INDUSTRIAL POLICY ACTION PLAN

Economic sectors, employment and infrastructure development cluster

2018/19 - 2020/21

Economic Analysis
10-year Legacy Review
Key Constraints on Industrial Policy
Transversal and Sector Focus Areas with Key Action Programmes

towards full-scale industrialisation and inclusive growth

the dti Customer Contact Centre: 0861 843 384
Website: www.thedti.gov.za
© Department of Trade and Industry, May 2018
Photos are courtesy of the dti image library

the dti Campus

77 Meintjies Street
Sunnyside
Pretoria
0002

the dti
Private Bag X84
Pretoria
0001

the dti Customer Contact Centre: 0861 843 384

the dti Website: www.thedti.gov.za

ISBN: 978-0-621-46268-5
RP: 109/2018
Contents

FOREWORD BY THE MINISTER OF TRADE AND INDUSTRY.....................................................................................................................................................................................................4

A MESSAGE FROM THE DIRECTOR-GENERAL..........................................................................................................................................................................................................................9

IPAP IN CONTEXT: ECONOMIC ANALYSIS................................................................................................................................................................................................................................10

10 YEARS OF IPAP: A LEGACY REPORT...................................................................................................................................................................................................................................28

KEY CONSTRAINTS ON INDUSTRIAL POLICY .........................................................................................................................................................................................................................50

TRANSVERSAL FOCUS AREAS .................................................................................................................................................................................................................................................56

SECTORAL FOCUS AREAS: 1...................................................................................................................................................................................................................................................106

SECTORAL FOCUS AREAS: 2...................................................................................................................................................................................................................................................155

the dti KEY PARTNERS AND TECHNICAL SUPPORT INSTITUTIONS .................................................................................................................................................................................190

KEY PARTNER INSTITUTIONS.............................................................................................................................................................................................................................................191

TECHNICAL SUPPORT INSTITUTIONS...............................................................................................................................................................................................................................193

the dti | IPAP: 2018/19 – 2020/21

 4

FOREWORD BY THE MINISTER OF TRADE AND INDUSTRY Industrial policy has traditionally placed a strong emphasis on the manufacturing sector,
precisely because of such spill-over effects, and in terms of production disciplines, the mastery
Dr Rob Davies MP
of new technologies and ultimately design capabilities. However, the boundary between what
This is the tenth annual iteration of the Industrial Policy Action were historically considered primary sectors, such as mining and agriculture, and manufacturing
Plan (IPAP) and the last of the present administration. In industries and the services sectors, is becoming increasingly blurred.
addition to providing an economic analysis of prevailing global
For example, the process of producing high-value agricultural produce on large scale for
and domestic economic conditions relevant to industrial policy;
exports has become extremely technologically complex; more so than some manufacturing
time bound action plans and programmes across a range of
processes. Similarly, the mechanisation and digitisation of deep-level and above-ground mining
sectors and listing the key constraints to an optimal industrial
processes require the mastery of complex industrial capabilities, including many technologies
strategy, IPAP 2018 provides a summarised Legacy Report
and disciplines associated with the digital industrial revolution. In a nutshell, many primary
covering progress over the ten years of its existence.
sectors have become industrialised, and with time this will become even more the case.
The occasion also gives us a useful opportunity to reflect on the implementation of IPAP in
In addition, core to South Africa’s industrial policy is the objective of transforming the racially
the period since the adoption of the National Industrial Policy Framework (NIPF) and the
skewed ownership, management and employment profile of the economy. The synergies
experience of implementing successive, updated Action Plans over the course of one decade.
between industrial policy and transformation are obvious. If a product is imported, there is no
Industrial policy has the over-arching objective of enhancing the productive capabilities of the possibility of building a transformed supply chain. Industrial policy needs to make a concerted
economy. In other words, industrial policy aims to increase the economy’s ability to produce effort to ensure that support for investment is integrated with support for transformation. For
more and more complex and high value-added products with greater efficiency. In simple terms, example, the Black Industrialist Programme provides significant grant finance for investment in
this means to produce more value using less resources. Building the economy’s industrial new plant, provided that the enterprise has at least a 50% black shareholding and/or exercises
capabilities is a continuous and long-term endeavour and technologies continuously evolve. control over the business.1

The key challenge to industrial policy is to incentivise investment in plant, technologies and In addition, then, to these matters of context, the following observations are critical, in our view,
skills that would have medium to long term benefits to the economy, but which the market would to the future of a successful domestic industrial strategy.
screen out because there is lower hanging fruit for short term returns. Industrial investment in
targeted technologies and sectors spills over to the rest of the economy, resulting in generalised Basic economic service delivery
productivity improvement and increased welfare. Firstly, basic economic service delivery needs to be in place for there to be effective industrial
policy: As is now very widely accepted, the institutional failure that derives from pervasive
corruption and rent-seeking in key SOCs must be rooted out from top to bottom.

1. Other criteria:
• Provides strategic and operational leadership to the business;
• Is entrepreneurial and takes personal risk in the business;
• Does business in manufacturing and related sectors, with particular reference to IPAP and IDC focus areas;
• Makes a long-term commitment to the business and is not a short- to medium-term investor.
 5

On the supply side, SOCs must play a key enabling role in support of the general economic Industrial policy in the global context
and industrial effort by providing competitive and efficient electricity, rail and port logistics. On The global context remains critical. The past decade of implementing South African industrial
the demand side, they must support localisation, supplier development and black economic strategy needs to be understood in relation to the global financial crisis of 2008-2009 and the
empowerment. Urgent attention must be given to the institutional renewal of public-sector extended economic crisis which flowed in its wake. The ensuing slump in global demand for
monopolies which have been responsible for significant import leakages, debilitating and many of South Africa commodities resulted in a slowing down of exports and investment in
unsustainable increases in electricity, rail and port costs and attendant inefficiencies. South Africa. In addition, surplus global capacity in the production of many key commodities
has created huge challenges for South African industry.
Institutional coordination
For example, in the steel sector an inter-governmental task team was formed to deal with a
The realities of institutional coordination need to be carefully considered. Industrial policy
crisis in the industry, through the judicious deployment of a range of industrial policy measures.
rests on multiple foundations and must embrace a complex set of interlocking and mutually
While internationally recognised as a model of government-industry-labour social dialogue, it
supportive policies and programmes, held together by the vision set out in the National
was essentially a holding action. Much more still needs to be done to ensure that SA’s domestic
Development Plan.
steel production is globally competitive and supports an increasingly globally competitive,
On the one hand, industrial policy must be a policy of the whole of government and not just value-adding, technology-intensive downstream sector.
one or two departments. Policy coherence and programme alignment are a precondition for
Industrial Policy is by its nature an iterative process: the building of industrial capabilities is
successful industrial interventions.
a step-by-step process. It is not possible for an economy to master highly advanced and
On the other hand, the reality is that building institutional capability and coherence is a slow, complex industrial capabilities, if basic and intermediate capabilities are not in place. This
hard job, particularly given the unevenness of existing capabilities across the South African means that policies need to continually adapt to developments in every industrial sector.
state.
The key to industrial policy is thus how effectively it can adapt to a very dynamic environment.
This being so, the only practical way to implement effective industrial policy is to ‘learn by In the case of the automotive industry, for example, SA has made enormous progress in
doing.’ An optimal industrial effort requires carefully designed and calibrated policy, against establishing a globally competitive, export-rich automotive sector. But the global market
the background of increasingly uncertain, volatile – and often potentially hostile - global requires constant innovation and creativity, and so our efforts in the sector cannot stand still.
market conditions. This effort must, of necessity, address both the structural fault-lines and the
Consequently, the past year has seen the development, in collaboration with the automotive
evolving dynamics of the domestic political economy; and it must encompass development-
industry, of a 2020 Automotive Masterplan to drive the development of supplier industries to
and investment-friendly ‘smart’ regulation.
the Original Equipment Manufacturers’ assembly plants and secure greater levels of black
In the absence of policy certainty, fragmentation in government, wilful non-compliance and economic empowerment. These will be the preconditions for ongoing public-sector support to
corruption in private and public-sector institutions - all these and more - inevitably lead to sub- the industry.
optimal outcomes.

the dti | IPAP: 2018/19 – 2020/21

6

Partnership with the private sector Mining companies in particular have a strong interest in the building of industries that use new
Industrial policy is ultimately about promoting investment by the private sector in new industrial platinum applications. Consequently, the mining industry, through deploying key dti incentives,
capabilities. is playing a leading role in the development of new applications and markets for fuel cells in
South Africa.
One of the key principles that government is drawing on is to form conditional collaborative
partnerships with private sector companies that show substantial commitment to invest in On the back of several years of collaborative work and effort, we are pleased that mineral-based
areas that are aligned with policy objectives. energy solutions like fuel cells and energy storage are gaining momentum, with a number of
key projects already being implemented by government, the IDC and the industry. These hold
For example, work in the mining sector has given rise to a comprehensive research and out very significant opportunities for South Africa. For example, the use of non-petroleum fuels
development programme, in partnership with key players in the underground mining sector. is driven by the global response to climate change and greenhouse gas commitments, with
This will develop a new suite of technologies capable of mining at below four kilometres strong indications that fuel cells will be the future - especially for long-distance and heavy
underground; but it will also focus on localising the design and manufacture of these vehicle transport.
technologies in South Africa, at the same time as putting in place measures to ensure that
displaced workers are re-employed elsewhere. In addition, fuel cell mining equipment offers important health and safety benefits compared to
diesel and electric options in underground mining applications.
The Realities of Beneficiation
Ongoing fuel cell projects include development of bus, forklift and mining equipment prototypes,
From a beneficiation point of view, the comparative advantage of mining product in South stationary combined heat and power applications and rural electrification projects. Localisation
Africa is ultimately determined by the logistical costs of getting the product to a beneficiation discussions are under way with fuel cell OEMs in co-operation with the Department of Science
centre. For example, the cost of logistics for precious metals is extremely low compared to the and Technology’s HySA initiative.
value of the metal itself; whereas for iron ore the logistics costs are much more significant.
SA’s usable mineral endowment extends beyond platinum. Vanadium, manganese and nickel
Of course, as happened in South Africa through the practice of import parity pricing in steel are sought-after metals in the battery materials market. Given SA’s good resources of these
and chemicals, our comparative advantage at a primary commodity level can be completely minerals, key projects include vanadium electrolyte manufacturing, manganese precursor
negated through monopolistic practices by processing companies. Furthermore, the key development and pure nickel sulphate production.
drivers of country competitiveness in the beneficiation of any product relate to technology
mastery, skills and the investment in plant and enabling infrastructure. Hence, to realistically The need for firm-level interventions
assess the comparative advantage of beneficiating minerals in South Africa requires an
At times industrial policy needs to drive focused firm-level interventions. For example, a key
analysis of location advantage as well as the quality of the beneficiation cluster.
requirement of the labour-intensive clothing sector is the need to be able to rapidly respond
One such opportunity for beneficiation stands out for the coming period. South Africa is by to the retail demand for world class manufacturing principles including new designs and fast
far and away the dominant producer of Platinum Group Metals in the world. The PGM mining fashions, quick turn-around times and so forth.
industry has the challenge of securing future demand for the metal as electric vehicles replace
The Legacy Report demonstrates that the implementation of our Clothing Textile, Leather and
the need for catalytic converters.
Footwear policy has resulted in significant gains across a range of economic indicators in the
sector, essentially saving a sector from the harsh winds of liberalisation.
 7

As is the case in the automotive sector, the dti - working in partnership with leading clothing Radical economic transformation
retailers, textile and clothing companies and labour - is supporting a process of policy upgrading Finally, this last iteration of the IPAP for this term of government demands a reflection on what is
to provide further, more nuanced support for the sector across the entire value chain. required to overcome the critical constraints that have undermined ten years of implementation
and must be overcome to secure an industrialisation programme to the required scale in the
This includes working with SA retailers, who are faced with fierce competition arising from the
years ahead.
entry into the domestic market of global retailers and the global supply chains that support
them. Defined as radical economic transformation, the key thrust of this economic reorientation is to
start tackling the long-standing structural fault-lines in the economy head-on – systematically
The need for a much stronger export effort eliminating race-based economic ownership and control and finding effective instruments to
SA’s basket of value-added exports is small and its exports are overwhelmingly commodity- attack South Africa’s catastrophic problems of unemployment, poverty and inequality - which
intensive. It is imperative that a greater export effort supports existing lead and dynamic not only constitute a scourge on society but also act as a critical barrier to growth.
exporters as well as new, especially black owned entrants. SA has historically suffered from the
A very important aspect of these problems is the gendered nature of disadvantage in South
fact that its export markets are ‘deep water’ destinations. Notwithstanding infrastructure and
Africa. The representation of women in management and in the workplace, across all sectors
other challenges, the African continent and sub-region represents an enormous opportunity for
of the economy, including manufacturing, remains unacceptably skewed. Considering the
the domestic economy. An investment-led trade and regional industrial integration approach to
glaring disparities in remuneration, conditions of service, skills development and economic
our trade, investment and export effort on the African continent signals SA’s intention to fully
access - these and other pressing issues related to the struggle for democratic and economic
support the industrialisation of the continent and to break the shackles of resource dependency
rights of women require urgent collaborative action between government, business, labour and
in the region.
wider civil society.

The Legacy Record All these issues underscore how difficult and complex are the challenges associated with
It is against this background that IPAP 2018 offers a retrospective legacy record for the 10-year radical economic transformation. We must also acknowledge the uncomfortable reality that
period to date. This does not pretend to be exhaustive. It would be impossible to recount all this task is going to have to be undertaken in the face of accumulating seismic changes in
the ground-level detail of what has been achieved over the decade. Instead, what is presented technology and shifts in the structure and systems of global production.
is a high-level themed report that picks out the major features of policy intervention and the
The inescapable imperative of securing a dramatically less energy-, carbon- and waste-
transversal and sector-specific programmes outcomes that have followed from them. It also
intensive, environmentally sustainable growth path - across all sectors of the economy -
demonstrates as clearly as possible what has worked and why.
requires much greater collaboration and calibration of policy and programmes across all of
This has been done to demonstrate that there have been significant achievements in key spill- government and the SOCs. This will need to embrace the challenge of transitioning out of
over industrial sectors. These have succeeded in containing the process of deindustrialisation carbon-intensive, mostly coal-based production to renewable energy in a manner that has
that has so negatively impacted many peer developing countries. These achievements have minimal socio-economic impact and grasps the significant industrial opportunities that will arise
also demonstrated the potential that exists for success in opening up new sectors such as from this critical transition.
renewables.

the dti | IPAP: 2018/19 – 2020/21

8

The damaging impact of a failure to secure this alignment is starkly illustrated in the stalled As I have said for the past two years, and still steadfastly believe: an even greater commitment
Renewable Energy Independent Power Producers Programme (REIPPPP) and the negative towards the serious and concerted collaborative effort we have been proposing is non-
investment market signals which arose from this. Some of the opportunities and challenges negotiable: one which encompasses all spheres of government, the private sector and labour,
in this regard are set out in the Green Industries and Water Industrialisation sections of IPAP all our most important tertiary and research institutions, and, most importantly, attends to the
2018. vital needs of all our people.

In conclusion I wish once again to thank all those in government, labour and the private sector,
Gearing up for the Digital Industrial Revolution
who have tirelessly supported the collective effort to re-industrialise our economy.
The gathering impact of the new digital industrial revolution is already posing massive challenges
to our national systems of skills, science and technology (including technology transfer
and diffusion) and the infrastructure required for advanced communication and production.
Effective national preparation for the Digital Industrial Revolution will require the simultaneous
deployment of measures to support the private sector to face up to this challenge; and then
supporting wherever possible concerted responses to the new opportunities that have and will
increasingly arise. Again, some of the short-term interventions and policy perspectives which Dr Rob Davies MP
will be needed are summarised in the sections of IPAP 2018 on Science and Technology and Minister of Trade and Industry
the Digital Industrial Revolution.

Notwithstanding these enormous challenges - and bearing in mind that there is no industrial
development silver bullet - it is imperative that SA stays the course, internalising the key
lessons learned from a decade of implementing IPAP; and that it robustly removes the key
barriers to industrial strategy.

Maintaining momentum, raising IPAP impact

The Economic Analysis section of IPAP 2018 demonstrates that across a range of economic
indicators the global economy is showing moderate signs of recovery, notwithstanding on-
going geopolitical and structural risks.

While South Africa’s recent economic growth has lagged the global upturn and those of peer
resource-intensive economies, recent positive developments in the political economy augur
well for efforts to resolve the key domestic constraints and challenges which have often
undermined the development effort over the past decade.

To build on the base of positive developments in the political economy - and to sustain and
reinforce their momentum - one critical element will be the achievement of a much higher-
impact industrial policy programme.
 9

A MESSAGE FROM THE DIRECTOR-GENERAL our ability to create capacity – both within and around government – by following a steady
course of ‘learning by doing’, adjusting all the while to the pressing challenges of a rapidly
Mr Lionel October
changing global economy.
The adoption of the National Industrial Policy Framework
We have consistently embraced a collaborative approach between government, the private
(NIPF) in 2007 introduced a very significant reorientation of
sector and labour; an approach itself characterised by ongoing processes of mutual discovery.
South Africa’s industrial policy landscape. Its main thrusts
It is through this kind of collaboration - illustrated throughout IPAP 2018 – that we have been
have been captured, developed and refined over the past 10
able to make significant headway in a number of sectors.
years in successive annual iterations of the Industrial Policy
Action Plan. This has become the ‘laboratory’ for government’s For the past 10 years, through all the policy instruments deployed since the first IPAP iteration
broad approach to industrialisation. From the outset we have – we have seen steady progress in some sectors, but sub-optimal outcomes in others. The
recognised how complex the task of implementing industrial Legacy Review and the Constraints sections of this year’s IPAP in particular point to the areas
policy is – both from an institutional point of view and in the face where successes have been achieved and why; but they also pull no punches about the factors
of many external headwinds and domestic shocks. that have acted to block or inhibit crucially necessary interventions.

We have repeatedly made the point that Industrial policy is multifaceted in nature, comprised of Wherever things have gone well, it has invariably been because deep and consistent
an interlocking set of policies and instruments that traverse the functions of many government partnerships have been in place. In this regard, it gives me great pleasure, once again, to
departments and agencies; particularly those departments that comprise the Economic, recognise the invaluable contributions of the Department of Science and Technology, the
Employment and Infrastructure Cluster. Thus, the responsibility for South Africa’s industrial Industrial Development Corporation and the dti’s other supporting agencies. Without this
effort is a collective one, requiring all departments and agencies to take responsibility for fully support – and that of many other departments and institutions – the urgent work that needs
aligning their policy and programmes with the broader industrial agenda. to be done to drive the programmes set out in these pages over the year ahead (and beyond)
would not be possible.
History has demonstrated that industrialisation is integral to sustained and sustainable economic
development. No countries have been able to lift substantial sections of their populations out To all involved in these institutions, from both the public and private sector, we express our deep
of poverty without industrialising; and in most cases, rapidly growing economies have been gratitude. As we celebrate the centenary of Nelson Mandela’s birth, let us collectively intensify
characterised by an increasingly broad and diversified manufacturing sector. Manufacturing- our efforts to secure a fast-paced industrialisation and economic development that will be able
led value addition has numerous well-recognised multiplier and spillover effects; and it embeds to lift most South Africans out of poverty and rid the economy of extreme unemployment and
technology-intensity and skills formation as key elements of an upward and inclusive growth inequality.
trajectory.

The socially transformative effects of industrialisation are all the more critical in the case of
South Africa, which must continuously grapple with the devastating and deeply-entrenched
structural legacy of apartheid, including resource dependence and the triple challenge of
unemployment, poverty and race-based inequality.
Lionel October
Given the historical complexities and constraints that must be overcome in shifting onto an Director-General, the dti
inclusive, value-adding industrialisation path, what then becomes a critical success factor is

the dti | IPAP: 2018/19 – 2020/21

10

IPAP IN CONTEXT: ECONOMIC ANALYSIS

 11

THE GLOBAL CONTEXT

The recovery from the financial crisis that rocked the world economy one decade ago has
been long, painful and fragile. It has also relied on highly unconventional and protracted policy
support from monetary authorities (‘quantitative easing’) particularly in advanced economies.
Such extraordinary support is being gradually unwound as economic conditions normalise, in
the process affecting financial and currency markets, capital flows and policy direction around
the globe.

The slow, tentative improvement in business conditions globally has been reflected in the
upwardly trending world economic climate indicator, which reached a six-year high in the fourth
quarter of 2017.

Both the assessment of economic conditions at present and the outlook for the six months
ahead improved further. Reports of favourable developments and expectations are emanating
from several regions and countries, the principal exceptions being the Middle East and North
Africa. To illustrate this, the economic climate indicator for the Eurozone has reached its highest
level since 2000, whilst Sub-Saharan Africa’s is at a two-year high.

The pace of global economic expansion stood at only 3.2% as recently as 2016, the weakest The strong correlation between the economic climate indicator and overall growth (based on
rate of increase in world output since 2009. Activity levels improved in 2017, with output growth real GDP growth for the OECD countries) suggests that the pace of expansion is likely to gain
accelerating to 3.7% according to the latest estimates of the International Monetary Fund (IMF). further traction.
Growth has also become more broad-based and synchronised from a regional perspective.
The expansion momentum is strengthening in the United States. The world’s largest economy
The outlook appears brighter, but forecasts for global growth are largely in line with the long- recorded 2.3% growth in 2017, up from 1.5% in 2016, with strong household spending,
term average. Importantly, the downside risks are significant. These range from strong import increased private sector fixed investment and an improved export performance as the key
barriers and supply-side tax and other measures to lure investment, instability in financial drivers. This is underpinned by consumer confidence levels at a 17-year high and a rebound
markets and significant geopolitical risks. in business sentiment. The US economy has added more than 17.8 million jobs since 2010,
the dti | IPAP: 2018/19 – 2020/21
12

reducing the unemployment rate from 10% in October 2009 to 4.1% by December 2017, the terms of volume demand and prices, with positive implications for resource-reliant economies
lowest in 17 years. throughout the African continent. China’s manufacturing output is still expanding, but at a very
modest pace. Moreover, its growth trajectory has been fuelled by sharply rising debt, raising
Growth in the Eurozone, an important destination for South Africa’s manufactured exports,
concerns over its sustainability as deleveraging efforts intensify.
measured 2.5% in 2017, the fastest rate of expansion over the past decade.

With consumer confidence at a 16-year high, retail sales are increasing strongly. Despite Manufacturing activity is increasing across the world, with the global manufacturing purchasing
a stronger euro, exports have risen considerably, resulting in a widening trade surplus for managers’ index (PMI) reaching an 82-month high in December 2017. The US manufacturing
the Eurozone at large, but mainly due to Germany’s trade performance. Overall economic sector continues to expand at a robust pace, with the January 2018 PMI having recorded its
sentiment in this regional bloc has been on a steep upward trend. best reading since March 2015. Germany’s PMI reached an all-time high as at the end of 2017,

Emerging markets and developing economies have become increasingly important in the world declining modestly in January and February 2018, while Spain’s reached its highest point in

economy, making progressively higher contributions to global output, trade and investment. As almost 11 years in November 2017 (56.1), with a similar reading of 56 recorded in February

a grouping, these economies now account for approximately 59% of world GDP, compared to 2018.

43% two decades ago. Furthermore, their contribution to global growth has more than doubled Services-related activities are also on the rise, with the February 2018 global composite PMI
over this period to an estimated 75% in 2017. (manufacturing and services) standing at its highest level in almost three and a half years.

Although the expansion momentum has been decelerating in China in recent years, the
world’s second largest economy and principal consumer of industrial commodities posted very Notwithstanding the improving economic climate, global foreign direct investment (FDI) is

strong growth in 2017, estimated at 6.8%. This has benefitted commodity markets, both in estimated by UNCTAD to have fallen by 16% to US$ 1.5 trillion in 2017.
 13

Large declines in FDI inflows were reported by developed economies, particularly the United
Kingdom and the United States. Modestly higher inflows were recorded by developing Asia
(including China), as well as by Latin America and the Caribbean.

Rising import demand internationally is particularly important for the South African economy,
especially in light of weak demand conditions on the home front, which are imposing a drag on
its growth performance.

The following chart shows the historical economic growth performance and five-year outlook
for key trading and investment partners of South Africa, as well as for other BRICS economies.
In contrast, FDI flows into Africa are estimated to have fallen by 1% to US$ 49 billion, largely Collectively, the illustrated regions and individual economies accounted for 76% of South
reflecting adverse conditions in commodity markets and their associated impact on the Africa’s overall merchandise exports in 2017. The growth outlook for several key trading
economic performance of many African economies. partners bodes well for local export-oriented manufacturers and commodity producers.

FDI flows to South Africa, however, are estimated by UNCTAD to have risen by 43% in 2017 to
US$ 3.2 billion; a welcome improvement, albeit still well below historical levels.

World trade has been improving steadily. The gradual recovery in export volumes is reflective of
increasing economic activity, consumption spending and investment expenditure around the globe.

the dti | IPAP: 2018/19 – 2020/21

14

Real GDP growth in select individual or regional economies (average annual rates; IMF forecasts for the period 2018-2022)

As indicated in the table that follows below (page 15) just over 26% of South Africa’s overall which accounted for approximately 32% of the total. Platinum group metals (PGMs) followed
exports, valued at R311.4 billion, were sold in other African markets in 2017. The African with a 12% share of the export basket to the EU.
continent was in fact the leading external market for South Africa’s manufactured exports,
The Chinese economy absorbed 19.7% of South Africa’s mining exports in 2017. These
dominated by non-electrical machinery, processed food, chemical products as well as motor
included 62% of iron ore exports and 45% of non-ferrous metal ores (e.g. chrome, manganese,
vehicles, parts and accessories.
copper) exports. However, only 3.9% of South Africa’s manufactured exports were destined for
Improving economic prospects for many African economies are expected to provide a solid basis China in 2017. These comprised mostly of base metals, paper and paper products, as well as
for a stronger export performance, for the enhancement of South Africa’s manufacturing capacity, processed food. The export basket to the US is dominated by PGM exports, which represented
as well as for increased regional integration through the development of cross-border value chains. almost 23% of the total, while motor vehicles, parts and accessories accounted for a further
21.2%.
South Africa’s merchandise exports to the European Union (EU) were valued at around
R262 billion in 2017. The export basket was dominated by motor vehicles, parts and accessories,
 15

The South African export basket 2017

Major South African merchandise exports to select regions and countries in 2017

African countries: R311.4 billion European Union: R261.6 billion China: R115.6 billion USA: R88.7 billion
Rank
or 26.3% of SA exports or 22.1% of SA exports or 9.8% of SA exports or 7.5% of SA exports

% % %
  Sector Sector Sector Sector % share
share share share
Motor vehicles, parts and Other mining (e.g. chrome,
1 Non-electrical machinery 11.6 31.9 37.7 PGMs 22.7
accessories manganese)
Motor vehicles, parts and
2 Processed food 10.5 PGMs 11.7 Iron ore 34.2 21.2
accessories
Chemical products (e.g.
3 7.7 Agriculture, forestry & fishing 8.7 Basic iron and steel products 10.1 Basic iron and steel products 12.5
pharmaceuticals)
Motor vehicles, parts and Other mining (e.g. chrome, Other mining (e.g. chrome,
4 7.6 7.3 Agriculture, forestry & fishing 4.3 7.6
accessories manganese) manganese)
Petroleum and petroleum
5 7.1 Basic iron and steel products 6.2 Non-ferrous metal products 3.7 Non-ferrous metal products 7.0
products
Other mining (e.g. chrome,
6 6.1 Other manufacturing 4.2 Paper and paper products 3.0 Industrial chemicals 6.2
manganese)
7 Basic iron and steel products 5.2 Industrial chemicals 4.1 Processed food 1.3 Other manufacturing 5.5

Chemical products (e.g.

8 Industrial chemicals 4.6 Processed food 2.9 Industrial chemicals 1.0 2.4
pharmaceuticals)

9 Fabricated metal products 4.3 Non-ferrous metal products 2.9 Other manufacturing 0.7 Agriculture, forestry & fishing 2.3

10 Agriculture, forestry & fishing 4.0 Iron ore 2.8 PGMs 0.7 Non-electrical machinery 2.1

Chemical products (e.g.

11 Electrical machinery 3.4 Coal mining 2.5 0.7 Processed food 1.6
pharmaceuticals)
Chemical products (e.g.
12 Beverages 2.5 2.5 Beverages 0.4 Other transport equipment 1.5
pharmaceuticals)

  Cumulative % 74.7 Cumulative % 87.6 Cumulative % 98.0 Cumulative % 92.6

the dti | IPAP: 2018/19 – 2020/21

16

THE SOUTH AFRICAN ECONOMY From 2003 to 2008, Gross Fixed Capital Formation (GFCF) grew strongly as the commodity
The South African economy is exhibiting welcome signs of recovery after experiencing super-cycle led to investments in South Africa’s core manufacturing sectors, which registered

relatively subdued and declining growth for a number of years. Over the period 2010 to 2017, a combined Compound Annual Growth Rate (CAGR) of over 13% for the period.

real GDP growth averaged 2.0% per year, well short of the desired rate of around 5% deemed From the onset of the Global Financial Crisis in 2009 to 2014, these same sectors experienced
necessary on a sustained basis in order to meaningfully address the triple challenge of poverty, CAGR of just 2%, while manufacturing shed almost 200,000 jobs.
unemployment and inequality.
In the aftermath of the crisis, South Africa deployed a range of policy interventions, including an
At 0.6%, GDP growth in 2016 was the lowest since the 2009 recession. Besides the global infrastructure build programme and supply-side support measures such as the Manufacturing
economic slowdown, which affected South Africa’s export performance and foreign direct Competitiveness Enhancement Programme (MCEP).
investment, several domestic factors and developments affected the economy’s performance.
Although almost all sectors have grown since 1994 (in real terms), the productive sectors
Chief amongst these was the worst drought on record, which not only affected agricultural
which are crucial for long-term growth and job creation have grown significantly more slowly
output, employment and investment, but, through important linkages with many other sectors
than services sectors.
of the economy, impacted on production activity across many supplying industries.
The following chart illustrates the growing predominance of the finance, insurance and real
estate (F.I.R.E.) sectors against the relative stasis or decline of all the other sectors. This
illustrates sharply the deep-seated structural problems in the domestic economy.

Source: Data - SARB; Graph - the dti

 17

In the manufacturing sector, the most striking structural feature is its concentration on just The mining sector also made a significant contribution to overall GDP growth, but the pace of
6 subsectors: Food-processing, Coke and Petroleum Products, Other Chemicals, Basic expansion remained rather weak across most other sectors, reflective of a difficult business
Iron & Steel, Metal Products and Automotives. In 1994, these 6 sub-sectors accounted for and operating environment. Low consumer and business confidence have been impacting
approximately 37% of total manufacturing value-added. By 2015, these same subsectors on activity levels across many industries and services sectors, resulting in surplus production
accounted for almost 50% of MVA. capacity, weak investment expenditure and low employment creation.

From a policy perspective, it is encouraging to see the strong growth in Automotives and Excluding agriculture, economic growth would have measured only 0.9% in 2017. This
Other Transport Equipment, the stabilisation of the threatened Clothing, Textiles, Leather and demonstrates the fragility of the recovery and the urgency of restoring consumer, business
Footwear (CTLF) sectors and the employment-rich growth of the Business Process Services and investor confidence in the economy.
(BPS) sector, as these are areas in which Government has intervened decisively.
Household consumption expenditure, which accounts for roughly 60% of national GDP,
But the degree of concentration in manufacturing leaves South Africa exposed and vulnerable expanded by 2.2% in 2017. Although better than anticipated, this number still reflects the
to both internal and external shocks. In recent years, South Africa has experienced both. challenges faced by lower income South African households - particularly high levels of
indebtedness, modest growth in disposable incomes and poor employment prospects for
Causal factors included sub-optimal performance of state owned companies (SOCs), sharply
many.
escalating administered prices, logistical bottlenecks and other economic infrastructure
constraints.

The short term good news was that the economy expanded by a better than expected 1.3% in
2017. The recovery was mainly due to a strong rebound in agricultural output, propelled by the
largest maize crop on record, as climatic conditions normalised in many parts of the country.

The weak economic climate will continue to affect the ability and willingness of consumers to
raise their spending for some time, although lower inflation and interest rates should provide
some relief to debt-ridden consumers, especially over the short-term.

the dti | IPAP: 2018/19 – 2020/21

18

The fragility of this mini-recovery points towards the single most significant structural problem uncertainty was compounded by policy uncertainty and misalignment in key sectors such as
that has inhibited robust growth in the domestic economy for a sustained period of time: mining and agriculture, as well as the threat of further downgrades to South Africa’s sovereign
namely, the fact that fixed investment activity has been anaemic, especially in the productive credit ratings.
sectors of the economy.
Fixed investment spending by the private sector consequently declined in real terms in 2015
In the face of sharp financial constraints and weak demand for their services – exacerbated by (-0.5%) and in 2016 (-5.3%), with a modest rise of 1.2% during 2017.
serious institutional failures - public corporations lowered infrastructure spending, mothballing
certain operations, postponing some projects and cancelling others. This severely reduced their
procurement of locally produced input materials and services, impacting on the performance of
many other sectors of economic activity.

Faced by severe fiscal challenges, general government has had to cut back on its spending on
economic and social infrastructure over the past two years, with real fixed investment spending
by government having dropped by 4.1% between 2015 and 2017.

Business confidence has remained below the crucial 50-point mark for most of the past decade,
indicating a degree of pessimism regarding operating conditions. Although recovering some
ground in the second semester of 2017, it remained at low levels. A reading of 34 index points
in the fourth quarter of 2017 indicates that most of the survey respondents remained very
dissatisfied with domestic economic conditions.

Not only have confidence levels been low for an extended period, but the largely unfavourable
sentiment has been prevalent across all sectors surveyed, including manufacturing, retail and
The factors which have weighed heavily on fixed investment by the private sector are complex.
wholesale trade and the motor trade.
Aside from weak demand and excess production capacity in many sectors, developments
on the political front weighed heavily on the private sector’s propensity to invest. Political
 19

Amongst manufacturers, business confidence recovered from the eight-year low recorded
in the second quarter of 2017, rising by 21 points to 37 points in the first quarter of 2018.
Nevertheless, more than 60% of survey respondents in the manufacturing sector have

indicated that they are unhappy with prevailing business conditions.

Business confidence in the manufacturing sector

90
80
70
Latest data: Q1 2018
60
Net balance

50
37,0
40
30
20
10 16,0
It is important to note that the creation of any and all new job opportunities has to be set in the
0 context of the approximately 1.12 million domestic jobs that were lost in the economy during
the global financial crisis and the ensuing economic recession. The manufacturing sector was
hardest hit - currently employing about 320,000 fewer people than in 2008.
Source: IDC, compiled from BER data

At a deeper structural level, a worrying trend is the declining employment intensity of the
Improving conditions in external markets, gradually rising retail sales and very recent South African economy – even more pronounced in the manufacturing sector - as indicated
developments in the political arena are, however, likely to impact positively on business and by the employment-to-GDP ratio over time. Although this trend is not unique to South Africa, it
investor confidence going forward, potentially propelling a sustained upturn in fixed investment manifests in a particularly acute form here - highlighting the urgent need for all stakeholders to
activity. get to grips with a set of interlinked and mutually reinforcing problems with potentially seriously
destabilising socio-economic potentiality.
This, however, is far from a given. The economy’s subdued performance over the past decade
- with real GDP having expanded at an average annual rate of just 1.8% per annum from 2008
to 2017 – shows how far there still is to travel before getting close to adequate job creation for
an expanding labour force.

From the start of 2008, the economy did manage to create an additional 1.75 million new job
opportunities; most of these in the broader public sector, which forms part of the ‘Community
and Personal Services’ category below.

the dti | IPAP: 2018/19 – 2020/21

20

Of further major concern are the following:

• approximately two-thirds of the unemployed have been without a job for more than one
year;
• the skills/education profile of the unemployed is particularly low and is not being adequately
addressed, especially in a period that increasingly requires advanced technical skills to
succeed in a fiercely competitive global economic environment.

If the aim is, as it must be, to raise the economy’s growth-to-employment potential to a much
higher level, key realities will have to be factored in; not least the systemic and institutional
challenges that will have to be overcome if South Africa is to find its own unique solutions to
creating meaningful work and life opportunities in the context of the global trend towards ever
greater technology- and capital-intensity.

The inability of the economy to create sufficient jobs for an expanding labour force has been The labour absorption capacity of the economy must therefore be taken very seriously and
reflected over the past decade and more in a continuously rising overall unemployment rate, tackled with great urgency, beginning with a concentrated focus on sectors like agro-processing
moving towards 27.7% over the first three quarters of 2017, the highest in 14 years. Though and, amongst others, the components value chain; and these initiatives must be consciously
there has very recently been a modest decline - to 26.7% in the final quarter of 2017 – this does and creatively aligned with finding new areas of employment directly opened up by the Digital
not yet suggest the emergence of any solid downward trend. Industrial Revolution.

DEVELOPMENTS IN SOUTH AFRICA’S MANUFACTURING SECTOR

The manufacturing sector has been under severe strain in recent years.

The contribution made by the sector to South Africa’s GDP has declined over time, to only
13.2% by 2017, from the all-time high of almost 25% recorded in 1981.

This compares extremely poorly from a global perspective, because this level of contribution
falls well short of the ratios achieved by developing economies in the East Asia and Pacific
region, as well as by the middle-income countries as a group. Moreover, even though the
shares of overall GDP claimed by the manufacturing sector in these peer groups have been
declining over time, the adverse trend has been far more pronounced in the case of South
Africa.
Some 5.9 million people currently remain unemployed, and, if discouraged work-seekers are
included, the number of unemployed rises to 9.2 million - or 36.3% of the population.
 21

What there should be no debate about is that the manufacturing sector remains vitally important
for the South African economy. This because of its strong employment and economic linkages
with various supplier and supporting industries and service providers, its employment potential The challenge will be to maintain and build on this still very modest momentum. This is no
and its contribution to the balance of payments - generating export earnings and reducing easy matter, as operating conditions continue to remain challenging. As illustrated in the chart
import requirements. South African manufacturing has a small bridgehead to work from. After below, apart from the food and beverages and metals and machinery sub-sectors (and a very
contracting over the three previous consecutive quarters. output rebounded moderately in the small increase in the furniture and other industries sub-sector) lower output was recorded by
second quarter of 2017 and gained some further momentum in the third and final quarters of all other manufacturing sub-sectors.
the year.1
In addition, the global steel crisis impacted negatively on the performance of the domestic
steel industry, with low-priced imports competing aggressively in a local market already
characterised by weak demand conditions.

Similarly, the clothing and textiles sector – despite major improvements in processes and
productivity actively supported by the dti - continues to feel intense pressure from cheaper
(and often illegal) imports.

Even in the more highly structured automotives industry, subdued local and global consumer
demand have impacted on the achievements it has racked up over the past five years and
more.

1 In 2017, on a quarterly basis, growth in manufacturing GDP was as follows (q-o-q, seasonally adjusted and annualised): Q1: -4.1%; Q2: +2.9%; Q3: +3.7%; Q4: +4.3%.

the dti | IPAP: 2018/19 – 2020/21

22

The continuing difficult global and domestic operating environment has certainly taken its toll
on the manufacturing sector in many different ways. Overall output volumes are still stuck at
10% lower than in the pre-crisis peak, and surplus production capacity exists in many sub-
sectors. In the final quarter of 2017, 70% of all manufacturers indicated that output levels
still remain well below capacity. This is naturally affecting investment decisions and further
constraining possibilities for employment creation.

EXTERNAL TRADE
Improving economic conditions globally, including rising demand in key external markets and
generally higher commodity prices, have been providing export opportunities for domestic
producers. Import growth, in turn, has been contained by weaker domestic demand as the
economic environment worsened. South Africa’ balance of trade recorded a R75 billion surplus
in 2017, compared to a deficit of R2.5 billion in 2016. The largest contribution to the surplus
was made by the mining sector, as higher commodity prices translated into a 23.5% increase
(or R81.2 billion) in export proceeds.

The bumper maize crop, which resulted in a substantial surplus on the domestic market,
permitted a significantly better agricultural export performance in 2017. The manufacturing
sector, however, remains a substantial drag on export performance, having registered sizeable
trade deficits over all the years 2010-2017.

South Africa’s export basket has become somewhat more diversified in terms of its sectoral
composition. Utilising a normalised Herfindahl-Hirschman Index, which is used to calculate the
level of concentration or diversification within a basket, the sectoral concentration decreased
from 18.4 in 2010 to 16.3 in 2017. However, a reading above 15 still indicates a medium level
of concentration in the sectoral basket.

The merchandise export basket is indeed still concentrated on a few sectors, especially within
manufacturing.
 23

to real growth in overall exports during 2017, contrasting sharply with the negative impact
recorded in 2016.

But the economy remains heavily reliant on mining exports for foreign exchange earnings.
Exports of mining and mineral products accounted for 36.2% of merchandise exports in 2017,
slightly lower than the 38.2% share recorded in 2010.

During 2016, weaker demand for industrial commodities in international markets, especially
from China (which in turn dragged prices down) took a toll on South Africa’s mining exports. In Over time, the historical reliance on gold has been substantially reduced, whereas iron ore and
addition, the domestic mining sector also faced significant operational challenges. coal exports have come to the fore. PGMs have also contributed to diversifying the composition
of South Africa’s mineral export basket. However, despite rising PGM export volumes since
All of the mining sub-sectors recorded lower export volumes in 2016, with the steepest decline
the recent trough in 2012, the platinum price fell from an average of US$ 1,610 per ounce in
reported by the copper mining segment - a 27% drop. The gold, iron ore and coal mining sub-
2010 to US$ 952 per ounce in 2017. This underscored the declining share claimed by PGMs
sectors also reported substantially lower export volumes.
within the overall export basket, from 9.9% in 2010 to 7.4% in 2017, in nominal value terms.
Mining export volumes remained generally under pressure in 2017. However, in nominal value
terms, mining exports rose by 23.5% to R427.3 billion, largely due to a weaker currency and
higher commodity prices. Consequently, the mining sector made a significant contribution

the dti | IPAP: 2018/19 – 2020/21

24

Manufacturing exports Export sales of motor vehicles, parts and accessories were 4.2% lower (or R6.7 billion) in
The manufacturing sector made substantial contributions to real growth in merchandise exports nominal value terms in 2017, illustrating the challenging global trading environment in recent
over the period 2011 to 2016. However, due to a difficult domestic operating environment and years. The exception was the year 2015, when vehicle exports rose sharply, particularly
demand moderation in some markets, exports of manufactured goods came under pressure in passenger cars.
2017, subtracting 1.6 percentage points from overall export growth.
The motor vehicles, parts and accessories sub-sector, which has benefitted from sustained
Other manufacturing sub-sectors that also reported lower export sales in nominal terms, industrial policy support over the decade, is reaping the benefits of increased integration into
included: other transport equipment; machinery and equipment; television, radio and global supply chains and is providing opportunities for domestic production (and exports) of
communication equipment and processed food. The sub-sectors that recorded higher exports parts and accessories for motor vehicles. This sub-sector has been the leading exporter within
in 2017 included chemicals and chemical products; basic iron and steel; non-ferrous metal manufacturing since 2012.Its value-added (GDP) measured R31.6 billion in 2016, equivalent
products; refined petroleum products and textiles. to 5.9% of total manufacturing GDP, and it employed 94,181 people, or 6.8% of manufacturing
employment.
The manufacturing sector accounted for 57.2% of the overall export basket in 2017, a similar
level to that recorded in 2010. However, the composition of the manufacturing export basket Its combined share of the overall merchandise export basket rose from 11.3% in 2010 to 13%
has changed over the years, with a substantial rise in the relative share claimed by the motor in 2017. However, within the manufacturing sector itself, the share of motor vehicles (excluding
vehicles sub-sector. parts and accessories) rose from 13% in 2010 to 17.5% in 2017.

By contrast, the relative share of the basic iron and steel sub-sector in South Africa’s export
basket has fallen over time. Having accounted for 15.3% of manufactured exports in 2010, its
share fell to 11.4% in 2015, before increasing to 12.3% by 2017.

This sub-sector has been facing fierce competition in the global market and considerable
import penetration on the domestic front. Confronted with weak demand, foreign producers
have been dumping their surplus steel output in world markets, leading to the imposition of
protective measures in certain instances. South Africa itself has been rolling out industrial
support measures to safeguard its basic iron and steel production capacity and support the
downstream steel sector.

Global and regional export destinations

The geographical reach of South Africa’s export basket has become more diversified over
time, with emerging markets like China and India having come to the fore quite strongly, and
the rest of the African continent featuring even more prominently. This is confirmed by the
normalised Herfindahl-Hirschman Index, which declined from 21.6 in 2010 to 20.2 by 2017.
 25

The combined share of the export basket claimed by the advanced economies fell from
40% in 2010 to 38.6% in 2017. Both the US and Japan have seen their respective shares
declining over time towards 7.5% and 4.7%, respectively, in 2017 (compared to 7.9% and
7.0%, respectively, in 2010). In contrast, the European Union saw its share rise substantially
from 17.5% in 2012 to 22.1% by 2017.

The African continent has become the largest regional market for South Africa’s merchandise
exports. In 2017, some 26.3% (or R311.4 billion) of the entire export basket was destined
to countries elsewhere in Africa, a slight increase from the 25.4% share recorded in 2010.
The continent is also the largest regional destination for South Africa’s manufactured exports,
accounting for 38.8% of the total.

The export basket to the rest of Africa is dominated by machinery and equipment, processed
food products, chemical products (e.g. pharmaceuticals), motor vehicles and parts, petroleum
and petroleum products, as well as basic iron and steel.

The European Union also remains a key export market, with 25.9% of all manufactured exports
being sold in this regional bloc in 2017.

Diversifying both the product mix and the regional destinations of South Africa’s exports not
only supports economic activity in the currently challenging domestic environment but is also
imperative in protecting the economy from major disruptions in specific markets or sudden,
unpredictable declines in product demand in particular sectors.

Having accounted for a mere 1.2% of South Africa’s merchandise exports in 2000, China has
become the single largest export market at the individual country level. Its share peaked at
12.9% in 2013, but has been quite volatile in recent years, declining to 9.8% in 2017.

the dti | IPAP: 2018/19 – 2020/21

26

In real terms, overall growth in South Africa’s merchandise exports to the world at large was CONCLUSION: JOB CREATION AND THE NEED FOR STRUCTURAL CHANGE
relatively robust over the period 2011 to 2015, considering the challenging global trading The current structure of the SA economy is ill-suited to the creation of large numbers of jobs
environment at the time. However, after having expanded by 5.5% in 2015, merchandise at appropriate skill levels.
export trade contracted by 1% in real terms in 2016. A sharp rebound was recorded in 2017,
with positive contributions made by most regions, with the exception of other member states of By this we mean that:

the South African Customs Union (SACU). • the composition of the economy by sector (primary, secondary, and tertiary) is not
appropriate for South Africa, given widespread and well-known developmental challenges;
• within sectors (e.g. manufacturing), labour-intensive sectors are not growing fast enough
to create large numbers of jobs;
• jobs in the tertiary sectors are not substitutes for jobs in the productive sectors; rather,
the development of higher value-added productive sectors creates multipliers that support
better quality jobs in the tertiary sectors;
• imports (legal and illegal) have become a major economic leakage. This is linked to the size
of the illicit economy, including the ‘Discount Mall’ phenomenon;
• Apartheid spatial geography continues to constrain the economy in terms of worker travel
time and costs.
But – unlike many other developing countries – SA has managed to prevent major hollowing-
out of its industrial capacity. This has been achieved through the judicious use of incentives
and the successful deployment of industrial policy interventions to manage critical challenges
in, amongst others, the steel, CTLF and autos sectors.

Nevertheless, despite industrial policy successes in a number of sectors, it has to be recognised

that the manufacturing sector may be nearing a tipping-point.

If the conditions set out below persist, there is a substantial risk that dti interventions will simply
not be sufficient to prevent further hollowing out of industrial capacity:

• low business and consumer confidence;

• continuously rising administered costs (at significantly above inflation);
• persistently high rail freight and port charges and inefficiencies;
• serious infrastructure constraints (increasingly at a municipal level); and
• if imports, a significant proportion of which are illegal, continue to grow at or beyond existing
levels.
 27

More critically, the outlook for the country has over the past few years been diverging from the These will represent the first indispensable steps on the path towards the deep-rooted
broader global outlook. Illustrating the point, the IMF’s World Economic Outlook has suggested structural change that all agree in principle to be vital; laying the necessary platform for strong
that South Africa is facing the possibility of sustained slow growth for a number of years. and sustained private sector investment, job creation and an inclusive growth path.

Obviously, a key - and not unreasonable - assumption of the IMF forecast is that commodity
prices continue to recover only slowly. Current commodity price movements suggest that this
may be unduly pessimistic and that the upturn may be sustained over the medium term. If this
turns out to be the case – though it is always unwise to bet against re-emerging volatility -
faster mineral commodity price growth will of course benefit SA.

But in the absence of structural change these benefits will be muted over the short term and
temporary at best, still leaving South Africa well adrift of current world - and especially most
middle-income country - growth trends.

As set out repeatedly in other sections of IPAP 2018, South Africa will need to develop a much
more tightly-coordinated and supportive environment – premised on policy and programmatic
certainty, principled stakeholder collaboration, state and SOC institutional renewal and a
sustained war on rent-seeking, corruption and collusion, whether public or private.

the dti | IPAP: 2018/19 – 2020/21

28

10 YEARS OF IPAP: A LEGACY REPORT

 29

Overview The implementation of IPAP coincided with the global financial crisis, whose effects rippled
through the SA economy from 2009 onwards and were compounded by the tapering of the
Looking back over the first ten years of IPAP, we can draw up a high-level balance sheet of
commodity super-cycle and subsequent fall in demand for commodities (as China adjusted by
successes and failures, areas of excellence achieved, and areas where interventions were
rebalancing its policy, with strong adverse effects on South Africa’s commodity exports).
blocked or slowed by external and internal headwinds and structural constraints.
The total economy shed 1 million jobs, with the manufacturing sector losing almost 320,000.
We can point to significant areas of achievement at scale in various sectors – most notably,
Only those subsectors that are less sensitive to boom-bust economic cycles created jobs over
in Automotives, Clothing, Textiles Leather and Footwear (CTLF), Business Process Services
this period. But it is important to note that government’s resolute counter-cyclical industrialisation
(BPS), Film Production and Boatbuilding.
efforts arrested the scale of job losses during this period, preventing potentially catastrophic
But none of these successes would have been achieved without the creation of a platform of full-scale deindustrialisation.
cross-cutting and sector-specific interventions, including:
In the face of very stiff global and domestic headwinds, the manufacturing sector was able to
• industrial financing; weather the worst of the Great Recession and its lingering low-growth aftermath. While the
share of manufacturing value-added to total GDP declined from 15% to 13%, (which was a
• the deployment of conditional incentives;
trend experienced by many developed and developing countries) manufacturing value-added
• local procurement and the offset programme the National Industrial Participation
in real terms grew from R338 billion in 2009 to R383 billion in 2016. This was led by sectors
Programme (NIPP); and
such as food and beverages, automotives, chemicals and plastics, averaging 2% annual
• a wide variety of demand- and supply-side industrial policy levers designed to secure growth.
higher levels of investment and raise the competitiveness of the productive sectors of the
economy. Over the 10-year IPAP period, manufactured exports have grown four-fold, while imports have
doubled. South Africa’s exports of manufactured goods were dominated by metals, metal
The latter include: products, machinery and equipment, (including capital equipment and mining machinery and
equipment).
• developmental trade policies; including the technical infrastructure institutions which
support the industrial effort; Although manufactured imports remained higher than exports in real terms – thereby resulting
• efforts to stem the tide of illegal imports, working with Customs; in a trade deficit for manufacturing as a whole - significant diversity in the trade performance of
• technology support measures; and different manufacturing sectors and sub-sectors has been reflected in the trade data. Overall
growth has also been bolstered by robust growth in manufactured exports to Africa, where the
• competition policy (which addresses anti-competitive behaviour and lowers barriers to
trade balance shows a strong surplus.
entry).

