The Report of the September Commission on the

Future of the Unions

to the Congress of South African Trade Unions, August 1997

 

Appendix 1

Examples of industrial targeting
the plastics sector & the forestry products sector

1. The plastics sector

2. The forestry products sector

1. The plastics sector

Plastics conversion provides a good example of a sector where focused industrial policy and stakeholder input could make a significant difference to the expansion of employment and production. The sector is an inherently attractive subject for industrial promotion, having a good record in output, employment, and export growth. A number of training, representative and policy-making institutions exist in the industry and these might provide a platform from which to develop and implement policy. Significant efforts involving all industry stakeholders have been made in this regard already.

Vision
The plastics conversion industry in South Africa should be characterised by:

Current Context
Plastics conversion is a highly labour-intensive sector. On average, about R40 000 of machinery is required to employ one plastics worker - compared, for example, to over a million rand for a chemical worker. This makes the plastics sector very vulnerable to sweat shop operations such as those found in the former homelands, but it also holds the promise for significant job creation.

While the total number of manufacturing jobs remained unchanged through the 1980s, employment in the plastics sector nearly doubled. However, since 1990, plastics employment has levelled out at around 50 000 jobs, despite the fact that output has continued to grow at a fairly constant rate. This indicates an increasing degree of automation in the sector. With changes in technology and rising competitive pressures, this trend is likely to continue. If the plastics industry is to regain its momentum in creating jobs, it will have to be through the expansion of productive capacity and by securing (or creating) new markets.

On average, South Africans consume about 18 kg of plastic per year, as opposed to Germans who consume 125kg and Americans who consume 103 kg. Local consumption is low even compared to other middle-income countries - for instance, Mexicans consume 26kg per annum and Chileans 24kg. There is clearly massive potential for growth in the domestic plastics market. This is particularly the case in products linked to the infrastructural and building industries, such as pipes, sheeting and insulation.

Export markets hold further promise. South African plastic products seem to have performed well on foreign markets in recent years with annual increases in exports of 30 to 40%. However, much of this export growth has been in the form of raw materials or very basic products, like plastic bags, which have little value added. As with other commodities (such as steel and aluminium) plastic is leaving South Africa in an unbeneficiated form for processing in other countries.

There are only two companies producing plastic raw materials in South Africa (Safripol and Polifin). Both get their chemical inputs from the same source (Sasol). Historically, these companies enjoyed significant tariff protection from imported competition. This enabled them to charge plastic converters 60 - 100% more than prevailing world prices for raw materials. While these tariffs have come down as part of South Africa’s commitment to GATT, plastic raw materials are still 30% more expensive in South Africa than on the international market. Producers have argued that this problem would best be resolved by investing in a new plastics raw material plant, which, in their view, would require incentives from government. Given their past pricing behaviour, its unlikely that the benefits of such an investment would be shared with the converting industry if it is controlled by present raw material producers.

The big converting companies are usually able to get competitive prices and secure supplies from the local raw materials producers but smaller producers are in a far weaker position. Small converters also face problems in accessing finance for investment and lack the resources to research new markets, particularly those overseas. They are further often disadvantaged by backward manufacturing practices and limited capacity for product design.

The weakness of converting companies in general relative to the plastic raw materials producers is evident in a recent revision of the plastic sector tariffs. The revision, passed after the GATT agreement, made no changes to the phase-down schedule for plastic raw materials. However, the final tariff level for converted plastic products was reduced from 20% to 15%, putting converting companies under increased pressure from imports without the relief of being able to secure cheaper raw materials with lower tariffs from overseas. As yet, there has been no organised response to this from converting companies.

The plastics industry is fortunate in having a well-established training organisation, the Plastics Industry Training Board. The Board’s primary function is to fund training, and a levy system was set up to this end in 1991. Although the levy is operating effectively, companies have been slow to take up the funds available for training. In 1996 only half of the money allocated for training programmes was distributed. A key problem seems to be the lack of communication from management to workers about the existence and benefits of the Training Board.

The industry is also fortunate in having a relatively effective "cluster initiative" aimed at promoting the industry, the Petrochemicals, Plastics and Synfibres Cluster Initiative (PPSCI). This was launched in early 1996 and involves all stakeholders in the industry, with good representation from labour. The initiative has established a number of working groups which identified many of the problems listed above and are presently working on means to resolve them. It has further commissioned a broader study into the industry.

