18 March 2016
Although the mining inputs cluster in Southern Africa, including capital equipment suppliers and the mining equipment sector in Zambia, is well integrated, more needs to be done to ensure mutually beneficial sustainability for all stakeholders, states University of Johannesburg-affiliated research and capacity development group the Centre for Competition Regulation and Economic Development senior associate Dr Judith Fessehaie.
She says South Africa is a regional supply hub for the mining industry because the country is highly competitive in terms of manufacturing and supplying mineral processing equipment.
Additionally, capital equipment companies in South Africa can customise and develop specific technologies to the specifications of mining companies, which is very important for companies to achieve their productivity and resource recovery goals, Fessehaie points out. However, Zambia’s mining inputs cluster is weak, as it consists mainly of agents and distributors, she states. In the 1990s, Zambia privatised its mining assets and adopted swift trade and investment liberalisation measures as part of its Structural Adjustment Programme.
The ownership structure of Zambia’s copper sector became more heterogeneous with the entry of mining houses from Canada, Europe and Australia, as well as China and India. “Past protectionist policies were dismantled very quickly, with little time for suppliers to adjust, and the mining companies were no longer bound to preferential procurement policies,” Fessehaie notes.
She explains that, while a few firms seized the opportunities of a larger customer base by upgrading and specialising, a large part of Zambia’s manufacturing capacity was lost and many firms exited the mining value chain; they have subsequently been replaced by importers, most of which are not specialists and do not contribute to local value addition. Meanwhile, according to the South Africa Capital Equipment Exports Council, South Africa’s total exports of mining capital equipment increased from R10-billion in 2005 to R46.2-billion in 2014. By contrast, the recapitalisation of the Copperbelt mines since the second half of the 2000s underlies Zambia’s large imports of capital equipment.
Fessehaie notes that foreign direct investment (FDI) stock into Zambia has increased from about $4-billion in 2000 to $14-billion in 2013. “The mining sector has absorbed the lion’s share of Zambia’s inward FDI,” she says, adding that $933-million out of $1.7-billion in FDI flows in 2012 targeted mining, bringing the total 2012 FDI stock into the mining sector to $9-billion. During the latter part of the 2000s, South Africa ensconced itself as Zambia’s main source of imports for mining capital equipment, she states.
However, Fessehaie contends that two key challenges have developed for South African companies. Firstly, the competition for market share in Zambia has increased significantly, owing to the arrival of European, Chinese and Indian capital equipment suppliers, among others. European, American and other established original-equipment manufacturers (OEMs) can also often offer attractive customer finance and aftermarket packages, which South African OEMs struggle to provide on the Copperbelt. Moreover, OEMs from emerging countries can undercut South African suppliers’ prices significantly. This is eroding South African companies’ dominance in the country.
Nonetheless, Fessehaie says South African companies are still responsible for supplying between 50% and 60% of certain capital equipment goods to the Southern Africa region, but points out that this has decreased by about 10% to 20%. “I think this is very critical period for South Africa and the region broadly, as the mining industry’s regional players need to rethink their approach to the capital equipment market, as it will continue to play an important role in the regional value chain.” Therefore, Fessehaie says, regional cooperation should build on existing regional links across South Africa, Zambia and the Democratic Republic of Congo (DRC).
She believes that a regional strategy to increase value addition in South Africa and Zambia should include building a regional market across South Africa, the Zambian Copperbelt and the DRC Copperbelt, and improving links between the South African and Zambian mining inputs clusters. Fessehaie says Zambian and South African suppliers are using the Zambian Copperbelt as a basis to participate in the DRC mining supply chain. International OEMs find the DRC “too risky” to consider a solid market presence; therefore, the DRC Copperbelt offers an opportunity for Zambian suppliers to acquire larger economies of scale, Fessehaie contends.
This, in turn, implies that South Africa-based OEMs have more incentives to increase the value-added content of their activities on the Zambian Copperbelt, she says. “It is also critically important that South African OEMs invest in establishing a value-added presence in Zambia, which must include the upskilling of locals and using local goods and services wherever possible.
“This will improve market opportunities for South African OEMs on the Copperbelt and increase demand for goods, engineering services and technological innovation from their parent companies in South Africa. “This will ensure a win-win situation and the sustainability of South African business operations in Zambia and the DRC, thereby improving the image of South African businesses in the region,” Fessehaie concludes.
This article was published in the Mining Weekly: http://www.miningweekly.com/article/copperbelt-capital-equipment-supply-must-be-mutually-beneficial-to-ensure-sustainability-argues-researcher-2016-02-12