Stifling the doers

2011-04-01 00:00

RECENTLY, I have had occasion to visit two small manufacturers in the Durban area. Although small in terms of the number of people they employ, both are doing very well in terms of their market share among the country's retail chains. One makes belts and the other plastic packets. I was astonished to discover the extent to which these companies are dominated by the demands of retailers. I wonder if you realise that retailers commonly require their suppliers to prepare the products for sale on their shelves? I certainly did not and was astonished that the manufacturer had to go to the extent of buying, with the necessary printing, and attaching the price labels. In the case of the plastics company, I was also informed that it is not uncommon for retailers to return products that have not sold and to demand a refund. The manufacturer also has to dispose of the returned product. There is also constant pressure on the manufacturers to meet the price demands of the retailer, the possibility of ordering from China being used as a lever.

It seems to me that this is a symptom of the dominance of consumerism in our economic regimen. Without the excessive demands exerted by consumers, retailers may not be able to get away with this kind of omnipotence. It certainly reflects an imbalance in the market which economic theorists may not have considered. It begs the question: who would start a manufacturing enterprise? Even if the entrepreneur has been able to identify a product for which there will be a sustainable market, he will find himself under all sorts of pressure. These include unionism, the constant threat of cheaper imports from the East, central bargaining and minimum wages and other difficult-to-afford conditions, and the price of electricity. Manufacturers are also required, as a rule, to bear the costs of the raw materials required for production ahead of the delivery of the product, and then may have to wait some considerable time before they get paid. The competition emanating from the East has had a profoundly negative impact on manufacturing and it is little wonder that some manufacturers have become distributors of imported products since this has enabled them to survive.

It is difficult to understand how perspective has been lost, or abrogated, perhaps. It is generally recognised that we need to become a nation of producers. For this to happen, industry has to be stimulated, and for this to be accompanied by meaningful job creation, smaller industries must be stimulated to grow into bigger ones.

Indeed, the development of small industry, so important in the economic progress of both India and China, is weak in South Africa. Where it exists, it is precarious to say the least, mainly because the minimum requirements in relation to employment are often bey­ond the pocket of the small manufacturer.

Bargaining councils are dominated by unions and/or large companies, and these bodies, together with the provisions which permit the extension of agreements by the minister to so-called "non-parties", impose demands that small companies cannot easily meet. These may extend beyond basic minimum wages that have to be paid. In the clothing sector, therefore, there are compliant employers, which are registered with the bargaining council and meet the requirements, and non-compliant employers who would like to be recognised within the system, but cannot afford to do so. What's more, as long as they cannot meet the demands, they are unable to gain access to the council in order to bargain.

The numbers of people employed in non-compliant companies — I don't believe they should be saddled with this tag, for they are employers and this gives them credibility — is significant, and if they were shut down as councils threaten from time to time, thousands of people would be put out of work.

It is difficult to understand how the logic of this is persistently ignored by the advocates of decent work and a labour regimen that appears to ignore not only the realities, but also the economic needs of the country.

One is not advocating, or even condoning, exploitation of labour as occurs in some countries. One is advocating a far more realistic balance between labour ideals on the one hand and the need for economic progress accompanied by job creation on the other. The variances between small and large manufacturing cannot be ignored in defence of a one-size-fits-all philosophy.

• Andrew Layman is the CEO of the Durban Chamber of Commerce and Industry.

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