Finally, union rivalry presents a potentially serious problem for plastics workers in the current context - the sector is organised by both CWIU and Numsa. A dispute has developed over where the sector should bargain at industry level. CWIU has motivated that all plastics companies should be part of the Chemical Industry Bargaining Council, while Numsa believes that plastics companies presently falling under the National Industrial Council for the Iron, Steel, Engineering and Metals Industry should remain there. It will not be possible to integrate issues of industrial policy or training in the plastics industry with broader collective bargaining issues until this dispute has been resolved.

Way forward
There has been substantial dialogue between labour, government and business representatives in the plastics industry over the past year through the cluster initiative. This has created the conditions to move the industry towards the vision articulated above. To this end, the following projects are being developed in the cluster:

The relative success of the cluster initiative in the plastics sector illustrates the usefulness of co-ordination and partnerships in developing the potential of a labour-intensive sector. We would argue for the following steps, in addition to the above projects developed by the cluster so far.

The experience of the plastics cluster, the projects it has identified, and our further suggestions, illustrate how an active, targeted and co-ordinated industrial strategy could work in practice. We turn now to another sector with job creation potential, but where there has been little progress to date.

2. The forestry products sector

The forestry products sector provides a second example of a sector with significant potential for employment growth. An active industrial policy could have a major impact on the development of this sector. Although the IDC has done a study of the forestry products cluster, there does not appear to have been any development of a cluster process, involving companies and unions, similar to that which emerged in the plastics sector.

The forest products sector includes forestry, sawmilling, furniture manufacture, and pulp and paper production. Demand for the products of these industries is substantial and likely to grow in the future. The important forward and backward linkages in the forestry products sector means that its employment creation potential is significant. In addition, the linkages of this industry into the rural areas - and the southern African region - make it a potential lever for rural and regional development.

Context
Government is currently restructuring its forestry assets which comprise Safcol and the TBVC forests. The restructuring process should be seen as an important opportunity for implementing a strategy for industrial development. Currently, the restructuring process poses a risk of substantial job losses, particularly in the ex-TBVC forests. Instead of approaching the restructuring of state assets as a revenue-generating transfer of ownership, the emphasis should be placed on how best to develop the forestry industry as a dynamic sector with important downstream linkages.

For example, the forestry sector provides a golden opportunity for redistribution of assets to labour and community collectives. International evidence has shown that collective ownership in the forestry products sector can be an effective, productivity-enhancing structure (for example, the Pacific Northwest in the U.S).

Measures are needed to discourage exporting relatively unprocessed forestry products, such as wood chips, and to develop more extensive downstream linkages, especially in the sawmilling and the labour-intensive furniture industries. In sawmilling and furniture-making large capital investments are required to upgrade technology to increase the value and range of products.

According to the IDC cluster study, downstream investment would be encouraged by greater product differentiation - increased grading of wood products and supplies of specific types and qualities of wood - and by ending long-term contracts which tie wood supplies to specific customers at relatively low prices.

In the pulp and paper industry, means to lower the price of paper should be found. As in the chemical sector, tariffs on imported papers allow the capital-intensive paper producers to maintain high domestic prices, presenting a barrier to more labour-intensive downstream industries such as printing and packaging. Companies could specialise by producing larger quantities of fewer grades of paper in order to lower costs without placing downward pressure on wages. Furthermore, the cluster studies identified a wide range of inefficiencies in pulp and paper mills which cost millions of rand a year. These should be eliminated. Government should also consider reducing tariffs to put downward pressure on domestic paper prices.

Domestic paper producers have recently made massive investments offshore in buying foreign paper producers. An important policy issue is whether to encourage domestic producers to increase domestic investment in paper production for export, especially high quality paper instead, or alternatively, whether to devote scarce resources to building downstream labour-intensive industries.

Forestry products have enormous potential in southern Africa, especially in Mocambique and Zimbabwe. An industrial strategy for southern Africa could include making important linkages with these countries and encouraging investment in the region. A southern African regional protocol could be developed so as to ensure the continuity of labour and environmental standards in the region.

In the forestry sector, collective bargaining is underdeveloped and there has also been a strong push towards contracting out which now accounts for about half of the work in the industry. At the same time, union density is low. A strong effort needs to be made to organise workers in the sector and to creates forums for collective bargaining. The health and safety record of forestry and sawmilling is very poor. There is no industrial training board for forestry or for pulp and paper. The lack of developed training institutions must change if forestry is to become a promising growth sector.

A vision for the forestry products cluster

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