1

2015

KZN Manufacturing Indaba21 July 2015

Inkosi Albert Luthuli International Convention Centre

2

In 2007 Government adopted the National Industrial Policy Framework (NIPF), and its practical implementation plan - the IPAP - as its guiding approach to industrialisation

IPAP aligned itself with the overall vision and perspectives set out in the National Development Plan (NDP) of 2012; and remains in line with the job creation strategy advocated in the New Growth Path (NGP)

IPAP is linked to the NDP as follows: NDP highlights the need for SA to develop a more competitive and diversified economy,

with a deepening productive base in mining, agriculture, manufacturing and associated services

NDP recognises that successful resource exploitation and development are critically dependent on the coherence of shared local and regional investment and regulation policy

NDP advocates for the need to move steadily away from an exchange rate linked primarily to commodity prices, towards one based on the sophistication of SA’s overall export basket

CONTEXT: 1

2015

3

The manufacturing sector’s contribution to SA GDP declined sharply from 20.9% in 1994 to 11.6% by 2013, whilst the mining sector’s share increased from 7.3% to 9.2%.

Sectoral composition of the South African economy

2015

Agriculture, forestry &

fishing, (4.6%) Mining & quarrying, (7.3%)

Manufacturing, (20.9%)

Electricity, gas & water, (3.6%)

Construction, (3.1%)

Transport, storage &

communication, (8.7%)

Community, social & personal services, (5.3%)

Wholesale, retail & motor trade,

catering & accommodation,

(14.2%)

Finance, retail estate & business

services, (16.1%)

General government,

(16.2%)

Sectoral composition of the South African economy, 1994Agriculture, forestry &

fishing, (2.4%)Mining &

quarrying, (9.2%)

Manufacturing, (11.6%)

Electricity, gas & water, (3.0%)

Construction, (3.7%)

Transport, storage &

communication, (8.9%)

Community, social & personal services, (6.0%)

Wholesale, retail & motor trade,

catering & accommodation,

(16.6%)

Finance, retail estate & business

services, (21.5%)

General government,

(17.1%)

Sectoral composition of the South African economy, 2013

Source: SARB, IDC, the dti

4

Services sectors have been driving economic growth in South Africa (finance, ICT, business services). Manufacturing sector registered strong growth over 2004-07 due to robust export growth and solid growth in domestic demand.

Trends in GDP composition per sector

2015

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2000000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

GVA

(Con

stan

t 20

10 p

rices

, R m

illio

ns (

Perio

d))

Year

Primary sector Secondary sector Tertiary sector

11%

21%

68%

Gross value added, 2014

Primary sector, (11%)

Secondary sector, (21%)

Tertiary sector, (68%)

Source: SARB, IDC, the dti

5

South Africa’s manufacturing industry is dominated by three sectors: namely food & beverages, petroleum & chemical products, and metals & machinery. These three sectors account for two thirds of total manufacturing production..

Trends in the manufacturing industry

2015

Furniture & other, (11.0%)

Food, (16.8%)

Textiles & clothing, (7.0%)

Wood & paper, (9.7%)

Chemicals, (18.6%)

Non-metallic mineral

products, (4.1%)

Metals & machinery,

(20.6%)

Electrical machinery,

(3.0%)

Radio & TV, (1.5%)

Transport equipment,

(7.7%)

Contributors to the manufacturing industy, 1993

Furniture & other, (6.5%)

Food, (24.5%)

Textiles & clothing, (2.9%)

Wood & paper, (8.8%)

Chemicals, (21.1%)

Non-metallic mineral

products, (3.6%)

Metals & machinery,

(20.5%)

Electrical machinery,

(2.7%)

Radio & TV, (1.4%)

Transport equipment, (8.1)

Contributors to the manufacturing industy, 1993

6

Manufacturing value addition and import leakage

2015

Source: SARB, IDC, the dti

40

45

50

55

60

65

70

75

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Man

ufac

turin

g im

port

s & e

xpor

ts (a

nnua

l %

grow

th)

YearManufacturing exports (% of merchandise exports)

Manufacturing imports (% of merchandise imports)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

10

12

14

16

18

20

22

24

2002 2003 2004 20052006 2007 2008 20092010 2011 2012 20132014

Man

ufac

turin

g im

port le

akag

e (a

nnua

l gro

wth

%)

MVA

(% o

f GDP

)

Year

Manufacturing import leakage (SIC 3) Manufacturing, value added (% of GDP)

7

SA changing trade patters

2015

Automobiles (26.1) Platinum (11.6) Rhodium( 5.9)Palladium (5.3)

Iron ore(45.9) Coal (7.0) Chromium ores (10.9) Ferro-chromium (8.9)

Region/Country Share of Exports (%) Main Products (%)

