NewsNorth AfricaTop 500 Companies: Manufacturing - Kickback from the commodity crunch

Wed,22Nov2017

Posted on Friday, 25 March 2016 15:38

Top 500 Companies: Manufacturing - Kickback from the commodity crunch

By Marshall Van Valen

Egypt’s Ezz Steel is struggling to compete with cheap imports. Photo©Amr DAlsh/ReutersMany manufacturers are grappling with a downturn in commodity prices and a drop in demand for the products they produce.

The recent commodity boom in Africa did not lead to the transformation of its economies into ones focused on manufacturing, and the sector continues to weaken. Transportation, electricity and other infrastructure deficits are some of the obstacles holding back industrial firms from Egypt to Kenya, Nigeria and South Africa.

As a result of these challenges, the manufacturing sector's turnover in our Top 500 ranking – based on 2014 company reports – dropped by 7.2% to $75.1bn. The World Bank's lead economist for Africa, Punam Chuhan-Pole, tells The Africa Report: "You'll find that the share of manufacturing [in exports] has actually declined. In 2001-2004, it averaged about 27% of exports and now it's about 16%."

Top 10 Manufacturing companies

The drop in oil and gas prices in late 2015 had knock-on impacts on manufacturers. Chemical producer and energy company Sasol (#3) has been slashing costs and sacked 1,500 members of staff in 2015 with the aim of saving about $300m per year.

Nonetheless, it is going through with plans to build a $8.9bn ethylene plant in the United States as a means of product and geographical diversification. Despite the difficult environment, Sasol reported a 2% rise in profits up to R46.5bn ($2.8bn) in the year ending June 2015 due to the strength of its activities outside of oil and gas exploration and production.

Iron ore prices have been low but so has demand for steel, due in part to the slowdown of the Chinese economy. A senior official in the former ruling party and Egyptian steel magnate, Ahmed Ezz, has had legal problems since the overthrow of President Hosni Mubarak in 2011.

Ezz Steel (#51), of which Ezz owns a 51% stake, has been performing badly even though the government has implemented higher tariffs on imported steel. Ezz Steel reported a E£319m ($40.7m) loss for the first three quarters of 2015. The company does not export its production and is having difficulty competing with low-cost imports.

Import tariffs

The South African government also raised tariffs on imported steel in 2015, but it has come too late for ArcelorMittal South Africa (#45). In late 2015, the company was in the process of shutting down two plants, with the prospect of an- other closure and possibly 1,600 job losses in total. The company has been losing money every year since 2011.

ArcelorMittal South Africa is now leading a local campaign for the imposition of anti- dumping tariffs on Chinese steel, and is reviewing its plants with an eye to cutting more costs.

The difficult headwinds offer some companies the opportunity to reorganise and restructure to make profits another day. South Africa's Allied Electronics (#61, Altron) is undergoing a major shake-up as it transforms from a family-run business into an independently managed company.

The Venter family announced in May 2015 that they are giving up control of the company so that it can strip off its non-core assets and focus on its profitable businesses. In the year ending February 2015, Altron reported a R60m ($3.6m) loss due to several unsuccessful product launches and a costly and troubled expansion into East Africa. ●



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