metals & engineering services subsector...historically, as far as the manufacturing sector is...

Analysis of the

METALS & ENGINEERING SERVICES SUBSECTOR

of the Manufacturing Sector

in the Western Cape Province

10 November 2003

Analysis of the Metals & Engineering Services Subsector Western Cape Province

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FOREWORD

The Department of Economic Development of the Western Cape Provincial Government has

embarked on a programme to assess the growth and development potential, identify the

technological gaps, and the ensuing interventions necessary to fill these gaps, of certain

sectors of its economy, including that of Manufacturing. Based on available market

information, the Department has identified the Metals & Engineering Services Subsector,

within the Manufacturing Sector, for investigation and analysis of potential economic impact.

It therefore wishes to analyse particular industries within this Subsector, and propose

interventions for the growth and development of those industries. Such interventions may be

incorporated into the Province’s Growth and Development Plan.

The analysis presented herein is the result of consultation with various key players in the

industry, as well as the review of various industry reports and data available from industry

representative organisation and through industry publications. In view of the limited time-

frame and limited budget, a wider industry consultative approach could not be possible.

However, this analysis lays the groundwork for such a process to be embarked upon.

Compiled by: Nawaz Mahomed, PhD CSIR Unit for Materials & Manufacturing Technology 15 Lower Hope Street, Rosebank 7700 T: 021 6854329 F: 021 6891726 E: [email protected]


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TERMS OF REFERENCE The following terms of reference underscores the analysis contained in this report: 1. The Identification of the key industries within the Metals & Engineering Services

Subsector. 2. An analysis of the current status of these Industries with reference to the following:

• Industry trends (Production and value addition, trade, employment and productivity, Capacity and capacity utilisation)

• Industry structure (Number of companies, company size and distribution, level of industry organisation)

• Geographic spread of Industry (location of industry, resource endowments, agglomeration economies, employment and equity potential)

• Competitor analysis: investment and exports (competitive advantages, competitive disadvantages, competitor analysis: investment, competitor analysis: exports, priority/niche markets and products)

3. An analysis of the Technology Gaps in these Industries.

4. The identification of the Critical Success Factors for these Industries. 5. The identification of key interventions necessary for the growth of these Industries, based

on the key issues and challenges facing these Industries. In addition to the above terms of reference, the following issues are noted: • The interventions will focus on the technological issues which include human resource

development and R&D, and will link these to the other strategic issues such as market access, infrastructure, finance, etc.

• The process established through the terms of reference will align closely with that of the

DTI Sectoral Approach. This will facilitate the promotion of interventions through the DTI and various other Government structures.

• The outcomes will include descriptions of strategic partnerships as a means for

implementing industry interventions. These partnerships will be technologically influenced, and will be aimed at leveraging opportunities from within the National System of Innovation, including the Advanced Manufacturing Technology Strategy (AMTS).


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EXECUTIVE SUMMARY The Western Cape is not known as a manufacturing region with a significant Metals and Engineering Services Subsector, even though the Province is home to a number of world class companies. Historically, as far as the Manufacturing Sector is concerned, the Province has been known more for its Textiles and Clothing Subsector. The reason for this, besides the presence of strong Tourism and Agriculture Sectors, is the agglomeration of Metals and Engineering Services (M&ES) industries around mining and materials beneficiation operations. However, it is still not clear why the Western Cape did not develop a substantial shipbuilding industry in view of its natural endowments, and why it did not attract the interests of any of the Automotive Own Equipment Manufacturers (OEMs). In the present analysis, the M&ES Subsector is divided into eight strategic industries. This industry categorisation is based on the current industry organisation structure, and the skills/processes/raw materials that are distinct to a particular group of companies. A total of 337 companies, employing a total of 25300 people, were identified via the various industry representative bodies as belonging to the M&ES Subsector. The actual number of companies could be as high as 600, with an estimated further 300 unaccounted companies falling within the SME category. These unaccounted companies employ an estimated further 3000 people, based on a split of 25% micro enterprises (1-5 employees) and 75% very small enterprises (6-20 employees). Accurate data on the employment levels of the unaccounted companies can be sourced from SARS and the MERSETA. Nevertheless, the database of identified companies provides a basis for establishing a directory of companies for this Subsector, that could be maintained by the Province’s trade and investment promotion organisation. Accurate data on BEE ratios, adoption of standards, foreign direct investment, turnover, etc can only be acquired through direct interaction with these companies and should be part of a database management function so that industry intelligence can be inputted into decision making processes. In total, the Western Cape employs at least 10.2% of the National workforce in this Subsector. Furthermore, the industry size in terms of turnover is about R11.3billion per annum, which is somewhat skewed in that Saldanha Steel with its 811 employees accounts for R3.15billion of this figure. Similarly, the exports, which account for 27% of turnover, is also skewed in that Saldanha Steel currently exports 65% of production, which accounts for 66% of the Province’s exports in this Subsector. Essentially, the Subsector has a weak export base mainly due to its inability to reach levels of global competitiveness. A number of issues and challenges facing the different industries emerged from this study. Section 2: Subsector Overview and Key Issues/Challenges highlights the issues and challenges identified by the various industries. In addition to these are industry-specific issues, a number of generic Subsector-specific issues are identified in Sections 3 – 5.


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A number of the industry-specific key issues/challenges identified are translated in Section 6 into industry specific interventions necessary for the sustainability and growth of these industries. These interventions, of course, have to be prioritised based on the relevant industry’s potential for job creation, foreign earnings, foreign direct investment and BEE, as well as upstream and downstream impact. A summary of these interventions are given in Section 7: Conclusions and Recommendations. The interventions formulated should be mandated by a wider and representative industry audience, and the best route for this is via the industry representative bodies, details of which are provided in the overview of the various industries. This process should ensure that the interventions remain aligned with National imperatives, and are therefore executable via Government mechanisms for technology development, skills development and industry development.


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CONTENTS Foreword Terms of Reference Executive Summary Contents 1. Subsector Definition and Structure 2. Subsector Overview and Key Issues/Challenges 2.1 The Plastics Conversion Industry 2.2 The Tooling Industry 2.3 The Metals Conversion Industry 2.4 The Iron and Steel Industry 2.5 The Non-ferrous Metals Industry 2.6 The Metals Fabrication Industry 2.7 The Non-Destructive Testing Industry 2.8 The Modelling & Simulation Industry 3. Analysis of the Subsector 3.1 Global Trends and Opportunities 3.2 Present State of the Local Subsector 3.3 Competitor Analysis 3.4 Priority Markets and Products 4. Gap Analysis 4.1 Introduction 4.2 International Benchmark Database 4.3 Results of Benchmark Evaluation 4.4 Concluding Remarks

5. Critical Success Factors 5.1 Introduction 5.2 Micro-Economic Success Factors 5.3 Macro-Economic Success Factors 6. Key Industry-Specific Interventions Necessary for Economic Growth 7. Conclusions and Recommendations APPENDIX A: Information Sources APPENDIX B: Company Listings per Industry


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1. SUBSECTOR DEFINITION AND STRUCTURE For the present analysis, the Metals & Engineering Subsector has been divided into eight industries. These eight industries are considered the most significant and/or most important within this Subsector, the latter due to its strategic nature within the region or integrative nature within the subsector. That is, other industries may be defined, but these have insignificant economic contribution. In the same instance, it is important to define the various industries being considered, since it may be that a particular industry is defined in such a way as to encompass a range of smaller industries. To this end, the nine industries are listed below together with their definitions. 1. Plastics Conversion Industry

Companies that add value to plastic raw materials, through conversion processes such as injection moulding and extrusion, producing components for direct use or assembly.

2. Tooling Industry

Companies involved in the manufacture of tools used by converters for the repetitive production of components. Such tools include injection moulds, press dies and jigs.

3. Metals Conversion Industry

Companies that add value to metal through conversions processes such as die casting, forging and deep drawing.

4. Iron & Steel Industry

Companies involved in the refinement and production of ferrous raw materials, such as high carbon and stainless steels, and who supply these materials to converters and fabricators.

5. Non-ferrous Metals Industry

Companies involved in the refinement and production of non-ferrous raw materials, such as aluminium, copper and zinc, and who supply these materials to converters and fabricators.

6. Metals Fabrication Industry

Companies involved in the fabrication of components, products or machinery, using processes such as welding for joining, cutting, assembly and various finishing processes. This covers a wide spectrum of applications, from the fabrication of metal frames and tanks to equipment with movable parts such as trailers.


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7. Non-Destructive Testing Industry

Companies involved in the testing of fabricated equipment, as required by regulatory authorities. This typically includes the testing of welds and high stress areas for crack growth, using xray, ultrasonic and other technologies.

8. Modelling & Simulation Industry

Companies involved in value addition at the upstream end of the product value chain, modelling and simulating the behaviour of products exposed to various phenomena, using computer technologies. These activities include product design and performance optimisation, and process optimisation.

These eight industries are integrated and interdependent on one another, and very often, a single company is involved in activities which cut across more than one of these industries. For example, a tooling company could also have a conversion operation. Such diversification of core activities and lack of specialisation is mainly as a result of a non-competitive industry and associated poor markets. The integration of these eight industries into the Metal & Engineering Services Subsector is shown in the schematic on the following page.


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Metals & Engineering Services Sub Sector

Figure 1.1 Industry Integration Map

Metals Conversion Industry

Plastics Conversion Industry Tooling Industry

Iron & Steel Industry

Non-ferrous Metals Industry

Metals Fabrication Industry NDT Industry

Modelling & Simulation / R&D


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2. SUBSECTOR OVERVIEW AND KEY ISSUES/CHALLENGES 2.1 The Plastics Conversion Industry 2.1.1 Overview The Plastics Conversion Industry is usually categorised within the Chemicals Sector (as is the case at DTI), but since it has not been included within any of the other existing Sector categories specified by the Western Cape Provincial Government, it is being included here because of its impact on this Subsector. This impact is in the form of demand for tooling for the various conversion processes. The South African plastics industry reflects a high degree of organisation, through the various industry representative bodies, the most significant of which are the Plastics Federation of South Africa (PFSA), an umbrella organisation encompassing a number of associations, and the Plastics Institute of Southern Africa (PISA). PISA, representing the needs of individuals linked to the plastics industry, has a very active Western Cape Branch, hosting regular lecture evenings on technical issues for its members. The associations representing the various segments within the plastics industry are as follows: o The Plastics Convertors Association (PCA), representing the converters in the industry. o SAMPLAS, representing the machinery suppliers in South Africa. o The Association of Rotational Moulders of South Africa (ARMSA). o The South African Polymer Importers Association (SAPIA). o The Expanded Polystyrene Association of South Africa (EPSASA). o The Institute of Materials (IoM), formerly the Plastics and Rubber Institute (PRI), which

deals primarily with rubbers and elastomers. Most of the plastics conversion companies in the Western Cape are connected to one or more of the above organisations. However, these organisations refused to divulge any information regarding their membership – PFSA, PCA and PISA, upon being approached, indicated that their membership details could constitute sensitive information and are not prepared to divulge these. This is unfortunate since accurate data may place the industry in good stead for Government support. PCA represents the largest and most important sector in the plastics industry (companies using plastic granules, powders or pellets as an incoming raw material, and that manufactures plastics products). PCA facilitates communication to its members through regular newsletters, technical meetings, industry surveys, collections and dissemination of statistics and other related information, including information on raw materials. The representative organisations have similar missions and functions.


