South Africa: investment sectors

8/14/2019 South Africa: investment sectors

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Think invesTmenT.

Think souTh AfricA

secTor informATion

DAVOS 2010

JANUARY 27 - 31


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1. BAckGrounD

South Arica is an integrated and responsible member o the global community. South

Arica enjoys preerential market access into traditional markets like the EU and US,

but also into emerging new poles o demand like India and soon with China. We

transormed the economy through undamental macro-economic reorms and created

the enabling environment or the majority o South Aricans to participate in the

mainstream economy. Today over 70% o GDP is now derived rom manuacturing

and services. Direct mining now contributes around 6% to GDP. We have created more

than three million new jobs since 2004. O course, we have a long way to go still in the

area o unemployment. The position we have today has been achieved through sound

scal management, consistent and coherent policy ormulation and implementation.

It is with this same rigour and well thought out policies that South Arica is coming out

o this global economic crisis.

Between 2006 and 2010 Government will invest more than $59billion in catalytic

interventions in inrastructure, rom rail reight services, energy production, tocommunications, airports and upgrading o ports o entry. South Arica remains a global

leader in the resources sector and our industrial policy will seek to enhance beneciation.

Special emphasis is being placed on labour intensive sectors and in diversiying

competition. We are prioritising those sectors that will maximise the multiplier eect

on downstream industries. Now is a very good time to position and prepare or the

upswing, with continued investments and expansions taking place in South Arica and

the continent despite the backdrop o global economic downturn, which now seem

to display tentative signs o recovery. In this regard South Arica oers amongst others,

additional opportunities in the Agro-processing, Automotives, Chemical and allied

industries, Business Process Outsourcing and IT enabled services, Electro-technical,

Tourism as well as Aerospace, rail and marine sectors o the economy.

The Arican continent has been the least eected rom the global nancial crisis and

investments here have been secure. The new global economic order must see Arica

at the centre and not on the periphery. As the richest continent on the planet in terms

o resources, it is an economic and social imperative that Arica be an integral player in

turning the global ortunes around. The operating environment in the continent has

been improving visibly and rapidly with:

54countries,35democracies(comparedtoonlyeightin1991)

Manycountrieshaveimprovedtheirbusinessenvironment:

restoredmacro-economicstability

greaterpredictability&increasedreliabilityofpolicy&regulatoryframework

increasedtransparencyandimproveddecision-making privatisationinitiatives

reducedcorruption

investmentprotection&promotion

intraandinter-regionalinitiatives

Highreturnsoninvestment

TheonlyglobalregionforwhichahigherrateofgrowthwasforecastbytheIMF

for2007&2008(relativeto2006)


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2. LeAD secTors

Capital/TransportEquipment&Metals

The South Arican capital equipment, metal abrication and transport equipment

sectors have developed important capabilities based on South Aricas airly diversied

industrial base and long history o industrialisation. Technological leadership has been

achieved in a range o niche areas related to capital equipment or the mining sector,

such as valves and pumps.

There is a major opportunity to grow these industries through the public expenditure

programme in energy and transport as well as the current mining and mineral processing

boom.However,this requiresa coordinatedefforttomatchpublicinvestment and

operational expenditure to the upgrading o domestic suppliers. As much as possible o

this opportunity will be leveraged without compromising the cost or quality o public

investments.Miningandmineralprocessinginvestmentsandreplacementexpenditure

also represent a major opportunity to grow these industries.

AutomotiveAssembly&Components

The automotive industry is South Aricas leading manuacturing. Our vision or 2020 is

to double production levels to 1.2 million units, with a much stronger development o

thelocalcomponentmanufacturing.DrivenbytheMIDP,thesectorhasrestructured,

rationalised and almost doubled in recent years.

Due to its synergies with several sectors such as metals, leather, textiles and plastics, the

automotive sector has a strong linkage eect with the broader manuacturing sector.

There has been signicant growth in important component sectors such as leather seat

covers, silencers, exhausts and catalytic converters.

South Arica currently exports vehicles to over 70 countries, mainly Japan, Australia,

the UK and the US. Arican export destinations include Algeria, Zimbabwe and Nigeria.

