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Durban Chemicals Cluster


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About the Durban Chemicals Cluster The Durban Chemicals Cluster (DCC) is a Public-Private Partnership between the eThekwini Municipality and local chemicals firms that focuses on developing the competitiveness of the chemicals manufacturing industry in KwaZulu-Natal. This not for profit organisation is an industry driven initiative, drawing on the leadership and expertise of individuals from a broad range of member firms. Membership represents approximately 28% of chemicals manufacturing activity in KwaZulu-Natal. The cluster was established in December 2008 with the primary purpose of developing the competitiveness of the local chemicals manufacturing industry. The overarching objective of the Durban Chemicals Cluster is to increase the sales and value addition of the local chemicals manufacturing sector by 53% in real terms between 2011 and 2020. Five strategic focus areas have been identified as being core to attaining the growth aspirations of the KZN chemical industry and successive ‘business plans’ of the DCC are therefore developed to support progress in each of these five areas.  Investment & Growth through market linkag - es, innovation and investment  Compliance through regulatory representation and best practice  Value Chain Competitiveness through opera- tional competitiveness  Skills Development  Transformation For more information on the Durban Chemicals Cluster please visit www.durbanchemicalscluster.org.za


Contents Powered by B&M Analysts

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Focus Article 1 - CHIETA SME Development Programme

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Focus Article 2 – Non-Tariff Barriers to trade in African Markets 8  New Members 17 Investment and Growth

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Value Chain Competitiveness 20 Compliance 20 Transformation

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Skills Development

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Trade Statistics

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Focus Article 1: CHIETA SME Development Programme 2013 The Chemicals Industries Education & Training Authority (CHIETA) provided financial support to the Durban Chemicals Cluster (DCC) for the purpose of developing a group of ten black owned SMES situated in Durban and its surrounding areas. This programme was conducted in 2013. The aim of the project was to support the development of new SMES in the chemicals manufacturing sector and support the competitiveness of struggling chemicals manufacturing SMES so that they become sustainable manufacturers in the long term. The sustainable development of SMES has broadened the supply pool of the existing chemicals sector and provided the sector with enhanced supply chain competitiveness and value chain flexibility. The DCC developed a multi-phase programme, which was successfully implemented in order to achieve the objectives. The schematic below provides an overview of the SME incubation methodology employed by the Cluster: Table 1: Overview of SME Incubation Methodology

Phase 1: Recruitment of SMES A recruitment drive was undertaken to locate suitable SMES in the eThekwini and surrounding areas to participate in the project. Various organisations were approached and consulted during this process (e.g. MUT, UKZN, SABS, DCC member firms, etc). Each SME had a reasonable product concept and market opportunity for the product in question. Furthermore, each of the SMES were required to sign an agreement of participation with the DCC to ensure their commitment to the project. The following ten SMES were identified and confirmed as participants in the project.


Table 2: List of SME’s that participated

Phase 2: Preliminary Business Viability Study and Diagnostics A business viability and diagnostic assessment was conducted at each of the ten SMES. In order to understand the business in a holistic manner, the operational and strategic aspects of the business were measured. Using a tool developed by B&M Analysts, the viability and competitiveness of each SME was assessed, enabling an understanding of the development priorities of each SME. After the assessment, a comprehensive feedback report was compiled for each SME and a DCC facilitator provided one-on-one feedback to the management of the SMES.


The following assistance has been provided to the SME’s:• On-site training and implementation of lean principles and 5-S; • Training on government SME support initiat ives, including how to access government ten ders and how to register on government pro curement databases; • Communicating some of the latest literature on chemicals and detergents markets; and • Monitoring and review meetings take place on a regular basis with each SME.

Phase 3: Detailed firm-level Business Plan Development The coaching was initiated with a business plan training session at each individual SME, since a business plan is an effective business tool that comes with many benefits. A consultant was appointed to review each SME’s business plans and depending on the level of their business plan, it was decided whether the existing business plan was updated or a new one developed. The plan detailed how the business was to be operated, managed and capitalised. Furthermore, the plan also allowed all of the SMES to clearly compare their business’s expenses against their customer demand, available finances and competition. Following the business plan development, the coach identified additional interventions to the recommendations provided in the business diagnostic session. The recommendations and interventions were based on each individual company.