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South Africa is not a major global competitor in the plastics conversion industry, mainly due to its high cost of labour coupled to low productivity, and its weak toolmaking industry. Other factors associated with the cost of raw materials and the levels of sophistication of production plants also contribute to this scenario. In certain specialist cases, however, SA has been able to reach global competitiveness levels. Such an example is the production of encased explosives, through injection moulding, used in seat belt tensioners – DENEL Somchem. Almost all of these cases are driven by the high technological demands of the Automotive Sector. This implies that South African companies have better opportunities at the higher value addition spectrum of the product development chain. This is mainly due to the availability of high tech markets (automotive in particular), but also due to the inability to compete with the cost structures of the Asian economies. There are 150 plastics conversion companies in the Western Cape. This excludes many other companies involved in plastics conversion as a non-core business, such as Denel Somchem. It is by far the largest industry within this Subsector, employing an estimated 9000 people, with an estimated turnover of R3.4billion (industry sourced and International Trade Centre data). This translates into a 20-25% share of the SA plastics conversion industry. Products include packaging, medical consumables, domestic products and automotive products. South Africa produces a significant amount of plastics raw materials, mainly through DOW Plastics SA (previously called Sentrachem/Plastomark) and Sasol Polymers. Of these manufacturers, Plastamid, with its Nylon range, is based in the Western Cape, and also houses the administrative functions of the Western Cape Branch of PISA. All of the importers of plastics raw materials, barring Croxton Cape, are based outside of the Western Cape. Similar to other imports, the inlet ports are mainly in Kwazulu Natal. This implies a cost disadvantage to Western Cape companies, and places demands on logistics and supply side control. 2.1.2 Key Challenges/Issues facing the Industry The key challenges/issues facing the Plastics Conversion Industry in the Western Cape are the following: o There is a serious lack of BEE in this industry, still being wholly white male dominated.

Although employment equity is on the rise, this has not translated into company equity. o Unlike other globally competitive economies, the Western Cape does not have a rigorous

system of learning within its Higher Education system. The Department of Process Engineering at Cape Peninsula University of Technology does provide a Diploma programme in the field of polymer science and engineering. However, the level of engineering training is below modern standards of technology, and does not provide the basis for technological competitiveness. Most of the companies in this industry fall under the Plastics Chamber within the MERSETA, and are presently developing learnerships in this field. However, these learnerships are mainly geared towards resolving short term


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skills requirements of the current industry. A host of short courses are on offer through the Plastics Federation, geared towards training existing industry personnel (for which SDL contributing companies can claim the training costs from their SETA). But these short courses also only address short term needs within the industry. Some of these short courses are as follows: Plastic Materials and Processes (3 days), Raw Materials at Operator Level (5 days) and at Supervisory Level (8 days), Basic and Advanced Injection Moulding (10 days each), Planning for Efficient Production (2 days), Supervisory Management (8 days), amongst others.

o The industry is still characterised by outdated equipment, and is therefore unable to

reach levels of global competitiveness due to the effect of old technology on productivity and product quality. This problem is common in many other industries where investment in new technology is minimal due to the need to lower profit margins as a result of low productivity.

o Companies in the Plastics Industry believe that the Region is not operating in a free

market. The issue concerns the pricing policies of raw materials suppliers. The answer to this competitiveness barrier is that either raw materials suppliers must sell their materials at preferential rates (that is, not using import parity pricing) or the tariff barriers or import duties on imported raw materials should be lifted. This issue particularly affects Western Cape companies because they incur higher logistics costs compared to companies in other regions due to the markets being mostly located in Gauteng.

In all the above challenges, Government intervention can play a major role in the realisation of solutions. These will be discussed in Section 6.


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2.2 The Tooling Industry 2.2.1 Overview The Tooling Industry in the Western Cape comprises 83 companies, employing about 1500 people. This low employee per company ratio is due to the fact that this industry is predominantly made up of SMMEs, in excess of 80%, which is also a global trend amongst developing countries. Tooling companies are typically family businesses with one key individual who has high level of technical know-how driving the company, also often performing other non-manufacturing functions such as marketing and finance. Expansion is often limited to within what the “one man” management operation can handle. In countries such as Germany and Taiwan, tooling companies have evolved into large companies, being able to handle large contracts. For this reason, Western Cape tooling companies will have to cluster and form networks in order to become competitive and survive. The manufacturing volume of the SA industry in 2002 is estimated at R1.4billion. Only R85million of this tooling was exported as opposed to imports totalling R628million, leaving a trade deficit of R543million (SARS data). With the Automotive OEMs planning major component localisation programmes to meet the MIDP incentive criteria, this situation will worsen considerably if the SA tooling industry does not likewise expand. This provides an opportunity for the Western Cape to expand its manufacturing base; already, from the aforementioned data, the Tooling Industry in SA has to double to cater for import replacement alone. At the moment, the demand for tooling in the Western Cape is estimated at only 5% of National demand because of the absence of Automotive OEMs, even though certain 1st Tier suppliers, such as TRW, are based in the Western Cape. But this does not prevent Western Cape from becoming a supply base for other regions. This opportunity is further recognised in that consumers of tools, such as Plastics and Metals Conversion companies, see many advantages in sourcing tools locally. These advantages include: lower logistics costs, better client to tool room communication, shorter lead and response time due to improved communications, easy to implement post-manufacture re-engineering, and shorter delivery times. One OEM representative indicated that the premium for sourcing dies from Asia is up to 30%, implying that OEMs would be prepared to pay as much as 30% more to source tools locally. The major issue acting against this at present is the inability for local tooling companies to meet delivery times. This is as a result of low productivity, often caused by a lack of modern technology. The Tooling Industry is not organised into any unified voice, and remains fragmented. An initiative launched in April 2002, called the SA Tooling Industries Support Initiative, is looking at addressing this shortcoming, and has already made progress through the establishment of an online database of tooling companies in South Africa. This database, together with other information around the initiative, can be found at www.satisi.co.za.


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2.2.2 Key Challenges/Issues facing the Industry o It is a well-known sentiment that most local tooling companies are unable to provide

tooling solutions within competitive price structures and to adhere to delivery dates, operate within the required quality standards, provide flexibility tooling procedures. This is the major issue facing this industry, and one that is a serious impediment to gaining access to existing domestic markets.

o There is a serious shortage of trained toolmakers and tool design engineers. Couple to

this, there is no structured system of learning within the NQF and higher education provider network for the training of toolmakers.

o The Tooling Industry is fragmented and is not represented as an association. Recent

attempts to resolve this issue has seen the launch of interim committees for the establishment of regional chapters of the Toolmaking Association of South Africa. Still stills needs a major boost in order to reach levels of organisation as witnessed in Korea, China and many other countries.

o The level of technology assimilation within the tooling industry has not stayed on par

with international trends. This is partly due to the inability of tooling companies to invest in these technologies, but mainly due to the lack of skills necessary to recognise, assimilate and implement these state-of-the-art technology.

o Networking of companies within the tooling industry, as seen in tooling industries

elsewhere, is an imperative for global competitiveness. This offers increased productivity and efficiency through access to specialised services, the diffusion of best practices, the capacity to win large contracts, and transparent performance comparisons. Models suggest that collaborative networks can drive the cost of tooling down by 40% through manufacturing and engineering efficiencies (10%), coalition efficiencies (5%), product design input (10%), lean tool standards (5%) and functional build (10%).


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2.3 The Metals Conversion Industry 2.3.1 Overview The Metals Conversion Industry is well established in the Western Cape, having a very long tradition and history rooted in the railways and shipping construction industries. At present, the industry comprises an estimated 37 companies employing close to 4000 people. The biggest success story is undoubtedly that of Atlantis Forge. Manufacturer of connecting rods and crankshafts for the automotive export market, Atlantis Forge will be making capital investments of about R200million over the next two years, at the same time increasing its workforce from 420 to almost 1000 people. It is one of only four international competitors in this product market, and its customers include DaimlerChrysler, Caterpillar and Ford. In the latest development, the Atlantis community stands to benefit out of an IDC funded empowerment deal, which will see 30% of shareholding being vested in the Atlantis Economic Development Trust, an organisation aimed at enabling the broader Atlantis community to have ownership in the mainstream economy of the area. Manufacturing operations within this Industry are labour intensive, with a wide range of skills from design and optimisation to materials handling. The industry therefore has good job creation potential in view of the expanding automotive components industry. This is clearly demonstrated in the Atlantis Forge case. A number of other companies, such as Ajax Manufacturing and Gearings Foundry, also produce components for the automotive industry. Although the automotive market is expanding, the strict technical and business compliance requirements enforced by the automotive OEMs makes entry into these markets a real challenge which requires technology support and clustering, amongst others. Companies in this industry are organised under two umbrella organisations: the South African Institute of Foundryman (SAIF) and the Aluminium Federation of Southern Africa (AFSA). The former is well established in the Western Cape under the banner of the Western Cape Institute of Foundryman, the aim of which is to promote the science, technology and application of founding for individuals and companies. AFSA’s aim is to promote both the use of aluminium and the Southern African aluminium industry, representing its members who cover the full range of activities from primary aluminium production, through secondary smelting, semi-conversion, casting, fabrication, extrusion and surface finishing. Its members are grouped into one or more of the following sub associations: ACA (Aluminium Casters Association), AEA (Aluminium Extruders Association), AFA (Aluminium Fabricators Association), ASPA (Aluminium Sheet Products Association) and ASFA (Aluminium Surface Finishers Association).


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2.3.2 Key Challenges/Issues facing the Industry o Local consumers of steel (in both the Metals Fabrications and Tooling Industries) are

forced to pay import parity prices for locally produced steel. This effectively translates into an input cost disadvantage over global competitors, instead of a competitive advantage, and is seen as a major impediment for economic growth.

o The expanding automotive market offers opportunities for growth in this Industry, both in

existing enterprises and the development of new enterprises. There are two obstacles in the way of this growth. The first is the shortage of skills at all levels of the component production chain – from product design to product optimisation, process optimisation, process control and quality control. The second is the absence of technology support structures in the Province (Universities, R&D centres) in the areas of metals conversion technology. Examples of these areas include: metal casting simulation, die press simulation and optimisation, press tool design, material phase transformation analysis, product testing, process design for low-pressure die casting (as used in the manufacture of alloy wheels), etc.


