April 22, 2021

mzansipreneur

Productive conversations about the economy and money

Beneficiation is becoming fashionable again

It seems like a pretty straight forward proposition that if developing countries like South Africa added more value to their commodities locally, rather than exporting them to other countries in a raw and unprocessed format, their key economic indicators like employment and economic growth will be enhanced. Skills would be developed locally and new industries will emerge that aid in development. It thus becomes a source of frustration for policymakers, politicians and many citizens that a country that is rich in natural resources is unable to exploit the full value chain for commodities such as gold, diamonds, agricultural produce, platinum etc. This feeds into a general discussion about local production and the decline of the manufacturing sectors we once had in South Africa.
It is no surprise that beneficiation, the process of adding value to commodities principally through design and manufacturing, occasionally rears its head in crucial policy debates as the solution to some of our economic blues. Beneficiation was included as one of the pillars of the Mining Charter – companies could offset some of the obligation to increase the ownership stakes held by previously disadvantaged citizens with projects to process commodities within South Africa. The offset/trade-off mechanisms were not articulated in the Charter and in the early 2000’s, it was difficult to come up with a model to make this happen. For every 1% equity stake that a mining company does not sell to BEE partners, how much beneficiation should it engage in to compensate for that? This was the basic question that could not be answered.
Various initiatives were attempted by mining companies to support the call to beneficiation. During the time I was involved in that industry, I thought these were still initial endeavours; a lot of effort went into them but they were nothing to shout from the rooftops about. These early efforts included jewellery manufacturing development programmes (including direct investment by mining companies), working capital financing products and design competitions. It was clear to me (as I argued in an op-ed in the Business Day six years ago) that upstream producers can only be expected to extend support in ways that do not undermine their commercial interests and that are ideally related to their existing strengths. That’s a tough call for primary extractive companies and it’s likely that beneficiation attempts will be related to projects that facilitate local manufacturing, rather than expecting mining companies to start beneficiating in-house.

Then there is the globalisation angle. There are countries that have developed competitive advantages in the value chains that we seek to enter. For instance, Italy and Turkey have developed significant gold jewellery design and manufacturing industries with all the attendant infrastructure, networks and know-how that the industry entails.

These themes emerged during my interaction with some of the stall-holders at African Fashion International’s Fashion Week that was held over the past few days. This was a fantastic event that showcased fashion talent from across the African continent – talent that has been repressed for so long. Some of the energetic entrepreneurs whose products I encountered at this platform will certainly grace these pages. I learned, at a stall selling beautiful shoes, that the shoes were designed in South Africa but that they were manufactured in Brazil. This seems to be a case of “beneficiation leapfrogging” where locals are involved in a higher-order activity such as design, but having skipped the manufacturing stage altogether. I heard a similar story at a jewellery stall where the pieces were also said to be designed in South Africa but some of the fabrication was done overseas – the diamonds were polished and cut in Britain and this was because the skills were not readily available in South Africa.
It’s no longer unusual for the activities that bring a product to market to be located in different countries. Go to any fashion capital and you will struggle to find products that are fully manufactured within that country. But one doesn’t expect the level of outsourcing in Johannesburg to be similar to that of New York or Milan. Developing countries cannot dismiss manufacturing jobs in favour of design and branding; we need a more balanced production profile that includes high levels of labour-intensive activities.
So it seems we have creative entrepreneurs in the fashion space living in a continent that’s about to take off in terms of a growing consumer class. These entrepreneurs seem poised to create new products that serve genuine needs (that is, not attracting sympathy dollars) and this should have ripple effects in terms of creating jobs in manufacturing, branding, sales, retail etc. This will happen in the context of global competition where nothing is guaranteed and access to raw materials in a determining factor in terms of decisions about the location of production. This suggests a policy focus not just on exhorting people to “buy local” but also a commitment by government, business and labour to invest in skills and enterprise development. Value addition can only take off in the context of a local business environment that is supportive of learning, innovation and risk-taking.
The resurgence of policy interest in beneficiation as a tool for economic development is now taking place in a very different climate from that which prevailed in the early 2000s. Now beneficiation is being touted as a sort of compromise solution, as opposed to some of the more radical measures that are being suggested as a way to transform the mining industry, such as nationalisation. Perhaps that will result in more tangible outcomes this time round, given the high stakes involved, though there will be tough work ahead to address some of the structural impediments to local manufacturing such as skills levels, access to finance, the prices of key inputs, including the commodities themselves (gold is at an all-time high) and the cost of labour, and trade policy.
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