Phase 4: Firm-level Consulting and Intervention Support The DCC provided the SMES with business coaching by an experienced consultant. This coaching provided each of the SME’s with tangible assistance on business development. Coaching was provided in the following areas; process efficiencies, product flow, manufacturing operations improvements, 5S and other business improvement interventions. The intention of the coaching was to empower all the SMES, train them and provide them with the necessary skills and assist them to improve their manufacturing operations and businesses. Below is an overview of each individual SME’s coaching intervention:


Graph 1: Consulting support provided for each SME

All finished goods have been neatly labelled and systematically stored

Evidence of an efficient product flow

Phase 5: Post Establishment Support Progress at firms After the implementation of the above-mentioned interventions, the DCC has noticed visible improvements at each of the firms. The pictures below display this.

The DCC continues to support all the above-mentioned SMES with any assistance required. All of the SMES have been able to participate in DCC activities. On 12 December 2013 the DCC in conjunction with CHIETA hosted an award ceremony to celebrate the participation of all the SMES that participated in the DCC and CHIETA SME Incubation Programme.


Lux Chemicals received an award for outstanding accomplishment in the DCC SME Incubation Programme.


Focus Article 2 – Non-Tariff Barriers to trade in African Markets Background

The eThekwini Chemicals Value Chain Study, undertaken in 2012, identified the African export market as a potential region that could strengthen both the chemicals manufacturing sector and support its growth. Considering that Africa is developing rapidly, it presents an immense opportunity for the local manufacturing sector. The growth of African economies will be associated with a burgeoning demand for products, including chemical products. Importantly, discussions highlight that operating in African markets is typically complex, with importers having to content with a range of tariff and non-tariff barriers (NTBs). As a result, South African manufacturers often state that they frequently enjoy little or no advantage against international importers also competing in these markets. This is despite the relative proximity to these markets. It is thus evident that a reduction in trade barriers would enable preferential market access for local manufacturers, thus enhancing growth in exports to African economies.

Research Objectives

1) Identify African markets that the Durban Chemicals Cluster should consider exporting to 2) Establishing what the key Non-Tariff Barriers are in various African markets 3) Recommendations to overcome Non-Tariff Barriers


Methodology

accessing these markets. The World Bank, the International Monetary Fund (IMF) and World Economic Forum (WEF) have been instrumental in capturing consistent world economic data. Currently, South Africa has the highest GDP with Nigeria and Egypt being the second and third highest respectively. When considering the GDP per capita, the results are slightly different and indicate Gabon has the highest GDP per capita, with South Africa being the second and then followed by Libya and Algeria. The table below reflects the top 10 African countries economic performance for the year 2012.

The research methodology consisted of both desktop research and face-to-face interviews. The desktop research and interviews were combined to formulate the research findings. Desktop research was conducted to gain a full understanding of the literature relating to: 1) Current African markets investment profile 2) Non-Tariff Barriers. Interviews were conducted with seven DCC member firms to understand: 1) What countries firms are currently exporting to in Africa 2) The current and potential Non-Tariff barriers experienced by members. Table1 Top 10 African Countries Economic Recommendations have been formulated from these Performers for Year 2012 research findings.

Research Findings Africa Export Markets

Figure 1 DCC African Export Sales (n=7)

The above figure indicates that African export sales represent an average of 8.24% of total company sales for DCC firms’ African export sales increased from 7.26% in 2010 to 8.24% in 2012. Local producers have therefore not become significantly more successful at


While South Africa is ranked as the top country in terms of both GDP and competitiveness, only four other countries appear in the rankings of both GDP and competitiveness, namely, Morocco, Zambia, and Botswana. WEF defines competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. Three overarching sub-indexes are used, namely basic requirements, efficiency enhancers and innovation and sophistication factors. Based on these factors, South Africa is ranked first in Africa (52 globally), followed by Mauritius, Rwanda and then Morocco. See the table below with the list of Top 10 African Countries in terms of competitiveness.

African Countries Risk and Opportunity Level Ranking was assessed by Ernest and Young by using a composite Risk Index to assess investment potential for the Risk Level Ranking and rank countries considering population size, population size in the largest city, the size of the economy, GDP growth trends and Gross capital formation trends to assess Opportunity Level Ranking. The below tables show the Lower Risk Countries, Moderate Risk Countries and Top 10 African Countries Opportunity Ranking. The top lower risk countries are Mauritius, Botswana and South Africa, while the top three moderate countries are Morocco, Malawi and Lesotho. The opportunity table identifies Nigeria as being first, followed by South Africa, Egypt and Angola.