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2.4 The Iron and Steel Industry 2.4.1 Overview South Africa was ranked the 19th largest steel producing country in the world by the International Iron and Steel Institute (IISI) in 2002, and as net exporting country (exports minus imports) of primary steel, South Africa was ranked 7th in the world during 2001. South Africa is also the largest steel producer in Africa, producing 62% of the total crude steel production of the continent in 2002. Total South African crude steel production amounted to 9.0 million tons in 2002. Carbon, alloy and stainless steel deliveries by the industry amounted to 7,924 million tons in 2002. Of these 4,640 million tons were sold on the local market and 3,385 million tons were exported. During this period, imports of primary carbon, alloy and stainless steel products contributed 4.6% towards the total domestic consumption of these products. During 2002 the primary steel industry (incl. ferro-alloys and basic iron products) contributed about 7.9% to the total value of manufacturing in South Africa. The range of primary steel products and semi-finished products manufactured in South Africa includes billets, blooms, slabs, forgings, light-, medium- and heavy sections and bars, reinforcing bar, railway track material, wire rod, seamless tubes, plates, hot- and cold-rolled coils and sheets, electrolytic galvanised coils and sheets, tinplate and pre-painted coils and sheets. The SA primary steel industry consists of six members: Cape Gate, CISCO, Columbus Steel, Highveld Steel, ISCOR and Scaw Metals, of which the following operations are based in the Western Cape: • Cape Gate Fence & Wire Works

Comprising the entire spectrum of wire articles, the company's product range is extensive, a few examples of Cape Gate products are: PVC coated and galvanised fencing wire, galvanised welded mesh fencing, weld mesh for concrete reinforcement , nails, steel mesh conveyor belting, wire mesh cable trays, epoxy-coated garden trellis work and lawn borders, shopping trolleys and baskets, and rolltainers.

Equipment in the factory includes: computer controlled welding and bending machines, an automated electrogalvanising plant, PVC coating extruder plants, mesh welding machines, weaving and bending machines, and CAD systems in the design department.

• Cape Town Iron and Steel Works (Pty) Ltd (CISCO)

CISCO is located in Kuilsrivier on the outskirts of Cape Town. The factory is well placed to meet the demands for reinforcing products especially in the Southern African region and is ideally suited to supply to any of the world markets. CISCO has been in business


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since 1965 and has constantly endeavoured to employ the best available steel making technology to meet the requirements of steel users, in terms of quality and price.

CISCO manufactures reinforcing bars in sizes 8,10,12,16,20,25,32 mm and concast billets in size 120 mm x 120 mm. The total steel making capacity is approximately 180 000 Tons per year via the electric arc furnace continuous casting route.

• SALDANHA STEEL (ISCOR)

The Saldanha Steel operation (now a strategic business unit of ISCOR) is the world’s most technologically advanced and environmentally friendly steel mill, producing ultra thin hot rolled coil for stringent applications in select export markets in the Americas, Europe and Asia. The state-of-the-art plant has a nameplate capacity of 1.25 million tons and is currently operating at 93% of its capacity.

Unlike general perception, the Western Cape currently has a significant steel manufacturing industry, with a further 10 companies involved in the import/export and distribution of steel. The latter includes MacSteel, the distribution company linked to ISCOR, and ThyssenKrupp. 2.4.2 Key Challenges/Issues facing the Industry o The Western Cape has almost non-existent R&D activities related to this area. This is

due to the history of the Province not having a mining sector. What this means is that local steel producers do not have recourse to Western Cape based centres for R&D support. Especially now with the Steel Industry under pressure to compete with lightweight materials such as magnesium, aluminium and plastic. Research into the development of new high strength steel and the improvement of production technologies is becoming increasingly important. At the same time, materials/metallurgical engineering departments at the Province’s educational institutions are shrinking.


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2.5 The Non-Ferrous Metals Industry 2.5.1 Overview The Non-Ferrous Metals Industry in South Africa is fast growing on the back of an expanding Automotive Sector and the demand for lightweight materials. Companies include those refining and processing aluminium, magnesium, titanium, zinc and copper, amongst others. The Western Cape does not possess any significant industrial capability in this area, with only a handful of companies involved in the refinement and supply of these raw materials. However, with the modern smelter planned for development at Coega in the Eastern Cape, and the potential for beneficiation of aluminium, opportunities are apparent for downstream refinement and production of aluminium feedstock. These opportunities are further enhanced as a number of Metals Conversion companies, such as Ajax Manufacturing, specialise in casting of aluminium, and a number of fabricators use aluminium as a key input material for corrosion resistant products. An area for high economic growth potential over the medium to long term is the production of titanium from titanium dioxide sponge, and the development of value-addition titanium products. Rigorous research is currently underway in this area, mainly based in Gauteng, and driven by organisations such as Mintek, CSIR and NECSA under the Advanced Materials Initiative (AMI). Opportunities for the development of a titanium production plant in the Western Cape, making use of the logistics infrastructure available at Saldanha, are apparent. However, this will require a high level interaction at Provincial Government level, with possible empowerment funding, in order for such an opportunity to be realised. 2.5.2 Key Challenges/Issues facing the Industry o The Western Cape does not have a focused R&D programme on non-ferrous metals

and their beneficiation. The need for such a programme is particularly necessary in view of the corrosion conducive natural environment, as well as other factors such as the need for light materials in the boat building industry.


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2.6 The Metals Fabrication Industry 2.6.1 Overview The Western Cape has close to 50 companies operating within the Metals Fabrication Industry. This excludes a large number of SMEs who cannot be accurately accounted for because they are not organised within any of the industry associations. These SMEs range from shops fabricating burglar bars and fencing to galvanised steel pipework, employing very rudimentary fabrication technology. They rely on local domestic demand and operate mainly on a survivalist basis. These SMEs cannot be ignored as they contribute significantly to employment levels. They can typically become beneficiaries of technology transfer mechanisms such as DST’s Tshumisano (Technology Stations) Programme and DTI’s Black Business Supplier Development Programme. Many companies within this Industry are involved in the manufacture of electromechanical machinery, benefiting from the Agricultural Sector and infrastructure development projects procured from Local Government. The area of highest economic potential within this Industry is undoubtedly that of tank container manufacture. The South African tank container industry is one of the largest in the world, with a number of major players situated in the Western Cape, including Consani Engineering and Trencor. Currently, about 40% of the world's annual demand for tank containers is manufactured locally, generating export earnings of more than R800-million per annum.

About 6 000 tank containers are produced each year in South Africa, making local manufacturers collectively the country's second largest consumer of stainless steel. They utilise about 15 000 tons annually.

Between 10 - 15% of the tank containers in the global fleet, valued at more than R2billion, are owned or controlled by South African interests. Over the past decade, there has been a steady increase in the use of tank containers and the current worldwide fleet now numbers in excess of 100 000 units, transporting about 20-million tons of chemicals, food and beverages each year.

Internationally, projected growth in the chemical industry of more than 10% a year for the foreseeable future, and the replacement of more conventional methods of transport, are likely to act as catalysts for increased tank container demand. The Southern Africa Stainless Steel Development Association (SASSDA) estimates that the demand for tank container usage is likely to grow at a rate of 7.5% a year in the medium term, while local manufacturers believe they could increase their share of the global market by at least 15% to over 50%.

The Metals Fabrication Industry is very well organised, with various specialist organisations representing the technical needs of member companies. SEIFSA is the widest encompassing body, and represents employers in the negotiation of collective agreements with trade unions. It also provides its members with services in the areas of social policy, skills development and economic and commercial services, representing them on various


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forums including the MERSETA, the Board on Tariffs and Trade, and NEDLAC, amongst many others. The following bodies represent more focused and specialist subgroups within this Industry: o Southern African Institute of Welding The mission of the SAIW is to contribute to the competitive position of all South African industries that use materials joining and related technology. In line with its mission, it provides training in Welding Technology, Practical Welding, Non-Destructive Testing, and OHS Act Competency, and consults in Quality Assurance, Welding & Cutting, Materials and Failure & Prevention. o South African Wire Association Their mission is to support the South African Wire Industry in becoming world class and to maintain that position, representing companies involved in the manufacture of low carbon wire, formed wire products, high carbon wire, fasteners and other wire products. It is interesting to note that one of their areas of focus is to “Support government drives (SMMEs, BEE, creation job opportunities, growing foreign exchange earnings) within the Wire Industry”. o South African International Steel Fabricators This is a joint-venture marketing company representing the leading South African structural steel fabricators and whose objective is to increase their export sales by pooling their resources. Each company represented by ISF has an established reputation for their ability to provide their clients with internationally price-competitive and quality-driven products for specific projects incorporating structural steelwork and platework. Its members have the expertise to design, fabricate and erect structural steelwork for high rise and commercial buildings, industrial and materials handling structures, power generation and transmission projects, mining projects, aircraft hangars, sports stadia and conference centres, as well as offshore and storage structures. o Southern Africa Stainless Steel Development Agency SASSDA is one of the most active stainless steel industry associations in the world and has since 1964 been involved in increasing the awareness and use of stainless steel in Southern Africa. It offers its members a wide variety of services, the most notable of which are technical information and advice, education, training and skills upgrading, a range of publications and market, industry and business development support.


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SASSDA has a number of specialist groupings of companies operating under its auspices. These groups are as follows:

o CAPSEC The rapid growth in the SA wine industry, together with the transformation of production and the opening of international markets, has also given rise to the need for high quality equipment and innovative production processes to ensure the wine is of an international standard. The recently formed Cape Stainless Equipment Cluster (Capsec) has established itself as a very effective and dynamic group which has been entrusted with the better servicing of this fast growing industry, as well as becoming a global player in the international arena. Some of its key responsibilities are: • Standardisation of design for tanks and components • Skills training • Material and component supply • Market Development o SASSFA

Members of the Southern Africa Stainless Steel Fabricators Association are extremely diversified and provide a wide range of products and services to all industry sectors, including road and rail transport, food and beverage processing vessels, cryogenic equipment, bakery and catering equipment. This sector has the depth of knowledge to design and build custom fabrications to client requirements and as such is probably the most diversified sector within the industry. Members work together on major projects, both for the domestic market as well as for export. SATCA

The South African Tank Container Association was launched in 1998 to act as the self-regulatory body for the country's R2.8billion tank container industry.

As the regulatory authority of the tank container industry in South Africa, SATCA has a multi-faceted function:

To act as the self-regulatory body of the Tank Container Industry, ensuring that its members adhere to the SATCA Code of Conduct and Practice, and that the rights of its customers are protected; to represent the interests of the industry, both locally and abroad, in its deliberations with government and other official bodies; and to promote tank containers as one of South Africa's most preferred, stable and sound offshore investments.


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2.6.2 Key Challenges/Issues facing the Industry o One of the key enablers for competitiveness in this Industry is the use of state-of-the-

art fabrication technology, such as robotics for automation, laser cutting, modern welding technology, design for manufacturing, lean manufacturing, modern materials handling technology, etc.

There are two reasons for this. The first is the increased productivity necessary for competitiveness which can only be attained through the use of such state-of-the-art technology. The second is the requirements for compliance with world class standards, which can also only be attained through the use of such state-of-the-art technology. The rate and level of assimilation of state-of-the-art fabrication technology into local fabrication companies has been too slow for real impact on the market.

o The establishment of BEE enterprises, in the form of either new enterprise creation or

equity in existing enterprises, has not occurred at the desired rate. This is important for transformation within this industry, which has a low BEE rating. The reason for this is mainly the lack of support for BEE potential in the form of financial services and technology transfer.

o The Western Cape has not effectively exploited local industry development around

major lead projects in the past. Certain planned lead projects, such as the Pebble Bed Modular Reactor, the Kudu Gas Pipeline, and the planned upgrade of the existing rail system, has not been met with the planned mobilisation of the local fabrication industry. A situation where related opportunities for local economic growth are not exploited cannot be allowed if real job creation is high on the agenda.

o There is a need for companies within this Industry to cluster in the delivery of complex

projects. Companies are still inward thinking, and see networking as having a negative effect on their competitiveness. The need to network is recognised in the light of the need to merge specialist operations and share expensive high technology resources in order to compete for large scale complex projects.


