South Africa: Find your niche

UK environmental businesses would do well to consider South Africa as a market for products and services, but with the strong Pound and weak Rand, and a government focus on boosting employment among resident black people, companies should concentrate on building relationships with local companies, and selling high-value products or to niche markets.

So says the UK Government’s Joint Environmental Markets Unit (JEMU) in its new market opportunity brief on South Africa, launched at the ET2002 trade show at the NEC in Birmingham on 21-23 May.

South Africa is a country that produces 540 million tonnes of waste per year, mostly from the mining industry, and most of which – including hazardous wastes – ends up untreated in landfill. Up to half of all households have no form of waste collection, and are forced to burn, dump or bury that that is not recyclable. According to JEMU, the majority of the country’s 750 landfill sites have pollution problems, with 62% posing a threat to water quality, 65% contributing to air pollution, and 71% causing a nuisance to the community.

As far as water is concerned, seven million people (16% of the population) do not have access to a basic water supply, with around half of rural populations affected. However, since the elections of 1994, the situation has improved considerably, when around 12 million people were without adequate water supplies, an enhancement that has cost the country R6.5 billion (£450 million). Nevertheless, it is estimated that between R50 and R80 billion (£3.4 to £5.5 billion) needs to be spent over the next decade to improve wastewater treatment.

There has been considerable focus in this post apartheid era on improving the quality of life for millions of South Africans. The 1996 Constitution of South Africa gives people the right to an environment that is not detrimental to their health, as well as rights of access to basic water supply and waste management services.

Fortunately, according to Douglas Barnes, Deputy Director of JEMU, who has worked in South Africa, the country has a vibrant economy, and, although there are problems with crime, this is often exaggerated by the media.

Economic growth in the country is currently around 3% per year, and is forecast to grow at 5% in the next five years of so, said Stephen Owen, senior consultant at ERM. There’s more good news, as far as environmental businesses are concerned, including a plethora of new and future environmental regulations, and the fact that the eyes of the world are focusing on South Africa with the forthcoming World Summit on Sustainable Development in Johannesburg in September.

Other good news for UK companies include the fact that the official business language is English and that the UK is already South Africa’s third largest source of imports. The country also provides a base for accessing other markets in southern Africa and the southern hemisphere.

However, those wishing to leap into the South African market will have to bear in mind a number of potential restrictions, such as the exchange rate. “The Rand has fallen in value quite significantly over the last decade”, says Owen. In 1997, there were R7 to the Pound. However, five years later £1 will buy you around R16. Whilst this may be a distinct advantage for UK holiday-makers, it is a bane for those wishing to export goods and services.

This high exchange rate means that UK firms will need to focus on providing higher value goods and services, such as leak detection and membrane technologies, says Owen. Current problems combined with future prospects mean that companies should consider entering into South African investment for the long term.

According to JEMU, the greatest current and future opportunities for UK companies are in water and wastewater treatment, with renewable energy and waste management offering opportunities for the future, if not now. “Renewable energy, whilst it is only a small slice in the overall market, is seen as a growing area,” said Owen. “Renewables also provide an important solution for remote off-grid communities.”

Other areas where UK companies could compete effectively are in environmental consultancy, contaminated land and environmental monitoring and instrumentation. In particular, there are opportunities for pollution control in the mining, food and drink, and petrochemicals sectors.

As government funds are already stretched, the South African authorities are keen to take advantage of public-private partnerships (PPPs), says Owen. There are also complex labour laws associated with black empowerment, which means that UK businesses would do well to work with local companies. The UK Government’s business assistance programme, Trade Partners UK, is able to assist companies with less than 250 employees that wish to form such partnerships, even undertaking searches in South Africa to find up to five suitable partners.

Companies should also note that the high level of HIV/AIDS infection in the country affects the numbers of skilled employees in the country.

Within the wastewater treatment market, opportunities for UK companies include PPPs for municipal wastewater treatment and consultancy advice on water industry restructuring. Opportunities in waste management include the design, construction and operation of waste management facilities, the provision of equipment, municipal waste management contracts, and hazardous waste management. Regarding renewable energy, UK firms could take advantage of opportunities in wind and solar power, and in consulting on restructuring of energy markets.

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