Table 2 Top 10 African Countries Competitiveness for Year 2012


Table 3 Country Ranking by Risk Level Table 4 Opportunity Ranking

These economic trends highlighted the research conducted in Africa. The figure below highlights the countries that DCC firms are currently exporting to and prioritising for export. DCC firms are achieving highest sales from Mauritius, Kenya, Tanzania, Uganda and Nigeria. East Africa emerges as the dominant destination for exports. Ghana is clearly the major potential market identified by the majority of firms. Secondary export priority countries are Nigeria, Mozambique and DRC. Overall, growth in economies, market demands and natural reserves were highlighted as major reasons for country interest.


Figure 2 DCC Member Firms Export Countries

Non-Tariff Barriers in Africa NTBs are government measures other than tariffs that restrict trade flows (Sandrey, 2003). Carrere and de Melo (2011) broadly define NTBs as any measure that causes a trade distortion but is not a tariff, whereby a distortion exists when the domestic price differs from the border price. Sandrey articulate the importance and crucial role of NTBs as recognised in South Africa: “Reducing tariff barriers alone will not succeed in providing genuine market access for developing countries. NTBs such as anti-dumping, technical barriers to trade and import licencing in developed countries often pose significant barriers to developed country exports�. Numerous types of NTBs exist, there is no definite list that exists, although NTBs (according to www.tradebarriers.org) can be classified according to eight broad categories: 1) Government participation in trade & restrictive practices tolerated by governments 2) Customs and administrative entry procedures 3) Technical barriers to trade 4) Sanitary & phyto-sanitary (SPS) measures 5) Specific limitations 6) Charges on imports 7) Other procedural problems 8) Transport, Clearing and Forwarding


Country

Non-Tariff Barriers

Kenya

Port Congestion x 2 Pre-inspection of exports Price competition x 2 Credit Port Congestion Export and production subsidies to competitors from India and China Bribery Cheap competition x 2 Credit of customers Language barrier Bureaucracy Competition Language barrier Competition Filling up containers Language barrier Competition Frequency of shipping lines Import licence application and processing lead times Port congestion Safety issues Letter of credit required for all exports Pre-inspection of all containers Letter of credit depends on bank Varying specification requirements by customers Visits to country difficult to arrange Import regulations and requirements constantly changing

Tanzania

Uganda Madagascar

Reunion Mauritius

Mozambique Angola Nigeria

Ethiopia

The DCC participants also identified NTBs to potential export countries. The general NTBs that were identified by member firms: 1) Connecting with interested business partners in these regions and establishing a brand 2) Price sensitivity of the African region in general 3) Requests for open credit are standard.


The table below highlights the potential countries NTBs:

Country

Non-Tariff Barriers

Mozambique

Volume of Chemicals Strong loyalty with former colonial parent Permanent establishment issues Local ownership requirements Availability of freight services Export & production subsidies of competitors by India and China Excessive customs and administrative issues Bribery High Freight Rate Low cost competitors from Asia Export & production subsidies of competitors by India and China Bribery Excessive customs and administrative issues Availability of freight service Language barrier No information on ports and logistics High freight rate

Nigeria

Ghana

Angola

The identified NTBs were classified into the 8 broad categories that are found at www.tradebarriers.org. The three top NTBs identified 1) Transport, Clearing and Forwarding 2) Customs and administrative entry procedures 3) Government participation in trade & restrictive practices tolerated.


The below figure shows the eight categories with the associated number of firm responses for each category.

The Cluster Members not only identified the Non-Tariff Barriers faced in African countries, but also associated countermeasures that are recommended to overcome the barriers.

NTB Category

Specific Problem/s

Countermeasure recommended

Transport, Clearing and Forwarding

Port congestion

Improved port infrastructure and resources Must have presence at ports to alleviate delays Purchase FOB basis

Customs and administrative entry procedures

Banking with country

SA Banks gain better footprint into countries Common banking process through African countries and with banks

Excessive customs and admin procedures

The adoption of agreements to provide for preferential trade and rules of origin for other African countries (expansion SADC)

Cheap competition as a result of export and production subsidies from other countries such as India and China

Rebate system on exports for local RM to make SA more competitive

Changing requirements

Kenya remove import duty as no local suppliers

Other procedural problems

Visas difficult to arrange

Relationship development with SA mission

Other

Customers credit

Credit agencies must guide in terms of who has good credit records

Government participation in trade & restrictive practices tolerated by governments

Table 5 Counter Measures identified by DCC Members

Export and Production subsidies for SA Trade remedies (anti-dumping countervailing and safeguard measures) protecting trade within the Southern, Eastern and Western African Blocks.


