South Africa has developed an established, diversified manufacturing base that has shown its resilience and potential to compete in the global economy.
The manufacturing sector provides a locus for stimulating the growth of other activities – such as services – and achieving specific outcomes, such as employment creation and economic empowerment. Manufacturing presents an opportunity to significantly accelerate the country’s growth and development.
This sector contributed 16,2% of the annual GDP in 2008, making it the second largest contributor to the nation’s economy.
Manufacturing is dominated by industries such as agroprocessing, automotive, chemicals, information and communication technology, electronics, metals, textiles, clothing and footwear.
South Africa exhibits a wide range of climates – from semi-arid and dry, to sub-tropical. As a result, a variety of crops, livestock and fish are to be found.
This industry spans the processing of freshwater aquaculture and mariculture, exotic and indigenous meats, nuts, herbs and fruit. It also involves the production and export of deciduous fruit; production of wines for the local and export market; confectionary manufacturing and export; and the processing of natural fibres from cotton, hemp, sisal, kenaf and pineapple.
World-class infrastructure, counter-seasonality to Europe, vast biodiversity and marine resources, and competitive input costs make the country a major player on the world’s markets.
Preferential trade agreements, such as the Africa Growth and Opportunity Act (AGOA) for the US market, and a free trade agreement with the European Union confer generous benefits.
The automotive industry is one of South Africa’s most important sectors, with many of the major multinationals using South Africa to source components and assemble vehicles for both the local and international markets.
South Africa’s automotive industry is a global, turbo-charged engine for the manufacture and export of vehicles and components. The sector accounts for about 10% of South Africa’s manufacturing exports, making it a crucial cog in the economy.
The government has identified the automotive industry as a key growth sector, with the aim of increasing vehicle production to 1.2-million units by 2020, while significantly increasing local content at the same time.
The sector has exhibited significant growth under the Motor Industry Development Programme (MIDP). Introduced in 1995, the programme will be gradually phased out until 2012. Its successor, the Automotive Industry Programme, has been developed to stimulate production of automotive vehicles and components in South Africa and to encourage the expansion of motor-industry investment and employment.
The automotive and components industry is perfectly placed for investment opportunities. Vehicle manufacturers such as BMW, Ford, Volkswagen, Daimler-Chrysler and Toyota have production plants in the country, while component manufacturers (Arvin Exhaust, Bloxwitch, Corning, Senior Flexonics) have established production bases here.
The industry is largely located in two provinces, the Eastern Cape (coastal) and Gauteng (inland). Companies with production plants in South Africa are placed to take advantage of the low production costs, coupled with access to new markets as a result of trade agreements with the European Union and the Southern African Development Community free trade area. Opportunities also lie in the production of materials (automotive steel and components).
- National Association of Automobile Manufacturers of SA
- Automotive Industry Export Council
- Automotive Industry Development Centre
Image: The Volkswagen South Africa plant in Uitenhage is the largest vehicle factory in Africa.
Photo: Volkswagen South Africa, MediaClubSouthAfrica.com
South Africa’s chemicals industry, including fuel and plastics fabrication as well as pharmaceuticals, is the largest of its kind in Africa, and has been identified by the government as a key driver of economic growth.
It dominates manufacturing in South Africa, adding more value to the economy than any other sector and accounting for over half the jobs created by manufacturing as a whole.
While the industry remains dominated by local companies, a number of multinationals have local distribution points and several have become involved in local manufacture.
The South African chemicals sector has two noticeable characteristics. Firstly, while its upstream sector is concentrated and well developed, the downstream sector – although diverse – remains underdeveloped. Secondly, the synthetic coal and natural gas-based liquid fuels and petrochemicals industry is prominent, with South Africa being the world leader in coal-based synthesis and gas-to-liquids technologies.
The primary and secondary sectors are dominated by Sasol (through Sasol Chemical Industries and Sasol Polymers), AECI and Dow Sentrachem. These companies have recently diversified and expanded their interests in tertiary products, especially those with export potential.
The local industry is biased towards an internationally competitive upstream sector, neglecting a downstream sector that has great potential for development. Reversing this bias will help the industry to increase beneficiation (or value-addition), exports and employment. Downstream production is more labour-intensive, and pulls in a larger number of smaller firms.
Beneficiation is key to this strategy. South Africa has a natural advantage in mineral feedstock, but most of these are exported in raw form. However, there are substantial opportunities to convert these materials, using local labour and capital, into value-added inorganic chemicals for export.
The government and industry are also working together to find ways of exploiting untapped resources, such as large reserves of fluorine.
- Department of Trade and Industry
- Chemical Industries Association
- South African Chemical Institute
- Plastics Federation of South Africa
South Africa’s large, well-developed metals industry, with vast natural resources and a supportive infrastructure, represents roughly a third of all South Africa’s manufacturing.
It comprises basic iron ore and steel, basic non-ferrous metals and metal products. The basic industries involve the manufacture of primary iron and steel products from smelting to semi-finished stages.Primary steel products and semi-finished products include billets, blooms, slabs, forgings, reinforcing bars, railway track material, wire rod, seamless tubes and plates.
The primary steel industry is a significant contributor to the economy and earns considerable amounts of valuable foreign exchange.
In 2008, South Africa ranked 21st among the crude-steel producing countries in the world – producing in the region of 1% of the world’s crude steel. South Africa is also the largest steel producer in Africa: it is responsible for more than half of the total crude steel production of the continent. Total South African crude steel production is around 9-million tonnes per year.
ArcelorMittal SA, formerly Iscor and now part of global steel company ArcelorMittal, is South Africa’s largest steel producer. Other industry players are Scaw Metals, Cape Gate, Columbus Stainless Steel, Highveld Steel and Vanadium and Cisco.
The international and local steel industry has changed dramatically over the past two years. Several steel companies have fallen away and protectionism has increased.
To survive in these harsh conditions, the South African primary steel industry has taken major steps to become more efficient and competitive. Many local steelworks have engaged in restructuring and productivity improvements.
South Africa’s non-ferrous metal industries comprise aluminium and other metals (including copper, brass, lead, zinc and tin). Aluminium is the largest sector but, as South Africa has no commercially exploitable deposits, feedstock is imported. South Africa is ranked eighth in world production of aluminium. Key players include Billiton (with smelters in Richards Bay) and Hulett Aluminium.
Other non-ferrous metals have a lesser role, but are still important for exports and foreign exchange earnings. Although the country’s copper, brass and bronze industries have declined, it is hoped that new mining and reclamation technologies will allow the exploitation of previously unviable deposits.