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Manufacturing in the mining industry can yield economic growth

27th June 2014

By: Zandile Mavuso

Creamer Media Senior Deputy Editor: Features

  

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South Africa’s National Development Plan emphasises the critical and indispensable role of manufacturing as a key driver of economic growth, and a segment in which this country could achieve greater outcomes is the manufacture of mining equipment. There are caveats, though: better policies must be adopted and manufacturing competences prioritised.

During the Manufacturing Indaba, held in Johannesburg last month, University of Cape Town business-government relations professor David Kaplan highlighted the international competitiveness of South Africa’s mining equipment sector, which boasted high-technology content, high-end manufacturing and high-end services. The country had also gained international renown in the provision of mining-related specialist services.

“We have technological competences and very good firms which even expand their manufacturing expertise abroad. This is the area in which we’re doing extremely well and, as a result, are also competitive. There are inter- national mining companies that want the best technology available for their operations and they all turn to South Africa to provide that technology,” he added.

Supporting this notion was South Africa-based underground mining equipment manufacturer Joy Global director Matimba Mahange, who said at the event that Joy Global prided itself on having provided equipment for underground mining operations for the last 60 years.

“With our team comprising South African engineers who have developed and manufactured underground mining equipment for years, we can proudly say we stand at the forefront internationally [in terms of] the equipment that we supply to mining companies internationally,” he added.

While certain stakeholders praised South Africa’s manufacturing capabilities, multi- national corporation Barloworld Equipment South Africa CEO Emmy Leeka expressed concern that South Africa was exporting most of its commodities and buying them back as products from foreign countries.

This view was supported by consulting company Deloitte corporate finance leader Deven Govender, who said: “Almost 80% of what is procured as material to produce products is derived from the South African mining industry. However, output from mining is generally exported as raw material and processed in a foreign country, which South Africa then imports as finished products.”

Citing South Africa’s Mining Charter, Leeka pointed out that, because South Africa was well endowed with commodities, the bulk of the raw materials had to be beneficiated locally to promote economic growth. He said that, despite this stipulation, most of South Africa’s raw materials were exported to countries such as China for beneficiation, which defeated the purpose of the Industrial Action Plan (Ipap) and undermined the country’s beneficiation drive.

The Ipap 2013/14 to 2015/16 aims to strengthen the alignment and coordination of industrial development, trade policy, investment and export promotion, incentive support and enterprise development in South Africa.

Ipap also aims to strengthen and deepen sector plans by contributing to intragovernmental alignment and coordination across a range of action plans where other government departments have a shared responsibility.

Moreover, Ipap notes that manufacturing has a vital role to play in “dynamising” employment and growth in the economy. As a result, government, through the Department of Trade and Industry, has stipulated that industrial policy should be framed and driven by a particular focus on value-adding sectors that embody a combination of relatively high employment and high-growth suppliers.

Meanwhile, government states that bene- ficiation aims to advance development by optimising linkages in the minerals value chain, facilitating economic diversification and job creation, as well as through industrialisation.

Beneficiation also aims to expedite progress towards a knowledge-based economy and contribute to an incremental domestic product growth in mineral value addition per capita, in line with the vision outlined in the New Growth Path, the National Industrial Policy Framework and the Advanced Manufacturing Technology Strategy.

In a document titled ‘A beneficiation strategy for the minerals industry of South Africa’, released in June 2011, government highlights that the concept of beneficiation in South Africa is not new. The document states that, as an example, the bulk of the country’s electricity is generated from coal-fired power stations which consume more than 50% of the country’s yearly production of coal. Consequently, the country’s economic growth has been sustained over an extended period, as a result of the globally cost-competitive form of electricity fuelling economic growth and creating jobs.

The document further notes that new forms of beneficiation opportunities are sought to complement the conventional electricity generation in the country, which will underpin much-needed economic growth. For instance, alternative sources of energy, such as platinum- group metal fuel cells, present an opportunity for South Africa to become a prominent player in global manufacturing and distribution of fuel-cell components.

