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2016/2017 An accessible and clear guide on how to grow your business through export

South African companies once seen as predatory

Make sure you get paid

Identifying potential export markets

10 billion US: value of the valve industry

Get It Right in Your Domestic Market

Agents vs Distributors


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2016/2017 An accessible and clear guide on how to grow your business through export

Contents 2 Diversify and Grow Your Business 4 Trade Safely 5 New Regional Aircraft Project 11 Agents vs Distributors 12 The Sky is Not the Limit

42 Access to the Best Brains in the Business 44 Forewarned is Forearmed 46 Take Care of Your Cargo on the High Seas

14 Let’s Get Competitive 16 Industry Takes the Initiative 19 Incentives, Agencies, Departments and Corporation 20 Locally-manufactured Globe Valve 22 Fix and Move Forward 24 The South African Capital Equipment Export Council (SACEEC) 26 Get it Right in Your Domestic Market 29 Minimum Threshold: Local Production and Content 30 Local Procurement: Valves and Actuators 37 Partnerships Key in Africa 38 Demand for Valves in Africa 40 Export Risks Covered PROMECH PUBLISHING PO Box 373, Pinegowrie, 2123, Republic of South Africa Tel: (011) 781-1401 engworld@promech.co.za www.promech.co.za Managing Editor Susan Custers Editorial Patricia Holburn Advertising Louise Cresswell DTP Lindy Fobian/Anne Rotteglia Official Endorsement

‘Engineering World’ as well as its sister publication, ‘SA Mechanical Engineer’ are endorsed by the SACEEC (South African Capital Equipment Export Council). We thank SACEEC for their professional guidance in putting this publication together. (www. saceec.com) Typo Colour Printing, Tel: (011) 402-3468/9. FSC (Forestry Stewardship Accreditation)

Copyright

All rights reserved. No editorial matter published in “Engineering World” may be reproduced in any form or language without written permission of the publishers. While every effort is made to ensure accurate reproduction, the editor, authors, publishers and their employees or agents shall not be responsible or in any way liable for any errors, omissions or inaccuracies in the publication, whether arising from negligence or otherwise or for any consequences arising therefrom. The inclusion or exclusion of any product does not mean that the publisher or editorial board advocates or rejects its use either generally or in any particular field or fields.

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Diversify and Grow Your Business A weak local economy and the desire to diversify into new markets are the main reasons that businesses start exporting. There are added benefits too – when you export you enter new markets and learn new ways of doing things that can boost your business back home. Exporting is, for many, a very attractive proposition.

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efore you embark on an export journey, you need to know your company and products well, and you need to come to grips with the many factors that can affect international trade. This is according to Peter Draper, MD of Tutwa Consulting. Exporting can be great but you need to prepare really well to get it right and reap the benefits.

First look at your own credentials, your product suitability, and then look at the markets where you want to export. Work out how you would market and distribute your product over the border South African businesses have both positive and negative reasons to export. On the negative side is the dire state of the local economy and an outlook that is, frankly, unpromising in the short term. “Exporting can be a safety net and act as a natural hedge against recession in home markets,” comments Peter. On the positive side there are many benefits to exporting. A business can diversify its customer base,

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reduce market concentration so that if one market is doing badly there are other markets to fall back on. “And you can earn foreign currency,” he adds. He highlights another advantage of exporting we don’t often take into account, it gives us new ideas. We can learn new ways of doing things and feed them back into our local businesses. Exporting can provide more than growth from foreign markets, it can also grow local markets. There is definitely scope to grow South African exports, according to Greg Nosworthy, country head in South Africa for Euler Hermes, to the value of R215 billion. Intra-Africa trade is expected to double in the next seven years. “To expand safely, do a detailed assessment and have a clearly defined strategy in place,” Greg advises. “First look at your own credentials, your product suitability, and then look at the markets where you want to export. Work out how you would market and distribute your product over the border.”

Select your destination wisely

This is a tricky one because there is no single answer


Exporting musts: •

• • •

A detailed assessment of your company and product suitability A clearly defined strategy Knowledge of export markets Marketing and distribution plan for export markets

Peter Draper, Tutwa Consulting

to the question: where should I export? It depends on your company, on your product, on how much risk you can tolerate. Step one when selecting an export destination is to ask yourself: am I export ready? Look at the nature of your product and your suppliers and look at how risk tolerant you are as a business. If you are prepared to take a higher risk, Africa might be a suitable export destination. If you have a low risk tolerance, perhaps a more traditional market like the EU is suitable. But avoid generalisations. “We try to avoid blanket statements when looking at export destinations,” notes Peter. “That includes the Africa rising narrative so common today. Africa may be rising but which country in Africa is rising? Take it country by country, city by city, and culture by culture. If you are the first to market in Africa you have a strong position and advantage but you incur pioneering costs. Of course, there is much more beyond Africa,” he observes.

Rethink the world economy

Experienced exporters have a few things in common. One of them is the emphasis they place on research and knowing individual situations, another is the ability to think forward. Peter is no different. He says we need to monitor our world view and avoid assuming it will never change.

Consider this view:

Developed markets are mature, slow growing, less risky. Emerging markets have high growth (think China 10%), less political stability and more risk.

And how it has changed:

Emerging markets are no longer growing at rapid speeds, both developed and emerging markets have political instability (the EU, Brazil are two examples) and some developed markets in Western Europe are growing faster than some emerging markets. Pertinent at the moment is the EU zone and the UK. What is the future? “You would be quite brave to take a bet on what the future of Europe will be.” Peter notes. South Africa’s trade with Britain has traditionally fallen under the EU trade agreement but with Brexit, that trade agreement won’t apply.

You need to be clear about which markets you select to enter and what the issues are in that market from a trade policy point of view Trade policy matters

“You need to be clear about which markets you select to enter and what the issues are in that market from a trade policy point of view. Consider trade barriers and how they affect your company’s strategy, and how they might evolve,” says Peter. The tools of the trade include tariffs and quotas, subsidies and rules of origin. Where there are trade barriers, costs increase.

What does all this mean for an exporter?

It’s not necessary to become a political, economic and legal expert to become a successful exporter. At the same time, exporting is not a simple straightforward business and it does require good research and some knowledge of the global economy. Tutwa Consulting, Email: info@tutwaconsulting.com www.tutwaconsulting.com

Tel: 011 866 4200 0861 LOWBED John Harding – 072 623 2924 johnh@martinsa.co.za www.martinsa.co.za ENGINEERING WORLD 2016

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Trade Safely When you export, you need to make sure your business is protected and that you trade safely. This is the message from Greg Nosworthy, country head of global insurer Euler Hermes in South Africa. In other words: make sure you get paid.

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on payment is an all-too-real risk. According to the 2015 ICC Global Trade Survey, incidents of default or non performance increase in challenging economic times and during downturns in commodity markets. Greg says that the risk of insolvencies has increased in many regions. For example, in Asia Pacific the risk of insolvency is expected to increase by 20% in 2016, and by 22% in Brazil. Things look better in Western Europe where insolvencies are expected to drop by 5% this year. As much as you may trust and have confidence in your buyer – things can go wrong.

Trade credit insurance protects your business against both commercial and political risks that are beyond your control. Trade credit insurance is for short term account receivable, ie, those due within 12 months

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Four strategies to protect yourself from non-payment

Self insurance

Where you set aside a reserve should something go wrong. The advantage of this strategy is that it doesn’t require a separate policy so should cost less. But it’s often difficult to determine the size of the reserve. If you self insure, you will at the very least, be subject to changes in exchange rates. And should a catastrophe occur, the funds set aside may be insufficient. “This method doesn’t protect you against large catastrophic losses,” Greg advises.

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Letter of credit

Effectively a bank guarantee. Letters of credit offer security and protection to both the buyer and seller.

Factoring

This is where an exporter will sell their accounts receivables to a third party at a discounted rate. This strategy has the advantage of giving the exporter

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Greg Nosworthy

immediate access to funds, and invoicing and collections can also be outsourced.

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Credit insurance

This protects you against losses that arise from political and commercial risks. The debtor may go insolvent or pay late, or the country may cancel all foreign transactions. “Credit insurance protects against non-payment, and effectively guarantees payment,” Greg notes. Many banks will accept credit insurance as collateral for loans and advances. Credit insurance can also give the exporter negotiating power for good rates. “Banks will accept insured receivables as a very strong security.” Commercial insurers will typically cover up to 90% of receivables, but each individual policy and premium is a separate assessment and negotiation. A single transaction can be covered, or a trade credit insurer can insure an entire export debtors’ book. As an expert, a trade credit insurer can also offer advice on collections and credit management. Greg notes another advantage of insuring receivables: bad debt reserves can be reduced. How does an insurer assess an application for trade credit insurance? An exporter will give the insurer details of their debtors. The insurer looks at the countries and sectors where the exporter is active, what is being exported and to whom; and assesses each risk individually. There are a few countries in the world where credit insurance will be declined. An insurer may also decide to cover the risk partially. For example you have a debtors’ book of R100 million and the insurer will cover R50 million. Euler Hermes, Tel: (010) 593-4801 www.eulerhermes.co.za


Air TrAvel on The rise

New Regional Aircraft Project To capitalise on the expertise garnered from the Oryx and Rooivalk projects, Denel Aerostructures and Denel Aviation have established the SARA (Small African Regional Aircraft) project. Not only does this project leverage off the experience and capability residing in Denel but it is intended as a fully-fledged profit-making venture aimed at the point-to-point market internationally. Research carried out by Denel, as well as that recently concluded in co-operation with Lufthansa Consulting, clearly shows an increase in air travel and the need for more links, especially in Africa, between and within countries. Three versions of SARA are: 24-seater; 12 – seater and one LD2 cargo pallet; three LD2 pallets. Given the short runways in emerging countries which are also not always in the best condition, the SARA has a high wing configuration, a take off distance under hot and high conditions of 900 metres, a maximum takeoff weight of 8 400kg and a ferry range of 1 500 nautical miles with 500nm being the standard operating range.

Supply chain Although the SARA is made up of a combination of various commercial offthe-shelf products for the engines and avionics, full use will be made of local firms in the Denel supply chain and other South African aerospace companies. Foreign partners from emerging countries and established international OEM’s are

also showing interest which is welcomed by Denel which would consider having parts of the aircraft manufactured and built in different countries.

intentions of a National Flagship Project and as such the JASC is formally supporting the project to the next phase in the development of the project.

Given Africa’s ageing fleet, there are important opportunities for SARA regionally and on the continent but SARA could also contribute to transport needs in Asia and Latin America and perhaps, niches in North America and Europe.

Future

Important opportunities for SARA regionally and on the continent as well as in Asia and Latin America, North America and Europe.

Next phase

Denel Aerostructures has recently received a major boost in the form of formal support for the SARA project from JASC (Joint Aerospace Steering Committee). One of the identified instruments of the JASC is to help coordinate and improve the competitiveness of the South African aerospace industry through the use of National Flagship Projects. The SARA project meets the criteria and

Now seeking investors and a launch customer, Denel Aerostructures and Denel Aviation hope to win wide support from investors, customers, the private and public sectors. Denel is a regular participant in the Manufacturing Indaba (www.manufacturingindaba.co.za) and are members of the Manufacturing Circle (www. manufacturingcircle.co.za), as well as strategic partners to the City of Ekurhuleni Aerotropolis (Africa’s 1st Aerotropolis). A full-scale (ergonomic study) mock-up is available for viewing at AAD 2016.Denel and its stakeholders considers SARA as a South Africa Inc’ project. Enquiries: Lesetja Mogoba, Senior Marketer: Diversification, Denel Aerostructures lesetjaM@denelaero.co.za www.denelaerostructures.co.za


Meeting Future Air Travel Requirements in a Rapidly Growing Global Market The Denel Group is proud to introduce SARA (Small African Regional Aircraft). A 21st century transportation system, bringing Africans closer together, building communities and building a sustainable future.

