Designation of valves may increase production, stem imports

10th May 2013

By: Yolandi Booyens

  

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Valve manufacturers may have the opportunity to greatly increase production, as the flood of imported valves could be stemmed, owing to a decision by the Department of Trade and Industry (DTI) to designate valves for local procurement.
This designation will give valve manufacturers the ability to greatly increase production capacity in future, states local Valve and Actuator Manufacturers Cluster of South Africa (Vamcosa) co-champion Mark Wilson.

The DTI has been investigating the desig- nation of sectors within the engineering industry for the last two years, with the process finally signed off by Trade and Industry Minister Dr Rob Davies on January 29.

All State-owned enterprises (SOEs) will receive an instruction note from the National Treasury regarding the workings of the procurement process. “In essence, all valves, manual gearboxes and pneumatic actuators will require a minimum of 80% local content,” states Vamcosa champion Ross Hunter.

He points out that castings and forgings also form part of the local-content designation, which creates opportunities for local manufacturers to increase their product ranges and, in many cases, to take advantage of economies of scale to reduce costs.

Wilson states that the goals of job creation; skills development; industry transformation, greater technical service backup, owing to proximity to the customer and increased control over cost of ownership; as well as the drive to increase the industry’s capability to export, drove the decision to designate valves for local content.
“Based on information gained from other previously designated sectors, valve manufacturers should see production increases within six months and experience the full impact of local designation within a year,” Wilson notes.

He highlights that South Africa has the skills to accommodate the manufacturing of high volumes of valve products. “There is much experience among local manufacturers, even though we have lost many of our artisans to emigration.”
Further, Wilson explains that SOEs can only apply for an exemption from procuring local content for products when the local market cannot, or chooses not to supply, local content. “This will be on a case-by-case basis only,” he notes, highlighting that “justification will have to be given to the DTI to obtain an exemption”.

“Poor planning and unrealistic specifications will not be grounds for exemption,” Wilson stresses, adding that, currently, there are no incentives for companies that comply with local designation.

Localisation, however, will benefit the whole country on a myriad of levels, such as service backup and the control of life-cycle costs, which should be a great incentive for other industries such as mining, which is experiencing increasing pressure on its margins.
Initially, valve designation will cause constrained capacity, as manufacturers, foundries and other raw-material suppliers will have to upscale to meet the increase in local demand. “To help alleviate this, Vamcosa is engaging with SOEs about the technical challenges and planning for future projects,” Wilson says.
The increase in sustainable job creation, taking into account a reduction in unemploy- ment, including the creation of indirect up- and downstream jobs; a growing tax base and a platform for skills development will be good for South Africa’s economy, he stresses.

Government had deployed a range of complementary and integrated measures to grow the economy and create jobs, the DTI stated in a media release in April.

The upscaled Industrial Policy Action Plan (Ipap) 2012/13 to 2014/15, which was released by the DTI in April 2012, is one of the key pillars of this broader approach.

It builds on the National Industrial Policy Framework and represents the fourth yearly iteration of the first Ipap, which was launched in the 2007/08 financial year.

Each year, the DTI launches a revised three-year rolling Ipap, with a ten-year outlook, in the context of rapid economic change and significant global uncertainty. This had proved to be a robust formula, which allowed the continual scaling up of interventions and sufficient flexi- bility to respond to change, the DTI added.

“The implementation of successive versions of Ipap has resulted in significant achievements and the ongoing scaling up of interventions to retain, grow and diversify South Africa’s industrial base.

“Key achievements registered to date in sectors such as automotives, clothing, textiles, leather and footwear, and business-process services demonstrate that well-designed industrial policy interventions can benefit South Africa,” the DTI noted in the media statement.

The policy includes significant interventions in three clusters of sectors. The first, including metals fabrication, capital and transport equipment, green and energy-saving industries and agroprocessing are qualitatively new areas of focus for Ipap.

The second area of focus, sees the upscaled Ipap build on and broaden interventions in the sectors which were identified in the first Ipap, namely automotives and components; medium and heavy vehicles; plastics, pharmaceuticals and chemicals; leather; biofuels; forestry, paper and pulp, furniture, creative and cultural indus- tries and business-process services.

The third cluster focuses on the sectors in which South Africa has the potential to develop long-term advanced capabilities, namely those of nuclear, advanced materials, aerospace and defence, electrotechnical, and information and communication technology.

The new Manufacturing Competitiveness Enhancement Programme (MCEP) is set out in the Ipap 2012/13 to 2014/15 for the first time. Finance Minister Pravin Gordhan designated R5.8-billion over the three-year medium-term expenditure framework period for this programme.

The MCEP seeks to generate much greater confidence among manufacturers to invest to see out the current period of significant economic uncertainty and emerge much more competitively from it.

The MCEP will be deployed towards upgrading the competitiveness of relatively labour-intensive and value-adding manufacturing sectors impacted on by the South African currency, the global economic crisis and electricity-cost escalations.

Ipap also contains a new section on special economic zones (SEZs). Draft legislation for SEZs sets the basis for a broader range of industrial parks and economic infra- structure provision for effective clustering of value-adding and employment-enhancing manufacturers.

A new section on regional integration contains a range of programmes that give effect to government’s commitment to support regional economic development and integration in the Southern African region and beyond.

Ipap is fundamentally a policy and action plan designed to help build South Africa’s industrial base in critical sectors of production and value-added manufacturing. It is, therefore, designed to deal with the decline in South Africa’s industrial and manufacturing capacity and contribute to the reduction of chronic unemployment, the DTI said in the statement.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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