The Chinaman and the Sheep

August 13, 2009

A woolly, feel good story of hope and success. 

In view of a suggestion, made by Clem Sunter, that all South Africans, especially those complaining about the ills of our society, should focus more on finding the good news stories and boldly broadcast these astonishing triumphs, of our rainbow nation, to the world out there. I hope Mr. Sunter does not expect us to put our heads up our collective bums, and tell everyone, prepared to listen, the brown stuff we see, is top quality Belgium chocolate, made in South Africa, by workers who just obtained an increase, double the inflation rate, after threatening to cut off the chocolate supply to the 2010 world cup. 

I was so inspired I immediately went out to look for good-news stories to celebrate and there, amongst the flood of toxic economic data, the dropping manufacturing output, falling mining output, transformation to – in grand Zimbabwean style – a net food importer and rising unemployment, I read about the magnificent performance by the woolgrowers of South Africa. In the middle of South Africa’s unique, and much fêted strike season, the woolgrowers apparently produced and sold the highest ever volume of wool. A remarkable feat indeed, in times of global economic doom and despair. Being naturally analytical by nature, I started digging, hoping to find the reason for their story of glory and triumph. It seems, the biggest buyer of South African wool at this year’s sale, was the Chinese. Very good news, I thought, our wool goes to China and we end up clothing all those little Chinese children. 

To my surprise, as I researched my good-news story, I found, to my shock and horror, Chinese textile workers will turn the South African wool into clothe, which they will sell to us, at prices lower, despite import tariffs, than our textile workers can produce it at. I also discovered that the textile workers are demanding, like all other unions, an increase well in excess of the current inflation rate, which will result in an inevitable increase in local production cost. Does not make sense, does it? My good-news story approaches the farcical when, to my astonishment, I realise that the textile industry is earmarked for a “Presidential bail-out” and the current Minister of Economic Development, Ebrahim Patel, is a past General Secretary of the trade union (SACTWU). I suppose, expecting the workers to understand the consequences, is asking a bit much, after all, the President and the Minister in charge of economic development, seem to have things under control. It is ironic that one of our stated economic developmental objectives is the promotion of downstream value-adding product enhancement. Well, so much for my good news story, destroyed by an industry, which has been on the road to self-destruction for years. 

Not surprisingly, the “good news” story turns out to be a common occurrence. South Africa, having the best Chrome Ore resources in the world by far, developed and grew from a small base in 1980 to the worlds primary ferrochrome producer in 2004. However, since 2004, ferrochrome production stagnated and ore producers started exporting chrome ore to China who, with ore from South Africa, Kazakhstan and India, are now producing Ferrochrome cheaper than we do. The premium resulting from the additional cost of shipping high volume, low-grade chrome ore, instead of lower volumes ferrochrome, are negated by the lower cost of labour and power in China. The creeping rot will continue to accelerate, at an alarming pace because of unsustainable and unrealistic increases in the primary input costs, power and labour, over the next few years. Somehow, like confused alchemists, we turn gold into dirt by allowing the rape of the best Chrome resource in the world. 

It is “success” stories, like these, that drive investors to Brazil, China, India and Indonesia. Volkswagen recently, having reduced output from South African factories, has opened a factory in India. BHP Billiton, a company with South African roots, reduced aluminum output from their Richards Bay plant and moved production to Brazil. The same BHP Billiton’s planned capital expenditure in South Africa is limited to USD 1.3 million, a mere 10% of their total planned capital expenditure.

Sorry Clem, maybe you can find good news in this lot…I tried. Just do not blame me for not suggesting a solution. It is just too obvious. Even Malema, Vavi, The President and Patel should spot it.

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