Present Consolidation

Denel has established itself as the largest manufacturer of aerospace and defence equipment in South Africa with a proven track record of design, development, integration and qualification. Denel Group comprises of six Business Divisions, three of which operate within the aerospace sector focusing on: • Integrated System Solutions • Maintenance Repair and Overhaul Services • Aerostructures (Design and Manufacture)

• UAV (Design and Manufacture) • Flight Testing Denel is well positioned to leverage its existing capability to launch South Africa as an Emerging Market Aerospace Hub.

Bright Future In a growing and upwardly mobile society the need for an affordable, fast and reliable civilian transport solution designed by Africans, for Africa is apparent. As a leading African aerospace company, Denel is perfectly positioned to pioneer african aerospace into the future.

The Small African Regional Aircraft (SARA) will revolutionise the way Africans travel – flying point-to-point, connecting and unlocking smaller regional centres across the continent.

Economic development and community upliftment SARA is more than a transportation system – it is a catalyst for economic growth. The technological intensity of the aerospace sector has been shown to act as a driver for new technologies and technical skills, which diffuses into all sectors of the economy. Con-


servative estimates indicate an economic multiplier of 6[1] is achieved in this high technology segment. There is a huge scope to develop South Africa’s regional centres; currently only 18 of South Africa’s 430 local airports form part of a scheduled airline service (SAA, Airlink, SA Express). Connecting regional centres by establishing transportation networks will unlock new business opportunities, creating much needed jobs in the process.

Introducing SARA

SARA is a new, modern turboprop aircraft designed to fly safely and efficiently between regional centres. SARA can seat 24 passengers, carry three large cargo pallets (LD2) or fly a combination of passengers and cargo in a combi configuration. The ability to fly point-to-point between regional centres will reduce travel times significantly, helping to unlock the economic potential of these centres.

General characteristics

• Pressurised, 24 Seat, Turboprop • FAR 25 qualification • Passenger, Combi or Cargo Configurations • Comfortable four-abreast seating • Cruise at 25 000ft to avoid turbulence and bad weather • Designed for short field performance, this allows access to a wider range of regional airports • Laminar flow design features ensuring improved fuel efficiency over traditional designs • Use of Advanced Manufacturing Technologies • Sara is a modern platform that meets the demands of both passengers and stakeholders • Flying above bad weather, ensuring a smooth flight • Comfortable four-abreast seating in a large spacious cabin • Low operating costs that benefit customers and operators alike

Developing air travel infrastructure

An increase in demand for air travel requires an investment in existing airport infrastructure. Developing regional airport infrastructure has many economic knock-on effects for both the local community and the broader economy.


SARA variants giving wings to your vision

SARA provides a sturdy foundation on which to build your air travel solution. The aircraft is available in three different configurations to align with your unique requirements.

Range map SARA’s sleek aerodynamic profile and ability to fly far above bad weather means you will reach your destination on time, every time. SARA is designed to fly 1500 nm (2800 km) with 15 passengers effortlessly linking not only outlying regions but major cities as well. With a full complement of 24 passengers SARA is still able to fly 430 nm (800 km) with reserves. City pairs within range on a full fuel load (15 passengers): • Johannesburg, South Africa – Mombasa, Kenya • Johannesburg, South Africa – Kinshasa, Democratic Republic of Congo • Munich, Germany – Cairo, Egypt • Chicago, USA – Mexico City, Mexico • Brisbane, Australia – Wellington, New Zealand

• Chengdu, China – New Delhi, India • Lusaka, Zambia – Libreville, Gabon • Asuncion, Paraguay – Rio de Janeiro, Brazil City pairs within range on a full Passenger load (24 passengers): • Johannesburg, South Africa – Bulawayo, Zimbabwe • Chicago, USA – Toronto, Canada • Munich, Germany – Marseille, France • Brisbane, Australia – Sydney, Australia • Bangkok, Thailand – Ho Chi Minh City, Vietnam • Seoul, South Korea – Shanghai, China SARA is a truly versatile aircraft and is just as capable flying short hops between regional centres as it is on a long distance ferry.


CONTACT DETAILS Address: Denel Kempton Park Campus, Atlas Road, Bonaero Park, 1620 GPS: S 26.14522 E 028.26659 Tel: +27 (0) 11 927 2377 (Denel Aviation) +27 (0) 11 927 3319 (Denel Aerostructures) Fax: +27 (0) 11 927 0000 (Denel Aviation) +27 (0) 11 927 2632 (Denel Aerostructures) Visit us: www.denelaviation.co.za www.denelaerostructures.co.za Email: marketing@denelaviation.co.za marketing@denelaero.co.za


Agents vs Distributors Distributing your product in a foreign country is a task many businesses outsource to local agents and distributors in the foreign country in question. Usually, a local representative should know the country and customers well, and be able to sell more effectively which is incredibly valuable to an exporter. But you have to make sure you have picked the right partner and that you know the difference between an agent and a distributor.

The key difference An agent sells your goods merely as a representative of your business, a distributor buys the goods from you to resell. With an agent you retain the end customer, with a distributor – the distributor is your customer. Agents and distributors both fulfill very practical roles. They are also vitally important for your brand and reputation. Both will, in some way, represent you, your business and your product. Make sure you pick the right one, the right model, and have a good contract in place.

A checklist

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Who provides the after sales service and are they qualified to deliver this service? Will they offer a service the customer expects from your brand?

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Do they have the right knowledge of local conditions and will they be able to target the right customers? In which markets and cities can they operate and where will they represent you?

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Is your intellectual property protected? If you have spent time and money developing a product you need to protect this investment. Also make sure that confidential business matters will remain confidential.

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If you are using an agent do they get paid on order, invoice or delivery? If they are paid on order, can you carry this cost?

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Is your agent or distributor an agent or distributor for other similar products? Would you be happy if your agent sold a competitor’s product in the same market?

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Who is liable if something goes wrong? If a product is faulty is the agent, distributor or supplier liable? To what extent can each party be held liable?

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Is the contract you have with your agent or distributor legally binding in all countries in which all parties operate? A contract may be legally recognised in one country but not in another.

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How specialised is your product? Eric Bruggeman, chairman of SACEEC makes an important point - the more specialised your product, the closer you want to be to your customers. Agents who are ‘catalogue’ salesman may not understand a specialised product well enough to sell it to the right customer with the right advice.

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If there are buyer lists (for example you are exporting to a power utility and they have preferred suppliers and agents) is your agent or distributor on that list?

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Does the agent and distributor have a list of references and can you check these?

Does your product price offer enough scope for added distributor/agent costs? Let’s say your product costs USD5 000, and in the market you are exporting to, there is scope to sell at USD5 500. If a distributor requires a higher margin than USD500 to cover their costs, your product may be outpriced. Where would you find local agents and distributors? Trade desks at embassies, chambers of commerce and business councils are a source of information and contacts, so are your customers, suppliers and competitors.

Agents

Distributors

An agent identifies potential customers for the supplier, handles or assists with marketing on the supplier’s behalf, and obtains orders for the supplier’s goods or services on terms established by the supplier. The supplier then fills the orders.

A distributor is the supplier’s customer, periodically purchasing products from the supplier, taking title to and possession of the goods, and selling them for the distributor’s own account within a defined geographic territory.

The contract of sale is between the supplier and the ultimate customer. The supplier usually retains the risk of physical loss until the goods are delivered to the customer, as well as the risk of nonpayment by the customer. The supplier often has the right to accept or reject orders, and is not contractually bound by the agent’s actions. The agent sometimes acts as collection agent for the supplier and may provide after-sales warranty service to customers. An agent is compensated on a commission basis and usually is subject to significant control by the supplier.

The distributor generally bears the risk of being able to sell and deliver the goods and to obtain payment from the final customer. The distributor’s compensation is in the form of the resale margin over the price paid to the supplier. The supplier normally retains little control over the distributor.

Business Law, The Colorado Lawyer, April 2006

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The Sky is Not The Limit

Marie Botha

South Africa may be a small country but our aerospace and defence industries are innovative and technically advanced. Recognising potential rapid growth opportunities, the Aerospace Industry Support Initiative (AISI) was launched by the Department of Science and Technology in 2006. That’s according to Marie Botha who heads up the unit from the CSIR offices in Pretoria.

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he location of the unit is no coincidence. The CSIR is home to our top researchers (including those who use what Marie calls insane mathematics), and a number of facilities like wind tunnels and simulators so necessary in testing products for the aerospace industry. Says Marie, “One of the full-time jobs of our unit is to transfer technology to various companies in South Africa giving them a competitive advantage.” As with the other dti initiatives hosted at the CSIR, the staff complement of the AISI is small, but access to experts is wide and fully utilised. Take propulsion, for instance. Should a company need assistance with this Marie and the team will find the right experts for the job at hand.

Change your thinking if you believe the aerospace industry is the domain of a few really big players Building on a rich history

It’s not everyday that we think of South Africa as a world leader in aerospace. The SKA project highlighted our capabilities but Marie notes that we have a very rich history and world class skills.

“We have the second oldest airforce in the world and since the 1970s, we’ve been involved with Remotely Powered Vehicles (RPVs) and Unmanned Aircraft Systems (UASs).” But we don’t always maximise these developments. “Staying at the cutting edge is vital particularly when it comes to our strengths which lie in product differentiation and value add.” Also a strong aerospace presence impacts on many other industries. Sensors that we use in our homes and vehicles, medical technology that we use for diagnosis and treatment, ATMs where we bank – all have benefited from an aerospace industry development, both locally and internationally. “Our intention is to keep on industrialising technology for product differentiation and it does not always have to be something new, sometimes it’s using two products together and coming up with an innovative idea and solution.”

How does the unit work?

Using the knowledge residing at the CSIR, the AISI identifies areas in the industry that South Africa is good at, or could be good at, and that need sup-

About the AISI The AISI (Aerospace Industry Support Initiative) aims to position the South African Aerospace and defence related industries as global leaders in niche areas. The AISI aims to improve competitiveness through various platforms and programmes, skills development and technology transfer.

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The AISI is one of two aerospace initiatives supported by the Department of Trade and Industry (dti). The other is the National Aerospace Centre (NAC.) Both the AISI and NAC form the Integrated dti Aeorspace Programme (IDAP).


port. An open call for proposals is then put out. Marie has found that sometimes we could compete in an industry, but the barriers to entry are great high. This is where the AISI can offer support – be it funds, facilities or expertise. “We also assist with accreditation and certification,” she says. Change your thinking if you believe the aerospace industry is the domain of a few really big players. There is a vast supply chain before the big players finally put out their final product, and many of those players in the supply chain are SMMEs. “In such a regulated industry it can be difficult to enter this supply chain, so we offer time, assistance, expertise and incentives to South African OEMs to use SMMEs in order to broaden the base.” Types of opportunities for companies are products used in an aircraft, duty free shopping on the aircraft, and new technologies that will make fuel lighter. SKA projects are also on the AISI’s radar. The unit works on a partnership basis and collaborates with R&D teams from universities, national laboratories and science councils.

Successes

During the 2014/15 financial year, the unit undertook 31 projects with 64 industry organisations including SMMEs. One area of focus for the unit is developing local products to replace imports, and when locally-manufactured products are accredited and competitive, exports are a further opportunity. Dailiff Precision Engineering benefited from AISI’s involvement as they were producing components for the airframes of the Airbus A400M and other mechanical avionics components for local companies, all of which required certification and approvals from OEMs. The AISI assisted with the accreditation process, which then led to more business being placed with the company. During the accreditation process, Dailiff benefitted from technology transfer and process improvements

There are numerous success stories here including mode transponders and laser shock peening. Another mention goes to SatAuth technology that is used for real-time processing of duty free shopping, in the air. Previously, a delay in authentication cost merchants 3 – 4% of their turnover. SatAuth was developed and funded by its South African creators, but for international certification, additional funding and guidance was provided by the AISI.