All o the major vehicle makers are represented in South Arica, as well as eight o

the worlds top 10 auto component manuacturers and three o the our largest tyre

manufacturers.ManyofthemajormultinationalcompaniesuseSouthAfricatosource

components and assemble vehicles or both the local and overseas markets.

Chemicals,PlasticFabrication&Pharmaceuticals

The South Arican chemical sector is diverse and complex. On the one hand it comprises

a well-developed upstream industry Basic Chemicals and Other Chemicals withthe ormer being highly capital-intensive. On the other is the more labour-intensive

downstream Plastics industry.

Producers o the chemicals sector invest around R2 billion annually in upgrades,

with less than 1% o sales being spent on research and development. Around 60% o

upstream chemicals are consumed within the chemical pipeline as eedstock.

The chemicals and metals sectors are the basis or almost every manuacturing activity.

It is thus a crucial industry rom the perspective o South Aricas growth path or

advancing socio-economic development objectives.

The development o the chemicals sector has two major elements: rst, to promote

beneciation o minerals into primary products or exports and also to provide

eedstock into higher value-adding manuacturing activities; and second, to promote

downstream abrication o polymers, thereby creating more jobs and adding signicant

value.


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MajormarketsforSouthAfricanexportsinprioritysub-sectorsareasfollows:

Inorganicchemicals:US,India,FranceandGermany;

Bulkformulatedchemicals:Zimbabwe,Zambia,MalawiandTanzania;

Consumerformulatedchemicals:Angola,Mozambique,UKandZambia;and

Plasticconversion:Zambia,Zimbabwe,ChinaandMozambique.

Forestry,Pulp,Paper&Furniture

Because orestry and the primary processing activities take place largely in rural

areas, it has the potential to increase jobs and income in poor rural communities.

The orestry sector strategy provides or the aorestation o 100,000 hectares net increase

inplantedareaoverthenexttenyearsintheEasternCape(EC)and40,000hectarein

KwaZulu-Natal(KZN).ThisrepresentsaninvestmentinforestryinexcessofR1.5billion,

with urther substantial investments in downstream processing enterprises.

It is estimated that the new aorestation has the potential to contribute R215 million to

GDP and create 26,000 jobs at plantation level and 1,700 at primary processing level in

EC. In KZN it will contribute R500 million to GDP and create 15,000 jobs at plantation

level and 429 at primary processing level2.

In order to realise growth in this sector, Government has committed itsel to expediting

the aorestation licensing process, the conrmation o land rights or land holding

communities, technical and nancial support or emerging small growers and

improvements to transport inrastructure.

ICTandElectronics

TheICT&Electronicssector,withitskeysub-sectorsofelectronics,electricalengineering,

inormation technology and telecommunications, is an important global sector. The

sector has an important role to play in the South Arican economy because o its direct

contribution to high value production and highly skilled employment, as well as its

contribution to increasing the competitiveness and value-add o related sectors such as

automotive, deense, power generation and distribution, and aerospace.

Theleaderofinformationandcommunicationtechnology(ICT)developmentinAfrica,

South Arica is the 20th largest consumer o IT products and services in the world.

As an increasingly important contributor to South Aricas gross domestic product

(GDP),thecountrysICTandelectronicssectorisbothsophisticatedanddeveloping.South Aricas IT industry is characterised by technology leadership, particularly in the

eld o electronic banking services. South Arican companies are world leaders in pre-

payment, revenue management and raud prevention systems, and in the manuacture

o set-top boxes, all exported successully to the rest o the world.

Several international corporates, recognised as leaders in the IT sector, operate

subsidiaries from South Africa, including IBM, Unisys, Microsoft, Intel, Systems

ApplicationProtocol(SAP),Dell,NovellandCompaq.

With a network that is 99.9% digital and includes the latest in wireless and satellite

communication, the country has the most developed telecoms network in Arica.

The South Arican telecommunications market is the largest in Arica, both in terms

o customers and revenues. The market is growing consistently and substantially.

South Aricas ICT products and services industry is also penetrating the ast-growing

Arican market. South Arican companies and locally based subsidiaries o international

companies have supplied most o the new xed and wireless telecoms networks that

have been established across the continent in recent years.


