Jul 20, 2012
SA's innovation-rich mining equipment sector 'merits support'Back
Engineering|Africa|Industrial|Mining|PROJECT|Africa|China|India|South Africa|Capital Equipment|Equipment|Home-grown Mining Equipment|Manufacturing|Manufacturing Sector|Mining Equipment|Product|Products|Service|Services|University Of Cape Town|David Kaplan|Gauteng
© Reuse this
Entitled ‘South African Mining Equipment and Specialist Services: Technological Capacity, Export Performance and Policy’, the paper was produced under the auspice of a research project which examined linkages in seven African countries entitled ‘Making the Most of Commodities’. The paper asserts that, in South Africa, this sector is already located at the “global technological frontier”.
It gauges such prowess on the basis of the fact that mining-related patents comprise a larger share of South Africa’s total patenting activity at the US Patent and Technology Office (USPTO) than is the case for comparator countries and these innovations receive significantly more citations than other South African patents.
Author David Kaplan, who is professor of business-government relations at the University of Cape Town’s School of Economics, notes that a search of patents at the USPTO revealed no other significant cluster of high-value South African patents.
Moreover, South Africa is a world leader in many mining products and services. Home-grown mining equipment and associated services already carry high levels of local content, constitute a significant value-added export and have a strong presence in the dynamic African market – a market that is expected to grow further, owing to the continent’s unexploited mineral wealth and the growing demand for commodities in countries such as China and India.
Trade data interrogated shows that there is no other South African manufacturing sector that has substantial exports with a positive trade balance and high local value addition. In 2008 and 2009, South Africa’s imports of capital equipment were three times greater than exports. But it was a net exporter of mining equipment.
Policy Problems and Debate
This support enabled mining equipment and services enterprises to exploit “economies of scope” rather than “economies of scale” – in other words, South Africa’s mining industry offered a large number of potential customers for specialist suppliers of mining equipment and services rather than scale.
But many of the foundations that provided that support have been eroded. In addition, the sector’s outlook, which should be positive in light of the outlook for commodities, is being “severely” curtailed by skills shortages, declining public and private support for research and development, and limited access to finance.
The paper has emerged as the governing African National Congress (ANC) continues to deliberate on its ‘State Intervention in the Minerals Sector’, or Sims, draft policy document, which has drawn a mixed reaction from business and civil society.
The mining industry has welcomed its rejection of blanket nationalisation, but has raised concerns about the potential for burdening the sector with new and higher taxes.
Inside the ANC, the themes contained within Sims were broadly accepted by delegates at a party policy conference in late June, but they are still to be debated and adapted ahead of the ANC’s upcoming five-yearly National Conference in December.
As is the case with Kaplan’s paper, Sims highlights the potential and importance of the mining equipment and services sector, having identified so-called ‘backward linkages’ as central to “using a natural comparative advantage to develop a competitive advantage”.
The linkages discussed in Sims relate to mining’s potential to offer spin-offs for specialised inputs, such as chemical and biological products, machinery and equipment and specialised services, such as consultancy services into mining and non-mining areas of the economy.
But Sims also highlights the need to build fiscal (a resource rent tax), forward (beneficiation), knowledge and spatial linkages to extract greater socioeconomc benefits from South Africa’s natural mineral endowment.
He writes that any expansion in output in the relatively patent-rich mining equipment and specialist services milieu would be accompanied by a greater increase in ‘knowledge content’ when compared with an equivalent expansion in output in other sectors, which have a lower knowledge content.
“Output expansion in mining and specialist services will be accompanied by greater learning, innovation and associated externalities as compared with output expansion in other sectors,” he avers.
The paper adds that two other factors also underpin the case for greater policy support.
Firstly, the concentration of manufactured exports in a few product and sector categories underlies the need to ensure sector support favours those sectors that have a strong likelihood of growth. “South African mining equipment and services have both a strong presence and distinctive advantages in relation to a market where there are clear prospects for growth, namely mining activity in Africa.”