The law

The AISIs focus is not limited to technical skills development. It has also assisted in building up the area of international air space and telecommunications law. Prior to 2009, no course in this field of law was offered in the country. A programme was thus set up using international experts based at the University of Pretoria. It runs to the end of 2016 by which time a number of master and doctoral degrees with specialisations in international air and space law will have been awarded. Networking is one of the key strengths of the unit, and something Marie regards as very important in the industry. “We have built on partnerships and relationships,” she says, locally and internationally which will go a long way towards supplier development, including transferring technologies to SMMEs to improve their capabilities and skills. AISI, Tel: (012) 841-4947 www.aisi.csir.co.za

and, as a result, were approached by Tellumat to become their mechanical supply partner in the design and manufacture of the transponder mounting tray (a previously imported product). Dailiff designed, produced to required specification and delivered a 3/8 mounting tray at a lower cost. There is further opportunity with different tray sizes going forward and, in time, these products may be exported.

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Let’s Get Competitive A strong manufacturing sector needs a strong foundry industry. These are the sentiments of Steve Jardine, project leader for the National Foundry Technology Network (NFTN).

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or many smaller businesses making up South Africa’s 100-plus foundry industry, transformation has been a challenge, keeping up with technology and remaining competitive has been another, and facing increasingly cheap imports is a difficulty too. These headwinds have seen a number of foundries close their doors, but they also given rise to some innovative ideas.

Steve Jardine

Although there are numerous localisation programmes aimed at boosting local businesses, the apparent problem is that local often costs more. Is this problem real or merely perceived? An A – Z of manufacturing

The NFTN’s mandate to help local foundries become more competitive includes everything from skills development to capital equipment. “A productivity A-Z of the manufacturing environment,” is how Steve refers to it. And although the focus is local, international developments and businesses play a huge role, particularly as one of the aims of the NFTN is to reduce import leakage.

About the NFTN

The National Foundry Technology Network (NFTN) was set up in 2009 to facilitate the development of a globally competitive South African foundry industry. The NFTN offers skills training, technology transfer and state-of-the-art technologies to its members, which will assist them in becoming more competitive and more productive; reduce import leakage and increase investment in the industry. The NFTN works on a firm level, a supply chain level and an industry level, targeting activities that will improve the performance of individual foundries, and the foundry industry. The NFTN is a DTI initiative, and is based at the CSIR offices in Pretoria.

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“We have to deal with issues that arise when a country has a higher skill level than South Africa and pays less for these skills,” he adds. “This directly affects our productivity and how we approach competitiveness in our local industry.” Steve acknowledges that price can be a stumbling block for local suppliers. “Customers are buying the cheapest,” he comments. Although there are numerous localisation programmes aimed at boosting local businesses, the apparent problem is that local often costs more. Is this problem real or merely perceived? Often it is real. Steve uses an example where a 70% local content requirement could lead to a 50% increase in cost. “I have no doubt this 50% exists but the increased cost is an engineered solution. If someone else can do it for less, why can’t we?” Steve asks. “We have to change and re-engineer processes and components and parts. We need to take out the excesses at all levels and look at how we do things while keeping standards in order to compete successfully.

Value chains

“We don’t have the luxury of being greedy,” he observes. “Barriers and duties are not going to make us competitive, we have to get work on our manufacturing sector which needs to advise suppliers about exactly what they need them to supply and to what standard.” And to become globally competitive, the full supply chain has to be competitive. You can only produce a quality product, if you use the best components and skills to make that product. “Value chains are important concepts when making an industry more productive and competitive. The top of the value chain may respond well to an intervention. But, in order to fully capitalise on that intervention, the suppliers who make up part of the value chain also need to be on board,” says Steve. This is more than just the seller and the buyer, who already talk to each other, it involves all the parties involved. “To get all the parties on


one page talking to each other is difficult,” Steve notes. “But it needs to be done.”

Making a difference case by case

The NFTN works on a case-by-case basis, making a difference to each business it works with. Initiatives and programmes include direct interventions, facilitating shared use of technology, assisting with accreditation and developing skills. “We will go to a foundry, engage with them and see where we can assist. We become a relationship partner, acting as a coach and guiding the business along the right path. Where all agree that things need to change, we can offer a potential solution which the firm in question implements. The company does the actual work while we support with the right help and guidance on how to find the right resources to overcome any shortcomings.” The NFTN plays a role in environmental licences product development, for example. They also assist if a smaller business needs international certification to win business, but finds it too expensive to apply for these certifications. “This is a cost that can be managed,” says Steve, “and one that in the end turns out to be minimal given the increased business it can bring.” The changes suggested range from minor to major. “Very often it’s the little things that make a difference. In one case, we assisted a foundry where seven people had been laid off. It was a small foundry and not much was happening. A series of small changes suggested by us, meant that shortly the foundry was re-employing some of the people it had retrenched. “In some cases, bigger interventions are the order of the day. Sometimes it’s a question of access to funds which we help to secure. In one example, putting R2 million into a business resulted in it growing by over R50 million.”

NQF levels

Another important area is uplifting skills. The NFTN programmes aim to develop skills from a basic foundry level to a qualified artisan level. Through these programmes, foundry workers have been trained from National Qualifications Framework (NQF) Level 2 to NQF Level 4. One development programme launched in 2013 is the New Foundry Generation Forum (NFGF). This support programme is aimed at industry leaders

(young, upcoming and old) and gives participants exposure to new technology, design and problemsolving techniques. It includes front end technologies and functional design training hosted by the Vaal University of Technology using their casting simulation software and 3D printing facilities.

This is more than just the seller and the buyer, who already talk to each other, it involves all the parties involved Keys that unlock competitiveness

1 2 3

Know the industry and all the players and what they do. Steve would like to see a lifetime directory developed for the foundry industry. Talk to each other about the industry. “Clusters can do this and give a common purpose,” says Steve.

Work together. “If we work together more often we are able to arrive at much better solutions. But this doesn’t just happen on its own, you have to engineer the discussion processes.” Identify the unique problems and come up with solutions. “South Africa has two unique problems when developing this sector,” Steve observes. “We don’t have economies of scale and we don’t have the capacity. The challenge is how to effectively use the capacity we have by looking at alternative manufacturing processes, for example? Or implementing an efficient process that is implemented over a seven-day week and three shifts. Another example could be training cutting machine operators to become more efficient and quality focused.”

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Make the best use of science and technology. ‘We are trying to bring technology home and not wait for an OEM to do the development internationally before importing it into the country,” says Steve. But a business overhaul won’t come cheap, nor will skills upgrading or installing the latest equipment. “We need the universities and science and technology councils to get involved. This would reduce the company’s cost and represent an exciting opportunity

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Communicate and share the stories. “Finally,” says Steve,”We have to know the problems, and share the success stories.

www.nftn.co.za

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1) The tissue in plants that brings water upward from the roots; 2) a leading global water technology company. We’re a global team unified in a common purpose: creating innovative solutions to meet our world’s water needs. Developing new technologies that will improve the way water is used, conserved, and re-used in the future is central to our work. We move, treat, analyze, and return water to the environment, and we help people use water efficiently, in their homes, buildings, factories and farms. In more than 150 countries, we have strong, long-standing relationships with customers who know us for our powerful combination of leading product brands and applications expertise, backed by a legacy of innovation. For more information on how Xylem can help you, go to www.xyleminc.com

Electra mining strip advert 16.indd 1

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Industry Takes the Initiative Current champion of Vamcosa, Mark Wilson, marketing director of Gunric Valves, and deputy champion Ross Hunter, commercial director at RGR Technologies, have been involved in the cluster since its inception in 2011 as champions and cluster members.

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ark says, “At the time, valve and actuator manufacturers were facing difficult times. The re-entry into the global arena made it almost impossible to compete on price, given the lower input costs foreign producers enjoyed. As a result, the sector experienced significant job losses and essentially found itself in a distressed state.

Clusters are a different animal altogether. Everyone has a say in the vision, goals and specific projects “Sadly, this trend spread to major suppliers as well as foundries, forge shops, and steel/stainless steel suppliers. Further, transformation needed to be seen to be happening and investment in our sector is not

Vamcosa

The Valve and Actuator Manufacturers Cluster of South Africa (Vamcosa) was formed in June 2011 under the auspices of the Capital Equipment Export Council (SACEEC) with very clear goals to drive local manufacturing, develop skills, achieve job creation through local procurement and promote enterprise development. It also specifically aims to promote interaction with stateowned companies and municipal-owned enterprises for greater uniformity and higher standards. Vamcosa aims to promote exports to improve competitiveness through quality improvement as well as through on-going research and development. The cluster represents a significant portion of South African based local manufacturers. Developing the sector through the value chain involves tackling the many challenges facing the industry as a whole. Chief among the challenges is prompting the procurement of locally manufactured valves and actuators; especially where state spend (government procurement) is concerned. Getting this right will result in: increased job creation and retention at the manufacturing level as well as up and down stream, (fabricators, foundries, paint suppliers and the steel sector). In addition Vamcosa focuses on skills development and training, transformation and export promotion. This is achieved by working together as an industry, coordinated through Vamcosa which provides the platform to engage with government, state-owned-entities, municipalities, as well as universities, labour, funding and development institutions and other captains of industry in order to pave the way for the sector.

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nearly as attractive as hospitality, finance or retail. Therefore, Vamcosa was established” Setting up the cluster and getting buy-in from the various companies in the sector was initially quite a rapid process. “We moved quickly at first with a stream of manufacturers coming on board but getting everyone involved was more difficult and time-consuming. To date we have arrived at the point where we now represent 90% of local manufacturers.” Mark believes that business in South Africa is more familiar with the concept of an association rather than a cluster. Associations tend to have chairs, deputy chairs, committee members, often managed by full-time employees who make decisions. “Clusters are a different animal altogether. Everyone has a say in the vision, goals and specific projects. Everyone sits around the table and everyone gives input,” says Mark. A cluster should be “a forum where we discuss the problems,” says Ross, “not a committee meeting with 21 agenda items that you go through with no discussion on the real issues. In a cluster everyone is equal and everyone should contribute. A cluster shouldn’t have a structure. There is a champion and a deputy champion who provide guidance, but no formal agendas. “The reason you belong to the cluster is to grow your business,” says Ross. But it can be tough to decide when you collaborate and when you row your own boat. “How you conduct yourself within the cluster is not always clear-cut,” he comments. “You don’t want to take competitive advantage for yourself at the disadvantage of others.”

Relationship of trust

“We never discuss pricing or tenders at our meetings,” says Mark. “We remain competitors but we are guided by Vamcosa’s constitution and code of conduct that members sign. Minutes are taken at all meetings and in this way, we function as facilitators and drivers.” “Key to cluster relationships is trust. One day you are sharing information with each other and the next you go head-to-head as competitors. The line between what is the business of the cluster and what is the business of the company you represent must be clear. Each member of the cluster has to agree to and work on the cluster’s goals, not personal agendas,” both Mark and Ross emphasise. “The first priority for us,” says Ross, “is job cre-


Mark Wilson, Gunric Valves

What is a cluster?

“A cluster is a geographical proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and externalities”. (Michael E. Porter, On Competition) Clusters encompass an array of collaborating and competing services and providers that create a specialised infrastructure, which supports the cluster’s industry. Clusters draw upon a shared talent pool of specialised, skilled labour. Vamcosa is a cluster based on the principals of Michael E Porter and in this instance is an informal structure. In other words Vamcosa is neither an industry association nor registered section 21 company. It operates through the formal structure provided by its host SACEEC and is run bottom-up through representation by cluster champions and working group participants, who work in the valve-manufacturing environment and are members of the cluster. Each member of the cluster is responsible for driving certain activities, either through working groups or as elected by the members of the cluster, to tackle a particular task. It is truly for the industry by the industry. Every two years the members vote in two champions who are responsible for overseeing the activities of the cluster during that period. Cluster activities are funded through annual membership fees.

ation.” Vamcosa’s priority area is to promote local manufacturing growth, transform the sector and grow exports. These are the cluster’s key performance indicators. “What we have learnt in the past is not to try to do too much,” adds Mark. “Rather concentrate on a few important items and deal with these thoroughly.”

The line between what is the business of the cluster and what is the business of the company you represent must be clear Local designation

The importance of job creation doesn’t need any further elaboration. To achieve job creation you need a thriving industry and demand for local products. One of the first tasks the cluster undertook was local designation. Getting the sector declared a protected industry would see greater use of their products; increased demand would lead to more employment. This designation was achieved in March 2014, with the local content set at 70%. All state-owned companies are required to procure locally manufactured valves and actuators per the Instruction. Both Mark and Ross rate this as a success for Vamcosa, and following the designation, a number of businesses have seen significant investment and orders.

