NEWS // All the latest

Exports seen as key to improving prospects for SA capital equipment manufacturers

Posted on Friday, 17th Jun 2016

Saceec has divided the South African capital equipment industry into five strategic segments – agriculture, mining, building and construction, processing industries (such as agroprocessing, chemicals and motor manufacturing) and utilities (such as Eskom and Transnet). The largest segment is mining, representing as much as 80% of the capital equipment industry, owing to the vast amount of capital equipment required and the historic size of the market.

Saceec co-CEO and director Chris Beyers says the capital equipment industry in South Africa has been stagnant since early 2015. This perception also depends on “how you look at the industry”, he adds, because users still require capital equipment, such as valves, pumps and conveyor systems, for essential business operations. He predicts that any form of significant upswing will “hopefully” occur by the end of the year, or early in 2017.

To a large extent, difficulties in the industry have been caused by a slowdown in the manufacturing capacity of China and its subsequent dumping of metals and other Chinese-made goods, as well as the low prices of mineral commodities, which has forced many mining companies to drastically cut spending.

To a lesser extent, the issues associated with dampened productivity in the local steel industry are also affecting local equipment manufacturers, with volatile pricing and stock uncertainty resulting.

Saceec co-CEO and chairperson Eric Bruggeman says every industry has been affected by the challenging times in the industrial and mining sectors, adding that the country suffers when the mines do not grow: “South Africa is a mining-orientated country . . . when the mines prosper, then the majority of other industries prosper.”

Further, he notes that the situation is being compounded by the recent, severe drought in South Africa, as well as in other regions of the world (as a result of the effects of El Niño), which severely impacted on the agriculture industry, increasing the cost of food.

Beyers says markets have also been affected because of China’s industry growth exceeding initial expectations, adding that markets in the US are erring on the side of growth, but are yet to have an impact. However, he says, when emerging economies are still under strain, this has a ripple effect worldwide, and developed markets will take longer to regain any significant sense of normal functioning.


According to Saceec, it is not all doom and gloom for domestic equipment manufacturers. Beyers says the tough economic conditions in the market have proved that, when domestic markets are struggling, export channels can be a lifeline for South African equipment manufacturers, citing Saceec members as an example. Members who have established export channels are dealing better with the current situation than those without export channels that rely solely on domestic orders.

The domestic market is currently flat, notes Bruggeman, and this results in sales targets not being met, straining manufacturers’ budgets and negatively affecting the efficiency of local production lines.

He says capital equipment markets comprise the new market (where brand-new equipment is required), the spares market and the after- market, or after-sales support market. It is currently common practice to use “ageing spares on ageing equipment” as a cost-cutting measure, thereby increasing the likelihood of breakdowns and of equipment becoming unreliable, as companies with strained budgets cannot afford new spares, Bruggeman explains. Replacing old equipment with new equipment is becoming increasingly uncommon, he adds.

Further, Bruggeman states that the perception of a weak rand possibly helping to attract orders from overseas clients is false: “A weak rand is unattractive to overseas buyers because [it] is currently volatile, thereby making it difficult for local manufacturers to quote on large orders and deliver on recent historical orders.”

These orders, he adds, might have been priced too low at the time of quotation and, therefore, could lead to a loss for a company if the rand weakens further after quotation.

The currency issue is also exacerbated by the capital equipment industry having long lead times, from the stages of interest to quoting, ordering and manufacturing, which add other complications.

What South Africa really needs, Bruggeman says, is stability in its economy: “If our economy is volatile, then our domestic markets are going to be volatile.” However, Beyers says the economic climate of the rand should not be the focus of local manufacturers in their quest to be competitive and attract domestic and foreign orders. To improve the competitiveness of South African-manufactured equipment, he suggests there needs to be (among others things) a competitive steel price in South Africa. This scenario is, however, not the situation in the current market, and “most probably not what we are going to get any time soon”, Beyers adds.

The overall reputation of South African-made equipment in many international markets as being of high quality, with good after-sales support, stands the country in good stead. “Many markets rely on South African manu- facturers for replacement parts because they last longer than the original parts provided by the original-equipment manufacturer,” says Beyers, adding that South African manufacturers do not base sales on price sensitivity, but instead they target niche markets that require highly specialised products.

The perception that products from South Africa are highly engineered and of good quality stems from the industrial and mining conditions for which such products were designed and developed. South Africa operates the deepest mines in the world under hot and humid conditions, with some of the hardest rock currently mined at some of the steepest inclines. These conditions require pioneering technologies, such as high-pressure valves, specialised mining vehicles and custom-built ventilation systems that are not used anywhere else in the world, Beyers explains. Supplying the local industry with highly specialised equipment has also led to many South African manufacturers developing good after-sales support and frameworks for providing customers with fast turnaround times to reduce equipment downtime. Bruggeman notes his recent attendance at a Chilean mining trade exhibition, where Chilean customers expressed great satisfaction with equipment bought from South African manufacturers.

Local manufacturers are also benefiting from their small production scales, which enable them to focus on specialised products instead of mass production. “When equipment is specialised, price becomes less of a determining factor in purchasing options,” he says.


Fit-for-purpose financing platforms, known as Exim (export-import) banks, would greatly assist the local manufacturing of capital equipment for export markets, as these banks offer pre- and postshipment financing with competitive interest rates. “It is common practice worldwide to do pre- and postshipment finance, but, in South Africa, exporters need to go to a regular bank to acquire such finance, which brings local bank interest rates into the equation,” says Bruggeman, adding that such high interest rates are subsequently factored into the price of exported products. Beyers says efforts are under way to investigate methods of establishing a local Exim bank facility. This will enable local exporters to borrow money from a specialised bank at a lower interest rate, thereby making South African products more competitive in the international market. Ideally, the interest will come from another State department, such as the Department of Trade and Industry (DTI) or the National Treasury.

However, such departments, chiefly the DTI, are providing satisfactory levels of assistance, including communication platforms, arranging trade shows and exposure to foreign markets. There is definitely enough assistance and encouragement from the DTI regarding international trade missions, outward selling and inward buying missions, says Bruggeman. Beyers notes that the DTI is doing well in terms of fulfilling its mandate to assist industry, adding that there is marked improvement in terms of working relationships between the different clusters and the DTI.


Bruggeman highlights Saceec’s 24-point plan, which helps to develop companies and prepares them for export. Under the plan, market research is conducted in various countries, members are trained in handling overseas exhibitions, business-to-business meetings are conducted, overseas trade missions are hosted and local selling missions are arranged, among other functions. Much of Saceec’s assistance framework hinges on communication, which allows members to gain a better understanding of the international markets from other members, he says.

“Saceec is fortunate to have developed a good relationship with many overseas companies and many of the large mines, thereby enabling it to exploit these foreign channels to promote and extend the reach of its members,” says Bruggeman. The council can easily facilitate meetings between overseas companies and Saceec members to fast-track purchase agreements and gain exposure for locally made products, he adds.

Saceec also offers its members the service of being audited in terms of readiness to export, whereby Saceec determines if a local manufacturer has the appropriate measures in place to successfully enter the export market. Advice is offered where there can be improvement, thereby accelerating members’ turnaround times for export readiness on a sustainable basis. 



Posted in Equpment Export News

« Back to news

Our Clients

/ Cancel