Recommendations

This study has only scratched the surface of discovering which Non-Tariff Barriers exist Africa and assessing how to reduce these NTBs. The DCC are recommending the following activities for 2014 to reduce Non-Tariff Barriers in Africa


New Members The DCC would like to welcome one new member to the cluster. NCP Alcohols have recently joined the DCC and we anticipate an effective and sustainable relationship with the firm that will enable a rewarding experience through their cluster membership. NCP Alcohols is a multinational company operating in the province of KwaZulu-Natal, South Africa where they produce high quality fermentation alcohol for the South African and international beverage, cosmetic and pharmaceutical markets. Other related products such as spirit vinegar, fuel oil and molasses solids are also supplied as part of their product range to a wide range of industries. Our business practices are defined within industry quality and sustainable management systems and the company is ISO 9001, 14001, HACCP and OSHAS

18001 certified with their key products Kosher for Passover and Halaal certified. Insert NCP Alcohols Logo here The DCC is pleased to be affiliated with these NCP Alcohols and hopes this alliance is beneficial to all the organisations involved as well as the industry.


Investment and Growth MCEP Firm-Level Application Assistance - Capital Investment

Business Retention & Expansion (BRE) Cluster Support Desk

MCEP is a Department of Trade and Industry (dti) incentive programme of which the objective is to promote enterprise competitiveness and job retention within the manufacturing industry. In order to achieve this, the programme comprises two core components Production Incentive and Industrial Financing Loan Facilities. The DCC is assisting member firms benefit from the Capital Investment portion of the programme, which falls under Production Incentive. The primary objective of this particular incentive is to support the investment in capital equipment upgrading and expansions within the manufacturing sector that will support not only the retention of existing jobs but also lead to the creation of new jobs. The incentive grant offers a cost-sharing grant up to a maximum of R50 million. The grant amount that the DCC member firms can apply for is dependent on the total assets of the firm and their Manufacturing Value Added (MVA). The DCC is subsequently focusing increased attention on assisting member firms with their MCEP capital investment applications. The cluster is also currently submitting a cluster MCEP application. A workshop was held on 04 March 2014 that included all the information on this application, and the benefits that firms can derive from joining. The facilitators are currently meeting with individual firms to confirm participation in the MCEP Cluster application.

The DCC Business Retention & Expansion (BRE) Cluster Support Desk initiative was initiated in the start of 2011 and since then has been extensively utilised by cluster members. The Support Desk was formed as mechanism to assist the DCC member firms with operational issues. The aim of the Support Desk is to assist member firms with technical related problems that they are experiencing. This month the support desk provided assistance to two member firms namely Gold Reef and Isegen. The DCC has in turn liaised with the relevant departments within the EThekwini municipality to assist the above-mentioned cluster members with their queries. The Support Desk is designed to provide on-going theoretical and practical assistance to all member firms through various channels. If cluster members are experiencing technical-specific problems that they require assistance with, they are requested to contact the DCC, identifying the problem as well as how it is affecting the firm. The DCC will in turn liaise with the relevant departments to assist cluster members.


Quarterly Investment & Growth Meetings The Durban Chemicals Cluster (DCC) hosted the programme’s quarterly session on 21 January 2014. The session focused on Non-Tariff Barriers operating within Africa. The DCC research that was undertaken is detailed in the focus article. The session also hosted TradeMark SA who are known to be experts in NTBs in Africa and shared what they are doing as an organisation to reduce NTBs in Africa.

The second quarterly session for 2014 was held on 10 April at B&M Analysts in Gillitts. Russell Curtis (Durban Investment Promotion Agency) presented to attendees on the future investment projects within the eThekwini region. The session concluded with a presentation by Dave Watts (Chairman: Durban Ports Committee) on port tariffs.


Value Chain Competitiveness Firm-Level Benchmarking & Manufacturing Support Firm-level benchmarks have been conducted at Arkema Resins, NCS Resins, Sancryl Chemicals, Improchem, Buckman, SteriTech, and Gold Reef Chemicals with each firm receiving individual reports and presentations. Hosaf have undergone the benchmarking process and the presentation has been scheduled for May 2014. These presentations feature recommendations for the DCC manufacturing intervention which provides firms with individual consultancy support. This support has added great value to each company individually that has participated in the programme.

