The South African Fasteners Manufacturers Association (Safma) reports that over the past eighteen months the momentum in the fastener industry has picked up in line with the increased construction and mining activity experienced in South Africa. "Conditions have been buoyant and I think all manufacturers and importers have enjoyed the growth," states Safma chairman Rob Pietersma.

Pietersma estimates that growth in the industry varies between 7% and 15%, depending on the area of activity. "There is an expectation that these levels will be maintained for the foreseeable future because there is a lot of construction work being done at the moment, and even more in the pipeline.

Pietersma adds that the largest percent- age of growth might not be closely related to large capital projects such as the Gautrain rapid rail, but rather the expansions taking place around the project. The projected growth will also give industry participants an incentive to add to their capacity, says Pietersma. "In instances where there previously might have been a reluctance to add capacity, there is now a willingness from manufacturers to consider moderate capital expansion programmes."

The possible expansion of the industry, however, is not without its challenges. Infrastructure capability, for example, the availability of electricity, could prove problematic, states Pietersma. "Previously, we never saw the availability of electricity as a constraint to the industry; now, however, you have to incur the capital expenditure (capex) for the expansion itself as well as the capex to provide electrification to the area."

Pietersma states that in the recent past, munici- palities were able to provide the needed infrastructure for industry expansions. The municipalities, however, are now themselves experiencing financial constraint, which makes further capex necessary. "That also makes the return on the investment that much more difficult to justify."

In the recent past, the industry experienced an increase in the capital work requirement, as a result of the weakening rand, states Pietersma. "From a manufacturing point of view, we have found that the price of importing spares and tooling has increased. From an importer point of view, the weakening exchange rate has resulted in the escalation of working capital requirements."

The increase in the working capital cost is in line with the inflation increase, states Pietersma. "The producer price index is now running above 10%, where previously it was between 1% and 2%."

Pietersma adds that, as a result, manufactures have had to pass on the price increase to customers, with prices for stainless-steel fasteners having virtually doubled. "Some areas of our manu- facturing costs have escalated by 25%, and we are also facing challenges in the packaging area, where certain areas of packaging are going up by 15% owing to wood shortages."

The fastener industry is also beset with several other challenges, including the management of the skills shortage and HIV and Aids in the workplace. Pietersma states that the age level of competent technical staff tends to be above the age of 50, with few new entries stepping onto the training field.

"HIV and Aids are also closely related to the skills shortage, because as the level of infection goes up, the number of skilled staff able to perform goes down." Pietersma states that although the infection rate is higher in the less skilled areas, this level of skill is still essential to the day-to-day operation of the industry. "I am not saying that either of these two problems is insurmountable, but it is necessary for each manufacturing company to deal with them."

One of the other challenges, states Pietersma, is that Chinese companies are becoming more and more involved in the local market. Local manufacturers are competing with Chinese fabricators and constructors, which puts pressure on the local industry.

The dynamics in China changed slightly, states Pietersma, when the country identified certain energy-intensive industries, and export rebates were reduced from 13% to 5%. "So the playing field has been levelled somewhat where China is concerned, but China is not the only import threat since we also have imports from Thailand, Indonesia, Vietnam, and India which are available on the local market."

Pietersma adds that South Africa is also in discussions with the International Trade Administration Commission (Itac), which wants to reduce the limited and inadequate trade tariffs. He states that this could lead to South African manufacturers trading without a safety net, as 'dumping duties' and other import duties still provide a modicum of protection against unfair competition.

"Itac is in charge of the dumping process and is very slow to react. It is also not as South Africa friendly as it used to be, this being demonstrated by the number of antidumping protections which existed and were awarded a few years ago, which have now dwindled down to only a few. This does not bode well for South African manu- facturers."

Pietersma states that for South African manufacturers to retain the upper hand, they have to make use of their advantages. One of them is the short lead time required for manu- facturing. "An importer has a longer lead time, while a local manufacturer would be more quick to respond to a demand."

He adds that another method of dealing with imports is to realise that imported goods might not always adhere to international safety standards. "There have been a number of examples where fasteners generally pass the quality test, but they were found not to be of world-class standard. When you are in safety critical circumstances, you want to make sure that you get the right certification and that you have a quality product."

For certain local manufacturers, the export market has beckoned, and Pietersma states that the two main manufacturers geared towards this market produce product in mainly the specialised fastener area. "South Africa definitely has export capabilities, but it is primarily from manufacturers such as CBC Fasteners and Nedschroef."

From:www.engineeringnews.co.za