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2.7 The Non-Destructive Testing Industry 2.7.1 Overview The Non-Destructive Testing Industry in the Western Cape developed mainly out of the Mossgas Project and, later on, the construction of Koeberg and Saldanha Steel. This allowed local NDT companies to infiltrate other business opportunities such as tank container fabrication and reparation of metal fabricated structures. The NDT Industry’s primary function is the testing, through non-destructive techniques such as x-ray diffraction, of safety critical metals fabricated structures. Hence its close interdependence on the Metals Fabrication Industry. One of the more notable achievements of this Industry together with the Metals Fabrication Industry was the construction of the FA Platform for Mossgas. The facility for rig fabrication was developed at Saldanha Harbour, including the dredging of the harbour. In addition to the FA Platform, the Orca was converted from a normal drilling rig to a semi-submersible rig. These projects, managed by Engineering Management Services Offshore in partnership with SOEKOR (now PetroSA), displayed the capability of local companies to construct oil-exploration structures. At present, there are only 4 companies involved in the NDT Industry, employing a total of 35 people. However, this industry is wholly BEE owned. What is more important is the potential for the expansion of the industry in the Western Cape due to the following envisaged projects: the building of the Pebble Bed Modular Reactor (PBMR) pilot project at Koeberg, and the development of the Kudu Gas Project on the West Coast. The latter will require extensive pipeline NDT services. Currently, NDT technology training is carried out under the auspices of the SA Institute of Welding, leading to the Certification Scheme for Welding Inspection Personnel. 2.7.2 Key Challenges/Issues facing the Industry o There is a need to establish the demand for NDT personnel for future projects, in

particular the Kudu Project. o There is a need to incorporate new technologies into existing companies. Such new

technologies are necessary to meet the increasing standards of the NDT Industry.


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2.8 The Modelling & Simulation Industry 2.7.1 Overview The M&S Industry in the Western Cape, and generally in South Africa, is rather small. In fact, there are less than 10 companies that can be classified within this Industry. However, many companies have developed in-house M&S capabilities as part of their value chain, and these activities cannot easily be recorded. Such companies include Nampak and Denel Somchem, the latter using M&S in the design and development of rockets and missiles. M&S capabilities are of vital importance to the growth of the conversion and fabrication industries. In the view of many industrialists, both local and international, SA companies must investigate opportunities at the high value-addition spectrum of the value-adding chain. This includes design and performance optimisation through M&S. In the 1999 USA report on Next Generation Manufacturing Enterprises, M&S has been identified as one of the imperatives for future competitiveness of manufacturing enterprises. Yet most companies, particularly in the Western Cape, are unable progress in this direction due mainly to two factors: the lack of skills in this area and the relatively high cost of the technologies. One of the advantages of the Western Cape Region is its high number of higher education institutions with engineering faculties capable of training graduates in modelling and computational simulation of manufacturing processes, such as plastics forming (injection moulding, extrusion, etc) and metal forming (such as casting and deep drawing), and product performance optimisation, such as stress analysis and dynamic analysis of metal components. Such modelling includes heat transfer analysis, flow analysis, metallurgical analysis, etc. The area of M&S relevant to this Subsector goes beyond that of manufacturing processes, and includes many so-called industrial engineering processes such as NC cutting simulation, materials handling, knowledge management, FMEA, etc. These institutions are also capable of implementing the analysis on state-of-the-art systems such as Abaqus, Mouldflow, MSC Nastran and Proengineer. However, the absorption of these graduates into industry has not been successful, leading to a situation where many of them are misplaced. The cost of simulation software is still unaffordable. As an example, the license costs of software necessary for the design and optimisation of injection moulds is in the region of US$30000 per annum (Mouldflow + ProEngineer). A single tooling company cannot afford this investment. However, such technology is imperative for competing in global markets, as it leads to the initial design of optimised tooling solutions which significantly reduces delivery time due to reduction of post-manufacture re-engineering. 2.7.2 Key Challenges/Issues facing the Industry o There is a need to educate companies in the use of M&S technologies as part of their

product development chains.


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o There is a need to train more graduates in engineering-based M&S technologies to meet the actual demand in local industry.

o The levels of investment required for the assimilation of M&S technologies is relatively

high. Platforms for accessing these technologies on a cost-effective basis need to be established, and is seen as an opportunity for growth of the conversion and fabrication industries. Such platforms will also lead to job creation in the upstream, high value addition stages of product development chains.


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3. ANALYSIS OF THE SUBSECTOR 3.1 Global Trends and Opportunities The growth and development of the global manufacturing industry is largely dictated by the automotive market. Even in South Africa, which currently only manufactures 0.6% of global automotive demand, the automotive and allied industries is the second largest employer. This fact is of fundamental importance if the emphasis for regional growth and development is on job creation. Owing to the aforementioned, the trends in the automotive industry (global and local) and the related opportunities for the Western Cape Region will be emphasised in the next subsection. 3.1.1 Trends in the Global Automotive Industry A recent study by UNIDO (United Nations Industrial Development Organisation) on the Global Automotive Industry indicated how global OEMs had developed a growing preference in using follow sourcing, meaning the use of the same suppliers in different locations. The trend was as follows: follow sourcing started in Europe, then moved to Spain, Portugal, Brazil, Mexico, Vietnam, India, and recently to China. The 1st Tier Suppliers in the follow sourcing process purchased components from producers in developing countries. The countries mentioned above all have the following common characteristics: government-led programmes for sector development, incentives to attract FDI, massive capacity, competency and competitiveness improvement programmes, and the recognition of their manufacturing industries as industries of strategic importance.

Indications are that South Africa, and hence the Western Cape Region, could benefit immensely from this process, provided that the supplier base in South Africa can demonstrate the manufacturing capability and capacity of components to world-class standards. The spread of vehicle production in developing countries increased markedly in the boom years of rapid expansion, as can be seen from Table 3.1. Nearly seven million units were produced between 1990 and 1997. In 2001, 13 automotive manufacturers produced more than one million vehicles each. Taken together, these 13 companies accounted for around 87% of the world’s vehicle production. One feature of the automotive industry in the 1990s was the way in which leading vehicle manufacturers extended their operations into developing countries. In part, this was driven by the sales growth shown in Table 3.1. For the global producers, rapidly growing markets in the developing countries were meant to provide opportunities for spreading vehicle-development costs and for establishing more cost effective production sites for the production of vehicles and components, as well as for accessing new markets for high-end vehicles.


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Table 3.1 Unit sales and production of motor vehicles by country and region, for 1990 and 1997 (thousands).

Country or region Unit sales Productiona 1990 1997 1990 1997 United States/Canada Western Europe Japan Mexico South America Eastern Europe (excluding Russia) Republic of Korea Taiwan Province of China ASEAN China India Other

World Total

15 46415 005

7 777550

1 2011 0901 437

848704357

3 36747 80038 246

16 99214 829

6 725503

3 2701 0601 9951 3471 616

7612 752

51 78038 476

11 704 15 568 13 487

821 1 121 1 266 1 674

841 509 364

3 275 50 421 40 759

14 69016 82510 975

1 3382 8031 6863 1991 3251 583

7702 407

57 25742 490

Growth, 1990-1997 (%) World Triad Emerging markets Other markets

8.3 0.6 80.1 -1.2

13.6 4.2 93.1 11.0

All assemblers have increased their global coverage as follows: a) Assemblers with plants in emerging markets opened new plants in the same markets

in the 1990s. b) North-American and European manufacturers opened new plants in Eastern Europe. c) There was a massive entry into India. d) More companies entered the Chinese market. The data on global production and sales of vehicles indicate a trend towards increasing global spread, combined with the continuing and increasing dominance of the largest companies. The question is relevant, not just for understanding the nature of globalisation in the automotive industry, but also for considering the policy option for developing countries within the global automotive market. Although assemblers and component manufacturers increased their global reach in recent years, the range of policy instruments available to developing country governments for the promotion of particular industries had become more and more limited as a result of international trade agreements. In the 1990s, quantitative restrictions were largely phased out, and tariffs on both vehicles and components were reduced significantly in many emerging markets. The Uruguay Round trade reforms should lead to the phasing out of


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trade incentive measures (TRIMs), which include policies such as local content requirements and the balancing of imports by equivalent exports. Local content and trade balancing requirements were deemed to be inconsistent with GATT provisions on national treatment, and trade and foreign-exchange balancing requirements were held to constitute quantitative restrictions. World Trade Organisation (WTO) member countries were required to notify the WTO of GATT-inconsistent TRIMs, to phase them out within a set period (initially by 2000 for most emerging markets, although progress has been slow) and not to introduce new TRIMs in the interim. It is not as yet certain how these developments will affect the highly successful MIDP.

The aforementioned information indicates that if South Africa wants to become a global player in the production of automotive components, then there its capacity and capability must be demonstrated to the automotive OEMs of which at least eight are actively present in this country. There is no doubt that without a world-class manufacturing industry capable of satisfying the needs of global manufacturers, South Africa will not be able to make its automotive economy self- sustainable in future. Herein lies a tremendous opportunity for the Western Cape to position itself, through appropriate Government lobbying and industry development support, in line with the planned expansion and component localisation programmes of the automotive OEMs in South Africa. The Western Cape is somewhat disadvantaged in that, of all the four manufacturing-based provinces, it is the only one that does not have the presence of an automotive OEM. It is therefore even more important for Provincial Government to seize any opportunity to entice new entrants into the South Africa automotive OEM market, such as Fiat who is currently investigating a vehicle assembly site in South Africa. 3.1.2 Investment Trends There is a growing shift in concentration of precision engineering capabilities towards developing and production-intensive countries and regions such as Brazil, Argentina, China, Korea, Australia, and Portugal, with support and investment from developed countries. This is part of the strategy of the big economies in outsourcing competitive parts of the value chain, as a result of increasing labour and overhead costs in their own countries. The beneficiaries of this shift are notably those countries which exhibit a high degree of organisation within their manufacturing industries. China is the global leader regarding attracting FDI in the M&ES industries. Investment trends are also related to FDI incentives of which the most important are tax incentives and import-tariff exemptions or rebates. 3.1.3 Global Industry Structure Eighty percent of the global M&ES industries are made up of SMEs. This scenario also exists in the Western Cape M&ES Subsector, hence the need to develop networks of specialist companies that can respond to the market demands of, in particular, the automotive industry. This approach has proven to be very successful in Portugal and


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Taiwan. Herein lies the many advantages of clustering, resulting in the levels of competitiveness necessary for entry into global markets. 3.1.4 Industry Profitability In 2000, the ISTMA (International Special Tooling and Machinery Association) member states averaged 4.8% profitability (net operating margin). This is down from the previous year’s 5.3%. (ISTMA figures represent a good benchmark for the industries represented under the M&ES Subsector). The net operating margin for South Africa is estimated to be between 10 - 15%. This is mainly due to the higher prevailing interest rates in South Africa, as well as the lower productivity rates. The latter is mainly due to the lack of state-of-the-art technology and the related skills.