Overall, the evidence to date suggests that industrial policy succeeds under the following
These are some of the basic elements of the industrial toolkit that government has developed
circumstances:
over the successive iterations of IPAP, following a ‘learning-by- doing’ approach.
• Where it is properly targeted and well designed, with strong oversight and continuous
But the conditions have been very difficult throughout.
upgrading;

the dti | IPAP: 2018/19 – 2020/21

30

• Where it is the subject of a collaborative engagement and agreement with the private SECTORAL RECORD
sector and labour and where public-sector support requires reciprocal conditions from
social partners; 1. Automotive sector
• Where it is adequately resourced; In the face of very stiff competition from other national production centres, SA has maintained
• Where institutional failure (driven by corruption and rent-seeking) have been held at bay a world class automotive production capability, with significant support from the state in
and policy coherence and programme alignment achieved in support of the industrial effort; an ongoing collaborative arrangement with global OEMs, component manufacturers and
labour.
• Where coherent coordination efforts have been developed to create the conditions for an
orderly transition to a less carbon- and more technology-intensive industrial economy;
33% mnf. GDP
• Where there is common cause that innovation and dynamism is required across government
R171 bn exports
to ensure that developmental regulatory frameworks support the industrialisation effort.
6% total GDP
113,000 jobs

The sector contributes 33% to manufacturing GDP and about 6% to overall GDP. It
produces approximately 600,000 vehicles per year, /supporting 113,000 jobs. Exports have
doubled in this period, which has also seen R45 bn worth of investment by the majority of
the world’s leading global vehicle manufacturers – MB, Toyota, VW, BMW, Ford, BAIC,
BAW, Isuzu etc.

As part of the ongoing effort to sustain SA’s competitive capabilities in this sector the
dti has developed an Automotive Masterplan 2020, working together with the automotive
companies, component suppliers and labour, to ensure that SA retains and grows its
automotive sector, is able to continue to compete with other national jurisdictions for
production platforms, grows its exports and secures higher levels of empowerment across
the sectoral value chains.

This record contrasts sharply with recent developments in some other countries. The
significance of this achievement cannot be underestimated – particularly in terms of the
economic and employment multipliers that derive from it and the many spillover effects that
it generates: technology absorption, new skills and industrial capabilities.
 31

2. Clothing, Textiles, Leather and Footwear sector

20.3% mnf. GDP
In the wake of the devastation of the sector that followed from the liberalisation and
R50 bn exports
restructuring of the industry in the 1990s (with approximately 120,000 jobs lost) over the
2.7% total GDP
past decade the sector has been saved from extinction and stabilised. As a result of the
conditional support measures offered under the Clothing and Textile Competitiveness 283,000 jobs

Programme (CTCP) the sector now employs 95,000 workers, contributing 8% to

Since 2009, the dti has supported agro-processing industries to the tune of R1.2 billion
manufacturing GDP and 2.9% to overall GDP. In the leather sector 22 new factories have
through various incentive schemes. The sector also benefitted from total investments of
been opened, supporting 2,200 jobs.
around R7 billion, both by multinationals and local players. The next step – as a direct
8% mnf. GDP response to the 9-Point Plan – was taken in 2017, with the launch of R1 billion Agro-
R24 bn exports Processing Support Scheme (APSS), aimed at further ramping up investment and value-
2.9% total GDP addition across the sector.
95 ,000 jobs
Over the past 5-year period significant investments have taken place in this sector.
Manufacturing value addition for companies receiving the incentive has grown by 60.8%, Summary numbers were as follows: FABCOS/the dti – R1.2 billion; Nestlé - R1.2 billion;
and productivity by 22.3%. Two national and eight regional clusters have been established, Tiger Brands - R1 billion; Unilever - R600 million; P G Bison - R600 million; Dursots-All
providing a platform for cooperation between government, labour and the textile and Joy - R100 million; GWK Farm Foods - R400 million; Astral Foods/the dti - R200 million;
apparel manufacturers and retail value chains. This has allowed for the development of a Coega Development Corporation/the dti - R86 million; R420 million in investment projects
robust market in fast-turnaround, quick fashions items. aimed at emerging farmers in the deciduous fruit industry; and the dti/IDC support for 6
new small-scale maize mills
However, no industrial policy sector strategy can afford to be static in the face of rapidly
evolving and dynamic market conditions, massive increases in productivity and continually 4. Metal fabrication, capital & rail transport equipment
intensifying global competition. With this very much in mind, the dti has recently
The metal fabrication, capital & rail transport equipment as a cluster of industries forms
launched a wide-ranging collaborative study with all the relevant sectoral players to raise
a very important component of local manufacturing. Over the years South Africa has
competitiveness, deepen localisation and support job creation across the value chain.
developed niche capabilities in areas such as capital and rail transport equipment and
structural steel, but recent years have seen stagnation and/or decline in key sub-sectors
3. Agro-processing
like casting, tooling and foundries.
The agro-processing sector has been identified as one of the critical sectors earmarked
for special attention under the Presidential Nine-Point Plan. The core issue here is to 16.7% mnf. GDP
defend and expand the agricultural and agro-processing value chain as a key provider of R 212 bn exports
labour-intensive growth. (It currently employs around 283,000 people, contributing 20.3%
2.2% total GDP
to manufacturing GDP and 2.7% to total GDP).
31, 404 jobs

the dti | IPAP: 2018/19 – 2020/21

32

In an effort to turn this trajectory around, government and industry players came together to The other major area of IPAP intervention in the sector has been the leveraging of
develop the National Tooling Initiative (NTI) and the National Foundry Technology Network procurement for both freight and passenger rolling stock through designation of systems
(NFTN) – initiatives targeted at increasing the competitiveness of these sectors through and products under the PPPFA.
critical skills development and job creation programmes, technology development and
Locomotives, wagons and coaches for freight and commuter rail were amongst the top ten
adoption, enterprise development and export promotion.
identified large and strategic procurement fleets.
This led to the development of a skills pipeline comprising more than 1,800 students over
On the back of these designations, PRASA issued a tender for the procurement of 3,600
4 cycles - with 98% of students from previously disadvantaged communities, 30% females,
new coaches (600 train-sets) in 2012. The contract was awarded in 2014 to Alstom-Gibela
and above average learner-retention rates. All programme participants received on-the-job
and includes a Manufacture Supply Agreement (MSA) for 10 years and Technical Support
training, resulting in more than 80% of toolmaker students finding permanent jobs.
and Spares Supply Agreement (TSSSA) for 18 years.
Three Centres of Excellence (Western Cape, Pretoria and KwaZulu-Natal) and two Trade
This contract is expected to deliver 5,256 coaches to satisfy existing rail passenger demand
Test Centres (Pretoria and Western Cape) – all with state-of-the art equipment - have also
on the current network until the year 2020; 456 vehicles to satisfy growth in rail passenger
been established. In parallel, upwards of 100 Tool, Die and Mould (TDM) companies have
demand to the year 2030 on the existing network; and a possible further 1,512 vehicles to
been supported through the Enterprise Development Programme.
satisfy long-term rolling stock needs on new corridors to be constructed as part of future
Under the NFTN umbrella, a total of 44 foundries have so far been assisted through the expansion of the existing network and the development of a new network.
Competitive Improvement Initiatives (CII) Programme, with interventions ranging from
In 2013, Transnet Freight Rail (TFR) issued a tender for the procurement of 1,064
baseline assessments to technology-transfer, lean manufacturing and energy management.
locomotives, with the contract being split in 2014 between four OEMS. The contracts
32 foundries were also assisted with technical and regulatory support interventions. Also
stipulate minimum local production and content thresholds of 55% for diesel locomotives;
included was help with acquiring accreditation for Quality Management Systems, Pressure
60% for electric locomotives; and 65% for passenger coaches.
Equipment Directive (PED) and Atmospheric Emission Licences (AELs).
Over 60 companies in the sector are currently benefiting from the TFR & PRASA contracts,
Through the Scaw Metals supplier development programme, local foundries will be
either directly (in the case of OEMs) or indirectly (in the case of Tier-1 suppliers).
able to supply coupler components to Transnet. Other successes achieved through this
programme over the review period include: Notwithstanding issues related to import leakages and shortcomings with respect to
supplier development, the efforts to rebuild SA’s rail industrial capabilities have begun to
• Industrial Valves Manufacturers – NFTN supported five foundries (Duvha Foundry,
meet with some success.
Forbes Foundry, Hi Alloy Foundry, Active Foundry and GE Patterns) selected by IVM
(OEM) to supply wedge gate, butterfly and nozzle check valves (previously imported The following rail sector company launches or expansions in 2017/18 may be summarily
products) for Vaal Gamagara Water Supply Scheme (Sedibeng Water Pipeline) noted:
• Transnet Engineering Tender (MicroValve)- supply and manufacture of 250 valves
Morgan Advanced Materials (electric carbon components); ABB Modderfontein (traction
(relieve valves, cut-out cocks and auto-drain valves) for use in the assembly of
transformer factory); Electro-Inductive Industries/Siemens (transformers); Lucchini
locomotives. Microcast and Dhuva foundries will be used to cast these valves.
(railway forged wheels); Timken (train wheel bearings); Transnet Engineering (the SA-
 33

designed Trans-Africa Locomotive); PRASA’s Dunnotar Park facility (train manufacturing); meant that all steel would be sourced locally.
Koedoespoort assembly plant (locomotive assembly for Transnet Freight Rail and General
The level of coordination between the Economic Development Department (Competition,
Electric); Bombardier Transportation South Africa (BT) and CRRC Dalian Locomotive &
Trade, Industrial funding, and Social Dialogue) and the dti (industrial incentives, local
Rolling Stock (new-build locomotives currently undergoing trials and test runs).
designation, tariffs and business coordination) was extensive, and an example of joined-up
government that yielded positive results.
5. Steel Industry
The onset of the steel crisis in late 2014 saw SA’s dominant steel producer, ArcelorMittal The G20 and OECD Steel Committee recognised SA’s exemplary policy intervention
South Africa (AMSA) approach government for support, demonstrating a willingness to during the steel crisis, noting that it was implemented with good social dialogue between
engage on legacy battles related to pricing and investment. For government, the targeted government, industry and labour.
outcome is an optimal ‘end state’ of a viable, competitive and sustainable steel industry
An independent process under the Competition Commission resulted in a R1.5bn fine and
in SA, balancing support as far as possible between the interests of both upstream and
R4.6 bn investment commitments by AMSA.
downstream players.

The problems of the SA steel industry are not unique. Countries around the world are 6. Plastics and Cosmetics Sector
grappling with a continuing steel crisis characterised by massive global excess capacity,
6.1. Plastics
exacerbated by weak economic recovery and depressed market demand. In South Africa
and the region, the effects have been severe as iron-ore mines, primary steel mills and The downstream plastics sector is largely comprised of small firms, due to the

manufacturers struggle to compete, retain jobs and invest. relative ease of entry in the industry. The sector as a whole has been growing at
an average rate of 3-5% annually for the past 10 years. Its current contribution to
As also happened in a number of other jurisdictions such as the EU, India and the USA, manufacturing GDP is 14.5% (1.9% of overall GDP) – with plastic packaging the
the SA government intervened to save the industry from the threat of collapse, with all its largest contributor.
attendant consequences in terms of skills and capacity losses. The first support measures
put in place were a) increasing the general rate of customs duty on primary steel products 14.5% mnf. GDP
to 10%; b) increasing the tariff on a range of downstream products; and c) the deployment R24 bn exports
of various rebates. A Steel Development Fund of R1.5 bn was also established to support 1.9% total GDP
key downstream steel sectors/sub sectors.
60,000 jobs
Agreement was also reached with AMSA on a set of principles for appropriate flat steel
Total investment under the period of review is approximately R7.5 billion, which
pricing in SA to ensure that both upstream steel mills and downstream steel-dependent
includes both newly-formed companies and expansions to increase capacity to
industries remain competitive and sustainable.
satisfy the growing demand for polyethylene polymers.
To further increase industry competitiveness, government retracted the deeming of primary
The downstream industry, which tends towards greater labour-intensity, has shown
steel in designated products (requiring the use of locally manufactured primary steel) and
steady employment growth, with employment by plastic fabricators having risen
designated downstream steel-intensive construction steel products and components. This
to roughly 60, 000 – nearly double the number for 2007 (38,000). This growth is

the dti | IPAP: 2018/19 – 2020/21

34

also contributed to by the chemicals sector’s promotion of downstream fabrication chain. There has been a huge uptake of natural ingredients like Aloe ferox, marula,
of polymers, which requires far more competitive pricing of polymer inputs, skills baobab, rooibos and Kalahari melon, and more than 549 products containing natural
development, support for firm and industry level technical capabilities such as R&D ingredients from indigenous plants are on the shelves.
and tooling, and stronger matching of final product demand patterns to intermediate
Total revenue produced from value-added bio-products in the domestic retail market
plastic inputs.
was approximately R1.5 billion in 2013. 70 % of these products are personal care
Aside from legitimate international competition, the domestic economy has over and cosmetic products, with the remaining 30% being complementary medicine and
recent years witnessed significant penetration by illegal imports. In response, the food flavouring.
dti, SARS and the industry coordinated efforts to design and implement a risk
Most notable recent investments include the following:
engine to combat customs fraud and under-invoicing at customs. The initiative –
which is already showing strong quarterly results - is aimed at encouraging and • The Bespoke Amenities Company (TBAC) – which benefitted from an MCEP

supporting local production of components to help the sector compete effectively grant to expand its manufacturing facility in Johannesburg - now exports

and sustainably in the local market. amenities (hotel lotions, liquid and bar soaps) to 18 African countries and
services 3,500 clients.
Some of the key company launches and/or upgrades/expansions in the Plastics
• MCEP also provided support for AMKA’s R900 million project to build and equip
Industry over the period include:
a new factory and warehouse extension.
• Mpact Polymers (Polyethylene terephthalate recycling plant);
• In 2013, Unilever officially opened a R1.4 billion Home Care factory that will
• SRF Flexi-Pack (biaxial-orientated polypropylene film manufacturing line); increase production capacity by 67% from 90,000 to 150,000 tons annually.
• Sasol Polymers (R1.9 billion ethylene purification unit);
7. Mineral Beneficiation
• KAP Industrial (4.1-billion acquisition of Sasolburg-based polypropylene and
Government policy-making over the IPAP years has focussed with increasing intensity on
high-density polyethylene manufacturer Safripol);
the need to diversify away from mining and resource extraction towards a manufacturing,
• CSIR (development of 100% biodegradable plastic bags made from agricultural
value-adding and job creating economy. Globally, resource-based economies have been
by-products).
finding it difficult to perform consistently because of commodity price volatility and a sharp
Further worth mentioning was the establishment of the Nelson Mandela Bay decline at the tail-end of the commodity super-cycle. In South Africa, this tendency was
Composites Cluster, with funding from the Cluster Development Programme; clearly evident as mineral export prices dropped between 2011 (35%) to 2014 (26%), while
gaining back some ground in 2015 (28%).
6.2. Cosmetics
In this context. mineral beneficiation has been identified in IPAP as a key instrument for
The sector contributes 1% to manufacturing GDP and employs 60,000 people in
the industrialisation agenda. On the back of detailed research and collaborative work,
manufacturing, plus thousands of jobs in the services sector like hair salons, health
South Africa is well poised to assume a globally comparative role in the hydrogen economy
spas and retail.
and energy storage space - with a number of key projects already being implemented by
With the global natural ingredients and organic cosmetics sector growing rapidly, government, the IDC and the industry. Creating new demand for Platinum Group Minerals
the dti has taken the initiative to support a wide range of companies in the value (PGM) has become a major objective, with fuel cells and energy storage technology
 35

development at the leading edge. The developing fuel cell industry will also help to boost in the establishment of the Mandela Mining Precinct, which is a partnership between
energy efficiency and carbon reduction. the mining industry (Chamber of Mines) and government (DST, the dti, DPME) that is
formally managing the implementation of the South African Mining Extraction Research
Some projects that benefitted from government interventions include the SEZ Fund which
Development and Innovation (SAMERDI) programme.
provided catalytic funding to support the feasibility and demonstration of a world-class
100KW fuel cell at the Chamber of Mines (COM). The Mandela Mining Precinct has been allocated an operational and capital expenditure
budget for the next 3 years until it is self-sustaining, coupled with a significant contribution
A number of other fuel cell initiatives have been launched. For example:
from industry. The Mandela Mining Precinct started operating in May 2016 and the CSIR
• Isondo Precious Metals acquired the rights to manufacture, use, market and sell moved its mining scientists to the facility, along with representatives from the Chamber of
licensed fuel cell components worldwide. Mines, Mining Equipment Manufacturers of South Africa and the dti. The formal launch of
• Anglo-American set up a fuel cell project powering the Naledi Trust Community in the mining hub will take place in May 2018.
Kroonstad, supplying 34 households through a 60kVA peak power fuel cell system
There are several R&D programmes and a supplier development initiative under way at
delivered via a mini-grid.
the Mandela Mining Precinct and funding of R222 million has been allocated by National
• A demonstration fuel cell forklift with on-board metal hydride storage was developed by
Treasury for the R&D programmes until 2021, specifically for project implementation. The
the DST’s HySA initiative for Impala Platinum Refineries.
Chamber of Mines has raised R33 million to fund the shortfalls in the five R&D project
• The Black Industrialist Programme is supporting the commercialisation of a high-purity
streams for 2018. In mid-2016 government also initiated the establishment of the Mining
battery grade Nickel Sulphate (NISO4) from Lonmin’s crude nickel sulphate stream.
Equipment Manufacturers Cluster (MEMSA), which now resides at the Mandela Mining
This has led to the establishment of a R251 million 25,000 t/a pure nickel sulphate plant
Precinct.
in the NW.
• In 2013 IPAP identified the development and rollout of a Gold Loan Scheme to support
9. Business Process Services (BPS)
jewellery manufacturers to buy gold competitively as a raw material. The Scheme was
launched on 30 September 2014, with R100 million allocated under the Manufacturing South Africa has positioned itself as a leading offshoring destination, expanding into
Competitive Enhancement Programme (MCEP)’s niche funding scheme to support broader BPO services and winning international recognition as a preferred customer
large jewellery manufacturers to finance gold for jewellery manufacturing. service location. The international industry is now complemented by a thriving local market.
• De Beers launched a diamond beneficiation scheme with five emerging diamond
A strong government support base has facilitated exponential growth within the BPO/
cutters and polishers.
contact centre sector, which now employs an estimated 220,000 people across both the
8. Mining Capital Equipment domestic and the international segments, with approximately 32,000 servicing international
markets.
Highlights of the decade mainly centred on collaborative government/industry programmes
and projects. The key stand-out Programme is described below. Over the period, the domestic market has grown at an average of 10.7% per annum since
2002, while the offshore/International market has grown at 26.7%.
In discussions with industry, a shared understanding was developed that for South Africa
to once again assert itself as a centre of excellence for the development of goods and In 2016, South Africa was named Offshoring Destination of the Year at the Global Sourcing
services in the mining sector, it had to actively rebuild its R&D capability. This resulted Association (GSA) awards in London. It also received the NOA (National Outsourcing

the dti | IPAP: 2018/19 – 2020/21

36

Association)’s Offshoring Destination of the Year award in 2012, the European Outsourcing 10. Film sector
Association’s (EOA) Offshoring Destination of the Year award in 2013 and the NOA Skills the dti has been supporting the film sector since 2004 through two complementary
Development Project of the Year award in 2014. programmes - the South African Film and Television Co-Production Incentive and the
Foreign Film and Television Post-Production Incentive.
Further recognition of South Africa as a major international BPS player is evidenced by the
fact that he Global Sourcing Association has confirmed that South Africa will host its 2018 Government support provided to the film and television sectors has been a major contributing
Summit. factor in assisting these sectors to become firmly entrenched on the global stage for film
and television production, whilst also providing strong support for local production and
The key instrument in leveraging achievements has been the BPS Incentive Programme.
employment creation.
This was recently revised to include a condition that binds grant recipients to achieve 80%
youth representation in their overall staff complement, thereby aligning the scheme with Since 2011/12, 574 productions (113 foreign, 461 local) have been approved under the
commitments made in the National Youth Accord. Film Incentive Scheme, with a projected spending of R13 billion and the total value of
claims paid by the dti standing at R2.1 billion. 249,641 direct jobs and 22,960 full time
In addition to the BPS incentive, the dti has also partnered with industry, the National Skills
equivalent jobs have been created.
Fund and the Jobs Fund to prepare unemployed youth to work in the industry through the
Monyetla Work Readiness Programme. in 2014/15, the dti launched the newly-developed R1 million threshold South African
Emerging Black Film-Makers Incentive Programme. The objective of the programme is
Since its launch in 2006, Monyetla – meaning “opportunity” in seTswana - has offered
evident from its title - support emerging black filmmakers to nurture and grow their talent
training grants to the industry and helped over 16,000 young people across the country
from small movies to big productions, thus further contributing to skilled employment
to gain training through a model which guarantees commitment by the industry to employ
creation in the sector.
learners post- training.
In parallel with this programme, the IDC and the National Film and Video Foundation
Some key sectoral progress indicators over the review period include the following:
(NFVF) launched the Emerging Black Filmmakers Transformation Fund (EBFTF) as a
• In 1998, Lufthansa became the first offshore operation to outsource to South Africa.
further support measure.
• Following this, South Africa expanded into other global BPO markets and is now home
to operators including Aegis, Capita, CCI, EXL, Barclays, Conduent, Infosys, Genpact, Over the years the two incentive schemes have facilitated the production of several

Teleperformance, Webhelp and WNS. Capita, the largest UK outsourcer located in SA, ‘blockbuster’ movies in South Africa. For instance:

has already created 2,300 jobs and will be creating an additional 1,200 over the next • Mad Max 4 – Fury Road (starring Charlize Theron and Tom Hardy). At US$ 125 million,
12 months. this was the biggest feature film to have been produced by Warner Bros in South Africa.
• SA is also the offshore destination of choice for International brands such as Amazon, • Other major films include Chronicle and Safe House (starring Denzel Washington and
Asda, Bloomberg, British Gas, Direct Line Group, iiNet, 02, Shell and Shop Direct. Ryan Reynolds), the 3D comic-book adventure Dredd and the television drama Mary
• The international industry is complemented by a thriving local market, which and Martha (starring Hilary Swank).
includes companies such as Old Mutual, Sanlam, Woolworths Financial Services, • The Adventures of Zambezia, a locally-produced animated feature film, has received
Discovery Health, The Foschini Group, Metropolitan Health Group and others. outstanding accolades and nominations.
 37

11. Green industries 11.1. National Cleaner Production Centre

As a first step towards reversing South Africa’s historical dependence on fossil fuels for • The National Cleaner Production Centre (NCPC), established in 2002, is a
energy generation, government has pledged to peak, plateau and reduce the country’s government programme that drives the country’s transition towards a low
greenhouse gas (GHG) emissions over the coming decades – a commitment that will have carbon economy. Since 2013, 806 companies have been assessed, resulting
major implications for the country’s industrial and trade agenda. in potential savings of R12.4 billion.

In parallel, government realised that renewable energy generation could become a highly
12. Marine manufacturing and associated services
significant catalyst for industrial development and consumer benefit. A critical mass
of renewable energy-generation projects can achieve a range of objectives including The Marine Manufacturing Sector Programme, as defined in IPAP, encompasses support

localisation of components, job creation and competitiveness improvement. works in:

• boatbuilding/shipbuilding;
In an initial move to develop the country’s renewable energy sector, government introduced
the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) • ship and rig maintenance and repairs;

in 2012. The programme aims to develop South Africa’s renewable energy sector through • manufacturing of marine components; and
a competitive bidding process. At the present stage of development of the industry, all • equipment industries in the upstream and downstream value chain.
projects in Bid Windows 1 and 2, and 10 projects in Bid Window 3 are now operational.
The Marine Manufacturing Industry is at the core of economic growth, job creation, and
6,422 MW of electricity have been procured from 112 renewable energy producers in seven transformation in the oceans economy. A total investment value amounting to approximately
bidding rounds, whilst 3,162 MW of electricity generation capacity from 57 IPP projects R26.2 billion has been disbursed in the Oceans Economy and over 6,545 jobs have been
have been connected to the national grid. created in the various sectors.

16,991 GWh of energy has been generated by renewable energy sources procured under
0.2% mnf. GDP
REIPPPP. Of the 57 projects that have reached commercial operation date, 44 projects
R2.5 bn exports
have already been operational for longer than a year.
R6.9 bn in investments
The total committed investment is R201.8 billion, of which REIPPPP has attracted R48.8
4,507 jobs
billion in foreign investment and financing. This created 32,532 new job years for South
African citizens and has secured carbon emission reductions of 17.25 Mtonnes of CO2. The Industry has secured R6.9 billion or 26.4% of total sectoral investment, creating 4,507

It has also contributed to localisation objectives, with local content commitments by IPPs jobs (or 69.88% of the jobs created in the oceans economy).

amounted to R67.1 billion, or 45% of the total project value of R147.6 billion for all the bid Building on other recommendations flowing from Operation Phakisa, the dti embarked on
windows. Actual local content spend - where construction has already started - amounts an extensive engagement with industry which produced a comprehensive strategy, namely,
to R38.1 billion. The Marine Manufacturing Development Plan (MMDP).

It has now launched a sector development programme that has so far resulted in 5 tenders for
new builds and 5 tenders for maintenance, advertised with a conditionality of 60% local content.

the dti | IPAP: 2018/19 – 2020/21

38

Furthermore, under the designation policy, approximately R3.42 billion in tenders (Navy, AISI support also contributed to more international contracts being won by Aerosud and
National Research Foundation, Transnet) was awarded to local companies. These included Denel Aerostructures with companies such as Airbus, Boeing and Spirit Aerosystems.
tenders to build workboat ferries and (in the biggest contract) the construction of a highly SMMEs were involved in these projects and benefitted from technology transfer and
complex hydrographic survey vessel. process improvement.

Other support provided through the dti incentives leveraged investments worth R503 The sector has also seen the unveiling of a range of significant new products, including:
million. Marine manufacturing performance has greatly improved, and industry exports • a new generation 8x8 infantry combat vehicle;
increased by 174% between 2007 and 2016.
• the Advanced High-Performance Reconnaissance Light Aircraft (Ahrlac);
• the lightest 7.62 mm general-purpose machine gun in the world;
13. Aerospace & Defence
• the Falcon 402 single-engined passenger and utility aircraft, and
Several initiatives were developed over the period, in collaboration with Armscor, the
Department of Defence, Aerospace Maritime and the Defence Industries Association. • the design and build of a nano-satellite in South Africa, launched from the International
Notable outcomes have been building up the National Defence Council, the launch of Space Station as part of the European Commission’s research project.
a BBBEE Charter and the launch of the Aerospace Industry Support Initiative (AISI), an
14. Electro-technical Sector
initiative of the dti, hosted by the CSIR and closely aligned with key IPAP sectoral priorities
The Electro-technical sector is divided into Information and Communications Technology,
and the jobs drivers of the New Growth Path.
Electronics and Electrical Engineering, including White Goods. Each of these is in turn
0.2% mnf. GDP made up of various sub-sectors with their own areas of specialisation.

R2.5 bn exports
In 2008, as part of its on-going effort to sustain competitive capabilities across the sector,
R6.9 bn in investments the dti developed a Customised Sector Program (CSP) to support its growth, create global
4,507 jobs industry awareness of South African electro-technical capabilities and assist contract
manufacturers to get access to large-scale contracts from multinational corporations.
AISI is a fully government-funded mechanism, and works across many sectors of South
African industry, engaging with local players and international aerospace OEMs in support It is also aimed at promoting job retention and growth in the South African television

of the local South African aeronautics, defence and space industry. manufacturing industry, increasing competitiveness and quality in software development,
expanding the domestic manufacturing base in the White Goods industry and increasing
As result of AISI’s financial support, Daliff Precision Engineering (Pty) Ltd. is now on the SA’s production capacity in Compact Fluorescent Lamps within SACU.
Airbus Qualified Parts List (AQPL). The localisation project has led to import substitution
and increased ability to supply local companies. Following a directive from EDD in support Considerable success has been achieved in most of the areas above, as illustrated by the

of the green economy, the IDC also played an important role. Other beneficiaries of the following achievements since the implementation of the CSP:

programme include TraX’s and Aerosud. TraX’s is now positioned as a supplier of Class-3
• In 2011, in terms of the regulations of the PPPFA agreed between the dti, National
printed circuit boards (PCBs) to the aerospace and defence industries in South Africa, and
Treasury and EDD, designation of set-top boxes was set at 30% local content, electrical
as a preferred supplier of the SKA project, the national flagship astronomy programme.
and telecom cables at 90%; residential prepaid electricity meters at 70%; post-paid meters
at 70%; smart meters at 50%; water meters at 40% and two-way radio terminals at 60%.
 39

• UI Cables, based in Alberton, launched a new R100m cable manufacturing plant. This TRANSVERSAL RECORD
90% black-owned company - which manufactures specialised cables for clients in the
energy, transport, communication and mining sectors - has received R46 million in 1. Procurement
support from the dti, through the Black Industrialists Incentive Scheme. UI will produce
1.1. Designation
a wide range of copper cables including optical ground wires.
From its first iteration, IPAP has identified public procurement as a key lever for
• Now in its fourth year of operation, Hi-Sense South Africa produced both its one-
industrialisation and re-industrialisation, by raising aggregate domestic demand
millionth television set and its one-millionth fridge at its local manufacturing facility in
through the promotion of local production and an aggregate increase in the
Atlantis, Western Cape. 
productive sectors’ share of production and employment.
• Whirlpool South Africa invested R100 million in the Isithebe Industrial Park near
Mandeni - recently upgraded by the dti - where it manufactures KIC refrigerators and A review of the technical specification SANS 1286:2017 was carried out in 2017.
freezers and other home appliances for the SA white goods market. 1,000 jobs have The specification provides the standard definition of local content - expressed as a
been retained and 100 new jobs created. A skills development programme is to be put percentage of the tender price and primarily based on local manufacturing. Bidders
in place, together with the creation of an integrated local supply chain. are therefore compelled to use the standard formula in calculating their local content.
• the dti - in partnership with the South African Electrotechnical Export Council and the
To date, a total of 23 sectors/products have been designated for local production,
four leading white goods OEMs - Defy SA, Hi-Sense, Whirlpool and Zero Appliances -
with varying minimum local content thresholds. Below is a table with all the
established the White Goods Manufacturers Cluster. The partnership seeks to position
designated sectors/products thus far.
South Africa as a leading exporter of locally manufactured white goods, especially to
the African continent. Table 1: Sectors/products designated for local production in public sector
procurement

Sectors already designated * Minimum local

#
Category/description content thresholds
RAIL ROLLING STOCK
Diesel locomotives 55%
1. Electric locomotives 60%
Electric multiple units 65%
Wagons 80%
2. Bus bodies from 70% -80%
3. Canned/processed vegetables 80%
4. Clothing, textiles, leather & footwear sector 100%
5. Solar water heaters (tank & collector) 70%
6. Set-top boxes 80%

the dti | IPAP: 2018/19 – 2020/21

40

the dti has conducted over 155 training workshops since July 2012. On Regulation
Sectors already designated * Minimum local
# 9.3 (2011 PPPFA Regulations) and Regulation 8.4 (2017 PPPFA Regulations),
Category/description content thresholds
43 bids utilised these provisions in the absence of designated products to ensure
7. Certain pharmaceutical products Per tender
localisation.
8. Furniture products from 85% - 100%
9. Electrical and telecom cables 90% 1.2. National Industrial Participation Programme (NIPP)
10. Valves and actuators 70% The NIP secretariat is currently managing a range of obligations estimated at R18
11. Working vessels 60% billion in total, to be fulfilled over the next 7 years. Apart from this, it is also negotiating

12. Residential electricity and water meters from 50 to 70% obligations arising from the pharmaceutical industry which are estimated at R10
billion.
Steel conveyance pipes, pipe fittings and
13. from 80% to 100%
specials
Over the period, the programme has attracted obligations across sectors including
14. Powerline hardware and structures 100% Defence, Oil and Gas, Automotive, Aerospace, Rail, Energy and ICT. The chart
15. Transformers From 10% to 90% below reflects the spread of obligations across the sectors and their relative size,

16. Two-way radios 60% as a percentage of the total NIP obligations (R28 billion) currently being managed
and negotiated.
17. Solar PV components From 15% to 90%
18. Rail signalling system 65%
19. Wheelie-bins 100%
20. Fire Fighting Vehicles 30%
Steel Products and Components for
21. 100%
Construction
22. Rail Permanent Way 90%
23. Pumps & MV Motors 70%

Source: the dti

Between 2015 and July 2017, almost R59.95 billion was reported to the dti as value
for local content in public procurement. The major transaction was on the rail rolling
stock fleet procurement, amounting to about R49.5 billion.
Source: the dti
However, the challenge remains the verification of the real achieved value. SABS
has been given an urgent mandate to step up its efforts to carry out accurate and 182 local companies have been supported to improve their competitiveness and
trustworthy local content verifications. to increase their export capabilities. This has been done either through funding,
 41

technology transfer or linking local players with the global value supply chains of of personal computer, camera, scanner and fingerprint reader for both local
OEMs. Investments have been attracted to a value of R3.8 billion, for both capital and export markets. The device is specifically designed for voter registration,
equipment and technology transfer, creating approximately 594 new direct jobs. management of elections and security services.

The focus of NIP projects remains the creation of company capabilities in 1.3. Proudly SA / Localisation
maintenance, repair and overhaul, with a strong emphasis on transfers of Since re-modelling itself to give priority support to IPAP sectors, Proudly SA has
equipment, tools and technological know-how from obligors and certification rolled out sustained campaigns on “buying Local” and consumer education for the
(including personnel training) to meet European standards. Specific support has public and private sectors. Its growing database of local products and services
also been given for the manufacture of aerospace composite components. demonstrates that the campaign has begun to play a crucial role in opening market
access for locally manufactured products. Since the re-launch of the database on 1
Apart from negotiating these NIP obligation agreements, the business unit has
Aril 2017, company membership has increased to 1,130, with the number of items
concluded agreements on the following stand-out projects:
being promoted totalling 9,700.
• the dti reached an agreement with an obligor to provide a full suite of Product
In its support for the local manufacturing sector, Proudly SA has concluded
Lifecycle Management (PLM) software to the CSIR. This will enable the CSIR
localisation partnerships with several companies in the retail sector (including
to support SMME development through the various product lifecycle stages. It
Edcon, Massmart, Foschini and others). Through its “Buy Back SA” campaign
is estimated that 2,000 companies will be supported over a seven-year period.
consumers and businesses are encouraged to make local procurement decisions
• Moipone-Marce JV has committed to investing approximately R10 million in
to allow more money to flow back into the domestic economy.
a production facility in Centurion that will produce four components for fire-
fighting trucks, increasing local content from a designated threshold of 30% to The EDD has also pursued a range of initiatives to support local procurement,
an average of 70% per truck. including agreements with Edcon and Massmart and dialogue with other retailers.
• Cargotec has committed to investing approximately R15 million to expand the The Massmart and Edcon agreements were incorporated as conditions in
manufacturing capacity of CZ Electronics Manufacturing (Pty) Ltd in Boksburg. Competition filings. A Local Procurement Accord was developed with the support
The investment will be used for the acquisition of the necessary equipment to of social partners.”
set up production lines for local manufacture of open-view decoder boxes and
affordable television sets. 2. Industrial Financing

• Huawei has committed to investing R2.1 billion to establish a Joint Innovation Industrial financing is available via incentives administered by government departments
Centre (JIC) in South Africa. The centre will focus on developing technologies and loans / equity facilitated through development finance institutions. the dti is a major
and software modules for both the domestic and international markets, including provider of industrial incentives. The industrial Development Corporation, under the
4.5G/5G for the cellular phone industry, smart home solutions, mobile money direction of the Minister of Economic Development, has greatly expanded the level and
technologies and application platforms for high-end smart phones. range of industrial funding, with an investment approvals target for the IDC, set by EDD,
of R100 billion over five years. This support from the IDC / EDD is a critical element of the
• Hewlett-Packard (HP) has committed to investing R30 million in a South African
resourcing of IPAP at firm-level.
Company, Ideco, to design and manufacture an electronic device that consists

the dti | IPAP: 2018/19 – 2020/21

 42

2.1. Incentives 3. The Business Process Services (BPS) Incentive has projected the creation
One of the most effective dti contributions in support of broadening economic of 43,657 jobs, 80% of which are going to employees under 35 years. The
participation, inclusive growth and job creation has been its continuous provision of revised BPS incentive (implemented in October 2014), has reported over R24
incentive packages. From 2011/12 to January 2018, the department stimulated and billion in projected export revenue.
facilitated enterprise and industrial development by supporting 14,226 enterprises
During 2015/16, the dti diversified its strategy by supporting the development of
through various incentives totalling some R61 billion. These were mainly targeted at
new products and processes through incentives such as the Technology and Human
investments in plant, machinery and equipment, export marketing activities and the
Resources for Industry Programme (THRIP), which attracted the involvement of
acquisition of business development services.
223 students from various universities across the country and a number of small,
In a highly competitive global economy, incentive support to local and foreign medium and micro enterprises innovating from their premises. THRIP promotes
investment is paramount for achieving business and economic growth. Incentive collaboration between government, industry and higher education institutions to
approvals have resulted in projected investment of R326 billion and the creation of produce technology solutions and the appropriate highly skilled human resources
an estimated 670,994 new jobs. to implement them.

Over the past 7 years, the department’s incentives have impacted profoundly on The 2015/16 financial year also saw renewed support for state-owned industrial
corporate behaviour in the various supported sectors. The first major initiative of this parks under the Critical Infrastructure Support Programme, which leverages
type was the Manufacturing Competitiveness Enhancement Programme (MCEP), investment by supporting infrastructure upgrades and lowering the cost of doing
launched in 2012. Through the MCEP, local manufacturers were able to discard business. Supported Industrial parks received R240 million and are located in the
obsolete and antiquated machinery and equipment for new investments valued at Free State, Gauteng, Limpopo, Mpumalanga and North West.
R30 billion in both production assets and competitiveness improvement measures.
2.2. Black Industrialists Scheme (BIS)
This was later followed up by three major sector-specific incentives:
In November 2015 government launched the Black Industrialist Scheme, aimed
1. The Automotive Incentive Scheme, which helped secure investment
at supporting the emergence of committed black industrialists rather than merely
commitments of over R45 billion by auto assemblers and component suppliers,
transferring ownership in existing large companies to empowered individuals
retaining 38,267 jobs.
without any real change in decision-making and control.1
2. The Aquaculture Development Enhancement Programme - which issued
its first approvals in March 2013 – and was designed to encourage the The programme – which has benefited from specifically targeted funding earmarked
geographic spread of aquaculture development beyond the established by the IDC2 and the National Empowerment Fund - has provided support through
Western Cape region. ADEP has achieved this objective with approved measures such as access to finance, access to markets, skills development,
projects valued at R254 million in Gauteng, Mpumalanga, KwaZulu-Natal, standards, quality and productivity improvements.
North West and Limpopo.

1 For BIS qualifying criteria, see the footnote in the Minister’s Foreword, p.4.
2 For further elaboration of IDC funding and impacts on employment, see next section.
 43

Figure 1. Actual /projected IDC funding for black-empowered / black-owned

Investment
companies 2013-2017 Sector the dti Grant
leveraged
Clothing and textiles R102 million R238 million
Oil and gas R101 million R236 million
Mineral beneficiation R50 million R208 million

Source: the dti

It is estimated that this will result in the retention of 7,999 jobs and the creation of
9,459 new jobs.

Projects approved under the Black Industrialists Scheme include:

• K9 Pet Foods in the agro-processing sector, based in the Western Cape;
• Maneli Pets in the agro-processing sector, based in Gauteng;
• Dursorts Group in the agro-processing sector, based in Limpopo;
• Microfinish in the automotive sector, based in KwaZulu-Natal;
Source: IDC Integrated Report 2017 • United Industrial Cables in the industrial infrastructure sector, based in Gauteng;
• Mthembu Tissue in the pulp and paper sector, based in KwaZulu-Natal.
To date, incentive grant support has been approved for 79 projects to a total value
R1.9 billion, leveraging R7.2 billion in private investment. (See Table 1 below).
2.3. Industrial Development Corporation
Table 1. Sectoral funding under BIS, with investments leveraged
Over the 10-year review period the Corporation increasingly
Investment
Sector the dti Grant focused its efforts on implementing a funding strategy closely
leveraged
aligned with key IPAP sectoral priorities.
Plastics and pharmaceuticals R567 million R1.9 billion
Agro-processing R316 million R1 billion From 2007 to March 2017, R91.7 billion of the value of IDC’s funding for South
African businesses went to industries currently prioritised in IPAP. This represented
Metals R279 million R1 billion
81% of total IDC funding in South Africa over the period.
Electronics R98 million R600 million
Pulp and paper R123 million R524 million As can be seen in the following graphic, the primary minerals beneficiation industry
attracted the largest portion of IDC funding; the rationale being that, despite its capital-
Green sector R149 million R473 million
intensity, it has several important linkages with the rest of the economy and provides
Manufacturing logistics R116 million R328 million
a cornerstone for other manufacturing industries to build on. It also contributed to the
Automotives R93 million R268 million largest number of jobs expected to be created through IDC funding (62,900).

the dti | IPAP: 2018/19 – 2020/21

44

Source: the dti

The IDC also played an important role in support of the renewable energy programme, Source: the dti
resulting in green industries receiving the second largest portion of funding. (See
above). Its participation in these industries included funding for renewable energy 3. Innovation and technology
generation projects, sectoral component manufacturing and additional funding to
3.1. TECHNOLOGY INNOVATION AGENCY (TIA)
assist companies to become more energy-efficient.
Over the past ten years the Department of Science and
As the graphic below illustrates, apart from primary minerals beneficiation, the Technology (DST) has focused on the creation and
largest job numbers were recorded in the clothing, textiles, leather and footwear strengthening of new entities to serve as innovation,
and the agriculture and agro-processing industries. Downstream metals industries technology transfer and commercialisation support structures. The aim has been to
such as fabricated metals and the motor vehicle industry also contributed large enable the translation of an even greater number of innovative ideas into prototypes
numbers of jobs. for further commercial and industrial development.

Beginning in 2008, this entailed the conceptualisation and establishment of the

Technology Innovation Agency (TIA) by 2010. Today, TIA continues to be tasked with
the primary responsibility of maturing technologies with industrial potential between
Technology Readiness Levels (TRLs) 4 to 7. To this end, TIA’s mandate is to enable
and support technological innovation across all sectors of the economy to deliver
socio-economic benefits for South Africa and enhance its global competitiveness.
 45

This is achieved by supporting the development and commercialisation of research Further highlights on this technology
outputs from Higher Education Institutions (HEIs), Science Councils (SCs), Public • The Zambian Ministry of Agriculture - with whom CSIR collaborates through
Entities and private research institutions. (Bringing ideas to market). the Zambian Central Veterinary Research institute (CVRI) - requested the CSIR
team to assist with the epidemiology of their two most recent FMD outbreaks.
Over the past four years (2013/14 to 2016/17) the outcomes of some of TIA’s
This was the first time that such depth of information was collated for an FMD
ongoing initiatives have begun to bear witness to its growing impact within a
outbreak in Zambia.
maturing national system of innovation (NSI).
• The July/August FMD outbreak in Rwanda prompted an invitation by the
This has included the disbursement of a total of R1.6 billion to support new Rwandan Ministry of Agriculture to the Molecular Diagnostics Group of the CSIR
technological developments; the emergence of 205 new knowledge innovation to participate in control and scientific analysis of the situation.
products (i.e. protectable intellectual property (IP) and technology demonstrators).
TIA has also provided technical support to over 8,550 SMMEs to further develop Development of research reagents based on SA’s biodiversity:
and commercialise their products and services. It is very encouraging to see that a CapeBioImportant research work is currently being developed on Protein and
number of technologies supported by TIA have proved attractive in both local and Enzyme Reagent (PER) technologies, with an emphasis on molecular biology
international markets; by the end of the 2016/17 financial year, 44 technologies had reagent enzymes isolated from the Kogelberg Biosphere Reserve. The aim is to
already successfully penetrated markets). develop and commercialise market-ready technologies for recombinant production
of protein and enzyme reagents in response to market needs. In addition, the team
Overall, between 2013/14 and 2016/17, TIA funding and support activities resulted
aims to create new PER bio-manufacturing licensing opportunities and spin-out
in the achievement of an economic multiplier effect of 3.38 - meaning that for every
companies for commercialisation of the recombinant reagent protein portfolio.
Rand that TIA spends, an equivalent of R3.38 of economic activity is achieved. (This
compared with 2.87 in the 2010/11 financial year). This has resulted in a contribution End-user testing of one product prototype has been completed; and expanded fully
of R4.48 billion to the national economy and to the creation of 14,022 jobs. branded and packaged beta-testing of an advanced prototype is ongoing. In the first
year, further effort was invested in enhancing the underpinning technology platform.
3.2. TECHNOLOGY COMMERCIALISATION HIGHLIGHTS These platform enhancement activities have resulted in a strong IP-base for the
initiative and have resulted in the identification of several additional enzymes for
CSIR veterinary pathogen screening technology: TokaBio
further development in the coming years.
TokaBio is a spin-out company that was set up in 2017 to focus on veterinary
health and point-of-care diagnostics for control and management of Foot and Licensing of Nutri-drink to Elvema
Mouth disease (FMD). It emanated from the Molecular Diagnostics group within In 2015, a project to produce a commercial version of Nutri-drink (a nutrient-dense
Biosciences, whose objective is to commercialise its developed technologies. Its drink formulated from indigenous South African plants) was initiated, in a partnership
assays, tests and analyses in the field of FMD are already proving worthwhile for between the National Food Technology Research Centre (NFTRC) in Botswana and
other countries, where these diseases are endemic – in particular, Rwanda and Elvema Nutrition (Pty) Ltd. The commercialisation project was funded by SANBio-
Zambia. It is therefore conceivable that the commercialisation strategy may include BioFISA, and the product launched in South Africa in March 2018.
these two countries as early adopters.

the dti | IPAP: 2018/19 – 2020/21

46

3.3. HIGHLIGHTS: SUPPLY-SIDE RDI INTERVENTIONS Currently the following projects/initiatives are close to being introduced into

the market:
Enterprise Creation for Development (ECD)
• Ti-metal powder production: technology maturation is progressing slowly due
Furniture Manufacturing Hub (FMH)
to the inherent complexity of scaling up the volume of production per hour. The
During 2016 and 2017, ECD undertook a project on behalf of the dti to identify next step will be the execution of a techno-economic review; to be followed by
possible interventions that could upgrade the productivity and competitiveness of the first commercialisation step, the establishment of a special purpose delivery
small-scale furniture manufacturers. vehicle to further upscale the technology for an industrial and commercial
environment.
The agreed outcome was the establishment of a Furniture Manufacturing Hub,
• Aeroswift: technology development up to prototype stage has been completed,
which would incorporate a business incubator and shared manufacturing facilities
with the effort now on verification and validation of the printed components. In
to deliver a comprehensive package of business development support services.
addition, the first commercial versions are being designed and manufacturing
The basic aims would be to increase skills levels, introduce modern manufacturing
of two commercial Aeroswift versions is expected to commence in FY 2018/19.
systems and techniques, and open up greater market access.

the dti has now received a high-level business case for the establishment of such
a facility, and it is expected that funding for its establishment will be secured during
2017/18 for implementation in 2018/19.

This initiative has been prioritised in IPAP 2018 and is being co-driven by the dti
and the South African Furniture Initiative. The CSIR has been identified in as a
leading support institution.

