In 2018, I sat on a panel at The Manufacturing Indaba alongside Ulrich Kienle, Director and Vice Chairman at the Mining Equipment Manufacturers of South Africa (MEMSA). Ulrich said that, at the time, South Africa’s mining sector imported US$2 billion worth of inputs per annum, while the Southern African Development Community (SADC) imported a further US$ 2 billion worth of inputs.
4 Billion Dollars were being invested in industrialisation, but I struggled to see where the value of these investments materialised in the real economy.
This led me to ask the following questions:
- Why didn’t we see [and are we still not seeing] a greater push for the establishment and improvement of production facilities?
- How can it be that we did not notice more jobs coming onshore on the back of these investments?
I believe that we are dealing with a “message in a bottle” scenario.
Explained simply: The value of these investments gets trapped (and in a South African context, sometimes lost) somewhere in the chain of implementation. Often it floats about, and even when it reaches the shore it stays stuck. Today, nearly 3-years after the Manufacturing Indaba in 2018, I want to help you understand that there are typically four major bottlenecks that exist when it comes to the on-the-ground activity and implementation of the inputs of major industrial investments:
- Project identification and selection: The Mining Phakisa and MEMSA have identified a list of commodities for which localisation would be feasible. However, when industry-wide buying power comes to play, a staged approach to selecting these projects is likely, leaving many other opportunities on the shelf (or trapped in the bottle).
- Project preparation: Identifying and selecting a project is a big step, but only then does the hard work begin. Preparing the commercial, technical, and financial feasibility of the project into a real business takes time, effort, and capital. The interaction between strategic and sector specialists, financial engineering, negotiations, legal contracting, and stakeholder relations often gets overlooked. Project preparation can take months before a project is deemed “bankable” to investors and financiers, again leaving the value of the project trapped.
- Finding the “Black Industrialist” jockey: This component is part of the project preparation and the bankable feasibility process, but I’ve specifically highlighted it is a separate item. With the pressures from the mining charter and Department of Mineral Resources, this item is key for market sustainability (procurement from the mines). It simply doesn’t make commercial sense to underplay the importance of Black Industrialists in a South African context. Many capable and ready key individuals could take this seat, but those capable and available, often lack either the time or the money and collateral to be placed in this “prestigious” position. Not addressing this element will unravel an otherwise perfect localization opportunity. It helps to know what you’re looking for. Headhunt the perfect jockey for your mustang project, they’re out there.
- Capital raising: Without reaching financial close and having the access to capital necessary to implement projects, the projects remain conceptually sound but simply that – a concept. Raising capital is both an art and a science. You will have to combine the right sources of capital for the project you are embarking on. You can expect to face intensive – yet high – key man risk and credit profiling associated with “Black Industrialists” and “New Entrants”.Structuring and engineering capital raised is likely to include a combination of incentives such as The Black Industrialist Scheme (BIS), preferential loans, equity or mezzanine finance through development financial institutions, ESD and private equity financiers can be complex and know-how of such capital structures is limited in the market.
The 2018 updates to the Mining Charter pushed several targets including 70% BEE Mining Goods supply, diverse and skilled Boards of Directors and procurement executives responsible for business sustainability and Enterprise and Supplier Development (ESD).
2020 was a great year for mining activity in South Africa and the sector as a whole was a bright spark in the struggling economy.
It is time to break the glass and get rid of the bottlenecks. To get to the message in the bottle we need to start unlocking opportunities to onshore supply or forever risk the missed opportunity.