Table 3.2 Net operating profit of the ISTMA member states – Year 2000.

The countries listed in Table 3.2 are the major players in the global manufacturing industry. 3.2 Present State of the Local Subsector 3.2.1 Industry Size A total of 337 companies have been identified within the Western Cape M&ES Subsector, through databases provided by industry representative bodies as well as other ad-hoc databases. The number of companies could therefore be as high as 600, with an estimated further 300 unaccounted companies falling within the SME category. The companies with the various distinct industry groups are generally well organised into a host of industry


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representative bodies, with well defined missions and support systems. (See Section 2 for details on these organisations). The estimated number of people employed within the Western Cape M&ES Subsector is 25300, based on the 337 identified companies, with an additional estimated 3000 employed within the approximately 300 unaccounted SMEs. This later estimate is based on a split of 25% micro (1-5 employees) and 75% very small (6-20 employees) SMEs. Accurate values can only be extracted from data held with SARS and MERSETA, referring here to skills development levy (SDL) data. The split of the number of companies and number of employees per industry group is shown in Table 3.3. These figures indicate that the Western Cape employs 10.2% of the National workforce in this Subsector.

Table 3.3 Industry data: Number of companies and employees.

INDUSTRY No of Companies

No. of Employees

Plastics Conversion 144 11506 Metals Conversion 37 4500 Toolmaking 83 1497 Metals Fabrication 45 4613 Non-Destructive Testing 4 35 Modelling & Simulation 9 52 Iron & Steel 13 3000 Non-Ferous Metals 2 106

TOTAL 337 25308

The industry size in terms of turnover is about R11.3billion per annum. This is based partly on ITC (International Trade Centre) and UNIDO data, which is somewhat skewed in that Saldanha Steel with its 811 employees accounts for R3.15billion of this figure. Similarly, the exports, which account for 27% of turnover, is also skewed in that Saldanha Steel currently exports 65% of production, which accounts for 66% of the Province’s exports in this Subsector. Essentially, the Subsector has a weak export base mainly due to its inability to reach levels of global competitiveness.


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The split of turnover into industry groups is shown in Table 3.4. The data shows that the Gross Geographic Product of the Province is only 8.9% of the Gross National Product for this Subsector. (Note that these figures exclude the production and trade of automotive vehicles.)

Table 3.4 Industry data: Exports and Turnover.

INDUSTRY National Exports

Regional Exports GNP GGP

US$M US$M US$M US$M Plastics Conversion 121 33.0 1990 543.5 Metals Conversion Toolmaking Metals Fabrication

452 38.7 4419 378.7

Non-Destructive Testing Modelling & Simulation Iron & Steel 1590 368.0 4871 682.7 Non-Ferous Metals 533 3.0 2769 15.6

TOTAL 2696.0 442.8 14049 1620.5

3.2.2 Skills Levels For the approximately 600 companies linked to the Western Cape M&ES Subsector (of which about 330 are represented by industry representative bodies), there is no comprehensive and complete data on the levels of employment, productivity, wage levels, skills base and needs. This would be the result of a more comprehensive, as part of a benchmark process. This process has been carried out for a limited number of companies, the results of which can be used to establish a gap analysis (see Section 4).

It can only be noted here that the South African skills base is gradually being eroded. This is a result of two factors: (a) there is no structured National system of learning at the technical levels of training, with the SETAs struggling to replace the apprenticeship system with the learnership system and recruiting new learners into the process; (b) the number of engineers and technologists graduating from the HEIs, and their levels of competence for modern manufacturing environments, is too low for significant impact. The need for pilot skills development programmes that focus on key strategic industries within the M&ES Subsector is of vital importance, and can be assisted through Provincial Government efforts. It can be shown that for every qualified, competent and employed technologist or engineer, a number of further jobs are created within downstream and upstream industries. For


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example, in based on Portuguese and Canadian statistics, for every qualified and employed toolmaker, a further eight jobs are created within the tooling. This excludes additional jobs created in upstream and downstream industries, such as the conversion industries. This example is illustrated in Table 3.4. It can also be shown that further jobs will be created in the downstream conversion activities, i.e. manufacturing of components (the manufacture of tooling is generally tied to the production of components). The potential for the creation of new jobs in South Africa as a result of the training of toolmakers is therefore significant, as depicted by the Table below, which indicates the job creation potential of the initial pilot programme. It is therefore important to understand that training programmes must encompass the full spectrum of the value chain. This is also the reason why the M&ES Subsector was defined as in Figure 1.1.

Table 3.4 Upstream and downstream job creation potential of qualified technical graduates.

Upstream Industries Toolmaking Value Chain Downstream Industries

No. of jobs created in upstream industries

No. of jobs created in upstream value chain

No. of Toolmakers trained

No. of jobs created in downstream value chain

No. of jobs created in downstream industries

Raw materials supply, consumables supply, software support, equipment support & maintenance, etc

(1:20)

tool design, performance analysis, etc

(1:5) Tech to Eng

Machining, hardening, materials handling, assembly, polishing, etc

(8:1)

Conversion, assembly, quality control, packaging, distribution, etc

(10:1)

1 4 20 160 200

Total number of new jobs created per qualified toolmaker = 18.25

3.2.3 Employment Equity Very low numbers of blacks and women are employed within the technical and management structures of the industry. This is due to most of the SMEs being “family-owned”, with individuals dictating the policies of companies, having no sentiment towards transformation and employment equity, as opposed to larger designated companies and parastatals who are forced by legislation. At the same time, the larger procuring multi-national companies who dominate this Subsector do not have preferential procurement policies which encourage employment equity. The only way to infuse employment equity into this predominantly SME-based Subsector is through BEE supported by enterprise development and technology transfer structures.


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3.2.4 Productivity Most of the Region’s companies do not use the latest technology and equipment. This leads to inefficient manufacturing processes, leading to low productivity which affects competitiveness. The low quality and levels of machine operator training and skills levels, except for a few pockets of excellence, further affects productivity in many companies. Most of the manufacturing plants only operate one shift a day excluding weekends. This is due to labour restrictions, and identified by many companies as an impediment to productivity and competitiveness.

3.3 Competitor Analysis 3.3.1 Competitive Advantages o Raw Material Cost Western Cape companies purchase most of their raw materials requirements locally, from companies who either import these materials or who are agents of local producers. Owing to the latter, raw materials availability in the Western Cape is not a problem, and prices are approximately the same as those paid by the major manufacturing countries. This is partially due to the pricing policies of South African raw materials producers. However, support from these producers could be translated into an advantage of up to 25% less for raw materials input costs if they adopt favourable pricing policies. o Labour Cost South Africa’s average technical employee wage of R50-60/hr and salary comparisons with leading tool export countries puts it within the same range as Korea and Portugal (based on ISTMA business figures and ratios 2001). This amounts to ¼ of USA’s technical employee wage rate (Eu24/hr), and less than ½ of that of Germany (Eu 14/hr). Within South Africa, the Western Cape falls within the lower quartile of wage rates, and therefore has a pronounced competitive advantage. This phenomenon is due to the higher demand for jobs in the Western Cape. SA’s production costs, however, are significantly higher due to a lack of modern capital equipment and less than optimum capacity usage. South African companies invest less than 5% of turnover in new technology compared to Malaysia (6.5%), Korea (14.8%), Portugal (18%) and Taiwan (17.1%) - ISTMA 2001 figures.

Nevertheless, labour costs still represent the highest single component of production costs of global producers – the ISTMA average stands at 39.6 % with Korea the lowest 20.2% and USA the highest at 50.4%. Skilled labour costs and labour regulations are the main factors driving direct foreign investment in countries such as Portugal, China, Malaysia, Czech


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Republic, Poland and Hungary (United States International Trade Commission, Investigation No 332-435 Oct/2002). o Transport Infrastructure The market demand related to this Subsector per region is roughly distributed as follows: Gauteng 40%, KZN 20%, Eastern Cape 25%, and Western Cape 5%. This scenario is mainly due to the absence of automotive OEMs in the Western Cape, and hence the need to attract new entrants into the automotive market. However, due to its well-established transport network (rail, ship, air, road) as a result of its well-endowed transport infrastructure (shipping ports, airport, freighting industry, logistics and warehousing), the Western Cape is in a position to become a major supplier to other Southern African regions. o Preferential market access / export base The preferential market access treaty signed with the USA (AGOA) and the Free Trade Agreement signed with the European Union (1999) makes SA an attractive location for FDI. This should be understood in the context of USA and EU markets representing more than 60% of the global import market for manufactured goods in this Subsector. A problem still exists in that many local companies are not familiar with these agreements and their related trade incentives. o Considerable FDI Interest Owing to its natural beauty, history and infrastructure, the Western Cape generates considerable interest for FDI. Coupled with the aforementioned trade agreements, the Western Cape, with appropriate industry development programmes, can be successfully marketed as a location for FDI. o Infrastructure The cost of electricity and land in SA is amongst the lowest compared to that of its global competitors, and therefore a definite advantage. This also points favourably towards attracting FDI for this Subsector due to its space and energy intensive nature. Furthermore, the communications infrastructure is of world standard and reliable. 3.3.2 Competitive Disadvantages o Import Parity Pricing Local steel manufacturers and producers of process input materials (aluminium and polymers) conduct most of their business using import parity pricing. The effect of this is such that South Korea and Japan have a 25% and 28% advantage respectively over South Africa in raw materials cost, even though these raw materials come from South Africa. This, allied to an unstable currency, creates a level of uncertainty, which acts against efforts to attract FDI.


