About 40% of capital equipment exported from South Africa has been affected by the lockdowns and restrictions on movement because of Covid-19, while capital equipment manufacturers have reported 30% to 40% lower turnover during June and July, says industry body and public-private partnership agency South African Capital Equipment Export Council (SACEEC) director and CEO Eric Bruggeman.
The capital equipment sector, which comprises equipment used in the agriculture, mining, water, electricity and manufacturing sectors, is expected to take about three years to recover to levels before the pandemic, but can triple in an enabling local environment, he highlights.
“Exports enable companies to link to other markets and different growth trajectories, while supporting local manufacturing, labour and commerce. There is significant potential to tap into regional and international trade to bolster the growth of local companies.
“However, exporting requires stability in the country of manufacture and a consistent presence of companies in export markets. This is where government’s role is vital – to ensure that the trade environment is conducive to long-term trade, such as enabling the movement of skilled people, goods and finances between South Africa and the countries to which local companies export.”
Internal stability is an Achilles’ heel for South African equipment manufacturers, with disruptions to electricity supply and tepid local demand hindering local companies in their efforts to explore or broaden their export markets; sufficient local demand is crucial to long-term export, adds Bruggeman.
Experienced local capital equipment exporters are adaptable and have found innovative ways of overcoming barriers to continue supplying their clients in export markets.
“The challenge is to develop more local companies as exporters. Establishing a company as an exporter requires significant effort and funding. Additionally, the certification of products helps to raise the level of competitiveness of companies that participate,” says Bruggeman.
The National Treasury Economic Planning division released a plan, titled Economic Transformation, Inclusive Growth, and Competitiveness: Towards an Economic Strategy for South Africa, in August 2019, which draws similar conclusions.
The plan notes: “Export orientation and sophistication are key drivers of long-run economic growth. South Africa needs to promote export competitiveness and actively pursue regional growth opportunities.
“Technologically sophisticated exports, in particular, are crucial to structural transformation, as they enable the economy to move from low- to high-productivity activities.”
High value-added sectors, such as manufacturing, promote productivity growth (which underpins long-run economic performance), diversify exports, and are important contributors to the country’s skills base, the economic strategy document states.
“Increasing competition in global value chains has forced domestic manufacturers to increase their competitiveness through investments in new technologies and upskilling their workforces.”
SACEEC manages a network of its member companies in various export markets. The main purpose is to assist member and non-member companies in navigating these markets, establishing partnerships and providing one another with information, explains Bruggeman.
Further, as a public-private partnership agency of the Department of Trade, Industry and Competition (DTIC), it gathers information from members to advise the DTIC on which markets to develop.
SACEEC also helps new entrants to develop their business plans using the information provided by members. The member information is managed confidentially, he says.
“Our member clusters, such as the actuator and mining supply clusters, also serve as nodes within countries with which local companies entering the market, either as new exporters or experienced exporters entering a new market, can connect and identify business opportunities and form partnerships.
“However, to export, local capital equipment manufacturers must be able to at least sustain themselves in their home market. We expect existing exporters to manage the market fluctuations caused by the pandemic owing to their established operations and clients, but expect that new exporters will find it difficult to secure clients if their local market is unstable.”
Developing exporters, therefore, relies on effective, enabling and supportive policies and funding. SACEEC assists new entrants in determining prices for their products, and with testing and certification of the products.
Further, the council also advises on how to ensure stocks and service levels within export countries to sustain long-term supply. Companies also often form partnerships to share warehousing and logistics costs, where appropriate, he says.
“Exporters must be well established locally and have proven products to market. Developing a new export market is a long-term strategic decision for a company, which is why only established South African companies can export sustainably.”
SACEEC’s member network has a significant presence in Ghana, Nigeria, Kenya, the Democratic Republic of Congo (DRC), Rwanda and Botswana. It is also involved in a project to establish its members in Zambia and in several projects to increase exports to these markets and to make exports to these markets more efficient.
Supporting the creation of new capital equipment manufacturers and the growth of existing local companies are crucial to develop exports.
All SACEEC’s members have broad-based black economic-empowerment Level 4 certification or better, and the council is actively involved in supporting transformation of the industry in the industrial sector, says Bruggeman.
