Adding value at home: Focus on domestic processing to boost exports and create jobs

Over the past five years, as South Africa’s import cover has diminished, the government has continued to look at ways of shifting the trade balance, boosting exports and addressing rising import volumes. There have been a number of policies from the public and private sectors aimed at improving agriculture’s competitiveness and boosting revenues from the sector.

AREA OF POTENTIAL: A primary focus of the Department of Trade and Industry (DTI) in this regard has been attempts to bolster the capacity of agro-processing. In 2008 agro-processing contributed R66.6bn ($8.2bn) to the economy, or 17.3% of the value of the manufacturing sector, according to Statistics South Africa. The sector is the third-largest contributor to manufacturing GDP after chemicals and metals, accounting for 3.2% of total GDP and 2.5% of employment in 2008.

Processing capacity on the African continent remains severely limited, with primary commodity exports accounting for 60% of export value from the region, according to the UN Statistical Division. This has presented several opportunities for South Africa, which has a more highly developed processing sector. Processed products accounted for 60% of the value of South African agricultural exports into the Southern African Development Community (SADC) region in 2010, according to the UN Statistical Division. Processed exports to SADC increased from $420m in 2007 to $890m in 2010, while raw commodity exports have remained almost flat. This suggests that there are opportunities to add value to agricultural exports.

AGRO-PROCESSING: As such, there are a number of projects to boost agro-processing in rural areas. For example, the Ilembe district in KwaZulu-Natal received R11.5m ($1.4m) in funding from the Department of Cooperative Governance and Traditional Affairs in January 2012 to build four hydroponic greenhouses, two plant nurseries, and a processing and packaging facility to export high-value tomatoes, cucumbers and green peppers through Dube Trade Port. Similar plans are afoot in many parts of the country. The Eastern Cape, where agro-processing accounts for 20% of the value added in the manufacturing sector and 18% of manufacturing jobs, has drawn up a new plan for industrial development in agro-processing. The East London Industrial Development Zone has said that it is actively lobbying the industry to set up new plants there.

NEW FACILITIES: The DTI is working across a number of products to encourage downstream activity to boost the value of exports through agro-processing. Imameleng Mothebe, director of the Agro-processing, Industrial Development Division at the DTI, said, “We are focused on developing value added through processing. For example, the department is focusing on bolstering the economic benefits derived from rooibos tea. It’s currently being exported in bulk to Germany for repackaging but we’re looking at repackaging here.”

Rooibos tea accounts for 10% of the global herbal tea market, according to the Department of Agriculture, Forestry and Fisheries and has been highlighted as an emerging agricultural sub-sector. South Africa is the only exporter of rooibos tea on the continent, exporting 7000 tonnes per year.

The country has only had one processing and packaging facility for the product in the Western Cape (with a capacity of 2000 tonnes per year), with the majority exported in bulk and then packaged abroad in places such as Germany (which accounted for 51% of exports in 2010). This changed in May 2011, with the launch of the R160m ($19.6 ) processing facilities in the Hantam district of the Northern Cape. The government-funded project has created facilities with a processing capacity of 3000 tonnes of rooibos tea a year. Vosbol International has taken over management of the plant and will work with the Department of Agriculture and the Department of Land Reform and Rural Development to ensure the distribution of the tea to Europe.

A greater focus on processed goods and domestic processing capabilities should ensure that export figures head upwards and jobs currently done in destination markets abroad are kept at home in South Africa.