Emerging chemical manufacturers and market access Phineas Letsoalo 10 February 2016

Background Information Established in 2012 100% Black owned company Manufactures flux for mining & exploration laboratories The Chemical Industry Education and Training Authority (CHIETA) was established to facilitate the skill development in the chemical sector. Their role is that of a catalyst for enhanced skills, economic growth and employability. In order to understand the challenges facing emerging chemical manufacturers, particularly in accessing markets, Purechem was appointed to conduct a study.

Summary IN A NUTSHELL Industry is still characterized by past legacies SMMEs mainly operates outside mainstream Focus is on household & FMCG Many have been in business for less than 5 years Education and prior industry experience are key to success. Many respondents have turnover of <R1M Clear line of disconnect between SMMEs and big corporates The benefits of government programs not fully realized

South African Chemical Industry Most developed on the African continent Contributes to downstream value chain both internal and external to itself 2.7% of GDP 1.2% of employment 8.8% of all exports OPPORTUNITIES Great growth potential into African Market Since 2000, exports into Africa growing at 14% p.a

Small Medium & Micro Enterprises (SMMEs) South Africa’s SMMEs is estimated to contribute 60% of employment compared to global average of 77% Despite their significant contribution, South African SMMEs continue to have exceptionally high failure rate As many as 70% fail in their first year. In addition to the high failure rate, we have a relatively low participation rate of SMMEs in the economy. Majority operates outside the mainstream of the economy, and are not linked to CHIETA

Sectors responding Manufacture of soap and other cleaning compounds Chemically-based general household and personal care products Manufacture raw materials and chemical compounds used in agriculture, including fertilizers Manufacture, sale and/or distribution of diversified speciality chemicals for industrial use Manufacture of plastics in primary form and of synthetic rubber Manufacture of pharmaceuticals, medicinal chemicals and botanical products Manufacture of beauty products Petroleum refineries/synthesisers Manufacture of paints, varnishes, coatings and printing ink

Findings A large number (67%) sells to local market (neighbors, schools & creches) Very few (6%) sells to established retail Marketing is mainly through word of mouth Few advertise.

Key customer Requirement Quality - This is measured in terms of compliance to national standards, such SABS and ISO-accreditation Cost - SMMEs are expected to be cheaper and still offer better quality product. Delivery – On time delivery is essential. Product testing costs Method Quantity Sample Cost SANS: 825 2 X 2L Dish washing Liquid R19 894.00 SANS: 296 Bleach R8 894.00 SANS: 1344 Furniture polish R7 091.71 SANS: 1224 Polymer floor striper R38 635.06 SANS1923 Vim type powder R20 735.87 SANS: 1922 Toilet Bowl cleaner

Hindrances to corporate partnership Lack of capacity to meet stringent quality requirement Complex and time consuming process of in-house testing Concerns over security of supply The level of education, has direct positive effect on the success rate of SMMEs.

Critical support needed Seed – assistance with ideas, product development Start-up – help with setting up business, branding, marketing, sales Growth – need capital - get there faster with capital, but cannot be offered until entrepreneurs have developed some products and gained business experience

Support for different business phases Seed – assistance with ideas, product development Start-up – help with setting up business, branding, marketing, sales Growth – need capital – get there faster with capital, but cannot be offered until entrepreneurs have developed some products and gained business experience

Recommendations Establishing the CHIETA Emerging Manufacturer’s Advisory Committee (ChEMAC) – This committee will engage with CHIETA a few times a year to suggest high impact activities that should be supported through the funding window. Specific funding – To set aside funding for specific support such as testing of products, access to technical experts to assist with product development and mentorship. CHIETA Emerging Manufacturers Support Index (CHEMSI) – Set up a database of emerging chemical manufacturers, make funding available and have companies to report progress, increased turnover and what further support is needed.

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