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3. ASGI-SASECTORPRIORITIES

BusinessProcessOutsourcing&Offshoring

TheglobalBusinessProcessOutsourcingandOffshoring(BPO&O)industryisforecastto

growat50%perannum(equivalenttogrowthofbetween$90billionand$100billion)

over the coming years. A window o opportunity exists or South Arica to become

a signicant global player in the industry through an appropriate value-proposition

based on a high-quality yet cost-eective oering.

It is estimated that the sector has the potential to create up to 100,000 new jobs in

SouthAfrica(25,000directand75,000indirect)by2014.

Tourism

South Arica is one o the worlds astest growing holiday destinations. The country is well

known or its scenic beauty, magnicent outdoors, sunny climate and cultural diversity.This and its reputation or delivering value or money has resulted in a phenomenal

tourism growth.

Tourism is one o the ve priority economic sectors that government has chosen to

ocus its eorts to support investment and acilitate growth. Tourism plays a meaningul

role in contributing to the economic development o South Arica. Since 1994, tourism

growth has been exceptional

Tourism is perorming well relative to other priority sectors. South Arican tourist arrivals

have grown eight-old since 1990 and continue to outperorm global tourism growth.

This exceptional growth has been primarily driven by Arica land arrivals and otherregionsindicatingpositivegrowth.Hence,tourismisoftenreferredtoasthenewgold

o the South Arican economy, partly due to the above and also because the total

oreign direct spend o tourists have overtaken gold oreign exchange earnings.

Biofuels

The biouels industry in South Arica has substantial potential to assist in addressing

important economic and social challenges. Internationally the biouels industry is

growing rapidly, due chiefy to a combination o higher oil prices, mounting concerns

regarding the environment, and government policies, regulations and incentives that

support this renewable uel source over ossil uels.

The Biouels Strategy aims to achieve an average biouels market penetration o 4.5%in liquid fuels (petrolanddiesel)by2013. Thedevelopmentofabiofuelsindustry

will have enormous economic benets. It will stimulate small-scale and cooperative

arming practices in rural areas, creating up to 55,000 job opportunities. It will generate

macro-economic benets as increased use o biouels will reduce our dependence

on oil imports. It is estimated that about R2 billion per annum will be added to GDP.

As a renewable energy source, biouels will also contribute 75% towards our 2013

Renewable Energy targets o 10,000GWh.


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Clothing&Textiles

Since 1994, over US$1bn has been spent on upgrading and modernising South Aricas

textile, clothing and ootwear industry, making it ecient and ready to compete

internationally. South Arican market demand increasingly refects the sophistication o

developed markets, and the local textile and clothing industry has grown accordingly

to oer the ull range o services, rom natural and synthetic bre production to non-

wovens, spinning, weaving, tuting, knitting, dyeing and nishing. With technological

developments, local textile production has evolved into a capital-intensive industry,

producing synthetic bres in increasing proportions.

Although the industry is still relatively small, it boasts some impressive results in world

markets:

LocalyarnmanufacturerSansFibressupplies80%ofthesewingthreadusedin

the worlds apparel sewing operations. LocalfabricmillGelvenorTextilessuppliesmorethan50%oftheworldsdemand

or parachute abrics.

LocalsuitmanufacturerHouseofMonatichasdelivereditsonemillionthsuitto

the UK market.

Several actors make the prospect o investing in South Aricas textiles, clothing and

footwearmarketattractive.Mostsignicant,perhaps,isthefactthatSouthAfricahas

trade agreements with the EU and the US, whereby the country enjoys a 17.5% duty

advantage. In the case o the US, textile exports have increased by 62% since the advent

oftheAfricaGrowthandOpportunityAct(Agoa).SouthAfricawillsoonalsohave

preferentialaccesstotheSADCregion,thankstotheSADCFreeTradeAgreement,

whichwillbeinfulloperationin2008.

Other competitive advantages or the sector lie in competitive labour costs and the

ready availability o natural bre raw materials. South Arica produces in the region o

40,000 tonnes o cotton a year with above world average lint, providing the potential

or the local cotton pipeline to become increasingly export-oriented. Cotton bre and

yarn can also be imported rom the SADC region to supplement production or Agoa

purposes.