Single-dose Malaria treatment 3.4. HIGHLIGHTS: DEMAND-SIDE RDI INTERVENTIONS

The Material Science and Manufacturing (MSM) unit of the CSIR secured a US The Technology Localisation Implementation Unit (TLIU)
$1 million contract with the World Health Organisation to produce a single-dose
The DST set up the Technology Localisation Implementation
malaria pill, based on MSM’s encapsulation technology.
Unit (TLIU) in 2012. Its initial mandate was to help achieve the
outcomes of the Competitive Supplier Development Plan
R&D-led industry development initiatives
(CSDP) linked to the Infrastructure Rebuild Programmes of Eskom and Transnet.
DST-funded R&D investments over the past 10 years have started to yield industrial
impact. The time required for maturing the knowledge/research and technology to a However, over the lifecycle of the TLIU the Unit has been re-aligned to support other
viable industrial product/service varies according to the nature of the innovation. As imperatives linked to the National Development Plan (NDP).
an example, investments in disruptive technologies such as Aeroswift (3-D printing)
Since 2012 the TLIU has provided supplier development and localisation support to
or the direct manufacturing of titanium powder require approximately ten years to
over 200 locally-owned manufacturing companies. The companies supported are
reach maturity (also depending on the level of funding/effort).
 47

directly and indirectly involved in the localisation programmes of state projects. Over • The CSIR has developed and patented several products that improve the safety
65% of these companies are Qualifying Small Enterprises (QSE) or Emerging Micro- and performance of self-contained self-rescuers (emergency breathing equipment).
Enterprises (EME). The companies supported by the TLIU are based in Gauteng, The most recent development is an innovative training device that provides the user
KwaZulu-Natal, Western Cape, Eastern Cape, Mpumalanga and Northern Cape. with a realistic experience of the use of a self-contained self-rescuer.
• The CSIR operates national testing and research facilities that offer unique
Through the support provided by the TLIU there are now many instances where
capabilities in the fields of mechanical testing and in the evaluation of
previously imported products are being produced locally. The list below indicates
products intended to prevent, suppress and mitigate explosions in coal mines.
the impacts that has been achieved in replacing foreign manufactured components
Manufacturers of mining equipment and products rely on the CSIR to provide
with locally manufactured components.
mandatory product verification testing as part of their development and quality
Exhibit 1: outputs and impact from providing technological assistance to 154 control processes.
firms • Through directed research in the field of air quality the CSIR has contributed to
• 700 jobs created. the improvement of the health of mine workers and the communities close to
• 7,910 jobs retained at companies that received technology support. mines and mineral processing plants.
• 103 new projects secured by such companies, to a value of R488 million.
• R122 million generated from company tax (due to increased turnover). Industry Innovation Partnership Fund (IIPF)

• 252% return on DST investment (based on tax payable). A number of instruments have been devised to raise industry R&D levels and
help improve competitiveness in specific industry sectors/sub-sectors through
• Enhancements in skills, capabilities and technology is contributing towards
technology development or pre-competitive R&D. The Sector Innovation Fund (SIF)
increasing firm competitiveness.
jointly funds R&D and postgraduate human capital development in sector-related
technologies, addressing problems identified by the respective sectors.
Mining Occupational Health and Safety
The CSIR helps to ensure the health and safety of South African mine workers by Currently there are active SIF programmes in the domains of wine technology,
offering specialised analytical, testing and training services and by doing research sugar (post-harvest), fish breeding and mining and minerals.
and development in the field of mining occupational health and safety.
4. Special Economic Zones and Industrial Parks
Highlights from the MOHS
4.1. Special Economic Zones (SEZs)
• More than 5,000 pieces of safety and emergency equipment are tested annually
The SEZ programme is one of the critical tools government has prioritised for
to ensure equipment is safe for use and to enable mines to comply with the
accelerating South Africa’s industrialisation. It is specifically designed to attract
related legislative requirements. Equipment tested includes lifting and hoisting
foreign direct investment (FDI), improve existing infrastructure, develop new
gear, emergency breathing equipment and steel wire ropes.
industrial hubs and create significant numbers of new, decent jobs.
• Safety awareness training in the field of mine fires, methane ignitions and coal
dust explosions was provided to more than 3,500 mine workers each year. The Special Economic Zones Act (No 16 of 2014) has now entered its implementation

the dti | IPAP: 2018/19 – 2020/21

48

phase and the key legislative frameworks have been established. These include Dube TradePort SEZ has secured R1.2 billion of operational investments and attracted a
(beyond the founding Act) the promulgation of SEZ Regulations, a Monitoring further R1.8 billion of committed investments. The DTP SEZ’s total assets increased to
and Evaluation Framework, SEZ Fund Guidelines and SEZ Incentive Guidelines. R4,3 billion, generating revenue of R111 million.
the dti has also recently finalised the process of public consultation on draft SEZ
• In Richards Bay SEZ, a R300 million PVC pipe manufacturing plant has been
Governance Regulations.
established and is in operation.
The total number of designated Special Economic Zones has to date increased to • In Maluti-a-Phofung SEZ, investments valued at a combined R350 million in the
eight. These are: Saldanha Bay (WC), Dube Trade Port (KZN), OR Tambo (GP) beef processing and chemical sectors have been secured. The construction of
Coega (EC), East London (EC), Richards Bay (KZN), Musina (Limpopo), and Maluti the two factories commenced in February 2018.
a Phofung (FS).
• the dti has recently completed a process of public consultation for the proposed
The number of operational investors in designated SEZs has increased from 72 Atlantis Green-Tech SEZ in the Western Cape province, and the process of
to 85, with a total investment value of over R9 billion. The number of direct jobs designating the zone is almost complete. Five companies are already operational
created currently stands 13,561; but this is expected to increase substantially as the in Atlantis, with a total investment value of around R680 million.
new investments come on-stream. • The SEZ Operator Permit to authorise the development and management of the
Musina-Makhado SEZ (Metallurgical Zone) has been issued to South African
Energy Metallurgical Base, a subsidiary of a Chinese conglomerate, Shenzhen
Considerable investments are already flowing into a number of the SEZs:
Hoi Mor Resources Holding Company. The total investment is currently
• At Coega, various projects with a combined value of some R12 billion are under
estimated at around R56.9 billion.
construction. These include investments by BAIC automotive, Osho Cement,
MM Engineering, and the construction of a Customs Control Area Warehouse
To derive maximum benefit from the development and implementation of SEZ
(CCA) in Zone 1.
policies, a five-year agreement was signed in 2014 between the dti and the Ministry
of Commerce (MOFCOM) of the Peoples’ Republic of China. Through this MoU 108
officials have already been trained.

4.2. Industrial Parks

In September 2015, the dti launched a structured programme for the revitalisation
of industrial parks in a number of old industrial areas across the country. The main
objective is to accelerate economic development in the lagging regions by attracting
investment, supporting job creation in the manufacturing sector and assisting
regions to build, strengthen and develop strategic industrial capabilities.

This programme  is currently  focused on 11 industrial parks countrywide and is

implemented through national government partnerships  with the provinces, their
 49

agencies and municipalities. A budget of R415 million has been allocated, of The Department has introduced the National Exporter Development Programme (NEDP)
which R231 million has already been spent. To date 55,000 people have found with a particular view to increasing exports of products and services that add value,
employment through the programme. contribute to employment and develop the green economy.

In 2016, the Integrated National Export Strategy (INES) was launched to help advance the
5. Foreign Direct Investment (FDI) Effort
global competitiveness of South African exporters and try to tap into export-led economic
Over the review period foreign direct investment (FDI) has played a significant, if volatile,
growth benefits.
role in the development of the economy. South Africa was Africa’s best foreign direct
investment (FDI) performer in 2013, as well as leading the trend towards increasing intra- Since the establishment of the Export Marketing and Investment Assistance (EMIA) fund,
African investment, according to UNCTAD’s 2014 World Investment Report. 5,288 companies have been supported to a value of R738.56 million. These companies
have generated export sales to a total value of R22.5 billion. This implies that for every
The UNCTAD report showed that FDI inflows to South Africa jumped from US$4.5-billion in
Rand the Department spent, the companies generated R30.53 worth of sales.
2012 to a record-high $8.1-billion in 2013, mainly driven by investments in infrastructure.
However, FDI tapered off sharply in 2014/15, before increasing by 38% In 2016 to a (still
rather modest) US$ 2.4 billion (UNCTAD, 2017).

The sectors attracting the most FDI are energy, telecommunication and services. The 2016
Foreign Direct Investment Projects Database from Trade and Industrial Policy Strategies
(TIPS) identified a total of 30 large-scale investments, either ongoing or announced, with
a combined investment value of R123 billion and the potential to create around 22,000
permanent jobs.

Notable recent developments have included:

• BMW’s construction of a state-of-the-art regional parts distribution centre in Midrand.
The project includes a training centre and offices for its IT operations hub. The
investment value of the distribution centre is R200 million.
• Amplats’ launch of a new R474 million chrome recovery plant which will produce
commercial grade chromite concentrate.

6. National Export Effort

the dti has played a critical role in the promotion of economic development and in increasing
exports in selected target markets. In partnership with the Provincial Investment Promotion
Agencies (PIPAs), it undertakes export promotion activities, specifically in markets that are
aligned to South Africa’s international relations and co-operation agreements.

the dti | IPAP: 2018/19 – 2020/21

50

KEY CONSTRAINTS ON INDUSTRIAL POLICY

 51

MAJOR CHALLENGES A few examples of the negativities which have arisen as a result would be the stalling of
the highly successful REIPPPP1 renewable energy programme; ongoing uncertainties around
Notwithstanding positive outcomes in key sectors - and the crucial role that IPAP interventions
proposed amendments to the MPRDA2 and the Mining Charter; and the failure so far to
have played in preventing further and potentially catastrophic de-industrialisation - South Africa
establish a viable framework for gas-based industrialisation.
still faces many serious challenges on its road to re-industrialisation.
Further linked to the under-performance of key SOCs has been the pressure placed on
The implementation of IPAP has continued under the shadow of uneven and hesitant
manufacturing by sharply escalating and ‘bunched up’ administered prices – most notably,
global economic recovery and against a set of deep-seated domestic structural problems
electricity and port charges - and rail and port inefficiencies and logistical bottlenecks.
and constraints which, taken together, persistently undermine the competitiveness of the
manufacturing sector. Successive IPAP iterations have pointed to the urgent need for Government to step up efforts
across departments to develop a methodology for establishing more rational and consistent
These include the following major issues: administered prices, both for consumers and especially for industrial users

Lack of policy coherence and programme alignment

Concentration of ownership and control3
Experience has by now amply demonstrated that industrial policy has not been able to gain
The extreme concentration of ownership and control in the South African economy - with a
the traction required in circumstances where there is lack of policy certainty, programme
small number of large firms dominating most sectors - remains one of the country’s greatest
alignment and integrated support across government. This has a severe negative impact on a)
economic challenges. Debates about whether these companies are ‘hoarding cash’ or
the effective use of critical industrial policy levers like localisation; b) positioning the country to
business is on an ‘investment strike’ miss the point. The bottom line is that companies have
take full advantage of new growth opportunities related to the Digital Industrial Revolution; and
market power and are using it to earn good profit margins, but investment remains weak. The
c) leveraging South Africa’s comparative resource advantages by linking the primary sectors of
opening-up of the economy to a diversity of participants has not happened and, if anything,
mining and agriculture with the manufacturing sector, across all the key value chains.
concentration and vertical integration within sectors has increased since 1994, reinforced by
The big issues that have come to light have been persistent non-compliance with government high barriers to entry.
policy on localisation and the sub-optimal role of SOCs as economic enablers and industrial
The claims by some that concentration reflects the efficiency of large firms is difficult to square
drivers. The lack of proper alignment of key SOCs with government industrial policy has not
with poor productivity performance and low investment in the economy as a whole. The
just been a matter of poor coordination; it has often been both caused and compounded by
prevalence of cartels in South Africa suggests that concentration and low levels of competition
corruption, collusion and rent-seeking.
have gone together.
Taken together, these dysfunctionalities these have resulted in enormous leakages from the
Large firms have also lobbied and strategised to undermine rivals, as would be expected. The
domestic economy, have supported unnecessary imports and have generated a myriad of
reality that smaller participants are locked-out of markets further feeds the perception that the
negative market signals, undermining confidence, investment and sovereign credit rating.
only way to gain access is by using state leverage to appropriate rents.

1 Renewable Energy Independent Power Producers Programme.

2 Mineral and Petroleum Resources Development Act.
3 Grateful acknowledgement for the content of this section is made to Teboho Bosiu, Sumayya Goga, and Simon Roberts, Policy Briefing Paper 1, Industrial Development Think Tank, UJ, Dec. 2017.

the dti | IPAP: 2018/19 – 2020/21

52

At the heart of the discussion on whether firms are investing in the South African economy Electricity
is the relationship between competition and productivity. While large firms may claim to be
better placed to innovate and upgrade capabilities, monopolists have incentives to focus on
maintaining their position by lobbying and raising barriers to entry to continue to earn returns
from exertion of their market power.

High entry barriers and arrangements which weaken small and medium firms therefore undermine
economy-wide investment. As financial market imperfections mean that retained earnings are
important for firms’ ability to make investments, smaller firms are typically more constrained in
terms of the liquidity they can use to invest.

Competitive markets and policies which lower barriers to entry are therefore important
instruments to stimulate innovation and open up opportunities to entrants with new business
models and products. Competitive markets further incentivise firms to reduce costs and raise
productivity within sectors, investing in expanded productive capabilities.

The patterns of ownership, concentration, competition and orientation of large firms are thus
critical to understanding the low levels of fixed investment and the failure to move towards
more inclusive growth. Evidence from international studies shows that achieving growth and
development requires structural transformation, moving within and across sectors to higher-
value activities. The security and predictability of electricity supply – undermined as it has been by interruptions
and Eskom price hikes - represents a major and increasingly acute concern, as are the triple-
The proposed amendments to the Competition Act are an important step in the right direction.
digit premiums added onto Eskom prices by municipalities implementing a local government
They are intended as part of a package of measures including actions to address barriers to
funding model based on both cost recovery and revenue generation from electricity. This is often
entry, access to development finance, improved regulation and targeted industrial policies to
compounded by significant inefficiencies and inconsistencies within and between municipalities
support rivalry and open up markets. Government is conscious of the need to ensure that new
and billing problems. Industrial competitiveness deteriorates relative to counterparts in other
measures keep the door open to the deployment of other industrial policy measures and that
jurisdictions, with loss of volume resulting in reduced shifts and ultimately plant closures and
they support ‘safe harbours’ for supplier development and clusters.
job losses.

High private sector input costs Continuing escalation of electricity costs, especially for medium and small companies in
vulnerable sectors such as foundries, means that municipal customers have and are increasingly
Linked to the discussion above, the high price of key intermediate inputs – steel, chemicals and becoming less competitive than Eskom-fed competitors. This situation gives rise to negative
products in the plastics value-chain - remains a continuing constraint on the competitiveness unintended consequences, including acting as an incentive for irrational short-term behaviour
of SA manufacturing. such as moving to an Eskom-supplied zone.
 53

Figure 1. Eskom average vs inflation (CPI) Water supply and availability

An increasingly serious problem that needs to be addressed is recurrent interruption of water

supply, especially in smaller municipalities and to small and medium companies.

Port tariffs

Source: Map to a million initiative by Manufacturing circle

Figure 2. Increase above CPI of tariffs for electricity, water, Transnet Freight Rail

High port charges and inefficiencies are a significant barrier and constraint on the export of
value-added goods. The cost of export of value-added tradable goods has for some time now
been higher than both the cost of exports of primary commodities and the import of tradable
goods. Graphs 3 and 4 illustrate that South African port costs are well above the global average.

Source: Electricity and water calculated from Statistics South Africa.4

4 Producer Price Index. Series from 1990 to 2017. Excel spreadsheet. Series for electricity and water chained for different time periods and deflated with average CPI for year. Transnet freight
rail calculated as average revenue per tonne from information on rail revenue and freight carried in tonnes from Annual Reports for relevant year, deflated with average CPI for year.

the dti | IPAP: 2018/19 – 2020/21

54

Figure 3. Total port costs including terminal handling charges for containers per ship Customs
in 2016/17

Source: Ports Regulator

However, it must be noted that improvements have recently been realised thanks to the work Illegal imports, customs misdeclarations, improper practices such as staged consignments
of the National Ports Regulator. and the importation of sub-standard products constitute a severe ongoing threat to local
manufacturing.
Transport and logistics constraints
Far greater intra-government effort is needed to curtail these practices; and this effort should
High logistics costs and economic infrastructure blockages limit the country’s economic be urgently backed up by a programme to upgrade the capacity and capabilities of the Customs
development, thus impeding industrial development and competitiveness. The performance Division of SARS.
of the logistics system has a major impact on the economy - especially in the primary and
Skills for the economy
secondary sectors, which are heavily reliant on a sound transport infrastructure. (The
manufacturing sector is a secondary sector in the sense that it involves the movement of We have to confront the fact that the current structure of the SA economy is ill-suited to the
manufactured goods). creation of large numbers of jobs at appropriate skill levels.

High logistics costs therefore affect manufacturing cost structures and revenues, as well as By this we mean that:
value-addition in manufactured goods and services. Producers are also negatively affected • the composition of the economy by sector (primary, secondary, and tertiary) is not
with respect to delivery times, product quality and customer responsiveness capabilities. appropriate for South Africa, given widespread and well-known developmental challenges;
 55

• within manufacturing, the labour-intensive sectors are not growing fast enough to create
large numbers of jobs;
• jobs in the tertiary sectors are not substitutes for jobs in the productive sectors; rather,
the development of higher value-added productive sectors creates multipliers that support
better quality jobs in the tertiary sectors;
• Apartheid spatial geography continues to constrain the economy in terms of worker travel
time and costs.

The challenge of skills deficits and mismatches - especially in critical sectors of the productive
economy - has continued to hinder industrial and technological development, as the economy
is not producing the skills required by the manufacturing sector. There is thus an urgent need
for further demand-led skills interventions in these sectors – particularly in the light of the fast-
developing Digital Industrial Revolution.

Concerted effort to address these issues must include support for better demand-side planning,
deeper involvement of the public and private sectors in providing resources for training, and
a more strategic and sustainable approach to meeting scarce skills needs in identified high
priority areas of the economy.

the dti | IPAP: 2018/19 – 2020/21

56

TRANSVERSAL FOCUS AREAS

 57

As a response to the many socio-economic challenges the country faces, the

South African government has prioritised the procurement of locally manufactured
products/commodities to support industrial development. Implementation of this
priority takes place through the current procurement legislation - the Preferential
Procurement Policy Framework Act (PPPFA) and its regulations.

In 2011, the Preferential Procurement Regulations were amended to make provision

for the promotion of locally produced products/goods and to empower the dti to
designate products, sectors and sub-sectors with minimum local content thresholds
for local procurement by all organs of state.

The Regulations were reviewed once more in 2017, and the new Regulations –
aimed at strengthening compliance with local content thresholds by state entities
– and came into effect on 1 April 2017.

Figure 1. Government expenditure on goods, services and related items.

1. Public procurement and local content

1.1. DESIGNATION

Situational analysis
In 2017, Public Procurement amounted to R842 billion – this according to National
Treasury audited consolidated financial statements, after eliminating differences in
accounting standards and inter-entity transactions. (National Treasury, 2017), Table 1.

This indicates that public expenditure has a huge impact on the economy in terms of Source: National Treasury Database, 2017
its potential for economic growth and job creation. It is also evident that government
In the Medium Term Strategic Framework (MTSF) 2014-2019, government identified
can use its financial muscle strategically to achieve other objectives such as
local procurement as key policy lever to support re-industrialisation objectives
increasing domestic production and further enhancing competitiveness in domestic
through promotion of local production and increasing the productive sectors’ share
industry.

the dti | IPAP: 2018/19 – 2020/21

58

of production and employment. The MTSF has a local procurement target of 75% in the process for some form of relaxation in a case where bidders cannot
(to be achieved by 2019) of all products capable of being manufactured locally on a meet the required minimum thresholds due to non-availability of materials,
commercially viable basis. designs, standards, and technological choices. Bidders can approach the
dti at the time of bidding, whilst the tender is still open, to obtain a letter
1.1.1. The Preferential Procurement Regulation 2017 on Local Content and of authorisation/exemption to support their local content declarations and
Production cover them for the shortfall. The technical specification (SATS 1286:2011)
has up to now been used by both bidders and procuring entities before
Local Production and Content is under section 8 of the Regulations:
implementation of local content.
• Regulation 8(1): empowers the dti, in consultation with National Treasury,
to designate specific industries/sectors, where only locally manufactured The specification provides the standard definition of local content, which is
products that meet the stipulated minimum threshold for local content will expressed as a percentage of the tender price and primarily based on local
be considered. manufacturing. Bidders are therefore compelled to use the standard formula

• Regulation 8(2): organs of state are obliged to include local content in in calculating their local content.

invitations to bid for products that are designated.

A task team comprising officials from various departments was established to
• Regulation 8(3): National Treasury will timeously inform organs of state review the technical specification, with the primary aims of closing identified
of new designations through circulars. gaps and dealing with ambiguities. This work has since been finalised and
• Regulation 8(4): allows organs of state to “self-designate” provided they the document is now published by the South African Bureau of Standards
consult with the dti and National Treasury (SABS) as a National Standard (SANS 1286: 2017).

• Regulation 8(5): Any bid that fails to meet the required local content
threshold is unacceptable and should be disqualified. 1.1.4. Tenders reported to the dti
Table 1 shows that as from March 2015 to July 2017, almost R59.95 billion
1.1.2. Sectors/products designated for local production in the Public has been locked into the country through local content requirements. The
Procurement System major transaction was on the rail rolling stock fleet procurement, amounting
A total of 23 sectors/products have so far been designated for local to about R49.5 billion. However, only 4.4% of the monetary value of tenders
production with minimum local content thresholds. (See Table 1, p.42 designated for local production was verified.
above for recently designated products).

1.1.3. PROGRESS ON DESIGNATED SECTORS/PRODUCTS

SATS 1286: 2011 Review

The mandatory requirement in designation is that all suppliers must meet the
set minimum thresholds for local content when they are tendering for goods,
works and service contracts within the public sector. A provision is also made
 59

Table 2. Value of tenders designated for local production: locally manufactured products; invitation of bids for non-designated products;
March 2015-July 2017 authorisation to lower thresholds where bidders fail to reach approved
minimum thresholds; and quantity demands for the tender.
Signed standard % Verified: (Total
Total value per No. of companies Tender value
Designated products bidding documents value/tender value
sector R '000 verified verified
submitted to the dti verified) This is an important instrument in achieving the local procurement target of
Textiles & clothing products 312 1,968,084 2 624,417 31.73% 75%. A clause dealing with local procurement of non-designated and/or yet-
Furniture products 75 228,092 0.00% to-be designated products/commodities must be retained in the forthcoming
Electrical & telecom cables 26 1,754,244 3 257,810 14.70%
Public Procurement Bill.
Canned & processed veg 5 2,008 0.00%

Valves & actuators 18 74,934 0.00%

the dti insists on the retention of this lever to ensure that it is widely
Rail rolling stock 4 49,547,220 0.00%
implemented across the state, with the necessary capacity-building to
Set-top boxes * 1 4,300,000 3 600,000 13.95%

Power pylons 3 740,212 3 740,212 100.00% support its implementation.

Solar water heaters ** 13 446,253 12 303,055 67.91%

Steel products 2 207 0.00% 1.1.6. CHALLENGES TO IMPLEMENTATION OF LOCALISATION

Buses 3 806,600 1 132,481 16.42%
PRESCRIPTS
Working boats & vessels 3 86,020 0.00%
TOTALS 465 59,953,874 24 2,657,975 4.43%
1.1.6.1. Compliance with local content requirements
* One tender but different suppliers appointed as a panel by USAASA
** Tender value not known at time of verification due to a panel appointment of potential suppliers by the DoE
The following compliance areas have been identified as being
Source: dti and SABS Local Content Databases 2017
problematic:
1.1.5. Continuous use of Regulation 8.4 to support localisation of non-
a. Advertisement of tenders with local content requirements.
designated products
b. Submission of correct declaration documents by bidders (the
Regulation 8.4 of the 2017 Preferential Procurement Regulations facilitates
Standard/ Municipal Bidding Documents 6.2 and accompanying
local procurement of non-designated and/or yet-to-be designated products/
commodities. It provides that if there is no designated sector, an organ of annexures).
state may include, as a specific condition of the tender, that only locally c. Declaration of correct minimum thresholds for local production
produced services or goods or locally manufactured goods with a stipulated
by bidders.
minimum threshold for local production and content, will be considered.
d. Proper evaluation of bids in terms of local content requirements
The threshold must be in accordance with the standard determined by the
(no points are to be allocated for local content, but it is the first
dti in consultation with National Treasury. the dti and National Treasury
hurdle that must be achieved by bidders).
have recently agreed on the Standard for Implementation of Regulation 8.4
to be processed for circulation. e. Understanding of local content requirements and industrial
policy objectives by both Bid Evaluation and Adjudication
In summary, the standard covers the following key points: promotion of local
Committees.
production and content through designating specific tenders to promote

the dti | IPAP: 2018/19 – 2020/21

60

f. Post-tender award reporting to the dti by the organs of state

(submission of signed Bidding Documents and relevant Annexures).

The Auditor-General’s office has been engaged on this matter

and the auditing of expenditure on the procurement of designated
products is now taking place. Several institutions are now calling on
the dti to assist them with implementation to avoid incurring irregular
expenditure from failure to adhere to local content prescripts.

However, there are no stringent legal and administrative measures

to deal with non-compliance. Government is currently too
uncoordinated, fragmented and institutionally weak to carry out the
function of adequately monitoring compliance on localisation. This
suggests the need for tighter coordination between the dti and NT
to ensure that these matters are vigorously followed through, with
appropriate consultation and capacity- building and with an eye
towards identifying gaps in the existing legislative and regulatory
framework that need to be filled.

At the same time, enforcement remains a major issue: In terms of the

current PPPFA regulations, the dti has powers to designate sectors
but no powers to punish non-compliance.

1.1.6.2. Funding options for the cost of local content verification

Local content requirements are such that all suppliers must meet
the minimum thresholds when they bid for tenders designated for
local production. These thresholds and local production have to
be verified by the SABS after tenders have been awarded to the
successful bidder(s).

the dti is currently exploring funding options to cover the cost of

verification such as creating a budget line/cost allocation to cater for
verification, within the SABS budget. High value /volume contracts
will be prioritised for verification.
 61

Key Action Programmes • Continue to scan for opportunities for further designations in the metal
fabrication, capital equipment and transport equipment sector.
1. Participation in public procurement reforms
Targeted outcomes
Nature and Purpose of the Intervention
Resuscitate local manufacturing sector and job creation in associated
the dti is a participant in public procurement reforms led by National Treasury.
supply chains.
Submissions were made that led to the 2017 Preferential Procurement Regulations Key milestones
and on the Public Procurement Bill. 2018/19 Q1-Q4: Work with the Presidential Infrastructure Coordinating
Commission and Industry Associations to identify
The current plethora of Acts, regulations and institutions makes it difficult to
opportunities for further designation.
measure the attainment of government’s socio-economic objectives through public
Designation of additional products.
procurement, because policy practices and divergences result in uncoordinated
2018/19 Q1-Q4: Deepen localisation by utilising Regulation 8.4 of
outcomes. The public procurement reforms will, therefore, assist in consolidating
the PPPFA for the procurement of non-designated
different statutes, regulatory frameworks and the actions of organs of state dealing
products/commodities. This will be done in
with public procurement.
consultation with other government departments
Targeted outcomes and state-owned companies; and will go a long way
Minimal incidence of corruption, industrial development. towards effective realisation of the local procurement
Key milestones target of 75% set by government in the MTSF.
2018/19 Q1-Q4: Technical inputs to the Procurement Lab to be led by DPME.
Lead departments/agencies: the dti, EDD
2018/19 Q1-Q4: Technical inputs to the public procurement reforms (the Public
Supporting departments/agencies: NT, Proudly SA, DPE, EDD, SABS
Procurement Bill).

1.2. Improve compliance levels on local content

Lead departments/agencies: dti, NT, DPME
Supporting departments/agencies: DPE, EDD, National and Provincial Departments Nature and purpose of the intervention
Government will continue to work to closely monitor non-compliance and follow-
1.1. Designation of further sectors for local procurement
up on published tenders to provide needed support to organs of state for smooth
Nature and Purpose of the Intervention implementation of the local content requirements.

Further ‘waves’ of designation will follow, in keeping with the priorities set out in Where applicable, gaps will be identified in the public procurement system and
the IPAP: intervention plans will be developed to address them. Moreover, focus will be on
• Continue working with the Presidential Infrastructure Coordinating the tendering process: design/preparation stage, Bid Specifications sessions,
Commission and Industry Associations to identify localisation opportunities Bid Evaluation Committee (BEC) and Bid Adjudication Committee - to provide
in big-ticket items defined in government’s strategic infrastructure projects strategic guidance regarding putting together a compliant bid, local content
at all levels of government. evaluation and reporting post- award.

the dti | IPAP: 2018/19 – 2020/21

62

companies, Marce’ Fire-Fighting Technology was awarded a contract

Targeted outcomes
by Armscor to supply aviation rescue and fire-fighting vehicles for the
Increased levels of compliance; capacitated SCM officials and industry
South African Air Force. As a result of this contract, Moipone-Marce’ JV
players.
incurred a NIP obligation agreement with the dti.
Key milestones
2018/19 Q1-Q4: Capacity building provided to supply chain practitioners As part of this agreement, Moipone-Marce JV submitted a business
in all spheres of government including state owned plan committing the JV to invest approximately R 10 million to set-up a
companies, as well as industry players. production facility in Centurion, to produce four components of the fire-
2018/19 Q1-Q4: Develop a robust system of monitoring and enforcement fighting truck; and, in the process, increase local value-addition from a
of designations. designated threshold of 30% to an average of 65%. The business plan
was approved by the IPCC in August 2017.
Lead departments/agencies: the dti, AG, DPME
Supporting departments/agencies: NT, Proudly SA, DPE, EDD, SABS
Table 3. Financials and Job projections for Moipone-Marce NIP
project
1.3. National Industrial Participation Programme (NIPP)

Local Export Local New

Situational Analysis   Investment
Content Sales Sales Jobs
The National Industrial Participation Programme is currently managing NIP
Main Cab 65% 2 725 000 30 000 000 5 000 000 4
obligations estimated at R 10 billion. These obligations arise out of purchases
mainly from sectors such as Defence, Oil and Gas, Automotive, Aerospace, 24" Rim 95% 340 000 7 847 000 3 192 000 0
Rail, Energy, and ICT. The number of companies with NIP obligations is spread Chassis
80% 2 215 000 8 695 000 2 220 000 4
across Defence (7); Oil and Gas (12); Automotive (6); Aerospace (7); Marine (3); Rail
Rail (3) and ICT (5). Monitors 55% 4 880 000 21 470 000 7 820 000 5

The business unit is also negotiating NIP contracts with pharmaceutical Totals 10 160 000 68 012 000 18 232 000 13
companies. These NIP obligation agreements are estimated at R10 billion and
are expected to be finalised before the end of financial year 2018/19. Source: the dti

As reflected in the table above, the investment has the potential to

Key Opportunities
generate export revenue to the value of approximately R 70 million and
1.1.1. Local design and manufacture of fire-fighting truck components local sales of R 18 million over a period of three years.
Marce’ Fire Fighting Technology is a company that specialises in the
design, manufacture and supply of fire-fighting vehicles to the Sub-
Sahara African market. In partnership with the Moipone group of
 63

1.1.2. Local manufacture and assembly of electronic devices by adding four new high-speed machines at a cost of €4.4 million (US$
This business plan addresses the expansion of manufacturing and 4,655,020). The contribution of PmP is estimated at, USD 423,184.
assembly capacity at the CZ Electronics Manufacturing (Pty) Ltd (CZEM)
facility in Boksburg. The capital provided by the obligor Cargotec is to be 1.1.4. Pilatus investment into Aircraft Composite Components

used for acquisition of equipment necessary to set-up production lines manufacturing in South Africa

for local manufacture and assembly of open-view decoder boxes and Somerset West-based aircraft and automotive components manufacturer

affordable television sets. AAT Composites is increasing its reach into the aerospace components
industry by producing specialist parts that are lighter and less costly than
The need for additional production lines was prompted by demand from conventional metal or plastic parts.
the Pep Group, the Pick’n’Pay Group, and the Switch Group for affordable
open-view boxes and television sets. According to the business plan, Through a joint project with aircraft manufacturer Pilatus, AAT will be

CZEM has entered into off-take agreements with these retail groups for included as a Tier-1 supplier into the Pilatus global supply chain and

the supply of approximately 669 million set top boxes to these three retail the manufactured parts will be exported worldwide through Pilatus-

groups over a period of three years. Switzerland and other Pilatus Group subsidiaries. AAT’s increasingly
advanced composite design capability will also open up access to Airbus,
In addition to the set-top box deal, the Pep Group has signed a separate Boeing and other leading aircraft OEM supply chains.
off-take agreement with CZ Technologies for the design, manufacture
and supply of its own-brand television sets targeting low income earners 1.1.5. Rolls Royce partnership with the South African Airways Technical
in Africa. Demand for these television sets is estimated at 457 million (SAAT)
units over a period of three years. Rolls-Royce will procure lease engine storage and on-wing services for
civil aero-engines from SAAT. This will give SAAT access to Rolls-Royce
In total, this additional business is expected to generate approximately
skills and accreditation to provide these services on behalf of Rolls-
R1.7 billion in sales revenue over a three-year period, with an additional
Royce’s customers in Africa. It will additionally equip SAAT to provide
102 new jobs being created in the process.
such services to other engine manufacturers, airline and corporate
operators.
1.1.3. Local manufacture and export of Axminster and Wilton woven
carpets
1.1.6. Airbus work package with Cobham
The project is about PMP assisting Crossley by putting up a guarantee,
Another important highlight is the award of a contract by Airbus to
as well as paying the cost of interest on the loan for acquisition of
South African manufacturer Cobham Satcom as a supplier for the Light
machinery needed by Crossley. PMP will also assist Crossley to maintain
Inmarsat Satcom package for the A320 NEO (New Engine Option) and
its competitive edge in the global market.
the A330 NEO aircraft. This package consists of enhanced low-gain
This NIP support is in response to Crossley having secured contracts to antennae, multi-channel high power amplifiers and a compact satellite
supply Axminster and Wilton Woven carpets for ten Cruise Liners and data unit configuration module. Certification of the systems will begin in
two Royal Caribbean ships. The company seeks to increase its capacity 2017 and installation on the aircraft platforms is expected in 2019.

the dti | IPAP: 2018/19 – 2020/21

64

1.1.7. Huawei Technology Innovation Laboratory The BIMS Device

An agreement has also been reached with Huawei to establish a Joint
Innovation Centre (JIC) in South Africa. In collaboration with other
Huawei Centres throughout the world, this centre will focus on the
development of technologies and software modules for both the domestic
and international markets. The envisaged technologies include 4.5 G/5G
for the cellular phone industry, smart home solutions (a household
management and business communication system), mobile money
technologies and application platforms for high end smart phones.

Huawei is estimating that the investment required to establish the JIC

is approximately R1.2 billion, and that the JIC will have the capability to
generate approximately R5 billion in revenue over a seven-year period,
of which 60% of that will be from export markets. The JIC will employ
approximately 18 highly skilled jobs over the lifespan of the project.
Key Action Programmes
1.1.8. Local Design and Manufacture of a Biometric Identification Device
1. Local design and manufacture of electronic devices
In response to its NIP obligation, Hewlett-Packard (HP) invested R30
million in a South African company, Ideco, to design and manufacture Nature and Purpose of the Intervention
a biometric identification device that incorporates a personal computer,
As discussed above, Cargotec, a Finnish company, has committed to invest
camera, scanner and fingerprint reader. The device is specifically
approximately R15 million into a BEE company, CZ Electronics Manufacturing (PTY)
designed for voter registration, management of elections and security
Ltd to enable this company to acquire equipment necessary to set up production
services, and is aimed at both local and export markets.
lines for local manufacture and assembly of open-view decoder boxes and affordable

Because of its multi-purpose functionality (enrolment, voting, transacting) television sets.

and robustness, the device is very well suited for operations in remote Targeted outcomes
areas. Foreign Direct Investment; Increased sales revenue and export opportunities; job
creation.
Key milestones
2018/19 Q1 Expedite plant design and layout, installation of machinery
and equipment.
2018/19: Q2 – Q3: Completion of prototypes and testing exercises.
2018/19: Q4: Commencement of production phase of the project.

Lead Department/Agency: the dti

 65

1.1. Local design and manufacture of fire-fighting truck components Targeted outcomes
Foreign Direct Investment; increased export capacity; job creation
Nature and Purpose of the Intervention
Key milestones
Also as discussed above, the Marce’-Moipone joint venture incurred a NIP 2018/19 Q1 Expedite installation of machinery and equipment.
obligation upon being awarded a contract by Armscor to supply fire-fighting 2018/19: Q2 – Q3: Commencement of the production phase of the project.
trucks to the South African Air force. In response to this obligation, Marce 2018/19: Q4: Monitor implementation.
committed to invest approximately R 10 million to setup a manufacturing plant in
Centurion to produce key components of the fire-fighting truck locally. Lead Department: the dti

These components will include main cabin, chassis rail, rims and fire monitors.
The business plan seeks to increase the current local content in the truck to
approximately 70%.

Targeted outcomes
Foreign Direct Investment; increased local content; job creation.
Key milestones
2018/19 Q1 Expedite plant design and layout, installation of
machinery and equipment.
2018/19: Q2 – Q3: Completion of prototypes and testing exercises.
2018/19: Q4: Commencement of production phase of the project.

Lead Department/Agency: the dti

1.2. Local manufacture and export of Axminster and Wilton woven carpets

Nature and Purpose of the Intervention

In response to a NIP obligation, Project Materials Southern Africa (PMP)
committed to provide support to a local company; Crossley Carpets, to acquire
additional machinery to enable it to increase capacity to meet export demand for
Axminster and Wilton woven carpets for 10 Cruise Liners and 2 Royal Caribbean
ships. The total contribution by PMP is estimated at US$ 423,184.

With this NIP support, Crossley is likely to generate additional revenue to the Crossley Axminster Pattern 61-AC3069-Q9-A1
value of about R 400 million within the next 4 years.

the dti | IPAP: 2018/19 – 2020/21

66
2. Industrial Financing

Situational analysis
South Africa’s Industrial Policy Action Plan (IPAP) recognises the need for the country’s
industrial financing incentive packages to be competitive in respect of their accessibility,
costs, terms and conditions, in order to attract investment in a competitive global context.

Incentives are part of SA’s industrial policy tool kit to create the best conditions for South
African businesses to manufacture products, innovate, and create job here in South
Africa. South African manufacturers are facing international competitors who benefit
from carefully-orchestrated national manufacturing strategies which typically include:
(i) financial support (in the form of grants and tax incentives) for the procurement of
productive assets; (ii) research and skills development initiatives; and (iii) support for
infrastructure development.

While South Africa has recognised the importance of such interventions for some
time, what is now needed is a much a much sharper, better coordinated and sustained
national focus, to ensure that policies are appropriately targeted and flexible enough
to help manufacturers compete globally and to strongly incentivise the reindustrialise
the economy. The key issue here is to design and impose meaningful conditionalities
wherever incentive support is given.

Ongoing work to strengthen conditionalities is now beginning to bear fruit. A number

of manufacturers have put in place measures to include participation of historically
disadvantaged individuals in company ownership and management, procurement
and skills training. Supplier development requirements have been in place since 2017
to facilitate the entry of new suppliers into established supply chains. Manufacturers
including Black industrialist are already being exposed to a range of new markets around
the world. Assisted companies are typically retaining (and some also increasing) their
core work force. Industrial Parks are being refurbished and upgraded in various townships
to provide state-of-the-art facilities to local entrepreneurs at reasonable cost.

Another key driver of competitive incentive programmes is the promotion of public-private

partnerships in the manufacturing sector. This requires a better mix of public and private
sector funding to support growth and diversification.
 67

The focus for this iteration of IPAP will be on consolidating a competitive incentive
2018/19 Q1-Q3: Explore tax support to stimulate demand for products with
programme to support the growth and diversification of the manufacturing sector in the
significant local content in labour absorbing sectors.
context of a constrained fiscal space.
2018/19 Q3-Q4: Provide support to metal beneficiation for products linked to

Key Action Programme the Digital Industrial Revolution, including the localisation of
some activities in the fields of artificial intelligence, robotics
1. Enhancing Incentive Programmes to support the growth and diversification of and machine learning wearable electronics and smart living
the manufacturing sector. applications.

Nature and purpose of the intervention 2018/19 Q1: Collaboration with the Department of Agriculture, Forestry
and Fisheries to roll out a Black Industrialist-type programme
Development of Incentive Programmes that draw on public and private sector
for Black farmers in rural areas across South Africa
sources of funding, to support the growth and diversification of the manufacturing
sector through the adoption of production technologies appropriate for the challenges 2018/19 Q1-Q2: Scope further assistance for manufacturers to pursue
of the Digital Industrial Revolution. opportunities in global and domestic supply chains.
2018/19 Q1-Q3: Formalise a collaborative forum with private sector financiers
Targeted outcomes
to increase funding dedicated to supporting competitive
• An approach to industrial financing and other forms of incentives that can be enhancement and transformation in the manufacturing sector.
offered by public and private sector role players across the industrial financing
value chain. Lead Department/agencies: the dti, NT
Supporting Department/agencies: DAFF, DST, DOL, DHET, DFIs, private sector
• Prioritisation of funding support based on the country’s developmental objectives,
financiers
assigning meaningful conditionalities wherever incentive support is given.

Key milestones
2018/19 Q1-Q2: Formalise an inter-governmental structure to consolidate and
enhance South Africa’s investment incentive offering, guided
by the outcomes of the ongoing review by DPME of South
Africa’s business incentives.
2018/19 Q2-Q4: Develop a Patriot (National Champion) Corporation Incentive
for companies that maintain their headquarters in South
Africa voluntarily, produce a significant amount of their goods
and services in South Africa, spend 50% or more of their
R&D costs in South Africa and source 60% of their inputs
from South Africa.

the dti | IPAP: 2018/19 – 2020/21

68

3. Developmental trade policy The Technical infrastructure in South Africa comprises four interlinked entities - the South
African National Accreditation System (SANAS), the National Regulator for Compulsory
Specifications (NRCS), the South African Bureau of Standards (SABS) and the National
Metrology Institute of South Africa (NMISA) - all mandated through legislation.

The South African entities are well-respected by their respective international peers, as
is evident from the leadership positions that individuals within the entities are currently
occupying – NMISA – President of the BIPM Consultative Committee for Ionising
Radiation; SABS – ISO Council member; SANAS – ILAC Treasurer. The entities also
occupy various leadership positions at a continental and regional level.

The National Industrial Policy Framework of which IPAP is the implementation plan uses
the term “self-discovery”. This implies a dynamic environment that allows for continuous
improvement of industrial policy interventions, programmes and processes driven by
sector-specific research.

In a rapidly changing business environment it is crucial for economies to stay abreast

of the latest developments in technology, trade and the regulatory domain. Participation
in technical infrastructure activities - from both a technical and strategic perspective -
affords firms, technical experts, industry associations and economic actors in general to
keep up to speed with the dynamics of a rapidly changing world.

Technical Infrastructure International trade requires exporting countries to be updated on the latest requirements
and to conform to constantly changing new regulations. In order to take advantage of
Situational analysis
export opportunities, a solid technical infrastructure system is needed; one which is
South Africa’s technical infrastructure institutions seek to collaborate in the pooling of
on par with the global best practice and is able to rapidly respond to new international
expertise on a national, regional and international basis to offer solutions to common
developments ensuring ease of market access.
regulatory (standards) and wider developmental challenges.
In the domestic market, meeting technical requirements has become essential for
The global dimension is critical. The size of the international networks within which the
business as it ensures that products and services do not pose a health and safety risk to
South African entities play their role is evidenced by our membership in, amongst others,
consumers and the environment, as well as instilling consumer confidence in business.
ISO, IEC, BIPM, OIML, ILAC and IAF 1 – institutions that cover 96% of the global population.
This internationally accepted system serves as a tool for compliant companies to mitigate

1 ISO: International Organisation for Standardisation; IEC: International Electro-Technical Commission; BIPM: International Weights and Measures Bureau; OIML: International Organisation of
Legal Metrology; ILAC: International Laboratory Accreditation Cooperation; IAF: International Accreditation Forum.
 69

the risk of rejection of their products, destined for both the local and the export markets. Key opportunities
The key opportunities that Technical Infrastructure policies and institutions will exploit
The role of a well-functioning Technical Infrastructure system is seen as critical in
over the next three years include:
the international trade arena. This is evidenced by the World Trade Organisation’s
acknowledgment that such a system could - by basing its norms and standards on those • Ensuring that the linkages between Technical infrastructure entities are strengthened,
developed by the international standards, metrology, legal metrology and accreditation to support both the primary and the secondary productive sectors of the economy.
bodies - facilitate the reduction of unnecessary technical barriers to trade amongst trading • Proactively addressing key constraints faced by the priority sectors.
partners.
• Promoting a close collaborative effort and alignment between government, business
and labour.
A Technical Barriers to Trade Chapter, spelling out the necessary roles of the Technical
Infrastructure Institutions, forms an integral part of any trade agreement. the dti’s • Ensuring that technical infrastructure support is available to encourage value-adding

Technical Infrastructure Business Unit - supported by all the relevant TI entities - will growth, labour-intensive manufacturing and advanced beneficiation.

continue to participate in the negotiation and implementation of such agreements, both • Taking a leading role in promoting technical infrastructure to better equip emerging
bilaterally and multilaterally. industries in the SADC region to be competitive in domestic and international markets.
• Supporting quality infrastructure development in Africa that will facilitate the acceptance
The implementation of the Tripartite Free Trade Agreement and the Continental Free of accredited certification, inspection and testing in many African markets, based on
Trade Agreement will be prioritised. single accreditation and a measurement system adapted to intra-Africa trade.

From an over-arching policy perspective, the technical infrastructure entities are expected • Actively support SMMEs to improve the translation of innovative ideas into sustainable
businesses through targeted technical infrastructure interventions.
to support re-industrialisation and technology-intensive production. This will require the
focused use of resources within the current reality of low economic growth. Inadequate • Recapitalising SABS and engineering a turnaround in its offerings to industry.
investments in testing infrastructure over the last few years have resulted in a significant
Key challenges
loss of capacity and capabilities at the SABS. The organisation is embarking on an
extensive drive to recapitalise its facilities over the next 3 years, to ensure that the impact • Lack of understanding - and therefore underutilisation - of Technical Infrastructure
of the SABS on the economy will greatly improve. offerings by emerging industries and other stakeholders.
• Since the Technical Infrastructure Institutions serve a variety of regulators, any delay
The contribution of the Technical Infrastructure to the Digital Industrial Revolution is two-
in the implementation of regulations negatively impacts on the effectiveness of TI
fold: firstly, as enabler - to provide the necessary standards, accurate measurements,
programmes. Collaborative forums have been established to manage this issue.
testing capabilities and accreditation programmes to respond to industry needs; secondly,
• Budgetary issues that constrain the ability of the Technical Infrastructure entities to
as user of new technologies such as 3D printing. To this end NMISA, for example, has
deliver fully on their mandates. The entities are exploring alternative funding models for
designed and built a printer to be used as a measurement system. Various printers were
those areas of business where they are able to generate income.
also bought by NMISA to manufacture products for measurement systems.
• Sub-optimal alignment of Technical Infrastructure Institutions with IPAP sector priorities,
the dti will continue to strengthen its role as policy owner and provide clear policy direction including localisation.
to the various TI entities, to ensure that they remain and become increasingly responsive
• Insufficient domestic testing capacity.
to the current and future needs of the SA economy.

the dti | IPAP: 2018/19 – 2020/21

70

Key Action Programmes moving from quality control at the end of the production cycle to continuous inspection
on the production line; and there is a parallel shift towards eliminating the human error
1. Realignment of technical infrastructure activities with IPAP sectors and 9 dimension from quality control through more automation and robotic measurements.
Point Plan priorities NMISA will align its strategy to support these changes in the industry.

Nature and purpose of the intervention Key milestones

This intervention is a continuation of the commitment made in IPAP 2017 to align 2019/20 Q1-Q4: Upgraded national measurement laboratories for force in
technical infrastructure activities more fully with the Presidential 9-Point Plan and core support of transport, manufacturing and the automotive
IPAP imperatives; most notably, targeted interventions to grow the manufacturing sector.
sectors of the economy.
2018/21 Q1-Q4: Recapitalise SABS testing laboratories in IPAP sectors in

NMISA will continue to strengthen its dimensional measuring capabilities in support of order to provide testing services that manufacturers require.

areas such as fibre optics that require constant improvement of national measurement 2019/20 Q1-Q4: Re-established and accredit the calibration articulated arm
standards to perform tests with higher accuracy. The Length Laboratory will use its facility to provide traceability to this growing technology in
recently acquired equipment to provide measurement and testing support to the manufacturing.
automotive sector as well as the locomotive building sector by means of component 2020/21 Q1-Q4: Re-establish and expand the calibration range of the torque
three-dimensional compliance testing as well as on-site large artefact measurement measurement facility to 20 KN-m, in support, particularly, of
of jigs and fixtures. In addition, there will be a focus on calibrating machine tools to renewable energy drivetrain technology.
higher accuracies.
Lead departments/ agencies: NMISA
Targeted outcomes Supporting Departments/agencies: the dti, NT

Increased domestic industrial capabilities within priority sectors; improved compliance

with technical regulations; indirect job creation. 3. Metal Fabrication, Capital and Transport Equipment

Re-aligned and synchronised technical infrastructure institutions activities, better able Nature and purpose of the intervention
to support IPAP and 9-Point Plan priorities. In support of the automotive industry, NMISA provides advanced materials
characterisation services essential to the quality assurance of automotive parts.
2. Automotive Products and Components Industry relies on high-resolution image analysis to aid in product development and
quality control. NMISA must benchmark its capability with other international institutes.
Nature and purpose of the intervention
NMISA provides traceability to the automotive industry through calibration of the Key milestones
2018/19 Q4: Develop an accreditation programme for the Railway Safety
standards required to support a large number of Coordinate Measuring Machines
Regulator.
(CMMs) and other dimensional measuring instruments enabling component
2019/20 Q3: Roll out the accreditation programme for the Railway Safety
manufacturing and final assembly. There is a shift in technology whereby measuring is Regulator.
 71

2019/20 Q1-Q4: Expand the Material Characterisation facility to include 2020/21 Q1-Q4: Provide reference material for antibiotic drug residue in
internationally benchmarked and recognised capabilities in chicken.
support of metal beneficiation and fabrication.
Lead departments/ agencies: NMISA, SABS
Lead departments/ agencies: NMISA, SANAS
Supporting Departments/agencies: the dti, NT
Supporting Departments/agencies: the dti, NT

5. Forestry, timber, paper and pulp, and furniture

4. Revitalisation of Agriculture and Agro Processing Value Chain
Nature and purpose of the intervention
Nature and purpose of the intervention
Revised standards will support the forestry and timber industry to improve the quality
In response to an industry need for matrix reference materials that are relevant to
of wooden poles. These products form part of the critical infrastructure supporting the
both South African and African analytical measurement requirements, NMISA is
agriculture, telecommunications and energy sectors.
establishing a reference analysis and reference material production facility. The
Reference Materials Facility’s first project is to provide matrix reference materials for Key milestones
feed and food (mycotoxins in maize, aflatoxins in peanut butter, etc.). 2018/19 Q4: Revision of standard on wooden poles, droppers, guardrail
posts and spacer blocks – softwood species.
Quality is a prerequisite for exports and standards provide crucial quality assurance 2018/19 Q4: Revision of standard on pine poles, cross-arms and spacers
on export products. With this in mind, SABS will continue to develop standards and for power distribution, telephone systems and street lighting.
provide the required conformity assessment services and SANAS will continue to
provide recognition of conformity assessment bodies’ technical competency to support Lead departments/ agencies: SABS

the food industry in producing safe, high-quality products both for local consumption Supporting Departments/agencies: the dti, NT

and for export.

