Costs put downstream beneficiation at risk

THE Industrial Development Corporation (IDC) is examining how to step up downstream beneficiation activity, which is seen as a potential contributor to job creation and a vehicle to deepen the country’s industrial base.

Abel Malinga, the IDC’s divisional executive responsible for mining and manufacturing activities, says: “SA has most of the minerals required for beneficiation. We have been successful in certain areas, especially in achieving stage one, two and three upstream beneficiation levels for industrial minerals such as platinum group metals, coal and iron ore.”

But where less success has been achieved, says Malinga, is in achieving stage four — which is downstream beneficiation. One of the reasons for this lack of success is what could be classified as “anticompetitive pricing of inputs”, Malinga says.

Another bottleneck in hindering downstream beneficiation, he says, is the relatively high cost structures in SA. These costs typically include wages and salaries, energy, transportation and logistics.

“These high cost structures then undermine SA’s competitiveness, which is further intensified by sustained currency appreciation and excessive volatility of the currency. These are some of the challenges we are facing.”

The private sector also comes under a degree of criticism for its “reluctance and complacency” in being either unable or unwilling to invest in downstream projects, though there may be viable opportunities.

“We are also constrained by our skills base and our competitors. South African firms, particularly SMMEs, may need more specific managerial and technical skills and competencies to drive further downstream beneficiation,” says Malinga.

He says SA’s ratio of engineers per capita is one of the lowest among middle-income countries in the world. SA has one engineer per 3 200 people, while India, by comparison, has one engineer per 157 people.

Despite the challenges, the potential benefits of stage four downstream beneficiation may well be worth pursuing. This form of beneficiation tends to be low in capital intensity and, says the IDC, represents the types of projects and initiatives needed to address unemployment in SA as well as to deepen its industrial base.

“Once we start making goods we will be able to sell to other markets, as well as to our own internal markets, to replace the inputs. This can contribute immensely to industrialisation. It will also promote industrial diversification, especially stage four beneficiation.

“It could also work to enhance and balance our economic development and growth by expanding the primary sector and promoting the development and diversification of the secondary and tertiary sectors.”

Malinga says the South African economy is dependent on the primary sector in areas such as mining and agriculture. Typical downstream beneficiation products could include components and parts for cars and fuel cells, among many other things.