South Arica has the raw materials needed to produce any type o ootwear, rom

low end to high end. Bovine, ostrich, Nile crocodile, game leather, textile and PVC

and PU synthetic raw materials can all be sourced locally without diculty. South

Arica is successully growing and processing natural bres such as fax and hemp, inresponse to increasing demand rom the automotive and aeronautics industries or

environmentally riendly body parts. South Arica is the worlds largest mohair producer

and the th largest producer o wool.


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4. OTHERKEYSECTORALPROJECTS

Diamondbeneciation&jewellery

The world market or uncut stones is valued at US$13.4 billion per year. Diamond-

producing countries in southern Arica are thereore looking to bridge that gap by

promoting local beneciation to ensure a bigger share o the downstream prot

(cuttingandpolishingaddsapproximately50%tothevalueofroughstones),aswellas

much needed employment creation.

InFebruary2006,CabinetpassedtheDiamondsAmendmentAct,aimedatpromoting

local value addition and eliminating loopholes in the law that had enabled companies

to export rough diamonds duty ree.

The Act makes provision or the local supply o rough diamonds through the

establishmentoftheStateDiamondTrader(SDT),withthepowertopurchase10%of

mine production in order to improve access to rough diamonds or local beneciators.Furtherlegislativeamendmentsincludetheintroductionofbeneciationlicensesfor

control purposes and a reduction o the export duty to 5%. The key thrust o this policy

is to increase locally beneciated diamond production rom 3% to at least 10 per cent

o rough diamond production.

A major objective is to grow and advance South Aricas cutting and polishing capacity

in order to position South Arica as a globally competitive diamond-producing

country. Development strategies in the sector aim to create a more enabling business

environment through the creation o diamond and jewellery hubs, addressing access

to capital, and the provision o incentives to attract manuacturing investment, as well

as training and skills development initiatives.

Agro-processing

South Aricas dual agricultural economy comprises a well developed commercial

sector and a predominantly subsistence-oriented sector in the rural areas. About 12%

ofSouthAfricassurfaceareacanbeusedforcropproduction.Highpotentialarable

land comprises only22% of total arable land. Some 1.3m hectares(ha) areunder

irrigation. This amounts to about 1.5% o South Aricas agricultural land.

The country can be sub-divided into a number o arming regions according to climate,

natural vegetation, types o soil and the type o arming practiced. Agricultural activities

range rom intensive crop production and mixed arming in winter-rainall and high

summer-rainall areas, to cattle-ranching in the bushveld, and sheep arming in more

arid regions.

There are strong backward and orward linkages into the economy, with the agro-

industrial sector is estimated to comprise about 15% o GDP. Today, South Arica is not

only sel-sucient in virtually all major agricultural products, but in a normal year it is

alsoanetfoodexporter.Majorimportproductsincludewheat,riceandvegetableoils.

Despite the arming industrys declining share o GDP, it remains vital to the economy

and the development and stability o the southern Arican region. Over the past ve

years,agriculturalexportshavecontributedonaverageabout8%oftotalSouthAfrican

exports.

Normally, South Arica is a net exporter o agricultural products in rand value. The largest

exportgroupsarewine;citrus;sugar;grapes;maize;fruitjuice;wool;anddeciduousruits, such as apples, pears, peaches and apricots. Other important export products are

non-alcoholic beverages, ood preparations, meat, avocados, pineapples, ground-nuts,

preserved ruit and nuts, hides and skins, and dairy products.


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Film&Television

The ASGI-SA prioritises cultural industries because o their potential contribution to

nation-building and South Aricas international image and because they can support

employment creation in tourism as well as in production o cultural goods and services.

It is estimated that the sector employs around 20,000 people directly in broadcasting,

lm, commercials and other media related companies.

Although the South Arican lm industry has a long history, until 1994 it was largely

characterised by an inward-looking and culturally exclusive production structures.

The opening up o the political, economic and cultural systems saw the development

o new challenges and opportunities or the industry. An increasing number o eature

lm, television and documentary productions and commercials have been produced

in South Arica since 1994, which has had a positive impact in the local industry.

Documents

South Africa: investment sectors