‘Every reform was once a private opinion, And when it shall be a private opinion again It will solve the problem of the age’ Ralph Waldo Emersion (1803–1882)
In the previous issue I discussed the ‘casino culture’ of global capitalism and the tangled web of international free marketing... To unravel the economic aspects we need to define our priorities in national policies. From the President down to the lowliest opposition backbencher the clarion call is to combat poverty by the creation of jobs. The statistics are controversial and almost impossible to acquire, but in general terms it seems to be recognized that there are of the order of 10 million people unemployed, that of the four hundred thousand school leavers, only 10% can find jobs, and in the age group of 15 to 35, 70% are unemployed!
These are the ‘youth league’ and it is not impossible that one of them will soon be the leader who raises the red flag of revolt. It was somewhat vaguely hoped that the increasing investment and a booming economy would go a long way to creating jobs, but the latest figure for 2006 indicates a net loss. Aids is taking its toll, there are an increasing number of orphans to be cared for and were it not for the poverty and child grants, there would be serious starvation evident. Yet across the board all business sectors have shown phenomenal profits so the affluent group is increasing and getting richer. The portrait of the nation is grotesque and threatening. The most urgent task is the redevelopment of the rural areas, the ‘second economy’ as advocated by many top level economists.
This is challenging since we are looking for more than five million jobs for low skilled people. Not impossible but ‘DAUNTING’, my acronym for ‘Demanding Action based on Unconventional Thinking’. Some examples of unconventional thinking lie in the tangled webs quoted in Part 1. If we sell to, say, China, a billion dollars worth of iron ore, we are not only selling a commodity, but also the opportunity of adding value to the extent of perhaps as much as twenty times the cost of the raw material. This translates to twenty billion dollars worth in employment opportunities. To achieve a trade balance, we should import goods worth a billion dollars with no restrictive tariffs. By clever monetary exchange rate fixing, these will be at such low prices that they will knock out any local production and obviate us ever being able to compete.
In any event the local producer will probably have to buy steel at import parity prices. The situation is even worse if we export ferroalloys. Not only are we selling commodities such as chrome and manganese ores but also our low priced coal and water, in the form of electric power. The added value potential of these materials is very large. In terms of the Kyoto agreement, we would incur all the ‘carbon debits’ from the power station emissions and from the coke used to make the ferroalloy. Of course not! We are selling our resource heritage, the fountain of job creation and we should be able to claim something equivalent in return from the customer. Can we not claim that it is a ‘fundamental global right’ that nations respect a sanctity for employment situations in negotiating a trade balance? What I am suggesting is that in debating trade regulations at the WTO, the balance of work opportunities be respected.
There are many ways in which this can be done. As counter trade we might buy technology or a manufacturing plant, a share of the global market and training facilities and even tutors. There is scope for serious negotiation to replace imports with manufacturing technology. The details of the Alcan deal with the IDC, Escom and DTI have not been published. The lowest 1300 MW power cost would come from a water-cooled power station in the Mpumalanga area. The cooling water would be ca. 50 megalitres per day. If dry cooling were to be used at significantly higher power cost, this very precious water would equate to 25 000 direct jobs in an irrigated cluster farm village.
The permanent jobs in the aluminium plant are quoted as 1 000 from a capital cost of R19 billion. Hopefully there will be aluminium metal and technology offered for manufactured goods at Coega as a fair balance for the loss of job opportunities. Future policy on motor fuels is a much bigger strategic decision. Motor fuel consumption in SA has risen to 25 billion litres per annum, of which 10 billion is produced by Sasol and the remainder comes from imported oil. Sasol is considering installing two modules of coal to liquid (COL) plants, each with a capacity of 5 billion litres. Capital cost is ca. R40 billion each, and a suitable low cost coal source is being investigated in the face of a host of other highly strategic demands.
The DME has issued a white paper on their policy on biofuels prompted by the maize surpluses. A very modest 4.5% of present consumption is approved in the draft White paper and Ethanol Africa is erecting a maize to ethanol plant at Bothaville and is looking at another 7 plants in maize producing areas. It is claimed that some 50 000 farming jobs will be created. These plants will be subsidized to a small amount depending on the oil price. There have been big advances made worldwide on biofuels, particularly as regards bio diesel. My calculations show that a high proportion of 15 billion litres could be produced as biofuels in a suite of biofuel farming clusters spread around the country. These could be the spur to regional farming centres, and ancillary productive secondary industries based on the biofuel and associated farming by-products. There is easily enough land and water available, and for the basic agricultural work relatively low skills are needed.
This is unconventional thinking of a high order, in which 5 million people could derive a sustainable income from these farming centres. At the moment it is an enticing theoretical concept, adjudged to be a pipe dream and ignored by the DME agencies. Motor vehicle sales in 2006 reached a record level of 746 000 units (predominantly in the luxury category), worth, by my calculation, R140 billion. This is four times the total value of the products of the mighty platinum mining industry. The incentive scheme was designed to create jobs. The official employment figures for the automotive components and assembly industry is 35 000 (2005).
At generous average salary levels of R200 000 pa, this is less than 5% of this turnover. Even assuming huge profits to the principals (which explains the mad rush for every motor industry in the world to climb on the bandwagon), I am left with the suspicion that our motoring public are creating many more added value jobs overseas than in South Africa. If not, then, in the absence of detailed accounting, I must assume the casino culture club (which seems to include IRS) is hitting the jackpot. The obvious remedy is to produce our local indigenous motor car from our indigenous resources. The obvious choice would be a hybrid modelled on the Toyota PRIUS, acknowledged to be the most energy efficient vehicle in production, It would be designed to run on either ethanol or biodiesel produced locally. This would pioneer what I believe could be the answer to global warming in China, India, South America and the USA.
Sadly such a ‘Bio-Africar’ is, like the biofuels rural concept, also likely to be adjudged to be a pipe dream. If this latter concept is abandoned and in the absence of any other concept that comes close to necessary magnitude and probability of success, all the pontifications of the politicians on rural job creation also sadly seem to be pipe dreams. R.E. Robinson Feb 2007
ERRATTUM Please note that the title of the paper published in the December 2006 Journal, vol. 106, no. 12, pp. 849–856 was incorrect and should read: Investment and non-commercial risks in developing countries’ by C. Kasatuka and R.C. Minnitt, The word Investment was mistakenly replaced by Investigation
- Written by R.E. Robinson
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