6. Plastics, Pharmaceuticals, Chemicals, Cosmetics
Key milestones
2018/19 Q1-Q4: Provide reference materials for pesticides in fruit and Nature and purpose of the intervention
vegetable matrices.
SABS is also responding to an industry need for a supply chain product specification
2018/19 Q1 - Q4: Expansion of the proficiency testing schemes for aqueous
for white petroleum goods (i.e., petrol, diesel, jet fuel, liquefied petroleum gas, ethanol
ethanol and aqueous sodium fluoride, in support of alcohol
and bioethanol) to improve security of supply and ensure quality of products.
content and blood alcohol analysis, as well as for pesticides
in fruit. The cosmetics industry will benefit from a revised standard on detergent skin cleaners,
2019/20 Q1-Q: Provide reference materials for aflatoxins in peanuts. which is being expanded to include other types of detergent skin cleaners to keep
2019/20 Q1-Q4: New standard on flexible retort pouches for the food industry. in line with evolving industry practices. Its application will protect consumers from
2020/21 Q1-Q4: Provide reference materials for nutritional content in food in potentially harmful products available in the market.
support of new food labelling regulations.

the dti | IPAP: 2018/19 – 2020/21

72

Testing capacity will support the health and safety of consumers of traditional African 8. Electro-technical and ICT
herbal medicines.
Nature and purpose of the intervention
Key milestones SABS is developing standards to support the electrical and electronics manufacturing
2018/19 Q3: Establish testing capability for common contaminants and sector by providing safety requirements for products. With electric cables now
residues in traditional African herbal medicines. designated for local production; compliance with the standard will enable the sector
2018/19 Q1-Q4: Provide support to the Medical Control Council (MCC) on to produce safe, high-quality electric/electronic cables.
accreditation provision for medical device manufacturers,
distributors and importers. The renewal of the testing facilities at NETFA will support the development of the
2018/19 Q1-Q4: Build capability to assign purity to peptides in support of electrotechnical industry. The revitalised facility will also support the fulfilment of
biopharma, and protein quantification to support clinical regulatory obligations.
diagnostic measurements.
The protection of digital resources is critical for all organisations across the different
2019/20 Q1-Q4: Revision of standard on detergent skin cleaners.
sectors of the economy. The revision of the standards will enable service providers
2020/21 Q1-Q4: Expand gas reference material capability to provide
in the ICT sector to provide improved information security management systems to
traceability for medical gases.
help protect organisations’ information assets from unauthorised access by third
2020/21 Q1-Q4: Develop capability to assign purity to Bisphenol-A in support
parties. These standards will also support initiatives being developed in the National
of plastic product safety measurements.
Cybersecurity Policy Framework.
Lead departments/ agencies: NMISA, SABS, SANAS
Key milestones
Supporting Departments/agencies: the dti, NT 2018/19 Q1-Q4: NETFA renewal programme.
2018/19 Q1-Q4: Revision of standard on electronic cables with extruded
7. Clothing, textiles, leather and footwear solid dielectric insulation for fixed installations (300/500 V
to1900/3300 V) –Service Cables.
Nature and purpose of the intervention 2018/19 Q1-Q4: Revision of standard on plugs and socket outlets for household
In the clothing, textiles, footwear and leather sector, SABS is developing standards and similar purposes – particular requirements for adaptors.
2018/19 Q1-Q4: Revision of standards on information technology security
on personal protective clothing to ensure safety in hazardous industrial environments
techniques.
like mining and the electrical and petroleum industries.
2018/19 Q1-Q4: Establish a national measurement standard for high voltage
Key milestones direct-current.
2018/19 Q1-Q4: Feasibility study for specific measurement requirements
2018/19 Q1-Q4: New standards for personal protective clothing for hazardous
needed to support the national smart grid initiative.
industrial environment.
2019/20 Q1-Q4: Develop methods required to measure the photometric
Lead departments/ agencies: SABS properties of Light Emitting Diodes (LEDs).
Supporting Departments/agencies: the dti, NT
Lead departments/ agencies: SABS, NMISA
Supporting Departments/agencies: the dti, NT
 73

9. Advancing Beneficiation NRCS will issue health guarantees for exported consignments to facilitate access
into foreign markets. A health guarantee issued by the competent authority in the
Nature and purpose of the intervention
country of origin will be required for all imported products. The proposed regulation
Material measurement - and especially accurate characterisation and compositional
is developed under Section 36(1) (c) to prescribe administrative or procedural matter
analysis of the morphology of metals - is a crucial building block for beneficiation and
for NRCS. The Regulations will be cross-cutting: all Compulsory Specifications will
advanced manufacturing. NMISA recently replaced obsolete equipment with state-of-
require health guarantees or compliance certificates from competent authorities in
the-art surface and structural analysis capabilities (X-ray Photoelectron Spectroscopy,
exporting countries.
X-ray Diffraction and an advance 3D electron microscope).

This will allow for accurate surface and bulk measurements of the composition, Targeted outcomes
morphology and structural properties of metals and nano-materials. The standard • Improved South African food safety controls on imported fishery and canned
will contribute towards development of the fuel cell industry which is critical towards meat products
overcoming the country’s electricity supply constraints. Key industry stakeholders and
• Standards-based support for the continuing implementation of the Aquaculture
government are making significant progress under the fuel cell technology programme
Development and Enhancement Programme (ADEP) which aims to boost the ocean
to accelerate manufacturing locally. SABS published the standard relating to the
economy by providing incentives for marine and freshwater aquaculture operations.
development of the fuel cell industry in September 2017.
A number of aquaculture standards have been published and others are under
Key milestones development, as highlighted below.
2019/20 Q1-Q4: Participate in the Versailles Project on Advanced Materials
and Standards (VAMAS) to develop materials metrology as Key milestones
needed for beneficiation in the SADC region. 2018/19 Q1-Q4: Benchmarked capability for ultrasound calibration (mapping
2020/21 Q1-Q4: Expand materials metrology to support the synthesis and of ocean floors, sonar, etc.)
characterisation of advanced materials. 2018/19 Q1-Q4: Feasibility study for developing a Compulsory Specification
for fish oil.
Lead departments/ agencies: NMISA
2018/19 Q1-Q4: Develop a Compulsory Specification for dried abalone.
Supporting Departments/agencies: the dti, NT
2018/19 Q2: Amendment of the Compulsory Specification for frozen rock
lobster and frozen lobster products derived therefrom (VC
10. Growing the Oceans Economy 8020).
2018/19 Q1-Q4: Finalise the amendment of the Compulsory Specification for
Nature and purpose of the intervention
canned meat products (VC 8019).
NMISA’s Ultrasound Laboratory has invested in the procurement of instrumentation for 2018/19 Q2: Finalise the amendment of the Compulsory specification
the establishment of an ultrasound calibration capability. This will enable equipment for canned fish, canned marine molluscs and canned
that is used to measure distance under water to be accurately calibrated. crustaceans and products derived therefrom (VC 8014).

Collaborative projects will be initiated with Canada and China for the development of
reference materials for aquatic products.

the dti | IPAP: 2018/19 – 2020/21

74

2018/19 Q1-Q4: Finalise the regulation on administrative regulatory The availability of testing capacity will further support local manufacturers to meet
requirements for imported fish and fishery and canned meat regulations pertaining to the energy efficiency rating of appliances.
products regulated under the NRCS Act.
Key milestones
2018/19 Q2: Finalise the new Compulsory Specification for live and raw 2018/19 Q1: Testing capability established for appliances included in
chilled bivalve molluscs (VC 9107).
the Energy Efficiency Labelling regulations (excluding Air
2019/20 Q1-Q4: New standard for fish oil.
Conditioners).
2019/20 Q1-Q4: Reference materials for fish toxins. 2018/19 Q2: Upgrading of geyser test facility to increase capacity through
automation - supported by the UNDP.
Lead departments/ agencies: NMISA, NRCS, SABS
2018/19 Q1-Q4: Revision of the standard on environmental management
Supporting Departments/agencies: the dti, NT
systems – General Guidelines on Implementation.
2019/20 Q1 -Q4: Natural gas composition and calorific accuracy measurements

11. Resolving the Energy Challenge/ supporting Green Industries using traceable Primary Reference Gas Mixtures (PRGMs) in
support of the gas economy.
Nature and purpose of the intervention 2020/21 Q1-Q2: Development and validation of PRGMs for stack emission
Alternative energy sources are vital to reducing our reliance on fossil fuel sources. monitoring in support of the green economy.
NMISA, in partnership with local universities and overseas partners, is actively
Lead departments/agencies: NMISA, SABS
developing accurate measurement protocols for advanced materials for use in
Supporting Departments/agencies: the dti, NT
affordable photovoltaics. The outputs will include the development of reliable
materials characterisation methods for nanomaterials, organic photovoltaics and
hybrid materials. 12. Updating of the National Building Regulations and Building Standards Act and
its Regulations
NMISA’s Gas Flow Laboratory is planning to establish a large gas volumetric
calibration facility in support of the gas economy. However, such a facility cannot Nature and purpose of the intervention
be accommodated within the current NMISA infrastructure and would require new
The National Building Regulations and Building Standards Act (Act No. 103 of
custom-designed and built facilities. The primary reference gas mixtures required for
1977) provides for the promotion of uniformity in the law relating to: a) the erection
gas flow traceability will be developed.
of buildings in the areas of jurisdiction of Local Authorities; b) prescribing building
Similarly, a wind tunnel is planned for inclusion into the new NMISA facilities which standards and matters connected therewith.
will provide wind speed (anemometer) calibration services in support of wind farms.
The basic aim is to ensure safe buildings based on acceptable building science
Other projects include standards to Improve electrical efficiency, extend the lifespan practice, good workmanship and quality materials. The Act predates the Constitution
of lights and ensure consumer safety in the use of lighting products. and the updating of this Act is currently subjected to the required Parliamentary
processes.
The SABS is supporting the green economy by providing a standard on general
guidelines for implementation of Environmental Management Systems which will
contribute towards environmental sustainability through effective implementation of
(EMSs) in industries.
 75

Key milestones Key milestones

2018/19 Q1-Q2: Amendment of relevant National Building Regulations to 2018/19 Q1-Q4: Feasibility study on the need for a compulsory specification
include plumbing requirements as per the Water Act. for Plywood and Composite Board.

2019/20 Q1: Feasibility study on the need for an accreditation programme 2018/19 Q1-Q4: The amendment of VC 9085, the compulsory specification
for Cement.
on the Construction Management System.
2018/19 Q1-Q4: The development of a new Compulsory Specification for the
Lead departments/ agencies: the dti, NRCS, SANAS safety of toys.
Supporting Departments/agencies: the dti, NT Lead departments/ agencies: NRCS
Supporting Departments/agencies: the dti, NT

13. Strategic review of legislation

15. Accreditation programme rollout
Nature and purpose of the intervention
The current legislation that governs the 4 Technical Infrastructure entities was Key milestones
promulgated between 2006 and 2008. In order to maintain a relevant and responsive
2018/19 Q4: Develop an accreditation programme for Asset Management
South African technical infrastructure, a legislative review was conducted in 2017
System.
to assess the degree to which the current legislation is still effective – and, where
appropriate, provide recommendations for amendments. 2019/20 Q3: Roll out the accreditation programme for Asset Management
System.
Key milestones
Lead departments/ agencies: SANAS
2018/19 Q1 -Q4: The recommendations from the legislative review will be Supporting Departments/agencies: the dti, NT
used to develop policy statements, reconfirm the mandates
of the entities and draft proposals for Amendment Bills, where
necessary; preceded by SEIAS. 16. Unlocking the Potential of SMMEs and Cooperatives

Lead departments/ agencies: the dti Nature and purpose of the intervention
Supporting departments/ agencies: NT, NMISA, NRCS, SABS, SANAS SMME development interventions are primarily designed to support SMMEs in
accessing formal commercial markets. SABS and the Jobs Fund Programme are
14. Consumer protection initiatives
jointly supporting new SMMEs in developing quality products and services that will
Nature and purpose of the intervention help them achieve sustainability and profitability. SABS’s role in this is to partner
Safety standards have been published to tighten up the quality and safety requirements with government departments in delivering on their SMME development mandates by
of children’s toys. These standards will form the basis for the development of a developing and delivering appropriate technical support programmes.
comprehensive Compulsory Specification on toy safety.

the dti | IPAP: 2018/19 – 2020/21

76

NMISA is developing virtual reality-based training modules for SMMEs and regional A wide range of other measurement capabilities is available for joint research projects
National Metrology Institutes. These modules will be made available on laptops and with universities and science councils. In 2018 the revised International System of
smart phones to train SMMEs in the basics of measurement and calibration. Units (SI) will change the definition of four of the seven base units, rendering the
national kilogram (primary standard for mass) a secondary standard and introducing
Key milestones
new primary realisations for mass, current, temperature and amount of substance
2018/19 Q4: SMMEs to be assessed for technical competency in
(chemical analysis). NMISA is developing new primary standards for the 4 quantities
measurement and verification.
(kilogram, ampere, kelvin and mole) to shorten the traceability chain for Africa.
2018/19 Q4: SABS Design Institute Skills development and job creation
programme - supported by the Jobs Fund.
Collaborative projects have been established with 6 local universities and are being
2018/19 Q4: SABS SMME-focused technical support by in collaboration
expanded to universities abroad. Cross-cutting research projects on the SI have been
with government departments with SMME development
programmes initiated with the National Metrology Institutes of Germany, UK, China, India, Brazil,
2018/19 Q1-Q4: Virtual Reality training modules for high accuracy mass the USA and Italy. Pan-African research projects are being established with Egypt,
calibration (Level E of OIML), calibration of thermometers Kenya, Ethiopia, Tunisia and Ghana.
and calibration of dimensional standards.
2018/19 Q1-Q4: Support SMMEs through training, using a Measurement Key milestones
Practice Improvement Toolkit aimed at assisting SMEs
to comply with industry specifications, standards and 2018/19 Q1 -Q4: Quantum hall resistance standard and project plan for primary
measurement requirements to improve the quality of the standards for ampere (current) and kelvin (temperature).
products being manufactured and enhance competitiveness
2018/19 Q1-Q4: Prototype Kibble/Watt balance as new primary mass standard.
in the market.
2019/20 Q1-Q4: Virtual Reality training modules for the calibration of external 2019/20 Q1-Q4: Primary standard for Amount of Substance (Avogadro
micrometers and Vernier callipers and the calibration of project).
pressure transducers.
Lead departments/agencies: NMISA
Lead departments/ agencies: NMISA, SANAS, SABS
Supporting Departments/agencies: the dti, NT
Supporting Departments/agencies: the dti, NT

18. Water and Sanitation standards support programme

17. Collaborative research support programme on Science and Technology
Nature and purpose of the intervention
Nature and purpose of the intervention Water use in buildings accounts for the largest use of potable water. This standard
All levels of research, whether basic, applied or developmental, require measurement aims to increase the efficient use of water in buildings, thereby reducing total potable
to gauge progress. NMISA performs research in measurement to establish water demand in South Africa. Its introduction will also support building regulations to
comparable measurement standards and capabilities for South Africa, and to support ensure water efficiency in new constructions.
scientific research and development in the broader science community. The Materials
South Africa contributes to water standards and analysis in the region in a number
Characterisation facility of NMISA has some of the most advanced measurement
of ways - for example the Water Proficiency Testing (PT) Scheme, which is being
equipment in Africa, actively supporting nano-science and its applications.
 77

coordinated through SADCMET. More than 70 laboratories from the testing field, standard-setting needs to be strengthened. The pivotal role of ARSO, AFSEC,
representing 19 African countries, are currently participating. Gravimetrically AFRIMETS and AFRAC in this regard needs to be strengthened, in particular in
prepared water samples are analysed and compared against reference values for support of implementation of the Continental Free Trade Area (CFTA).
15 nutritional and toxic elements and 5 compounds. NMISA’s Inorganic Laboratory is
The dumping of cheap, sub-standard manufactured goods on African markets has
the reference laboratory, whose results are used to confirm the elemental gravimetric
sometimes led to the collapse of local industries and acted as a major barrier to
reference values used in the evaluation of other participants’ results.
industrial development. Tightened implementation of appropriate standards and

Key milestones increased capacity to perform effective conformity assessment, market surveillance
and inspection are therefore of immense importance in preventing the influx of sub-
2018/19 Q1-Q4: New standard for water efficiency in buildings.
standard and injurious products into African markets.
2018/19 Q1-Q4: Expand the SADCMET PT schemes to include Organochlorine
and organophosphate pesticides in water. Regional trade is key to growing the South African economy and standards are central
to market access. South Africa is committed to the African developmental agenda as
Lead departments/agencies: NMISA, SABS articulated in the National Development Plan (NDP) and IPAP. To this end, SABS is
Supporting Departments/agencies: the dti, NT committed to actively participating and supporting the African Regional Standardisation
Organisation (ARSO) and the African Electrotechnical Standardisation Commission
(AFSEC); the key issue here being harmonisation of standards as one of the key
19. Regional integration
levers for growing intra-African trade.
Co-operation on Standards, Quality Assurance, Metrology and Accreditation
SABS will also use its CASCO Chairmanship to establish the regional conformity
(Technical Infrastructure)
assessment platform. Similarly, NMISA, NRCS, SANAS and the dti are playing a
Nature and Purpose of the intervention leading role in the advancement of the technical infrastructure within SADC and
Developing African capacity for technical infrastructure activities can be viewed as across the continent. This is reflected in the hosting and support of the Secretariats of
a long-term intervention involving the co-ordination and cooperation of technical AFRIMETS (NMISA/NRCS), AFSEC (SABS), AFRAC (SANAS), SADCMET (NMISA),
infrastructure activities such as standards, metrology and accreditation and conformity SADCMEL (NRCS), SADCAS (SANAS), SADCTRLC (the dti).
assessment services within African countries. In this regard, collaboration amongst
the continental technical infrastructure institutions - through the Pan African Quality Targeted Outcome
Infrastructure (PAQI) Joint Committee - is of growing relevance. Increased trade and access to regional and international markets through improved
quality and enhanced potential access of African products to export markets.
The capacity to comply with international standards, norms and technical
regulations underpins the potential for regional economic and industrial growth and South Africa is the current Chairperson of SADC and BRICS and as such will be
is a precondition for industrialisation efforts - particularly with respect to metrology, leading various Technical Infrastructure initiatives in 2018. This will include the hosting
standards, accreditation and conformity assessment and compliance. of the Annual SADC Technical Barriers to Trade Structure meeting in South Africa in

As the integration of infrastructure at a continental level expands, the capacity of March 2018.

African countries to collectively influence international Technical Infrastructure

the dti | IPAP: 2018/19 – 2020/21

78

Key milestones by-case basis - and in accordance with World Trade Organisation (WTO) rules and
2018/19 Q1: Lead the establishment of African CASCO platform. consistent with South African industrial policy, legislation and regulations.
2018/19 Q1-Q4: Report on the opportunities for harmonisation of SABS standards
with those of ARSO, AFSEC and SADCSTAN. Targeted outcomes
2018/19 Q1-Q4: AFRAC to obtain recognised international Regional Accreditation
Cooperation status within ILAC and IAF Mutual Recognition Reduce input costs for downstream value-adding manufacturers, leading to
Arrangements. improved competitiveness through further downstream value-addition and increased
2018/19 Q1-Q4: Develop and implement the BRICS TBT cooperation framework manufacturing sector employment.
initiatives in support of South-South trade.
2018/19 Q2: African Food Safety Workshop on Standards and Methods of Key milestones
Analysis for Mycotoxins and Related Contaminants. 2018/19 – 2020/21 Ongoing development of tariff reform in support of downstream
2018/19 Q1-Q4: Implement the SADCMET and AFRIMETS Five-Year Strategic
ongoing: value-adding activities; consideration of company applications
Plan aimed at building capacity and strengthening the region’s
to ITAC for selective tariff increases on commodities with
NMIs in support of the SADC and African Industrialisation
Strategy and Roadmap and TBTs. considerable prospective for preservation and job creation.
2018/19 Q1-Q4: Implement the AFRAC and SADCA Five-Year Strategic Plan
aimed at building capacity and strengthening AFRAC and Lead departments/agencies: the dti, EDD, ITAC
SADCA in support of the SADC Industrialisation Strategy and Supporting departments/agencies: Industry Associations, Export Councils, SARS,
the Tripartite and Continental Free Trade Areas objectives. NT
2018/19 Q4: Support the development and publication of AFSEC guides for
application for standards that support integration of regional
infrastructure. Projects for the period under consideration 21. Clampdown on the illicit economy, customs fraud, illegal imports and sub-
include: (a) Guide for Application of Standards for Rural standard products
Electrification in Africa (Revision); and (b) Guide for Application
of Standards for Electricity Metering Systems in Africa. Nature and purpose of the intervention
2019/20 Q1-Q4: Develop AFRIMETS strategy for supporting the Continental On-going interventions relating to the illicit economy, customs fraud-related issues,
Free Trade Area (CFTA). illegal imports and sub-standard products, and enforcement of the legislative
framework.
Lead departments/agencies: the dti, EDD, NMISA, NRCS, SABS and SANAS
Supporting Departments/agencies: NT Illegal imports are characterised by undervaluation, false declarations (origin and
tariff), stage consignments, rerouting via third countries and misuse of duty rebates
and credits. The scope of the illicit economy is enormous and hampers the growth of
20. Ongoing developmental tariff reform: ITAC
both the domestic and the global economy, whilst also threatening good governance
and social stability.
Nature and purpose of the intervention
With current persistent high levels of unemployment, tariffs should be selectively Research has indicated that the cost to the global economy of counterfeiting alone
used, taking their possible impact on employment carefully into account. Based on reached USD 1.77 trillion in 2015 and it is estimated that the shadow economy in
the dynamics of each industrial sector, tariff investigations are carried out on a case- 2014 was $650 billion per annum in the US.
 79

Persistent illicit trade has a deeply detrimental impact on the South African economy. 4. African integration and industrial development
According to the State Security Agency (SSA) the South African economy is losing
an estimated 10% of its GDP, or R178 billion a year, to the illicit economy. Industry
sectors which are mostly affected by this are:

• clothing and footwear (including importation of second-hand clothing);

• audio-visual (music, motion pictures, CDs, DVDs & software, plastics, electro-
technical components);
• automotives (engine parts, body panels, tires, filters, etc.);
• chemicals/pesticides (insecticides, herbicides, fungicides, non-stick coatings)
and pharmaceuticals (medicines used for treating cancer, HIV, malaria, diabetes,
hypertension, cholesterol, cardiovascular disease, obesity, infectious diseases).

The illicit economy has a major impact on the viability of South Africa’s economic
growth path. It is costing the country thousands of jobs, creating unfair competition to
legitimate businesses and industries, eroding the corporate tax base and distorting
trade.

Counter-interventions to tackle customs fraud issues include a Key Industries Forum

(which meets twice a year) and a Tyre and Plastics Industry Forum (which meets Situational analysis
quarterly). These oversight bodies will be significantly strengthened by the recently The general challenge of African commodity resource dependence has been brought
established Nedlac Task Team on Customs Fraud. into stark relief by the oil and minerals price fluctuations of the past 10 years. African
governments across the board are now focusing on mechanisms to diversify their domestic
Targeted outcomes economies. This is reflected in the many new industrial strategies being developed, the
A significant reduction in customs fraud, in support of increased industrial development use of local content mechanisms to encourage local manufacturing and the use of trade
and competitiveness. policy measures to protect fledgling industries. These trends have also been reflected at
a regional economic community (REC) level, through regional integration initiatives and
Key milestones
the formulation of collaborative industrialisation strategies.
2018/19 Q1-Q4: Closer cooperation between the dti, SARS, NCRS and
various sectoral industry forums to address all types of South Africa has been heavily involved in integration efforts at a REC level, through the
custom fraud. Tripartite Free Trade Area (TFTA) negotiations and ultimately through the Continental
FTA.
Lead departments/agencies: SARS, the dti, EDD
Supporting departments/agencies: the dti, SAPS, NRCS, SABS, Unions

the dti | IPAP: 2018/19 – 2020/21

80

With inter-regional trade at only 12%, the focus on creating a more powerful regional rolled out by the SADC Secretariat. Member-state buy-in to these projects and
market in an increasingly contested international trading environment is seen as programmes is being left to a demand-led process that is flexible and can be tailored
particularly important. to the needs of each member-state.

The creation of larger regional markets with fewer barriers to trade is also seen as the Through the establishment in 2016 of a new vehicle, Trade and Invest Africa (TIA),
key to unlocking Africa’s industrialisation ambitions, allowing greater economies of scale South Africa is gearing up to play the strategic role expected of it by many of its regional
to flourish, helping to break out of the grip of commodity dependence and transforming neighbours.
Africa into a more sophisticated and technologically advanced region.
Relations are being strengthened at a bi-lateral and multi-lateral level. Investment
South Africa, as the most industrialised economy on the continent, is a key player in opportunities are being analysed and prioritised in terms of both enabling infrastructure
facilitating the industrialisation of the region, primarily within SADC (and to a slightly and productive activities.
lesser extent, across sub-Saharan Africa as a whole). Its advanced capital markets,
large corporates, long-established development finance institutions (DFIs) and the depth Stronger coordination and cooperation measures have been put in place between
of its industrial and engineering capabilities have the potential to play a critical role in government departments, leading South African private sector players, SOEs and DFIs;
uplifting the region. As a contributing member state, South Africa has been instrumental and these have already begun to produce better-aligned initiatives.
in the development of the SADC Industrialisation Strategy and Action Plan – an ambitious
At over R300 billion, the rest of Africa (RoA) now represents 26.2% of South Africa’s total
programme focused on activating regional value-chains and strengthening key enabling
goods exports; marginally behind exports to Asia. The significant difference, however, is
institutions.
that exports to Africa comprise a high percentage (over 50%) of finished and intermediate
The challenge is now to move rapidly into the implementation phase, in close co-operation products. If one includes trade in services (which will be proportionally higher for Africa
with leading private sector players. This was expressed at the 2017 SADC Summit than other regional trading blocs) the African region is arguably South Africa’s most
theme hosted in South Africa, “Partnering with the private sector in developing industry important regional market.
and regional value chains”. The true test, however, will be whether the member states
The regional trading relationship is, however, highly skewed in South Africa’s favour (at
can create the necessary conditions to attract large-scale private sector investment into
an approximate ratio of 3:1) with South African imports (of just over R100 billion) being
productive activities at the domestic, regional and international levels.
mostly composed of raw materials, particularly oil. This has led to increasing concern in
These “necessary conditions” include, amongst others: many countries that South African imports have had a detrimental impact on small and
micro players, who are being squeezed out of their domestic market positions while big
• a focus on enabling infrastructure and resolving border issues;
South African firms do little to invest in skills and local capacity-building.
• the development of appropriate industrial skills;
• the enhancement of R&D capabilities; The imperative is therefore for South African companies to switch from a straight trade
play to investing in local production; or at least developing joint ventures with local players.
• the deepening of value-chains (around agriculture, mining and pharmaceuticals
The South African government, along with its SOCs and DFIs, must play a more co-
particularly);
ordinated developmental role: one that is long term in nature, appropriately sequenced
• the development of SMMEs and local clusters of competency. A detailed
and – critically - “crowds-in” local and foreign investors.
implementation plan prioritising the key interventions is in the process of being
 81

With this in mind, the dti is putting increasing emphasis on South African companies Figure 1. SA share of exports to the RoA: 1988–2017
establishing more permanent positions in markets in which they operate in Africa and
identifying long term win-win opportunities for investment and mutually-beneficial
development.

The key opportunities for South Africa lie in agriculture and agro-processing - where
South Africa has strong capabilities across the full value-chain - and in specific mining
and manufacturing value-chains.

Apart from direct opportunities for increased trade in products (much of which has been
facilitated through South African retailers and services) a new, more developmental
approach is needed, which will see South African firms playing a more co-ordinated role
(through public-private partnerships) in investing in productive capabilities.

This could entail the unlocking of untapped natural resources and stranded assets in
mining, agriculture and forestry, or through direct investments in manufacturing operations
across the region. Source: Quantec

As illustrated in Figure 1 below, the RoA’s share of South African exports rose dramatically As indicated in Figure 2 below, the most important RoA export markets for South Africa
between 2008 and 2014 but has subsequently been in decline relative to other export are Botswana and Namibia, which are part of SACU (Southern African Customs Union) –
destinations – in particular Asia. This can be explained both by economic crises in a followed by Mozambique, Zambia and Zimbabwe. In total these countries absorb nearly
number of our key African trading partners and by the steady rise in largely mineral 65% of total exports to the RoA. All these markets (except perhaps Namibia) are still
commodity prices which has boosted the share of exports to Asia. heavily dependent on agricultural or mineral commodities and are therefore exposed to
risk when markets turn.

The fact that South Africa itself is far from immune to the resource dependency risk only
serves to point to the need for South Africa to support efforts to transform and diversify
neighbouring economies, as a matter of evident mutual interest.

the dti | IPAP: 2018/19 – 2020/21

82

Figure 2. Top markets in the RoA Figure 3. The rising share of exports to SADC relative to other blocs in Africa

Source: Quantec

Figure 3 below shows the dramatic rise in the importance of SADC as a regional bloc
relative to the other blocs in West, North, Central, East and the Indian Ocean islands.
The strategic question moving ahead is whether this trend will continue or whether
opportunities are now saturated, and better growth prospects could be found in the other
blocs. The challenge is that while exports are still rising to SADC countries, market share Source: Quantec (2017)
in several areas such as capital goods is now in decline, with increasing competition from
Figure 4 below reflects the fuel imports and commodities that flow into South Africa and
Asian exporters in particular.
the export of motor vehicles and other manufactured products that make up its export
basket to the region.
 83

Figure 4. Top Sectors traded with the RoA 2017 Figure 5. SA investment into the continent: by total annual value

Source: Quantec

the dti is now strengthening its capacity to work with and encourage local industry players
to enhance their profile on the continent and, where appropriate, to establish long-term Source: FDI (Financial Times) Database
productive project investments in-country.
TIA will thus increasingly focus on investment-led strategies that actively partner with
As can be seen from Figure 5 below, slowing investment levels in the past two years South African business and facilitate a collaborative approach to regional and continental
show that there remains much work to be done. engagement.

More specifically, the dti is currently focusing on identifying a limited number of strategic,
long term developmental “mega-opportunities”. Their success will be premised on stronger
alignment of government department initiatives, the deepening of bilateral relationships
with prioritised member states, strategic support for lead firms, the “packaging” of South
African financial offerings and facilitation of the necessary infrastructure to underpin
capacity building across the region.

the dti | IPAP: 2018/19 – 2020/21

84

Figures 6 and 7 below indicate where the majority of the SA outward investment projects Figure 7. SA investment into the continent (2003 – 16): by sector share.
have been taking place, and in which major sectors.

Figure 6. SA investment into the continent: by major recipient countries

Source: FDI (Financial Times) Database Source: FDI (Financial Times) Database

In working with leading globally competitive companies as the spearheads behind which
a host of infrastructural and supplier opportunities can be developed, the dti will focus on
a number of key sectors.

South Africa’s competitive advantage in mining and commercial agriculture has not been
fully exploited on the continent and will form the central focus for the strategy. Secondary
opportunities exist in the oil and gas sector and in infrastructural services into port, rail,
water reticulation and energy distribution.
 85

The development of Africa’s automotive sector in key hubs such as Kenya and Nigeria
Targeted outcomes
opens up a further important area of potential collaboration; while another area of
The initiation and delivery of key projects under the SADC Industrialisation Action
opportunity to be explored is the establishment of production hubs for materials and
Plan.
services going into the provision of urban infrastructure and construction projects in what
are some of the fastest growing cities in the world. Key milestones

Finally, ongoing work is taking place around the harmonisation of pharmaceutical 2018/19 - Q1: Support the SADC Secretariat in the initiation of at least 3
standards to open up economies of scale that will allow regional pharmaceutical key programmes under the Action Plan.
production to take off. 2018/19 - Q4: Show demonstrable delivery in at least 3 of the key
programmes under the SADC Action Plan.
Key Action Programmes
Lead departments/agencies: the dti, IDC, DBSA and DIRCO
1. Supporting the industrialisation initiatives of the regional economic
communities
2. Building an African industrial development knowledge repository, managing
Nature and purpose of the intervention value chain research and supporting capacity-building across the continent

The adoption of the SADC Industrial Strategy and Action Plan in March 2017 was
Nature and purpose of the intervention
an important milestone for the region. South Africa, as an important member of the
This intervention seeks to build on existing research and knowledge across the
Regional Economic Communities (REC) played a key role in the successful roll-
region and will actively seek to build new, stronger collaborative networks. Through
out of the Action Plan. As the current chair of the SADC Summit, it is expected by
the identification of key opportunities and gaps, research will be commissioned into
many member states that South Africa should play a greater role in strengthening
both value chains and other critical issues pertaining to the development of regional
and influencing the roll-out of the plan and ensuring that it achieves the impact that
industrial development. An important development will be to carry out discrete deep-
it is capable of. It therefore has a particular responsibility to encourage innovative
dive studies into specific recommendations emerging from the value-chain research.
initiatives and collaborative investments by both the state and the private sector.
These studies may be of a policy nature or may be costed pre-feasibility studies that
There is a wide range of relatively well-capacitated institutions in South Africa that
allow government to allocate resources to facilitate private sector investments.
could provide support to strengthening capacities across the region.
The intervention will also actively promote sharing of best practice and capacity-
the dti will continue to support the industrialisation agenda of the Continental Free
building across the continent, through the strengthening of a regional research network
Trade Area (CFTA) as well as the Tripartite Free Trade Area (TFTA) - although the
facilitated by Trade and Industrial Policy Strategies (TIPS). A further intervention in
focus is still very much on finalising the trade negotiations. Progress will largely be
strengthening capacity across the region is the expansion of a successful pilot project
dictated by the regional trade and integration efforts of the various work streams. The
based on “APORDE” (Africa Programme on Rethinking Development Economics)
unit will also provide input into the SACU industrialisation agenda where appropriate.
that will target key industrial policy officials across the region. This initiative - first
held in 2017 - is called Industrial Policy for Policy Markers (IPPM) and was attended
by a cross-section of officials from the SADC region. The call by the United Nations

the dti | IPAP: 2018/19 – 2020/21

86

Economic Commission for Africa (UNECA) to develop “smart states” to facilitate to bankable feasibility. This means that many potential projects do not progress
industrialisation will be a key objective to be pursued within relevant government through to the initiation phase of project development. Far stronger co-ordination
departments. between the financial community, DFIs and the dti is required in identifying potential
projects, dealing with specific blockages early on, and then facilitating the necessary
Data scarcity across the African continent is a significant challenge. To enable
feasibility studies.
effective policy development, it is important to strengthen knowledge resources on
Africa within South Africa, and to complement this with targeted research projects This intervention seeks to promote catalytic industrial projects across the continent
aimed at high-potential projects and value-chains. It is anticipated that all research that either have South African involvement and investment, or through which South
and data will be uploaded to an online platform that will act as a facilitator of a virtual African suppliers can benefit. The intervention will build on the “bid-book” of potential
community of practice. A partnership has been launched with National Treasury and projects that the dti has developed. Once high-potential projects have reached
UNU-WIDER (the United Nations University) around the regional programme and bankability, South Africa’s position as a financial hub can be leveraged to fast-track
should significantly raise the profile and impact of regional research. This project will them.
be delivering 10 papers a year over a 3-year period.
Targeted outcomes
Targeted outcomes Industrial projects identified, scoped and facilitated through to inception.
Partnerships developed with leading research bodies across the continent and
research projects initiated Key milestones
2018/19 – Q4: 10 industrial projects identified and scoped (2-page
Key milestones background scopings) as possibilities for detailed project
2018/19 – Q2: Hosting of an annual conference on issues of regional preparation or feasibility studies.
development. 2018/19 – Q4: Facilitate investment decisions by SA-based companies into
2018/19 – Q4: 3 research projects initiated into value-chains/industrial policy three industrial projects across the continent.
issues.
Lead departments/agencies: the dti, EDD, DPE, IDC, DBSA, NT, TIA
Lead departments/ agencies: the dti, EDD, TIPS, IDC, DBSA, NT, TIA

4. Leveraging investment-led trade and industrial integration opportunities

3. Cross-border Industrial Projects
Nature and purpose of the intervention
Nature and purpose of the intervention To encourage better alignment and impact by South African companies and
A key challenge facing African governments is the lack of available bankable industrial institutions, the dti is working with a wide range of role-players to identify and prioritise
development projects for consideration by local or international financiers, industrial a number of mega-projects on the continent, where multi-sectoral opportunities can
corporations or project developers. There is not necessarily a lack of finance, but be “crowded in” through more co-ordinated efforts. The common line often mentioned
rather limitations in the ability to identify and finalise potentially viable projects through is that whereas many of our competitors go into a country together, South Africa has
 87

not utilised the “SA inc” approach - so important to competing successfully on the 5. Special Economic Zones (SEZs)
continent - to anything like the full extent possible.

the dti will therefore develop and facilitate a more integrated approach in targeting
key regional mega-opportunities. This will see more focus in terms of country selection
and will take a developmental approach to identifying longer term opportunities and
the quantum of commercial, infrastructural and skills requirements for each basket
of projects. Clearly these opportunities should be developed as a set of win-win
partnerships between South Africa and the relevant member states.

Targeted outcomes
The identification and scoping of key mega-projects in the region that can act as
catalysts for structural transformation in the region and as a source of demand for
South African products.

Key milestones

2018/19 Q3: Identification of two mega-projects for intensive research, Situational Analysis
relationship-building and facilitation.
Special Economic Zones (SEZs) have proven to be an effective policy instrument for
2018/19 Q4: Orientation of the new strategy around strategic opportunities propelling industrialisation in some of the world’s leading developing economies.
in which South Africa’s involvement can be deepened. Substantively, the SEZ Programme underpins most of China’s current manufacturing
capacity, and this has enabled it to be, amongst other things, a highly-competitive net
Lead departments/agencies: the dti, EDD, DPE, DST, IDC, DBSA, NT, the
exporter of value-added goods.
Presidency, TIA
Through its more than 200 SEZs, China has been able to sustain a positive trading
account for a protracted period of time. Moreover, the SEZ Programme has contributed
immensely towards gainful job creation in that country. A similar trend is emerging in
some African countries: Ethiopia, Kenya, Zambia, Botswana and Nigeria have all begun
to develop and implement pro-industrialisation policy initiatives.

With an eye to international trends, the South African government has also sought to
employ the SEZ policy instrument - with the following defined objectives:

• Promotion of the mastery of targeted industrial capabilities within the framework of

the IPAP and the NDP.

the dti | IPAP: 2018/19 – 2020/21

88

• Promotion of beneficiation and value-addition to the country’s minerals and other Zone is vested in the Minister of Trade and Industry. The Minister, however, receives
natural resources. advice from the SEZ Advisory Board, confers with the Minister of Finance and seeks
• Development of the world-class infrastructure required to support the development of the concurrence of Cabinet.
the targeted industrial activities.
Targeted outcomes
• Attraction of foreign and domestic direct investment.
Identification and approval of high-impact, economically viable SEZ projects,
• Acceleration of economic growth and the creation of much needed jobs. developed and properly managed to significantly contribute to the attraction
of foreign and domestic direct investment, building of targeted industries, and
Over the past few years, work in this programme has focused on the design of a regulatory
development of new industrial hubs.
framework for effective design, planning, development and management of zones. This
included the introduction of a package of incentives for qualifying investments located Key milestones
within designated zones and undertaking feasibility studies to determine the long-term
2018 Q 1: Review of one application for designation by the Secretariat
economic viability of proposed new zones.
and Technical Subcommittee of the Board.
2018 Q 2: Review of the application by the full Board.

2018 Q 3: Gazette notice published for public comments.

The current work package for the SEZ Programme is mainly centred on the following:
a) designation of new SEZs; b) compliance with legislation; c) investment promotion 2018 Q 4: Designation.
and marketing; d) infrastructure development; e) institutional development; f) capacity-
building; and g) stakeholder management. 2. Institutional and capacity development

Key Action Programmes Nature and purpose of the intervention

The one conspicuous challenge in relation to the development of the SEZs is the
1. Designation of Special Economic Zones
capacity constraint with respect to the technical know-how among development
Nature and purpose of the intervention practitioners across the three spheres of government. Lessons from international
experience suggest that the success of an SEZ Programme depends on the capacity
The designation of an area as a Special Economic Zone to authorise the applicant
of implementing agencies to plan, design, develop, manage and operate the zones.
to develop the zone. The formal assessment of applications for designations,
Continuous institution- and capacity-building is therefore necessary for the success
determination of economically viable zones and authorisation of the development of
of any SEZ Programme.
a special economic zone in a specific region of the country.

Given this context, the South African government (through the dti) has entered into
The application includes, amongst other things, feasibilities studies, environmental
a five-year Agreement with China with a view to creating a platform for Chinese
authorisation, land approvals, business plan, investment attraction strategy and
officials to share their valuable SEZ experience, thus better equipping South Africa’s
commitments from various critical stakeholders.
policy-makers, development practitioners and operators with the required planning,
In terms of the SEZ legislation, the power to designate an area as a Special Economic technical, managerial and operational know-how.
 89

To date, 120 representatives from National and Provincial Government Departments 6. Innovation & Technology
and Provincial Development Agencies have benefitted from the Chinese training
programme. (Chapter provided by the Department of Science & Technology)

Targeted outcomes PROTECTING INTELLECTUAL PROPERTY FROM PUBLICLY-FINANCED

RESEARCH AND DEVELOPMENT THROUGH THE NATIONAL INTELLECTUAL
A larger pool of skills and expertise available locally to contribute to the planning,
PROPERTY MANAGEMENT OFFICE (NIPMO)
design, development, and management of Special Economic Zones.
Key milestones
2018 Q 1: Recruitment of further candidates for SEZ training in China.
2018 Q 2: Training in China taking place.

2018 Q 3: Report on the training in China approved.

3. Marketing Plan for Special Economic Zones

Nature of intervention
Marketing and Promotion of the SEZ is one of the critical pillars of the SEZ. This is
mainly used to promote South African Special Economic Zones opportunities both
locally and internationally. The marketing and promotion of SEZ are implemented
through strategic partnerships with internal and external stakeholders such as TISA,
ISA, ITED, Embassies, FDIs, and designated SEZs.

Clear communication with investors on the investment opportunities and incentives

available in the special economic zones is vital for the success of the zones. This
requires clear packaging of investment opportunities and clear strategies and NIPMO was established in terms of the Intellectual Property Rights from Publicly
programme for engaging the targeted domestic and foreign investors. Financed Research and Development Act (IPR Act; No. 51 of 2008). The scope of this
piece of legislation is to ensure that intellectual property (IP) emanating from publicly
Targeted outcomes
financed research and development is identified, protected, utilised and commercialised
Increased awareness that would in turn increase both domestic and foreign for the benefit of the people of the Republic, whether it be for socio- economic and/or
investments. other impacts.

Key milestones
Quarterly Milestones: one Investment mission per quarter.

the dti | IPAP: 2018/19 – 2020/21

 90

Figure 1. The pathway for the transfer of technology (embodying intellectual d. Revenue collected by an institution for the use of its IP was, on average, R32.9 million
property) from a research institution to an existing company or a start-up to per year (Figure 5). Of significance is that more than 88% of this revenue accrued
create impact - including jobs, improvement in the quality of life of individuals and consistently each year to the same four institutions that have well-established TTFs.
contribution towards GDP Most IP transactions yielded less than R100,000 per year.

Figure 2. The number of disclosures2

Source: The DST

Progress in ensuring that new technologies developed by our higher education institutions
and science councils can be tracked through various key indicators including:

a. The number of new disclosures (new IP creations such as an invention) made by

researchers to their office of technology transfer at an institution has increased from
2008 to 2014 (Figure 2).
b. The number of patent applications filed by institutions. (Figure 3) - where the number
of new patent applications filed increased more rapidly than the increase in research
expenditure over the period 2008 to 2014;
c. The number of licensing agreements concluded granting an existing company or a
start-up company rights to use the IP (Figure 4); where the number quadrupled over
the period of 20018 to 2014. Furthermore, 45 start-up companies were formed over
the period to commercialise an institution’s technology, 73% of which were based on
publicly-funded IP. From 2010 to 2014 the total number of FTEs employed in start-up
companies originating from higher education institutions grew by 29%, from 238 to 308.

2 PLEASE NOTE: The data in charts 2-5 is the most recent to hand. A further major update review is to be carried out in 2018, for release in early 2019.
 91

Figure 3. The number of new patent applications Figure 5. Revenue received by institutions from their licensed IP

Figure 4. Licence agreements concluded

the dti | IPAP: 2018/19 – 2020/21

92

SCIENCE AND TECHNOLOGY • Address the risks and position South Africa to benefit from the opportunities
presented by megatrends such as urbanisation, environmental degradation,
The landscape of the South African National System of Innovation (NSI) has also
increasing role for digital technologies and ICTs, as well as the Digital Industrial
developed over the last ten years, with the milestones indicated in the schematic below.
Revolution.
The green hexagons indicate new institutions which were established over this period.
• Put strategies in place to ensure that the NSI becomes more inclusive.
Figure 6. South African SET policy and institutional trajectory In recognition of the fact that improved innovation performance is dependent on
partnerships, the White Paper is aimed at fostering innovation ecosystems at all
levels in the NSI. This will be done through inter alia, the purposeful inclusion of both
business and civil society in the identification of STI priorities, the implementation
of programmes locally and an intensified focus on linking with African (and other
international) STI programmes and entrepreneurs. 
To improve the functioning of the
NSI and the full realisation of the benefits of STI, the White Paper also proposes
mechanisms to improve the coordination and governance of STI programmes across
government and the NSI. For instance, the White Paper proposes a “whole-of-
government” approach to innovation policy (e.g. harmonising policies that impact on
innovation and aligning incentives across government).

Fundamental to improving the functioning of the NSI is the need to build on progress
in knowledge generation and to increase the rapid diffusion of knowledge, as well as
to significantly expand the human capital base of the economy (in both technical and
Source: The DST academic disciplines) and to support would-be technology-based entrepreneurs.

The next major milestones in the NSI is the update of the White Paper on Science and In addition to measures to address these needs, the White Paper places further
Technology, followed by the development of the Decadal Plan which will replace/update emphasis on transformation of the economy through the utilisation of publicly funded
the Ten-Year Innovation Plan (2008 – 2018). Intellectual Property to develop new black-owned technology-based firms. For
innovation and entrepreneurship to become pervasive throughout South African
1. DEVELOPMENT OF THE WHITE PAPER ON SCIENCE & TECHNOLOGY society, the White Paper focuses on expanding the Public Engagement with Science
programme, amongst others.
Since the adoption of the 1996 White Paper on Science and Technology 20 years
ago, the STI environment has seen significant shifts that require an updated The NSI is underfunded and both business confidence and the fiscal situation have
policy response from South Africa. The White Paper on Science, Technology and not been conducive to increased investment in STI over the recent past. Therefore,
Innovation, currently under development, and scheduled for completion during the the White Paper prioritises mechanisms to attract greater STI investment. Examples
2018/19 financial year, seeks to achieve the following: are an evidence-based STI investment framework supported by the National Treasury
• Based on an evaluation of progress across the NSI over the past 20 years, and the rest of government, and new approaches to the selection of technology focus
retain and intensify policy approaches that are delivering good results, and areas that would improve the productivity of public STI investment and attract private
where necessary, adopt new approaches.
sector investment across the NSI.
 93

2. SCIENCE AND TECHNOLOGY INNOVATION (STI) AND ECONOMIC GROWTH: The sources of R&D funding and the various entities performing R&D are indicated
SA POLICY CONTEXT AND COORDINATION in Figure 8 below.

2.1. Investment in knowledge generation Figure 8. R&D funding flow diagram

The focus on increased knowledge generation is aimed at restoring, transforming
and building the human pipeline in research and development (R&D). An increase
in the pool of knowledge workers is one of the key enablers towards ensuring
new technological knowledge, opportunities to develop new technologies and
higher levels of contribution to sustained industrial competitiveness.

Expanding knowledge generation/production capacity is essential for increased

efficiency gains across the economy. The target is to substantially increase the
Gross Expenditure on R&D (GERD) as a percentage of the Gross Domestic
Product (GDP). After being static at 0,73% of GDP, the latest measurement
indicates an increase to 0,77% and then to 0,8%, as indicated in Figure 6 below.
Despite the small changes indicated in this Figure, this is the fifth consecutive
year that GERD as % of GDP has increased in constant 2010 Rand values.

Figure 7. GERD as a % of GDP

Source: The DST

Source: The DST

the dti | IPAP: 2018/19 – 2020/21

94

The trends in business expenditure on R&D (BERD) for various sectors are 2.2. Technology absorption and diffusion
given in Figure 9 below. In further support of technology transfer, diffusion and absorption, the DST
has initiated the biennial Innovation Bridge (IB) technology showcase and
Figure 9. Business expenditure by sector (R’ 000)
matchmaking event. IB is aimed at enabling linkages and networking between
South African, regional and international innovators, industry and public and
private technology development and commercialisation funding partners.

The inaugural IB event was held in 2015 and was aimed at encouraging and
accelerating the utilisation and commercialisation of existing and new knowledge
and technologies that have been developed in South African research and
technology development institutions. At that time, over 90 innovations, from
37 publicly-funded organisations, were exhibited. These included the latest
technologies from the country’s top research and technology development
support institutions, including 16 universities, 14 TIA-supported companies, 6
science councils, and the South African National Space Agency (SANSA).

The event was attended by more than 700 participants, of which: 331 were
large companies and SMMEs; 78 technology financiers; 121 representatives
from local, provincial and national government; 24 international participants;
and 199 research organisations. Overall, the 2015 IB outcomes included 227
new collaborations and 58 unique follow-on deals in the form of partnership and
funding agreements.

The second national IB event was held on 15 September 2017 and saw a
42% increase in attendance (with over 1,070 attendees registered on the
day). The event also recorded an 87% increase in exhibitors with a total of 69
exhibitors showcasing over 170 innovations (compared with 37 exhibitors and
92 innovations in 2015).

It is envisaged that the third IB showcase event will be held before the end of the
2018/19 financial year.
Source: The DST

As part of the DST’s ongoing efforts to create an enabling environment to

stimulate technology transfer and diffusion, the Department also launched
its Innovation Bridge Portal (IBP), (see www.innovationbridge.info), at the IB
 95

event in September 2017. The IBP serves as an online platform to encourage • the Implementation of project management practices across the
greater ongoing interaction between industry, academia and government, Department with a view to ensuring that:
as a complementary initiative to the biennial IB technology showcase and • High-risk areas are identified early and resolved;
matchmaking events. • Commercialisation partnerships established, and

To this end, the IBP, on a year-round basis, now effectively enables: • Market and SHE risks are well understood and managed.
It is envisaged that the CF implementation protocols will be shared with and,
• the profiling and marketing of South African technology innovation
competencies and products, locally and internationally; where appropriate, institutionalised through the Commercialisation Collaboration
Forum (CCF).
• the facilitation of access to funding and support for researchers, technology
developers and technology entrepreneurs working in the STI space; The CCF was initiated in 2014 by the DST, together with partner organisations in
• matchmaking between researchers, technology developers and the NSI, as a voluntary network of publicly-funded technology development and
entrepreneurs with relevant financiers and supporting entities. commercialisation funding and support organisations that contribute directly or
indirectly to national technology commercialisation value chains.
Further testing and enhancements to IBP functionalities will continue throughout
Regular engagements at the CCF are intended to enable the sharing of
2018.
information and best practice, as well as to enhance contact across the various

2.3. Ongoing harmonisation of innovation support initiatives government departments and entities involved in technology development and
commercialisation.
In 2015 the DST finalised its Commercialisation Framework (CF) as an
overarching internal policy guideline for actions that can be taken in respect of Ultimately, the goal of the CCF is to develop an effective inter-departmental
the commercialisation activities of the Department. In 2017, the Department commercialisation collaboration strategic partnership to support the optimisation
developed and finalised the CF implementation protocols as a guide to support of government spending on technology development and commercialisation
the implementation of the CF approach. Specifically, the Protocols are aimed at and to reduce any unnecessary duplication of commercialisation funding efforts.
enabling the systematic gathering of relevant evidence in support of decision-
To give effect to this goal, it is envisaged that the CCF will be formally established
making on R&D investments and the realisation of any commercialisation
during the 2018/19 financial year, through nominations of representatives to
opportunities in this regard.
serve on the CCF by the Directors-General of several government departments,
The Protocols are now available to assist and support decision-making by partners and the heads of other entities including the DST, TIA, the dti, EDD, DSBD,
and stakeholders in technology project management and commercialisation SEDA, and the IDC, among others.
across the NSI. This is to be achieved by enabling the systematic implementation
of a standard approach to risk mitigation, including: 2.4. The Sovereign Innovation Fund
The establishment of the Sovereign Innovation Fund was endorsed at the
• the adoption of portfolio management approaches; careful balancing of
July 2015 Cabinet Lekgotla and was included as a DST action item under the
projects to manage high risk/high return (radical innovation) versus low risk/
low return (incremental innovation); Nine-Point Plan. Subsequently the Fund was affirmed in 2016 as a national

the dti | IPAP: 2018/19 – 2020/21

 96

imperative when the President, in his State of the Nation Address, announced The success achieved to date and the recognition of a need to further upscale the
that the DST will “... finalise the Sovereign Innovation Fund, a public-private programme has resulted in its expansion to support increased local production,
funding partnership aimed at commercialising innovations that are from ideas most notably in the mining equipment manufacturing industry.
from the public and the private sectors” .3

TLP interventions are offered based on several instruments:

Throughout 2016 and 2017, the DST engaged with a number of government
departments and stakeholders, including National Treasury (NT), the dti, • Firm-level Technology Assistance Packages (FTAPs): these ensure that

Economic Development Department (EDD), and the Department of Small a third party (e.g. university or science council) provides technology
Business Development (DSBD). This was with a view to identifying the most assistance, such as skills, equipment, designs, manufacturing systems,
appropriate modalities, and partnerships, towards the establishment of the etc. to an approved firm to increase its competitiveness through new or
Sovereign Innovation Fund (SoIF) as a public-private funding partnership aimed improved processes, products, and skills.
at harvesting and commercialising South African technology innovations for • Sector-Wide Technology Assistance Package (SWTAP): this provides
deployment in national and international markets. technology assistance for a range of firms in a sector.