Commodity

Manufactured

Total

5.5

13.6

9

Commodity

Manufactured

Total

17.1

25.7

21.6

Commodity

Manufactured

Total

19.7

5.813

Commodity

Manufactured

Total

11.55.2

8.4

Commodity

Manufactured

Total

3.3

22.4

12.9

Purifying Machinery (11.4) Platinum (7.1)Coal (7.0)Automobiles (6.2)

Aviation spirit (6.1) Iron & Steel (3.6) Electrical energy (2.1) Diesel trucks( 5.3)

Platinum (37.5) Iron ore (11.8) Aluminium (4.8) Ferro-chromium (4.8)

• South Africa’s trade patterns have changed in response to global growth trends

• Emerging Markets and SADC share in South Africa’s export basket is rising:– SADC absorbed 13% of South

Africa’s exports in 2011– almost a quarter of

manufactured exports destined to SADC

– exports to China increased to 13% in 2011 (averaged 4.2% between 2005-2008)

• Share of exports to the European Union declined from 33% in 2005 to 21.6% in 2011

Source: the dti, StatsSA, SARB, SA National Treasury

8

Provincial contribution to the National GDP, 2014

2015

Source: SARB, IDC, the dti

GP, 35.2%

KZN, 15.8%

WC, 13.9%

EC, 7.4%

LP, 7.1%

MP, 6.8%

NW, 6.5%

FS, 5.1% NC, 2.2%

9

Manufacturing contribution to provinces’ GDP, 2014

2015

Source: SARB, IDC, the dti

13.5%

15.8%

11.8%

12.2%

2.5%

4.4%

6.5%

8.5%

2.1%

0.0% 5.0% 10.0% 15.0% 20.0%

GP

KZN

WC

EC

LP

MP

NW

FS

NC

10

Composition of the KZN economy, 2014

2015

Source: SARB, IDC, the dti

16.5%

15.8%

13.3%15.5%

11.9%

5.8%

1.9%3.0% 3.8%

Finance, retail estate & business services,(16.5%)Manufacturing, (15.8%)

General government services, (13.3%)

Wholesale, retail & motor trade, catering& accommodation, (15.5%)Transport, storage & communication,(11.9%)Personal services, (5.8%)

Mining & quarrying, (1.9%)

Construction, , (3.0%)

Agriculture, forestry & fishing, (3.8%)

11

KZN share of employment by industry

2015

Source: SARB, IDC, the dti

10.8%

14.3%

22.2%

22.6%

7.0%

8.4%

0.2%

9.8%

3.8%

0.9%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Finance, retail estate & business services

Manufacturing

Community and social services

Wholesale, retail & motor trade, catering &accommodation

Transport, storage & communication

Private households

Mining & quarrying

Construction

Agriculture, forestry & fishing

Electricity, gas & water

12

DIVERSIFY THE ECONOMY

Provide strong support for value added

manufacturing, especially in

globally competitive

non-traditional tradable goods

and services

PROMOTE A LABOUR-

ABSORBING INDUSTRIALISATIO

N PATH - with systematic development of

employment- creating linkages and multipliers

Industrialisation model focused on

INCLUSION OF HISTORICALLY

DISADVANTAGED PEOPLE AND

REGIONS

Contribute towards INDUSTRIAL

DEVELOPMENT IN AFRICA

- focused on infrastructure,

productive capacity and expanded

trade for regional economic

integration

Long term intensification

of South Africa’s

industrialisation process and

movement towards a

KNOWLEDGE ECONOMY

CORE OBJECTIVES OF THE IPAP

2015

2015 13

IPAP: TRANSVERSAL FOCUS AREAS

Transversal Focus: Procurement Government purchasing power through public procurement contributes between

15% and 25% to GDP (value that is extracted from large scale procurements) National Industrial Participation Programme (NIPP): Imported Content => US$10

million Defence Industrial Participation: managed by Armscor and applicable to all

defence procurement. Imported Content => US$2 million Competitive Supplier Development Programme (CSDP): managed by DPE in

conjunction with State Owned Companies (SOCs) .

Designation & Local Production The Renewable Energy Independent Power Producer Procurement Programme

(REIPPPP) The Local Procurement Accord

142015

Designated sectors

152015

Minimum Local Content

ThresholdsDescription Date

1. Rail Rolling Stock 65% 16-07-122. Power Pylons 100% 16-07-123. Bus Bodies 80% 16-07-124. Canned/Processed Vegetables 80% 16-07-125. Textile, Clothing, Leather and 16-07-12 Footwear Sector 16-07-126. Solar Water Heaters (collectors and storage tanks/geysers)7. Set-top Boxes 30% 26-09-128. Certain Pharmaceutical Products Per Tender 07-11-129. Furniture Products 85% 15-11-1210. Electrical andTelecom Cables 90% 08-05-1311.Valves Products and Actuators 70% 06-02-1412. Working Vessels 10-100% 01-08-1413.Residential Electricity Meters 50-70% 01-08-14* Instruction notes already circulated by the National Treasury

