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MEMSA: Resurrecting South Africa’s industrialisation

While South Africa’s local manufacturing sector has suffered at the hands of imported goods, Mining Equipment Manufacturers of South Africa (MEMSA) CEO OSSIE CARSTENS believes that Mining Charter 3 has created a supportive environment for the reindustrialisation of South Africa.

This can be achieved through the growth and transformation of the local mining supply chain, writes CHANTELLE KOTZE.

This article first appeared in Mining Review Africa Issue 8, 2020
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Contrary to the mining industry’s concerns surrounding the Mining Charter’s local procurement requirements, which the industry believes is too onerous, Carstens views these requirements in relation to how they tie into the country’s development and transformation objectives.

The aim of these provisions was to strengthen the linkages between mining and local manufacturing, with the intent of encouraging entrepreneurs to participate in the mining industry’s value chain.

The Charter stipulates that mines should work towards a targeted 70% of goods procured be ‘South African manufactured’ with at least 60% local content by companies with transformed ownership structures; while a targeted 80% of services procured should be from black-owned, women or youth-owned and BEE compliant companies.

These levels are to be reached in progressive stages over a five-year period, and weighted points for each category would contribute to a mine’s compliance level. To be considered, the level of local content must be verified by the SABS.

The threshold to achieve compliance to the Mining Charter is low and achievable as the weighted procurement requirement can start from 0% if mines achieve their human resources and employment equity targets.

Despite the mining industry’s push back to date, Carstens believes that these local procurement targets become much easier to achieve when local Tier 1 – 3 suppliers become involved in the mining supply chain, meaning that local OEMs are less reliant on importing international parts, components and/or systems to manufacture their final products.

“Herein lies a whole host of new advantages in identifying companies to develop components locally that are fit-for-function,” says Carstens, noting that an unintended consequence of manufacturing locally is that the Intellectual Property is also held within the country and protects goods from being manufactured elsewhere – opening up export opportunities for local suppliers.

Because South Africa’s mining market is a shrinking market, MEMSA, together with the Department of Trade and Industry, is looking further afield to the neighbouring SADC market for local content synergies with a similar regional approach to local content provisions as set out in the Mining Charter.

This will also allow local manufacturers in the SADC market in developing their export capabilities within the region.

Regional resource-based industrialisation needed

The majority of African countries have mineral-dependent economies, with an average 60% dependence on mineral exports.

Because mineral resources are finite, Dr Paul Jourdan, an independent consultant on resource-based and spatial development strategies, points out the need to ensure equitable and optimal extraction of mineral resources and more importantly the establishment of mineral linkages while there are still mineral resources in existence to ensure broad-based sustainable growth and socio-economic development, while avoiding the formation of mining ghost-towns.

Jourdan’s sentiments echo the African Union’s African Mining Vision (AMV), which was adopted by Africa’s Heads of State Africa 10 years ago, with the aim to ensure transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development on the continent.

He explains that mining operations – because they themselves cannot be sustainable – need to be made indirectly sustainable by ensuring that the communities in which they operate are made sustainable, through the creation of mineral linkages.

In order to achieve the vision of the AMV, the deepening of all mineral linkages through the sustainable development of the resource input and output industries is critical, says Jourdan. These linkages include:

  • Downstream or backward linkages into mineral beneficiation and manufacturing;
  • Upstream or forward linkages into mining capital goods, consumables & services industries;
  • Side-stream linkages into infrastructure (power, logistics; communications, water) and skills and technology development (human resource development and R&D);
  • Mutually beneficial partnerships between the state, the private sector, civil society, local communities and other stakeholders; and
  • A comprehensive knowledge of its mineral endowment.

The pot of gold at the end of the tunnel are the lateral linkages which are achieved mainly through the backward linkages, explains Jourdan.

“Because capital goods manufacturing is highly reliant on knowledge-intensive research and development, these companies are often able to reapply these skills in resource independent areas with the manufacture of other similar capital goods, for example, the evolution of mining equipment manufacturing into earth moving or construction equipment manufacturing.

“This leads to the creation of lateral linkages over time and manufacturers are ultimately able to become independent of resource industries over time,” explains Jourdan.

Following the publication of the AMV, the Country Mining Vision was developed as a tool to facilitate the domestication of the AMV at country level. At this point it was recognised that very few countries in Africa have a big enough domestic market to realise these linkages.

Jourdan notes that because economies of scale work against African countries, the SADC Regional Mining Vision (RMW) was borne to support regional trade and industrialisation so that these linkages could more easily be realised.

From a local content perspective, the RMV would provide a framework of mutual recognition of local content among SADC countries, as it strongly supports localisation and regionalisation of mineral value chains, including mining supply chains.

As things currently stand, the SADC mining supply-chain is dominated by the importing of mining capital goods to the value of between US$3 and $6 billion a year – about $2 billion in South Africa alone, says Jourdan, noting that this leaves room for a massive import displacement opportunity that can be filled with local SADC content.

For this to work, Jourdan stresses the need to prevent industrial polarisation from taking place, in which the strongest economy dominates and limits the development of the weakest economy.

To combat this, Jourdan suggests the implementation of infant industry protection through the implementation of a financing mechanism that is biased in favour of the poorest nation.

To do this, Jourdan suggests the creation of a venture capital fund for local content industries (capital goods and consumer services) that is available to countries at the inverse of their GDP per capita for both their equity and debt.

Although the RMV was adopted in August 2019, it is yet to be implemented as it awaits approval from the Heads of State.

Its implementation would ensure that equipment manufactured in SADC, would be given partial credit and recognition as local content in other SADC countries, and vice versa – with credit dependant on a countries GDP per capita.

Chantelle Kotze
Chantelle Kotze is a Johannesburg-based media professional. She is a contributor at Mining Review Africa (Clarion Events - Africa) and has created content for the media brand over the past 6 years.