Further, South Africa’s coal-to-liquid technology augments the need for the country to invest in research and technology in this sector, which will hopefully enable the country to discover innovative means of optimising mineral resources for the benefit of the country.

South Africa’s endowment of mineral resources merely presents the country with a comparative advantage to develop downstream beneficiation. However, based on South Africa’s historical mineral industry strength, there is potential to attract and develop technological excellence in minerals-related industries to support sidestream and downstream value addition, the document points out.

Owing to this, the South African mining sector has undergone a noteworthy transformation from largely exporting raw minerals to establishing value-addition facilities such as mineral processing and manufacturing. This has resulted in increased revenues from the ferrous and nonferrous minerals sectors, with total yearly sales of ferroalloys (representing a percentage of input ores produced in South Africa) exceeding R49-billion in 2008, from a base of R44.98-billion from all ores of ferrous minerals sales generated in the same year.

This transition has partly resulted in the construction of several large-scale resource- based investment projects, such as stainless-steel producer Columbus Stainless Steel, Western Cape steel mill Saldanha Steel and the Glencore-Merafe-owned Lion ferrochrome smelter, besides others.

Government states that this demonstrates the country’s state of readiness for value addition, albeit in a less orderly manner currently. The strategy aims to streamline the value-addition programmes in South Africa and expedite further development of the steel sector.

Despite government’s bid to prioritise beneficiation, Kaplan noted that what would drive economic growth in South Africa was a renewed focus on supporting and embracing technological competences in manufacturing, rather than focusing on beneficiation, which the country might not be well equipped for.

“According to South Africa’s Department of Mineral Resources, beneficiation, or value- added processing, is the transformation of a primary material to a more finished product. It involves everything from large-scale, capital- intensive activities to labour-intensive pro- cesses,” said Kaplan.

He further explained that, while South Africa had a wealth of chrome and platinum reserves, the country’s ability to mine chrome might be very different from the capabilities required to make knives, forks and spoons.

Kaplan made it clear that he was not arguing against beneficiation, but that choosing which to prioritise between competences and beneficiation was important.

“Just because we have the raw material does not mean we can assume that we should implement the next phase. The next phase of production should be considered only if there is a considerable cost advantage, which, in the case of most minerals, there is not.”

Govender supported this view and highlighted South Africa’s chrome mining and processing abilities as an example. He estimated that South Africa could gain about R16 000 in revenue for every ton of chrome it produced as raw material. However, if South Africa decided to process chrome, and moved on to the next phase of devel- opment, which was ferrochrome production, it could get a little over R9 000 for each ton.

“This highlights our competence in producing and exporting raw materials, which is much more beneficial than beneficiating them,” he indicated.

Govender emphasised that it was important for the State to consider the economy as a system – which comprised the mining, input and output phases and, eventually, the production of the raw materials. While this was a system, a lot depended on how it was framed to ensure economic growth.

“Government needs to think about how industrial policy can encourage the manufacturing competence we already have in the mining sector, investigate what makes manufacturing in that sector proficient and how these competences can be distributed into other industries to benefit manufacturing holistically,” noted Kaplan.

He added that with South Africa’s existing technological advancement in manufacturing for the mining industry, it was industry’s and government’s responsibility to explore ways of expanding the innovation and competences of mining to other industries.

Govender added that government should also consider the potential for small to medium- sized enterprises (SMEs) to grow through expanding innovation and competences to other industries.

“Also, this provides an opportunity for the emergence of entrepreneurs who could identify a gap in the manufacturing sector, which can be exploited using skills that they could provide,” he highlighted.

Govender concluded by noting that private companies and entrepreneurs could assist SMEs and upcoming entrepreneurs by pro- viding them with industry knowledge and also considering ways in which the private sector and entrepreneurs could support one another to drive economic growth.

Edited by Creamer Media Reporter

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