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o Skills Shortage The Western Cape, due to its lack of in-house training facilities and lack of modern skills development infrastructure at training institutions compared to the other Provinces, has a shortage of skilled workers in many areas related to this Subsector. These areas include tool and die manufacturing and design, metals conversion processes such as die casting, plastics conversion processes such as injection moulding, welding and cutting, quality control, logistics and supply chain management, etc. o Labour Regulatory Obstacles South Africa’s labour regulations, arbitration and dispute resolution mechanisms are time consuming, cumbersome and restrictive, and not based on productivity criteria. The labour laws related to working hours is restrictive compared to those of the main developing markets (Taiwan, Korea, China and Malaysia). o Assimilation of State-of-the-Art Technology A high percentage of companies in the Western Cape, as is the case in the rest of South Africa, use outdated technology and logistics systems in their manufacturing operations. As mentioned before, South African companies invest less than 5% of turnover in new technology compared to Malaysia (6.5%), Korea (14.8%), Portugal (18%) and Taiwan (17.1%) - ISTMA 2001 figures. The lack of modern equipment poses a serious competitive disadvantage in that it severely compromises productivity and product quality. Certain incentives and support programmes to modernise equipment are in existence, aimed at competitiveness improvement. However, companies are generally ignorant of these. 3.3.3 Competitor Analysis: Investment and Exports This Section attempts to compare the Province’s investment and export potential with those of its competitors. Economic growth potential in this subsector is mainly based on exports and FDI. It is therefore easily understood that any competitor analysis should analyse the potential of other countries, not other Provinces. Such a benchmark would automatically ensure domestic competitiveness. The following countries have a highly developed export capacity within this Subsector: Japan, Taiwan, Korea, Canada, China, Italy, Spain, France and Portugal. Countries with emerging capacity are the following: Eastern European countries - Poland, Czech Republic, Hungary and Slovenia; Asian-Pacific countries - India, Malaysia, Singapore, Australia, Indonesia, Philippines, Vietnam and Thailand; South American countries: Brazil, Argentina and Mexico. Many of the countries with emerging capacity are competing in the same market with South Africa, most notably Australia, China, India, Malaysia and Indonesia. Amidst this daunting competition, the Province has potential to serve as a point of entry/access to major markets. It has access to the countries rich natural resources, has a


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good basic infrastructure (ports, financial services, etc). However, it lacks: an industry focus, industry dedicated skills training infrastructure, coherent strategies and road maps to achieve/establish maximum value adding potential. These will allow the Province to focus on particular products, markets and technologies, as has been the strategy of many of the aforementioned developing countries. In fact, a 25% advantage over most competitors can be achieved if an integrated development strategy and packages of incentives and skills infrastructure programmes are adopted and delivered, focusing on specific industries and markets. Considering competitors such as Taiwan, Korea and Malaysia, the Region has to contend with strong work ethics, and a culture and tradition of design and manufacturing. Furthermore, these economies are supported by excellent industry-led training, research and development infrastructure and a very liberal/capitalist/foreign investor friendly environment, the latter including favourable labour regulations. Countries such as China and Vietnam pose a challenge in that their average technical labour cost is half of that of South Africa and Korea. This situation is due to the workers in, for example, China, being subsidised by the state or local authority with a basket of direct social incentives and support measures such as housing, education, health, food and transport. Compared to the Western Cape’s negligible growth rate in this Subsector (mainly due to the inability of most companies to tap into global markets), many countries such as China and Taiwan, are still experiencing growth rates of up to 10% in certain of the industry groups. The slow growth in the local Subsector should not be viewed in the light of non-support. On the contrary, the Subsector should be supported in view of its future growth potential on the back of an expanding domestic automotive industry. 3.4 Priority Markets and Products 3.4.1 Priority Markets The highest growth/value added industries in which the Western Cape M&ES Subsector can compete are (a) Automotive (b) Agroprocessing (packaging); (c) Aerospace and (d) ICT. In particular, the highest growth/value added market in which SA can compete is the automotive components market (aluminium components, plastic injection moulded components, catalytic converters, etc). This is substantiated by the following:

Indications are that South Africa is earmarked as a developing country for the sourcing of global component requirements for various Automotive OEMs.

In 1997, 57.3 million cars were produced for global consumption, of which South Africa

produced approximately 0.6%. The potential for making inroads into global markets are therefore apparent.


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All eight Automotive OEMs are planning major localisation programmes that will result in further importation of tooling and components if the local capability and capacity are not developed and demonstrated.

The growth opportunities through the automotive markets are more evident if one considers the following issues:

To offset a CPU vehicle at an FOB price of Eu15 000, an OEM needed to export Eu27 373 in 2002 at 55 % local content, and will need a further 27,2 % export credits by 2007. To offset the same Eu15 000 in the form of catalytic converter exports at 80 % local content, Eu47 680 Euros were necessary in 2002 and a further 55.6 % will be required in 2007.

The body in white sheet metal local content in the Automotive Industry of the four major

OEMs exporting CPU’s to various countries are at an average of only 7%. Companies such as TRW and Atlantis Forge have already demonstrated the potential for growth in the automotive components market. The market with the biggest current growth rate is the tank container industry, with 40% of global demand being manufactured locally. The potential growth in this market is estimated at 7.5% in the medium term. Infrastructure requirements for the manufacture of tank containers prohibits smaller companies from entering this market, unless they form clusters. Companies such as Consani Engineering and Trencor have a major share in the Region’s tank container market. 3.4.2 Priority Products The products with the highest global export growth rates (on a National basis) are those associated with the production of Automotive components (automotive tooling) and the actual automotive components. These include injection moulds (for plastic components), metal casting dies (for aluminium and magnesium components), and press dies (for steel blanked/pressed components), as well as the products produced through the application of the aforementioned tooling. On a Regional basis, the product with the highest export potential is tank containers. Success in the exploitation of the abovementioned priority products is largely dependent on a pervasive Modelling & Simulation capability, as well as a world class NDT industry.


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4. GAP ANALYSIS 4.1 Introduction The aim of the Gap Analysis is to contrast the existing state of the industry with the its desired state. The method used here is based on a Benchmarking Model for the metals machining and fabrication industries developed by WZL, Aachen University of Technology, Germany. This model has been applied by the Global Competitiveness Centre of the University of Stellenbosch to benchmark five South African companies, of which three are based in the Western Cape, against their international counterparts. Even though this represents a small population, the companies chosen are amongst the upper quartile of industry performers (based on perception), and are also either active in supplying the Automotive Sector or have an export base. It will definitely be of interest to extend this benchmark study to include more companies so that more substantial data is available for decision-making processes. However, such an exercise will require resources which could be made available in the form of a Government supported intervention. The most important performance parameters in the Metals & Engineering Services Subsector are Delivery Time, Cost and Product Quality. These parameters, which dictate business performance, are influenced by various other parameters of which the most significant are Human Resources, Technology and Organisational Efficiency. Of course, quality and standards play a role in the influencing parameters. The interrelations of the aforementioned parameters are illustrated in Figure 4.1.

Figure 4.1 System of Benchmark Performance Parameters

Performance Parameters Time Cost Quality

Human Resources Technology Organisation Influence

Parameters

Qualifications

Motivation

Machinery in Operation

IT

Order Processing

Cost

Business ResultsEffectiveness

Efficiency


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4.2 International Benchmark Database The benchmark database used to contrast the Western Cape M&ES Subsector with its Global counterparts consists of approximately 50 companies located in Germany, other Western European countries, Eastern Europe and South America. Of these companies, 82% are located in Germany. This database therefore provides very good comparative data since Germany has one of the leading manufacturing sectors, with a large percentage of companies servicing the Automotive Sector. The locations of the companies, together with their annual turnovers and numbers of personnel, are given in Figures 4.2 – 4.4.

82%

6%

6%6%

Germany

Western Europe

Eastern Europe

South America

Figure 4.2 Locations of companies in the Benchmark Database

6%

36%

33%

14%

11%

0 - 1000K

1000K - 5000K

5000K - 15000K

15000K - 50000K

> 50000K

Figure 4.3 Turnover (in million Euro) of companies listed in the Benchmark Database

25%

39%

17%

8%

11%

< 50

50 - 100

100 - 200

200 - 500

> 500

Figure 4.4 Number of personnel in companies listed in the Benchmark Database


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4.3 Results of Benchmark Evaluation 4.3.1 Key Indicators - 1 vv v Legend: ∅ denotes International Average (with various shadings) denote results of Western Cape companies Additional Remarks: • Although the numbers of productive employees in the companies are close to the

international average, they showed only very low general performance. • The management ratios in non-manufacturing (support) departments such as finance,

IT and logistics are low. This signifies a lack of integration into state-of-the-art business support systems.

Very low Productivity per employee.

Average rate of directly productive employees.

Low management ratio in non-manufacturing departments.

High management ratio in manufacturing departments.


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4.3.2 Key Indicators - 2 Legend: ∅ denotes International Average (with various shadings) denote results of Western Cape companies Additional Remarks: • The higher profit margins and return on capital employed is mainly due to the high

interest rates that companies in South Africa have to contend with. This poses a major threat to global competitiveness, and incentive measures may have to be introduced to neutralise this problem.

• The low cost of labour, although an advantage to Western Cape companies, may lead

to low employee wages which could be a concern.

Very low Turnover per employee.

Generally much higher profit margins and return on capital employed.

Very low cost of labour.


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4.3.3 Qualification Profile of Personnel Legend: ∅ denotes International Average (with various shadings) denote results of Western Cape companies Additional Remarks: • The non-existence of academically qualified staff is a major obstacle to

competitiveness. This affects affects the ability of companies to assimilate modern technology into their practice, and to utilise technologies which add significant upstream value (design, simulation, optimisation, etc), reducing downstream (more expensive) costs and reducing delivery time.

• The qualifications of technical staff are not at the level of the international average. • Interestingly, the levels of qualification of unskilled workers are higher than that of the

international average. This could mean that Western Cape employees, owing to job scarcity, are often employed below their levels of competence or out of their field of competence.

Number of academically qualified staff virtually non-existent.

Average to very low qualification of technical personnel.

Average to very high levels of qualification of unskilled workforce.

Average ratio of apprentices.


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4.3.4 Use of State-of-the-Art Technology Legend: ∅ denotes International Average (with various shadings) denote results of Western Cape companies Additional Remarks: • The low levels of high-tech machines are as a result of the lack of investment in new

technology (due to high cost of capital). This results in low competitiveness leading to insufficient trade.

• Most companies do not possess computer simulation and control interfaces to their

machinery and equipment – they only perform direct operation of these machines without simulation, or outsource the simulation and control.

Marginally lower to very low percentage of numeric controlled processes.

Average to very low percentage of computer numeric controlled machines.

Lower percentage of computer numeric controlled process design, planning and optimisation.

No numeric control programming during machine usage.


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4.3.5 Miscellaneous Parameters Legend: ∅ denotes International Average (with various shadings) denote results of Western Cape companies Additional Remarks: • The very low hourly wages of employees (as a result of business performance) is a

concern since it affects the motivation of the workforce, leading to lower productivity. This situation is exacerbated through the absence of performance incentives and benefits for employees.

Low to very low hourly wages.

No performance incentives for employees.

Average to low utilisation of personnel, due partly to personnel inefficiency with respect to machine capability.


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4.4 Concluding Remarks As far as the cost allocation to the manufacture value chain is concerned, Western Cape companies exhibit: • Average cost for concept and design • Low level of high-technology assimilation into manufacturing processes • Very high efforts for high-technology manufacturing processes • Low cost for finishing and final assembly • No support for manufactured products These clearly indicate that the early and late phases of value creation are neglected. Furthermore, from the benchmark results, it is evident that the Metals & Engineering Services Sebsector is characterised by: • (Relatively) low labour cost, • High interest rates • Relatively low academic qualification of management and design staff • Difficulties in data collection and manipulation These are all inhibiting factors to competitiveness. It is clear from the foregoing benchmark results that the companies evaluated do not meet the international standards, and are therefore unlikely to be able to compete in both the local SA market as well as foreign markets. An integrated industry development intervention is required to lead and facilitate these companies towards that goal.