Closing the loopholes

An enormous recent victory was the re-issue of the sectors Instruction Note, which will positively impact on the supply chain and demystify how local content is to be understood and calculated (see pages 28-34). ENGINEERING WORLD 2016

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The changes include:

• An updated catalogue of the valve-type list to include the “also known as” categories. For example a check valve is also known as a non-return valve or reflux valve or tilting disk valve and so on. This will curb the number of state owned entities, departments, including municipalities as well as contractors working with state spend, from thinking that by changing the name of the valve that designation does not apply. • Clarification regarding how the 70% local content is made up now includes the use of locally produced and certified castings, forging and fabrication as well as verifiable manufacturing activities such as machining, drilling, coating, assembly and testing. • The averaging out of local content either across any number of valves and gearboxes / actuator combinations, or locally made and imported valves or other items is not permitted. Each individual valve, manual actuator or pneumatic actuator is subject to the minimum 70% local content threshold.

The cluster’s involvement, as well as the hands-on involvement of our members has been inspirational Challenge: Verification of local content

Now that the Instruction Note is correct, Vamcosa needs to address the local content verification process; there is a need for an affordable as well as credible and independent verification process to be put in place.

Challenge: Adherence to designation

With regard to adherence there are two challenges. The first is ensuring that state entities actually adhere to the requirements of designation. The second is ensuring that there are consequences for not adhering to designation.

Skills development and transformation

“Transformation initiatives are often long and expensive,” says Ross. “Most important is getting the message out there which is why I have met with relevant stakeholders such as the Department of Higher Education to discuss training programmes on behalf of our industry, an initiative which is gaining momentum. Working together as an industry with full commitment and a set budget helps support members and makes a huge difference over time,” he emphasises. Vamcosa has established a transformation working-

group specifically to drive this goal. Achieving real transformation involves skills development, and the cluster has been particularly active in this area. Training is a focus of the cluster, and something Ross is passionate about. Vamcosa has a ‘Discover your career in valves’ initiative whereby learners are encouraged to stay in school to do core maths, to consider a career as either an artisan or an engineer, in order to bolster the next generation workforce and the country’s future industrialists. The school identified for the launch, Fumana Secondary School in Katlehong, was selected in 2014 based on its proximity to Vamcosa members, the fact that the school offers technical training with workshops, as well as the number of students passing core maths. “The cluster’s involvement, as well as the hands-on involvement of our members has been inspirational. Members have repaired the school’s workshop equipment and donated new equipment and PPE for the learners, over and above their time to mentor these students. We post regular updates on this project on our website,” says Ross.

Competitiveness

Vamcosa provides its members with access to providers who can assist their companies’ competiveness from cost saving through managing energy consumption through to certification, accreditation and manufacturing enhancements. RGR Technologies is piloting MAP (Manufacturing Accelerator Programme) together with Vamcosa, the SACEEC, and partners, Isah (international software provider to make-to-order industries), MAP and TLIU (Technology Localisation Implementation Unit, hosted and incubated by the CSIR). The MAP programme offers a complete transition into the modern world of make-to-order/engineer-toorder manufacturing. It enables companies to meet today’s high demands for high levels of product and service customisation, high customer service levels with predictable and well-managed costs, delivery times and the sort of quality required to compete locally and internationally. “So far, RGR Technologies has already begun to experience the benefits of the education and training portion that MAP provides,” Mark and Ross conclude. Vamcosa, www.saceec.com/vamcosa/

Did you know: Trade finance activity is considered to be of significantly lower risk than conventional financing such as overdrafts and loans.

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Incentives, Agencies, Departments and Corporations There are a number of agencies and councils who offer incentives and funding for exports. How and where do you find out about these?

1. Department of Trade and Industry The dti is a huge government department and has numerous incentive, funding and education programmes to offer an exporter. From primary research grants, to international fairs and outwardselling missions, the dti is a wealth of information and assistance. On the incentive side, the well-known MCEP (Manufacturing Competitiveness Enhancement Programme) was oversubscribed and closed to new applications in October 2015. The programme was to be reviewed and possibly opened in the new financial year in 2016, but as of August we are still waiting for word on whether MCEP will reopen or remain closed. MCEP was started in 2012 and approved over 1 500 grants worth over R5 billion. It’s not the only incentive programme on offer but as programmes change from time to time, it’s wise to keep an eye on the dti website section on financial assistance for more information. The dti website also offers a list of all the export councils active in South Africa with contact details. www.thedti.gov.za

2. TISA The dti has a division known as TISA (Trade and Investment South Africa). One of its goals is to develop new and existing local exporters. TISA offers a wealth of information and export awareness days are run in locations throughout South Africa, including places like Klerksdorp. The export awareness days cover general tips and information, details on incentives and programmes and funding opportunities from agencies like the Small Enterprise Finance Agency. As they are not advertised, you need to contact the dti to find out where and when the next export awareness day will take place in your area. www.thedti.gov.za/about_dti/tisa.jsp

found that applying for funds can take some time. It makes sense to see if you can receive funding, but it’s unlikely to be at special rates and take your time constraints into account. Even if you’re not keen of going this route for funding, have a look at their website as they have good economic data that is useful when researching markets. www.idc.co.za

5. Chambers of Commerce The South African Chamber of Commerce and regional chambers of commerce offer members information, listings, networking opportunities, seminars, training and events. Some will also assist with finance for overseas exhibitions.

6. International Trade Administration Commission of South Africa Here you can find a list of what materials and substances require special permits and details of trade agreements. This site is a must for any exporter. Alternatively visit the South African government website on http://www.gov.za/services/ export-permits-custom-duties/register-exporter for export information. www.itac.org.za

3. sefa

7. WTO and ITC

The Small Enterprise Finance Agency offers finance to SMEs with a limit of R5 million. Forms are available online but you will need things like a credit record and contract or order.

The World Trade Organisation regulates international trade and its website has much useful general information. The International Trade Centre offers specific information including online courses such as setting up an export marketing plan through their SME Trade Academy. The ITC has good sector, region and country research available on the site.

www.sefa.org.za

4. IDC You can apply for funding through the IDC - the forms are available online. In practice, many have

www.wto.org and www.intracen.org

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Locallymanufactured Globe Valve High-pressure stop valves are used in the most extreme high pressure and temperature applications.

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skom remains one of the largest consumers of these valve types, with thousands of units required in power plants across the country. Until now, there has been no local manufacturing capability to produce the valves required to specification. With no local capability available, the cost for the purchase and maintenance of these valves remains high.

Locally sourced materials, local castings, machining, assembly and testing, the valve conforms to all the criteria for local content In answer to this challenge, Mitech Control Valves has been working in close consultation with Eskom over the last two years, to conceptualise, design and locally manufacture a high pressure stop globe valve that will fulfil the technical and safety requirements as well as the local content requirements as set out in the Department of Trade and Industry’s (the dti) designation Instruction Note for the procurement of valves and actuators.

General Manager for Mitech, Pieter Badenhorst highlights the degree to which the unit is locally produced stating that, “Although we have to import some of the material used in the manufacturing process such as bar-stock which is not produced in the country at present, the valve remains 80-90% locally manufactured.” Using Mitech’s design, locally sourced materials, local castings, machining, assembly and testing, the valve conforms to all the criteria for local content.

Production supervisor, Sam Mashava, doing a practical demonstration

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components, most of which are easy to maintain. The body of the valve is a one-piece investment cast design, eliminating threaded or bolted pressure-retaining parts. The unit has a fully replaceable seat, which can be extracted while the valve remains welded into the line. The inner components of the valve can be refurbished using standard tools, as well as two specialised tools, on site. The valve boasts a long-lasting packing configuration with live loading as an option. The anti-rotation pin on the stem ensures that there is no torsion applied to the packing system. The unit features a universal yoke flange making it easy to accommodate various actuator designs. The stellited seat and hardened plug material ensure a tight shut-off making it highly resistant to erosion. Mitech Control Valves , Pieter Badenhorst Tel: (011) 927-4850 Email: pieterb@mitech.co.za, www.mitech.co.za

Test sites

Pieter explains that it would be very difficult to simulate the extreme conditions that would be required to test their valve in the laboratory, therefore Eskom has agreed to install the valves at appropriate test sites for a trial period at their power plants, to fully evaluate the valve’s performance. Mitech has committed to providing technicians working on Eskom’s plants with training as well as a full service manual to ensure effective incorporation of the valve into the power plants. CEO of Mitech, Alli Alberts is confident that their product will meet and outperform those that are currently being imported. He highlights the importance of local manufacturing in addressing unemployment in South Africa, and the positive knock-on effect that this will have for the economy. “Projects such as this should start to make a real difference,” he states.

Impressive specifications

The high pressure globe stop valve demonstrates some impressive specifications. The key to the design concept has been simplicity, robust engineering and minimising maintenance costs. The whole unit comprises 33 ENGINEERING WORLD 2016

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Fix and Move Forward SWH-Mancosa has a constitution and code of ethics that governs its members. The code of ethics includes a non collusion clause and a fair business clause where “fair and reasonable pricing in the spirit of free enterprise and unselfish service in the best interests of the customer” are required. SWH-Mancosa has a champion and deputy champion, who serve terms of two years; and a number of subcommittees.

The power of the sun

One of the newer clusters set up under the auspices of SACEEC, is SWH-Mancosa (Solar Water Heating Manufacturers of South Africa). It should be a logical assumption that alternative energy suppliers are experiencing high demand for their products. Conventional energy supplies have become very expensive, the supply can be unpredictable and an environmentally conscious world requires cleaner energy.

The dark days of 2008 when Eskom resorted to extensive loadshedding highlighted the need for alternative energy But logic is being defied. Solar water heating manufacturers are facing some strong headwinds in the form of uncertain policies and verifications, and ever-changing buyer rebate programmes. Established in February 2015, the SWH-Mancosa cluster is championed by Mike Breckenridge, MD of Powerz-On, who is determined to get the solar water heating industry back on track.

The dark days of 2008 when Eskom resorted to extensive loadshedding highlighted the need for alternative energy. In that year, a rebate programme was introduced for the installation of solar water heaters. The programme was run by Eskom and rebates were in the range of R3 000 – R8 000 depending on the system installed. “We are blessed with an abundance of sun,” says Mike. “As heating water accounts for 30 – 50% of a household’s electricity bill, using the sun as an alternative can dramatically reduce costs but as a country, our conversion has been slow.”

Made in Africa for Africa

The rebate programme changed hands, didn’t meet targets and fell away early in 2015. “This has led to uncertainty and the industry is shrinking,” adds Mike. Furthermore, a localisation designation and preferential procurement for local products came up against implementation, verification and accreditation problems. The result was an industry in serious difficulty. The SWH cluster was set up to “get the industry going,” Mike comments. It has an impressive list of goals, but the first points of order to deal with, through the various subcommittees, are localisation and compliance with standards. Localisation has made a difference to many industries and individual businesses that have been awarded substantial tenders. In the solar water heating industry, there is both a need and desire for localisation. Yet it’s not as simple as that. Mike shares that five years ago, localisation was lobbied for and awarded, but incorrectly applied. “The SWH-Mancosa cluster is now dealing with this issue to make sure the designation is relevant, contains no loopholes and can be implemented to the benefit of the industry.”

Loopholes

At the time of the original designation (2011), SWH-Mancosa did not exist and so industry players had no input. “Local industry was not asked to comment,” says Mike. “A number of other stakeholders were consulted but not the manufacturers and suppliers.”

