OBG talks to Alex Thiel, CEO, Sappi Southern Africa

Interview: Alex Thiel

How can beneficiation be further encouraged?

ALEX THIEL: You need stability to feel comfortable investing in a country. The challenges that we face in South Africa include strong volatility in the exchange rate and a shortage of skills, reliable infrastructure and a stable employment climate. I have sympathy for the view that it can be better to take resources and directly ship them abroad to minimise the risks. Still, I think there are opportunities for beneficiation in the resources sector. Sappi has invested over $700m since 2009 in expanding our chemical cellulose production in South Africa. In addition, on the packaging side there are opportunities because there is a large consumer base, and public sentiment is recognising paper packaging as the responsible and sustainable option.

Should duties and tariffs on imports be raised?

THIEL: South Africa has a very open market in relation to tariffs, with little protection for local manufacture. By comparison, countries such as Brazil and Australia offer much more support and protection for their industries. As a result, incentives are lacking to enter into the market, and I don’t see much government support in trying to obtain a level playing field for our industry. If that would change, there will also be a greater appetite within industry to beneficiate. It does appear that the government is beginning to recognise that industry can contribute to job creation but that the removal of tariffs has not been conducive to this. We have ourselves recently experienced a greater willingness to listen to our industry’s concerns, but closer cooperation between industry and government is needed.

How is sustainable forestry being encouraged?

THIEL: There is a significant opportunity to expand forestry. It creates jobs and wealth – trees are becoming more valuable and constitute a green alternative to coal. The government is afraid of environmental damage, but the industry has an interest in preservation. Land conservation is also important, and typically companies put one-third of land aside for conservation. There is also a measure of self-regulation, in part because this is what is expected by the certification bodies monitoring our activities. As a result, privately owned forests, commercial timber plantations and the areas kept in their natural state are often in a better shape than publicly owned land.

The sector engages with a wide range of government agencies, pointing to the fact that excessive and contradictory bureaucracy is preventing job creation and economic empowerment of rural communities. We have made some progress, but more needs to be achieved. Among the champions in the government supporting reduced administrative burdens is Rob Davies, the minister of trade and industry.

What role should biomass play in the energy mix?

THIEL: Whatever source of renewable energy is used, it needs to make economic sense and producers need to be allowed to freely sell their power. Without this, I am not convinced that solar or wind energy make economic sense unless they are heavily subsidised. With biomass, the situation is more positive, but not if you want to merely turn trees into fuel pellets. It only makes sense when you are prepared to use the whole tree. Some of the tree becomes lumber, some of it pulp for paper and other uses, and the waste can be burned to generate energy. This ensures a high economic value is added as well as energy being generated.

Current policy prevents private groups from generating power and selling to anyone except Eskom. This prevents industry being more positive towards investing in upgrading their production processes with a view to both becoming more efficient, as well as creating additional power to sell to other users, thereby reducing the pressure on Eskom. A final point is that industry needs longer-term contracts to justify investment in such capacity. We have two agreements with Eskom and would be keen to expand on these, but have found Eskom to be hesitant to consider longer time frames.