Plastics companies role in supporting SMMEs & cooperatives: Plastics SA briefing

Small Business Development

19 November 2014
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

Plastics SA, the mouthpiece of the South African plastics industry, stated that this industry contributed 14.2% to local manufacturing and its It is worth noting that the GDP multiplier effect of plastics as a growth driver for the economy is approximately 2,7 and the employment multiplier is 3,5. It briefed the Committee on its focus areas, proposed initiatives, skills development programme, the recycling industry and challenges that negatively affected the plastics industry. Members complained that there was no effort made to transform the plastics industry nor was it clearly articulated how SMMEs and cooperatives were supported. Members sought clarity on the status of Plastics SA which was a federation of non-profit associations, and what it was doing to develop black capabilities to become entrepreneurs or to be employed in the plastics industry and involved in ownership. The challenges such as electricity reliability were also discussed.

Meeting report

The Chairperson asked the Committee secretary to distribute the American and Brazilian legislation imposing local content requirement on procurement, to Members and asked them to familiarise themselves with the legislation.

Consideration of Committee minutes
The minute of 22 October and 5 November 2014 were adopted.

In matters arising out of the minute, Mr R Chance (DA) raised the issue of beneficiation and asked if Eskom could come and do a presentation on solar heaters and geysers. Those who would come to do presentation should be brief and to the point. The Chairperson agreed and said the Eskom would be called.

The Chairperson noted that the Plastics SA would be speaking about its contribution to promoting SMMEs and cooperatives. Members should ascertain whether Plastics SA was doing its job. She reminded members that it should be decisive in protecting the interest of the people. They were not voted for by the executive but were voted into office by the people. If any executive or official deferred their mandate, there were mechanisms to use to respond to that problem.

Plastics companies in South Africa and their role in supporting SMMEs and cooperatives
Mr Anton Hanekom, Executive Director: Plastics SA, remarked that beneficiation which featured in the Committee’s discussion in their adoption of the minutes greatly impacted on the plastic industry.
Mr Hanekom spoke about who is Plastics SA and noted its vision and its focus areas, its strategic objectives, and its proposed initiatives. These included: Zero Plastics to Landfill 2030, Growth through Exports and Import Replacement, Innovation and Skills Development, Industry support through Public–Private Partnerships and he expanded on what each involved. He went on to explain the plastic process, including injection moulding, blown film extrusion, blow moulding, and rotational moulding.

Mr Hanekom noted that an estimated 1 800 converters were mainly SMMEs. Apparent virgin material converted in 2013 was 1 400 000 tones and 280 000 recyclate. The plastic industry’s contribution to South Africa’s GDP was 1.6 per cent and employed more than 60 000 people. The local plastics industry had performed well until 2007 which was a turning point. There was continual growth in the consumption of virgin plastics materials but a graph showed how the growth in imports had ballooned.

In terms of the plastics recycling industry, South Africa recycled about 280 kilo tonnes per annum. There were approximately 230 recycling companies, which employed 4 510 and 43 500 people in formal or informal sector respectively. He noted issues that need consideration including support to ensure a consistent stream of clean waste recycling.

Mr Hanekom explained the Plastics SA’s integrated approach to the plastic industry growth and concluded by noting the challenges that the plastic industry is facing. For the progress of the plastic industry, he suggested the following:
▪ Support was needed to ensure a consistent stream of clean waste for recycling;
▪ Diversion from landfill, which was critical, to be separated at source;
▪ Consideration of a structured approach to energy from waste;
▪ Consumer education to change mind set on waste and responsibility.

Mr Hanekom said that Plastics SA’s training division was making a great impact on the skills landscape in the Plastics Industry through its engagement with key strategic partners and processes. Education and training pragrammes included:
▪ Learnships and skills programmes
▪ Plastics manufacturing setter qualification
▪ New product development
▪ Continual professional development points for engineers
▪ Technical staff training development.

Mr Hanekom drew the Committee’s attention to the TV commercial entitled, “Story of Hope” which talked about a woman who made a living and supported her family through plastic recycling, as her small business. He spoke about the initiative of Zero Plastics to Landfill 2030.