70% 19-07-12

Sectors Already Designated*

100%

Transversal Focus: Industrial Financing

162015

CLUSTER INCENTIVE SCHEME

BROADENING PARTICIPATION

• Black Business Supplier Development Programme (BBSDP)• Co-operative Incentive Scheme (CIS)

COMPETITIVENESS INVESTMENT

• Sector Specific Assistance Scheme (SSAS)• Export Marketing & Investment Assistance (EMIA)

MANUFACTURING INVESTMENT

• Manufacturing Investment Programme (MIP)• Capital Projects Feasibility Programme (CPFP) • 12i Tax Incentive• Automotive Incentive Scheme (AIS)

SERVICES INVESTMENT • Film & Television Production • Business Process Services (BPS) • Tourism Support Programme (TSP)

INFRASTRUCTURE INVESTMENT

• Critical Infrastructure Programme (CIP) • IDZs

Transversal Focus: Industrial Financing

172015

R2 billion has been allocated over the MTEF period to manufacturing development incentives and support for growing industries, such as business process outsourcingThe Manufacturing Competitiveness Enhancement Programme (MCEP) will spend R5.4 billion over the MTEF and will assist companies with financial support to upgrade production facilities • MCEP is the biggest manufacturing incentive and

supports response to companies impacted by structural and cyclical economic changes

• Deployed towards upgrading competitiveness of labour intensive and value-adding manufacturing sectors

• Grant finance with clear rules-bound access criteria

• Maximise employment and value-added potential in key sectors

• Exclusions: sectors with dedicated support programmes

Transversal Focus: Special Economic Zones & Regional Industrial Clusters

182015

• Budget allocation of R3.53bn over MTEF for SEZ’s

• Promote creation of a regionally diversified industrial economy

• Establish broader range of industrial parks and infrastructure for effective clustering and hubs

• A dedicated and integrated legislative framework to enable effective regulation and management

• The Work Programme of the Regional Economic Communities: joint infrastructure development and development of regional value chains

• Cross-border infrastructure and sector development

IPAP: SECTORAL FOCUS AREAS 1

192015

TRADITIONAL SECTORS AND SERVICES

IPAP: SECTORAL FOCUS AREAS 3

202015

ADVANCED, ELECTRONIC & NICHE SECTORS

Sectoral Focus: Automotives

21

Continuous support for OEMs and local component suppliers through the revised Automotive Production and Development Programme (APDP)

The ASCCI-driven intervention which involves the identification of products or component groups for localisation as well as the creation of focused Action Plans to give practical impetus to the localisation drive

Stepped up work on African integration across the full auto sector value chain

2015

IPAP: SECTORAL FOCUS AREAS 2222015

MINERALS AND ENERGY

Energy challenges and impacts on the economy

232015

0

5

10

15

20

25

30

35

40

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

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1988

1990

1992

1994

1996

1998

2000

2002

2004

/05

2006

/07

2008

/09

Elec

tric

ity p

rice

(c/k

Wh)

Eskom Average Price, from annual financial statements and statistical yearbooks Real price 2009 base year

Rising electricity prices CO2 Emissions and GPD in Selected Countries ( 1971-2011)

Energy intensity and GPD in selected countries (1971-2011)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000

TPES

per

Cap

ita (t

oe)

GDP per Capita (US$)

China Germany India Spain South Korea South Africa Malaysia Source: Nersa, IEA, own calculations

Sectoral Focus: Green industries

24

Green Transport – develop policy for production of compressed natural gas (CNG), biomethane-fuelled and electric vehicles

REIPPPP – Leverage procurement and designation of solar photovoltaic energy inputs into the national grid

Scale up Industrial Energy Efficiency Programme

Eco-labelling development programme - development and accreditation of one new occupational qualification per annum

Green skills programme - stimulating demand and supply of critical and scarce “Green Skills’

Develop of model policy and regulations to support biogas and natural gas use in transport

2015

Sectoral Focus: Primary Minerals Beneficiation and Construction

25

Investment in mining and petroleum beneficiation projects will receive R2.7bn over MTEF

Development of Mineral Beneficiation Action Plans (MBAP) will unpack the Minerals Beneficiation Strategy (2011) and give specific policy guidance with regard to wide-ranging minerals beneficiation

Targeted support measures to increase the supply of mining capital goods (plant, machinery, after-market) that can unlock and deepen capital goods manufacturing industries in SA for local consumption and export into key markets

Strategic input into the legislative review of the Mining Charter (2010) to include the recognition and reward of local content

Expansion of the PGM beneficiation industry - aiming to catalyse practical collaboration between the local mining industry, fuel cell OEMs and component manufacturers and potential public and private users

2015

262015

Thank you