As classified by Statistics South Africa (Stats SA), the chemicals industry forms part of the broader petroleum, chemical products, rubber and plastic products sector which, in 2005, was the largest contributor to the total income of the South African manufacturing industry.
Further, with 153 211 employees, the sector was also the fourth-largest manufacturing employer in 2005, following food products, clothing and metal products.
The production of chemicals can be divided into upstream and downstream activities.
The upstream sector is concentrated, capital-intensive and internationally competitive, with a large export surplus existing for many upstream chemical products.
In contrast, the downstream sector is generally not competitive, as reflected in large trade deficits for most downstream product categories.
Production downstream is more labour-intensive and undertaken by a large number of smaller firms.
Many of the disparities between the upstream and downstream sectors are thought to be a result of an upstream bias originating in apartheid-era industrial policies.
A reversal of this bias is thought to be necessary if the goals of increased beneficiation, value-addition, exports and employment are to be achieved.
According to the Department of Trade and Industry for the three year period 2002/4 the value of chemical exports from South Africa was between R15,7-billion and R19,7-billion a year.
However, imports of pharmaceutical products and raw materials amounted to between R26-billion and R30,5-billion a year, leaving a negative trade balance averaging R11,4-billion a year.
The destination of South Africa’s chemical exports range from neighbouring States in the Southern African Development Community to the European Union (EU), the US, India and Japan.
The chemicals exported can be classified into four subsectors: inorganic chemicals, bulk formulated chemicals, consumer formulated chemicals, and plastic conversion.
Chemicals are traditionally imported from the US, the EU and Australia, although other major players include Mercado Comun del Sur (Mercosur), China, and Taiwan.
The chemicals exporting sector faces challenges that are both tariff and nontariff based. In particular, nontariff barriers (NTBs) include cutting the negotiated tariffs for South African Customs Union products to a value where it is not viable for manufacturers to export to Mercosur.
In many instances, the taxes arising from NTBs can result in the imported chemical costing almost double its original free-on-board price. Some of the significant Mercosur NTBs include reference pricing, merchandise circulation tax, industrial products tax, policy unpredictability, import licensing, antidumping investigations, custom procedures and delays, rules of origin, logistics costs, labelling requirements, standards and intellectual property rights.
IMPORT PARITY PRICING
The local market is hampered by the common practice of import parity pricing (IPP).
The practice involves the inclusion of notional charges (these costs are not actually incurred by the supplier) in the price of the products being traded on the local market.
These costs include shipping, wharfage charges, import tariffs, railage to inland markets and indirect costs of warehousing, payment terms and stockholding.
The practice of IPP is coming under intense scrutiny from the South African government with materials including steel, other metals, and chemicals earmarked for particular attention.
The rehabilitation of the pricing structure in the chemicals industry is vital to the development of the downstream sector and beneficiation projects.
Further, the failure to develop the beneficiation industry in South Africa will only serve to maintain the export of mineral resources for minimal value.
There are currently 80 000 types of basic or pure chemicals available on the international market.
South Africa only manufactures 300 types.
Locally, the pure chemicals that are produced are recorded as being high volume products with a low value.
As much as 95% of the global market is classified as pure chemi-cals or fine chemicals with high value and low volume, thus demon-strating the potential for development.
The Department of Trade and Industry proposes that companies need to place more emphasis on research and development, marketing, diversifying downstream business and strengthening the home base for exports for the industry to develop both its inter-national and local business.
The South African chemicals sector is in a position to benefit from a wealth of mineral feedstock including gold, manganese, chromium, vanadium, copper, antimony, phosphate rock, uranium, fluorspar and titanium.
However, most of the minerals are exported before beneficiation, thwarting possible beneficiation operations that could transform the material into a more finished pro- duct with a higher value.
There is also existing potential for the recovery of chemicals from waste products like copper and aluminium scrap.
However, the diversity of the chemicals sector in South Africa creates an environment in which industry leadership is generally absent and key role players do not speak with a common voice.
It is under these circumstances that allegations of industry representation being focused on major operators to the detriment of smaller interests have arisen.
The culture of the sector is one of low competition that has its roots in a history of industry regulation and protection against imports, which is responsible for the structural inefficiencies present in the chemicals industry.
Further, the growth of the industry is hampered by poor logistical support and a volatile exchange rate.
While it employs a large number of skilled and highly skilled people, the chemicals sector suffers from a skills shortage that has seen the recruitment of engineers, welders and other tradespeople from outside the country.
The Chemical Industry Education and Training Authority has identified scarce skills for development, including artisans, research and development science, metrology and operational supervision. A sector skills plan for the chemi- cals industry is in place to further develop the industry.