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Western Cape metals and engineering cluster well-positioned to fuel growth investment

Western Cape metals and engineering cluster well-positioned to fuel growth investment

The Western Cape metals and engineering cluster is well-positioned as a hub to fuel growth and attract foreign direct investment into South Africa and across the African continent. The Western Cape has the capacity to increase its current exports and supply a wide range of metals and engineering solutions to Europe, the US, as well as the relatively untapped African market.

These are some of the findings of a recent publication entitled ‘Made in Africa: Western Cape Metals and Engineering’ compiled jointly by PwC, Wesgro and the City of Cape Town. The publication focuses in particular on the metals and engineering cluster within the manufacturing sector. This cluster is characterised by a high level of innovation, specialised knowledge and niche manufacturing capabilities that supply most industries and sectors with machines, production systems, components and associated services.

Tertius van Dijk, PwC Deals Partner, says, “The Western Cape is broad and diversified in terms of manufacturing activity. The metals and engineering cluster is poised for further sustained growth and the development of both the regional and national economy of South Africa. In particular, the manufacturing sector acts as a generator of important employment opportunities.”

Patricia de Lille, Executive Mayor of the City of Cape Town, says, “The manufacturing industry plays a significant role towards the growth of the economy. It is one of the largest contributors to the Western Cape gross domestic product (GDP,) as well as providing much needed jobs for thousands of residents in the City and throughout the Province.”

The Western Cape’s manufacturing sector contributed R45bn or 15% to the South African manufacturing sector output of R300bn in 2012. Manufacturing is the second-biggest sector in the Western Cape after the financial services industry.

“We are making substantial investments in infrastructure to ensure we have the required capacity to create a conducive environment for the private sector to thrive in. The City of Cape Town is also working closely with potential domestic and international investors to further unlock development not only in the manufacturing sector but in other key sectors as well,” adds de Lille.

Nils Flaatten, CEO of Wesgro, says, “One of the most unique things about the metals and engineering cluster is that it is a self-evident example of the high-caliber, talented and driven professionals in South Africa. Diverse sectors such as renewable energy, oil and gas, medical devices and aerospace make up the cluster and here in Cape Town and the Western Cape we have the skills and the people that have allowed the cluster to flourish.”

According to the June 2013 business plan of the Western Cape metals and engineering cluster (recently formed by the Western Cape provincial government,) the exact number of firms operating in the manufacturing sector is unknown but officially at least 337 firms employ more than 25 000 people, although it is likely that more than 600 firms are active.

More recently, two world-class technology manufacturers invested in new manufacturing plants in Atlantis, Western Cape: South African technology company Tellumat opened its new 15 000m ² television manufacturing facility in Atlantis and Chinese consumers electronics company Hisense opened a R350m electronics facility in Atlantis to manufacture flatscreen televisions and refrigerators.

“The South African Government has also recognised the importance of supporting the manufacturing sector and its positive effect on employment, by way of various incentives in the sector,” adds Flaatten. Development Finance Institutions in South Africa are playing an important role in providing industrial and infrastructure finance, demonstrating how, along with the Government, there are opportunities for investors in the metals and engineering cluster.

The study provides a detailed account of the many initiatives and incentives that are currently in place and that are expected to enhance the competiveness of the metals and engineering cluster. These include, amongst others, tax incentives, special economic zones, competitive enhancement programmes and energy incentives.  “Initiatives such as the DTI’s Industrial Policy Action Plan and finance providers underpin the future growth of the innovative manufacturing sector. They provide the regulatory framework, incentives and capital for future growth and expansion in South Africa and abroad,” adds van Dijk.

More recently, the DTI published a directive that gives the International Trade Administration Commission the power to regulate the exportation of scrap metal by barring exports if the metal has not first been offered for local beneficiation at a price discount of 20% below the international spot price. The directive is expected to benefit the foundry industry. “A strong foundry industry is important for key industries such as the automotive, capital equipment and aerospace,” adds Christelle Rassou, PwC Deals Associate Director.

The Western Cape also has the skill-sets, capacity and infrastructure to service companies in the fast-growing oil and gas industry.

In addition, there are many opportunities for multinational firms to manufacture medical devices in the province. Very little is produced in the way of medical devices in South Africa, with an estimated 95% supplied by imports, according to the study. The Western Cape boasts a strong market in the biotechnology and medical devices sector. The Western Cape Provincial Government has given in-principle approval for the development of South Africa’s first health park, the Cape Health Technology Park, which will increase the attractiveness of Cape Town as a location for biotechnology companies.

The study also provides a focus on South Africa’s export environment and macro-economic environment, Africa’s potential for growth, as well as the many associations in the Western Cape that support companies to grow.

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