Time to review how policy aligns in chemicals sector
• Sometimes an existing regulatory intervention can be self-defeating, often with unintended consequences
The government may need to dedicate resources to improve policy alignment in the chemicals sector, where a recent case of a well-intended regulatory intervention has had some unintended consequences. After the government agreed to impose import duties in order to protect local industry, it was soon found that the import duty also applied to the specialised equipment local producers need to import to achieve the ultimate goal, says Hilton Lazarus, head of the basic and speciality chemicals strategic business unit at the Industrial Development Corporation.
“This becomes self-defeating,” says Lazarus. “We need improved policy alignment, as sometimes policy can have unintended consequences.”
Due to the IDC’s client confidentiality requirements, the parties to this particular transaction cannot be named.
Lazarus is part of the team involved in resolving the conundrum. He says a possible solution, or the kind of resources required, may be to establish a directorate within a ministry. This would speed up the regulatory environment, such as, for example, providing an efficient approval of environmental impact assessment studies and other permits.
“South Africa needs improved policy coherence, a more efficient regulatory environment and the kind of empowerment that leads to new industrial capacity in order for entrepreneurship to thrive,” says Lazarus.
He should know this: the IDC approved R2.9bn in funding for the chemicals and pharmaceutical value chain in the year to March 2017, down from R4.8bn in 2016. But the 2016 figure was inflated by a R4bn recapitalisation of Foskor, the IDC’s longstanding phosphate producer subsidiary. About R1.1bn of the current funding went to empowered companies or those with a minimum 25% black shareholding.
The IDC says its funding for the sector has helped create 1,148 jobs, up from 738 in 2016. Women-owned businesses received R218m and youthowned ones R110m. Funding for black industrialists in the sector almost doubled to R384m, from R217m a year earlier.
Affording the sector some protection, especially for infant technologies, may give South Africa the ability to compete as the rest of the continent is important to the chemicals sector, not just because of its market size but also as a source of critical raw materials and mineral inputs, says Lazarus.
The development financier also has a budget to support investments into the rest of Africa, says Lazarus. However, its investment in the rest of Africa requires that the project must benefit both the host country and South Africa.
The IDC says it is focusing on various opportunities across the chemicals and pharmaceutical value chain. In the fertiliser industry, it wants to replace imported inputs with locally produced substitutes where possible and lower the cost of fertiliser as it is critical for the agricultural sector in South Africa and Africa. This partly explains the IDC’s continued support of Foskor, the phosphate producer it helped establish in 1959.
In energy, the IDC would like to encourage increased usage of gas and help improve liquid fuels energy security for South Africa. The IDC has invested in a R1bn liquid petroleum gas (LPG) storage facility in Saldanha Bay in the Western Cape called Sunrise Energy and launched in August.
The facility has a capacity of 200,000 tonnes per year and will be accessible to independent importers and distributors. It also has an on-site gas bottling facility called Kusile.
In basic and speciality chemicals (the so-called performance chemicals), the IDC sees its role as being to help increase the local production of green or biochemicals and other new types of chemicals. This part of the value chain will also see the
increase in local manufacture of chemicals used as inputs for consumer goods. This, the IDC hopes, will lead to the increased local manufacture of consumer goods, especially personal-care products.
The IDC is also behind the drive to improve the competitiveness of the plastics industry, first by negotiating with Sasol to cut the cost of polymers and aiming to recycle so as to reduce the use of virgin polymers.
In pharmaceuticals and medical products, opportunities include the production of radio pharmaceuticals for nuclear imaging, as well as new capacity for telemedicine, or remote diagnosis and treatment, especially for patients in hard to reach rural areas.
In traditional medicine, the focus is on treatment for priority diseases in Africa such as tuberculosis, malaria and HIV/AIDS.
Lazarus says the IDC recognises
that to unlock these opportunities it would need to mitigate a number of risks, chief among which is low commodity prices as well as currency volatility. He points again to the need for policy coherence in gas industrialisation and the clean fuels strategy. Other challenges facing the sector include the involvement of youth, reducing the time it takes to approve environmental impact assessments, and accessing international technologies.
Lazarus can safely be described as a development financier augmented with an engineer’s qualification. He concedes to not having practiced as an engineer for long and has spent his career of 20 years or more with the IDC firstly in analysing business, then in managing various business units, before assuming his current role in the basic and specialty chemicals business unit.