More effective government support to develop local capital equipment manufacturers is crucial, and is one of the main levers government can use to grow exports from the sector, he says.
“Government’s role to support exports should be to facilitate the business that is possible and to ensure that international agreements and financial exchange controls are in place.”
The National Treasury confirms in its 2019 economic strategy plan that “trade policy is a key component of South Africa’s industrial policy package”, and that “a competitive economy that participates effectively in global and regional value chains grows faster and more sustainably”.
SACEEC estimates the total value of local capital equipment exports to be R178-billion a year. Its member companies export about R44-billion a year, of which about R15-billion a year is exported to African markets. For every R1-million of sustained exports in the industry, about ten permanent jobs are created in the value chain, states Bruggeman.
“Africa is a huge market, and largely untapped. South Africa is not fully capitalising on these opportunities, but, if we do things right, SACEEC estimates the value of exports to African markets can be tripled within 18 months.”
He adds that there are opportunities in the cobalt mining industry in the DRC, in gold mining in Ghana, and in diamond mining in Namibia and Botswana, while Tanzania has precious stones mining that present opportunities for local exporters.
Similarly, Madagascar and Rwanda represent untapped opportunities, and there are significant opportunities for local capital equipment exporters to supply and serve the agricultural value chains and cold storage chains across Africa with locally manufactured products.
Some of SACEEC’s member clusters can supply infrastructure development projects across the continent, specifically for water, electricity, transport and logistics infrastructure development projects.
“Most of these markets’ gross domestic product (GDP) growth rates far exceed South Africa’s GDP growth rate,” he states.
South African export manufacturers require consistent energy and water supply to remain internationally competitive, Bruggeman says.
Developing clean energy and water infrastructure in South Africa – many of SACEEC’s members already provide products and services for these industries, such as geographic information systems, valves, actuators, pumps and earth moving machinery – will help support local companies and develop new manufacturers.
The National Treasury’s economic strategy document notes that falling costs and supportive policies have been a boon for jobs in the renewables sector. Globally, more than 9.8-million people were employed in the renewables sector, up from five-million jobs in 2012. The number of jobs created in the renewables sector exceed the jobs created in the in fossil fuel-based generation sector.
Although renewable energy only contributes about 15% of the energy generated in the US, it provides 67% of the jobs in its energy sector.
The bulk of these jobs are in construction, installation, manufacturing, and the wholesale trade. In contrast, the bulk of coal-based energy jobs are in utilities and mining. South Africa is considered a renewable energy ‘super power’ – ranking sixth in terms of renewable energy production potential per square kilometre, the National Treasury plan states.
“Clearly, this industry is a major source of potential jobs in South Africa. Government should be doing as much as possible in the policy space to enable this industry to flourish, while simultaneously managing the transition through targeted programmes, such as those aimed at reskilling people currently employed in the coal mining industry,” the economic strategy document states.
Developing local water and renewable energy infrastructure will help to develop skills in the capital equipment industry, retain the current skills and create new businesses and employment. Productive capacity built up can also effectively serve regional infrastructure projects, says Bruggeman.
To gain the most value from exports, funding projects until they start to generate returns is crucial, and this is a key weakness in South Africa’s ability to compete for export projects, he says.
SACEEC is waiting to see how the Africa Continental Free Trade Area will change access to markets in Africa. Funding made available for infrastructure and industrial development by international and African finance organisations is expected to boost opportunities for exporters.
“Local manufacturers looking to export should join the council. This provides access to experienced companies and people in their industry who have been exporting for a long time. Export is a high-risk business with lots of potholes. It is easy to lose money if you are misinformed. Becoming part of a cluster also enables them to receive advice and determine how best to meet their clients’ needs,” adds Bruggeman.
If a local company has its eye on a specific market, it can gain insight from SACEEC members that are exporting to that market to understand its intricacies, and establish itself as a sustainable exporter.
“Improving the local economy is an important step to realise the potential of the local manufacturing industry and seize the opportunities that trade provides to grow competitive and sustainable companies in South Africa,” Bruggeman concludes.