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5. CRITICAL SUCCESS FACTORS 5.1 The Subsector Cluster Map Before identifying the critical success factors without which the Province’s Metals and Engineering Services Subsector cannot develop further, it is important to identify the major stakeholders and the support infrastructure/mechanisms/industries, which are vital for enabling the critical success factors. This is shown in Figure 5.1 in the form of a Cluster Map, and is subject to refinement upon deliberation with industry stakeholders. The various critical success factors, to be identified later, can be transformed into Subsector development interventions, with the enablers identified via the Cluster Map.

Figure 5.1 The Western Cape M&ES Subsector Cluster Map.

National Electricity Grid

Skilled Human Resources

Export Council CAPEMAC / BRAIN SETAs SABS/SANAS

Logistics Training Centres Provincial Government

Legal Framework

Taxation

Universities / Technikons Institutes and Federations

DTI’s Supply Side Assistance Schemes WESGRO CSIR

IDC

Converting materials

Raw Materials Suppliers

Specialised Technology Vendors

Imported components/materials

Sub-Contracting

Packaging

Design / M&S Capacity Skills Training Centres

Management/Business processes

Banks / Insurance Companies

NDT

Maintenance

Marketing Services

Computer Hardware and Software

Quality Control

Transport

Automation Equipment

Labour/Unions

Metals & Engineering

Services Companies

CUSTOMER BASE

Markets Automotive Packaging Medical ICT Materials handling Construction Consumer goods Agriculture Leisure Defence Aerospace Transport Art / Cultural

Related and Supporting Industries

Economic Infra-structure


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5.2 Macro-Economic Success Factors • Development of a national capacity, competency and capability in order to win large

contracts, both locally and globally, through - Clustering / Networking

There are many reasons why clustering will improve competitiveness. Clusters increase productivity and efficiency through access to specialised services and personnel. There is also a rapid diffusion of best practices. Transparent performance comparisons provide a strong incentive to improve against competitors. More importantly, clusters facilitate commercialisation as opportunities are created for new business. Commercialising new products and entering new markets are easier because of available skills and capacity. The challenge for the Subsector is to move from isolated companies to clusters, and then to upgrade these clusters to more advanced activities. The challenge for Government is therefore to upgrade the business environment so as to foster cluster development. • Enhancing the technological level of the industry and its players There can be no compromise on the level of technological advancement, in terms of both capital equipment and human expertise, for global competitiveness. Owing to the static nature of this Subsector, there has been little investment into modern technology, and this situation needs to be reversed in order for the industries in this Subsector to succeed. Hence, interventions in the areas of technology development and human resource development will be key to the success of the Industry. • Ensuring access to markets The “feast and famine” state of the Industry creates an unfavourable business environment in which the clients suffer. One of the key mechanisms here is to ensure the involvement of the market (for example, the Automotive OEMs) in the support of the industry through facilitating access to their markets. This will require Government support in the form of incentive schemes or trade deals. • Development of long-term relationships within the local and global industry Coupled to the aforementioned, the development of industry-client relationships is essential for long-term development of the Subsector. It is an important mechanism for tracking industry trends and staying abreast of new developments. Relationships amongst a host of stakeholders, those providing economic infrastructure support as well as related and supporting industries (see Cluster Map) are required to create the required business synergy. To a large extent, this factor can be enabled through joint efforts between the various industry representative bodies and the organisations responsible for trade and investment promotion.


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• Driving the cost of manufacture down The cost of manufacture, a consequence of a host of factors, is one of the three key elements for market access (in addition to quality and delivery time). The need for interventions to drive the cost of production downwards is therefore critical for the development of the Industry. • Ensuring that client deadlines are met on all contracts As mentioned before, the meeting of delivery times are critical to ensure the growth of the Tooling Industry. South African companies were hitherto unable to compete with its global counterparts, and a host of issues need to be addressed. These include worker productivity, technology levels, and skills level, amongst others. The need for interventions in these areas is therefore essential for the growth of the Subsector. 5.3 Micro-Economic Success Factors As shown in the GAP Analysis carried out in Section 4, the following (micro-economic) factors have been internationally recognised as critical to the development and success of the Metals and Engineering Services Subsector: • High efforts in early value-addition phases • Continuous investments in modern machinery • Concentration on core competencies • High motivation of personnel It is therefore essential to ensure that the interventions (see next Section) for the development of the Subsector address these factors in order to attain “world class” status. Of course, these microeconomic factors must be built on a sound macro-economic platform.


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6. KEY INDUSTRY-SPECIFIC INTERVENTIONS NECESSARY FOR ECONOMIC GROWTH

6.1 Plastics Conversion Industry 6.1.1 Incentives for Equipment Replacement The Plastics Conversion Industry is characterised by outdated technology, making it unable to compete in globally competitive markets. The lack of modern technology leads to lower productivity and production quality. The inability of companies to invest in new technology is a result of low profitability and turnover, spending a very low percentage of sales on new technology assimilation. The same situation prevails in both the Metals Conversion and the Tooling Industries. In the case of the latter, SA industry invests less than 5% of sales in new machines compared to Malaysia (6.5%), Korea (14.8%), Portugal (18%) and Taiwan (17.1%) - ISTMA 2001 figures. INTERVENTION: Conduct a survey on the equipment currently employed in the Western Cape Plastics Conversion, Metals Conversion and Tooling Industries. Establish the extent of capital expenditure necessary for the deployment of equipment conducive to global competitiveness, and develop an incentive scheme, with DTI’s participation, in addressing the problem. 6.2 Tooling Industry 6.3.1 Establishment of a Tool Delivery Network The networking of companies into clusters or what is termed Tool Delivery Networks is seen as an important driver for economic growth and sustainability within the Tooling Industry. This will enable increased productivity and efficiency through access to specialised services, the diffusion of best practices, the capacity to win large contracts, and transparent performance comparisons, leading to the capacity to deliver according to the stringent demands of especially the Automotive Sector. Workable models have been established in various countries, in particular Portugal, Taiwan and Canada. In view of the proposed partnership between the Western Cape Region and the Piemonte Region in Italy, an ideal opportunity exists for the development of a Tool Delivery Network in the Western Cape. The partnership will facilitate the transfer of technology from Piemonte based companies and institutions, and enable capacity building at various levels of organisation. This opportunity can be extended to encompass the ideals of BEE, through alignment with the upcoming BEE Charter, and can furthermore benefit out of the National Empowerment Fund or the IDC Empowerment Fund.


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INTERVENTION: Conduct a feasibility study on the establishment of a Tool Delivery Network within the Western Cape in partnership with Piemonte based companies and institutions. This implies: o The benchmarking of selected companies and the establishment of intervention plans

that will enable these companies to attain world class standards within a cluster. o The identification of a viable cluster (partnerships, markets) and the development of the

Business Model for the Tool Delivery Network. This should be followed by: o Development of business plan/s for the establishment/development of the series of

enterprises in the Tool Delivery Network. o The implementation of the Technology Transfer / Skills Development Programme as

identified in the Business Model. o The representation of the business plans to the relevant agencies for empowerment

funding. 6.3 Metals Conversion Industry 6.3.1 Development of favourable Pricing Policies for Raw Materials For many years, the pricing of locally produced raw materials such as steel, stainless steel, aluminium and polymers has been raised as an impediment to downstream industrial development and economic growth. This is because South African producers of these materials, which are key input costs for value-adding industries such as the Metals Fabrication Industry, have employed pricing policies that are not related to the domestic cost of production. The most well-known of these models is that of import parity pricing, which is calculated by using a competitive international price at a specific location, but also includes the logistics expenses from that location to the consumer as well as the duty. This means that downstream consumers receive no price benefit of locally produced raw materials. This leads to cases where SA companies are losing out to international competitors who are using SA materials. The issue has been brought to the attention of various Government bodies on several occasions, but have not intervened effectively. Recently though, in the Gauteng Government’s newly released industrial strategy entitled “Gauteng Trade and Industry Strategy 2003”, it is stated that: “Crucial to the further development and innovation of the domestic (automotive) assembly industry, is the issue of import parity pricing, which has the effect of local resources such as steel being sold domestically at global prices (with transport and other duties added over and above). This pricing situation undermines the degree to which beneficiation of these takes place domestically, and may also hamper export growth”.


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It is not certain what the Gauteng Government’s approach will be dealing with this problem. It is, however, known that the DTI is investigating the problem. INTERVENTION: Investigation of the effect of import parity pricing of locally produced raw materials on the development and growth of the local Metals Fabrication and Tooling Industries. The representation of this investigation to the DTI and/or the producers involved, and the development of a proposal to counter this situation. Also investigate the approach of Gauteng Government in dealing with this problem, with a possible view of joining with its efforts in this regard. 6.3.2 An R&D facility/programme in Metals Conversion/Processing Technology Competitiveness in metals conversion processes requires a high level of skills and technological competence in relatively complex technologies. To demonstrate this fact, consider the example of casting of alloy wheels. The low-pressure die casting process (of which no such facilities exist in the Western Cape) requires accurate simulation of alloy material flow and formation, process plant optimisation, and a range of specified quality control tests such as leak tests, porosity tests, impact tests, etc. There is currently no single organisation that Western Cape metals conversion companies can approach for technology support. There are pockets of excellence which could work on particular parts of a value chain. However, companies prefer a single point of entry because they are not in a position to manage technology development projects and are also concerned about confidentiality and standards compliance within the development cycle. INTERVENTION: Investigate the development of a centre for metals conversion technology or metals value-adding. There are areas of highly developed expertise already in existence at the Centre for Research in Applied Technology at Peninsula Technikon (casting, sheet metal forming), the Centre for Research in Computational and Applied Mechanics (CERECAM) at UCT, and the Centre for Automotive Engineering (CAE) at University of Stellenbosch. Their efforts can be combined into this focus. DST currently has a Technology Station in Metals Value-Adding under their Tshumisano Programme. This Station is at Technikon Free State and Vaal Triangle Technikon, and could be extended into the Western Cape. 6.4 Iron & Steel Industry 6.4.1 Research and Development in Metallurgy The shrinking of Departments of Materials/Metallurgical Engineering and Sciences at South Africa’s higher education institutions has been met with concern by the DST, who views this as an important area for SA’s continued growth as a leading raw materials producer. This


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concern is similarly expressed amongst local steel producers, who view the development of R&D capabilities as important for innovation and global competitiveness. INTERVENTION: Investigate the development programmes for high level skills development and R&D at the Province’s HEIs, backed by clear industry input. Establish, through the assistance of DST, a scholarship fund for the intake of learners into these programmes. UCT’s Department of Materials Engineering has shown initiative in this regard through the development of a specialist honours programme. This intervention can be refined and driven within the framework of the Cape Initiative on Materials and Manufacturing. 6.5 Non-Ferrous Metals Industry 6.5.1 An R&D Facility / Programme on Non-Ferrous Metals Non-ferrous metals, especially those classified as light metals, are becoming increasingly important as input factors in the manufacturing supply chain of various industries such as the automotive and boat building industries. At the same time, it is important for companies in the Western Cape, and any region for that matter, to be supported by a specialist facility in the use of these materials in conversion and fabrication processes. The Western Cape has various niche markets which can employ non-ferrous metals, being exposed to a corrosive natural environment. INTERVENTION: The establishment of an R&D facility in non-ferrous metals, based at one of the existing institutions or R&D centres in the Province. This would most likely be in the form of a core facility networked into a number of other existing facilities with specialist capabilities, with the aim of delivering R&D support to value-adding industries. This intervention can be driven through the Cape Initiative on Materials and Manufacturing. 6.6 Metals Fabrication Industry 6.6.1 Mechanisms for Assimilation of State-of-the-Art Fabrication Technology The assimilation of key state-of-the-art fabrication technologies into the Western Cape Metals Fabrication Industry has been particularly slow, posing a serious impediment to competitiveness and compliance with world class standards. Such technologies include robotics, laser cutting, welding, materials handling, rapid prototyping, embedded labelling