NT has allocated funding of R1 billion per annum, commencing in the 2019/20 • Technology Development Grants: these provide funding to mature local
financial year, to provide support for innovation and SMEs. At present, the DST, technologies that might be used in local procurement.
together with the NT, DSBD and the Government Technical Advisory Centre
• Experiential Training Programme: This enables predominantly P1 and
(GTAC), is finalising recommendations, as a business case, for the initiation of
P2 students to complete their practical training, thereby enabling them to
the SoIF, commencing in the remainder of 2017/18 and throughout the 2018/19
complete their qualifications.
financial years.
• Firm benchmarking: This assesses a firm’s management and technological
2.5. Localisation capability to define development areas, but also to transfer knowledge.
There are currently more than 5,800 South African manufacturing
One of the most effective demand-side innovation instruments remains the
firms profiled in the database, of which more than 800 firms have been
leveraging of public procurement. The DST implemented the Technology
benchmarked. The database is continuously maintained and expanded
Localisation Programme (TLP) in support of government’s drive to increase the
with the aim of facilitating new supply chain relationships - an essential
level of local production related to public (and recently, also private) procurement.
requirement both for new OEM subsystem providers (who might have
The TLP provides technological support to firms and sectors to improve their secured a new contract in South Africa) and for existing, especially small,
competitiveness and ability to qualify and secure contracts linked to public firms which might not yet be incorporated into a supply chain.
procurement – either directly with State Owned Companies (SOCs) or through
contracting with international Original Equipment Manufacturers (OEMs) that
have secured major contracts with SOCs. The programme, implemented by
the Technology Localisation Implementation Unit (TLIU) hosted by the CSIR,
has achieved substantial success and is increasingly being recognised as the
national nodal point for supplier development and technology assistance.

3 2016 State of the Nation Address (SONA). http://www.gov.za/speeches/president-jacob-zuma-state-nation-address-2016-11-feb-2016-0000 Accessed on 27 June 2016
 97

Key Action Programmes on private sector partnerships, although this does not preclude the involvement of
the private sector in the initiative.
1. Strategy for the adoption/diffusion of locally developed technologies
Targeted outcomes
Nature and purpose of the intervention
Increased diffusion of locally developed technologies to accelerate the creation
The socio-economic impact of research and technology development is realised of successful products, processes and services or social and/or economic
when the respective technologies are absorbed in the market or into society. impact.
During August 2016, the Lekgotla identified the need to enhance the diffusion of
locally developed technologies, resulting in a request to the DST, supported by
the dti, to develop a strategy for the diffusion of locally developed technologies. Key milestones
A review of available technologies, as well as government programmes where
2018/19 Q4: The formalisation of the strategy for the diffusion of locally
there are opportunities for the use of these technologies, has identified three initial
developed technologies.
areas of potential; namely, defence and security technologies, social infrastructure
technologies and health technologies. Lead departments / agencies: DST, the dti
Supporting departments / agencies: EDD, DoD, DoH, TIA, CSIR, SEDA, NIPMO,
Phase 1 (2016/17 to 2019/20) will focus on identifying opportunities for diffusing
PIC
ready or near-ready locally developed technologies arising from investments made
by the DST and its entities. Arrangements are being made to interact with the 2. Science, Technology and Innovation Plan of Action in response to the Digital
relevant lead departments and agencies in these areas to finalise the procurement Industrial Revolution
modalities of potential technologies by the end of the 2018/19 financial year.
Nature and purpose of the intervention
In parallel to taking forward these short-term opportunities, the DST, in collaboration The Digital Industrial Revolution (DIR) is seen as likely to have profoundly disruptive
with the dti and EDD, is working on a more detailed strategy that will include effects in many spheres, not least of which is jobs and employment. Economic
looking at issues such as measures which will be required to accelerate the opportunities exist, but new industries are creating fewer jobs, and those jobs
commercialisation of locally developed technologies as well as engagements with require advanced skills. Furthermore, technologies such as artificial intelligence
the private sector on new opportunities (for example, mining technologies and and robotics may disrupt or destroy many jobs in the services sector and in labour-
equipment as identified during the Mining Phakisa). The more detailed strategy is intensive industries. Increased digitisation will also necessitate more attention being
planned for finalisation and submission to Cabinet in the first half of 2017. paid to associated risks such as cybersecurity, privacy and data security.

Due to DST staff capacity constraints, this initiative did not commence as originally South Africa does not of course exist in isolation, but in a hyper-connected world
planned, only kicking off in Q3 2017/18. Progress to date has mostly centred on of social media, blockchain and networked devices. It is therefore imperative that
consulting with key agencies to conceptualise selected elements of the strategy and it actively prepares and responds to take advantage of the social and economic
to create awareness of the overall strategy. In addition, the approach approved by change brought on by the DIR and mitigates against the possible negative
Cabinet is that the primary focus will be on government procurement, and no longer consequences.

the dti | IPAP: 2018/19 – 2020/21

98

Economists and historians broadly acknowledge that long-run economic growth is Besides the desired outcome of increased local production (implying retained or
determined primarily by productivity growth, which in turn is driven by technological increased jobs and reduced imports) based on public procurement, the technology
change created by scientific, technological and knowledge-based capabilities. localisation approach is also being applied in non-public procurement areas such as
Given the imperative to develop these capabilities, the DST will develop a the manufacturing of mining equipment.
comprehensive long-term science, technology and innovation (STI)-based plan of
Targeted outcomes
action in response to the DIR.
• Conclusion of inter-departmental discussions (DPE, dti, DoT, DPME) on the
Targeted outcomes optimisation of the technology localisation programme, resulting in a single,
Consultation, deep policy learning and the development of a comprehensive coordinated programme to increase the level of local production, leveraged
long-term STI-based plan of action to address socio-economic development in on the back of public procurement.
the context of the DIR for the forthcoming MTEF cycle and the DST’s Decadal • In a number of developed countries, the needs expressed in a public
Plan. procurement contract are also leveraged to initiate an innovation, thereby
helping to introduce a new product/service to the market and also helping
Key milestones
to increase the global competitiveness of the local sector that supports this
2018/19 Q3: Baseline study of local publicly-funded research organisations innovation.
and universities; review of global academic and grey
Key milestones
literature; coordinating and synergising existing DST R&D
2018/19 Q4: a. A coordinated implementation agreement on how to
initiatives into a Converging Technologies Platform.
increase the level of local production by leveraging
2019/20 Q4: A comprehensive long-term STI plan of action to address
public procurement.
socio-economic development in the context of the DIR.
b. A pilot project/procurement that leverages a public
Lead departments / agencies: DST, the dti, EDD procurement need to initiate an innovation.
Supporting departments / agencies: HSRC, CSIR, TIA, DTPS, DoL, DHET, DBE,
Lead departments/agencies: DST, the dti
EDD, NIPMO, NACI
Supporting departments / agencies: DPME. DPE

3. Technology localisation

Nature and purpose of the intervention

As mentioned in the section above, the technology localisation programme is
aimed at increasing the level of local production by increasing the capability and
competitiveness of local firms through tailored technology assistance at both firm
and sectoral level.
 99

3.1. The CSIR and innovation-led industrial development Key Action Programme

Situational analysis 1. Bridge the gap between research, development and industrial
application at pace and scale
The role of innovation in driving economic
competitiveness is well established. Key national Nature and purpose of the intervention
institutions and departments (DST, dti, CSIR, IDC)
The CSIR and role-players in the National System of Innovation (NSI)
are exploring opportunities to improve South
are developing industry-facing translational research programmes and
Africa’s economic competitiveness through
associated infrastructure to bridge the gap between research, development
science and technology.
and industrial application at pace and scale.

Investments in science, technology and innovation have the potential to grow the
This approach responds directly to the lack of large-scale industrial research
economy through a) the creation of new firms and increased competitiveness
and development infrastructure in the country, and the dti priorities of
of existing firms; b) increased exports and reduced imports; c) lowering of entry
public infrastructure-driven industrialisation providing stronger support for
barriers to create opportunities for emerging black and female entrepreneurs.
localisation and advanced manufacturing - with a primary focus on sectors
where South Africa can compete in global markets and on programmes that
The CSIR mandate in particular calls for the organisation to foster industrial
leverage South Africa’s resource advantage.
and scientific development through directed multi-disciplinary research and
technological innovation to improve the quality of life of South Africans.
This approach builds on the Industry Innovation Partnerships Programme
(IIPF), which seeks to attract private-sector investment in translating R&D
These key institutions have invested significantly in the development of
outputs into commercial products by providing specialised prototyping,
strategies that aim to amplify the focus on industrial development. Primarily,
piloting and upscaling infrastructure to bridge the gap between the lab and
the strategies identify sectors and value chains where South Africa can carve
the market. It also amplifies other DST and dti-supported programmes
a competitive advantage through adoption of advances in science, engineering
like the Technology Localisation Implementation Unit, Aerospace Industry
and technology, while leveraging our mineral and other natural resource wealth.
Support Initiative and the National Cleaner Production Centre.
The strategies take into account learnings from countries that are leading the
digital revolution (Germany, UK, Australia, USA), but are crafted to address
To be successful, the initiatives must attain national level programme status;
South Africa’s unique challenges and take advantage of local and regional
with the support of industry players (public and private), policy makers,
opportunities.
development funding institutions and innovation partners such as universities
and other research institutions, both local and international. The rationale for
this approach is that all role players in the system would be required to be
fully onboard for the programmes to achieve the desired impact. Thus, each
initiative will be positioned as a national strategic asset to the sector or
cluster of sectors.

the dti | IPAP: 2018/19 – 2020/21

100

The translational programmes and associated infrastructure will focus on:

Targeted outcomes
• improving the supply chain competitiveness of South African SMMEs in
The strategic programmes will aim to improve the performance of the
high-value manufacturing industries such as aerospace, automotive and South African economy, with a view of reversing the de-industrialisation
defence to step up exports and capture a growing share of global high- trend. Programmes will be implemented (or continued) for improving
value manufacturing; competitiveness of small and medium enterprises (SMEs) with a view
to strengthening supply chains in key economic sectors. For large and
• developing advanced materials and additive manufacturing to reinforce
emerging industry, five cross-cutting thematic areas will apply to all the
high-value manufacturing sectors;
manufacturing-related initiatives, notably:
• establishing a bioprocess initiative harnessing advances in chemistry,
• product innovation (including a life-cycle management approach to
synthetic biology and biotechnology to convert South Africa’s resource
product design);
advantage into a chemicals and materials advantage;
• manufacturing process (e.g. forming, joining, machining
• catalysing local manufacturing of critical drugs through a pharmaceuticals technologies);
initiative to develop and scale up production of active pharmaceutical • manufacturing automation (includes precision measurement and
ingredients; automation);
• continued implementation of mining revitalisation activities under the • manufacturing systems (includes planning, manufacturing, execution
South African Mining Extraction Research Development and Innovation and control, operations management etc.); and
(SAMERDI) initiative; • business model innovation.

• establishment of an agro-processing programme to expand the national Key milestones

product portfolio, add and redistribute value for an inclusive and growing 2018/19 Q2: Support a national Digital Industrial Revolution
agricultural sector; Initiative with contribution from the private sector and
• institutionalising a collaborative Digital Industrial Revolution (Industry civil society to support key manufacturing sectors.
4.0) initiative to capacitate the CSIR and its partners in the NSI to adopt 2018/19 Q4: Support the agro-processing and high-value
advances in production; pharmaceuticals manufacturing initiatives.
• establishing a nexus initiative as a national strategic decision-support Lead departments/agencies: CSIR, DST
capability designed to address issues relating to the interaction between Supporting departments: the dti, DPME, EDD, NPC, IDC, TIA
the natural environment and industrial development activities. (Addressing
competing demands for natural resources such as water, waste and energy).
 101

3.2. The Digital Industrial Revolution Opportunities

A strength of South Africa’s position in the context of the DIR is its access to
market opportunities across the African continent. Potential advantages include
a broad youth base, a fast-growing growing continental middle class, access
to global value chains as technology suppliers and the chance for SMEs to
capitalise on new technologies.

Threats

Currently, we are not very well placed, ranking between 46th and 75th globally
on a variety of metrics termed ‘Readiness for the 4th Industrial Revolution’.
The key known components of the DIR - the Internet of things, big data, artificial
intelligence, automation, robotics, new processes and materials, additive
Situational analysis
manufacturing, logistics, marketing techniques and sales channels - will put
The Digital Industrial Revolution (DIR) (also known as 4-IR or Industry 4.0) will enormous pressure on areas where South Africa is currently lagging or weak:
profoundly shape our efforts to promote industrial development. The scale, • enabling infrastructure (broadband and communications);
scope and complexity of this new technological revolution will bring experiences • system of education and skills – more skilled jobs, less manual work:
unknown to humankind in the form of Cyber-Physical Systems (CPS) where
• the traditional separation between primary and tertiary industrial sectors will
computers, networks and physical processes are integrated. In particular, when
not be sustainable as the distinctions between different sectors becomes
compared to the previous industrial revolutions, the DIR is occurring at an
increasingly blurred. (cf. the ‘industrialisation of freshness’).
exponential pace.
Further potential threats include:
In an already uncertain global economy the DIR is expected to have disruptive
• selective ‘reshoring’ of industrial processes to major markets in advanced
impacts on all economies, but especially on lower- to middle-income countries
economies and other structural changes to global value chains;
that find it difficult to keep abreast of the rapid speed of technological
advancement and innovation. • significant technology-driven employment losses in retail and services,
mining and parts of manufacturing value chains (e.g. automotives),
For South Africa, the Digital Industrial Revolution poses substantial challenges particularly for lower-skilled workers;
and offers perhaps rather fewer immediately clear-cut opportunities for the • growing inequality and exclusion;
domestic economy.
• the danger of “winner-takes-all” outcomes, leading to greater concentration
of production and higher barriers to entry. (While there may be potential for
entrepreneurial/SME ‘leapfrogging’ up the value chain, new entrants will
have to be well-positioned to begin with).

the dti | IPAP: 2018/19 – 2020/21

102

• The necessity of urgently developing a realistic, smart set of regulations In 2016 Cabinet approved the National Integrated ICT Policy White Paper which
attuned to the challenges that the digital revolution will bring to addresses the development of converged technologies, digitisation, how South
communications, e-commerce, environmental matters and so forth. Africans use the internet, communication and work.
The White Paper recommends that all South African citizens, irrespective of where
It is therefore Imperative to rethink the whole framework of public sector
they live or their socio-economic status, have a right to access and participation
collaboration with the private sector. The traditional paradigm of low cost, export-
in the digital society. In addition, the department of Telecommunication and
oriented industrial policy is already under intense scrutiny; but, going forward, it
Postal Services (DTPS) has developed a National e-Government Strategy
will be critical to sort myths and projections from emerging tangible realities and,
aimed at modernising and transforming future public service delivery.
on this basis, to develop sector-specific strategies that take account of the full
range of threats and opportunities presented by the DIR.
Immediate ways forward
As a first step, in 2017 the dti established a new Chief Directorate, the
Here are some important steps that are already being taken and/or can be taken
Future Industrial Production & Technologies (FIP&T) unit, within the Industrial
in the near future:
Development Division, to examine likely impacts and build capacity around
• Continue work with DST/CSIR Technology Localisation Unit (TLIU) and
government to confront the challenges of the DIR.
Product Life Cycle support initiative at CSIR (under the Siemens NIPP
The FIP&T unit is contributing to international research through the World
obligation.)
Economic Forum’s Shaping the Future of Production Systems. This framework
• Deepen research programmes with the WEF and OECD Development
includes assessments of both country readiness and future skills requirements.
Centre on preparation for the Digital Industrial Revolution. This offers
The Unit is also taking the lead in the industrialisation segment of the economic
the necessary scope for deep-dive research into sector-specific country
cluster through the newly established Digital Industrial Revolution National
preparedness; our own in particular.
Coordination Committee.
• Absorb and leverage learnings from the Manufacturing Indaba 2018 –
Partnerships are commencing between the dti and the manufacturing sector
particularly from the workshop on the Digital Industrial Revolution co-
through Industry Associations and Export Councils to prepare for the DIR. The
hosted by the World Manufacturing Forum, the DST and the dti.
augmented dti Intsimbi programme will be launched as a Future Production and
Technologies initiative in 2018.
Key Action Programmes
South Africa has also been appointed as Chair of the International Special
Tooling & Machining Association (ISTMA) World Board (2018 to 2020), which 1. Establish a National Coordination Committee
aims to fully align the ISTMA World Association’s work with DIR production
Nature and purpose of the intervention
systems and technologies. Taking advantage of the opportunity, South African
Industry will establish an ISTMA Africa Forum to promote special tooling and After a discussion held at the August 2017 Cabinet Lekgotla on the DIR,
machining in Africa. the Department of Telecommunication and Postal Services (DTPS) was
appointed to take the lead in government consultations on DIR. To improve
inter-governmental coordination, three government departments have been
 103

selected to lead and develop an integrated strategy and policy in consultation Africa (TASA), is also responsible for the engagement of competent project
with industry, labour and civil society: The DTPS, the dti and the DST). resources.

Targeted outcomes The aim of the Initiative is to enable government and industry to cooperate on
Establishment of a national coordinating committee for the development the large-scale interventions required to rehabilitate the South African Tool,
of an integrated DIR strategy and policy. Die and Mould-making (TDM) sector and to embark on a robust rehabilitation
Key milestones programme to put the local industry on a firm trajectory towards international
2018/19 Q1: Nomination and appointment of representatives from competitiveness. The partnership between the tooling industry (TASA) and
each of the three leading national departments. the dti is governed by an overarching memorandum of agreement (MOA)
2018/19 Q2: Report to the Economic Cluster. and is supported by an annual service level agreement (SLA) between the
two parties.
Lead departments/agencies: DST, the dti, DTPS, EDD
The main aim of the NTI is to raise the competitiveness of the TDM sector
Supporting departments/agencies: Other government departments in the through critical skills development and job creation programmes, technology
Economic Cluster development and adoption, enterprise development and export promotion.
Two major programmes have been identified, namely:  
2. Intsimbi Future Production Technology Initiative
• The TDM Skills Development Programme; and

Nature and purpose of the intervention • The Enterprise Development Programme (EDP) focusing on SMME

Statistics released by the International Specialised Tooling and Machining competitiveness improvement, localisation, clustering and export

Association (ISTMA) at the World Tooling Conference in Toronto, Canada development activities.

in 2013, indicated that up to 50% of all manufactured components’ cost

Significant progress has been made under the Skills Development
competitiveness is governed by tooling.
Programme since the inception of the partnership. In 2016, the Master

The industrialisation process in SA has been continuously hampered by a Toolmaker qualification was registered; the South African Nuclear Energy

long-standing lack of tooling development support, resulting in many critical Corporation SOC Ltd (NECSA) was accredited as the first national trade test

products being imported from the Far East. centre; and capacity at delivery colleges was enhanced.

In response to this predicament – and after extensive consultations with the In this IPAP, we will build systematically on the foundations laid and the

industry - the dti and TASA launched the Intsimbi National Tooling Initiative successes achieved thus far and seek integration into the education

as a turnaround strategy for South Africa’s distressed tooling industry. mainstream, working in partnership with DHET. Key immediate goals include

Under the NTI, the NTIP acts as implementing agency and is responsible the following:

for the facilitation and management of all Intsimbi NTI programmes. The • the accreditation of additional trade test centres for the new Toolmaker
NTIP, a wholly-owned subsidiary of the Toolmaking Association of South Trade Test (NQF level 5);

the dti | IPAP: 2018/19 – 2020/21

104

• trade testing all eligible students for the Toolmaker Trade Test;
2018/19 Q4: Master Toolmakers Group 1 to complete their training
• institutionalising applicable elements of the skills development programme.
programme at TVET colleges and other training institutions and
2019/20 Q1-Q4: 150 eligible students to undergo trade testing on the
embedding sustainable solutions for the programme as part of the
new Toolmaker qualification.
current post–pilot phase;
2019/20 Q1-Q4: Further operational learning and business process
• developing a suitable funding model to sustain the work in the current
training at the pilot incubator for entrepreneurial
pilot programme; and
enterprise development.
• exploring the expansion of the programme - its architecture and integrated
2019/20 Q1-Q4: Benchmarking of 15 TDM sector companies.
solutions - to other advanced sectors of the economy.
2019/20 Q1-Q4: Intervention projects at a further 8 TDM sector
Targeted outcomes companies.

• mproved technical capability of young talent to enter the manufacturing 2019/20 Q4: Master Toolmakers (Group 2) to complete its training
sector. This will, in the medium term: enhance skills and capabilities in programme.
South Africa’s tooling industry; improve the sector’s competitiveness;
Lead departments /agencies: the dti, Intsimbi partnership and NTIP
increase local content, promote investment in tooling manufacturing;
increase employment.
Supporting departments/agencies: NT, DST, DHET and NTIP, QCTO,
• Introduction of two new trades into the new programme called Intsimbi merSETA, NAMB, Industry association and Export councils.
Future Production Technologies Initiative - as identified by the industry.

Key milestones

2018/19 Q1: Launch of the new programme: Intsimbi Future

Production Technologies Initiative.
2018/19 Q1-Q4: 120 eligible students to undergo trade testing on the
new Toolmaker qualification.

2018/19 Q1-Q4: Benchmark 15 TDM sector companies.

2018/19 Q1-Q4: Implement intervention projects at 8 TDM sector

companies.
2018/19 Q1-Q4: Operational learning and business process training
at the pilot incubator for entrepreneurial enterprise
development in support of localisation.
 105

the dti | IPAP: 2018/19 – 2020/21

106

SECTORAL FOCUS AREAS 1

 107

1. Automotives

Situational Analysis
The automotive industry remains an important pillar of South Africa’s industrial landscape.
The industry was set to produce 611,000 vehicles per annum as of mid-2017 and employs
approximately 113,000 people across the seven light vehicle OEMs, M&HCV OEMs, and
over 400 automotive component firms.

Further to this, it is estimated that employment is as high as 322,220 if the downstream

activities of wholesale, retail trade and maintenance are included.

Notably, the industry has been able to successfully integrate itself into the global market
and secure significant amounts of foreign direct investment as a result of the strong and
consistent State support provided to it over the past two decades.

the dti | IPAP: 2018/19 – 2020/21

108

Key economic data Key Action Programmes

Economic Indicator 2015 2016

1. The Automotive Master Plan
% Contribution to GDP 7.5% 7.4%
Nature and purpose of the intervention
% Contribution to Manufacturing 33.5% 33.0%
The Automotive Master Plan, in development since 2016/7, represents the national strategy
Employment 82 100 82 000
to further develop the automotive industry in South Africa through to 2035, in a manner
Source: Quantec consistent with the Presidential 9-Point Plan and the National Development Plan (NDP).

OEM production volumes contracted by 2.2% in 2016 but are projected to increase by The six important priorities emerging from this process include local market optimisation,
7.0% during 2017. This projected growth is supported largely by export growth. It is positive regional market development, localisation, infrastructure development, industry
to note that OEMs with light vehicle platform volumes in excess of 80,000 units per annum transformation, and technology and associated skills development. Importantly, the
now include Toyota, Volkswagen, Mercedes-Benz and Ford. South Africa’s most important foundational requirements of a supporting institutional environment and an enabling post-
platforms by volume are currently the Volkswagen Polo, Mercedes-Benz C-Class and 2020 automotive incentive policy have also been identified.
Toyota Hilux/Fortuner.
During the transition period through to the new strategy and accompanying policy
While OEM and Tier 1 supplier output volumes reflect growth in recent years, progress in dispensation, focus will be placed on the priorities of localisation and Black supplier
relation to increasing depth of localisation remains a challenge. This is evident from the development with the aim of supporting industry growth and advancing transformation,
fact that local content levels remain rangebound at around 40%, impacted upon largely by particularly in the more labour-intensive supplier base.
exchange rate movements rather than investment in new manufacturing capability.
Supporting activities will continue to be implemented in the key areas of improving supplier
Key opportunities competitiveness through the Automotive Supply Chain Competitiveness Improvement
• Local and regional market development for vehicles and components; (ASCCI), supplier upgrading projects, the Black Supplier Development (BSD) programme,
• Localisation of targeted components at Tier 1 and Tier 2 level; and cooperative localisation projects able to support the needs of multiple customers.

• Transformation of supply chain through development of Black suppliers;

Targeted outcomes
• Competitiveness improvement of suppliers.
Establishment of a national coordinating committee for the development of an integrated
Constraints DIR strategy and policy.
• Relatively small domestic market; Key milestones
• Mutual economic growth proposition with regional trading partners; 2018/19 Q2: Adoption of the Automotive Master Plan.
• General competitiveness gap between South Africa and other competing locations.
Lead departments/agencies: the dti, ASCCI
Supporting departments/agencies: Auto industry, organised labour
 109

2. Empowerment: ASCCI Black Supplier Development (BSD) Programme

Nature and purpose of the intervention

The programme aims to develop 15 Black-owned manufacturing companies in the

automotive and or related industries to a level where they become competent suppliers into
the automotive value chain. The programme will be implemented in collaboration with vehicle
assemblers. Each Black-owned suppler receives 18 months of best practice manufacturing
support, general business support, mentoring and business development support. The
programme is jointly funded by ASCCI (50%) and the participating private sector sponsors
(50%).

Various OEMs and large Tier-1 suppliers have positively engaged in this programme and
committed to co-sponsoring the Black-owned suppliers to receive mentoring and assistance
in upgrading.

The programme will be monitored closely on both a project level and an industry level, with
enhanced Black supplier competitiveness expected.

Targeted outcomes
Increased number of Black-owned suppliers in existing value chains within the automotive
industry.
Key milestones
2018/9 Q1: Secure co-funding from private sector and selection of companies for
development.
2018/9 Q2: Selection of companies, assessment and programme development.
2018/9 Q: Supplier assessment, programme development and delivery.
2018/9 Q4: Programme delivery.

A project close-out report can be expected by end September 2019.

Lead departments / agencies: the dti, ASCCI

Supporting departments/ agencies: Provincial Governments

the dti | IPAP: 2018/19 – 2020/21

110

3. Competitiveness Improvement Initiative: Large scale value chain upgrading (Phase 1) 4. Industrial Strategy for Mining and Construction Equipment (“Yellow Metals)
The Large-Scale Value Chain Upgrading programme builds on the successful ASCCI World- Nature and purpose of the intervention
Class Manufacturing (WCM) programme and seeks to follow a value chain approach which
will deliver larger and more tightly focused projects with the core aims of improving supplier the dti has identified the lack of an industrial strategy for the yellow metals auto sub-sector
capability and deepening localisation within specific value chains. The programme will be as a major shortcoming that inhibits the development of sound Key Action Programmes for
delivered under the auspices of ASCCI. the IPAP.

Major existing bottlenecks are as follows:

Nature and purpose of the intervention
• High costs of market entry;
This intervention will extend competitiveness improvement and localisation support to
• Low levels of transformation;
automotive suppliers in a strategic value chain, with a particular focus on upgrading an
• Very low domestic manufacturing activities;
entire value chain as well as improving strategic linkages that exist between the firms in
that specific value chain. Much of the support is based on the methodologies tested and • Less than optimal tariff regime.
honed in the WCM programmes as well as learnings from localisation initiatives.
This situation requires an evidence-based policy position that will support the South African
The successful upgrading of a strategically selected value chain will be measured by the yellow metals industry to withstand competition and thrive in a difficult-to-forecast global
adoption of best practices and technologies by the automotive suppliers, together with the and domestic market environment.
adoption of a roadmap towards future localisation opportunities. Projects will be monitored
Targeted outcomes
at both a supplier project level and at an industry programme level.
A comprehensive set of interventions focused on market development, competitiveness
Targeted outcomes improvement and the introduction of new capability. The implementation process will be
Enhanced competitiveness, localisation and ultimately employment creation. co-ordinated by government in partnership with industry and organised labour and will
be focused on: a) opportunity areas; b) new entrants at OEM level; c) preferential state
Key milestones
procurement; e) regional market growth; and f) localisation of selected components and
2018/9 Q1: Value chain selection and supplier enrolment complete.
products.
2018/9 Q2: Assessments report and projects identified. Key milestones
2018/9 Q3: Implementation progress report. 018/19 Q2: Submission for approval of yellow metals industrial strategy.
2018/9 Q4: Final assessment report and case study. 2018/19 Q3: Execution of the recommendations proposed.
2018/19 Q4: Monitoring and Evaluation of yellow metals industrial strategy
Lead departments/agencies: the dti, ASCCI
execution.
Supporting departments/agencies: Provincial Governments; AIDC
Lead departments/agencies: the dti, EDD, PICC
Supporting departments/agencies: Auto industry, organised labour
 111

2. Clothing, textiles, leather & footwear

Situational analysis

With adequate levels of investment, the Clothing, Textiles, Leather and Footwear (CTLF)
sectors have the potential to create and sustain decent jobs and steady sectoral growth;
hence government’s continuing support for CTLF.

After extensive engagements with all stakeholders, the dti signed off on the Customised
Sector Programme (CSP) for textiles and clothing in 2005 and for leather and footwear in
2008.

The implementation of the CSP strategies resulted in government introducing a market-

neutral Clothing and Textiles Competitiveness Programme (CTCP) in 2009, replacing the
former Duty Credit Certificate Scheme (DCCS).

The CTCP programme is subdivided into (i) the Production Incentive Programme (PIP) and
(ii) the Competitiveness Improvement Programme (CIP).

As at 30th June 2017, PIP had approved a total of R5.1 billion, of which R4.2 billion had
been disbursed to the industry.

As at 31st March 2019, the CIP - which is responsible for the establishment of collaborative
retail cluster programmes - will have a total available amount of R1.11 billion. Meanwhile,
as of 30th June 2017, R589 million had been disbursed to the different clusters participating
in the programme. Analysis of growth in manufacturing value added (MVA) per Employee
is derived from the CTCP Monitoring and Evaluation Database as at 1st December 2016
(see figure 1).

the dti | IPAP: 2018/19 – 2020/21

112

Figure 1: Change in MVA / Employee in CTLF from 2011 to 2016 Over the past five years, South African footwear manufacturing has grown at an average
200.0 rate of 10% annually, localising 21 million pairs of shoes/boots by import substitution. In
July 2017, the National Bargaining Council of the Leather Industry (NBCLI) recorded a
peak employment figure of 21,190 in the sector, clawing back jobs to a level last seen in
160.0
2007. Footwear manufacturing capacity enhancement continued increasing the number
of factories operating, with annual output in excess of a million pairs - from 14 companies
producing 50% of local output in 2015 to 22 companies producing 60% in 2016. Between
120.0
2010 and 2016, exports of leather and footwear grew by 167%, from R 1.98 billion to R
5.29 billion.
80.0
The main challenge currently being experienced is in the shortage of funding in the CTCP
to allow more companies to participate and benefit. The other challenge is very low average
40.0 real gross domestic fixed investment of R1.17 billion per annum across the other CTLF
2011 2012 2013 2014 2015 2016
sectors – only 0.96% from 2010 to 2016; the exception being leather and footwear, which
Clothing Footwear Leather Leather Goods Textiles Total
showed a real gross domestic fixed investment rate of 7.17%.
2011 2012 2013 2014 2015 2016 Avg growth
Clothing 91.5 100.0 110.4 117.7 139.8 145.8 9.8%
Footwear 99.7 100.0 88.5 103.3 113.3 112.5 2.4%
Sector economic data (2016)
Leather 99.9 100.0 125.0 138.0 111.8 118.7 3.5%
Leather Goods 66.6 100.0 90.4 110.9 118.4 123.1 13.1%
Economic Indicator 2015 2016
Textiles 95.6 100.0 104.1 113.1 116.3 127.4 5.9%
Total 94.7 100.0 105.7 115.3 120.3 129.3 6.4%
% Contribution to GDP 0.4% 0.4%
Source: M&E the dti CTCP Desk at IDC (2011 – 2016)
% Contribution to Manufacturing 3.0% 3.1%
On-time, in-full deliveries (OTIF) is one of the most important indicators of operational
Employment 148,747 140,552
efficiency and customer service; and delivery reliability increased across all sectors for
Source: Quantec database
companies participating in the CTCP.

The Textile & Clothing employment trend reveals that employment in the sector has been
The CTCP has supported the development of scalable national cluster organisations and
decreasing since 2006, but that job losses had begun to be stabilised by 2012.
collaborative vertical and sub-national retail clusters. The Monitoring and Evaluation results
to date indicate that the CTCP is effectively helping beneficiaries in upgrading capital
equipment, processes, products and people as well as developing new markets.

In 2012, the CTLF sectors were designated at 100% local content under the revised
Preferential Public Procurement Framework Act (PPPFA). To assist local manufacturers to
build competitiveness and capacity through secured market access in public consumption,
Proudly South African recently launched its tender monitoring system.
 113

Figure 2: Formal & informal Employment in Textile & Clothing from 2006 to 2016 Figure 4: Growth in CTLF annual real output from 2006 to 2016

Source: Quantec database Source: Quantec database

Meanwhile, the leather and footwear employment trend reveals that employment in the CTLF real value added grew by 13.2% from 2006 to 2016.
sector decreased from 2006 to 2012; but that there has been a growth in jobs from 2013.
Figure 5: Growth in TCLF annual real value-added from 2006 to 2016

Figure 3: Formal & informal Employment in Leather & Footwear from 2006 to 2016

Source: Quantec database

Real gross domestic fixed capital investment in textiles and clothing declined sharply from
Source: Quantec database 2008 to 2009, but stabilised from 2010, with a marginal annual growth rate of 0.29%.

Supported by both the CTCP and the 100% local content designation of the CTLF sectors,
growth in real output rose by 4.7% from R 49.2 billion in 2006 to R 51.5 billion in 2016.

the dti | IPAP: 2018/19 – 2020/21

114

Figure 6: Textiles & Clothing - Real gross domestic fixed investment Key Action Programmes

1. Leather, Leather Goods & Footwear Testing Capacity Development

Nature and Purpose of the intervention

The Leather, Leather Goods and Footwear industry has been seriously affected by weak
support from SABS and NRCS in the testing and certification of imports, new styles, export
consignments and component testing. An industry working committee established by
the dti in 2016 requested the Department to facilitate development of additional testing
capacity dully accredited by local and international agencies.

The CSIR CTLF Competency Centre in Port Elizabeth has now undertaken to develop new
Source: Quantec database
Leather, Leather Goods & Footwear testing capacities, in collaboration with the Shoes and

Real gross domestic fixed capital investment in leather and footwear grew by 50% from Allied Trade Research Association (SATRA-UK). This will begin with the CSIR developing

2010 to 2016, with a positive annual growth rate of 7.17%. a financial proposal.

Figure 7: Leather, Leather Products & Footwear- real gross domestic fixed investment Targeted outcomes
• Facilitation of trade services aimed at import substitution of footwear from 68 million
pairs to 100 million pairs per annum;
• Footwear exports growth from 4.4 million pairs (R 0.432 billion) to 15 million pairs
(R 1.3 billion) per annum;
• Exports of value-added Leather and Leather Goods from R 4.8 billion to
R6.62 billion;
• Growth in domestic real output of Leather, Leather Goods and Footwear from R10.03
billion in 2016 to R 18.13 billion in 2020.

Key milestones
2018/19 Q1: Submission of financial proposal by CSIR to the dti.
2018/19 Q3: Approval of Leather, Leather Goods & Footwear Testing Capacity
Source: Quantec database
Development proposal and funding facilitation by the dti.

Lead departments/agencies: the dti, CSIR

Supporting department/agencies: SABS, SATRA-UK
 115

2. Development of Leather, Leather Goods & Footwear Export Cluster (Fashion Hub) Targeted outcomes
Nature and Purpose of the intervention • Increase in export revenue by 49% from R5.3 billion in 2016 to R 7.9 billion by 2020.
• Reduction in trade deficit by 22% from R 11.7 billion in 2016 to R 9.1 billion in 2020.
From 2010 to 2106 South African exports of value-added Leather, Leather Goods &
Key milestones
Footwear grew by 167.2% - from R 1.98 billion to R 5.29 billion. Together with the South
2018/19 Q2: Submission of a proposal by SAFLEC in collaboration with major
African Footwear Leather Export Council (SAFLEC), the dti conducted a review of past
export-oriented Leather, Leather Goods and Footwear manufacturers
export performance and future prospects. The growth trends identified by the review
to the dti, eThekwini and FP&M SETA.
confirmed that very strong export potential exists within both SADC and non-African
2018/19 Q4: Establishment of Leather, Leather Goods & Footwear Export Cluster
regions.
(Fashion Hub).
However, to fully realise this potential, a number of critical sector-specific
Lead departments/agencies: the dti, SAFLEC, SAFLIA, eThekwini, FP&M SETA
interventions were identified:
Supporting department/agencies: EDD, TIKZN
• International Competitive Intelligence (CI) development;
3. Retail -Driven Integrated Supply Chain Programme (ISCP) - Phase 2
• Assessment of global colour, fashion and design trends;
• Development of collections and exportable product ranges; Nature and purpose of the intervention

• Collaboration with international agencies; To provide an implementation mechanism through which retailers will replace imports with
• Development of designated export-oriented capabilities; products manufactured through fully integrated local value chains integration. The ISCP
• Development of the local fashion industry within the footwear, accessories and leather business model was successfully demonstrated through the Sustainable Cotton Cluster.
garments sub-sectors; and
Targeted outcomes
• Intensive export marketing within SADC. Implement ISCPs with 84 local manufacturers and leading local clothing retailers.
Key milestones
Unfortunately, due to lack of funding, SAFLEC could not could not complete a Trade
Q2: Five local clothing retailers participating in the cluster ISCP
Opportunity Matrix (TOM) based on the Gravity and Decision-Support Models (DSM)
development programme.
developed by North West University. This meant that no estimate has yet been made of
2018/19 Q4: Five local retailers provided with volume commitments to local
Revealed Realistic Export Opportunities (RREO).
manufacturers.

SAFLEC has requested the dti to facilitate establishment of Leather, Leather Goods &
2018/19 Lead departments/agencies: the dti, EDD
Footwear Export Cluster (Fashion Hub) in collaboration with eThekwini Municipality and
the Fibre Processing & Manufacturing Sector Education and Training Authority (FP&M
SETA). A full proposal will be developed by SAFLEC in collaboration with major export-
oriented Leather, Leather Goods and Footwear manufacturers.

the dti | IPAP: 2018/19 – 2020/21

116

4. Cotton Sub-Sector Development Strategy 6. Mohair value-addition to transform locally manufactured quality tops, yarn and
finished products for both local and export markets
Nature and Purpose of the intervention
Nature and purpose of the intervention
The National Cotton Sector Strategy was completed in 2016. It has profound potential for
retail sector import replacement and for filling manufacturing capacity gaps and creating Ongoing technological innovation and development in raw mohair fibre yield, fibre quality
employment. Specific sub-sector strategies – for example cotton-spinning – will be and fibre availability, based on sustainable practices and procedures, to establish South
developed to give additional structure to implementation activities. Sub-sector strategies Africa as a significant contributor and preferred supplier to the global mohair value chain.
for weft knitting, dyeing and finishing as well as retail have been developed.
Targeted outcomes
Targeted outcomes A strong mohair sector strategy through engagement with the broader mohair industry to
Sub-sector strategies to guide industry value chain development and capitalisation. develop sustainable practices to improve fibre quality and value-addition.
Key milestones
2018/19 Q1: Strategies approved. Key milestones
2018/19 Q2: Development of sub-sector capitalisation programme. 2018/19 Q 2: Completion of phases 1 and 2 of a sustainability system dynamic
2018/19 D4: Implementation of sub-sector capitalisation programme. modelling project for the entire value chain, to increase commitment
to farming Angora goats and manufacturing value-added products.
Lead departments/agencies: the dti 2018/19 Q4: New markets developed for value-added products with special focus
Supporting departments/agencies: EDD, DAFF on exports.

5. Regional Cotton Textiles Development Lead departments/agencies: the dti

Nature and Purpose of the intervention Supporting departments/agencies: IDC, EDD

The cotton strategy for South Africa was developed in 2016; and work will now be 7. 2030 Master Plan for South African Retail, Clothing, Textiles, Leather and Footwear
undertaken to formulate an extension to this strategy that will guide bilateral industry value Value Chain
chain capacity development initiatives with both SACU and SADC countries. Nature and purpose of the intervention

Targeted outcomes The CTCP incentive focused on the global competitiveness of the textiles, clothing, leather
A formal position on regional cotton textiles and clothing industries value chain and footwear manufacturing sectors; and these sectors have now stabilised and are
development as a basis for bilateral trade and development with other regional showing signs of growth both in employment and capacity.
countries.
Key milestones The 2030 Retail, Textiles, Clothing, Leather and Footwear Masterplan, focusing on retailers,
2018/19 Q2: Draft Strategy approved. will articulate a clear vision and associated set of objectives, programmatic interventions
2018/19 Q4: Consultation protocols for SACU and SADC finalised. and policy support mechanisms for the development of the retail value chain through to
2030.
Lead departments/agencies: the dti
Supporting departments: EDD
 117

The intention is to focus on the development of a sustainable South Africa manufacturing 3. Metal fabrication, capital and rail transport equipment
value chain behind local retailers, thereby contributing to GDP and employment creation.
Situational analysis
Targeted outcomes
The metal fabrication, capital and rail transport equipment cluster of sectors includes:
Reduction in the textiles, clothing, leather and footwear trade deficit through import
substitution. New employment creation and export-readiness through a streamlined 1. Ferrous Metals
quick- response manufacturing base.
The Ferrous Metals sector is classified into the upstream and downstream sectors. The

Key milestones upstream sector consists of the primary iron and steel (carbon and stainless) industry

2018/19 Q1: Completion of stakeholder engagement and the development of the (flat-rolled products: coil; sheets, plate; long products: reinforcement bars; wire rod) and

draft 2030 Master Plan for the South Africa Retail and CTLF value scrap metals. The downstream sector includes fabricated metal products (e.g. tubing

chain. and pipes; structural steel; extrusions; wire products; castings etc.)

2018/19 Q2: Endorsement of the Master Plan by all stakeholders. 2. Non-Ferrous Metals
2018/19 Q3: Implementation of the Master Plan.
The SA non-ferrous metals sector is mainly dominated by the aluminium and copper
Lead departments/agencies: the dti, EDD sub-sectors with the following products across the value chains:
Supporting departments/agencies: TIPS
• Primary: slabs, billets and ingots of aluminium, copper, brass, lead, nickel, tin and
zinc;
• Midstream and downstream: flat and long products, extrusions, castings and foil;
• Precious metals fabrication and related downstream industries - e.g. jewellery
manufacturing; diamond cutting and polishing.

High quality standards are maintained throughout each process in the manufacture of
non-ferrous metal products, from validation of raw material to the final manufactured
product.

3. Capital equipment

The Capital Equipment and Allied Services sector is defined as an intermediary sector
that manufactures and supplies components such as: materials handling, environmental
control, manufacturing processes, drilling, digging, earthmoving and complete plants.
It is complemented by the capital equipment services industry which provides design,
servicing and repairs; plus, the construction portion of the provision of solutions.
The minimum lifespan of capital equipment is three years, excluding consumables.

the dti | IPAP: 2018/19 – 2020/21

118

Capital equipment is largely used in manufacturing, mining and the development of Figure 1. Real value-added – 2011-2016
infrastructure.

4. Rail Transport Equipment

The South African rail industry has been in existence for over 100 years and is one of
SA’s major manufacturing sectors. The Rail Transport Equipment (RTE) sector consists
of the following sub-sectors:

• Rail infrastructure sub-sector: permanent way, civil engineering, power supply,

signalling, engineering and consulting services.
• Rail rolling stock sub-sector: manufacturing and assembly of locomotives, wagons,
electric multiple units and coaches for the movement of passengers and freight.
The rail recapitalisation programme - and the leveraging of this programme to
deepen local industrial capabilities - remains a major government priority. Going
forward, this will require very significant improvement in the implementation of
rail designations. (Rail signalling at 65%; rolling stock at varying local content Source: Quantec
thresholds: e.g. diesel locomotives at 55%; electric locomotives at 60%; wagons at
80%; and electric multiple units at 65%). The contribution to manufacturing employment by the downstream metals sector
declined somewhat during 2016, contributing 21.89% to manufacturing employment.

Sector Economic Data

Economic Indicator 2015 2016

% Contribution to GDP 18.8% 18.0%

% Contribution to Manufacturing 33.5% 33.0%

Employment 325,251 311,404

Source: Quantec
 119

Figure 2. Contribution to manufacturing employment by the downstream metals Figure 3. Contribution to trade deficit: 2013-2017
sector: 2007-2106

Source: Quantec

Source: Quantec

The trade deficit for the downstream metals sector improved in 2016. However, the
sector has lost some competitive advantage in export markets. This is particularly
prominent in the steel sector, with the global industry confronted by overcapacity
challenges.

the dti | IPAP: 2018/19 – 2020/21

120

The main contributors to the trade deficit are mainly electrical systems, such as resulted in the industry losing ground in maintaining local content and being
transformers; static converters and switch gears associated with the Eskom build unable to best capture new opportunities offered by both private and public
programme. capital expenditure programmes.
• Continued decline in capacity utilisation due to subdued global and domestic
While there is a clear government programme to reduce import leakage in the rail
demand is further exacerbating inefficiencies in the value chain.
manufacturing industry, imports of components and systems remain prevalent as the
rail recapitalisation programme is being implemented. Similarly, although taps, valves 4. Unequal trading platforms:
and actuators are designated for local production, imports of these products remain • Higher tariffs and non-tariff barriers in potential export markets (increasing
prevalent. advanced economy implementation of restrictive trade remedies to protect
domestic manufacturers).
Key constraints • Downward tariff pressures on a number of value-added products resulting in a

1. While Government has prioritised localisation, the following impediments continue surge of imports, particularly in low-value, high-volume manufactured goods.

to persist: • The global steel surplus continues to put downward pressure on steel prices

• Long procurement process; state owned companies taking too long to adjudicate and demand across the entire value chain, hence threatening the survival of the

and award tenders. downstream industry.

• Inconsistent interpretations of environmental legislation by municipalities,

impacting on foundries’ sustainability. Key opportunities

Key areas of opportunity for growing the sector and/or achieving higher impact include:
2. Uncompetitive input costs (electricity, logistics and raw materials):
• Escalating electricity prices are rendering firms, especially high energy • The SA infrastructure-build programme (including the Strategic Integrated Projects).
consumers, uncompetitive. This, in addition to stringent environmental This presents the largest single opportunity to stimulate the industry on the back of
compliance requirements, further burdens the already depressed foundry localisation requirements and focused supplier-development programmes.
industry. • Significant investments in rail network and infrastructure projects on the African
• Despite the price preference system implemented by ITAC, access to quality continent will increase the demand for locomotives and wagons. In addition, the
scrap and pricing remains a serious challenge for foundries, and for steel mini- African Union’s designation of SA as a rail Centre of Excellence for the African
mills in particular. continent provides a crucial platform to deepen SA rail manufacturing capabilities.
• Inefficiencies and high costs of road, rail and port infrastructure continue to
• Opportunities exist to integrate rail rolling stock suppliers into global OEM value
undermine the competitiveness of the downstream industry. (Particularly to be
chains.
noted here is the slow pace of the branch-line rehabilitation programme).
• The maintenance programme for the newly procured EMU and locomotives will also
3. Inefficiencies across the entire value chain: provide opportunities once the warranty has expired.
• Inadequate capital investment due to three decades of low demand has led to • Moves towards greening the economy present an opportunity to implement energy-
plant, machinery and equipment not being continuously upgraded or replaced. saving measures in the energy-intensive industries and achieve better compliance
• Variable and often out-of-date production and technological capabilities have with environmental requirements.
 121

Key Action Programmes

2018/19 Q1-Q4: Create industry collaborative forums with General Electric and
1. Designation and Localisation Electro-Motive Diesel to deepen localisation in the maintenance of
existing diesel locomotives.
Nature and purpose of the intervention
2019/20 Q2: Review the rail rolling stock instruction note for streamlining and
Government seeks to achieve a general target of 75% local content across public maximisation of local content thresholds.
procurement. This remains an important pillar for the revitalisation of the metal fabrication,
Lead department: the dti
capital goods and rail sectors, but can only be achieved by leveraging current and future
Supporting departments/agencies: NT, EDD, DST, IDC and SOCs
government capital and operational expenditure programmes which might facilitate the
standardisation and designation of fleets within the programmes.
2. National Foundry Technology Network
This KAP will refine, reinforce, complement and test the efficacy of the localisation
and designation programmes. For instance, engagements with procuring entities Nature of the intervention
and manufacturers on the implementation of the current designations have revealed a
The National Foundry Technology Network (NFTN) is an initiative of the dti and the industry
strong need for alignment and consolidation to provide clarity and simplification during
aimed at revitalising the foundry industry through skills development and enterprise
procurement.
development. The programme seeks to reverse the erosion of the foundry industry,
Targeted outcomes which has over the years negatively impacted on the competitiveness of the broader
• Better leveraging of the localisation opportunities presented by state infrastructure manufacturing sector. Key issues that emerged in 2016 which require coordinated efforts
programmes; across the relevant spheres of government and the industry include the following:

• Reduction of import leakages; • inadequate order book to improve production efficiencies and cost competitiveness;

• Increased investments in key manufacturing processes and activities for supply into • high product development and tooling costs impeding the industry’s penetration into
domestic market; key sectors (e.g. rail and automotives);

• Better capture of after-market opportunities; • inconsistent interpretations of environmental legislation by municipalities; and

• Support for the revitalisation of lost manufacturing capacity; • lack of adequate electricity infrastructure and inflated energy pricing.

• Increased employment and exports.

