JOHANNESBURG, 20 May 2014 – The provision of integrated support packages for South African companies competing in both domestic and export markets is of paramount importance if South Africa is to grow its export base, Steel and Engineering Industries Federation of Southern Africa’s (SEIFSA) Chief Economist Mr Henk Langenhoven said.
Speaking at a two-day Manufacturing Indaba held at Emperor’s Palace in Kempton Park, Mr Langenhoven said that the integrated support packages should include on-budget programmes, strategically-targeted Industrial Development Corporation financing, enhanced export financing through the Export Credit Insurance Corporation and a more strategic focus for South Africa’s system of export promotion.
Exports as a percentage of production have increased in South Africa from around 10% in the seventies to more than 60% over the last decade. However, imports have also risen as a percentage of the domestic market from around 30% to as high as 60% lately, meaning that domestic producers have the minority share of the domestic market.
“Analysing this further shows that the more sophisticated the products, the more negative the trade balance. South Africa may generally have a comparative advantage, but not necessarily a competitive advantage,” said Mr Langenhoven.
He added that basic ferrous and non-ferrous exports have fared the best over time, while metal products, machinery and electrical machinery and equipment have had declining success in export markets.
Mr Langenhoven said that a major constraint to exports is the current inadequate and very expensive transport infrastructure: “Products can often be produced in a factory in Gauteng, at a world-competitive price, but after transport costs and inclusion of the risk of delivery delays, the competitive edge is lost.”
He added that most of the trends measured in the metals and engineering sector today are as a result of the dawn of democracy lifting all restrictions or sanctions on the economy and then the industrial policy shift in the early nineties, opening up the South African economy by lowering protective tariffs.
He acknowledged that the latest version of the Industrial Policy Action Plan (IPAP) makes more pronounced statements on export promotion than before.
“IPAP repeatedly emphasises the importance of a strong industrial base. The challenge to turn the tide of South Africa’s metal and engineering companies being ‘crowded out’ of the domestic market by imports is huge, and the solutions often lie outside of the ambit of Industrial Policy,” he said.
Like SEIFSA Chief Executive Officer Mr Kaizer Nyatsumba on a different panel discussion at the conference, Mr Langenhoven commended the Department of Trade and Industry for doing an excellent job of advocating “the case for industrialisation in South Africa”, saying that the Department can point to some successes.
“With its emphasis on manufacturing, the latest Government budget is one very good example. A strongly competitive industrial base can be enhanced by programmes like the Manufacturing Competitiveness Enhancement Programme,” Mr Langenhoven said.
Commenting on local procurement, Mr Langenhoven said that although infrastructure development and maintenance were outside of IPAP, ensuring localisation of procurement is in its ambit, as far as state procurement is concerned. This, he stressed, made it very important for the relevant players to procure their goods and services domestically.
“There is grave concern that the rolling-stock tenders awarded to foreign companies will have the same result. If localisation is not successful, the commitments to developing an export base could also falter,” he said.
Mr Langenhoven said that regional integration is another important focus which is an important market for metals and engineering companies in South Africa. He said that commitments to diversifying African economies and building regional markets were important determinants for sustainable industrialisation in the medium to longer term.