Mike Breckenridge, MD of Powerz-On

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The result was a designation with a number of loopholes which made it easy to circumvent the 70% local content threshold. In addition, a number of cheap imported products were offloaded into the South Africa market. “Solar water heaters should


be made in Africa for Africa, and given local conditions – a local product might be the best option,” stresses Mike. As an immediate concern, the cluster has to tackle this issue head on. One option is to rewrite the designation. “We have a subcommittee looking into this,” says Mike. 70% local content may seem a high threshold. Getting the support of the purchaser for local products requires them to trust that the products are of a good quality. This can be achieved by independent testing and certification against set standards. Solar water storage tanks and solar systems are required to be VC9006 and/or VC9004 compliant, as tested by the SA Bureau of Standards. Unfortunately there were problems with and delays in testing, and local manufacturers weren’t being issued with these verifications. This resulted in uncertainty over compliance with standards and huge delays in verification.

Like the Vamcosa cluster, transformation is also on the agenda which also includes transferring knowledge

About SWH-Mancosa

SWH-Mancosa is the Solar Water Heating Manufacturers Cluster of South Africa. The cluster objectives are to: • Promote the growth of the local industry • Regulate labour by promoting local employment in the industry • Promote the interests of its members with government organisations • Promote free and fair competition among the members • Seek representation on technical committees to advise government and other stakeholders about product specifications • Engage with government regarding issues of designation, concessions and compliance • Develop the recognition among internal and external stakeholders that SWHMancos is a reliable and credible brand

Information-sharing

Speaking as a unified voice and with SWH-Mancosa representing over 90% of the industry; accreditation, testing and compliance with standards are high on their priority list. Therefore, this cluster has engaged with a number of stakeholders regarding the issue. SWH-Mancosa has not lost sight of any export potential. “Clusters are driven by the need to be globally competitive, but you can’t be competitive if the industry is not yet right which is why we’re far from exporting our product at this stage.” Like the Vamcosa cluster, transformation is also on the agenda which also includes transferring knowledge. “The knowledge is at the top,” he notes. “It needs to be shared.” With some cluster members having been in the industry for nearly 100 years, the small players in the industry have benefitted enormously as knowledge, expertise and experience, is shared across the board.

Massive potential

The potential for a thriving industry is massive. “Locally, if the solar water heating industry was promoted and managed correctly, there would be enough business for the local players,” Mike comments. “Of course, this would not go unnoticed internationally and we would expect to see aggressive competition from new entrants.” He believes clustering works because the industry can weigh in with the stakeholders. “Government agencies don’t always want to speak to individual companies on industry issues, but an industry body has more clout. SWH-Mancosa opens doors,” Mike observes. “We couldn’t open a door before, now we are in the game,” he concludes. MANCOSA www.saceec.com/swh-mancosa/

Is it more difficult to get finance as a small or medium sized business? SMEs constitute over 95% of all firms and around 60% of global employment but they may find it more difficult than their larger counterparts to find finance. A 2015 global trade survey by the International Chamber of Commerce found that despite 45.75% of trade finance applications being submitted by

SMEs (higher than large corporates - 39,63% and multi-nationals - 14.62%,) over half of the proposals that were declined had been submitted by SMEs. 79% of large corporates had their proposals accepted. Rejection rates of trade finance proposals were highest in Asia (31%), Africa (18%) and Russia/CIS (15%).

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The South African Capital Equipment Export Council (SACEEC) SACEEC represents the capital equipment and project sector both for new projects and for the aftermarket. It is also the endorsed representative body for the consulting engineers and their associated bodies, merchant bankers – with reference to their involvement in financing capital projects, capital equipment suppliers and supplier of services to the capital project sector.

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he SACEEC provides a facilitating role in assisting the capital equipment sector companies to grow their business through exporting. • It is the voice of the sector to government and the rest of the industry on export matters • It provides critical and timely information to enhance members ability to make sound business and management decisions

Assisting the capital equipment sector companies to grow their business through exporting • SACEEC aggressively assists it members to access global markets through facilitating National Pavilions, individual participation in an exhibition, outward-selling missions and inward-buying missions in a focused manner, to targeted customers. • It has an effective public policy programme and acts as an advocate on behalf of its members on issues unique to the mining, agriculture,

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construction, beneficiation and utilities sectors within the exporting context • The SACEEC provides its members with leads and market information • It assists individual companies to restructure or upgrade in order to ensure that they adhere to international best practice. • It provides a unique platform for members to network and develop multi-company marketing and implementation strategies • It facilitates collaboration between members, between sectors and all along the value chain • Through its members, SACEEC identifies limits to growth and then engages for remedial action or the implementation of schemes to assist in positioning its members advantageously. • SACEEC assists its members to position themselves with potential customers they would otherwise not meet. The SACEEC provides a facilitating role in assisting


the capital equipment sector companies to grow their business through exporting. To that end it takes a proactive role in, among others: • Assisting its members to maximise markets through providing early leads on opportunities • Organisers pavilions at international exhibitions and assists individual companies to attend specific exhibitions or engage in primary market research • Provides the one-stop access to suppliers of the sector and simplifies the identification of suppliers for international sourcing • Provides the vehicle for encouraging the sharing of export-related facilities and manpower and the monthly SACEEC meetings provide good opportunities for the members to network • Encourages the development of consortiums and the packaging of international projects • Facilitates liaison with all departments of government • Provides access to the combined voice of the sector on issues relating to finance • Industrial Policy – both development and application • Industry promotion

Board of Directors

• Trade statistics analysis by product and country • Levering funding for specific projects Promoting our members internationally • Building a brand for the South African manufacturing sector • Networking opportunities and workshops Providing a formal gateway between government and business regarding trade • Addressing trade opportunities and issues by capitalising on our combined strength • Influencing export policy and support schemes

Who can join?

Companies who provide Capital Equipment, Engineering, Information Technology and products or services; and who are either a South African manufacturer, producer or service provider, or are a division, branch or local subsidiary of an international organisation whose product or service is produced or assembled in South Africa; and who are currently exporting or believe that their products and services have export potential.

The Capital Equipment Export Council is uniquely positioned to assist our members to increase their international business and exports

Our Board of Directors is drawn from acclaimed industry leaders, all of whom have recognised the value of belonging to SACEEC.

Clusters

• Hoosen Essack – Director Roytec Global (Pty) Ltd • Eric Bruggeman – Chairman and CEO of SACEEC / Bruggeman Consultants / Director BH Projects • Ross Hunter – Director RGR Technologies / Director BH Projects / Founding Champion Vamcosa • Hugh Saunders – Incentives Consultant • Peter Ellis – Sales Director, Brelko Engineering • Trevor Carolin – Director Urethane Moulded Products • Fernando Monteiro – Managing Director Tega Industries South Africa / Founding Champion Sampec • Chris Beyers – CEO of SACEEC / Consultant – Beyers Consulting

Sampec, is housed under the auspices of the South African Capital Equipment Export Council (SACEEC), which operates as a public/private not-for-profit company in partnership with the Department of Trade and Industry.

Why join?

The Capital Equipment Export Council is uniquely positioned to assist our members to increase their international business and exports by: Facilitating export growth • Providing quality market access • Specialised trade missions • Participating at international exhibitions • Designing, managing and funding export related projects • Providing market research and logistics support • Assisting with government incentives Supporting export development • Focused export training

The South African Minerals Processing Cluster (SAMPEC) was officially launched in September 2014. The vision of the cluster is directed towards increasing opportunities for local supply to the South African mining sector thereby creating economiesof-scale thus positively influencing its members’ global competitiveness.

The Solar Water Heating Manufacturers Cluster of South Africa (SWH-Mancosa), has been established to promote the local industry within the parameters of designation, influence where possible additional policy to promote local manufacturing through dialogue and active collaboration with key stakeholders, and to develop export markets for the sector through the clusters association with the South African Capital Equipment Export Council. The Valve and Actuator Manufacturers Cluster of South Africa (Vamcosa) was formed in July 2011 and works within the dti’s designated cluster parameters. Vamcosa’s focus is to bring local valve and actuator manufacturers together in order to create a common focus and goal for the respective industries. Vamcosa provides an effective platform for its members to lobby Government through designated channels of the dti and the SACEEC with regard to industry specific concerns. SACEEC, Tel: (011) 849-7388, www.saceec.com

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Get It Right in Your Domestic Market Exporting is a fantastic growth and business opportunity, and there are times when it may appear to be an easier option than selling into a complicated domestic market. Appearances can be deceptive. “Exporting is a hundred more times difficult than selling down the road,” says SACEEC chairman Eric Bruggeman. It will involve more paperwork, more administration, research, travelling and knowledge of more than one country and one set of laws.

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here’s another reason as well, adds Chris Beyers, consultant at SACEEC. “For a buyer in another country to see that you are not a fly by night and that you can produce the goods, you will need a domestic reference.” Just as you will check the payment credentials of your buyer, your ability to produce the goods will also be checked. A domestic market presence and product is a must. Have a list of local customers to hand that you can offer to your buyer for references.

A domestic market product and presence will show you are not a fly by night

Eric Bruggeman, Chairman and CEO of SACEEC

start visiting countries and new clients. Find out about the country using websites. Check out their business environment, their political environment, their policies. Do they need your product, are there other competing products in the market, will clients buy your product at a profitable price? Check with embassies, the dti, client webpages, export councils like SACEEC. Use technology like skype to talk to potential clients and contacts in the country.

2. Have market research funds Your local market will also sustain your research and development. An added benefit of more than one market is that you diversify your revenue. Should one country experience a problem, you have other options and revenue generating markets.

Research new markets

You’ve proved yourself in the domestic market. Now you are ready to conquer the export market. The first step is to undertake some market research. This is what Eric calls doing your homework. “In fact,” he says, ”failure to do your homework properly is the number one reason for not getting paid. You’ll need to do a lot of market research and it’s going to cost money. Eric and Chris offer the following tips and advice:

1. Start researching at home.

A lot of the research can be undertaken before you

What about a joint effort? If you have complementary products a joint marketing effort can work

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A ballpark amount you need – in ready cash – is R1 million. The dti offers assistance for primary research and you can apply for this but be aware that applications can take a few weeks before being approved and the funding released.

3. Be careful of using information from market research bureaus

Check before using these or parting with funds that their research is current, comprehensive and valid. Ideally, you should do your own research to be completely comfortable that you have the right information.

4. Find the right type of info

Find out information about your client. Take an approach similar to what you would in South Africa. Does the client need your product, which industries use your product, is there a competing product? Know your client, who are they, what do they do, who are their clients and suppliers. What industries are strong in the country, what industries are developing. Will the industry into which you are selling support imports or do they have a localisation policy in place?

5. Get to know your customer

Once you have completed your initial research, it’s time to go and visit prospective clients who have shown some interest in your product. After meeting


face-to-face a few times, you can start checking credentials like banking details. This is vital to ensure you will get paid for an order, but unlikely to happen after the first contact. When you do ask for the client’s bank account details, you prime motivation is to establish whether they are ‘good payers’. Your client may come with you and introduce you to their banker.

Export ready – papers in hand

Your product is ready, accredited, suitable, needed and wanted in new markets that you have thoroughly researched. Before you start marketing to potential new buyers, make sure your business is export ready. Why this matters: If you want to attend trade fairs, exhibitions and national pavilions where you can meet potential buyers, you’ll need to show you are export ready. SACEEC says the following is needed:

1. An export number from SARS

You will need to register as a local exporter with SARS. The forms are available on the SARS website. If you are registering under a preferential trade agreement (AGOA for example), specific forms will be required.

Check with your export council what you need to start marketing and exporting 2. A business plan

This is to show that you understand your business and product, as well as your competitors. Your business plan doesn’t have to consist of reams of pages – it just needs to show you are a solid, reputable business with a good product.

3. A company profile

The personal touch and a face-to-face meeting is invaluable but don’t forget to leave your prospective buyer a reminder of your company and what you can offer in the form of a brochure, follow-up email etc.

4. A marketing plan

The greatest product can only become a bestseller if it is marketed well. How and where will you find new buyers, how will you approach them, include all of this in a marketing plan.

5. Audited financial statements.

Trade exhibitions and pavilions

When you make good use of expos and pavilions they can lead to new business. The dti say that If used correctly, a trade show can be one of the most effective marketing tools available to your

company. Just a word of warning – to really get the most out of them don’t expect any free time to explore a new city!

What are they?

Trade exhibitions are the familiar expos held in most countries. National pavilions are where the country takes a group of exporters to selected fairs and exhibitions.

