All the factors for a perfect economic storm

THE Cape Chamber of Commerce has welcomed the announcement by the Minister of Finance, Mr Pravin Gordhan, about a rescue package for factories, but warns that to be successful it will have to include action to stop the increases in administered prices which are placing a heavy burden on industry.
“At present commerce and industry are being bombarded by a whole series of increases that are well above the inflation rate and these costs are undermining our ability to compete in global markets,” said Mr Michael Bagraim, President of the Chamber.
The increases were:
• A series of 25 percent increases in the price of electricity and indications that Eskom wants further big increases.
• The demand for an 18 percent increase in port container tariffs which are already the most expensive in the world despite their poor productivity.
• A threatened 161 percent increase in airport charges over the next five years.
• Some of the highest telecommunications costs in the world.
• Some of the most expensive toll roads in the world
To this should be added the high costs and shortages from the controlled industries like the oil refinery business.
At present there is a national shortage of LPG because our old refineries are experiencing maintenance and reliability problems.
Similarly there was a national shortage of bitumen which leaders in the industry call a disaster that has so far cost R2.3 billion, hampered road construction and was now forcing contractors out of business.
At the same time we have state run businesses like the railways which are not providing a viable alternative to expensive road transport.
Mr Bagraim said the biggest of the problems was electricity. The short supply had already lead to the rationing of power supplies to the mines, South Africa’s biggest industry. In recent weeks we have seen the announcement of the closure of the Exxaro zinc smelter and a decision to build a ferrochrome smelter in China to process South African ore.
Further problems in the pipeline included the huge overrun in the costs of building the Transnet oil pipeline from Richards Bay to Gauteng and the need for a pipeline twice as long for the proposed Couga refinery.
“Add to this the above inflation increases in labour costs and the financial problems in the rest of the world and it becomes clear the all the factors for a perfect economic storm are in place,” Mr Bagraim said.
“I’m afraid Mr Gordhan will have to do more that come up with a plan to help factories.  He will have to come up with some drastic measures to bring down administered prices which have become a huge problem for commerce and industry.”