Mr Hanekom noted some of the identified downstream challenges that were deterring the growth of the plastic industry. They included:
▪ Customised incentives programmes for the industry was needed;
▪ Cost of input material;
▪ Preferential procurement which negatively impacted on the growth of the plastics industry;
▪ Compliance costs which created an uneven playing field with international competitors;
▪ Specifications which was used as protectionism
▪ Limited level of export readiness
▪ Strong competition from imports and economic crises
▪ The slow pace of technological upgrading;
▪ Shortage of infrastructure and logistic costs;
▪ No or limited machine manufacturers in South Africa;
▪ A weak tooling sector in South Africa which was mainly maintenance-oriented;
▪ Relatively small local and regional market;
▪ Long distance from attractive export markets;
▪ Inland location of production facilities in the case of exports;
▪ Develop special economic zones for manufacturing beneficiation that were, for example, duty-free, VAT-free and had a tailor-made infrastructure;
▪ Trade agreement was not supporting local manufacturers – forced to reduce tariff of critical  lines;
▪ High cost of labour due to large metal sector and labour unrest.
▪ Productivity was unable to compete internationally;
▪ Cost of electricity and reliability of electricity supply;
▪ Skills shortage in terms of technologists or technical management;
▪ Innovation lacked entrepreneurs;
▪ Limited research and development; and
▪ Weak rand undermined competitiveness.

With regards to imported plastics, Mr Hanekom gave the example of small businesses that had manufactured hangers for clothes. These products were now being imported because they were not locally manufactured anymore. Also imported were syringes. They were imported from Namibia. He suggested that the state should be firm on the local content requirement on procurement. With regards to compliance costs, Plastics SA estimated the spend by local companies was between 10 and 15%.

Mr T Ramokhoase (ANC) sought clarity on whether the Plastics SA was a company for profit or a non-profit organisation and how Plastics SA’s view on its collaboration with the Department of Trade and Industry (DTI). Was the collaboration facilitating the promotion of plastics industry?

The Chairperson replied that Plastics SA was a body that presented the interests of all manufacturers/producers of  plastics in South Africa. It was not a company for profit but a non-profit company and a federation of associations.

Mr Ramokhoane appreciated Plastics SA’s contribution to GDP growth and welcomed the presentation. He sought clarity on whether the legislation and policies enacted by the Department of Trade and Industry (DTI) were difficult and what were the negative impacts of the trade agreements.

Mr Ramokhoane thanked the Chairperson for providing the American and Brazilian legislation for comparison. He sought clarity on Plastics SA’s view on procurement policies and on whether they were assisting the industry to grow.

Ms N November (ANC) appreciated the presentation. Referring to Plastics SA’s vision to develop the skills needed through accredited training programmes, she asked whether the plastics industry was also focussing on creating jobs. Was Plastics SA based in all provinces?

Mr Chance, referring to the proposed initiative of Zero Plastics to Landfill 2030, sought clarity on how many jobs would be created by 2030.

Rev K Moshoe (ACDP) asked if the arguments that plastics productivity was unable to compete internationally and that the cost of compliance in South Africa was so high, were based on research. What could the government do to respond to these issues?

Mr H Kruger (DA) suggested that the Committee should take their time to study Plastics SA concerning what was all about. If they understood it better, they would be able to debate on how Plastics SA might promote SMMEs.

Mr T Mulaudzi (EFF) asked if the executives of plastics industries were transformed and about the demographics of the estimated 1 800 plastic converters.

Mr B Mkongi (ANC) welcomed the input from Plastics SA and appreciated its strategic objectives. He seconded Mr Mulaudzi and asked how the plastics industry intended to transform itself. Was Plastics SA focussing on educating and training black people? Were they being retained? How far did Plastics SA go in developing and expanding black people’s capabilities? What were the employment demographics for gender, colour and disabled people?

Mr Mkongi commented that Plastics SA had identified polymer as an input cost and it was what made the plastics industry operate. What was Plastics SA appealing to the government to do in this regard? Would it be beneficial for the plastics industry if the state recommended a departmental price or fixed prices? What was Plastics SA’s stance on that? On the electricity problem, what was there any legal barrier to the plastics industry producing their own energy from waste?

Mr X Mabasa asked if plastics products such as school furniture, baby seats and cabinets, were locally manufactured and to what degree was Plastics SA interacting with higher learning institutions in respect of developing, expanding, and enhancing skills in manufacturing plastic products. Could the plastics machinery be locally manufactured, should they cost a lot or less?

The Chairperson sought clarity on the ownership of companies. How many companies were black-owned? What was the contribution of the plastics industry in the development of underprivileged communities? Should waste collection be regarded as part and parcel of job creation?

The Chairperson remarked that there were a lot of plastics products on retailers’ shelves. Could the plastics industry compile a list of all these products and submit it to the Committee? How did the plastics industry relate itself to service delivery?

The Chairperson said the questions which could not be answered now, should be responded to in writing.