Who can attend?

Both new and existing exporters can attend trade exhibitions and pavilions.

Where can I find out more?

SACEEC, and other export councils, will have these details for members and the dti has a calendar of national pavilions on their website. Export councils and the dti will put forward potential attendees from which the dti will select the final delegates. You must be export ready when you apply to attend a pavilion. Shows are oversubscribed so apply well in advance, and put your best foot forward when completing your application.

What does it cost?

Costs vary, but most of the national pavilions will cover costs in full at standard rates.

Do they work?

Yes, if you use them well, and that means doing a lot of work before the show, at the show, and after the show. Export councils and the dti offer some tips on how to make the most of pavilions.

Market your products before the fair to potential clients Before the show

“Do your homework,” says Eric. “You cannot pray and hope someone will come and buy your product.” SACEEC offers training courses and guidelines on how to make the most of shows. These courses are well worth attending. 1. Know what product you are selling 2. Know who you are going to see (a lot of shows will have networking, VIP visitor campaigns and matchmaking events – find out about these and attend) 3. Get your marketing material, product brochures, company profiles, business cards ready for distribution. 4. Do some pre-show marketing, invite potential clients, let potential clients know how good your product is and where they can come and see you at the shows. 5. Find out about the country you are visiting, what matters to them and do they have any special customs you should know about.

At the show

1. Be respectable and knowledgeable. You are an ENGINEERING WORLD 2016

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2. Keep a record of who visits your stand, what they are interested in and how you can contact them.

we all are in our own field, there comes a time when another kind of expert is required. This is what export councils can do. They provide export advice and guidance through the exporting maze. They won’t do the work but they will be able to share information and assist you on your exporting path to success.

3. Find out if and how you can move beyond the stand. Will you have any marketing space in the shows’ catalogues, are there areas other than your stand where you can meet people. The dti calls this moving beyond the booth.

“The best thing you can do before exporting is to approach an export council,” says Eric. “Part of our responsibility is to make sure we give people all the info they need to export, and we offer one-on-one consultations to prospective exporters.”

ambassador for your products, your business and your country. It’s often tempting to man a stand with temps – be very careful of doing this – you need to put your best foot forward and be able to answer technical and company questions if you are asked.

After the show

Debrief and follow up. For Eric this is one of the most vital steps. Attend the debriefing, learn from the show and the experience of others, and follow up with the people and companies you met at the show.

Check the details

You’ve got an order and a contract and you’re ready to start producing, just spend a moment doublechecking all the details. As obvious as this sounds, it cannot be overemphasised. Are you and your client talking the same language and are you both in agreement on exactly what you will supply, how, when, where and with what support and service?

Use a technical translator for a technical product

From instruction manuals, to maintenance guidelines and dates, whether you are talking English or using other languages, you need to make sure you understand your client and that your client understands you. Eric says using a translator is common but make sure if you have a technical product that you use a technical or industrial translator rather than a commercial translator. A technical translator will be able to translate the specialised terms and specifications of products. Where to find a translator? Approach the embassy or the courts And be careful of thinking you understand each other because you both speak and write English. Is this date: 2016-01-08 the first of August or the 8th of January? It can mean either – depending on where you are and who you are dealing with. Check, check and check again.

What’s in an export council

The ins and outs of exporting are definitely interesting, often challenging, and vast. As good as

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There is a fee to become a member of an export council, for example, a SACEEC membership costs R15 000. Eric believes that the value you get out of this far surpasses the rand amount as export councils have been involved in the business for years. Meeting with these experts and benefitting from their knowledge can save funds when it comes to research and administration, and help you avoid many a pitfall. They can also reduce the time-consuming task of having to do all the thinking yourself. “We have people at the council with export experience ranging from Mongolia to South America. We know and will share the ins and outs of exporting to these countries. Being part of an export council saves time, money and effort,” comments Eric.

The contacts, networks and experience at the export council can benefit your business An export council offers great access to other contacts. When trade missions want to visit, or South Africa is invited to other countries, export councils are their first port of call. SACEEC also sets up meetings together with its members for trade missions from other countries, introducing potential buyers and sellers. In addition, the council will undertake an export readiness audit to determine if your business really is ready to start exporting. SACEEC is actively involved in training with courses on offer including basic sales in a changing environment, business and marketing plan compilation, export marketing plan compilation and market research. SACEEC offers full training for international trade fairs and exhibitions. Courses are available to members at a minimal cost (to cover tea and cake) and are open to non-members at standard conference rates. SACEEC, Tel: (011) 849-7388, www.saceec.com


Minimum Threshold: Local Production and Content On 11 February 2016, National Treasury published the updated Instruction Note stipulating the minimum threshold for local production and content for valve products and actuators.

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he updated Instruction Note provides clarity on topics such as how local content should be calculated and what constitutes local content, while providing some protection for major suppliers such as foundries, forge shops, and steel/stainless steel suppliers.

Assuming that by changing the name of the valve in the tender or request for information process, that designation does not apply Clarification regarding how the 70% local content is made up includes the use of locally produced and certified castings, forging and fabrication as well as verifiable manufacturing activities such as machining, drilling, coating, assembly and testing.

No averaging-out

Further, the averaging-out of local content either across any number of valves and gearboxes / actuator

combinations or locally made and imported valves or other items is not permitted. Each individual valve, manual actuator or pneumatic actuator is subject to the minimum 70% local content threshold. In addition, the valve type list has been updated to include the “also known as� names of valves. For example a check valve is also known as a non-return valve or reflux valve or tilting disk valve and so on. This is to curb the number of state-owned-entities, departments, including municipalities as well as contractors working with state-spend, assuming that by changing the name of the valve in the tender or request for information process, that designation does not apply. (See pages 28 to 34 for the full designation document). www.vamcosa.co.za

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Partnerships Key in Africa Six of the ten top fastest growing countries in the world are in Africa. The continent is the second largest, and the second most populous with over 1 billion citizens. Africa might have been affected by slower global economic growth, but it remains an outstanding business opportunity. Many countries have specific African export programmes. South African exporters looking to move their products north of the borders face some stiff competition, but that’s no reason to ignore the opportunity doing business in Africa offers.

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t this year’s Manufacturing Indaba, held in Johannesburg, a panel of expert discussed the finer points of doing business in Africa.

Alec Erwin, who was instrumental in setting up some of the export councils and clusters, says that if a business hasn’t expanded into Africa it will face problems. Alec is a director at UBU Investment Holdings. He adds that there are golden rules to remember when doing business in Africa – respect, use the proper procedures in the country and genuinely try to form partnerships.

Remember you are already in Africa

In the early days of South Africa’s democracy, businesses expanding into Africa were often seen as high-handed. This is according to Duane Newman, joint managing director of Cova Advisory and Associates, who says rather than South Africans being seen as partners, they were seen as predators. This was unfortunate and led to local businesses wanting to export gaining the unfortunate reputation for arrogance. “When you work in Africa, start thinking like an African and not a South African, says Chiboni Evans, CEO of the South African Electrotechnical Export Council (SAEEC). “If we think like a participant, then we will start partnering. She says small cultural issues are important in Africa, as are relationship.

Go with a financial solution

“When we go to Africa we need to have a financial solution worked out.” Chiboni stresses that particularly when you are bidding for larger projects, those you are bidding against will have their financial institutions and backers with them in the bidding process. To compete, and be successful, you will need your finances in order and ready for the project you are bidding on. Duncan Bonnet, a director at Africa House adds that we need to stop thinking about Africa as a separate entity. “We are already in Africa.” Duncan is often asked how much time he spends travelling in Africa. His answer: I spend all my time in Africa.

Rather than South Africans being seen as partners, they were seen as predators As important as it is to not be arrogant, it is also critical not to be ashamed of the skills and products we have, and our favourable geographic position. “South Africa should have an obvious advantage because we are on the continent,” Duncan points out. The key messages are clear: South Africa has a lot of expertise it can share to grow business locally and in other African countries. To build a sustainable business you need to benefit both the local and exporting countries, think like a partner, and remember that you are an African. UBU Investment Holdings, www.ubuholdings.co.za

From left to right: Alec Erwin, Luke Govender, Chiboni Evans and Duncan Bonnet

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Demand for Valves in Africa 10 billion US dollars. That’s the size the market for industrial valves in Africa is expected to reach by 2019. Given the current size of the local market and current spending patterns, this figure seems rather high. But even if it is only a potential number, the figure illustrates very clearly the importance of the valve industry in the continent’s development. Savama, South African Valve and Actuator Manufacturers Association, keeps the industry up to date, informed and educated as the market for valves grows. Colleen Moir is the current president of Savama and director of Ainsworth Engineering. She shares some insights on the association and industry it represents.

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avama was set up in 1974 and its 19 members represent over 80% of local valve and actuator manufacturers in South Africa. It operates under the auspices of Seifsa, the Steel and Engineering Federation of South Africa. Home to many entrepreneurs, Savama gives members opportunities to have one representative voice, and to gain insight into critical industry issues. Savama is not competition or collusion, Colleen says, “it is a gathering of manufacturers.”

Manual labour is not often seen as a preferred career, and changing this perception is key to creating more skills available to local industries There are four key reasons where Savama makes a difference:

1

Standards

Whether you manufacture for local or international companies and projects, your products need to meet certain specifications. Colleen says that Savama has a chapter that deals specifically with standardisation issues with the South African Bureau of Standards (SABS).

2

Economic and industry updates

Knowing the current business environment, and what could happen in the future are key to any successful business owner. Savama provides economic updates and keeps its members informed on industry trends with bimonthly forums. Seifsa is represented at Nedlac and BUSA, and through this representation Savama members can voice their opinion on how future projects and legislation could benefit local industry.

3

Industrial relations

The complex world of industrial legislation and wage negotiations are where Savama adds huge

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value to its members. Wage negotiations can be fraught with conflict, and one experienced representative voice is essential. “We discuss the issues at our forums, and Seifsa will do the negotiation on our behalf.”

4

Training

For close on 20 years there have been warnings about the shortage of skills. “We have a huge shortage of artisans,” Colleen says. Savama members have two direct ways they are dealing with the skills shortage. Firstly, the association offers two online courses – ‘Working with Valves’ and ‘Working with Control Valves’. The Association has been offering courses since 1989, and the two courses currently offered have been updated to meet current standards and industry needs. The courses are online, and there are assessments at the end of each course. The second way Savama members can contribute to growing skills is through their association with Seifsa, “which has a successful training centre,” Colleen comments. “We have a transformation programme and are sending mentors twice a week to a school in Katlehong to teach learners how to use the machinery. We identify the top students, and subsidize some to attend further training. These students are sent to


growth, and a downturn in mining, the number of apprentices and artisans that can be trained is hampered by affordability. “The industry is under strain,” Colleen says, “so we have to deal with affordability issues, and make sure we have enough work to keep the new skills in the industry.” The need for valve and actuator manufacturers seems self evident. Some of the larger customers in the industry are water and power, where the need for new plants and ongoing maintenance is well known. In a 2012 presentation. Eskom said they expected to increase their valve spend by 36% between 2012 and 2027. Over 15 years, this amounts to nearly R3,5 billion and includes spending on specialised valves, general valves and spares.

In Africa, the increased demand for valves is expected to come from the oil and gas, and power industries Colleen says that local manufacturers could support around 60% of South Africa’s needs. The remaining 40% is in areas like nuclear and petrochemical where the local market is not well developed. In Africa, the increased demand for valves is expected to come from the oil and gas, and power industries, according to a January 2015 market research report, which states that the market for oil and gas is estimated to be one of the fastest growing markets for industrial valves from 2014 to 2019. a training centre and will receive practical training set at N3 level. After this we take on some as apprentices.” Manual labour is not often seen as a preferred career, and changing this perception is key to creating more skills available to local industries. When learners are introduced to the industry, and see successful careers that have been built from the industry, the perception can change. Training is expensive, and in an industry that has been affected by poor local and global economic

Despite the need, growth remains hard to come by. What more could be done? Colleen feels partnerships – client and supplier, and business and government are a must. “Even if we haven’t supplied the original equipment that needs maintenance, we can offer advice and services.” It is perhaps in difficult environments like this that the collective voice Savama represents should come to the fore. Savama www.savama.co.za

Looking for leads or finance? • The Trade Opportunities centre, through the DTI (Department of Trade and Industry) publishes a weekly Trade Lead Bulletin of export opportunities. Visit: https://www.thedti.gov.za/trade_investment/ export_opportunities.jsp to keep updated.

