South African Business 2017 edition

OVERVIEW Chemicals and

OVERVIEW Chemicals and pharmaceuticals Both sectors are attracting internal and foreign investment. South Africa's chemical industry contributes 5% to national gross domestic product (GDP) and about 60% of its earnings are derived from exports. The complexes run by Sasol at Secunda, in Mpumalanga, and Sasolburg, in the Free State, underpin the national manufacturing capacity in chemicals. Sasol makes a range of products for fertilisers, explosives and polymers. Nearly 60% of Sasol's earnings come from chemicals, amounting to a turnover of R105-billion in 2015. Sasol Chemical Industries makes about 60% of South Africa’s polypropylene. Safripol, which is also based in Sasolburg, is South Africa’s only other producer. More than half of Sasol’s production of 625 000 tons is exported. Omnia and Kynoch (fertiliser), Karbochem (rubber and carbochemicals), Safripol (plastics) and Afrox are among the other major companies operating out of Sasolburg. Kynoch makes fertiliser in Middelburg and Schoeman Estates has a plant in Marble Hall. Middelburg-based Solchem Industrial and Mining Chemicals specialises in degreasers for mining and industrial applications. The by-products of the sugar and forestry processing plants of KwaZulu-Natal benefit the chemicals sector. Illovo Sugar manufactures downstream products such as furfural, furfuryl alcohol, diacetyl and ethyl alcohol. AECI is one of South Africa’s biggest groups in the sector. The two principal divisions are AEL Mining Services (with a large factory site at Modderfontein near Johannesburg) and Chemical Services, which have 20 separate companies. Foskor is the country’s only vertically integrated phosphates producer. It has a mining operation in Limpopo Province (at Phalaborwa) from which it sends raw materials to its acids division in Richards Bay in KwaZulu-Natal. Sulphuric acid, phosphoric acid and phosphate-based granular fertilisers are manufactured there. The Chemical and Allied Industries Association (CAIA) has 162 member companies. ONLINE RESOURCES Chemical and Allied Industries’ Association: www.caia.co.za Chemical industry information portal: www.chemissa.co.za National Association of Pharmaceutical Manufacturers: www.napm.org.za SECTOR INSIGHT There are more than 200 pharmaceutical companies in South Africa. Pharmaceuticals Pharmaceuticals are manufactured primarily in Gauteng and the Eastern Cape. Although there are more than 200 pharmaceutical firms in the country, large companies dominate the field. In 2016, Aspen had a market capitalisation of R160-billion and Adcock Ingram, R7.6-billion. Ascendis, which was established in 2008 and now has a market cap of R6.9-billion, has been busily acquiring companies, such as a generic manufacturer based in Cyprus, and building up its portfolio in the sector. Cipla Medpro is another large company. The local industry was valued at R39.7-billion in 2013 and contributed 1.1% to national GDP (dti). The sector employs nearly 10 000 people. South Africa has the world's largest anti-retroviral programme, which provides for more than three-million patients. Aspen SA produces about 10-billion tablets per year at its Port Elizabeth facility. The company has another factory in Gauteng and successful operations in South America and Australia. SOUTH AFRICAN BUSINESS 2017 76

Food and beverages Food and drink account for a quarter of all manufacturing. OVERVIEW ONLINE RESOURCES FoodBev SETA: www.foodbev.co.za National Chamber of Milling: www.grainmilling.org.za SECTOR INSIGHT Food and beverages account for a significant share of the country's manufacturing sector. The global trend towards healthier eating habits and being aware of the source of foods has come to South Africa. This means growth in sales of organic produce, but legislation is also part of the new equation. A proposal in 2016 to introduce a sugar tax on beverages has created a lot of debate. Even if a tax is not introduced, there is no doubt that the trend towards healthier food (and better labelling) is here to stay. Starbucks thinks the South African market is worth investing in. When the American coffee giant, in partnership with Taste Holdings, opened its first shop in Johannesburg in April 2016, customers queued through the night. Coffee shops are hugely popular in South Africa. The food and beverage sector is responsible for 24.4% of total manufacturing production and employs 230 000 people. Beverages account for just over 4% of all manufacturing sales while food is responsible for 13.5%. Within the sector, beverages account for 24% of sales. One quarter of the 37% of national GDP that is generated by agri-industries derives from agri-processing. Gauteng, the Western Cape and KwaZulu-Natal are the leading provinces with respect to food and beverages manufacturing. About half of the companies operating in the sector are in Gauteng. Unilever received a tax incentive in 2015 under the Department of Trade and Industry's 12-I Tax Allowance Incentive scheme for its new ice-cream factory in Midrand, Gauteng. This is Unilever's fourth plant in South Africa, following its investment in a savoury foods plant in 2011. RCL Foods, formerly Rainbow Chickens, has lately been on an aggressive run of acquisitions. Despite the large number of extra chickens available to the South African consumer (as above) and the persistent drought, RCL managed to increase revenue in the 12 months to June 2016 by 6.8%, to R25-billion. The groceries and logistics divisions performed best but RCL is reconsidering its business model with a thought to producing fewer frozen chickens and doing more in the fast-food sector. South Africa has mature fast food and family restaurant franchise sectors, ranging from indigenous brands Spur and Nando’s to international giants such as KFC, McDonald’s and recent arrival Burger King. Nando’s, the Portuguesechicken chain, has done extremely well internationally and is proving to be something of a phenomenon in Britain. Wimpy is the second-largest franchise operation in South Africa (after KFC). Frost & Sullivan values the South African retail chocolate market at R5-billion with an expected growth rate of 10% per year for the next five years. Cadbury, Nestlé and Beacon account for 85% of sales. 77 SOUTH AFRICAN BUSINESS 2017