ESI spoke with Eric Bruggeman – CEO of SACEEC – to explore the export landscape for South African businesses. We explore the opportunities and challenges for South African exporters wanting to expand operations into Africa.
Eric, please share your thoughts on market entry how-tos
The first step to selling a product is to identify and get to know the right people. For example, if your business deals with solar heating, you need to attend meetings or cluster gatherings or apply to the Department of Trade and Industry when a trade expo takes place in another country.
Secondly, you and your team need to be trained on how to do business in the new region / country. Learning to navigate language and culture for example will help a great deal.
If you are spending money to take the trip overseas, making contact with an organisation like SACEEC will help you set up the meetings before hand, which ensures less time is wasted in territory and you get the right person to meet you.
While in territory, it’s important to establish the need and build rapport with regional businesses. Often you need to meet the people five or six times before they know and trust you and you can take your business there. SACEEC has developed a business centre to assist with these elements, as it’s proved so important.
It’s important to remember that people buy from people.
Forming partnerships is vital, especially with governments, politicians and ministers. Furthermore your partners must employ locals and employ localisation initiatives.
Those are strong points but is there a demand for our goods?
In South Africa, we make specialised products, unlike the Chinas and Brazils of the world that are busy with mass production. They are geared up for that and the growth rate is great. Mass production, however, means you aren’t geared up for specialised and smaller equipment runs.
This is where we do well. There is a great demand for our goods because of the quality, because we are set up for focused, specialised production. Export opportunities are therefore significant.
Between 2016 and 2017, the export sector was worth R178 billion, suggesting we are doing something right.
In South Africa, our compliance standards and quality control are of a high standard, meaning we can definitely compete against the rest of the world. We do need to maximise the opportunities associated with this good reputation. However, we need to push and stimulate our local market, especially considering the low growth rate. If the industry doesn’t grow, unemployment goes up, making it even more difficult for locals to compete.
The one thing we don’t have as a country is an export credit facility bank. These institutions can lend money for projects at 3%, whereas our banks lend money at a higher rate.
What are the top risks and key issues in exporting?
In a nutshell, the following impact risk appetite profiles:
- Interest rates are high
- Steel prices are high
- Labour isn’t cheap (although not the most expensive either)
- We are on the tip of Africa increasing our delivery costs
- Many governments support export through tax breaks etc. – but not in South Africa,
What we need to do is grow our local market:
- Boost manufacturing capabilities
- Grow technology
- Develop entrepreneurship
- Invest in research and development
If you do not develop in these sectors, the economy can’t grow effectively.
Eric, what would you identify as ‘Things to Remember’?
We have a programme in place to work with the municipalities and local organisations to increase local spend. The challenge is that previously everything was imported. In order to grow successful markets such as India, China and Brazil, import into local markets must be reduced. These countries are prepared to pay a little more for locally produced goods; an idea we should adopt.
Ultimately it’s very difficult for a local company to export from South Africa without a strong base in South Africa as exporting is expensive. Once you are established and you have grown a customer base, there is money to be made. However, a large capital investment in travel and in the development of the new base is needed.
Manufacturing is one of the biggest employers of skilled and unskilled labour in the country and many people receive training in this space. We must be training our people and using those local skills as much as possible.
We realise that South Africa can’t make everything and import is necessary. However, we suggest that if people want to import, let them ensure that some portion of it is done locally, such as the assembly.
Will we see a relaxation of trade barriers in Africa?
We are likely to see trade open up on the continent. Africa has huge market potential and if we can get the financing right, we would have a trade boom.
One problem is that many countries in Africa don’t have big budgets, which is why they look to China or other countries in Europe where they can get discounted prices or finance options.
We can’t finance those projects, which means these countries are getting the bulk share of the projects and supply opportunities.
The manufacturing sector could also expect massive growth, but only through partnering with the right countries, for example Zambia or Democratic Republic of Congo. It’s vital to secure funds at a competitive rate to compete with other countries around the world.
What is the role of government in export?
Industry can’t survive on its own and there must be a solid, trustworthy partnership between industry and government, they have to be on the same page. The relationship needs to be supportive in nature, encouraging communication to maximise opportunities.
Industry needs to trust government and vice versa and government must be a servant to industry – not vice versa.
It is also the role of government to put local content first. Localisation is vital to stimulate economic growth. In fact, we recommend legislation stating that every state-owned company needs to buy at least 50% local, employ local and pay on time.
Where are South African’s currently exporting to?
They look for countries with possibilities such as Peru, Columbia, Chile, America and Canada.
In terms of Europe and Middle East, the focus is more on sharing of technology and forming technology partnerships. Ultimately, we don’t need massive tech centres here and South Africans can rather tap into overseas resources, where there is greater experience.
Why is an export council necessary?
When people export, it’s about money and ensuring you get paid. It’s important to ensure bills get paid, however; this can be hampered by political instability, currency fluctuation, lack of infrastructure and supply chain challenges.
Africa is not well known for ease of doing business and it can prove tricky to move products across borders. Differences in corporate culture, coupled with less than conducive regulatory frameworks can also make it tricky. An export council therefore provides vital guidance in order to overcome these obstacles.
More about SACEEC
SACEEC is an export council for capital, mechanical, engineering and mining equipment, specialised vehicles, as well as machinery associated with food and agriculture processing.
They provide support to their over 180 members by finding international markets for local exporters. They invite members to over 30 expos a year – helping them mitigate both political and commercial risks within a country.
SACEEC is proven to be an indispensable part of the globalisation of the South African industry, representing 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.