Targeted outcomes
Key milestones
The development of a globally competitive SA foundry industry through appropriate skills
2018/19 Q3: Revise the power pylon and sub-station structures and include
training, technology transfer and diffusion of state of the art technologies.
additional components; further unbundling of currently designated
components to provide greater clarity to SOCs. Further amendments
to the instruction note will entail the inclusion of railway electrical
infrastructure components.

the dti | IPAP: 2018/19 – 2020/21

122

Key milestones to achieve further growth in exports, the Chinese market has been identified as holding
growth potential for the South African manufactured jewellery sector.
2018/19 Q1-Q4: Five foundries assisted under the Competitiveness Improvement
Initiative programme (CII). The CII programme will prioritise product Targeted outcomes
development, energy saving measures, environmental and waste Increase market access for the jewellery sector in the Chinese market.
management needs and deepen the localisation of castings in key
sectors. Key milestones
2018/19 Q1-Q4: Facilitate participation by South African jewellery manufacturers at a
2018/19 Q1-Q4: Facilitate dialogue and targeted programmes between the DEA and
suitable Chinese exhibition (or exhibitions).
the foundry industry to avert further foundry closures.
2018/19 Q1-Q4: Provide technical support to foundries to obtain accreditation that will Lead departments: the dti
enable them to access global OEM supply chains. Supporting departments/agencies: SBD and SEDA

Lead department: the dti 4. Gold Loan Scheme guidelines amendments

Supporting departments/agencies: NT, CSIR, NFTN, DST, TLIU
Nature and purpose of the intervention

To expand the current Gold Loan Scheme to enable jewellery manufacturers and diamond
3. Dedicated support programme for the Jewellery Industry cutters and polishers to finance not only gold, but also other precious metals, diamonds
and gemstones.

Targeted outcomes
Improved access to the Gold Loan Scheme and the jewellery-manufacturing
sector’s overall cost competitiveness, ensuring that key raw materials required in the
manufacturing of jewellery are included.

Key milestones
2018/19 Q1-Q4: Amend the Gold Loan Scheme to include other jewellery
manufacturing raw materials; revise the qualifying criteria.
2019/20 Q1-Q4: Roll out the Gold Loan Scheme

Lead departments: the dti, EDD

Supporting departments/agencies: IDC

3.1. Market access and export promotion

Nature and purpose of the intervention

With the assistance of the dti, the jewellery sector has managed to increase exports
over the past 5 years by more than 290%. In 2016, exports exceeded R1 billion. In order
 123

4. Agro-processing Figure 1: SA Agro-processing employment

Situational/ analysis

Government has firmly identified agro-processing - together with its upstream sector -
as a critical driver of inclusive growth in South African economy, with very significant job
creation potential. (At least a million possible new job opportunities). The commitment
to agro-processing has been repeatedly articulated: in the National Development Plan
(NDP); successive iterations of IPAP; the Agricultural Policy Action Plan (APAP); Operation
Phakisa for Agriculture, Land Reform and Rural Development (2016); and the Presidential
9- Point Plan (Revitalisation of the Agriculture and Agro-processing Value Chains).

The South African agro-processing sector has particularly strong linkages both up- and
Source: Quantec Easy data, 2017
downstream. Upstream, the sector links to agriculture across a wide variety of farming
models and products. Sector economic data

Downstream, the sector’s products are marketed across wholesale and retail chains and Variables Contribution in 2016
through a diverse array of restaurants, pubs and fast food franchises. Agro-processing is
Agro-processing GDP (% of GDP in manufacturing) R80.9bn (21%)*
the largest single sub-sector in manufacturing, showing relatively rapid growth in sales and
Agro-processing employment (% of Manufacturing) 288 567 (21%)
employment over the past 15 years.
Trade balance R17 bn
As depicted in figure 1 below, in 2007 the total manufacturing sector had 258,000 employees.
Sources: Statistics SA and Quantec Easy Data, 2017
This increased to 288,000 in 2016; but the potential for continuing robust employment
growth was severely inhibited by the post-2008 global economic downturn, local labour As shown in Figure 2 below, SA is a net exporter of agro-processed products. At the same
unrest and the recent severe - and in many areas, continuing - drought. time, South African domestic food demand has increased substantially over the past
decade and this trend is expected to continue. The increase has been driven by population
growth, changing consumption patterns - mainly of middle-income groups - and gradually
improving overall living standards.

the dti | IPAP: 2018/19 – 2020/21

124

Figure 2: SA Agro-processing Trade balance Local production of soya has increased rapidly, but wheat has been increasingly displaced
by imports. Local poultry producers have found it difficult to compete with very low-cost
imports mostly from Latin America and Europe. Two core constraints on competitive local
poultry production are its reliance on largely imported feed (mostly yellow maize and soya
products), and the fact that local feed is sold at import-parity prices.

• Luxuries: alcohol, chocolates, coffee, tobacco and niche foods are imported on a fairly
large scale, mostly for the upper-income group. They are to some extent re-exported
to the region.
• Industrial products: soya, juice and wood and paper products are generally further
processed in South Africa.

INVESTMENT NEEDS OF THE SECTOR

Agro-processing has made a reasonably significant contribution to GDP over the past 10
years, with total investment currently standing at R14.5 billion (2016). There is, however, a
strong need for the sector to invest in new machinery and technology, product development
and safety and quality certification. This goes hand-in-hand with the need to develop
strategic alliances and partnerships that will assist local producers to penetrate new
Source: Quantec Easy Data, 2017 markets.

But the advance of agro-processing has been hampered by lack of sufficient investment in
processing facilities, particularly in the rural areas.

These are some of the reasons that have contributed to inconsistency in the agro-
processing trade balance. The main contributors towards a positive trade balance are fresh
fruits (citrus, grapes, apples, maize and other processed products such as wine, fruit juice,
nuts and refined sugar). On the other hand, the main contributors to SA imports are rice,
poultry, wheat, alcohol spirits, palm oil and soy oil cake.

Digging a little deeper, the main imports can be categorised as falling under the heading
of staple foods: wheat, cooking oil, sugar and poultry (in most years); and maize (during
drought years).
 125

Figure 3: SA Agro-processing Real Gross Domestic Fixed Investment CONSTRAINTS AND OPPORTUNITIES IN THE AGROPROCESSING SECTOR

The IPAP is premised on the principle of critical engagement with industry to identify
opportunities and constraints and continuous improvement of sector-specific interventions
required to unlock industry growth. The following constitute the main cross-cutting
constraints and opportunities in the agro-processing value chain:

Constraints

1. High levels of concentration across the value chain, which limit employment creation
and maintain unnecessarily high prices. Concentration is exemplified on the one hand
by the dominance of a few large trading, manufacturing and retail chains, and, on the
other hand, by the limited growth of small producers and the self-employed across
the value chain. Dealing with this situation requires both continued strong punitive
interventions by the Competition Commission and positive economic interventions to
promote small-scale production.

2. Because rural municipalities are often under-resourced, producers there frequently

encounter poor quality water and electricity supply as well as delays in permits and
repairs.

3. Input constraints emerge from the relatively high price of some key inputs, notably
Source: Quantec Easy Data, 2017 maize and soya. This arises in part from the way commercial farmers are organised
around strong support institutions. As a result, they are able to lobby for tariffs against
It is widely recognised that investment in innovation and technology is under-provided by
competitive imports and tend to promote pricing in line with international markets rather
the market, due to the risks involved and the long-time horizons for return on investment.
than domestic costs. In addition, South Africa has only limited land and water availability
South Africa does have pockets of technology capabilities that can be leveraged to narrow
for expanding crop diversification. In these circumstances, trade within the region could
the gap with technologically sophisticated developed and developing countries.
help, but only if freight transport could be made more cost-effective. In addition, efforts

The approach to innovation and development that needs to be followed in agro-processing to expand low-water production methods could help for some crops.

must be the creation of an environment that gives a revived dynamic to the sector by
Opportunities
opening opportunities for emerging new entrants and SMMEs to enter the formal market,
supplying value-added niche processed products. This implies developing a customised Agro-processing has the potential to make a significant difference to both the country’s
structure for the agro-processing sector to access government resources for R&D – with a foreign trade and aggregate employment. But with food systems becoming increasingly
particular focus on product development and small-scale processing technology. detached from agriculture - and more industrial in nature – it is easy to see why they are
dominated by large firms that benefit from economies of scale. One of the implications is

the dti | IPAP: 2018/19 – 2020/21

126

that it is increasingly difficult to distinguish between processed and unprocessed primary Targeted outcomes
products in terms of technological sophistication, scale, cold chain management and Identification of existing, isolated pockets of niche sector players and development of a
advanced logistics. sustainable value chain cluster framework to realise integrated industrial development.

Improved competitiveness can be attained through skills development and innovation, The specific objectives are as follows:
improved productivity, industrial infrastructure development, improved access to raw
• To enhance the competitiveness of niche sectors to realise export potential - primarily
material and recapitalisation of design skills. There is also potential for cluster development.
driven through R&D;
Benefits that can be drawn from developing such clusters include economies of scale,
shared infrastructure, shared and reduced input costs, information-sharing and market • To increase the contribution of niche sectors to manufacturing GDP;

access interventions aimed at both local and regional markets. • To unlock the potential of the upstream and downstream niche sector value chain, to
enhance the creation of sustainable decent employment;
Key Action Programmes • To increase the participation of small and medium scale agro-industrial enterprises in
the value chain, particularly in the least developed rural areas.
1. Development of National and Regional Niche Sectors
Key milestones
Nature and purpose of the intervention
2018/19 Q1: Facilitate the establishment of the cluster management structure for
South Africa has a huge diversity of underused indigenous plants that represent an one potential niche sector.
enormous wealth of agro-biodiversity and have the potential to contribute to improved 2018/19 Q2: Facilitate the packaging of a business proposal for the cluster
incomes, job creation and local economic development. The Bio-economy Agriculture management structure of one niche sector.
Sector Implementation Plan identified new or underdeveloped crops that have the potential 2018/19 Q3: Facilitate access to resources for the cluster management of one
be developed into new and special commercial products. niche sector through a dti incentive.
2018/19 Q4: Commence the implementation of cluster management for one niche
This programme is two-fold: firstly, it takes a long-term view of research and development
sector.
with an eye to producing new cultivars and varieties of niche indigenous plants; secondly,
2019/20 Q1: Facilitate the establishment of a cluster management structure for
it focuses on aggressive commercialisation of the niche products identified in last year’s
two potential niche sectors.
IPAP iteration.
2019/20 Q2: Facilitate the packaging of a business proposal for the cluster
management structure of two niche sectors.
2019/20 Q3: Facilitate access to resources for the cluster management of two
niche sectors through dti Incentives.
2019/20 Q4: Commence the implementation of cluster management for two niche
sectors.
2020/21 Q1: Identify a preferable regional destination for at least one agro-
processing niche industry.
 127

2020/21 Q2: Review of domestic and regional market opportunities and regulatory 2019/20 Q4: Facilitate market off-take agreements through the supplier
frameworks. development programme.
2020/21 Q3-4: Facilitate market access to promote domestic trade and export 2020/21 Q1: In collaboration with TISA and ISA, facilitate regional and global
opportunities for the niche sectors. markets through pavilions and trade shows.
2020/21 Q2-3: Attract investments for at least three additional under-utilised agro-
Lead department: the dti
processing facilities.
Supporting departments/agencies: DST, EDD, DAFF, DEA, Provinces, CSIR, ARC, IDC &
2020/21 Q4: Facilitate market access for three further underutilised agro-
TIA
processing facilities through supplier development programmes,
pavilions and trade shows.
2. Attract strategic investments to unlock the potential of underutilised agro-
processing facilities Lead departments: the dti
Supporting departments/agencies: DAFF, EDD, DRDLR, Provinces, Provincial Investment
Nature and purpose of the intervention
agencies and DFIs.
To identify the potential of underutilised agro-processing facilities and turn them around
as viable, sustainable, job-creating agribusinesses. This can be done through strategic 3. Facilitate the development and competitiveness of the Halal industry
investments and facilitation of market access through a supplier development programme.
Nature and purpose of the intervention
Targeted outcomes
This programme is aimed at enhancing the domestic and global competitiveness of the
Unlocking the potential of underutilised agro-processing facilities as anchor projects in
South African Halal industry. The global Halal industry is estimated to be worth around US$
the downstream value chain, creating sustainable decent employment.
2.3 trillion (excluding Islamic finance). Growing at an estimated annual rate of 20%, the
industry is valued at about US$ 560 billion a year, which makes it one of the fastest growing
Key milestones
consumer segments in the world.
2018/19 Q1: Commence consultation process with relevant stakeholders on
auditing of the underutilised potential agro-processing facility to be The global Halal market of 1.8 billion Muslims is no longer confined to food and food-
supported and draw up a programme of action. related products. The Halal industry has now expanded beyond the food sector to include
2018/19 Q2: Data collection to conduct audit for underutilised agro-processing pharmaceuticals, cosmetics, health products, toiletries and medical devices as well
infrastructure. as service sector components such as logistics, marketing, print and electronic media,
2018/19 Q3: Draft report on audited agro-processing infrastructure. packaging, branding, and financing.
2018/19 Q4: Final Report on audited agro-processing infrastructure.
2019/20 Q1: Identify at least two underutilised potential agro-processing facilities South African Halal manufacturing companies are in a perfect position to also benefit

which could be revived and supported in partnership with key from this growing global Halal market. The industry in South Africa has been identified

stakeholders and strategic investors. by a number of organisations as having the potential to contribute towards very significant

2019/20 Q2-3: Develop a turnaround strategy to operationalise these facilities. growth and job creation.

the dti | IPAP: 2018/19 – 2020/21

128

However, not enough is known about the SA Halal market, either in terms of its end-user 4. Poultry Value Chain Programme to unlock critical constraints
profile or in terms of product quantity and quality. It is essential that the Halal industry
Nature & Purpose of Intervention
value chain be properly understood to support the development of its manufacturing
opportunities. This will enable South Africa to put in place the necessary support structures To work with stakeholders and investors to unlock constraints in the poultry value chain
to ensure the sustainable development of the industry from producer to consumer. that currently inhibit new investments, deeper localisation and inclusive growth. This
programme will pilot the establishment of Mechanically Deboned Meat (MDM) poultry
Targeted outcomes processing to reduce imports. (SA Imports of MDM increased by 10% per annum between
Creation of an extensive set of Halal value chains; investment, trade and job creation. 2012 (131,317 tons) and 2016 (195,256 tons).
(For example, the hand-slaughter requirement makes an obvious contribution to the
labour-intensity of production). Targeted outcomes
• Taking forward the value chain alignment work undertaken in the Poultry Task Team,
Key milestones Poultry Value Chain Round-table and Operation Phakisa;
2018/19 Q1: Round-table on development of sector strategy for the Halal industry • Increased competitiveness of the poultry industry; support for new entrants (small to
in collaboration with the Western Cape (WC). medium scale poultry producers); localisation of manufacturing;
2018/19 Q2: Draft sector strategy for the Halal industry in WC. • Reduction of the poultry trade deficit;
2018/19 Q3: Final strategy for the Halal industry in WC. • A stable model for setting up successful MDM facilities countywide.
2018/19 Q4: Commence implementation of the sector strategy for Halal Industry
Key milestones
in WC.
2018/19: Q1-Q2: Finalisation of Business Plan/Case for Mechanically Deboned Meat
2019/20 Q1: Roundtable on development of sector strategy for the Halal industry
(MDM poultry) facility.
in collaboration with KZN.
2018/19 Q3 – Q4: Commencement of implementation of the MDM pilot plant.
2019/20 Q2: Draft sector strategy for Halal industry in KZN.
2019/20 Q3: Final strategy for the Halal industry in KZN. Lead departments/agencies: the dti

2019/20 Q4: Commence implementation of the sector strategy for Halal Industry in Supporting departments/agencies: IDC, EDD, DAFF, DRDLR, provincial economic and

KZN. agricultural departments

2020/21 Q1-Q4: Develop a National Strategy for the Halal industry.

5. Agro-Processing Export Development
Lead departments: the dti, Western Cape and KZN provinces
Supporting departments/agencies: DAFF, EDD, DRDLR, Provincial Investment Agencies 5.1. Rooibos export development
and DFIs
Nature & Purpose of Intervention

Rooibos is a uniquely South African plant with a global market footprint. It is generally
traded as a flavoured infusion, thus neutralising the benefits of the original plant. Extensive
local and international research has indicated the vast benefits of Rooibos both for
medicinal and cosmetic use. The South African government successfully applied for
Rooibos to be recognised as a uniquely South African product and therefore qualify for
 129

Geographic Indication. To maximise global recognition of Rooibos’ Geographical Indication 5.3. Sugar industry development
(GI), extensive publication of its properties and promotion in targeted markets need to be
undertaken. Nature and purpose of the intervention

Targeted outcomes The South African sugar industry makes an important contribution to the national economy,
Increased brand recognition and global demand for rooibos tea and value-added given its agricultural and industrial investments, foreign exchange earnings, labour-intensity
products for food, medicinal and cosmetic use, creating higher revenues along the value (especially in rural areas) and direct linkages with other downstream industries.
chain.
It is characterised by heavy concentration – a few large-scale commercial farmers
Key milestones
2018/19 Q1-Q4: Implementation of the Rooibos Sector Strategy: validation and supplying over 80% of production, whilst the great majority of small-scale farmers (±
publication of Rooibos properties in international journals (food and 20,000) contribute approximately 10% of production.
medical), including new clinical trials.
2018/19 Q1-Q4: Positioning of Rooibos in targeted export markets (promotions, Similarly, representation at the milling level is skewed towards a few historically advantaged
exhibitions etc.) large players. It is critical for the long-term sustainability of the industry to recognise the role
and significance of small-scale growers in the value chain and to develop the necessary
5.2. Fruit export development measures to achieve inclusive growth in the industry.

Nature and purpose of the intervention Targeted outcomes

• Broadly: accelerated sector growth, mainly through improved standards and
South Africa is ranked amongst the world’s largest producers of fresh fruit and nuts (citrus,
expanded participation of previously disadvantaged individuals (PDIs) in the sugar
macadamia, pears, avocados etc.). The sub-sector is the largest contributor in terms of value
value chain.
to agricultural exports, equating to 90% of total agricultural exports. The implementation
• Specifically: create conditions to enable existing small producers to increase their
of Operation Phakisa and Fruit Value Chain Round-table outcomes is targeted at rapidly
scale of production, broaden possibilities for new entrants; open access to resources
accelerating export growth and developing value-added/processed products in both new
and markets through genuine partnerships that promote skills transfer, management
and existing markets.
mentorship and co-sharing of infrastructure.
Targeted outcomes
Key milestones
Expanded exports; development of new value-added/processed products in targeted
export markets. 2018/19 Q1-Q3: Development of Sugar Industry Transformation Plan.
2018/19 Q4: Commence implementation of Sugar Industry Transformation Plan.
Key milestones
2018/19 Q1-Q4: Establishment of a market intelligence centre to improve current Lead departments/agencies: the dti, EDD, DAFF
research and market information deficiencies in sub-sectors Supporting departments/agencies: South African Sugar Industry
specifically targeted for exports.
2018/19 Q2-Q4: Acceleration of negotiations and conclusion of trade protocols for
specific fruits and value added/processed products in prioritised
export markets in Asia, Middle East, Europe and Africa.

Lead department: the dti

Supporting departments/agencies: DAFF, IDC
the dti | IPAP: 2018/19 – 2020/21
130

5. Forestry, timber, pulp, paper and furniture

Situational Analysis

The forestry, timber, pulp, paper and furniture sector not only has the potential to create
more jobs and growth in marginalised areas of South Africa; it is also emerging as a
sustainable future sector incorporating bio-refinery and transformative technologies.

The forest-based industries are no longer limited to traditional wood-processing, furniture,

pulp and paper. Through nano-technology and other scientific advances, they have
now progressed to providing raw material for the clothing and textiles, pharmaceuticals,
rheology and food-processing sector.

The sector contributed R71.2 billion to GDP in 2015, up from R69.5bn in 2010. (See
Table 1). This amounts to an 18.7 % contribution to manufacturing GDP and 2.3 % to
national GDP. Forestry manufacturing contributes R30.1 billion, making up 7.8 % of total
manufacturing GDP).

Table 1: Forestry Timber Pulp, Paper and Furniture Contribution to GDP

Industry 2010 2011 2012 2013 2014 2015

Forestry 10 838 10 965 10 943 11 076 11 420 11 102
Wood and
paper;
31 097 31 646 32 183 32 403 32 683 32 425
publishing
and printing
Furniture;
other 27 642 27 585 28 533 28 493 28 557 27 721
manufacturing
Total 69 576 70 196 71 659 71 972 72 660 71 248

Source: Statistics South Africa (at 2010 prices: R’000,000)

Despite its potential, the sector faces major structural challenges around access to raw
materials, finance and markets, especially for new applicants. These have held back
development. The regional integration initiative being developed by government is aimed
at improving access to both raw materials and markets.
 131

The Africa South of Sahara region is endowed with high quality indigenous forests which, more investment in research and technology - both to improve the recovery rate and to
if used properly, could lead to substantial growth in the region’s forestry value chain. It is produce more advanced products - e.g. engineered products like cross-laminated timber.
important to note that most of the logs used for manufacturing go to pulp and paper, due to
Figure 2 shows output from sawmills in the period July 2007 to June 2017 - which
shorter rotations. (See Figure 1 below).
predominantly goes to the construction sector. This is an area where increasing attention
Figure 1: Log usage in manufacturing 2105/16 should be given to improved product diversity.

Figure 2: Lumber Sales 2007 to 2017

Source: Sawmilling South Africa

Wood Processing Sector

Situational analysis
Source: Sawmilling South Africa
The wood processing sector is comprised of board manufacturers and manufacturers of
wood-based products. This sector contributes about R14 billion to manufacturing GDP. Furniture Manufacturing

There have been notable investments in advanced wood-processing technologies, Situational analysis
particularly in the board manufacturing industries. The sawmilling industry is labour-
intensive and a key contributor to the rural economy. The South African furniture Industry is an important sector in the South African economy,
considering both its labour-intensiveness and its potential for the development of SMMEs
The current level of industry processing recovery (rate per log at 49%) needs to be and improved export capability.
increased to at least 55%. In practice, this means that the sawmilling industry needs much

the dti | IPAP: 2018/19 – 2020/21

132

Currently the industry employs approximately 26,400 people, spread over 2,200 registered Figure 3: Pulp and Paper Industry Balance of Trade: 2006 to 2017 (R’ ‘000,000)
manufacturing firms. It contributes about 1% to manufacturing GDP and 1.1% to
manufacturing employment.

The industry’s level of competitiveness has, however, declined over the years. This
has been attributed to a skills shortage, declining investment in capital equipment and
insufficient research and development.

Although local manufacturers have lost some market share to imports, South Africa’s
exports of furniture were worth US$ 4.23 billion in 2016, with seven out of the top ten
South African export destination markets being other African countries, namely: Namibia,
Botswana, Swaziland, Lesotho, Zambia, Mozambique and Zimbabwe. The top growing
export product from 2009 to 2016 was mattresses with springs (60.4%).

Pulp and Paper Manufacturing

Situational analysis

The pulp and paper sector has shown some resilience to global economic pressures and
has remained on a positive growth trajectory, with its net positive trade balance rising from
R5.26 billion in 2010 to R10.7 billion in 2016.
Source: PAMSA
There has, however, been a sharp increase in the importation of printing and writing paper
grades, where the deficit has grown from negative R2.6 billion in 2010 to negative R6.4 Constraints
billion in 2016.
The key constraints across all the value chains include:
The major contributor to the positive trade balance has been dissolved wood pulp, which • Raw material - security of supply;
contributes more than 60% of total exports in the sector. While this is positive for the • Structural market access where there is high market concentration in some subsectors
economy, there may be additional opportunities for further beneficiation of this product for example, furniture and building construction markets.
locally, which could create additional downstream sub-sectors and reduce South Africa’s
• Inadequate access to funding and markets and declining competitiveness;
dependence on importation of such products. Examples of these products are found in the
• Lack of investment in critical infrastructure and Insufficient promotion of timber in the
clothing and textile, bio-based packaging, medical, food and household products sectors.
built environment;
• In the furniture and wood processing sectors: shortage of skills, ageing machinery, lack
of research and development, little design improvement or new product development;
poor enforcement of regulatory instruments.
 133

Opportunities
1. PULP AND PAPER
Key opportunities across value chains are: Skills development • Increased enrolment of chemical engineers and
technicians.
• Bio-refinery and transformative technologies
• Artisan training and apprenticeship.
Continuous upgrading in the bio-refinery and transformative technologies space is the
Infrastructure • Investment in rail network closer to the plantations.
key to reducing costs and providing continuous product improvements across all value
development
chains. In the forestry sector, transformative technologies promote novel and strategic
New local market • Development of sustainable and renewable energy.
uses for wood fibre and its many products and derivatives.
development • New technologies.
• Africa as a strategic market and market diversity • Opportunities offered by co-generation in the pulp and
paper industry.
Africa has vast resources of unique indigenous wood that require a concerted effort
at regional level to integrate resources and enhance processing capacity to enable • New product development for nano cellulose
value creation. In the furniture sub-sector, for instance, market development can be applications.

linked to regional and international niche market development, with considerable export Expansion into • Growth in demand for packaging and tissue paper
potential. African and Asian products in African and Asian markets, driven by
markets population growth, urbanisation and rising living
• Competitiveness enhancement for specific value chains standards.

This entails improving access to funding, improved recovery efficiencies, recapitalisation,

2. WOOD PROCESSING SECTOR
skills development, industrial financing and public procurement. Streamlined access
to DFI funding will lead to industry expansion and the creation of jobs in marginalised Competitiveness • Infrastructure upgrade: road, rail and industrial.
industries. Enhancement • Productivity enhancement to improve recovery rates.
• Recapitalisation - new equipment.
Table 2 gives a summary of the opportunities for the major value chains.
• Innovation and technology.

Table 2: Opportunities in the Pulp and Paper, Wood Processing and Furniture Improved access to • Space to improve recovery rate through recapitalisation
Manufacturing Industries raw material and efficient use of resources.
• Regional integration for sustainable supply of raw
1. PULP AND PAPER materials.
Improve raw material • Re-afforestation and new afforestation.
• Increasing the recovery of recyclable paper to meet local
and global demand.
• Regional integration.

the dti | IPAP: 2018/19 – 2020/21

134

2. WOOD PROCESSING SECTOR 3. FURNITURE MANUFACTURING

New Market • New product development – packaging. Improve Access to • Capacitate small companies to enable them to access
Development • Producing cranes and board manufacturing for furniture Funding funding; private sector to assist with this.
industry. • Cluster development.
• Green building – use of renewable resource.
Regulatory • Enforce designations mandated under the Public
• Export promotion – outbound trade missions.
Procurement Preferential Framework Act.
Skills Development • Technical skills development programmes.
• Through the Consumer Protection Act, promote
• Business management skills development for small
awareness of high quality products.
sawmillers.
• Cluster and hub development opportunities.
Key Action Programmes

3. FURNITURE MANUFACTURING 1. Furniture Market Access Programme

Improved • Improve productivity through recapitalisation and Nature and purpose of the intervention
Competitiveness innovation.
• Skills development: enhance design skills, tooling and Market access intervention is aimed at both local and regional markets. The influx of imports,
apprenticeship programmes. especially from the East, has shrunk the domestic market share of furniture manufacturers,

• Industrial infrastructure development: furniture especially at the low end of the market, where small and medium companies operate. Two
manufacturing hubs. major challenges facing manufacturers are the high concentration of the furniture retail
sector and getting retailers to buy locally produced furniture.
• Raw material supply: backward integration with
sawmillers.
The large retailers, collectively, have 80% of the local market. The rest is shared among
• Recapitalisation and design skills. independent furniture retailers. This affords the retail sector huge bargaining power with
Market Development • Intra-sector Cluster Development. manufacturers, leading to suppressed producer prices and a lack of appetite for new
• Low income market development of durable products; prospective entrants.
mass production for this market.
The key aims of this intervention are:
• High income market development: unique high-quality
niche markets. • Improving access to markets for locally manufactured products – especially with an eye
• Export markets: grow regional markets and maintain towards regional export markets; in particular, SADC.
existing global markets presence. • Improving local market share in the low-income furniture market, which is currently
• School and office furniture market. dominated by cheap imports.
• Cluster development in the furniture sector through co-location of companies in the
 135

same geographical areas. Furniture incubators will be targeted for the development development programme and the development of the strategy will address the two major
of product-specific and market-orientated development, to enhance mass production. constraints that the industry is facing. For the past few years, the dti has assisted South
African companies to explore opportunities for investments and import of timber from

Targeted outcomes Mozambique.

Increased local market share and increased exports to regional markets.
Through TISA’s offices across the African continent, the dti promotes South African
Key milestones
investment and export promotion in a number of jurisdictions, as well as strategic timber
2018/19 Q2: Develop Regional Market and Product Destination Matrix.
2018/19 Q3: Review of domestic and regional market opportunities and regulatory imports which contribute towards addressing the raw materials shortage in South Africa for
frameworks. advanced manufacturing.
2018/19 Q4: Development of market access programme to facilitate trade
Targeted outcomes
promotion and export promotion activities.
Two business cases will be developed during the 2018/19 financial year.
Lead departments/agencies: the dti, SAFI Key milestones
Supporting Departments/agencies: DST, DBSD, SEFA, CSIR, Export Councils, CSIR, 2018/19 Q1 – Q2: Analysis of regional forestry sector opportunities.
Fibre Processing and Manufacturing SETA 2018/19 Q3 – Q4: Development of two high-impact regional business cases.

Milestone 2: Enforcement of Local Furniture Procurement

Lead departments/agencies: the dti
Targeted outcomes Supporting departments/agencies: DAFF, PAMSA, SSA, FSA, SAFI, SAFCOL, DPE
Increased local market share and increased exports to regional markets.
Key milestones
3. Paper Recycling Programme for South Africa
2018/19 Q1: Development of public furniture procurement guidelines.
2018/19 Q2-Q4: Implementation of the furniture guidelines. Nature and Purpose of intervention

Lead departments/agencies: the dti, National Treasury the dti recognises the important role that recycling plays in the local economy. It also
Supporting departments/agencies: SAFI, Department of Public Enterprises, Public acknowledges that there is a need to invest in the recycling industry to increase the
Procurement Body; IDC, Fibre Processing and Manufacturing SETA. SALGA recycling of paper to meet local and global demand. A Paper Recycling Programme for
South Africa has been proposed which will be supported and partly managed by the dti.

2. Regional Development Programme in the Forestry Value Chain

The programme’s core focus will be to increase paper available to collectors through
Business cases for investments in the region enterprise development, paper recycling awareness campaigns and strategic partnerships.

the dti already supports enterprise development through the provision of financial and non-
Nature and Purpose of intervention
financial assistance. It is envisaged that these existing avenues for enterprise development
The Forestry Beneficiation Framework points out the need to strengthen the supply of will be leveraged to meet some of the objectives of the Paper Recycling Programme.
raw material to the industry and the need to improve access to raw material. The regional

the dti | IPAP: 2018/19 – 2020/21

136

The programme will be piloted in the Ekurhuleni municipality, but expanded to other 6. Plastics, pharmaceuticals, chemicals & cosmetics
municipalities when the pilot has proven to be a success. It is expected that local demand
for recycled fibre will be met as a result of increased paper recycling rates.

Targeted outcomes
Improved paper recycling rates and formalised recycling enterprises in the Ekurhuleni
Municipality and beyond.
Key milestones
2018/19: Q2: Implementation of Paper Recycling Programme in Ekurhuleni
Municipality.
2018/19: Q4: Implementation of a further Paper Recycling Programme in Gauteng.
2019/20: Q4: Roll-out of Paper Recycling Programmes to other major metros.
2020/21: Q4: Implementation of Paper Recycling Programme to smaller
municipalities.

Lead departments/agencies: PAMSA, the dti

Supporting departments/agencies: PRASA, Ekurhuleni Municipality, Tshwane 6.1. Plastics sector
Municipality, Joburg City, Ethekwini, SALGA, DEA, FP & M Seta
Situational analysis

The plastics sector is an important component of economic development, producing

goods, applications and services used across the entire economy, including infrastructure
programmes, construction, general engineering, mining, automotives, packaging etc.

The industry’s contribution to the economy is therefore significant; and also expressive of
increasingly innovative connections with the green economy.

In 2016, the plastics sector contributed about R76 billion to the total economy, representing
about 1.9% of GDP and approximately 16.5% of manufacturing sector output. The plastics
industry employs around 60,000 people (both formal and informal), with almost 1,800
companies across the plastics supply chain.
 137

Sector economic data

Economic Indicator 2015 2016

% Contribution to GDP 1.6% 1,9%
% Contribution to Manufacturing 14,3% 16.5%
Employment 60,000 60,000

Source: Quantec

The South African plastics manufacturing sub-sector is part of a supply chain stretching
from the polymer manufacturing industry (chemical companies) through to a variety of end-
use markets. It is characterised by relative ease of entry because of its low economies of
scale and high degree of mechanisation. This means that that there are many micro- and
small companies and a few medium-sized plants, while plastics manufacturing facilities can
be found within a number of other manufacturing industries.

Plastics manufacturing and conversion is also a very diverse sub-sector and can be further
broken down into several sub-industries related to raw materials and the manufacturing
process. Some plastic products are in themselves a final product, but the clear majority are
inputs into other industries where they form components for the manufacture and assembly
of other products. Source: Plastics SA, 2017

The South African plastics industry is largely characterised as a commodity plastics sector Recycled input material in 2016 was 329, 099 tonnes – an increase of 5.9% when compared
in that it is generally a lower margin, volume-driven industry. The largest consumer of to 2015.
plastic production is the packaging market, which creates relatively good opportunities for
value-addition in other high-value sectors of the South African economy.

Facts and figures 1:

the dti | IPAP: 2018/19 – 2020/21

138

Facts and figures 2: Figure 1. Imports, exports and Rand trade balance: 2000-2017

Source: Plastics SA, 2017

Source: the dti 2017
Trade balance
Key constraints
The export value of plastic products in 2016 was R17.6 billion compared to an import value
of R33.1 billion, signifying a trade deficit of R15.6 billion – the highest negative Rand value • Access to key raw materials;
thus far for the sector. • Pricing of raw materials;
• Relatively small local and regional market;
• Lack of advanced manufacturing practices;
• Lack of downstream focus on R&D effort;
• South Africa’s geographic position and resultant logistics costs.
 139

Key Action Programmes 2. Plastics Industry Skills Development, Testing and Innovation Cluster

1. Development of polymers from waste Nature and purpose of the intervention

Nature and purpose of the intervention This cluster intervention will focus on improving innovation and competitiveness in
the plastics industry through skills development, R&D and testing. The cluster will be
Local demand for polyethylene polymers continues to grow at a rate of 4% to 5% annually.
predominantly based on shared infrastructure and equipment.
Globally, there is a deficit in the supply of ethylene and as a result, access to available and
competitively priced polyethylene polymers is increasingly becoming a problem. Due to the The primary focus of the skills development component will be targeted on the following
growing global and local demand and a progressive shift to increasingly use polyethylene three areas of improvement:
polymers, it is a necessity to expand both ethylene and related polymer production locally,
• Critical skills for sustainable growth, development and equity - improving the quality and
using innovative technologies to give downstream converters a competitive advantage.
relevance of training provision;
One such specialised technology is the conversion of waste gas to ethanol, which can be
converted to ethylene and further processed to polymers. • Promoting employability and sustainable livelihoods;
• Assisting unemployed learners to participate in accredited work, integrated learning
This new technology will enable waste gas such as carbon monoxide to supplement South
and work place experience programmes to acquire critical skills to enter the labour
Africa’s current chemicals and plastics polymers mix. Successfully achieving this at a commercial
market and/or self-employment.
level will add value to waste gas resources while also significantly reducing our dependency on
fossil resources, reducing CO2 emissions and possibly reducing operational costs.
The testing component will build a laboratory that will be used to do sample testing, trial
This technology breakthrough also has the potential to use municipal solid waste to produce runs for companies, product development, analysis of products and materials, assistance
ethanol and other chemicals such as butadiene, isopropanol and isoprene. It represents a with the development of waste material products and testing for export opportunities, where
significant step towards a truly circular economy and a zero-waste society. products needs to meet certain international standards.

Targeted outcomes The long-term goal is to have the laboratory certified by international bodies, which will allow
Increased local production and availability of polymers and other important chemicals. South African products to be tested locally for export opportunities. There are currently only
Decreased reliance on imported polymers and stabilisation of price fluctuations; hence,
a few very small laboratories in South Africa for plastics, which represents a huge problem
increased competitiveness of the downstream plastics conversion industry, job creation
for the industry.
and reduced carbon footprint.
Key milestones The intervention will be supported by partnerships that can be created with other entities
2018/19 Q1 – Q4: Development of a feasibility study to determine the economic viability like the CSIR and higher education institutions.
of using the technology in South Africa. Pilot scale demonstration
of the technology to determine the commercial viability of the
technology and process locally.

Lead departments/agencies: the dti, DEA, IDC, DST, industry

Supporting departments/agencies: EDD

the dti | IPAP: 2018/19 – 2020/21

140

Targeted outcomes Figure 2: South African Plastic Market Sectors, 2016

• Unblock impediments to competitiveness and growth;

• Assist in creating a pool of skilled professionals;
• Give the industry better direction to enable it to develop its people to world-class
standards;
• Increase employment;
• Increase and spread innovation;
• Develop new products and markets;
• Upgrade product quality;
• Increase the productivity of companies involved in clusters;
• Increase export volumes.
Key milestones
2018/19 Q1-Q2: Development of cluster proposal. Identify cluster members and
facilitate registration of the Non-Profit Company.
2018/19 Q3: Assist in developing the cluster business plan and develop a funding
mechanism.
2018/19 Q4: Implementation of the cluster’s business plan

Lead departments/agencies: the dti, Plastics SA, provincial economic departments

Source: the dti 2017
Support departments/agencies: CSIR, academic institutions
This sub-sector of plastics will therefore be prioritised and there will be a drive to promote
3. Promotion of the integration of plastic components into the automotive sector the localisation of plastic components in the automotives sector. This will have a positive
growth impact on the plastics sector as these projects will be based on high value products
Nature and purpose of the intervention
rather than commodity-based products (like packaging), thus leading to import replacement
The automotive sector has high growth potential for the plastics industry as the increased and opportunities to increase the local plastics manufacturing base.
usage of plastics is a new trend used to increase fuel efficiency by lowering the weight of
Targeted outcomes
the vehicle. However, locally this sector has not seen growth over the last couple of years.
• Increased local manufacturing of plastic components for the automotive sector;
In fact, polymer conversion for the plastics automotive market sector has decreased from
• Reduction of the growing trade deficit in plastics through import replacement and
about 7% in 2012 to about 4.2% in 2015 – see Figure 2 below.
increased exports;
• Development of a targeted black plastics component manufacturer in the automotive
value chain.
 141

Key milestones According to IMS Health, demand for medicines will continue to rise, but pressure on prices

2018/2019 Q1- Identification of OEMs and Large Tier-1 implementing partners to will intensify. Coupled with a further gradual rise in levels of generic use, this will limit

Q2: assist with the development of a focused supplier development overall rates of increase in market value.
programme for plastic components.
Despite efforts to increase the country’s pharmaceutical manufacturing base,
2018/2019 Q3 Development and implementation of the supplier development
pharmaceutical companies operating in the country will continue to see their operations
and ongoing: programme including targeted mentorship interventions/incubation,
impacted by inadequate infrastructure, rising electricity costs, increasing security costs and
product off-take and resourced process/shop-floor development.
a shortage of talent.
Lead departments/agencies: the dti, OEMs, NAACAM, ASCCI
Industry sources have suggested that some large pharmaceutical companies are considering
Supporting departments/agencies: EDD, IDC, DST
consolidating offices across Sub-Saharan Africa, reflecting the growing importance of other
countries in the region. These sources believe the move could potentially result in the
6.2. Pharmaceuticals and medical devices
closure of some company offices in South Africa, with regional headquarters likely to move
to the East African region.

Pharmaceuticals facts and figures:

• Heavy import reliance.

• Active Pharmaceutical Ingredients (APIs) = R22 bn imports.
• Trade balance around R20 bn.
• Contribution to manufacturing GDP is about 0.48%.
• Direct employment around 9,600.
• CAGR estimated at 6.6%.

Bio-pharmaceuticals facts and figures:

• Public market – R4.6 bn.

6.2.1. Pharmaceuticals sector
• Private market - R7 bn.

Situational Analysis • Veterinary medicines.

• Heavy import reliance.
The South African pharmaceutical market is forecast to grow at a CAGR of 6.6% (±1.5%)
• CAGR estimated at 4.5%.
over the period 2016-2021, reaching R54.1 billion by 2021. Pharmaceutical companies
will also increasingly benefit from the 2016 roll out of a centralised procurement database.

the dti | IPAP: 2018/19 – 2020/21

142

6.2.2. Medical Devices sector Figure 3. Medical devices market breakdown 2016

Situational analysis

In 2013 the South African medical devices market (consumption, production and trade) was Source: Quantec
estimated at US$1.2 billion, and was forecast to grow at a compound annual growth rate
(CAGR) of 12%. This puts the current 2017 value at close to US$1.6 billion or R20 billion. Medical Devices facts and figures (devices, diagnostics; consumables and
The reasons underlying such growth include population growth, increased life expectancy, equipment):

growing quadruple disease burden and increased domestic healthcare spend due to the
• Heavy import reliance: estimated total value of medical device imports is R14 billion;
gradual introduction of the NHI.
• Total market value is estimated to be R20 billion;
South Africa’s spend on medical devices per capita is US$24, which is comparable to fellow • Local production of medical devices is about R3 billion;
BRICS countries. However, when compared with more mature markets such as the United
• There are about 165 local manufacturers;
States and Germany, where per capita spends stand at US$399 and US$313 respectively,
• Local manufacturing employment is about 5,000 people;
there is certainly abundant room for growth. Local players are likely to take a growing share
of the South African market as they move into more high-tech areas, claiming much of the • CAGR is estimated at 12%.

extra value from the predicted market growth.

 143

Challenges faced by the sector However, depending so much on imports poses a risk to South Africa. The imported
products are priced in foreign currencies and when the Rand is depreciated the products
Domestic firms face challenges on multiple levels, including:
cost more. It appears that the country has the potential to produce more pharmaceutical
• Regulatory delays of up to 5 years or more. products as its exports are expanding gradually. However, with no tariff rate, the dominant
• Lack of access to a range of accessible and well-priced input materials such as players will outplay small, newly established firms. The unintended outcomes that may
polymers, metals and textiles that countries like India and China have. come as a result of imposing a tariff should also not be overlooked.

• Large volumes of API and excipients continue to be imported and are subject to Notably, all the imported pharmaceutical products are tariff-free. The bound tariff rate,
exchange rate fluctuations. however, ranges between 10% and 30% for pharmaceutical products, with 15% on
• Increase of cheap imports in the medical devices space, disadvantaging local medicaments, which are the country’s biggest import.

manufacturing. Specific capabilities have been developed in the manufacture of certain molecules such as
• Misdeclaration and customs fraud. ARVs, with six local companies having established competencies to formulate, tablet and

• Relatively small local and regional markets. package ARVs locally. Given that this currently government’s biggest health commodity
spend, it is imperative that a significant portion of the state’s procurement be given to
• Lack of downstream focus on R&D.
local players. the dti will support industry mechanisms where necessary to promote local
• Poor and costly logistical service levels. manufacture against cheaper imports.
• Utility supply shortages and costs.
Targeted outcomes
• Skills shortages.
Optimised localisation opportunities presented by state procurement and state
• Outdated technologies and processes resulting in the manufacture of products that are
infrastructure programmes; reduced import leakage; increased investments in key
uncompetitive; hence, lower local demand and increased imports.
manufacturing processes and activities for supply into the domestic market; capture of
significant after-market opportunities; contribution to the revival of lost manufacturing
Key Action Programmes capacity; increased employment and exports, increased market access at retail level,
particularly for cosmetics products.
1. Trade Measures to protect the local pharmaceutical manufacturing industry
Key milestones
Nature and purpose of the intervention 2018/19 Q1: Review Tariff Book and industry engagement on tariff lines for review.

South Africa is largely dependent on imports from international markets for most of its 2018/19 Q2- Q3: Industry applications to ITAC on tariff lines for review and sector desk
pharmaceutical products, especially APIs, which are mostly provided by the MNCs based recommendations to ITAC

in the country. 2018/19 Q4: Identify tariff lines that have a high import value and have potential to
be localised.
The main destination for South African pharmaceutical exports is the SADC region. The
country has an advantage compared to other African countries as it is the only country that Lead Departments/Agencies: the dti, PharmiSA, BPIA, ITAC, SARS
meets WHO standards to manufacture pharmaceutical products. It is this advantage that Supporting Departments and Agencies: National Treasury, NDoH, SOEs, Provincial and
makes the country more appealing to the MNCs. local government departments

the dti | IPAP: 2018/19 – 2020/21

144

2. Creation of an enabling environment for development and manufacture of Local manufacturers include companies such as Onderstepoort Biologics Products (OBP),
veterinary medicines Deltamune, PharmaQ, Chemical Process Technologies (CPT) and Biotech labs. Their
activities include formulation of own products and third-party manufacture.
Nature and purpose of the intervention
Figure 4. Breakdown of veterinary medicines market
The growth in veterinary markets is set to increase in a sustainable manner as it driven by
a variety of factors ranging from:

• increased demand for meat and other livestock products, especially in emerging
markets;
• the need for disease control, for both indigenous and possibly trans-boundary;
• increased human, animal and food transport, which creates increased disease risk;
• climatic change and increased productivity which may result in adverse environmental
impact in terms of livestock products;
• new molecular techniques which are driving the development of safer, more effective
vaccines for effective disease control. (Approximately 60% of emerging diseases are
zoonotic in nature and arise in animals, thereby having a direct bearing on control of
pathogens that may affect livestock for consumption).

Cattle production is a fundamental element of socio-economic development in South Africa

and also a significant contributor to food security and food sovereignty (DAFF 2015). 70%of
all agricultural land in South Africa can be used by livestock and game only. Livestock
contributes 27% of the consumer food basket

Trading conditions, both in South Africa and internationally, have changed dramatically Source: Vetnosis: Annual Health Industry Review 2014
over time and the volumes of animal products have increased greatly, thus requiring that
adequate animal health be maintained to ensure sustainable economic growth. Key challenges include lack of manufacturing infrastructure, Biosafety Level 3 facilities,
upgraded clinical trial facilities, GMP manufacturing facilities, a disease priority list for R&D
In South Africa, the veterinary market is dominated by the companion animal market and purposes and relief from DAFF regulatory timelines.
food animals. Very few companies in South Africa engage in veterinary pharmaceutical
manufacture. Although multinationals are well represented in South Africa, none of them
currently have their own local manufacturing facilities. However, some multinationals have
engaged local manufacturers to do third party manufacture on their behalf.
 145

Nature and purpose of the intervention

Targeted outcomes
Optimised localisation opportunities presented by state procurement and state The Technology Innovation Cluster Programme (TICP) of the Technology Innovation
infrastructure programmes; reduced import leakage; increased investments in key Agency (TIA), has as its aim to strengthen ecosystems through a cluster-based approach
manufacturing processes and activities for supply into the domestic market; capture of designed to enable, facilitate and mobilise industries in emerging markets; or markets
significant after-market opportunities; contribution to the revival of lost manufacturing requiring revitalisation; or markets requiring support for growth and expansion.
capacity; increased employment and exports, increased market access at retail level,
particularly for cosmetics products. This will be done through technology innovations and strategic collaborations, exploiting

Key milestones opportunities that lead to knowledge growth, economic and social impact.

2018/19 Q1-Q4: With DAFF, devise a priority review system for medicines developed TICPs are engines of innovation driven by the needs of private, public or community end-
locally, through partnership with HEIs and Science Councils. users, turning research results into products, services and technologies that address
national priorities within a local and global context. The TICP therefore serves as an
Lead departments/agencies: the dti, DAFF, TIA
autonomous industry vehicle aimed at serving common industry needs. Its existence is
Supporting departments/agencies: DST, NT, Science Councils, OBP, local industry etc.
therefore dependent on the industry - but typically has a lifespan of 5-10 years.

3. Establishment of a Technology Innovation Cluster Programme to promote The TIA-TICP intends to establish a Medical Device and Diagnostic Technology Innovation
collaborative initiatives between industry, government and tertiary institutions to Cluster (MDDTIC) as a national initiative that will exploit a high concentration of skills,
enable high-impact industrialisation in the medical devices sector expertise, infrastructure and companies across South Africa with the aim of stimulating and
intensifying technology innovation and competitiveness within the sector.

The cluster model advocates for the participation of various entities, both public and
private - such as, but not limited to: the DST; the Medical Research Council (MRC);
Industry Associations (SAMED, MDMSA); the Industrial Development Corporation (IDC);
the Council for Scientific and Industrial Research (CSIR); the dti, National Treasury, the
National Department of Health (NDoH) and the MRC-PATH Global Health Innovation
Accelerator (GHIA).

Successful implementation of the Technology Clusters’ objectives is dependent on

collaboration across the innovation value chain and ecosystem to promote the overall
competitiveness of the industry.

The diagram below depicts typical stakeholders within the industry along the value chain.

the dti | IPAP: 2018/19 – 2020/21

146

Figure 5. Technology innovation stakeholder map

Key milestones
2018/19 Q1-Q2: Business Case submitted to TIA and the dti for support to implement
the newly proposed Cluster for Medical Devices
2018/19 Q3-Q4: Implementation of the priority areas identified in the business case
including HCD, regulatory compliance, infrastructure requirements
etc.

Lead Departments/Agencies: TIA, CSIR, IDC, DST, the dti, MDMSA

Supporting Departments/Agencies: National Treasury, NDoH, SOEs, Provincial and local
government departments

6.3. Chemicals sector

Source: BMI 2016

Targeted outcomes
Formation of Clusters in the sector will:

• improve the competitiveness of the medical device and diagnostics industry;

• enhance collaboration and networking between private sector industry and HEIs to
leverage local excellence and expertise in the industry;
• stimulate a technology development environment for RDI activities to develop
technology-based products, processes and services;
• facilitate and accelerate the commercialisation of medical devices and diagnostics to
Situational Analysis
market;
• promote medical device and diagnostic manufacturing which addresses diseases of The chemical industry globally is an integral component of industrialised economies. As an
strategic and economic importance; industry it occupies a unique position within manufacturing and the wider economy, with
• leverage funds from local and international funding sources; and a value chain that stretches all the way from upstream primary industries to downstream
• contribute towards developing skills, expertise and capability within industry. consumer products. In between, following the chain, outputs feed into many sectors and
may comprise building blocks, intermediaries, inputs into end products, and end products
themselves.
 147

South Africa has, over the years, built up the largest chemical industry in Africa, with However, in real terms, South African chemicals production was sluggish over the decade
companies and manufacturing capacity across the entire value chain, and some authentic from 2005 to 2015. The global market share of South African chemical producers has
global players. This represents a crucial industrial asset that needs to be supported and likewise not significantly improved over the same period.
sustained if the country is to prevent further de-industrialisation and build economic growth
Given that the limited size of the South African and regional market makes significant
momentum.
economies of scale hard to achieve, there is a powerful reason to focus on regional
Globally, the chemical sector comprises two distinct value chains. In the upstream value integration that can support growing global exports.
chain, processes revolve around the formation of more complex chemical compounds or
Key Economic Data for the South African Chemicals Industry, 2015-2016
molecules, and large firms and large capital investments are prevalent. Downstream value
chain activities display a greater level of chemical product conversion and formulation Economic Indicator 2015 2016
processes, and these generally lend themselves to small and medium-sized firms and
% Contribution to GDP 3.0% 3.1%
smaller capital needs.
% Contribution to Manufacturing 21.9% 22.8%
The following sub-sectors are usually associated with upstream activities: liquid fuels
and associated products, commodity organic chemicals, primary polymers and rubbers, Employment 157 706 155 074

commodity inorganic chemicals, and fine chemicals. Source: Quantec

Downstream sub-sectors include: pure functional and formulated speciality chemicals,

Trade balance
bulk-formulated chemicals, pharmaceuticals, consumer-formulated chemicals (cosmetics),
as well as plastic and rubber products. The export value of Chemicals in 2016 was about R88.8 billion compared to an import
value of R162.6 billion, signifying a trade deficit of R73.8 billion - an increase of R2.6 billion
The South African chemicals sector is notable for its multiple and interlinked value chains,
over the 2015 deficit. The biggest contributors to the deficit are organic chemicals and
making it complex and highly diversified. South Africa comprises around 0.5% of global
miscellaneous products.
chemical production capacity, and petrochemicals comprise about 55% of all chemicals
produced locally.

