Steel and Engineering Industries Federation of Southern Africa (Seifsa) chief economist Dr Michael Ade has declared Africa’s metals and engineering sector open for business.
Ade was addressing delegates on the second day of Seifsa’s fourth annual Metals and Engineering Indaba, in Johannesburg.
Primary steel producer ArcelorMittal South Africa (AMSA) Africa overland GM Alph Ngapo concurred and said there were up to R6-trillion worth of potential opportunities to 2040 in the metals and engineering cluster across Africa, which includes major infrastructure projects that are likely to happen.
However, the two panellists, along with Southern African Institute of Steel Construction (Saisc) CEO Paolo Trinchero and International Finance Corporation (IFC) senior investment officer Paul Mukasa, agreed that there were also challenges in terms of investment and trade.
In addition to policy uncertainty, Ade also discussed how a lack of targeted financial support for small businesses and poor knowledge of investment opportunities impact on metals and engineering sector investment.
“Small businesses often struggle to operate in the metals and engineering cluster, which often requires high start-up capital, and they find themselves in a competitive environment. The survival and sustainability of these businesses are key to supporting the economy,” he said, adding that a pathway needs to be created for small business through enabling incubation aid and access to markets.
Investment opportunities are often unknown in the cluster. Intermediate product offerings need to be enhanced through the various export and trade promotion agencies or initiatives, Ade suggested.
“Businesses should educate themselves on the complementing role of promotion agencies and local development finance institutions.”
Ade highlighted that new foreign entrants and companies that are not already part of an extensive network of local subsidiaries find it difficult to invest and develop linkages to domestic suppliers.
Seifsa and Saisc have assisted in bridging this gap, but more needs to be done.
Additionally, he said a lot of companies are already using South Africa as an investment hub into Africa and more needs to be done to market this strategic advantage. “Mauritius is already ahead in this regard, offering special tax dispensations for companies wishing to use [that country] as an African investment hub.”
Ade stressed that there is a need to form long-lasting and joint-venture partnerships, especially with skills transfer as part of the agreements. The offering from South Africa in return for guaranteed contracts should include developing capacity.
“For example, the Southern African Stainless Steel Development Association (Sassda) has taken a big leap by forming a partnership with the Kenyan Association of Manufacturers to jointly offer training.
“Sassda is also working to set up a Tanzanian Stainless Steel Development Association, which would initially source fabrications from South Africa, as there are no fabricators in Tanzania and, in return, Sassda has committed to transfer skills to the locals and set up a fabrication hub in Dar es Salaam.”
While Africa is ripe for trade and development opportunity, there are still barriers to overcome. Ade listed export documentation constraints (including vendor certification, export certification from South Africa and import certification into the relevant country), and high port and logistics costs as some of the biggest limiters to trade.
Additionally, customs documentation is often necessary at every border post (when road freight is used) and this can triple the number of customs documents needed per shipment.
“High port costs are a challenge to shipping containers within Africa. It is often more expensive to ship a container from Durban to Tanzania than shipping the same container from Durban to China or South Korea,” said Ade.
Other trade prohibitive factors in Africa are a lack of cluster incentive programmes, specifically targeting trade with other African countries.
Ade highlighted that AMSA uses a pricing policy in Kenya to aggressively capture the market by selling at comparatively lower prices to the Kenyan producers; however, this approach should be managed carefully, with a strategy to subsequently increase prices and should not negatively affect the competitiveness of the local industries.
Meanwhile, African trade should soon reap benefit from the Export Credit Insurance Corporation of South Africa and African Export Import Bank launching a R13.4-billion export trade facility to support trade, and with the Brazil, Russia, India, China and South Africa- (Brics-) led New Development Bank committing to support industrialisation and trade links between Africa and Brics, with an initial $50-billion in capital.
Mukasa said the IFC had invested about R5.3-billion in the 2018 financial year into the metals and engineering cluster across Africa.
Trinchero mentioned that policy uncertainty in construction, mining and manufacturing all impacted on each other and contribute to challenging local conditions in the metals and engineering cluster. Other local problems include high cost of logistics and electricity, which often hamper manufacturing and distribution, as well as project delivery.
He said almost all metal and engineering type companies are in survival mode, which means there is less available funds for training, which widens the already present skills gap in the sector. Fabricators are also closing down, as they are battling to export their products owing to high input costs.