48

and tracing technology, etc, as well as design and virtual engineering (simulation) technology. INTERVENTION: The establishment of a mechanism for the assimilation of state-of-the-art fabrication technology into the Metals Fabrication Industry. This mechanism should have two core functions. The first is that of technology transfer, through its own resources or through the linking of other institutions to the beneficiary company. This is similar to the function performed by the Technology Stations under DST’s Tshumisano Programme. It may be feasible to extend the existing Technology Station for Metals Value-Adding, based at Free State and Vaal Triangle Technikons, into the Western Cape. The second function would be to facilitate applications for industry development support from the DTI. The DTI has a host of industry support programmes such as the Sector Participation Fund aimed at supporting projects that will lead to the increased competitiveness of industry 6.6.2 BEE Enterprise Development Support Mechanism Owing to diverse markets and applications, the creation of new SMEs in the Metals Fabrication Industry is a real opportunity for job creation. In fact, there are numerous SMEs within this Industry in Western Cape who have not been accounted for in this Report, simply because they are not registered with any of the industry representative bodies. INTERVENTION: The establishment of an incubator, perhaps through the GODISA Programme, geared towards SME development in the Metals Fabrication Industry, linked into other support structures namely Ntsika, CapeMAC and Khula Trust. Special targets around BEE could be set to achieve the desired results as regards transformation. In addition to the above, the incubator should act as an initiator of larger BEE enterprises aligned with Government preferential procurement. 6.6.3 Strategic Framework for the Mobilisation of Local Companies on Large Scale Lead

Projects, with emphasis on Clustering Certain planned lead projects, such as the Pebble Bed Modular Reactor, the Kudu Gas Pipeline, and the planned upgrade of the existing rail system, should be used as opportunities for local economic growth. At the same time, the need for partnerships between companies must be recognised as a means to attain delivery capacity on such large and complex projects. Such partnerships could extend beyond the borders of the Western Cape and South Africa.


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In the past, large scale lead projects such as the construction of Koeberg and Mossgas were not met with the planned mobilisation of the local fabrication industry. A situation where related opportunities for local economic growth are not exploited cannot be allowed if real job creation is high on the agenda. INTERVENTION: The development of a framework for the mobilisation of local companies on large scale lead projects. This would imply the establishment of a dedicated desk within the Province’s Department of Economic Development which would be responsible for all levels of negotiations with key stakeholders of such lead projects. Such a framework/mechanism would lead to the establishment of networks for delivery, and at the same time addressing issues such as skills development, capacity building, resourcing, supply chain and finance. 6.7 Non-Destructive Testing Industry 6.7.1 Technology Transfer Facility for NDT The introduction of new technologies into the NDT industry has lead to local companies falling behind in the assimilation of these technologies. This includes the training of personnel on these new technologies. Such new technologies are necessary to meet the increasing standards of the NDT Industry, as shown by companies such as Gauteng-based AEA who is carrying out tests at Nylon Spinners. INTERVENTION: Investigate the need for a technology transfer facility in the form of a high tech NDT laboratory at one of the training institutes or the CSIR, connected to an existing materials or machining laboratory. Solicit the participation of manufacturers of high tech equipment in such an initiative, and approach organisations such as Koeberg, Mossgas and PetroSA for the funding of the laboratory. 6.7.2 Marketing Venture around the Region’s capability in the Fabrication of Offshore

Structures The potential for growth in the NDT Industry is apparent, driven by the demand for oil rigs in Africa and the need for NDT services within the local shipping industry. However, the region’s capabilities in these areas have not been successfully marketed, in particular the facility for rig construction at Saldanha Bay. INTERVENTION: Establish a forum of industry representatives in the area of fabrication/refurbishment of safety critical structures. These would include representatives from the NDT, Petrochemical and


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Shipping Industries, amongst others. Develop a marketing strategy for the procurement of large contracts, with emphasis on skills development and job creation. 6.8 Modelling & Simulation Industry 6.8.1 Establishment of Bureau/s for M&S The main obstacle in the assimilation of M&S technologies into the conversion and fabrication industries is the relative cost of these technologies. Even though these technologies are imperative for the development of a globally competitive industry, there usefulness is not fully understood due to a lack of knowledge by decision makers in industry. This means that companies specialising in M&S services are not likely to survive, operating in an unfriendly market with huge overheads. This problem exists / existed in other developing countries, a classical example being Taiwan. Through government assistance programmes, M&S bureaus were established, many of them linked to R&D centres and universities. These bureaus were equipped with commercial licenses of M&S products and the necessary skills, and had to work towards self-sustainability within a given time-frame. Without government support, the process of evolving M&S specialist companies and impacting on the industry will be too slow to ever reach the required levels of global competitiveness within the industry. INTERVENTION: Develop a business framework for the establishment of an M&S bureau for the Conversion and Tooling Industries, based on industry preferences, international best practice, and available skills. Translate this framework into a viable business plan for Government support funding. This is an opportunity for leveraging BEE funding and establishing a technology-based BEE company linked closely with the previously disadvantaged engineering-based HE institution in the Western Cape. This is definitely a viable option since the HR capacity and training infrastructure is already in existence.


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7. CONCLUSIONS AND RECOMMENDATIONS The interventions identified in the previous Section are summarised in the Table 7.1. The follow-on process would require the refinement of these interventions in consultation with a wider industry representative audience including the industry representative bodies. It is important to acquire such mandates, especially with endorsement from these industry representative bodies and, if possible, the industry chamber representatives within the relevant SETAs. This allows for easier access to resources from DTI, DoL and the SETAs. At the same instance, these processes of consultation and debate should ensure that the interventions remain aligned with National imperatives, and are therefore executable via Government mechanisms for technology development, skills development and industry development. The aforementioned process will also allow for the prioritisation of these interventions, in view of inevitable resource constraints.

Table 7.1 Summary of proposed interventions for economic growth – Western Cape

INDUSTRY Priority

Plastics Conversion Industry Incentives for Equipment Replacement

Tooling Industry Establishment of a Tool Delivery Network

Development of favourable Pricing Policies for Raw Materials

Metals Conversion Industry

An R&D facility/programme in Metals Conversion/Processing Technology

Iron & Steel Industry Research and Development in Metallurgy

Non-ferrous Metals Industry An R&D Facility / Programme on Non-Ferrous Metals

Mechanisms for Assimilation of State-of-the-Art Fabrication Technology

BEE Enterprise Development Support Mechanism

Metals fabrication Industry

Strategic Framework for the Mobilisation of Local Companies on Large Scale Lead Projects, with emphasis on Clustering

Technology Transfer Facility for NDT Non-Destructive Testing Industry Marketing Venture around the Region’s

capability in the Fabrication of Offshore Structures

Modelling & Simulation Industry Establishment of Bureau/s for M&S


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In addition to the industry-specific interventions identified, a number of Sebsector issues (generic to all the industries with variable degrees of salience), have been identified in the Subsector analysis carried out in Sections 3 – 5. Many of these overlap with the industry-specific key issues identified previously. These issues are listed as follows: (a) The removal of trade incentive measures, as required by global trade treaties, will

affect the business of companies in this Subsector. However, the actual details of these effects are not clearly understood, and this is necessary for companies to plan for the future.

(b) The Western Cape desperately needs the presence of an automotive OEM to act as a

catalyst for growth. Effort should be invested by Government to secure such a presence, within a wider strategic plan for industry development, economic growth and job creation.

(c) Government has not rallied behind the efforts of industry representative bodies in

organising and promoting the various industries, as is the case in many countries that have competitive manufacturing sectors. There is a need for Industry-Government forums at Provincial level, similar to the Strategic Investment Teams (SITs) at National Government level, aimed at establishing strategic interventions (as listed in Section 6). Coupled to this, there are no Provincial roadmaps for industry focus and development.

(d) The affect of high interest rates on industry profitability is a major impediment to

competitiveness and growth. (e) The technical skills base is gradually being eroded due to an aging workforce and the

shortage of appropriately skilled entrants into the workforce. This is of more concern now as Technikons (initially established to produce technologists through a system of vocational training in partnership with industry) are transforming into Universities. The Province’s capacity to implement the new learnership system is also questionable.

(f) Coupled to the previous issue, the existing training programmes are not industry

focused, placing a heavy burden on companies to retrain graduates. (g) There is still a very low percentage of persons from the previously marginalised groups

employed at technical and managerial levels. This indicates a slow rate of transformation and is partly a result of factors related to diversity.

(h) The Province does not have structures that assist companies, especially black-owned

enterprises, in technology transfer and productivity improvement within this Subsector. Compared to Gauteng and certain other provinces, this issue has been vastly neglected.

(i) The rate of infusion of new technologies across the Subsector has been slow, affecting

industry competitiveness as a result of low productivity and product quality. The


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solution of this problem is coupled to that of other issues raised, such as the need for technology transfer structures and the high cost of capital.

(j) Labour restrictions on working hours often leads to situations where delivery times on

orders cannot be met, forcing companies to turn down high volume orders. Furthermore, the labour regulations are not based on productivity criteria, placing a burden on companies to absorb productivity losses.

(k) The productivity per employee is still very low compared to other successful

manufacturing economies. (l) There is a lack of assimilation of modern, especially ICT-based, business systems. (m) Low labour costs are affecting the morale of employees, leading to an exodus to other

provinces. (n) Owing to the low levels of qualification of technical personnel, companies are not in a

position to add value to the high value-addition phases of manufacture. (o) There is a lack of local Government support to facilitate access to domestic markets

through trade deals and incentive schemes. (p) Besides the low response time, there is an inability by Government to assess technical

proposals. Both the industry-specific and Subsector-wide issues identified in this analysis present a complex web of growth barriers/impediments. To establish a manufacturing platform that is conducive to industry growth (the ideals of the Integrated Manufacturing Strategy) will require an integrated approach lead be strong industry/Government presence. Mechanisms for funding particular elements of such an integrated strategy exist, such the technology transfer and incubation mechanisms of as DTI and DST, the competitiveness improvement schemes of DTI, the occupational training incentives of MERSETA, the empowerment funds of the National Empowerment Fund and IDC, etc. The challenge is for local Government to lead the way in harnessing these mechanisms into an effective integrated strategy that would address the many issues identified in this analysis.

metals & engineering services subsector...historically, as far as the manufacturing sector is...

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