The South African Printing Industry andThe Situation Facing the Global Printing Industry

The South African Printing Industry andThe Situation Facing the Global Printing Industry

CWJ Syke
Chief Executive
Printing Industries Federation of South Africa

　　Ladies and Gentlemen,

　　I would firstly like to thank  the Printing and Printing Equipment Industries Association of China (PEIAC)  for inviting me to speak to you today. In particular, I would like to thank Mr Wang Demao and congratulate him and his colleagues for staging such a successful exhibition – particularly in the face of the challenges we are currently facing.

　　I have been asked to speak about the printing industry in South Africa and globally. I am going to spend more time on the global outlook because I think that is more relevant to us here today, but briefly, the South African printing and packaging industry contributes over 2.5% of my country’s GDP. However we are a small country with a population of less than 45 million and the printing industry employs less than 70,000 people. My industry is the sixth largest industry in my country measured in terms of contribution to Gross Domestic Product. Our currency (the ‘Rand’) has a floating exchange rate against the US dollar and currently varies between R8.50 and R9.00 to the dollar. Although South Africa is small when compared with the large economies of Asia, Europe and North America, it is the most developed country in Africa and has a very sophisticated banking system. In fact the South African banking sector has recently been graded as 15th in
the world by the OECD.

　　When I was asked to speak at this conference, someone called the current economic turbulence a ‘tsunami’ and I think that it is a very appropriate description. If you recall the TV images of the devastating tsunami that hit South East Asia and the Indian sub-continent in December 2004, you will remember images of a powerful torrent of water that carried away much in its path. You will remember the pictures of lives destroyed and landscapes that were unrecognisable after the water retreated. I am afraid that we will see a similar situation once the current ‘financial tsunami’ retreats. Some lives will have been destroyed, and the financial landscape is likely to have changed forever.

　　South Africa has already lost 130,000 jobs since September 2008 and the latest forecasts are that a further 300,000 jobs may be lost this year. These losses are across all sectors of the economy, but as the printing and packaging industries are inter-dependent on these other sectors, we are already being affected. This, of course, is insignificant compared with the USA where at the beginning of April over 610 000 people per week were losing their jobs – in fact, since December 2007 more than 5.1 million Americans have lost their jobs, and it is predicted that US unemployment will reach 9.5% by the end of 2009.

　　Since September 2008, confidence in the banking system in most major countries has declined, and the stock markets have crashed to lows that we have not previously seen in our lifetime. Currencies have also been negatively affected, and governments all over the world have had to rescue some large financial institutions and allow others to fail. As at October 24, 2008, the Dow Jones Industrial Index was down 40.9 percent from its Oct. 9, 2007, record high level while the S&P 500 Index is off 44 percent from its peak of a year ago. The Nasdaq Index of Technology based stocks was down 45.7 percent. These are huge reductions in value.

　　In the West, it is inevitable that comparisons will be made between the current situation and the Great Depression of 1929. As none of us were around in 1929 – not as adults, anyway – we should perhaps remind ourselves of what the situation was then:

　　Real GDP dropped by –29%
　　Personal Consumption Expenditure dropped by –41%
　　Industrial Production fell by –54%
　　Price levels dropped by –47%
　　The Stock Market fell by –89%
　　The Unemployment Rate in the USA was 26%

　　We need to hope that history does not repeat itself. In the United States up until the end of February the recession had lasted for five full quarters. Where the economy and print markets in the USA go from here is very much dependent on the success (or failure) of the financial rescue legislation passed and other actions from the US Treasury, Federal Reserve and Federal Deposit Insurance Corporation.

　　The global printing and packaging industry will unfortunately not escape the consequences of this crisis, even if it does not reach the level of the Great Depression, although it will affect different countries differently.

　　The general economy affects the printing industry in a number of ways:

　　• Economic conditions have a significant impact on investment. This affects our own investment in equipment and our customers’ investment in expanding their own businesses.
　　• The economy affects not only expenditure on assets, but also advertising and all printed material.
　　• Levels of disposable income have impact on commercial printing, such as magazines.
　　• Rising costs erode profit margins.

　　On the issue of rising costs, we are seeing

　　• Rising raw material costs.
　　• European and North American Paper mills reducing capacity to increase prices.
　　• Increased customer demands for lower prices and greater added value
　　• Rapid rises in energy costs – although the lower oil price may slow these increases down, and as inflation increases, we will see higher wage costs in various countries.

　　Before the financial shocks of September and October, 51% of the members of Printing Industries of America reported increased sales figures for the 2008, however, this is the lowest percentage of their members respondents with increased sales in over four years—since the fourth quarter of 2003. Likewise, the proportion of printers with　sales declines (46%) was the highest in over six years—since the first quarter of 2002. These figures were fairly typical in developed markets.

　　According to the International Labour Organisation, as a result of the financial crisis, 20 million jobs are likely to have been lost globally by the end of 2009. They say that the construction, real estate, financial and automotive sectors will be the hardest hit, and you need only look at the recent financial results and retrenchment figures of large Japanese, American and European automobile manufacturers to see the fulfilment of this prediction. Companies like Chrysler and General Motors face bankruptcy and restructuring and some brands will disappear forever. Countries with large domestic markets that do not rely heavily on exports will be able to weather the crisis better. This is good news for China, where exports currently make up only 11% of the economy, but even here, those companies that export goods have been severely affected as consumer demand in other countries declines. In fact, in the sixteen countries that make up the Euro-zone, factories are cutting output and firing workers as companies cope with the worst crisis and lowest exports in 60 years. Europe’s economy is forecast to shrink by 4.1% in 2009, and all thirty economies in the Organization for Economic Cooperation and Development (which does not include China) will be in a recession by the end of this year.

　　The Chinese economy is the biggest contributor to global growth, and as recently reported, the world financial crisis has cut international demand for Chinese exports. This has caused a substantial slow-down in the growth of the Chinese economy, although your growth rate is still the envy of the world. Growth is slowing across Asia, with Japan’s economy shrinking, and with declining exports, factory output and household spending. At the end of last year, Britain experienced its biggest six-month budget deficit since the Second World War as tax receipts fell and government spending increased; and Germany’s producer price inflation increased sharply to 8.3%, mainly as a result of increased energy costs.

　　So how is this like to affect our industry globally?

　　I believe that although both the USA and Europe have experienced strong digital printing growth for some years, I am concerned that those printers that have aligned themselves exclusively with banking customers or high-end retail companies are going to be very badly affected. Declining retail sales in the United States will affect packaging and label printing exports from China as exports slow down. Declining household disposable income levels in the wealthier economies will negatively affect sales volumes of magazines, books and even newspapers. Advertising expenditure is likely to decline and this will have a direct impact on print volumes.

　　I think that there will be casualties as some printing and packaging companies close or merge with others.

　　My advice to our industry is to ride out the storm by containing our costs, not spending money unnecessarily, and staying as close to our customers as possible. If we can assist our customers through their own difficult times, we will all benefit when the global economy and financial system eventually stabilizes, and once again begins to improve. We will survive this! Remember, print is the original and most cost-effective information technology. To read a book, a newspaper or a magazine, you don’t need a broadband connection!

　　Thank you very much.