Automation Systems Market Outlook for South Africa

South Africa offers not only huge opportunities in mining, but also in many other industries.  Next to the infrastructure markets in power generation and water & wastewater, the markets for food & beverage and automotive offer high growth potential, according to a new study by ARC Advisory Group.  After the end of Apartheid, South Africa developed to become the largest economy in sub-Sahara Africa, representing 40 percent of the continent’s industrial output and 25 percent of its gross domestic product (GDP), while accounting for only 3 percent of its surface area.

“South Africa has the strength to not rely solely on its underground resources and the mining business.  In today’s global economy, every country has to find its place in the global value chain,” according to analyst Florian Güldner, the principal author of ARC’s Automation Systems Market Outlook for South Africa”.

Internal Drivers
Growth in the South African automation market is coming from various sources both inside and outside the country.  Within the national borders, increasing consumer spending and the ongoing privatization in the infrastructure markets are driving growth.

Consumer spending is one of the main engines for stable, long-term development.  The main factors that determine development are distribution of income and population development.  While the population of South Africa will continue to grow and the country will evolve into a more urban society, distribution of income is a problem.

Unemployment in South Africa remains high.  This creates social tension and lowers private consumption.  Poverty is also stubbornly high.  Nearly a third of the population lives on the equivalent of less than two dollars a day.

Finally, the educational system is a major obstacle to growth in South Africa and also a challenge for global companies seeking to invest in the country.  Skilled workers are a rare asset, but one that is needed for South African manufacturing to be competitive on the world market.

External Drivers
South Africa is a stepping-stone to sub-Sahara Africa for many global companies.  Much of the country’s exports go directly to neighboring countries, so the future of South Africa’s economy depends in part on the development of Namibia, Botswana, Mozambique, and Zimbabwe.  Positive development in these countries will also boost economic growth in South Africa.

South Africa also benefits from foreign direct investment (FDI), especially from China.  Sub-Sahara Africa accounts for 14 percent of Chinese non-financial outward investment, such as production facilities, office buildings, and mines.  While a large share of investment goes into exploiting commodities, an even larger share goes into manufacturing.

Automation:  No Way But Up!
The largest single industry in South Africa is mining.  The country is rich in resources of all types and this will guarantee a stable inflow of capital and investments.  The product focus is on DCS, PLC, and AC drives.  The second largest sector is power generation — typical for developing countries.  Overall, mining, power generation, and water & wastewater make DCS the largest product market in South Africa.  Other important sectors are food & beverage and automotive.  However, both are characterized by a high import quota, meaning that much of the automation equipment is already installed on equipment that is imported into the country.

Overall, the South African automation market does not differ much from its “western” counterparts, and the product split equals roughly the structure that we see in Europe or North America.  In general, automation is seen as a value-add and not simply as a cost factor.  For this reason, end users are willing to invest in the latest high-end automation systems.

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