The Department of Trade and Industry (the dti) welcomes the commencement on 13 May 2013 of the Competition Tribunal hearings in the case of excessive pricing by Sasol of propylene and polypropylene.
The Competition Commission initiated an investigation into the local polymers industry in 2007, following concerns raised by the dti about polymer pricing and its negative effect on diversified growth and job creation in the manufacturing sector.
While it has taken some time to get to this stage, the dti believes an important precedent can be established that low costs of production of intermediate industrial products should translate into low priced inputs for downstream and labour absorbing industries.
The competitiveness of local manufacturers in these relatively labour-intensive activities is dependent on competitively priced input materials. South Africa is the world leader in coal-based synthesis and gas-to-liquid technologies, of which propylene feedstock is a by-product. While the upstream sector is concentrated and well developed, the downstream sector remains relatively underdeveloped and records substantial net trade deficits. By comparison, South Africa exports large quantities of polypropylene.
The Industrial Policy Action Plan (IPAP) identifies the plastics value chain as critical to the prospects of developing the manufacturing sector in SA. The high cost of inputs for plastic converters and manufacturers and the practice of import parity pricing means that what should ordinarily be a competitive advantage for the manufacturing sector in SA, has in fact been a disadvantage.
It is appropriate and correct that the competition authorities deal with pricing issues not only because this is the case in other jurisdictions, but also because these issues lie at the core of the country's industrial policy plans set out in successive iterations of IPAP and particularly with respect to critical inputs into manufacturing such as steel and plastics.
The dti will continue to give priority to measures to grow value-adding manufacturing. However, the efficacy of incentive and other industrial policy measures in support of the private sector are severely undermined by excessive pricing of key inputs, which bolsters a skewed industrial structure in favour of capital-intensive firms.
Enquiries:
Sidwell Medupe-Departmental Spokesperson
Tel: 012 394 1650
Cell: 079 492 1774
E-mail: MSMedupe@thedti.gov.za
Follow us on Twitter @ the_dti