There are significant linkages between the chemicals sector and the manufacturing sector
as a whole – approximately 63% by value of all chemical industry outputs were used
outside of the industry in 2013. Across a range of indicators, the chemical industry has
outperformed broader manufacturing in the last decade.

In 2016, the chemicals sector constituted 3.1% of South Africa’s GDP. Although
manufacturing as a whole has declined as a proportion of SA GDP over the past two
decades, within manufacturing the share held by chemicals has grown, and the chemicals
sector has largely recovered from the 2009 crisis.

the dti | IPAP: 2018/19 – 2020/21

148

Figure 6. Trade Balance for the South African Chemicals Industry, 2011-2016 Other significant challenges include the following:

• Increase of cheap imports (including custom frauds) that impede local manufacturing;
• Relatively small local and regional markets;
• Lack of R&D along value chains;
• Poor and costly logistical service levels;
• Utility supply shortages and costs;
• Skills shortages;
• Outdated technology and processes resulting in the manufacture of products that are
uncompetitive leading to lower local demand and increased imports.

Engagements across most sub-sectors highlighted that chemicals and related sector
investments have typically focused on maintaining existing capability and optimising
capacity. Attracting capital, at the scale and to the investment timelines associated with

Source: Quantec many chemicals sector investments, is a challenge which has been amplified over the past
few years by the uncertainties of South Africa’s political economic environment.
Challenges faced by the chemical sector and related sectors
Chemical products are integrated in many of the primary and secondary activities of the
Domestic chemical firms face challenges on multiple levels; but perhaps the most significant economy and therefore the poor performance of the local economy has led directly to a
is lack of access to the range of accessible and well-priced feedstocks that some other decline in demand for chemicals and related products.
successful chemical-producing economies have developed.
National Chemicals Strategy
Being heavily reliant on coal as its only scalable and readily-available feedstock at present,
South Africa faces a petrochemical feedstock supply challenge, both in the variety and in In 2017, the dti developed a National Chemicals Strategy in response to the challenges

the availability of quantities of certain key building-blocks such as ethylene. This contributes and complexities faced by the industry. The strategy aims to serve as a platform to translate

significantly to the substantial negative trade balance for the sector. key strategic challenges facing the sector into goals and key action programmes that will
achieve sustainable growth and increase employment and investment across the sector.
To develop an advanced manufacturing sector, the economy will need adequate supplies of Implementation of the strategy will find expression through IPAP and the Chemicals sector
the full range of chemicals. Without its own crude oil and natural gas raw materials, South desk Business Plan.
Africa faces difficult choices in meeting current and future demand for petrochemicals. It is
a complex techno-economic problem.

Consequently, the dti has partnered with the IDC to fund a large and costly investigation
into possible solutions. The results are expected in the 2020/21 financial year.
 149

Key Action Programmes 2. Trade Policy Measures and Interventions

1. Establishment of a platform to advance chemical sector growth through practical, Nature and purpose of the intervention
industry- specific initiatives aimed at high-impact industrialisation
The trade deficit for the Chemicals and related sectors has been increasing over the last
Nature and purpose of the intervention couple of years. In 2016, the trade deficit was R73.8 billion, an increase of R2.6 billion
when compared to 2015. An initial analysis of the import data has indicated that the top 60
Presently, cluster-based economic development is at the forefront of promoting innovation,
tariff lines in terms of value accounts for about 45% (R71.8 billion) of the total import value
productivity growth, development and competitiveness. The recently completed Chemicals
(R162.6 billion). A breakdown is given in the table below.
Sector Strategy identifies the need for a collaborative national approach to the chemical
industry’s challenges and opportunities. Table 2. The largest 60 chemical import line items in 2016:
Value R 71.8 bn
A priority project is the establishment of a national cluster that engages government and
% of all chemical imports 44.2%
industry in a collaboration to deliver practical initiatives for the industry’s sustainability and
Total value of all chemical imports R162.4 bn
growth. The initial step will be a jointly-developed government-industry business plan, with
No. of top 60 import line items beginning with “other” or 30 (50%) accounting for
all subsequent projects to be executed and monitored against the plan “miscellaneous” 31% of the value
Chemicals excluding cosmetics, medicines, plastics and
The programmatic content of the cluster will be guided by the Strategy, which focuses on: R32.5bn (45%)
tyres account for
Plastics account for R15.9 bn (22%)
• supply chain development and localisation initiatives;
Medicinals account for R14.7 bn (20%)
• investment and export promotion;
Tyres account for R6 bn (8.3%)
• incentive access support; and Cosmetics “other” account for R5.7bn (33%)
• transformation and skills development.
Source: Quantec

Targeted outcomes As illustrated in the table, 30 of the 60 tariff lines are either “other” or “miscellaneous”,
Enhanced competitiveness, increased localisation and ultimately employment growth. accounting for about 30% of total import value.

Key milestones
Recently, the Chemicals and related industries have also highlighted widespread customs fraud
2018/19 Q1: Establish a steering committee comprised of industry, government, issues in the sector, with many products being imported through misdeclaration of tariff codes
and labour representatives. to avoid payment of import duties. This is significant given the potential of cheap imports to
2018/19 Q2: Develop a business plan to inform the Cluster’s activities. displace jobs and decrease growth in the domestic economy.
2018/19 Q3: Institutionalise the Cluster.
This therefore requires an in-depth analysis of the “other” and “miscellaneous” categories,
2018/19 Q4: Launch Cluster activities with a view to developing more descriptive tariff lines or the creation of new tariff lines
where products are manufactured locally and do not have a separate tariff line. This will
Lead departments/agencies: the dti, CAIA, industry
allow for better monitoring of trade patterns and stronger support for local manufacturing.
Supporting departments/agencies: EDD, Provincial governments

the dti | IPAP: 2018/19 – 2020/21

150

6.4. Cosmetics sector

Targeted outcomes
• Reduction of the import value under “other” and “miscellaneous tariff lines;
• Unpacking the products coming in under these tariff codes with the intention of creating new
tariff sub-headings to ensure more accurate monitoring of imported chemical and related
products;
• Creation of opportunities for possible import substitution and local manufacturing for
products that have a high import value.

Key milestones
2018/19 Q1-Q4: Analysis of tariff sub-headings classified as ‘other” and
‘miscellaneous”. Form a task team with SARS and the industry
associations to create a platform to monitor trade and assist in
creating new tariff sub-headings for identified chemical and related
products that are manufactured locally but do not have proper tariff
sub-headings.
2018/19 Q1- Q4: Identify tariff lines that have a high import value and have potential to
be localised.
2018/19 Q1-Q4: Identify feedstocks that attract import duties although there is no local
manufacturer, and which are used for further value addition. Apply Situational Analysis
to ITAC to remove duties to increase the competitiveness of the
downstream industry. The South African cosmetics sector has been growing at retail level by an annual 6%. It
is one of the biggest personal care markets on the African continent, employing about 50,
2018/19 Q4: Launch Cluster activities
000 people and contributing R25 billion at retail level; while at the manufacturing level, it
Lead departments/agencies: the dti, CAIA, ITAC, SARS contributes about R5.2 billion (TIPS, 2014).
Supporting departments/agencies: EDD
Driven by the ‘organic’ factor, there has a fundamental shift towards cosmetics produced
from natural ingredients, both globally and locally.

Although exports have been increasing year-on-year, imports have been increasing faster,
leading to a growing trade deficit when compared to 2011. This growing deficit can mainly
be attributed to a lack of local raw materials.
 151

Figure 7. SA Cosmetics Sector Trade Balance 2007-2016 Key Action Programmes

1. Local content: SOE procurement

Nature and Purpose of Intervention

In support of local manufacturers and their service providers, the Cosmetics sector desk
is embarking on leveraging preferential procurement. In 2017, it worked very closely
with South African Airways on their cosmetics and amenities kits tender to help stimulate
increased local manufacturing of cosmetics sourced by SAA.

In June 2017 A feasibility study was conducted to establish whether amenity kits and
cosmetics could be produced locally to meet high-volume demand at reasonable prices.

The sector desk is also focusing on attracting FDI - in collaboration with Investment South
Africa (ISA) - and on Southern African regional integration.

The main focus for 2018 will be to facilitate procurement of locally produced personal care/
cosmetics products by San Parks, following the model developed with SAA.

Targeted outcomes
Source: Quantec
• Capacitated local manufacturers with the required skills and technology to produce
Key Opportunities according to international standards;
• Promotion of “Proudly SA” cosmetics products;
• Increasing production of cosmetics products in South Africa, leading to a positive
• Increased local content in the cosmetics sector;
contribution to GDP;
• Improved FDI in the sector.
• Capacitating local testing facilities with required skills and technology to produce
Key milestones
products in line with international standards - e.g. safety assessments, sun protection
testing, mercury analysis; 2018/19 Q1-Q4: Work with National parks (SanParks) to encourage procurement of
locally produced cosmetics/personal care products.
• Developing a self-sustainable industry;
2018/19 Q1-Q4: Facilitate access to funding for companies, supporting both
• Increasing exports and reducing imports of finished products;
investments and exports.
• Employment creation.
Lead Departments/Agencies: the dti, EDD
Supporting Departments/Agencies: CTFA, industry, local manufacturers, IDC, SEFA,
SoEs, ISA, Trade Invest Africa

the dti | IPAP: 2018/19 – 2020/21

152

2. Compliance and Competitiveness: Natural Ingredients Export Development

Targeted outcomes
Strategy
• Clear identification of sustainable and traceable value chains that meet international
(Compliance with International Regulations and Market Access) buyer requirements;
• Identification of dedicated support and business-enabling policies and programmes
Nature and Purpose of Intervention
for natural ingredients and products manufacturers;

South African producers supply a broad range of natural ingredients for the cosmetics, • Development of standards that are critical for the local and export markets;
health and food sectors. The South African natural ingredients sector has strong potential • Increased trade volumes of sustainably produced bio-trade products from South
to produce natural ingredients, making the sector attractive to invest in. The cosmetics Africa that will result in creation of new seasonal and permanent jobs within ABS-
sector desk worked with CBI to inform companies, investors, HEIs and policy makers in compliant value chains;
South Africa about the potential of South African natural ingredients and how to leverage • Reduction of regulatory hurdles for local compliance, global alignment and optimised
this potential. market access;
• Capacitation of local testing facilities with required skills and technologies to test in
Natural ingredients produced in South Africa currently include the following indigenous
accordance with international standards (e.g. raw material analysis, toxicology).
species: Aloe ferox, buchu, marula, baobab, honey bush, rooibos, devil’s claw etc. The
natural ingredients sector contributed R101 million to GDP in 2014. Key milestones

The South African Natural Ingredients Export Strategy encourages production of ingredients 2018/19 Q1-Q4: In partnership with UNIDO, facilitate the development of natural
ingredients standards and reference material to encourage quality
that comply with international market requirements and stimulate local value-addition in the
control and assurance in the value chain.
production of “organic”/natural cosmetics products in a business-enabling environment.
2018/19 Q1-Q4: Facilitate alignment and compliance of the industry with the national
dti efforts to expand support for the sector are being carried out in partnership with Bio-prospecting, Access and Benefit sharing regulations.
international and national stakeholders, the Department of Environmental Affairs’
2018/19 Q1-Q4: Work with SECO to provide technical assistance to SMMEs, access
Biodiversity Economy Strategy, the DST’s Bio-economy Strategy, the CSIR, tertiary to markets and financial support.
institutions and the Cosmetic Export Council of South Africa’s (CECOSA).
Lead Department/Agency: the dti
These efforts are also supported by CBI, SIPPO and SECO, and in extended partnerships
Supporting Departments/Agencies: SECO, UNIDO, SIPPO, CBI, CSIR-BIDC, IDC, SEFA,
with UNIDO, SANAS, NMISA, SABS, CTFA and SECO. The aim is to develop ABS
CECOSA, SABS, DEA, DAFF, DST, EgoliBio, SEOBI, SAEOPA, ARC, SANAS, NMISA,
compliance training for companies, standards development, technical assistance
industry and academic institutions
and funding for SMMEs. Increased participation in exhibitions and trade shows will be
achieved in partnership with CECOSA, TISA, WESGRO, SEDA and SIPPO, to promote
commercialisation of natural ingredients and products.
 153

3. Market access for cosmetics manufacturers

Nature and Purpose of Intervention

In support of local manufacturers of cosmetics and personal care products, the Cosmetics
sector desk is embarking on working with Proudly South Africa to promote locally produced
cosmetics and personal care products. Local manufacturers will be assisted through
government funding programmes to produce at reasonable prices in accordance with
international standards whilst meeting high local demand and volumes.

In addition to enhancing the local market, identifying investment opportunities and attracting
foreign direct investment (FDI), the focus of this intervention will be to facilitate promotion of
locally produced cosmetics and personal care products by forming strategic partnerships
with the tourism industry and private sector at large.

Targeted outcomes
• Capacitate local manufacturers with required skills and technology to produce
according to international standards;
• Promotion of Proudly SA cosmetics products;
• Increased FDI in the sector.

Key milestones
2018/19 Q1-Q4: Work with Proudly SA, Tourism SA, government departments and
the private sector to encourage buying locally-produced cosmetics/
personal care products.
2018/19 Q1-Q4: Facilitate access to funding for investments and exports.

Lead Department/Agency: the dti

Supporting Departments/Agencies: Cosmetics Toiletry and Fragrance Association,
industry, local manufacturers, IDC, SEFA, Invest SA, Trade Invest Africa, South African
Tourism Industry, Proudly SA

the dti | IPAP: 2018/19 – 2020/21

154

SECTORAL FOCUS AREAS 2

 155

1. Minerals beneficiation

Situational Analysis

In 2017, the South African mining sector’s contribution to GDP declined to 5.1% - down
from 6% in 2015 and 5.4% in 2016 - illustrating the extent of the slowdown the sector is
facing. The industry attributes the decline both to subdued commodity prices and policy
and regulatory uncertainty. The continuing decline has led to mass retrenchments and
mothballing of assets and projects.

The current slowdown will affect the long-term sustainability of the sector and its supporting
services, which could result in ruinous knock-on effects - especially on mining inputs
manufacturers - as both capex and opex levels dip. Overall, the domestic medium to long-
term prospects for local suppliers of goods and services is unfavourable and growth in
revenues will have to be explored in export markets.

Precious metals are currently subjected to immense strain with low prices and increasing

the dti | IPAP: 2018/19 – 2020/21

156

costs, and most mines operating below break-even. However, coal and iron ore have Key Action Programmes
yielded good growth and continue to inspire confidence.
1. Interventions for a sustainable steel industry
South Africa has more than 80% of the world’s platinum reserves - currently estimated at
1.1. Monitoring and evaluation of short to medium term interventions
around US$ 2.0 trillion - and is home to the three largest platinum mining companies in
the world. The platinum mines provide direct employment to 136,000 people and further Nature and purpose of the intervention
support 325,000 indirect jobs. Platinum Group Metals (PGMs) are the second largest
export revenue generator for South Africa and consequently there is a strong interest in Steel is fundamental to manufacturing in SA, accounting for significant value-add and
supporting the long-term sustainability of the industry. Currently 39% of platinum demand representing about 190,000 jobs in the direct iron-ore, steel making and fabrication
comes from the autocatalytic convertor industry, 29% from jewellery manufacturing and industries. Top steel-consuming industries (mining, construction, autos) contribute ~R600
23% from investment. billion to SA’s GDP (~15%) and employ ~8 million people (directly and indirectly).

The international drive to reduce greenhouse gas (GHG) emissions in terms of the Paris For the past 2 years, since the onset of the global steel crisis, government, in consultation
Agreement commitments could be positive for the industry in terms of the adoption of with a broad range of stakeholders, has proposed and implemented a number of policy
platinum fuel cell technology. However, as alternate competing battery technologies are measures to save the industry from the threat of closure and loss of capacity - balancing
adopted, the demand for platinum will remain under threat, with the mining sector exposed support for both the upstream and downstream steel industry.
to enormous risk. Consequently, there is an urgent need to develop new applications and
For the next three years the dti will closely monitor the implementation of the programme
markets for platinum as well as to provide international markets with reassurance on the
and general developments in the sector and will participate in local and global forums to
sustainability and security of platinum supply.
ensure continuing support and intervention across the whole steel value chain.
The fuel cell industry development initiative is aimed at exploring and facilitating new
Targeted outcomes
market opportunities for platinum, to ensure the continued growth of PGM mining. In early
• A competitive primary steel industry;
2016, the IDC established a steering committee of mining houses, local engineering and
manufacturing companies and technology providers to work with government to jointly craft • A fair price for downstream manufacturing;
and implement a roadmap for PGM beneficiation in South Africa – with the special focus • Development of local capacity and capability through increased local content;
being on fuel cells. • Investment growth along the whole value chain, including technology upgrades;

Globally, the demand for energy storage has risen and continues to grow, especially as a • Job retention and creation.
result of the rise of distributed energy generation models. For SA, energy storage systems
Key milestones
offer the ability to complement distributed energy generation through transmission and
capital deferrals and arbitrage (storing production surplus during low demand periods and 2018/19 Q1-Q4: Determine and monitor monthly steel pricing in accordance with the

meeting higher demand during peak periods). In addition, significant opportunities are agreed flat steel pricing agreement and monitor all commitments

emerging in the form of mineral beneficiation-linked energy storage solutions utilising key agreed with industry. Submit reports to ITAC Steel Committee.

SA mineral resources like vanadium, nickel and manganese.

 157

supplied by Eskom or a municipality - aiming to provide qualifying consumers with access

2018/19 Q1-Q4: Monitor roll-out of Downstream Steel Competitiveness Fund through
to lower electricity prices for a period of up to 24 months.
the IDC-led steering committee.
2018/19 Q4: Annual Report assessing the impact of all support measures Given the current energy demand-supply situation, the proposed short-term framework
(tariffs, designation, incentives) and reciprocal commitments (jobs, is a positive initiative for energy-intensive users. While the intention is to transition to
investment, pricing); submit recommendations for adjustments where higher levels of value-addition and reduce our dependency on resource-based energy and
required. capital-intensive industries, the smelting and refining stages are required to move to higher
levels of value-add with important backward/side-stream linkages.
Lead departments/agencies: the dti, EDD, ITAC, IDC
Supporting departments/agencies: NT The following interventions are in progress:
1. Silicon Smelters Pricing Framework Implementation – implementation of the pricing
1.2. Medium term interventions framework for silicon smelters.
2. Approval of short-term framework for energy intensive users - preventing the
Nature and purpose of the intervention
closure of more smelters, refineries and foundries through approval and implementation
The effects of the global steel crisis have been severe as miners, primary steel mills and of the broader pricing framework for industrial customers.
downstream manufacturers struggle to sustain jobs and invest in new capacity. The impact 3. Long-term policy, programme and project interventions - aligning electricity
of the crisis is exacerbated by the fact that the steel industry in SA faces the following deep provision with industrial policy: pricing, access to the grid, quality of supply and
challenges: procurement.

• Inadequate investment in plant maintenance, equipment and upgrades. Targeted outcomes

• Discontinued production of certain key primary steel products (particularly higher value- A re-built, globally competitive SA steel industry that supports and balances the interests
added flat products) for mining, tooling, rail and automotive applications. of both upstream and downstream sectors.

• Downstream industry facing increasing competition from low-priced imports of finished Key milestones
goods, which continues to erode manufacturing capacity and capability and shrink the
2018/19 Q2: Short- to medium-term electricity pricing framework implemented for
local share of domestic and regional markets;
steel and other energy-intensive users.
• High logistics costs;
2018/19 Q3: Chrome export tax proposal submitted.
• High electricity prices and other administered charges;
2018/19 Q1-Q4: Trade policy measures implemented (rebates, “other” products, trade
• Difficulty of access to fairly-priced scrap metal is a threat to new and future mini-mill remedy and customs duty increases).
investments (global trends are moving towards more profitable modern mini-mills).
Lead departments/agencies: the dti, DMR, EDD, NT, ITAC, DOE
An interdepartmental task team was established in 2017 to develop a short-term framework
which sets out the criteria against which a transparent negotiated pricing agreement can be
evaluated, approved and monitored. The target is medium to large industrial consumers

the dti | IPAP: 2018/19 – 2020/21

158

2. Expansion of the PGM Beneficiation Industries Mobile fuel cells for transportation
It is envisaged that the biggest enabler for the fuel cell market will be the transport/mobile
sector as it will unlock the required volumes and cost reductions for fuel cells to become
economically viable. Fuel cells offer opportunities to energise vehicles directly or extend
the range of electric vehicles, hence providing viable opportunities for long-distance and
heavy vehicles like buses and trucks.

In the medium term, mass transportation initiatives in the metros and by major fleet owners
offer an opportunity for the country to introduce fuel cell-based transport solutions that will
help reduce GHG emissions.

the dti/IDC study on fuel cell opportunities in the public transportation sector was completed
in June 2017, laying out the proposed activities related to the public transportation sector
which could stimulate the required demand for the localisation of fuel cells in SA. The
action plan suggests that:

a) in terms of South African Green Economy and GHG commitments, there is a case to
be made to pilot a fuel cell bus deployment within some of the major metros, or any other
procurement opportunities;

b) there is an immediate need to advance local fuel cell component developments/

Fuel cell technology
manufacturers to achieve full commercialisation and become embedded in global value
chains.
2.1. Fuel Cell industry development
Stationary Fuel Cells
Nature and purpose of the intervention
Following the successful commissioning and operation of a fuel cell to meet part of the
Through a multi-stakeholder approach, South Africa will explore market and industrialisation Chamber of Mines’ building power needs, the dti continues to support the development
opportunities in the transport/mobility sector, mining capital equipment and combined heat of stationary fuel cell applications. It has approved funding support for an 8.8 MW fuel
and power stationary applications. cell deployment at a mineral processing facility in collaboration with a local mining house
and a global technology partner. HyPlat, the commercial arm of DST HySA Catalysis, is a
In 2018/19, the IDC-coordinated steering committee will focus on a value chain analysis to
technology partner for the supply of fuel cell sub-components for the project.
identify opportunities where South Africa will have sustainable competitive advantages to
ensure the long-term viability of such opportunities in prioritised market segments. Mining Capital Equipment and Forklifts
In conjunction with the DST, a local mining company, supported by HySA Systems and
Several key projects aligned to the roadmap are currently being pursued by the mining
UWC, has developed a prototype fuel cell forklift with novel metal-hydride technology for
companies, the IDC and government:
 159

the on-board storage and compression of hydrogen. The forklift and its refuelling station 3. Energy Storage Development
were commissioned in October 2015 and a commercialisation roadmap for fuel cell forklifts
3.1. Li-ion battery precursor project
is underway.

Nature and purpose of the intervention

In order to promote new sustainable markets for PGMs, the dti will collaborate with local
companies and participating mining houses to support the development of fuel cell LHDs, With funding from the IDC, the Black Industrialist Programme is supporting the
dozers, locomotives and buses. Fuel cells offer health and safety benefits to conventional commercialisation of the Thakadu nickel-sulphate project via the establishment of a R251
diesel as well as electric mining equipment in underground applications. Engagement on million, 25,000 t/a nickel-sulphate plant in the NW (Lonmin Refineries) based on ​the Mintek
the Mine Health and Safety legislation will be a key intervention. proprietary process. Production starts in 2018. The chemical product is used globally in
lithium-ion batteries and off-take agreements are in place with global customers.
Targeted outcomes
• Increased beneficiation and value-addition to locally produced platinum and expansion/ Complementary to the above project, the DST has launched a Strategic Manganese
diversification of platinum uses and markets. Precursor Development Programme, responding to the need for SA to beneficiate its

• Localisation through local assembly, key component manufacturing and eventually manganese resources. The programme was initiated through the acquisition of intellectual

manufacturing of complete fuel cell solutions. Supply chain development for input property and expertise from Delta EMD (Pty) Ltd. and is co-hosted by the University of

chemical fuels such as methanol and hydrogen, and the associated logistics. Limpopo.

• Integration of a technology solution under the DST HySA initiative that will enable The long-term objective of the Manganese Precursor development work is to establish a
retro-fitting of locally developed technologies into localised fuel cell solutions. new manganese beneficiation plant in South Africa that will supply precursor material to
Key milestones future local and global Lithium Ion Battery (LIB) producers.

2018/19 Q1: Proof of concept on other forklifts using Metal Hydride and LOHC
The intervention will include engagement with Special Economic Zones (SEZs) to leverage
market quantification.
the benefits of locating the facility in such zones, as well as engagements with potential investors.
2018/19 Q2: Fuel cell bus pilot roadmap (IDC, Mining Companies, DBSA, the dti).
the dti will engage upstream manganese mining and processing companies to be part of
2018/19 Q4: Construction commencement of the 8.8 MW stationery fuel cell,
the product development process.
supported by dti Critical Infrastructure Funding; construction of LHD,
locomotive and bus prototypes. Targeted outcomes

Lead departments/agencies: the dti, DST, IDC, DOE, DEA, DOT • Beneficiation of local minerals for application in energy storage solutions.
• Manufacturing of Li-ion battery components in South Africa for the export market.
• Partnership with battery producers for uptake of locally produced precursor materials.

the dti | IPAP: 2018/19 – 2020/21

160

Key milestones Targeted outcomes

2018/19 Q1: Thakadu nickel sulphate project MOA with manganese precursor • An enabling environment to successfully demonstrate the value proposition of energy
project. storage;
2018/19 Q4: Manganese energy storage development framework including pre- • South African participation in the growing energy storage sector, thereby stimulating
feasibility and identification of a suitable SEZ for the location of a demand for South African mineral resources and the establishment of a local
manganese precursor manufacturing facility. manufacturing industry;

Lead departments/agencies: the dti, DST, UL • A successful demonstration/commercial site, illustrating a technical and commercial

Supporting departments/agencies: TLIU, CSIR, industry associations solution that could be replicated /exported to other countries, especially in the region.

Key milestones
3.2. Demonstration of energy storage technology in South Africa 2018/19 Q2: Assess regulatory policy framework and funding support required to
develop an energy storage demonstration/commercial site in SA.
Nature and purpose of the intervention
2018/19 Q2: Implementation and evaluation report of the vanadium redox flow
The IDC-led energy storage steering committee has identified potential SA use cases for battery demonstration site at the Eskom Research and Innovation
energy storage, including transmission and capital deferrals, arbitrage (storing production Centre in Rosherville.
surplus during low demand periods and meeting higher demand during peak periods), 2018/19 Q4: Development of a funding framework for energy storage-based
voltage support, frequency and regulation. distribution solutions (transmission and distribution capital deferrals,
voltage support, frequency regulation, transformed start-ups, etc) with
At this stage, the primary focus is on demonstration/commercial site deployments that
the major off-takers being Eskom and municipalities.
will assist in proving the technology and business cases in the SA environment. Such
deployments are essential to obtain first-hand experience and knowledge to facilitate the
Lead departments/agencies: the dti, DOE, IDC, DST
establishment of a policy and regulatory framework that supports the large-scale roll-out of
energy storage.
4. Growing the market share of domestic manufacturers of mining equipment
Given the projected future global up-take of vanadium energy storage applications, the and components through identifying opportunities for localisation, supplier

initial focus is on the development of a vanadium electrolyte production facility, followed development and export growth

by a vanadium redox flow battery assembly/manufacturing plant in South Africa. This will Nature and purpose of the intervention
facilitate new industrial development opportunities with a global market perspective.
The Mandela Mining Precinct, a public-private partnership between the Chamber of Mines
This project will support: (CoM) and government (DST, the dti) will be formally launched during May 2018. The
• Increased beneficiation of South African vanadium resources; partnership will be funded by the DST and the dti to a value of more than   R220 million
• localisation of vanadium redox flow battery technology in support of market development (until 2021). The CoM will finalise its contribution on an annual basis, in addition to the R33
in SA and regionally. million which was committed for 2018.
 161

This platform has been created to drive local content and coordinate the interests of both Currently, efforts are being made to bring foreign OEMs into the Mandela Mining Precinct’s
mining companies and manufacturers. The common objective will be to streamline the mainstream activities in order to seek opportunities for technology and skills transfers and
supply chain and collaborate on opportunities for co-development of equipment, thus co-develop partnerships leveraging the OEMs’ innovation and R&D capabilities.
increasing the value and extending the life of gold and platinum mines to 2050 and beyond.
The competitiveness of the South African mining industry will be critical to its survival,
Whilst there was previously little coordination amongst manufacturers of mining equipment, especially when commodity prices are stagnant and operating costs are rising. the dti
is working with leading mining companies (Sibanye, Anglo-American, South 32, Impala,
the dti has recently played a pivotal role in funding and directing the agenda of two new
AARD, RHAM, Multotec, etc.) who have come to realise that in order to remain competitive
clusters within this space.
they must innovate and use new technologies - sometimes from lateral industries - to
In mid-2017 it funded the establishment and programme development of the Mining transform their operations. This includes seeking improvements in mine safety, real-time
Equipment Manufacturers of South Africa (MEMSA) to a value of R8 million. It also provides information management, artificial intelligence and environmental impact issues.
ongoing support to the South African Mineral Processing Equipment Cluster (SAMPEC).
New mining methods will be central to enabling the sector to remain a global player in
Both clusters, MEMSA and SAMPEC, are located within the Mandela Mining Precinct. an industry that is moving closer towards the ‘digital mine’ of the future, integrating the
entire value chain. Mining 4.0 is fast becoming a reality and technology is the key driver.
The Mandela Mining Precinct is positioned as the central coordinating institution for all
mining-related R&D activity aimed at developing the next generation of mining systems.
Targeted outcomes
Six R&D streams are being collectively directed by projects championed by the mining
• Greater and better-coordinated collaboration between the domestic manufacturers of
companies. The fundamental aim is to identify greater efficiencies in the extraction and
equipment and components and the providers of supporting services.
processing stages of the value chain, ultimately reviving the long-term viability of deep-
level mining. • Increased purchase by mining companies of locally produced items.
• Growth of export sales in goods and services to select African markets by developing
The projects include:
an Export Roadmap to exploit high-priority mining projects. (Adopting an “SA Inc”
• Modernisation of current operational mines. approach).

• Mechanised mining for gold and platinum. Key milestones

• Non-explosive rock breaking. 2018/19 Q1-Q4 Further integration of leading manufacturers into the mining supply
• Advanced ore-body knowledge. chain to increase sales to domestic mining companies through the
Mandela Mining Precinct collaboration platform.
• Real-time information management systems and Mining 4.0.
2018/19 Q1-Q4 Roll-out of implementation plans for the identified product business
• Optimisation of the mining supply chain.
cases to increase local content in mining procurement.
Whilst domestic OEMs are steadily growing their order books, albeit in testing times, the
2017/18 Q1-Q4 Implementation of the Export Roadmap Action Plan with key
foreign-owned counterparts have heeded the dti’s call to increase local content and localise
stakeholders.
elements of production. A major global mining equipment supplier recently committed to a
R1.3 billion localisation programme; another has launched its first locally- manufactured Lead departments/agencies: the dti, DST, CSIR (TLIU), IDC
LHD for the South African and other regional markets. Supporting departments/agencies: DMR, DPME, DIRCO, EDD

the dti | IPAP: 2018/19 – 2020/21

162

1.1. Gas Industrial Policy The expansion of gas supply into the South African market - via the development of domestic
resources and the expansion of volumes from Mozambique - should produce affordable
gas prices capable of underpinning a significant natural gas-based re-industrialisation of
the South African economy. dti policy will support the development of infrastructure and
competitive markets to yield gas at the lowest possible prices.

Development of domestic industrial gas markets

• Evidence from other jurisdictions, most notably the USA and Qatar, suggests that
an abundant and cheap natural gas resource can dramatically revitalise wider
manufacturing and industrial activity.
• Gas markets are developed in phases over many decades. The key short-term objective
is to attract investors to explore and develop South Africa’s natural gas resources. This
objective can be facilitated by developing natural gas markets in the following ways:
• seeding the market with LPG (which requires expanded import infrastructure and
regulatory reform);
• commercialisation of small pockets of indigenous natural gas and coal bed methane
(CBM);
the dti’s intention is to stimulate gas-based industrialisation in South Africa in a phased
• initial small-scale LNG imports, followed by subsequent large-scale LNG importation
manner, starting with a short-term pump-priming phase that supports the import of liquefied
(from regional and global sources).
petroleum gas (LPG) and liquefied natural gas (LNG) into key South African ports by the
These developments will play a vital role in expanding domestic industrial gas utilisation and
Department of Energy. Also on the agenda is the facilitation of early stage development of
capitalising the infrastructure required to connect supply to growing demand. Competition
onshore South African gas resources, including coal bed methane and shale gas, and the
between various sources of significantly increasing supply will assist in driving affordable
further exploration of offshore potential.
gas pricing.
the dti anticipates significant expansion in the import of regional natural gas resources
In the longer term (15 years +) the main objective is a vibrant gas industry delivering
from Mozambique, building on the volumes already imported via the ROMPCO pipeline
affordable and secure gas supply to the heavy industry, manufacturing and transport
from the Pande and Temane fields operated by Sasol. As the world-scale Rovuma Basin
sectors.
discoveries in Northern Mozambique are commercialised, the dti will work to support a
regional gas strategy and the entry of private sector players to ensure that a significant
volume of these new resources are delivered into the South African gas market, either via
LNG and ship or (over the longer term) via pipeline.
 163

Key Action Programme It will also work with the upstream industry and its industry bodies to map required
procurement for its activities, whilst simultaneously building supplier development
5. Developing a regional gas economy
databases, working with the goods and services industries in South Africa and facilitating
Nature and purpose of the intervention matches where appropriate. A critical focus will be pivoting South Africa’s traditional mining
skills-set to support the oil and gas value chain.
The 37th SADC summit, held in August 2017, decided to establish a Regional Natural Gas
Committee and Task Force. The broad mandate of the Committee is to support the growth Key milestones
of a regional gas economy through the development of a SADC Gas Master Plan. LPG Sector Strategy: the dti will work closely with the Departments
2018/19 Q1-Q4:

the dti will participate fully in this work, supporting the alignment of regional gas policy of Economic Development, Energy and Labour to address the

and driving the regulatory coordination required to enable significant onshore utilisation of challenges currently hampering the growth of the LPG sector.

natural gas volumes in the region.

These include, but are not limited to:

Supplier Development • commitment to substantially increasing the size of the LPG market by following a
competitive industrial-growth-through-LPG-imports strategy;
In addition to facilitating the growth of a regional gas industry, there is huge potential for
• continued commitment to the ‘cylinder exchange’ system of supply;
onshore value from natural gas in servicing upstream exploration and production activities
• revising the cylinder deposit price regulation to match import parity;
both in South African – onshore and offshore – and in the region, particularly in Mozambique,
Angola and Tanzania. • substitution of price regulation by price monitoring;
• minimisation of wholesale LPG licensing and the introduction of certification for LPG
Finding and developing natural gas resources requires specialised equipment and services
cylinder fillers;
including drill rigs, geological services and piping. If these resources are available in the
• shifting the tax incentives currently given (from paraffin to LPG), once the LPG supply
region at competitive prices, it will help to lower the costs of extracting and delivering
bottlenecks have been removed;
gas to markets, as it will allow for cheaper than US dollar-priced imports. In turn, this
should reduce the cost of gas faced by downstream gas customers, whilst at the same time • alignment of the provisions of the Petroleum Pipelines Act, the Ports Act and the
stimulating different value chains within Southern African economies. Petroleum Products Act in so far as they relate to LPG;
• support for exemption from the Competition Act that will allow small LPG importers to
The international oil and gas industry operates on stringent technical, health and safety
aggregate their needs to lower LPG costs;
standards. Companies aspiring to supply this industry will not only have to meet these
• increasing prosecution of illegal cylinder fillers and raising the deterrent (fine) for illegal
requirements but will have to be as competitive as the foreign companies currently
filling;
operating in this space.
• improved verification of adherence to safety specifications of imported cylinders;
What will be required is a coordinated and collaborative supplier development framework
• exploring the compulsory certification of cylinder fillers;
developed in conjunction with the private sector. the dti will provide leadership and drive
• increasing funding for the LPG health and safety inspectorate.
policies and stakeholder coordination that facilitate the optimum usage of South African
goods and services for upstream activities in South Africa and the region. • LNG-to power programme support: the dti will continue to work closely with the DoE

the dti | IPAP: 2018/19 – 2020/21

164

to leverage its LNG-to-power programme for further industrial gas market development. 2. Green industries
• Upstream exploration to drive discovery and production of domestic resource:
key to unlocking gas exploration and production is finding an investor-friendly resolution
with respect to the amendments of the MPRDA. the dti will continue to engage the
DMR and industry to seek a successful conclusion to this process.

Key milestones

2018/19 Q1-Q4: Developing a Regional Gas Economy

the dti to work closely with the NEPAD Business Foundation (NBF)
and the SADC Regional Natural Gas Committee/Gas Task Force to
develop a regional gas master plan.
2018/19 Q1-Q4: Supplier Development

Put in place a supplier development programme that will

develop the specialised suppliers of strategic components and
services along the oil and gas value chain.

Lead departments/agencies: the dti, DST, CSIR (TLIU)

Supporting departments/agencies: SAOGA, OPASA, ONPASA, the DMR, the DoE, EDD,
Transnet, Eskom, NEPAD Business Foundation (NBF) and the SADC Regional Natural
Gas Committee/Gas Task Force. Situational analysis

Global

The adoption of the Paris Agreement on 12 December 2015, where the world agreed to
limit the average temperature increase to well below 2oC, was a major historic turning point
on climate change. The ambitious outcome from Paris was the result of an increasingly
serious collective recognition by governments, business, investors, regional and local
authorities of the urgent need to design and implement strategic policy interventions to
address the multiple challenges of climate change.

For business this is a turning point: away from investment and innovation in carbon-
intensive technologies and towards innovation and the development of next generation
solutions.
 165

The global race is now on to grow and capitalise on these new opportunities; and it is make commitments in respect of shareholding by black people as well as top management
already evident that economies of scale, technological improvements, greater competition by black people - which must be maintained for the full lifespan of the project.
in supply chains and the right policy conditions have started a continuous process, driving
From a policy standpoint, Eskom needed to play a central role to make the programme
down the cost of new technologies to already price-competitive levels in many sectors,
work - through the purchase of the electricity generated by through the REIPPPP. But
including energy and transport.
because Eskom did not directly benefit from the programme, privately generated electricity
Industrial policy developers are becoming increasingly aware of the potential threats these was basically a lost opportunity for them. 
The massive electricity price increases over the
global developments pose to our traditional carbon energy-based industrial system. There past five years in South Africa further led to significant downward adjustments in consumer
is no doubt that opportunities will be few and far between in the years to come unless we demand for electricity, especially from energy-intensive consumers. It is no surprise, then,
embrace new efficient production systems and technologies and implement policies that that Eskom eventually explicitly opposed and delayed expansion of the REIPPPP because
create demand for the next generation of clean products and services. of concerns about its own falling sales. This resulted in a massive decline in renewable
energy-based industrialisation. More importantly, a growing and globally competitive local
Local industry became paralysed, sacrificing the opportunity to participate in the next energy
revolution - namely storage and the associated manufacturing potential (specifically
In 2010, the South African government developed the Renewable Energy Independent
vanadium mining backward linkages).
Power Producer Programme (REIPPPP) to contract with private power producers to
supply energy to the national grid. This was done to enhance electricity supply at a time of The slow and intermittent roll-out of the National Solar Water Programme is another example
shortages, to encourage generation from renewable sources and to provide a stimulus for of a sub-optimal realisation of industrial opportunity. According to the 2017 Estimates of
manufacturing through the procurement of capital goods for the new plants. Many of the National Expenditure, the National Solar Water Programme had installed 121,519 solar water
major inputs for renewable generation are designated for local procurement. heaters for a total expenditure of R1.97 billion by the end of the 2016/17 financial year.

For a number of years this proved a highly successful Green Economy project, attracting This is means that just over 10% of the planned installed systems were realised in four
investment to the value of R201.8 billion, contributing 3,162 MW of electricity generation financial years - a far cry from the planned installation of 1 million solar water heater systems
capacity and mandating South African entity participation of 40%, including broad-based by the close of the 2014-15 financial year - for which R4.7 billion was to be allocated over
black participation in the form of ownership, economic and socio-economic benefits across the medium term in the 2012/13 financial year. This again highlights the difficulty of creating
the term of the contract (not only at the time of bidding). Currently, BEE Participation new green industries through the lever of public procurement.
(including Community Trust Participation) in South African entities delivering projects that
have reached financial close stands at 53.9%. Key Action Programmes

Black South Africans own, on average, 31% of project equity (shareholding) in the projects 1. A Policy Roadmap for Climate-Compatible Industrial Development
which have reached financial close, with local black communities owning around 11% of such
Nature and purpose of the intervention
projects. The total dividend benefit that will flow to community trusts through the contracted
IPP projects over the period of the PPA amount to R23.22 billion. Shareholding by black the dti, supported by TIPS, has finalised two pilot studies on the economic, social and
South Africans was also secured across the value chain. Engineering, Procurement and environmental profile of the iron and steel value chain and the petrochemical value chain
Construction (EPC) and Operating and Maintenance (O&M) contractors were required to in South Africa. The climate-compatibility of these sectors was compared to international

the dti | IPAP: 2018/19 – 2020/21

166

competitors and resilience/vulnerability assessments were carried out. Possible solutions 2. Systemised resource efficiency data collection and reporting
were identified, and an implementation plan is being formulated for each sector. This was in
Nature and purpose of the intervention
line with the first phase of the policy roadmap for climate-compatible industrial development.
From a policy perspective government must set the Green Economy rules and provide the
Key milestones
signals and conditions necessary to adjust economic behaviour. The traditional measure of
With TIPS’ support and in collaboration with the DEA, the dti will continue this work in contribution to GDP often creates the perception that environmental policies work against
2018/2019, taking the following steps: the grain of the economy resulting in mixed messages for business.
2018/19 Q4: Conduct three additional sector value-chain studies: (i) Cement; (ii)
forestry; and (iii) aluminium. The National Cleaner Production Centre (NCPC) has been collecting data on the use of
energy and other resources in industry for many years. Improved ability to collect, analyse,
This work will include: interpret and report will support policy development and alignment of environmental and

• developing a profile of the selected sectors (from economic, social and industrial objectives. This project is aimed at improving the systems and processes to
environmental perspectives); gather and report on data relating to energy and water use, as well as the waste emissions
patterns of industrial sectors and companies.
• establishing the climate-compatibility of the sectors (notably compared
to international competitors);
• carrying out a resilience/vulnerability assessment based on: Targeted outcomes
A database, housed at the National Cleaner Production Centre South Africa, capturing
• their existing climate-compatibility;
resource (water, energy, raw materials) use and resource savings statistics in industrial
• their existing mitigation potential;
sectors and plants.
• their exposure to both direct and indirect climate risks (direct
environmental impacts, indirect environmental impacts, climate The resulting data will be available for use by the various government departments
change response impacts, including market dynamics); requiring reporting of such data in national environmental reporting frameworks and for
• assessing the possible solutions and formulating an implementation tracking progress against agreed international mitigation targets.
plan, to be reflected in the sector strategy and broader industrial policy
Key milestones
(and integrated with sector emission targets and the Carbon Budget
2017/18 Q4: Launch of an information management system with a web-based
and Mitigation Plan of DEA).
front-end to capture energy, water and waste use patterns by
2018-2019: Continue with Internal sectoral capacity building within the dti on climate
companies, populated with data from NCPC-SA assessments since
change and industrial development.
2009.
Lead departments/agencies: the dti, DEA 2018 – 2020: Annual analysis of data and publishing of a report on industry
Supporting departments/agencies: DoE, EDD, TIPS, NCPC resource use and savings patterns.
2018 – 2020: Reporting of data as and when required by national stakeholders.

Lead departments/agencies: NCPC-SA, the dti

Supporting departments/agencies: Sanedi, DoE, DEA and DWAS
 167

3. A national strategy to utilise appropriate measures and technology to ensure water

Key milestones
security and support the development of a local base of technology and service
2018-19: National water supply and demand analysis with high level case
providers in the sector
studies and/or scenarios.
Nature and purpose of the intervention
2018-19: A cost-curve of incremental water availability to assess the potential
Demand for water in South Africa is projected to be 17.7 billion m by 2030, while the
3 and costs of a set of measures to close the projected deficit between
current supply only amounts to 15 billion m3. Water supply in South Africa is constrained water supply and demand. The cost curve should also provide a
by low and unpredictable rainfall patterns, limited underground aquifers, and reliance on framework for technology providers to benchmark their products
significant water transfers from neighbouring countries. and services to be able to estimate market potential and cost
competitiveness with alternative solutions; and it should also provide
Future water supply and demand will fundamentally challenge economic and social guidance and transparency on where infrastructure is most needed,
development norms in South Africa and will need to be carefully managed to ensure and where alternative solutions may prevail.
sustainable growth. Policy makers will need to resolve tough trade-offs between agriculture,
2018-19: A “payback curve” to evaluate the returns that any given measure
key industrial activities such as mining and power generation, and large and growing urban
would generate against the capital needed to fund it, as perceived by
centres.
the end-user or adopter of the measure.
We need to assure sufficient raw or “upstream” water resources, implement the most 2019-20: Use the robust fact base generated to describe the implications for
appropriate technical solutions for supply and the improvement of water productivity, and stakeholders and policymakers by quantifying the barriers to adoption
implement the right incentives to change the behaviours of water users, whilst promoting and identifying the policy levers most likely to be address these
investment to address the infrastructure backlog and water saving technologies. barriers effectively.

It is important to understand the role that the private sector can play in this effort and to Lead departments/agencies: dti, TIPS
incorporate this into what has always been a natural monopoly solely managed by the Supporting departments/agencies: DST, DWAS, WRC, TIA
public sector. At stake are both economic prosperity and environmental health.

Targeted outcomes 4. Industrial Water Efficiency Project

A fact-based vision for water resources in South Africa to help identify metrics, such as: Nature and purpose of the intervention
• the supply-demand gap;
South African industry is traditionally resource-intensive, a characteristic which is proving
• a portfolio of least-cost technical solutions to address this gap; and
to be a growing challenge from both an environmental and a cost perspective. Supply
• a comparison of the technical options for new supply with options to shift the set of shocks in energy provision have already begun to spur action by industry to adopt more
underlying economic activities away from the most water-intensive uses. energy-efficient production methods.
The vision must also guide future planning for water in a way that integrates it with the
Countrywide droughts in recent years – and, in particular, the prolonged drought and water
direction of the economy as a whole.
crisis in the Cape region of the country - have now placed sustainable water use and supply

the dti | IPAP: 2018/19 – 2020/21

168

in the national and world spotlight. Companies must address the pressures of increasing 5. Industrial Energy Efficiency Project
water insecurity, coupled with the rising cost and environmental considerations attached to
Nature and purpose of the intervention
industrial water use.
The second phase of the South African IEE Project (2016-2020) continues the work done
The Industrial Water Efficiency Project aims to support South African industry to transform
in Phase I - to support industry in changing energy use patters to be more efficient and
water use patterns in a bid to improve efficiency of water management by industrial
sustainable. The project aims to increase industrial energy efficiency in South Africa to
companies. The project focuses on creating partnerships that will enable more supportive
contribute to national efforts to improve energy security and electricity supply continuity,
policy: generating training programmes to increase water-related skills in industry and
whilst seeking to enable an energy transition where GDP growth is not continually
assisting industry to assess and implement water efficiency in their plants.
constrained by energy shortages and rising prices.

Targeted outcomes
This will be achieved through the implementation of energy management systems (EnMS)
• Improved water efficiencies and waste-water management in participating industrial and energy systems optimisation (ESO) in industrial plants, together with the capacitation
and commercial companies. of energy experts to support industry implementation.
• The transfer, uptake and adoption of new water technologies through demonstration
Targeted outcomes
projects, to assist with de-risking innovations.
• Mainstreaming of energy management standards, based on ISO 50001 in industrial
companies, to ensure sustained energy savings.
Key milestones
• Development of energy efficiency experts in industry with special focus on increasing
2018-19: Water efficiency demonstration assessments used to identify new
the number of women capacitated and empowered as experts in industrial energy
techniques and technology opportunities for implementation.
efficiency.
2018-19: Development of a best practice water management approach for
• Measurable energy savings in participating industrial and commercial companies.
implementation at industry/company level.
• Development of tools and platforms for learning and awareness of energy
2018-19: Development of skills training modules for water management and
management in industry.
water efficiency in industry.
2019-20: Technology implementation support through structured Key milestones
implementation projects and/or facilitation of access to relevant 2018-19: Energy audits in SMEs with trend reports on SME energy use.
2018-19: Energy baseline studies in selected sectors.
technology suppliers.
2018-19: Industrial plants demonstrating energy efficiencies and showcasing
Lead departments/agencies: NCPC-SA, the dti results through case studies to set best practice and encourage
Supporting departments/agencies: DST, WRC, TIA uptake.
2018-19: Number of expert women trained in energy efficiency.
2018-19: Carbon emissions mitigation figures calculated and reported.

Lead departments/agencies: NCPC-SA, the dti

Supporting departments/agencies: DEA, DST, DOE, Sanedi
 169

6. Resource-efficient and cleaner production skills development 7. Professionalisation of specialist occupations in the resource-efficient and cleaner
production fields
Nature and purpose of the intervention
Nature and purpose of the intervention
The skills development programmes offered in resource-efficient and cleaner production
(RECP) are aimed at growing the South African skills set available to industry to facilitate Recent years have seen the proliferation of green reporting requirements as well as the
energy efficiency, water efficiency, waste reduction and reduction of carbon emissions. development of standards and certification programmes in this space. At this stage, much
Professionals from industry are trained through occupational training courses, whilst an of this reporting is voluntary, but long-term plans of government and other bodies envisage
internship programme equips young graduates with RECP skills. mandatory reporting of this nature.