Secondly, the sector is characterised by a large number and variety of firms, institutional supports and a clustering of activities. The paper found that the South African mining equipment sector is located primarily in Ekuhuleni, in Gauteng province. A database of some 678 such firms also shows that these enterprises employ 95 000 people, are mostly (67%) owned by South Africans and are, in the main, not listed on the JSE.
Such support should focus on enhancing the competiveness of the sector and dealing with the critical constraints in relation to skills and training, public support for research, linkages to the universities and science councils and access to finance.
In particular, the paper calls for a reversal of the current tendency of a weakening in the link between the industry and research institutions. “There is a widespread view, both in the industry and in the science councils, that, while some research capacity remains in the science councils, there has been a clear reduction in funding for research and a consequent deterioration over time,” the paper laments.
It says the decline is most notable at the Council for Scientific and Industrial Research, which previously had large mining programmes. But there were also weaknesses at Mintek, which focuses on minerals processing and metallurgical engineering, and the Council for Geoscience.
The weakening in support for innovation would also make it difficult to spread mining-linked technologies and companies into new non-mining related products and markets – a ‘lateral’ migration for which the Sims document also calls.
“One possible direct mechanism for doing this would be the creation of a ‘challenge fund’ . . . to support firms that utilise their existing technological capacities in relation to mining in order to adapt or develop new products and enter into new markets outside the mining industry,” Kaplan argues, adding that such a fund would meet part of the costs incurred by the firm.
Government policy could have a “large influence” on achieving the objective of upscaling the sector, as well as facilitaing lateral movement.
But current government policy “does little to mitigate any of the constraints that have been identified as inhibiting the further development of the mining equipment and specialist service sector”.
The potential for growth of this sector and its potential contribution to broader economic development, the paper adds, is “almost entirely unrecognised”.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines (150 word limit)
Other Mining News
Diversified giant Rio Tinto on Friday announced that it would streamline its business, condensing its assets into four product groups namely; aluminium, copper and coal, diamonds and minerals, and iron-ore. The miner said that the new copper and coal product group...
Gas has the potential to account for more than 40% of the electricity generated in sub-Saharan Africa (SSA) from 2020 onwards, a new report by McKinsey & Company shows, adding that, by 2040, gas-fired capacity could be responsible for more than 700 terawatt-hours in...
International consulting engineering company Royal HaskoningDHV (RHDHV) has appointed Salani Sithole as South African MD, effective March 1. Sithole has been with the company for six years and, prior to joining RHDHV, held various positions in engineering consulting,...
Recent Research Reports
Construction 2015: A review of South Africa’s construction sector (PDF Report)
Creamer Media’s Construction 2015 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; the key participants in the sector; local construction demand; geographic diversification;...
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
This Week's Magazine
National flag carrier South African Airways (SAA) is in an advanced stage of renegotiating its deal with European airliner manufacturer Airbus to acquire A320 single-aisle (or narrow body) aircraft. The aim is to replace ten of the aircraft still on order with five...
Worldwide, the main thrust in the ports industry over the past decade or more has been to increase efficiency. Traditionally, ports have been run by engineers and mariners and, in the past, increasing a port’s capacity was achieved by expanding the harbour. “That has...
What do you do when an elephant has a toothache? You call Dr Gerhard Steenkamp from the University of Pretoria’s (UP’s) faculty of veterinary science, Onderstepoort, one of only two elephant ‘dentists’ in the world.
The 2015 Sanlam/Business Partners Entrepreneur of the Year (EOY) competition was launched earlier this month in Johannesburg, with the main focus on creating and inspiring entrepreneurs to create jobs and boost the economy.
In a recent letter to the editor that I sent to Engineering News (Concerns regarding South African portion of Square Kilometre Array) and in a follow-up article elaborating further (We must start preparations to build our own synchrotron light source), I stated my...