Mr Hanekom replied that Plastics SA did not deal with only the DTI but with a number of departments, including the Departments of Labour, Water Affairs, Energy, Environmental Affairs, and Higher Education. Plastics SA should play a leading role in changing the game. With regards to social transformation, Plastics SA had launched various programmes that intended transforming the industry. He viewed Plastics SA as a social change agent. Plastics SA could contribute to social change within the context envisaged by the DTI.

On skills, Plastics SA offered education and training to individual who completed matric. They were taught to operate machines. The training facilities were based in Western Cape, Gauteng and Kwazulu Natal. They were trained to fill major skills gaps that existed in the plastics industry workforce.

Mr Hanekom noted that plastics industries were mostly based in urban areas. The plastics market was mainly urban-based.

Mr Hanekom said that it was difficult to say how many jobs would be created by 2030. Looking at the recycling industry, if one recycled at source, one could imagine doubling the current 40 000. What he knew was that jobs would be created and that the plastics industry could substantially contribute.

Referring to challenges, Mr Hanekom said that plastics productivity was lower compared to the growth in wages - which did not allow one to compete globally. Strikes in related industries had a huge impact on the plastics industry( as did its own strike). It all adds to the un-competitiveness of the local industry. Looking at options that government can employ to assist, there are the compliance costs. Adjusting tariff rates is a short-term four to five year remedy for industry to regenerate itself. Anti-competitiveness clauses and sunset clauses for products that are coming in are other options. Government needs to consider the economic impact on industry of decisions it takes on adopting  world standards and he gave the example of the carbon tax that is on the cards. On international trade agreements, he replied that for the economy to grow, South Africa had to do the right things at the right time and take into account the capabilities of local industry. When agreements were concluded, and industry indicated that it could not change tariff lines, that these be accepted. 

Plastics has an international commodity price. He did not think that changing the input prices of raw materials would assist.

On its employment equity, he replied that Plastics SA’s executive team had two white males, one black male, and two females (Indian and white). In the industry the majority of employees are persons of colour. On transforming the plastics industry and SMMEs, he did not have the ownership statistics cutting across all plastic sectors to provide the demographics requested. More research is needed to determine the statistics. The majority of companies in KZN were Indian-owned. In terms of other areas, there are not that many Black owned companies. If you can make the industry grow again, that will allow new entrants into the market because there are no barriers to the industry. It’s getting people interested to invest in the industry that is needed because currently one sees more and more imports coming into the country and there is no excitement to build the industry here. Plastics SA is committee to the process of putting programmes together for training people. The industry is not growing in the sense that there are new entrants coming into the market on a regular basis. There are some companies that are closing down. The only new entrants at the moment are big multi-national companies coming into this country. It is an area they are working on. SMME development is a process. The question is how can we develop new excitement around the industry and that will be through growth. We needed to build the technical skills. There are a number of black owned companies on the financial investment side but not on the operational side.

Plastics SA was focussing on developing new entrepreneurs in the plastics industry. Plastics SA used its own capacity to create new jobs. Plastics SA was engaging with higher learning institutions to ensure that the youngsters learn more about plastics manufacturing.

Mr Hanekom replied that currently low grade coal was used to manufacture polymers. However, there was modern technology that could be used to contribute to lower energy costs for a manufacturing plant such as shale gas which is a lower cost and could change the game in South Africa.

Mr Hanekom replied about companies providing energy for the grid, saying that there are policies that say one cannot incinerate. Currently with Eskom, many companies have tried to put energy onto the grid for which licences for many years were not forthcoming, but which is now possible. He said this is a possibility but one must look at the quantities. These companies’ main focus is manufacturing and they do not generate enough waste to justify their own incinerator to get them off the grid. There are a lot of foreign countries coming in with pyrolysis technology to obtain energy from waste. Also a lot of waste in the streets is more useful being recycled than incinerated.

Mr Hanekom concluded by inviting the Committee on a visit to familiarise itself with the work of plastics industry.

The Chairperson thanked Mr Hanekom for his presentation. She commented that the presentation intended to enlighten Members about the plastics industry, what its challenges were, how it could contribute to the reduction of poverty or social transformation, to service delivery and to SMMEs. She noted that electricity was a critical matter in most sectors of economy. Electricity was inefficient in the country and hindered economic growth. There would be more engagements in the future with Plastics SA. so that Members could seek clarity on various matters.

The meeting was adjourned.

[The Chairperson accepted an apology from Ms Lindiwe Zulu, Minister of Small Business and Ms Bathabile Dlamini, Minister of Social Development as well as from Mr N Kwankwa (UDM). Mr H Kruger (DA) stated that he would possibly be leaving before the meeting adjourned to attend another meeting. His apology was accepted].

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