Targeted outcomes Adaptation to these requirements at firm level within industry has been slow. This lag can

• An increased supply of specialist skills in energy optimisation and resource-efficient partly be ascribed to a lack of awareness of the benefits of making the necessary changes

cleaner production by stimulating demand and supply of all relevant skills, while to business reporting, and partly due to the lack of infrastructure for acquiring and vetting
promoting formal recognition and the credibility of the relevant training programmes. the necessary monitoring, evaluation, verification and auditing services.

• Improved employability of young engineering and science graduates by equipping

This project aims to begin addressing these gaps and will involve sensitising industry to
them with specialist RECP skills.
the need for evolving business reporting and preparedness for the inevitable compulsory
• Facilitation of energy, water and materials savings, as well as improved waste green reporting requirements of the future. It will also involve implementing standards for
management in industrial companies where interns or experts are trained.
resource efficiency professionals who could support industry in the transition to a low-
Key milestones carbon economy – including, but not limited to, energy and carbon reporting.
2018 – 2020: Develop 15 RECP practitioners per year through the NCPC-SA
Targeted outcomes
Internship Programme.
The establishment of a professional body mandated to develop recognised professionals
2018 – 2020: Develop 40 specialists with UNIDO-certified skills across 5 different
disciplines in Energy Optimisation and Resource Efficient and qualified to assist industry in complying with existing and future regulations pertaining to

Cleaner Production. the submission of energy plans, carbon emission reports, tax incentives and activities
related to emissions and other forms of environmental reporting.
2018 – 2020: Develop new trainers for specialist courses in Energy Optimisation
and RECP, enhancing the capacity of the training and education
Key milestones
industry to meet the demand for these skills.
2018-19: Awareness-raising aimed at highlighting key issues in the transition to
2018 – 2020: Capacitate 5 institutions from the public and private training sector to
a low carbon economy and the resulting reporting requirements.
offer training against occupational qualifications in energy efficiency.
2018-19: Carbon emissions mitigation figures calculated and reported. Lead departments/agencies: NCPC-SA, the dti
Supporting departments/agencies: Sanedi, DOE, DEA, National Treasury and DWS
Lead departments/agencies: NCPC-SA, the dti
Supporting departments/agencies: DWS, WRC, DOE, DHET

the dti | IPAP: 2018/19 – 2020/21

170

3. Business Process Services In 2016, several milestones were achieved in the BPS sector as a result of strong
partnerships between industry and government. At the 2016 Global Sourcing Association
(GSA) awards in London, South Africa was once again named “Offshoring Destination of
the Year”, an award it had previously received in both 2012 and 2014. The consistency with
which the awards have been received confirm South Africa’s position as an industry leader
and a world-class service destination in the BPS value chain.

New technologies in this sector have brought about a need for new thinking and new
ways of doing things. The introduction of cloud-based computing and technologies have
changed the traditional business operation model at a rapid rate. Coupled with this, the
advent of the smartphone, global video conferencing, and an overall shift to digital across
business areas are allowing employees more flexibility within their working environments
and doing away with the traditional office.

BPOs and contact centres are realigning their business operation models to upscale
employment opportunities and increase quality of life for agents whilst still achieving
significant cost savings and efficiency gains. According to the Global Telework survey of
2016, working from home, also known as ‘telecommuting’ is one such method which is fast
gaining popularity. 15 % of the operations in the Europe-Middle East-Africa (EMEA) region
have a telecommuting policy and South African BPS operations are no exception.

In 1998, Lufthansa became the first offshore operation to outsource to South Africa.
Following the successful rollout of the Lufthansa operation, South Africa expanded into
Situational analysis
other global BPO markets and it is now home to operators such as Aegis, Capita, CCI,
The global Business Process Services (BPS) market has evolved into to an ecosystem EXL, Merchants, Barclays, Conduent, Infosys, Genpact, Teleperformance, Webhelp and
which is now higher-end, more sophisticated and characterised by many cloud-based WNS. It is also the offshore destination of choice for International brands such as Amazon,
applications. Leading offshore destinations have repositioned themselves from a narrowly- Asda, Bloomberg, British Gas, Direct Line Group, iiNet, 02, Shell and Shop Direct.
focused BPO approach to being excellent players in a broader IT-BPM industry which
South Africa’s strong position derives in no small measure from two key dti initiatives – the
includes, beyond BPO, Information Technology Outsourcing (ITO), Knowledge Process
BPS Incentive Scheme and the Monyetla Work Readiness Program™. Since the launch
Outsourcing (KPO) and Legal Process Outsourcing (LPO). These service a number of
of the revised BPS incentive in 2014, an additional 35 projects have been approved for
verticals, with activities ranging from Healthcare to Banking, Financial Services and
new investments or expansions, bringing the number of agents employed by offshore
Insurance (BFSI). South Africa has gained particular international recognition as a top
operations to approximately 30,000 – 91% of whom are under the age of 35.
Legal Process Outsourcing (LPO) destination, able to offer expertise similar to that of
European countries.
 171

The Monyetla Work Readiness Program has supported over 16,000 unemployed youth Figure 1: Key International Markets serviced by South Africa’s BPS sector
through its skills development offering, which has made them highly employable in the
BPS Industry.

Table 1: Growth of the South African BPS sector

Contribution Contribution Contribution

Programme Variable
2007-2010 2011-2014 2015- 2017
BPS
Employment 9,295 9,077 14,727
Incentive
MWRP Trained 4, 467 9, 356 6,642
MWRP Employment 3, 483 7, 268 5,681
BPS Export R5,9bn R19,784,804,437
R349m
Incentive Revenue (projected) (Projected over 5 yrs.)

Source: the dti

The local BPS industry and social partners have also contributed with significant
investments and some brilliant initiatives. Significant growth has been realised in reaching
English-speaking markets, with the United Kingdom and Australia accounting for most of
the offshore market. The UK’s market share increased from 59.9% in 2015 to 63.2% in
2016, while Australia gained further traction from 22.4% in 2015 to 25.1% in 2016.
Source: BPeSA Key Indicator report 2016

Key Constraints
There has, however, been a notable decline in the USA’s participation in South Africa, from The growth of South Africa’s English market and multi-service offering has placed
8.5% of market share to 3.8% in 2016 – probably attributable to the country’s changing a strain on available skills supply, demanding a talent pool that offers specialised
trade policy, which seeks to slow if not eradicate offshoring - from the US in particular knowledge, is able to handle complex functions in a rapidly changing sector, and provide
- and outsourcing in general. Because of this – and also because of competition from
strong English language and communication skills.
nearer destinations such as the Philippines and cultural and accent differences - the US
Key Opportunities
will continue to be a difficult market to crack.
The United Kingdom has proven, however, that excellent work can indeed be done from
South Africa; and now providers in South Africa are moving briskly to capture further
work from other English-Speaking jurisdictions such as Australia, the US and Canada.

the dti | IPAP: 2018/19 – 2020/21

172

Key Action Programmes

Targeted outcomes
1. Ongoing Implementation of the Monyetla Work Readiness Programme The continuation of the Programme will increase the number of agents with specialised

Nature and Purpose of the intervention skills as well the pool of managers domestically. The next phase will provide a
“Monyetla” (an opportunity) to an additional 3,000 unemployed youth from across the
The presence of a large skill pool is one of the location determinants used by investors
country to gain work experience in the BPS industry and other sectors of the economy.
when deciding where to set up call centre operations. Invariably, all value proposition
About 32 consortia - consisting of employers, training providers and recruiters - have
statements of countries offering BPS include a statement about the local skills base.
been selected to partner with the state.
In South Africa, efforts have for a long time focused on entry-level skills, through programmes
offered by the industry, rebates offered by the SETAs and through the implementation of Key milestones

the Monyetla Work Readiness Programme. In 2016 BPESA participated with the University 2018/19 Q2: 3,000 unemployed youth enrolled.
of the Western Cape (UWC) and private sector stakeholders to introduce a postgraduate 2018/19 Q4: Training completed.
diploma in Data Analytics and Business Intelligence, developed by the sector for the
2018/19 Q4: 70% of the trained youth employed.
Contact Centre Work Force Manager.
Lead departments/agencies: the dti
Supporting departments/agencies: BPeSA, National Treasury

Ongoing implementation of the BPS Incentive

Nature and Purpose of the intervention

The BPS incentive is one of the industrial financing support measures provided to the
industry to increase South Africa’s participation in the global BPS industry by attracting
leading brands from English-speaking markets, with the United Kingdom being the
leading market. The incentive reduces operating costs per agent and makes South Africa
competitive compared with other host countries.

Monyetla graduates
Targeted outcomes
Creation of approximately 18,000 new jobs by 2019.

Key milestones
2018/19 Q1: 2 Applications approved, 1,000 jobs created and 80% Youth
Employment.
 173

Key economic data

2018/19 Q2: 3 Applications approved, 1,500 jobs created and 80% Youth
Employment. Economic Indicator 2015 2016
2018/19 Q3: 2 Applications approved, 1,000 jobs created and 80% Youth % Contribution to GDP 0.03% 0.03%
Employment. % Contribution to Manufacturing 0.2% 0.2%

2018/19 Q4: 3 Applications approved, 1,500 jobs created and 80% Youth Employment 3 900 3 900

Employment. Source: Quantec

Lead departments/agencies: the dti The South African ship/boatbuilding sector has developed a particular strength in sailing
Supporting departments / agencies: National Treasury, EDD multihull catamarans, with some South African companies seen as global leaders. (There
has also been some diversification into power catamaran production). Additionally, some
SA companies have developed capacity in niche segments in commercial and public-
4. Marine Manufacturing & Associated Services
sector markets - e.g. fire-fighting boats and crew transport boats for the oil and gas sector.

South Africa enjoys a reputation for good quality and customisation, as well as competitive
labour costs relative to developed world manufacturers - a significant competitive advantage
in labour-intensive processes like hull construction.

A ship-building industry is a bonus for any country, given that it is characterised by high
growth potential. This industry has major spin-offs to other industries, including steel,
engineering equipment, port infrastructure, trade and shipping services. However, it is clear
from looking at some of the ship-building industries internationally that South Africa has a
long way to go in developing a sustainable industry all the way down the value chain.

The major challenge South Africa faces is the development of a component manufacturing
industry comparable with that of more developed competitor countries. This is important
because developing such capabilities would make a significant contribution to employment
creation, particularly for the youth.

Situational analysis Though we are still a long way from developing a truly sustainable marine manufacturing
industry, the dti continues to deepen and strengthens its efforts – particularly on localisation
The industry includes the manufacturing of vessels and the maintenance and repair of
– to help strengthen the industry all the way down the value chain.
ships, boats and rigs. Vessels manufactured locally are used for commercial purposes,
transportation and leisure.

the dti | IPAP: 2018/19 – 2020/21

174

Table 1. Principal Components and Services in the Value Chain

Steering Systems Comms and Audio-Video Special Operation Systems for
• Steering Gear Systems Large Vessels
Lighting Air Conditioning Systems Mooring, Deck Machinery,
• Rudder • Communication systems • Thrusters
• Light Fittings • Ventilation Systems Cargo Systems
• Accessories • Data Processing • Special Rudders
• Lighting System • Heating Systems • Anchor, Chains
• Audio-Video Systems • Roll-Dumping / Anti-Heeling
• Winches
Systems
• Ropes, Fenders, Towing
• Active Stabilisers
Systems
• Cranes, Fork-lifts, RO-RO
equipment
Key Constraints
Safety, Life Saving & Auxiliary Systems
Environmental Protection • Separators The industry offers an opportunity to expand exports into non-traditional markets
Systems • Pumps and Compressors driven by industrial and tourism development, particularly in sub-Saharan Africa and
• Life Saving Equipment • Tanks
the Middle East. It also has a substantial growth opportunity in market extension for
• Fire Fighting Equipment • Valves and Fittings
• MARPOL Equipment • Heaters and Coolers commercial boats in sub-Saharan Africa, including for offshore speed craft, ferries, water
• Davits, Cranes, Ramps • Filters, Cleaners ambulances, and working boats.
• Rescue Boats & Lifeboats
Propulsion/Power Generation Auxiliary Power Generating Accommodation Systems South Africa remains the sub-Saharan destination of choice for training, repair and
Systems System • Frames, Walls, Staircases maintenance operations. This position could be further advanced through greater
• Diesel Engine • Auxiliary Engines (Diesel) • Doors and Portholes intergovernmental collaboration with African countries and the facilitation of expanded
• Steam Turbine • Auxiliary Boilers • Sanitation: Fittings and
• Gas Turbine Appliances trade through funding assistance. Attention also needs to be paid to developing better
• Gears and Couplings • Electrical Appliances collaboration between the industry and research organisations to realise its considerable
• Propellers • Furniture and décor potential for innovation.
• Shafts and Bearings
• Main Engine Accessories
Electrical Systems Instrumentation & Other General Outfitting
• Generators Systems Components
• E-Engines • Control and Alarm Systems • Stairs, Ladders, Catwalks,
• Switchboards • Navigation & measurement Railings, etc.
• Control Panels Systems • Glass
• Cables • Special Offshore Equipment • Workshop Outfitting
• Power Supply & Batteries • Special Underwater
Equipment
• Special Navy Systems,
• Acoustics & Weapon
Systems
 175

Key Opportunities Progress to date

The United Kingdom has proven, however, that excellent work can indeed be done from The Industrial Policy unit of the dti, in consultation with the industry and key
South Africa; and now providers in South Africa are moving briskly to capture further stakeholders, has developed a comprehensive Marine Manufacturing Development Plan

work from other English-Speaking jurisdictions such as Australia, the US and Canada. (MMDP) to address many of these challenges in the short, medium, and long-term, and
start putting the industry on a more competitive footing in the local and global market.
Innovation in the industry is greatly hampered by procuring entities’ emphasis on proven Since designation, more-or-less R1.7 billion worth of tenders has been awarded to the
design in RFPs. This acts as a brake on the creativity and appetite for risk of local naval local industry. A long-term procurement plan for working vessels has been established
designers. Deeper development of local naval design capability would impact powerfully and is continuously updated to ensure that the industry is geared for tenders advertised
on the value chain, with local components across manufacturing industries supporting by SOCs and government departments.

innovation in marine manufacturing. In close collaboration between the industry, the CSIR and accreditation bodies, a
Supplier Development Programme concept based on standards and accreditation has
Another hurdle the design industry faces is the cost of accreditation for components
been developed for the industry.
to marine standard. This remains very high; and the limited number of vessels
Similarly, a long-term skills development programme was drafted and completed in
manufactured for state entities does not sufficiently incentivise investment in the
consultation with the industry and training institutions. A pilot project was conceived as
components industry of marine manufacturing. The effects of designation do trickle down
the dti’s initiative in collaboration with SAIMI and the Operation Phakisa Skills Working
the value chain; but they remain a trickle.
Group. The funding of the pilot project was approved by the National Skills Fund (NSF).
The industry is characterised by an ageing workforce (with an average age of around
Geographically, most of the ship building activities take place in either Cape Town or
55 years) for skilled personnel, who are predominantly white and male. In addition,
Durban. This is illustrated in the figure below.
transformation in the sector is made extremely slow (almost non-existent) by the high
cost of industry investment. Figure 1: Provincial marine manufacturing activity share

Finally, the tariff structure does not incentivise technology transfer or localisation in the
assembly processes of systems and engines. For instance, knock-down components for
engines or systems attract higher custom duties in import tariff, while fully-assembled
engines/systems are generally exempted or carry a very low tariff.

Source: Urban Econ/MIASA

the dti | IPAP: 2018/19 – 2020/21

176

Table 2: Overall sector economic trade performance Key Action Programmes

Year 2015 2016 1. Components Supplier Development Programme

Exports 2 386 940 157 2 499 261 573 Nature and purpose of the intervention
Imports 1 187 773 361 1 555 266 706
Between 1994 and 2014, a total of R19 billion was spent on the acquisition of vessels for
Trade Balance 1 199 166 796 943 994 867 the public sector. Of these acquisitions, only R900 million was allocated to the procurement
Source: Quantec of locally manufactured vessels and the rest (or 95%) of these vessels were imported.
Vessel lifespan varies between 25 and 30 years, and if imported it becomes a missed
Apart from the financial crisis of 2008, the ship/boat building sector has shown positive opportunity for the manufacturing and the maintenance of the vessel locally. The multiplier
export growth prospects, with exports increasing from R2.39 billion in 2015 to R2.5 billion effects along the value chain get lost as well; in particular, employment creation and the
in 2016 (4.71%). However, imports have increased more than (jumping by 30.94% from opportunity to hone our industrial capabilities. The marine manufacturing industry offers
2015 to 2016), resulting in a negative trade balance of R943 million. (Though this showed significant opportunities along its value chain through demand for components in the
a decrease of 21.28% from the 2015 level). manufacturing process of vessels and in the maintenance and repair space.

In 2016, the biggest contributors to South African exports and imports were sailboats (at Domestic supply of components is extremely weak and, in the case of many components,

R1,078,486,348) and dredgers (at R894,785,095). non-existent. This programme aims to encourage large private sector enterprises to partner
with government to support, nurture and develop SMEs within the partner’s supply chain or
Figure 2: South African Trade of ships, boats and floating structures (R billion) sector, so as to become manufacturers of goods and suppliers of services in a sustainable
manner. The aim is to resuscitate the marine manufacturing industry and its entire value
chain, increasing domestic demand and rebuilding domestic capabilities, including in
maintenance, repair and overhaul (MRO).

Targeted outcomes
Developed supply chain capabilities and capacity in support of the core builders and a
locally and globally competitive components manufacturing sector.

Key milestones
2018/19 Q1 – Q4: Develop a component supplier development programme and
support mechanism for accreditation and certification for component
manufacturers, working closely with the core builders and the
Technology Localisation Implementation Unit (TLIU) at CSIR.

Source: dti calculation based on SARS Data

Lead department/agencies: the dti
Supporting department/agencies: EDD, SABS, Lloyds, Bureau VERITAS, SAMSA, SAIMI,
eThekwini Maritime Cluster, Industry, DHET, DST, CSIR, NT
 177
2. Skills Development Programme: competitiveness improvement initiative with focus 5. Aerospace and Defence
on skills

Nature and purpose of the intervention

The South African marine manufacturing industry is faced not only with a shortage
of highly-skilled people and an ageing workforce which needs urgent rejuvenation, but
also with a shortage in the lower-level skills levels needed to support its local and global
competitiveness. The importance of this industry remains closely linked to its labour-
intensive characteristic, and its high employment multipliers.

To respond to the skills shortage in the industry, Operation Phakisa, based on the
Malaysian “Big Fast Results” model, established a Marine Manufacturing Skills Working
Group (SWG) and mandated the dti to embark on a process of establishing a road map for
skills development for the growth of the industry.

In line with this mandate that the dti proposed to the SWG the establishment of a pilot
project to test the suggested skills development programme. The Skills Pilot Project will be
run as a collaboration between the dti, SAIMI (fund administrator) and training institutions, Situational Analysis
and is expected to be launched early 2018. The programme is industry-based, with a strong
The South African Aerospace and Defence industry is a globally competitive industry
focus on artisan training and intensive work experience exposure. NSF funding for the Pilot
which supports national interests and is striving to be a preferred choice for aerospace and
Project has been secured.
defence-related solutions on the African continent. The industry is successfully integrated
Targeted outcomes into South Africa’s wider industrial landscape. It has helped to expand the national science,
engineering and technology base and has supported the technical and technological skills
A large pool of skilled workers, thus expanding the knowledge base and improving the
base. In addition, it has successfully entered the global market through its exports to and
competitiveness of the industry.
global partnerships with many of the world’s leading aerospace and defence OEMs and
Key milestones Tier-1 /Tier-2 companies.

2018/19 Q1 – Q4: Implementation of Skills Development Programme (pilot project), a Key economic data
competitiveness improvement initiative with a focus on skills.
Economic Indicator 2016
Lead department/agencies: the dti, DHET % Contribution to GDP 0.1%
Supporting department/agencies: EDD, SAMSA, SAIMI, eThekwini Maritime Cluster,
% Contribution to Manufacturing 1.6%
Industry, DST, NT
Employment 15,000

Source: Quantec

the dti | IPAP: 2018/19 – 2020/21

178

Since the early 1990s, the industry has been dramatically re-shaped by the political changes These funding challenges have forced the industry to seek business in related industries
driven by the transition from apartheid to democracy. It does, however, remain largely for survival. The defence industry has achieved effective development and production
dependent on a single customer, the SA government. Because of this, while it continues by sharing facilities and personnel with the civilian sector, based on advanced civilian
to develop technologies for both civil and defence use, much more limited funding for technologies.
research and development and a shrinking local acquisition budget have contributed to a
Fig.2 below indicates estimated turnover from non-scheduled aviation services amounting
decline in the industry’s (previous bloated) predominance.
to R23.3 billion.
In 1990, the industry had 130,000 employees in 3,000 companies (9% of manufacturing
Fig 2. Estimated value chain of Commercial Non-Scheduled Aviation Services: 2016
employment and 10% of manufacturing companies); currently it employs 15,000 people
across some 120 companies.

Defence Force acquisition dropped from R26.2 billion in 1989/90 to R6 billion in 2016;
Research and Development funding declined from R 6.1 billion in 1989/90 to R 850 million
in 2017, and turnover from R 31.6 billion in 1989/90 to R 19 billion in 2016.

Fig 1. Defence Acquisitions and Contribution to GDP

Source: CAASA

Within the new context, however, it has been able to retain a leading position in some
fields of R&D and product development, including aerostructures, tactical communications,
radar, electronic warfare, artillery, mortar ammunition and precision weapons.

In 2016 the NCACC authorised export permits to the value of more than R4 billion to more
than 80 countries. The contracts surpassed the previous year by more than 45%, resulting
in an increased contribution to the South African Trade balance of R3.5 billion, as indicated
in the table below.

Source: National Defence Council

 179

Table 1. Authorised Defence Contracts

• Slow and erratic export controls which can discourage repeat orders and even deter
2014 2015 2016 potential clients.

Imports Authorised 200 502 673

Key Opportunities
(R`000 000)
Exports Authorised 2,997 2,739 4,170 • Development and production of equipment suited to national geographical
(R`000 000) characteristics for the domestic, African continental and international markets.
Contribution to Balance of 2,777 2,237 3,497 • Positioning the local industry as a one-stop shop for defence solutions for the
payments (R`000 000) African continent and as a preferred African partner. In the international markets, the
appearance should be that of the desired Team South Africa Inc.
Source: NCACC
• Maintenance, refurbishment and overhaul of aerospace and defence products.
The industry continues to increase its market share in Africa, Asia and Europe in products • Development of the National Flagship project, the Small African Regional Aircraft.
such as land systems, weapons and ammunitions, fire control and related warning
equipment and other electronic equipment, including rangefinders and communication Progress Highlights
equipment. Countries such as Egypt, Germany, Italy, Malaysia and the United Arab Emirates
1. In support of providing an equitable and competitive environment the following results
have recently added South African counter-measures equipment to their inventories such
have been achieved:
as periscopes, binoculars, ruggedised computers and observation and targeting systems.
• Development of a Defence Strategy to retain, sustain and develop sovereign
Key Constraints defence capabilities for both local and foreign markets, under the umbrella of the
• The major constraint is the absence of a coherent national defence procurement defence council.
strategy and plan in which government departments (the dti, DPE, DST, DoE • Formation and funding of an Export Council, whose aim is to identify and diversify
and DMR); organs of state (IDC, CSIR and defence testing centres); and National
into new and emerging markets. To date, exports represent more than 60% of the
Champions (Denel and Armscor) should be participants.
industry’s revenue.
• Limited government support - political and diplomatic, industrial and financial. The
complexity of the industry has led to funding institutions such as the Industrial • Development of the defence industry-specific BBBEE Charter, which takes account
Development Corporation being unwilling to finance it. of the historical background of the industry, under the auspices of the National
• Sales of arms at friendship prices; dumping equipment; and even donations of arms as Defence Council.
a means of buying influence in Africa and other developing nations. • Inclusion of the industry in dti Incentives.

Risks/threats 2. Aerospace Industry Support Initiative (AISI).

• Continued underfunding of the Defence Force, which restricts its ability to acquire The AISI, a dti initiative hosted by the CSIR and guided by dti strategic objectives, has
new equipment and systems and its ability to support new research and development. undertaken 126 projects between 2012/13-2016/17. During the same period, a total
While several companies have done well in the export market, much future potential of 65 highly-skilled jobs were created or retained. Training in industry scarce skills also
will be lost if the industry does not have new products with which to compete.
happened during the same period. This information is summarised in Table 2.

the dti | IPAP: 2018/19 – 2020/21

180

Table 2: AISI Highlights 2012/13 - 2016/17

Process design Design, industrialisation and • 2 highly skilled jobs retained
and validation of validation of continuous fibre • Retention of international
Numbers of Highly
Industry Scarce Number of SMMEs CFRTP overlap reinforced thermo-formed
Years Skilled Jobs contract to manufacture lower
Skills Developed Benefitted
Created or Retained joining methods plastic (CFRTP) connecting units
2012/13 2 20 16 • 9 scarce skills developed
2013/14 3 17 49 Programme: Industry Development and Technology Support
2014/15 12 5 26 SKA PC boards Upgrading and enhancing • 10 highly skilled jobs created
localisation (TraX TraX’s printed circuit boards • Import substitution
2015/16 8 10 28
interconnect) capabilities in support of the
• 1 SMME involved
2016/17 10 13 15 SKA’s localisation strategy.
Grand Total 35 65 134 Stellar gyro project Design and development of a • 2 SMMEs involved
stellar gyroscope subsystem • 1 highly skilled job created
Table 3: Key Projects High-Level Summary 2012/13 - 2016/17 suitable for low-cost small and
• 1 export capability created
Project Name Support Received Outcomes nano-satellite application

Programme: Supplier Development Source: Quantec

Avionic Design and manufacture of a • 3 SMMEs benefitted

component transponder mounting tray that Denel Aerostructures and Aerosud Aviation
• Import substitution –
local design and meets all industry specification transponder mounting tray
Denel Aerostructures and Aerosud Aviation are the two OEMs that the AISI mainly
manufacture
• Collaboration between Daliff
collaborated with for purposes of technology transfer and technology-based supplier
and Tellumat (SMME and OEM)
development of SMMEs in the industry. Table 3 shows the number of SMMEs that were
SatAuth To provide the most cost- • 17 SMMEs involved
supported by the organisations.
Technology effective solution for real-time • Local capability with potential
Demonstrator acquisition of debit and credit for extension in whole aviation Table 3: Denel Aerostructures and Aerosud aviation highlights 2012/13 - 2016/17
card transactions during flight industry.
• Scarce skills developed: Number New Technology/
Number of
Organisations of Projects Advancement of Existing
Quality assurance of the SMMEs benefitted
Supported Technology
SatAuth Server
Nano-satellite Design, development, • 2 SMMEs involved Aerosud Aviation 6 11 8
imager assembly and testing of a low- • Export capability: Gecko Imager Denel 7 11 8
development cost space imager customised
• 8 jobs were created or retained
for nano-sat missions Grand Total 13 22 16

Source: the dti

 181

Centurion Aerospace Village by the Digital Industrial Revolution, it is important to develop a framework that identifies
both the South African aerospace industry’s capabilities and weaknesses and identifies
The CAV, an initiative of the dti and a cluster development programme for the Aerospace
opportunities that exist in both the domestic and international markets. This will then
and Defence industry, has commenced with the erection of the electrical cable for external
provide the basis to develop a strategy to capitalise on those opportunities and support
bulk services, after conclusion of service level agreements with the City of Tshwane. These
the industry to strengthen the areas that can enable it to grow its share of these markets.
agreements pave the way for accelerated infrastructure development: roads, water and
electricity. Targeted outcomes

The CAV has already housed its first Tenant, the AHRLAC. This is a light reconnaissance • Increased contribution of the industry to GDP and employment;

and counter-insurgency aircraft developed locally by AHRLAC Holdings, a joint venture • Increased exports of manufactured goods and services;

between the Paramount Group and Aerosud. It is designed to perform as an inexpensive, • Better developed domestic capabilities.
more versatile substitute for unmanned aerial vehicles (UAVs) and modern light attack Key milestones
aircraft.
2018/2019 Q1: Approval of the funding model.

The Joint Aerospace Steering Committee (JASC) 2018/2019 Q3: Conclusion of the Aerospace Industry development framework.
2018/2019 Q4: Approval of the Key Action Programmes.
Aerospace has been identified by government as a sector with the potential to develop
long-term advanced manufacturing capabilities. This has now resulted in the formulation Leading Departments/Agencies: the dti, CSIR, AISI
of an Aerospace Sector Development Plan (ASDP). In terms of the plan, the central co- Supporting Departments/Agencies: DST, DoT, DPE, National Treasury, CAV, IDC,
ordination of activities within the aerospace sector is of national benefit; and this in turn led Industry Associations
to the establishment of the Joint Aerospace Steering Committee (JASC).

The JASC has selected and approved the Small African Regional Aircraft (SARA) project 2. Finalising and implementing the Radar Systems Localisation Strategy
as National Flagship. SARA is a programme for the design, development, industrialisation
Nature and Purpose of the intervention
and manufacturing of a pressurised 24-seat turboprop with passenger/cargo/combi
configurations for point-to-point commuter travel between decentralised economies. It is With its long coastlines and inland borders, South Africa (under UN-mandated legislation),
intended to meet 21st century transportation system needs for Africa and similar regions is heavily reliant on technologies that can provide the necessary surveillance over these
including the Middle-East, Indonesia, Malaysia and South America. vast areas. Radar is one such technology which, unlike many others, has a well-established
base in South African industry and must be further nurtured if the state is to obtain full
Key Action Programmes
benefit from this domestic capability.

1. Conclusion of the Commercial Aerospace Framework

Currently, the scoping of industry capabilities and collection of procurement data has been
Nature and Purpose of intervention completed. An analysis now needs to be done to match technology funding and historical
local acquisitions in different classes to future requirements and then identify gaps in
To develop and support the growth of the South African aerospace industry so as to position
technology funding to meet future requirements.
it to supply products and services to international markets and grasp opportunities offered

the dti | IPAP: 2018/19 – 2020/21

182

Targeted outcomes Key milestones

Strengthened and deepened localisation of radar systems, with an improved local supplier 2018/2019 Q2: Secure Agreements on the concept with the Industry Association and
base and skills. relevant stakeholders.
Key milestones 2018/2019 Q3: Industry profiling.
2018/19 – Q2: Conclusion of localisation strategy. 2018/2019 Q4: Roadmap of the platform and agreement with relevant stakeholders.
2018/19 – Q3: Signing off the interdepartmental agreement.
Leading Departments/ Agencies: the dti, DoD, ARMSCOR, AISI, AMD
2018/19 – Q4: Implementation of the interdepartmental agreement. Supporting Departments/Agencies: DST, CSIR

Leading Departments/Agencies: the dti, DoD, CSIR and AISI

Supporting Departments/Agencies: DST, ARMSCOR, Industry Associations 4. Establishment of Bilateral Air Safety Agreements (BASA)

Nature and purpose of the intervention

3. Development of aerospace and defence market intelligence tool
Several South African companies manufacture products and offer services to the
Nature and Purpose of the intervention international aerospace market, most notably the European Union and the United States.
South African manufactured products are required to have Federal Aviation Authority (FAA,
The South African aerospace and defence industry is dependent on its capabilities to
USA) and European Aviation Safety Authority (EASA, EU) certification. This is costly, and
implement solutions that provide tailor-made equipment, components, parts and services
most companies are unable to afford the outlay required to get the necessary approvals for
for a unique environment. But the size of the SA defence budget has remained largely
exporting their products into the US and EU market.
stagnant and with increasing personnel and operational costs, the capital acquisition budget
has been systematically reduced. These factors are resulting in consistent decline of the Targeted outcomes
revenues accruable to the SADI, making it necessary for it to depend on exports to function
• A more competitive environment for the aerospace industry.
as profitable businesses, be competitive and preserve national strategic capabilities.
• Deeper integration into global supply chains.
To strengthen its export capabilities, the industry needs a query-based interactive online Key milestones
platform that will track aerospace and defence trends on a country, African and global level
2018/2019: Q1-Q2: Facilitate engagements with the USA on the review of the existing
and provide intelligence on economic and industry data, with quarterly projections for select
BASA to enable trade in aeronautical products.
variables. The platform should enable users to select desired countries and indicators and
easily access customised reports. Lead departments/agencies: the dti, Department of Transport, South African Civil
Aviation Authority
Targeted outcomes
Supporting Departments/Agencies: CAASA
• Improved enabling export environment.
• Improved export growth and new market penetration.
 183

5. Development of the Aerospace National Flagship

2018/2019 Q4: Conclusion of a benefit study of the Preliminary Design Review Phase
Nature and purpose of the intervention and identification of potential sources of funding for the remainder of
the programme.
ASDP proposes National Flagship programmes as instruments to advance the aerospace
sector and reinforce industrial growth objectives in a meaningful way. Leading Departments/ Agencies: JASC, DPE, DST, the dti, DoT, IDC, AISI, CAASA
Supporting Departments/Agencies: CSIR, Denel, Industry Associations
In line with the above, the SARA project was approved by the JASC as a National Flagship.
The project meets a set of selection criteria, which include: industrial growth stimulus,
6. Enabling high-value manufacturing through technology enhancement for the
industry integration potential, R&D and economically viable human capital development
aerospace industry
opportunities. The economic viability study was conducted by Lufthansa Consulting Group
and co-funded by the dti, DPE, IDC, and Denel. Nature and Purpose of the intervention

The market potential identified in the Lufthansa Consulting report identified the following A look at the local aerospace industry highlights that very few companies are proactively
outcomes: ramping up their existing manufacturing capabilities to be able to leverage new technologies
for mainstream applications as these systems improve in functionality and as materials
• Human Capital Development including high-tech engineering jobs;
science matures.
• Sales and export revenue;
• Enterprise development; Several technologies have been identified by the local industry as key to the future
sustainability of the sector in South Africa. These include: additive manufacturing;
• Technology spillover and economic multiplier effects to other industry sectors, given the
high-tech base of aerospace; automation in composites; digital manufacturing; and surface treatment technologies.

• Wide-ranging air transport sector benefits (CAA bilateral with FAA/EASA, tourism, pilot These technologies have the potential to increase the efficiency and ‘speed to market’ of
& crew training, air freight services etc.). the local aerospace industry if applied correctly. In addition, they can also result in huge cost
savings for aerospace manufacturers. Some of the technologies also offer a competitive
Targeted outcomes advantage through reductions in weight, material cost and manufacturing time. These
• Creation of high-skilled employment; benefits are critical for local aerospace manufacturers to compete in the global industry.

• Enhanced industrialisation in the aerospace industry and its supporting industries;

Targeted outcomes
• Strengthened localisation and exports.
• Improved competitiveness of aerospace Tier-1 suppliers and SMMEs, enabling them

Key milestones to increasingly integrate into international supply chains and compete globally.
• A more transformed and diversified industry.
2018/2019 Q3: Validation of the current body of knowledge including the current
technical concept, the maturity of concept and other relevant technical Key milestones
work. 2018/2019 Q1: Define the scope of support and sign agreements with participating
companies.

the dti | IPAP: 2018/19 – 2020/21

184

2018/2019 Q3: Implement projects providing access to technology and expertise. Key milestones
2018/19 Q4: Completion of the prioritised minimum bulk earthworks and
2018/2019 Q4: Review and evaluate impact within the aerospace industry, focussing
Infrastructure, core CAV landside bulk utility services and infrastructure
on aerospace SMME growth, competitiveness and economic impact.
(water and sanitation, roads and storm-water drainage, electricity
Leading Departments/Agencies: CSIR, the dti, DST and land management - all to comply with township conditions of
establishment.
Supporting Departments/Agencies: EDD, DoD, Academic Institutions.
2018/19 Q4: Receipt of Occupational Certification.
2018/19 Q4: Conclusion of the marketing campaign and signing of Pre-Lease
7. Establishment of the manufacturing cluster and sub-tier development park Agreements with 2 prospective tenants/industry investors.
Nature and purpose of the intervention Lead departments/Agencies: the dti, CAV

The South African defence and aerospace industries have continued to grow revenue, Supporting departments/Agencies: DPW, EDD, DPE, DoD, DST, GPG, CoT

primarily in export markets. To maintain and expand these export markets, there is a need to
immediately stimulate the industry’s growth potential by establishing an Industrial Development 6. Electro-technical Industries
Park.

The cluster should provide an enabling infrastructure for aero-mechanical, advanced

manufacturing, maintenance, repairs and overhaul (MRO) capabilities – both for the
initial anchor tenants and, subsequently, for a range of large to small enterprises in the
aerospace, defence and advanced manufacturing sectors. This will include OEM suppliers
of components, parts and tools, as well as associated service providers and relevant
industries (tooling) and sectors (electro-technical, metals, chemicals, etc.)

Targeted outcomes
• Integration of sub-tier suppliers of the local industry into the global supply chain by
bringing aerospace and defence industry suppliers into proximity with one another
and locating them next to major system integrators and anchor partners.
• Promotion of local innovation, new business and exports in the aerospace and
defence sectors. Situational analysis
• Provision of opportunities for incubation and entry-level manufacturing through skills
The South African electro-technical sector is largely dependent on imported content
development.
- for example, electronic components and specialised devices such as medical and
telecommunications equipment etc. These are overwhelmingly imported from China (and
to a lesser extent, Vietnam, the USA and the EU) – see Figure 1 below.
 185

This import dependency is not unique to South Africa, since the global electro-technical Figure 1. Annual Imports of HS85: electrical machinery and equipment & parts
sector is dominated by only a few countries, with long-established very large companies. thereof; sound recorders and reproducers; television etc. 2013-2017

Even though the sector is dominated by a few players generally and South Africa has lost
a lot of its design and production capabilities, the country continues to attract and maintain
investments in certain areas of production.

There is both a need, and a real possibility, to localise production of inputs where local
capacity and capability exists. The obvious initial avenue to follow is the establishment of
mutually beneficial working relationships with the OEMs operating in the country.

Localisation and skills development will continue to be essential, both for growing the
domestic industry and with an eye to potentially highly lucrative export markets across the
African continent.

Key Economic Data

Variable Contribution in 2016

Contribution to GDP R363.2 bn
Employment 318 000
Exports R27.05 bn Source: the dti 2016 Electro Technical CSP review

Imports R119.7 bn
The electronics sub-sector as a whole is doing well in terms of exports, accounting for
Trade deficit R92.65 bn 54% of total electro-technical exports in 2014. Consumer electronics exports, however, lag
Source: dti 2016 Electro Technical CSP review behind, accounting for just 8.5% of total exports.

The industry sub-sector that has shown the largest capabilities and strongest growth is
electrical machinery and apparatus – typically including consumer electronics, electricity
transmission and distribution equipment and broadcasting equipment.

More than half of total exports go to SADC - the top three export destinations being Namibia,
Botswana and Zambia.

the dti | IPAP: 2018/19 – 2020/21

186

Figure 2. Annual Exports of HS85: electrical machinery and equipment & parts
thereof; sound recorders and reproducers; television etc. 2013-2017

Source: the dti 2016 Electro-Technical CSP review

Figure 4. Employment: Q1 2016 to Q1 2017

Source: the dti 2016 Electro-Technical CSP Review

Figure 3. Relative value and contribution to employment by each sub-sector

 187

Figure 4 above shows a relatively stable employment picture for the five quarters depicted. Key Action Programmes
Electrical Machinery was the only sub-sector that created new jobs during the period (760
1. Local Procurement of High Voltage Switch Gear
in 2016 Q2). Though these numbers fell back again in subsequent quarters, the relatively
much higher level of employment for this category is probably best explained by the fact Nature and Purpose of the intervention
that the manufacturing of items like switchgears is labour-intensive in comparison to
South Africa has developed manufacturing capability in high voltage switchgear and is
products (radio, TV, household appliances) which have predominantly electronic production
globally competitive in this sub-sector, covering all 3 main areas of applications - low,
processes.
medium and high voltage. There has, however, been an increase of imported products in
There is increasing convergence in technology in products such as smart TVs, which are recent years, which is a concern that needs to be addressed

now able to perform functions that a typical computer would; hence, the classification The largest procurers of these items are largely SOCs, with an estimated local content
becomes somewhat blurred. of above 60%. This positions high voltage switchgears well for possible designation and
support. Even though there are other procurers such mining houses, the main consumer
Key Constraints
will likely continue to be government.
• Due to its complex sub-sectoral dynamics, the industry has struggled to consolidate
and create a meaningful industry body that would allow for easy engagement with
government. This results in difficulty in consulting for new policy initiatives and From preliminary research, the sector is estimated to be employing just over 3,000 people
difficulty in aggregating data. directly in production, with downstream employment - in the areas of maintenance,
• Local cost of production for most electro-technical products renders the domestic installation and support – standing at around 5,000. These are labour-intensive activities
market uncompetitive against cheap imports. and make a direct contribution to other industries such as steel, copper, electronics and
electrical products.
Key Opportunities
The intervention seeks to ensure that the state, as the primary buyer, procures locally-
• Opportunities for suppliers of components into the automotive value chain
produced HV switchgears. This is also aimed at promoting direct investments in the
• Investment into the rest of the African continent. The conclusion of the Tripartite Free assembly and manufacture of components to supply both South Africa and the regional
Trade Agreement will open up further markets in the Eastern, Western, Northern and market.
Central regions of the continent.
Targeted outcomes
• The growth of the LED Lighting market will present an opportunity for localisation.
• Import replacement: currently, these items are largely imported and only 1
• Increased interest in further investments in HV cable manufacturing arising from the
manufacturer and 1 assembler (using imported components) currently exist in the
designation of cables.
market.
• Increased exports and a sustainable market for local assemblers and contract
manufacturers to supply government. This will ultimately increase value-addition to
locally produced devices.

the dti | IPAP: 2018/19 – 2020/21

188

Key milestones • Expected increase in public spending on LEDs due to increased affordability;
• Adequate electronics manufacturing and assembly capacity exists to sustain local
2018/19 Q2: Industry analysis report completed.
demand for the population of the PCBs required for lighting control of LEDs;
2018/19 Q4: Localisation report completed.
• There is growing global demand for LED products, covering a wide range of industries
Lead departments/agencies: the dti such as automotives, household appliances and others.

Supporting departments / agencies: National Treasury, Eskom and Municipalities

Targeted outcomes

2. Localisation of LED Lighting A competitive local LED production sector. This will in turn contribute to local manufacturing
and design, drive exports and serve as leverage to attract leading global manufacturers
Nature and Purpose of the intervention into the sector on the back of state procurement.

The Light Emitting Diode (LED) sector is one of the fastest growing industries in the world. Key milestones
According to the latest imports statistics provided by SARS, the country averaged imports 2018/19 Q2: Industry analysis report completed.
between R500 million and R600 million between 2014 and 2016; and this is continuing 2018/19 Q4: Localisation report completed.
to increase. The local market is dominated by importers who provide these items to local
designers and installers. There has also been an evident price decrease in these items as Lead departments/agencies: the dti
demand has increased. Supporting departments / agencies: Eskom, NT, Department of Public Works,
Municipalities, and SOCs
From a policy perspective, South Africa is driving energy efficiency programs - as seen for
example in the implementation of appliance labelling for fridges - to encourage efficient use
of energy. LEDs provide savings, longer product life and can be seen a part of ‘next step’ 3. Roll-out of the White Goods Industry Cluster

technological evolution. Nature and Purpose of the intervention

Municipalities are now moving into LED street lights, industrial lighting applications, office During the 2017/18 financial year the dti, in partnership with the South African Electro-
lighting and so forth. The backbone of these devices lies in electronics manufacturing, in Technical Export Council, worked in collaboration with the White Goods Manufacturers
which the country has capacity. As an addition to local capability, the LED lighting industry
Forum to identify suppliers on a one-to-one basis to improve the latter’s performance for
is well set up for localisation initiatives which can drive the transformation and development
the benefit of buying organisations.
of this industry into a fully-fledged manufacturing sector.
The aim is to achieve significant improvements in total added value for both suppliers and
The Department of Public Works’ mandate is to be the custodian and manager of all
buyers in terms of B-BBEE rating, product or service offering, business processes and
national government fixed assets. A number of the products it procures are from the electro-
improvements in lead times and delivery.
technical industry - including LED lighting, air conditioning, fire and smoke detection, lifts
and generators. The intervention includes a strategy for building SMMEs to allow them to enter competitive
markets and participate in the export value chain.
LED lighting has been selected for possible localisation, given that:
The purpose of the Cluster is to provide support to emerging component manufacturers
• The DPW and municipalities procure large volumes of these items for various
applications - e.g. buildings and street lighting; through monetary and non-monetary contributions, by both the industry and the dti.
 189

Targeted outcomes
Greater facilitation, coordination and supplier competitiveness in the South African White
Goods industry.

Key milestones
2018/19 Q2: Analysis of the complete range of White Goods products per HS code
manufactured and/or assembled in South Africa completed.
2018/19 Q4: Supplier Accreditation by OEMs commences.

Lead departments/agencies: the dti

Supporting departments / agencies: South African Electrotechnical Export Council,
SALGA, OEMs

the dti | IPAP: 2018/19 – 2020/21

190

the dti KEY PARTNERS AND

TECHNICAL SUPPORT INSTITUTIONS
 191
KEY PARTNER INSTITUTIONS

Contact
Mr Geoffrey Qhena, CEO
Head office: +27 11 269 3000
Call Centre: +27 860 693 888
Industrial Development Corporation (IDC) Email: geoffreyq@idc.co.za
Web: www.idc.co.za
The IDC is a national development finance institution. Its core function is to provide industrial financing support, much of which flows to key Industrial Policy Action Plan (IPAP) and/or
New Growth Path (NGP) sectors.

Contact
Mrs Philisiwe Mthethwa, CEO
Head Office: +27 11 305 8000
Email: Mthethwap@nefcorp.co.za
National Empowerment Fund (NEF) Web: www.nefcorp.co.za
The NEF’s role is to support broad-based black economic empowerment. It focuses on preferential procurement, broadening the reach of equity ownership, transformation of staffing and
management, and prevents the dilution of black shareholding

Contact
Mr Thembinkosi Bonakele, CEO
Head Office: + 27 12 394 3200
Email: Thembinkosib@compcom.co.za
Competition Commission South Africa Web: www.compcom.co.za
Investigates, controls and evaluates restrictive business practices, abuse of dominant positions and mergers.

Contact
Mr Kutoane Kutoane, CEO
Head Office: + 27 12 471 3800
Email: kutoane.kutoane@ecic.co.za
Export Credit Insurance Corporation of South Africa Web: www.ecic.co.za
Provides insurance cover on risks associated with investments and loan finance for capital goods and services projects in foreign countries.

the dti | IPAP: 2018/19 – 2020/21

192

Contact
Dr Thulani Dlamini, CEO
Head Office: + 27 12 841 2911
Email: TDlamini@csir.co.za
Council for Scientific and Industrial Research (CSIR) Web: www.csir.co.za
Undertakes and supports research across diverse areas of science and technological innovation to enhance industrial and scientific development.

Contact
Dr Thulani Dlamini, CEO
Head Office: 012 841 2911
Email: TDlamini@csir.co.za
Technology Localisation Implementation Unit (TLIU) Web: www.tliu.co.za
The TLIU is an initiative of the Department of Science and Technology, which is hosted and incubated at the CSIR. It was established by the department to implement the deliverables of its
Technology Localisation Plan.

Contact
Mr Barlow Manilal, CEO
Head Office: +27 (0) 12 472 2700
Email: Barloww.Manilal@tia.org.za
Technology Innovation Agency (TIA) Web: www.tia.org.za
The TIA was formed through merging seven DST entities previously tasked with supporting and promoting innovation in the country. The TIA’s mandate is to enable and support technological
innovation across all sectors of the economy to achieve socio-economic benefits for South Africa and enhance its global competitiveness.

Contact
Mr Barlow Manilal, CEO
Head Office: +27 (0) 12 472 2700
Email: Barloww.Manilal@tia.org.za
International Trade Administration Commission (ITAC) Web: www.tia.org.za
Contact
Mr Meluleki Nzimande, Commissioner
Head Office: + 27 12 394 3590
Email: MNzimande@itac.org.za
Web: www.itac.org.za
 193

TECHNICAL SUPPORT INSTITUTIONS

Contact
Mr Ndwakhulu Mukhufhi, CEO
Tel: +27 12 841 3836
Email: nmukhufhi@nmisa.org
National Metrology Institute of South Africa (NMISA) Web: www.nmisa.org
Oversees and controls the use of measurements units of the International System of Units to maintain primary scientific standards of physical quantities in South Africa.

Contact
Mr Edward Mamadise, CEO
Tel: +27 12 482 8734
Email: Edward.Mamadise@nrcs.org.za
The National Regulator for Compulsory Specifications (NRCS) Web: www.nrcs.org.za
Protects human health and safety and the environment: Develops, administers and enforces compulsory minimum specifications for the safety and performance of products and services;
supports fair trade practices.

Contact
Dr Boni Mehlomakhulu, CEO
Tel: +27 12 428 6025
Email: boni.mehlomakulu@sabs.co.za
The South African Bureau of Standards (SABS) Web: www.sabs.co.za
Develops, promotes and maintains SA National Standards of quality in commodities, products and services; provides conformity assessment services (testing and certifications).

Contact
Mr Ron Josias, CEO
Tel: +27 12 394 3762
Email: Ronj@sanas.co.za
South African National Accreditation System (SANAS) Web: home.sanas.co.za
Provides formal recognition of the competency of laboratories, certification and inspection bodies, proficiency testing scheme providers and good laboratory practice (GLP) test facilities.

the dti | IPAP: 2018/19 – 2020/21

194

Contact
Tel: 086 100 2472
Fax: 086 517 7224
Website: www.cipc.co.za
Companies and Intellectual Property Commission
Registration of Companies, Co-operatives and Intellectual Property Rights (Trade Marks, Patents, Designs and Copyright) in South Africa.

Contact
Mr Ebrahim Mohamed, Commissioner
Head of Enforcement: Ms Prudence Moilwa
Tel: +27 (12) 428 7000
E-mail: P.Moilwa@thencc.org.za
The National Consumer Commission (NCC)
Web: http://www.thencc.org.za
The primary regulator of consumer-business interaction in South Africa, created by government under the auspices of the Department of Trade and Industry (the dti) to ensure economic
welfare of consumers. Consumers play a vital role in the growth of the economy and thus contribute to the national fiscus and the development of the country.

Contact
Mr Dhesigen Naidoo, CEO
Tel: +27-12-761-9300
Email: dhesn@wrc.org.za
Water Research Commission Web: http://www.wrc.org.za
Supporting sustainable development through research funding, knowledge creation and dissemination.

Contact
Ms Daphney Mabuza
Tel: +27 (12) 433 9340/1/2
Email: daphney@tips.org.za
 195

the dti | IPAP: 2018/19 – 2020/21

the dti Campus
77 Meintjies Street
Sunnyside
Pretoria
0002

the dti
Private Bag X84
Pretoria
0001

the dti Customer Contact Centre: 0861 843 384

Website: www.thedti.gov.za

towards full-scale industrialisation and inclusive growth

the dti Customer Contact Centre: 0861 843 384
Website: www.thedti.gov.za