Compliance DCC Compliance & Value Chain Competitiveness Workshop (13 March 2014)

The DCC Compliance & Value Chain Competitiveness Programme’s Technical Steering Committee (TSC) hosted a Quarterly meeting on 13 March 2014 at B&M Analysts. The session comprised two presentations the first of which was undertaken by Barry Bredenkamp from South African National Energy Development Institute (SANEDI), who provided insight into the new Tax Incentives for Energy Efficiency. Barry explained that the Department of Energy has introduced allowances for energy efficiency savings that will provide tax incentives for energy savings improvements as outlined in regulations for busiCarbon Footprint Assessments nesses and based on measured and verified energy The Minister of Finance, Pravin Gordhan has an- savings through registrations with SANEDI. Thereafter, nounced the postponement of the implementation Michael Maeso from Shepstone and Wylie presentof a South African Carbon Tax from 2015 to 2016. The ed an update of the Occupational Health and Safety postponement is to allow more time for planning and (OHS) Act. Michael stressed that it is important that consultation. Mr Gordhan stated “Treasury was in- all employees remain current with this Act as well as volved in designing the tax, but the departments of any regulations which are promulgated. Overall, the water affairs and forestry and environmental affairs are session was well received by all those who attended. also busy with a number of initiatives and government has to ensure the total package is coherent�. This is the second time that the carbon tax has been postponed. The cluster will continue providing member firms with free Carbon Footprint Assessment, in order for firms to initiate carbon reporting. Carbon reporting will become compulsory for industry at the implementation of the Carbon Tax in 2016.


Zero Harm Tour to Huntsman Tioxide The Durban Chemicals Cluster (DCC) facilitated a best practice safety tour focusing on Zero Harm at Huntsman Tioxide on 09 April 2014. Huntsman Pigments’ Umbogintwini site has implemented Zero Harm as a vision that aims at achieving zero harm to the: • • • •

people, environment, community, and company’s assets and property

Transformation B-BBEE Information Session The Durban Chemicals Cluster hosted a B-BBEE workshop on 12 March 2014 at the Durban Country Club. The B-BBEE session focused on Enterprise and Supplier Development as Dr. Robin Woolley (CEO of Transcend Corporate Advisors) explored this priority element with member firms.

As part of qualifying as an empowering supplier, the Revised Codes of Good Practice require companies to undertake Supplier Development with Black Owned The vision is supported by a number of zero harm tools Small Suppliers, as well as committing to 12 man-days such as 60s check, safety cross, safety learning conver- per annum in developing EME and QSE suppliers. Firms sations etc. They were able to share their experience need to begin the process of exploring opportunities with implementing a Zero Harm philosophy and there- within and identifying opportunities to develop new relationships or strengthen existing relationships with by creating a Lean Manufacturing culture. black owned suppliers in their value chain in order to comply. Companies not meeting the priority elements threshold automatically drop ONE level on the company B-BBEE scorecard.


This 1-day workshop assisted firms with developing their capabilities as an ESD champion, focusing on the following areas: • Identifying areas in your supply chain in order to source black owned suppliers • Conducting a Supplier Analysis • Understanding and conducting needs analysis with suppliers to surface development oppor tunity • Collecting the correct supporting evidence for verification audit • Building on capacity and resources to effective ly deliver against supplier development needs • Building an ESD plan • Prepare and collect the correct evidence in order to qualify against the empowering supplier requirements

Skills Development Management Development Programme (MDP) Discussions on a Management Development Programme (MDP) specifically for the chemical sector are currently underway. The DCC Executive Committee reviewed the Terms of Reference (ToR) detailing pre-requisites for the relevant institutions and thereafter the institutions were requested to submit proposals and deliver presentations on their customised MDP for the cluster. These were presented to the Executive Committee on 23 April 2014. The MDP for the chemical industry will provide participants with a broader understanding of leadership and management and also strives to bring real business benefits to participants and their organisations.

Skills Development & Transformation: Motivation and Emotional Counselling workshop (18 February 2014) The DCC Skills Development & Transformation Programme’s Technical Steering Committee (TSC) hosted a quarterly workshop on 18 February 2014. The TSC meeting was followed by a workshop facilitated by Sally Burgess an accredited Comensa business and personal development coach. The workshop explored key methods and ideas utilised to assist leaders and management with motivating and counselling their


staff. Sally provided attendees with skills and tools to assist them in motivating their workforce. The workshop was from a slightly unconventional angle since it allowed attendees to engage with each other. This interactive session was designed for HR Managers and Directors who have direct relationships with employees. It has trained participants how to use core motivational skills in conversations about change across a range of work-related issues.


TRADE STATISTICS


Dcc april 14 newsletter  

Durban Chemicals Cluster for Mar/April 2014

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