Contract manufacturing industry needs its own forum

July 14th, 2015, Published in Articles: EngineerIT


Over the years there have been several attempts to get the electronic contract manufacturing (ECM) industry represented by an organisation to look after the members’ interests. Contrary to  what many may believe, the contract manufacturing industry has an important role to play in growing South Africa’s electronics industry and has the opportunity to do so.

Tshepo Motsoane

Tshepo Motsoane

The closest the industry has come to being represented by one specialised body was when Association of Distributors and Manufacturers of Electronic Components (ADEC) became the Association of Representatives for the Electronics Industry (AREI).  At the launch earlier this year the chairman, Arnold Perumal, said that AREI’s prime objective is to contribute to the creation of an environment which encourages a dynamic growth of the electronics manufacturing industry at both the component and systems level. But is that enough?  Tshepo Motsoane of the Electrotechnical Unit at the Department of Trade and Industry (DTI) believes it is a good start, but what South Africa really needs is an ECM industry forum. Such a forum would facilitate constant engagement between the sector and government.

South Africa has a well-established electronic product development, manufacturing solutions and related services sector. The sector however is largely unrecognised and unsupported, apart from selected end products that have been identified by government such as set top boxes and electricity meters. It is fragmented and lacks a common voice and coordinated interaction with government.

It is the view of Motsoane that due to the advantages and experience within South Africa, the ECM industry has the potential to propel the country into another dimension of manufacturing, given the fact that it also acts as an enabler for other sectors, creating another stream of indirect job opportunities for the creation of sustainable jobs. The perception of the inability of South African ECMs to produce high volumes competitively hampers future investment in the sector. It may be that not enough is spent on marketing and creating awareness of capabilities of South African industry. While the DTI supports initiatives for companies to exhibit at specialised trade shows overseas there seems to be a reluctance to take up the opportunities.

There are however a number of inhibiting factors. Electronics components are not manufactured in South Africa, but imported by a number of component suppliers. In most cases import duty is charged which make no sense and inhibits the development of the ECM industry.

Many products which are manufactured overseas and imported as complete products do not  attract import duty and compete unfairly with locally manufactured products for which import duty is charged on the components to produce the products. It is difficult to understand government’s thinking on this.  South Africa does not manufacture electronic components in the country, so why charge import duty? The process should be reversed, components should come in tax-free, and completed products which compete in the market with South African manufactured products should carry import duty to protect the local market.

According to Motsoane, the DTI is aware of these problems and is working on solutions to overcome the barriers but it is not that simple. Before a tariff review, a proper assessment must be conducted to determine the impact of such a move. He added that there also needs to be consideration given to South Africa’s World Trade Organisation (WTO) obligations regarding tariffs.

In an effort to stimulate the ECM market the DTI launched a project called Designation in December 2011. The objective is to identify products than can add to the development and expansion of the local industry by designating products and services that must be secured by state owned enterprises from local manufacturers. Products that have already been designated include electricity meters – both analogue and smart meters and set top boxes.

Motsoane said there are  many more products for which industry could apply for designation. For example government schools are starting to implement the use of tablets and laptops  – providing a great opportunity for local manufacture and local procurement by state institutions.

To get a product designated, manufacturers have to approach the DTI  who will survey the market  and do an investigation into the various issues, such as market requirements, locally expertise and capability. Their recommendations are then submitted to Treasury where the final decision is made, and if approved, implemented  The designating process for enforced local procurement was initially up to nine month but Motsoane says that with experience the DTI had been able to reduce the process time to five months.

Motsoane believes strongly that an ECM industry forum or representative body will be an important link. He said that the industry must stand together and form such a body. He is of the opinion that previous attempts to form the South African Electronics Industry Federation failed because the initiative came from government.  He says that industry must take the lead.

Perhaps the industry’s attempt to do this by broadening the scope of ADEC and transforming it into AREI is a good start. The various sectors represented need to work out if combining ECM with component suppliers in one organisation will meet the ultimate aim to get increased support from government to grow the sector. The DTI has  accepted a plan to take this forward but it is still pending approval by its various departments. Let’s hope the wheels can start rolling faster.

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