP) with the introduction of the Automotive Incentive Scheme (AIS). We can say without fear of contradiction that Numsa was centrally involved in the development of the MIDP from conception and inception. Numsa's former official, Les Kettledas was Numsa's key negotiator in negotiating the MIDP.

3. The auto industry is widely recognized as the key sector of every major economy. In South Africa it is the leading manufacturing sector. In 2012 the auto industry contributed 7% to the country's Gross Domestic Product (GDP). The industry has enjoyed sustained growth in both domestic sales and exports since the downturn in 2009, and experienced ever increasing labour productivity from an average of 10 vehicles per worker in 1995 to 18.5 in 2012.

4. The auto industry in South Africa experienced huge successes thanks to our labour and government support in the form of the Motor Industry Development Programme (MIPD) and the Automotive Production Development Programme (APDP). In 1995 we produced 389 392 vehicles which increased to 539 538 in 2012, despite the global economic crisis which erupted in 2008. The industry achieved a compounded annual growth rate of 19.5% in Rand value terms from 1995 through to 2012, and the value of total exports increased more than 20 fold from R4.2 billion in 1995 to R86.8 billion in 2012.

5. Although the automotive industry, especially the assembly sector enjoyed industrial policy attention employment in this sector has dwindled. Employers in the Motor Industry Development Council (MIDC), where we represent workers, argued that the unimpressive levels of employment in the assembly sector are due to the fact that those jobs were transferred to the component sector of the industry as a result of restructuring, particularly outsourcing. But this view is only partly correct. It is insufficient to explain the phenomenon. For example employment in the assembly sector fell by 9 302 jobs from 34346 in 2007 to 25044 in the first quarter of 2011 due to the global crisis of the capitalist economy. Employment in the assembly sector currently stands at 26 628 which is a far cry from the pre-crisis highs. The marginal gains thereafter are yet to compensate for the jobs lost in the sector in just that three year turbulence, let alone the many other jobs lost in the preceding period.

The Challenges of Local Content:

6. Although we have a well-established local assembly sector as a result of the role of the state we are still faced with the challenge of low local content. In fact, despite the lucrative nature of the MIDP and the resultant growth in production output, local content averaged a paltry 35% during the lifespan of the MIDP.

To the extent that it is true that the assembly sector has transferred some proportion of jobs to the components sector, it is also true that a sizeable portion of those jobs were transferred overseas. This is evident in the astronomical levels of component imports which go into the assembly of domestically manufactured vehicles.

7. If a locally assembled car is dismantled and components are counted one by one, the significantly high import content is exposed. Apart from some components that are sourced locally, which they themselves are made out of a significant proportion of imported parts, the value added by labour during the different stages of the production process constitutes a non-inconsiderable part of what is referred to as local content. This finds its profound expression in price terms as well. 

Employment

8. The conclusion that can be drawn from an analysis of employment levels in the sector for a 17 year period since the inception of the MIDP in September 1995 is that there has not been much effort put into achieving employment growth per se. Rather, the MIDP was twisted to become a defensive policy with a focus on sustaining or maintaining employment levels. In fact, the review carried out by the MIDC on the MIDP acknowledged the virtually stagnant growth in employment as a shortcoming of the MIDP, and as a result the APDP has, as one of its stated objectives, the expansion of employment over the life of the programme.

9. As Numsa, we have been consistent in both the MIDP and APDP processes that the two policies had to focus on employment growth. Our position has since evolved to include decent work objectives. In other words, as it stands now our position is that industrial policy interventions in the automotive sector must be aimed at achieving employment growth coupled with decent work objectives. We strongly believe that this must constitute the central pillar of industrial policy in the automotive and other industries. Incentives must not only focus on supporting existing employment levels.

10.  A somewhat contradictory picture emerges as soon as we compare employment growth with growth in production.. In terms of production, comprising of the significantly imported parts and components content as it is, something not only different but also diametrically opposed to some extent becomes visible. The situation with regards to production can be summarized from the Automotive Industry Export Manual (AIEC) 2012, which also highlights the production successes of the MIDP and the AIS, as follows.

"Since the implementation of the MIDP in September 1995 the South African automotive sector has grown in stature to become the leading manufacturing sector in the country's economy. The sector's contribution to the country's Gross Domestic Product (GDP) of R2 964 billion in 2011 amounted to 6.8%. A compounded annual growth rate of 20.5% in rand value terms for completely built-up vehicles (CBUs) and automotive components exports has been achieved since 1995, through to 2011. Total automotive industry exports (CBUs and components) in rand value terms increased nearly twenty fold from the R4.2 billion in 1995 to R82.2 billion in 2011. Market acceptance for South African manufactured CBUs and automotive components is high. A total of 2 133 384 vehicles have already been exported from South Africa since 1995 up to 2011. The total nominal export value of vehicles and automotive components over this period amounted to R685.3 billion."

The Component Sector in Relation to Vehicle Assembly:

11.  With respect to the problem of the astronomic parts and components imports there are also other problems engendered. For example we are suffering from a major trade deficit of which the automotive industry is a contributor despite its exports.

12.  In 2011 alone the industry had a trade deficit in the order of R38.6 billion. Parts and components imports contributed overwhelmingly to this problem in the order of R37.9 billion. This leads us to the third point in our position as Numsa with regards to the automotive industry. The focus of industrial policy in the automotive sector must increasingly focus on developing the components sector not only to support the local assembly activity but also to supply global markets. There are various advantages that we already have.

13.  For example South Africa has over 80 percent of the world's platinum group metal reserves, making it the leading world producer. Platinum group metals are an essential ingredient in the production of catalytic converters. In 2011 we supplied only in the order of 12 percent of the global demand for catalytic converters and this is an indicator that there is a mismatch between our resource-capacity and its use to advance domestic economic development including industrialization. This is itself one of our major historical legacy problems we are yet to resolve. 

14.  As Numsa we believe that there is much more that the assembly plant companies can do to develop local components manufacturing, especially in light of the fact that component manufacturing processes are generally more labour intensive and that the majority of workers in this industry are employed by component suppliers. We want the assembly sector to come on board, develop local components manufacturing instead of destroying the potential through imports, policy positions and practices that promote the importation of parts and components.

Conclusion:

From this factual picture as demonstrated above BMW and so-called analysts who jump on the band wagon to bash Numsa must either apologise for branding us as economic saboteurs or accept that our people who continue to live in poverty, unemployment and inequality are not fools and shall see through the smoke and mirrors.

South African citizens have handsomely contributed to the profits that these multi-national corporations have raked in through our taxes that have gone into the Motor Industry Development Programme (MIDP) and the introduction of the Automotive Production Development Programme (APDP) along with the introduction of the highly lucrative Automotive Incentive Scheme (AIS).

We must conclude with a few questions that BMW South Africa must answer honestly;

1. How supportive is BMW of the component sector to enhance local content and to create decent jobs?

2. Could it be that BMW's stunt is about trying to fill quantities for APDP volume?

3. Is it not unusual for an employer to make such news public without first informing their staff and stake holders?

4. Would BMW disclose their financials so that South Africans may take an objective view on their recent utterances?

Aluta continua!

KARL CLOETE

DEPUTY GENERAL SECRETARY

Issued by NUMSA, October 10 2013

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