• If you are looking for finance, or more informa-

tion on finance options visit Finfind on https:// www.finfindeasy.co.za. Finfind is a South African guide to small business finance and will guide users through quizzes to assess their business readiness, and give financing options. Set up in October 2015, Finfind aims to address the challenges SMMEs encounter when looking for finance.

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Export Risks Covered Exporting South African goods to other countries boosts business, earns foreign currency, promotes South African industry and opens new opportunities to local industries. But with all this potential, comes unique risks.

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ow do you know the country you are doing business in is safe, will the customer be able to meet their payment obligations and will property be protected? Locally, these types of risks can be fairly easy to assess. But in a foreign country, things may work differently.

Political risk

The Export Credit Insurance Corporation of South Africa (ECIC) offers local exporters insurance for these risks, along with a wealth of experience in export markets. Kutoane Kutoane, head of the ECIC, shares his insights.

Sometimes these changes last a few days, sometimes for decades. Sanctions for example could see your money and/ or goods literally under lock-and-key for years. Expropriation is another risk – your goods may effectively be transferred to another party, with no payment.

A once-friendly business country can turn unfriendly with a few gunshots, with the change of a minister or a change of government

What are the risks?

The two main risk categories for exporters are political and commercial. Political risk may arise if a new government is elected, for example, leading to policy changes on imports or foreign business dealings. Commercial risk is similar to that of transacting locally. For example, not getting paid because of insolvency.

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Kutoane says, “Political risk is a big catchpoint and is on the rise. There is also the risk of terrorism.” Political events can change business conditions in a matter of hours. A once-friendly business country can turn unfriendly with a few gunshots, with the change of a minister or a change of government.

Is political risk insurable?

Yes, a credit export agency like the ECIC will cover political risk in many instances. ECIC offers 100% cover for political risk depending on the country. Each country is graded by the ECIC underwriting team on a risk basis from 1 to 7. Seven being the most high risk. This internal benchmarking exercise is carried out on an ongoing basis. “We are very cautious when dealing with countries with a 7 rating for obvious reasons,” notes Kutoane. “An example would be South Sudan where a transaction might simply not be insurable. Burundi


is another example where the risks are currently too high.”

Can commercial risk be insured?

Cover for commercial risk is typically set at 85%, but in certain instances 100% cover may be available for special projects. For example, if you have a contract with a buyer in Ghana and that buyer goes insolvent, the ECIC can offer cover of 85% against this risk.

How much does it cost?

Contracts are based in US dollars and pricing is related to risk. Assessing the underwriting risk involves researching the country and all the economic factors, discussions with key officials, assessing the financial environment, looking at investment policy issues, and the government’s debt position and accounts.

Who are the main players in cross border deals?

Kutoane says the four main role players are the exporter (seller), importer (buyer), the financier (a bank) and the insurer. Banks and financiers may take on and insure some of the risk, depending on the transaction. Of course, exporters may decide to carry the risk themselves but if the worst happens, it can be prohibitively expensive.

What is the order of things?

When an order is received, the exporter assesses what materials will be required, and what finance needs to be arranged. Having got a handle on the costs, a bank may stipulate what insurance is needed. The insurer will then assess the project and look at what cover they can offer.

Is every transaction a unique contract?

“No,” says Kutoane.”For some of the bigger projects (USD200mn for example) a specific contract would be set up. For a USD20mn contract, on the other hand, a standard contract with standard clauses could be used.”

Do you need a lawyer to go over the contract?

Lawyers can add substantially to costs and, for a small standard contract, may not be necessary. “For small and medium transactions, we have simplified and streamlined to make these contracts as simple and straightforward as possible,” says Kutoane. For larger contracts, much negotiating is the order of the day and the premium may vary considerably depending on the risk level involved. These negotiations can sometimes be intense, and often include legal experts.

Specialist area

Export cover is a very specialist area. Being a niche market, it requires special skills. Kutoane says the ECIC follows OECD guidelines and takes its lead from government. “This guides the kind of projects we can take on and the terms of insurance, what we can cover, and payment including reference rates.”

Kutoane Kutoane

He points out that although the OECD has guidelines, the ECIC does not have to follow these rigidly and can vary the cover they offer. “We are mandated to support capital projects and engineering service contracts, and are very active in mining in Africa.” Cover is available for projects of two years and longer (up to 18 years). Some of the contracts for which the ECIC has provided cover, include the Liqhobong diamond mine in Lesotho. The ECIC provides cover to private business and sovereigns and is government owned. As the corporation is backed by the National Treasury, a full guarantee can be provided. The ECIC also offers bond guarantee products whereby they offer insurance or provide guaranSanctions for example tees for big bonds could see your money - securing money upfront for a large and/ or goods literally tender in Tanzania, under lock-and-key for for example. The years ECIC has recently launched secure performance bonds and maintenance bonds. www.ecic.co.za

The challenges different policies in different jurisdictions bring The lack of harmonization between jurisdictions is a great challenge to trade finance. This reflects the widespread difficulties posed by differing legal and regulatory requirements, which multiplies both the cost and complexity of compliance.

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Access to the Best Brains in the Business Improve productivity, improve competitiveness, boost local manufacturing. That’s the idea behind the TLIU (Technology Localisation Implementation Unit), which makes businesses more competitive through better use of technology and technical skills. The TLIU is headed by Ashley Bhugwandin and operates in the advanced manufacturing industry.

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hrough interventions and programmes known as TAPs (technology assistance packages), the unit migrates companies to a higher level of technology. “With the support of technological enhancements many industries can benefit,” says Ashley.

Ashley Bhugwandin

Can you apply for an intervention? There is no formal application process. Selection is based on the database but visit the TLIU’s website to check for opportunities and a TLIU profiling form.

How does an intervention work?

Step one for the TLIU is to identify industries and companies that could benefit from a technology assistance package. Step two is to analyse the companies and evaluate their technology capability. Gaps identified are then addressed and support and assistance is provided. Each programme is run by a small management

About the TLIU The Technology Localisation Implementation Unit (TLIU) assists companies in becoming more competitive, which will increase demand for their products and services by state owned companies (SOCs). Through assistance packages known as TAPs (Technology Assistance Packages) the TLIU offers access to high end technical skills and technology capability platforms that will boost businesses productivity. The need for the TLIU arose out of the need to grow procurement from local businesses by SOCs. Local suppliers often struggle to compete with overseas OEMs when it comes to time, quality and cost. Improving the productivity of the local suppliers through better technical skills and better use of technology allows them to compete with overseas OEMs and offers SOCs a preferred local procurement option. The TLIU was set up by the Department of Science and Technology (DST) and is hosted at the CSIR within the Strategic Initiatives Implementation Unit (SIIU). The TLIU is based at the CSIR offices in Pretoria and has regional offices in Durban and Cape Town.

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team and is designed specifically for the company involved. Subject matter experts are used for the various projects ensuring access to the best brains in the business. Interventions come in the form of access to technical expertise, high-end technical skills development programmes, design and tooling support, and shared technology facilities. The programmes recognise that improvements may be necessary in other areas in order for the company to fully benefit from improved technical skills and will offer assistance in these areas. The interventions are once off, but when they have been completed, there is ongoing monitoring and follow up. “We stay with a company for the long haul,” says Ashley.

Selection transparency

The TLIU works with 30 – 40 companies each year that have been identified from the unit’s database, which contains details of over 3 500 businesses. Ashley says that the firms selected for interventions are those that are directly contracted to state owned companies or their associates, or an OEM. Localisation is critical. “Localisation,” says Ashley, “is all about a product that can be manufactured locally that results in import substitution. The team has first to consider if we can design and manufacture locally which makes understanding the capability of the country and company crucial,” notes Ashley. Hence the importance of the unit’s database. “We know exactly what manufacturing capability exists,” he says. Size is not a criteria for the selection of companies for intervention, and although transformation is important, it’s not a key criteria. “It wouldn’t be an exclusion measure,” says Ashley, “but at least 50% local ownership is a must.” Interventions are linked to a specific project and the results are assessed. “We are measured on impact and outcomes based on these companies winning business. The return on investment is measured, so exports count, as does job creation.” The interventions are also short term in nature. For a company in distress, a three- year programme is not viable. “We wanted to catch the low hanging fruit,” says Ashley “and achieve short term success for industries experiencing difficulties. Also, you need the success stories now, not only to assist to


prove that these interventions work but to shore up an industry that might otherwise close down.”

All these acronyms - A quick guide

Success: Fabrinox

TLIU: Technology Localisation Implementation Unit

TAPs implemented by the TLIU have resulted in many companies winning local and international business, and showing dramatic improvements in productivity. One success story is Western Cape company Fabrinox , that was identified as a business that could benefit from an intervention in 2012. Fabrinox is a niche manufacturer of sheet metal components and sub-assembly with services such as laser cutting, bending, welding and stainless steel polishing. The Firm Technology Assistance Package (FTAP) resulted in permanent and temporary job creation and an increase of nearly R10million in turnover. A mere twelve months after the intervention, earnings had increased and around 20 permanent jobs had been created. “Productivity also improved substantially. The company achieved higher output with the same capacity as a result of the improved turnaround time by skilled operators. “Fabrinox started using a high end laser machine in its production that took a two-minute process to two seconds. Operators were sent to Germany to train on this laser,” says Ashley, “and this project had a ripple effect. A year later, productivity improved further and the company won local and global orders including a project to build a wind turbine inverter system. “With training top of mind, our unit also has an internship programme that aims to increase the graduation rate of science, engineering and technology students.”

Shared facilities

DST: Department of Science and Technology CSIR: Council for Scientific and Industrial Research SIIU: Strategic Initiatives Implementation Unit TLP: Technology Localisation Plan TAP: Technology Assistance Programme – at firm level (FTAP) and sector wide (SWTAP) SOC: State owned company OEM: Original equipment manufacturer CSDP: Competitive Supplier Development Programme

The return on investment is measured, so exports count, as does job creation

nology where a casting simulation network was established that is used by industry. Now, a foundry pays for time, so a simple simulation costs R45 000 versus R2 million. In fact, one company has saved R30 million by simulating five products using the network.” Testing for certification is also expensive and can involve a company having to send staff overseas for this purpose which is why the TLIU has introduced a number of initiatives to test and certify locally. “Our certification testing centre for the electronic industry will see results in 24 hours and has the capability to test 85% of needs for the electronic industry,” Ashley observes.

Being able to access the best and latest technology is often a big ticket item for smaller companies, leaving them out in the cold.

The success of initiatives like these has spurred many new developments with valve testing and transformer testing currently being developed.

“In 2011,” says Ashley, “the DST funded and assisted 26 foundries because the industry was in distress. A post mortem carried out a year later in 2012 found that as most of these were familyowned SMEs, they weren’t always able to invest in the latest technology because of the prohibitive expense involved. A licence can cost in the region of R2 million.

Despite these successes, the local environment remains a tricky one in which to operate. “Possibly there are too many initiatives when it comes to localisation which creates confusion and, in some cases, duplication and waste,” Ashley concludes. “We need to consolidate our efforts, and have programmes and initiatives in place that complement one another. If we exist in silos, we will never achieve the impact we want and deserve.”

“Our solution was to set up central facilities and networks such as at the Vaal University of Tech-

www.tliu.co.za

Letters of credit are becoming more popular Commercial letters of credit made up 44.36% of trade finance products, according to the 2015 ICC Global Trade Finance Survey. This is an increase from the previous year’s figure of 41%.

“Without doubt, recent instability in some the top global trade markets combined with the current perception of increased risk of default for goods and services exported is shaping this development.”

