IN THE keynote address at the launch of the new DCD Ringrollers forging plant in Vereeniging last week, Public Enterprises Minister Malusi Gigaba told his audience that SA could not afford to be passive in the face of the continuing global economic downturn.
He says the country cannot afford a downturn at this stage of its "political transition", and that it has an "immediate strategic need" to develop its capacities to manufacture capital goods.
This will limit foreign currency exposure in respect of imported capital products for the state’s infrastructure build plans, and add impetus to its competitive supplier development programme. This aims to promote investment in plant, skills and technologies to provide competitively-priced South African manufactured goods to state-owned firms. It also aims to increase the country’s exports.
"The single biggest economic challenge our country faces is to diversify away from our reliance on resource extraction towards a value-adding, job-creating, manufacturing-orientated economy.
"Since the global financial crisis began in 2008, there is a growing consensus that sustained current account imbalances result in significant and prolonged economic downturns. As reflected in the New Growth Path and our Industrial Policy Action Plan, the South African developmental state is committed to drive a sustained process of industrialisation," he says.
The launch of the new DCD Ringrollers facility goes some way toward satisfying the government’s vision. It produces forged steel "tyres" for blue-chip international clients in railway and tram markets, and also makes high-pressure flanges for industry.
DCD MD Rob King says the company has made a "bold decision" to spend R380m on the new plant. It has doubled capacity to 30,000 tons of steel products a year, while the best technology had made the facility "internationally competitive". He says: "I would argue it leads the world. It is something SA can be proud of."
He challenges Mr Gigaba to raise the bar for local content when it comes to procurement by state-owned enterprises. The company has long stated the Passenger Rail Agency of SA (Prasa) has set the bar too low for local content in its procurement of train sets.
Earlier this year, DCD launched a bogie that met both international and Transnet specifications, having 85% local content. Bogies are wheeled chassis for heavy transport equipment such as train coaches.
Prasa still requires only a 0% to 40% local content threshold over the first three years of its 20-year R123bn procurement programme.
This means foreign manufacturers can supply complete motorised electric coaches, or components, at the expense of the South African industry. This contradicts both Mr Gigaba and the government’s general assertions about transforming the economy.
In August, Mr Gigaba announced a new financing unit in his department to seek out "innovative funding models" to expand investment by state-owned enterprises such as Transnet and Eskom.
Transnet chairman Mafika Mkwanazi says the parastatal has given executives R300bn over seven years, but is aware "they need much more than that". It now is seeking ways to include the private sector in projects, so it can share the risk. However, myriad issues have prevented this, not least the general distrust evident between the state and private sector.
The government wants to direct SA’s economic transformation, while business worries this will undercut both profits and the independence of the market.
DCD is trying to get a slice of SA’s renewable energy market, and wants to make wind turbine towers, and later blades, by investing R300m in a plant in the Coega industrial development zone.
It also wants to make forged steel train "wheels", on which to put its forged steel train tyres, and is investigating setting up a new R1bn facility to make these goods. Mr King says SA spends R1bn a year importing these products.
The venture includes its 45% majority equity partner Investec, 35% empowerment partner African Revival Investments, and also Italy’s Lucchini RS, a manufacturer of railway wheels.