ENGINEERING WORLD 2016

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On the question of language, the company had little joy sourcing translators from the embassy nor the translation bureaus in many countries and ended up using an international translation bureau, based in the UK, who they use to this day. As products change and installation instructions, specs etc, are altered, so these professionals keep clients and users abreast with new manuals, product specs etc. Says technical manager, Craig, “You can’t expect to appoint any old translator on technical products like ours or you spend the first hour explaining the difference between a green ‘belt’, trouser ‘belt’ and a conveyor belt. By the same token, we have made it our business to select agents who have a technical track record.”

Servicing and maintenance

He is also quick to point out that selling a product is one thing but servicing and maintaining another. “It’s imperative that the agent understand the ethos of fully servicing the client and keeping their operations up and running.”

Forewarned is Forearmed

Riaan Rynders, Brent Weller and Craig Abbey

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How many of us say: “I knew I should …. but I didn’t”. This sentiment certainly does not apply to the team at Brelko Conveyor Products. Conveyor specialists and renowned for their spillage control systems, the company started to make forays into the African market over 15 years ago.

B

rent Weller, Area Manager – Africa, Riaan Rynders, Technical and CAD Manager and Craig Abbey, Field Service Manager fill us in on the details.

Says Brent, “Right now, about 40 percent of our business is generated by doing business over our borders. The foresight to enter the African market has paid off handsomely, but it was not as easy as it sounds. Taking steps into Africa is time-consuming and expensive. “Although much of the business was generated by ‘following’ our clients into the continent, there is still a lot of groundwork to do. Initially, we did a lot of cold calling and attended many trade shows in order to identify potential agents suitable to sell and service our brand. The mines also helped by recommending suitable candidates.”

Local knowledge

One of the first lessons learnt was that it’s best to select an agent who is respected by the industry and is knowledgeable about the product. “These guys know their way around the mines, the language and the customs of the country,” Brent advises. “Although many mines bring stock in direct, it’s important to have an agent in the country as, without a footprint, it’s hard to get in.”

ENGINEERING WORLD 2016

In South Africa, the company has 38 service teams. Customers’ staff are trained up at Brelko’s premises in Booysens, Johannesburg. A 4-6 week training course covers all the basics, both theoretical and practical. In Africa, the Brelko team goes out to site to train up the various personnel responsible for operating and maintaining equipment. Although not directly responsible for servicing on African installations, the company makes recommendations through routine visual inspections and monthly shutdowns on work to be carried out and keeps a close eye to ensure standards are being upheld. Says Craig,” An ongoing problem, much like in South Africa, is retaining staff. Poaching is rife, so we work hard to keep up standards especially in light of the fact that French, Portuguese and German are often their first language, rather than English.”

Safe as houses

When asked which countries they most like to visit, both Brent and Craig cite Namibia but they add that most travel and accommodation requirements are more than adequate, especially as these arrangements are usually made by the mine in question. They’re not so keen on Gabon, Mali and Sierra Leone purely because logistics can be fraught but all say that they have never felt threatened or unsafe in any of these countries. With agents in all the SADC countries as well as Mauritius, Madagascar, Ghana and Tanzania, Brelko is now targeting Mali, Mauritania and a few more central African countries such as Rwanda and Burkina Faso where precious metals are on the up.

Ethics

On the thorny question of corruption, all three men are strong on the fact that bribery and corruption won’t be tolerated. The company’s stance has occasionally lost it business but they hold firm. Brent adds, “This is not the case with all South African concerns – I can assure you that as a country we no longer hold the moral high ground but at Brelko, we will not enter the bribery fray. We do have to grant some pretty hefty discounts at times, sometimes


despite there being no passenger in the truck – at a cost of R100 000. Then there’s the wrong product that ended up on the wrong ship and was delivered to the wrong mine and duly installed, or a flight booked to Walvis Bay that no-one had ever heard of! “It’s also wise to call an air cannon an air blaster or things can get interesting at the border,” Riaan quips.

All on board

We ask whether being a South African company is an advantage or a disadvantage when working in Africa. All three men are definite on the point that it makes no difference either way. The international companies are into Africa boots and all, especially China which differentiates itself by not just building a mine but also contributing significantly to local infrastructure in the way of roads, clinics etc. Kenya and Walvis Bay are successfully positioning themselves as hubs which could pose a threat to South Africa’s ‘gateway to Africa’ status. So Brelko is operating in a truly global arena. Competition is fierce from all quarters but having made their name in many countries, the company has a firm foothold. As all their products are 100% locally manufactured, lead times are comparatively short which is a distinct advantage. Says Brent, “Our Managing Director, Kenny Padayachee, has over the last couple of years concentrated on not only building up significant stocks but the right mix of products”. In addition, the company has close control over costing and deliveries. With its world class manufacturing facility and a no compromise work ethic, Brelko has given itself a distinct advantage. Says Riaan,” Our products are excellent as is our back-up service. In fact, I would go so far to say we are the acknowledged international leaders in spillage control. Technical challenges spice up my day too like having to supply to various international standards.”

Beautiful continent

even when the client is paying over a year late, but this situation is not unique to us and is part of the territory.” Another part of the territory is the infamous African time. Says Brent, “I don’t have to tell anybody how expensive it is to fly in Africa. The price of one ticket often equates to the same as flying to London, so it’s quite an eye-opener when you arrive punctually for a meeting or a golf day only to have it start literally hours late. But it doesn’t work the other way round, it’s not considered good form at all if you happen to be late for the meeting!” Another idiosyncrasy is a truck being turned back at a mine because there was no passenger seatbelt

Having been ‘on the road’ for over fifteen years we ask Brent to say a final word. “I spend an average of three weeks out of four over our borders and I still enjoy every minute of it. The only sticking point is the time wasted at airports with delays and having to deal with rude and corrupt airport personnel. “But this niggle aside, it’s exciting cementing our relationships with local SOE’s, mining and project houses, while piggybacking with these clients into Africa and forging new international relationships across the board. Put in the time and the effort and the clients will support you,” he concludes. Brelko Conveyor Products www.brelko.com

ENGINEERING WORLD 2016

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Take Care of Your Cargo on the High Seas

M

arine and cargo insurance policies are individual contracts that depend on what is being shipped and to where, and each case must be considered on its individual merits. Jeffry Butt, marine manager at Aon, South Africa, gives some insights into the world of insurance.

The rules are not hard and fast and can be amended should an alternative make more sense 1. There must be an insurable risk

This is the basis of all insurance contracts and must be present for an insurance policy to be valid. If

You’ve met the order and the goods are ready to ship. Now for insurance: how much to insure, when and where, what should you insure against? These are all questions that will need to be answered to make sure you don’t suffer a damaging loss should anything happen.

you are carrying the risk of the goods while they are being shipped, you have an insurable interest. One of the first things you need to determine is who carries the risk. “The exporter must establish at which point the risk starts and ends,” says Jeffry. At some point the seller will carry the risk, at some point the buyer. The International Chamber of Commerce has 11 Incoterms rules that are standard rules applying to the transportation of goods. They outline the costs and risks to each party. The rule that makes the most sense is chosen. “The rules are not hard and fast and can be amended

What is Incoterms? Incoterms rules or International Commercial Terms are an ‘essential part of the daily language of trade,’ according to the International Chamber of Commerce (ICC). They are widely used in international commercial transactions or procurement processes. First set up in 1936, the latest version was updated in 2010 and comprises 11 rules. The Incoterms rules are intended to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods.

11 Incoterms rules

Below, from the ICC, are brief descriptions of the 11 rules. More information can be found at http://www.iccwbo.org/ copyright-and-trademarks/

Rules for any mode or modes of transport EXW Ex Works

“Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (ie, works,

46

ENGINEERING WORLD 2016

factory, warehouse etc). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.

CIP Carriage And Insurance Paid To

FCA Free Carrier

“Carriage and Insurance Paid to” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

CPT Carriage Paid To

The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.

“Free Carrier” means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point. “Carriage Paid To” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

DAT Delivered At Terminal

“Delivered at Terminal” means that the seller delivers when the goods, once unloaded from the arriving means of


Jeffry Butt, marine manager at Aon

or inevitable losses. For example – your product is ice cream and you leave it in the sun and it melts. This is considered an inevitable loss.

2. Determine the value you need to insure for

“Make sure you can recover a loss in full,” says Jeffry. “If there is a loss, you cannot claim for more than your insured value.” The basis you use for valuing your goods for insurance purposes will be reconciled with the value claimed should a loss occur. Have a breakdown of how you calculated the insured value. The insurer will apply the same basis of valuation. Have you taken the cost of goods, plus the cost to deliver the goods into account?

should an alternative make more sense,” Jeffry comments. “For example the buyer may have better contacts in their own country and be able to negotiate better transport rates, in which case it may make more sense for the buyer to carry the risk as it’s obviously cheaper. A warning though, if this changes the Incoterms, the amendments need to be agreed on by all parties.”

What can you insure?

DAP Delivered At Place

“Delivered at Place” means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.

DDP Delivered Duty Paid

“Delivered Duty Paid” means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not

3. Properly package the goods for transport

“Packing material must be sufficient to protect the goods against the normal rigours of transportation,” comments Jeffry. Check that the material used for packaging will fit the bill.

4. Know the general average rules

Accidental and unforeseen losses can be insured against. This includes piracy, which Jeffrey says has declined over the last few years. But you cannot insure against so-called self-inflicted damage,

transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes a place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.

The buyer may have better contacts in their own country and be able to negotiate better transport rates, in which case it may make more sense for the buyer to carry the risk as it’s obviously cheaper

If a vessel gets into trouble on the seas and needs to dump cargo in order to keep going, the general average applies and all parties with cargo onboard will contribute to the value of the dumped goods.

only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.

Rules for sea and inland waterway transport FAS Free Alongside Ship

“Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel (eg, on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.

FOB Free On Board

“Free On Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.

CFR Cost and Freight

“Cost and Freight” means that the seller

delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

CIF Cost, Insurance and Freight

“Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination. The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements. ENGINEERING WORLD 2016

47


Jeffry says this is one of the main reasons why importers and exporters take out insurance – because the amounts involved can be quite substantial. In the event of piracy, the general average rule may be applied.

To assess which is the best policy to take, it’s wise to speak to an insurance broker 5. Use an insurance expert

48

supply chain and individual transactions. A broker will use this information and structure the most appropriate insurance policy. What about your freight forwarder? Insurance is a highly specialised field and although freight forwarders offer insurance, it is not their main area of business. Jeffry believes it is better to use an insurance professional.

6. Currency

Insurance policies involve a trade-off between price and security. To insure as much as possible is the ideal but it can come at a high cost. Jeffry points out that the potential for things to go wrong is ever present, and although there is a price element, you also need security against losses. “Be careful of being more price conscious than security conscious,” he warns.

Should you need to, you can insure in another currency. But you will need to motivate why you are not insuring in rands, and there must be currency consistency for premium and value. If you insure in US dollars, your premium will be in US dollars. You will also need to adhere to exchange control regulations.

Prices in the local market vary considerably. To assess which is the best policy to take, it’s wise to speak to an insurance broker. Not only can they assess your transportation insurance risks, they can also determine the risks in your business model,

Some countries, Nigeria for example, will only recognise insurance from local or national insurers.

ENGINEERING WORLD 2016

7. Make sure your insurance is recognised in all countries your goods enter Aon SA, Tel: (011) 944-7000, www.aon.co.za


► EIA Process

► Environmental Risk Assessments

► Geographical Information Systems

► Agricultural Assessment and Advise

► Project Managment

► Wetland and Riparian Services

► Natural Resource Services

► Visual Impact Assessments

► Ecological/Biodiversity Services

► Public Participation Process

► Application Assistance

► Game Ranch Management

► Developement Research, Monitoring and Evaluation

N2 Mnini ECO Duties

Plant rescue

Durban Coal Terminal Site Inspection

Ohlanga Pump station ECO Duties

Freightpak Warehouse Site Audit

Public participation Makhabeleni

Ballito Interchange Botanical survey

Site assessment Sundumbili pipeline

l Tel: (031) 303-2835 l Fax: 086 692 2547 l l Email: info@afzelia.co.za l www.afzelia.co.za l Skills on Site

Septmeber 2012

1


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