Leveraging Plastics Linkages for Diversification

Abstract

The chapter considers the role of linkages, lead firm strategies, industrial policies, and value chain governance in the performance of the South African plastic products industry. The extent to which the linkages of the plastic products sub-sector backwards with the polymers industry, and forwards to plastic automotive components, have influenced the performance of the industry is assessed. The forward linkages to the automotive industry are assessed through a comparative assessment of technological capability accumulation in South Africa with its relatively more successful upper-middle-income counterpart, Thailand. The analysis shows that vertical integration and horizontal collaborations through clusters, as well as the different roles played by multinational corporations and the state, have exerted a stronger influence on the accumulation of capabilities in Thailand, compared with South Africa. The assessment of backward linkages to polymers shows how the linkage development in South Africa has been undermined by market power in the upstream polymers industry. This is coupled with a failure of industrial policy to support diversified industries such as plastic products, including through addressing the challenges related to input prices and supporting the accumulation of capabilities.

Structural transformation in South Africa:

“…In terms of technology infrastructure, there are differences among the local subsidiaries of multinational corporations (MNCs), local small and medium-sized firms, and large domestic firms. Local subsidiaries of MNCs tended to have newer machines, their own tool rooms, and were already using technologies linked to the fourth industrial revolution, with some degree of technology adaptation taking place in the domestic production facilities (Bell et al, 2019). However, strategies for technological upgrading are developed in the home countries and most research and development occurs in the MNCs' headquarters abroad.…”

“…The large domestic firms were also relatively up to date in terms of technology used, had their own tool rooms, and some degree of R&D that was mainly focused on adaptation. In contrast, the small and medium-sized firms (SMEs) had little engagement with technology changes, the firms tended not to have tool rooms, and had no formal R&D activity (Bell et al, 2019). Regarding age of machinery, South African firms had machines with an average age of around eighteen years which is old compared to the norm of replacing machinery after seven to ten years of use (Bell et al, 2019).…”

“…South African firms appear to be shifting towards the use of Chinese machines, as they are relatively cheaper. In 1994, 60 per cent of imports of moulding machinery were from Europe, while in 2018 the bulk of moulding machines (55 per cent) were coming from China (Bell et al, 2019), with the change largely driven by cost differences. South African firms also have a far lower propensity to invest in R&D, opting for short-term solutions to problems rather than investing time and resources into building strong R&D capabilities as the Thai firms do (Garisch, 2016).…”

“…For example, Sasol received the lion's share of financing provided to the chemicals and plastic products industry grouping (Mondi and Roberts, 2005;and Gumede et al, 2011). Sasol was already internationally competitive by 1994 and able to finance further investments from its profits (Bell et al, 2019). This bias towards upstream producers continued in the 2000s, as Sasol alone received 22 per cent of the entire Strategic Investment Programme (SIP) incentive programme .…”

Determinants of digital technologies' adoption in South African manufacturing: Evidence from a firm‐level survey

“…There is a debate on the possible implications and benefits of advanced technologies for developing countries experiencing deindustrialisation, such as South Africa. Studies into manufacturing subsectors in South Africa have referenced poor and ageing technological infrastructure as critical reasons for the lagging competitiveness in global markets (see Bell et al, 2019, for an assessment of technological capabilities in the plastics industry). The country is, therefore, at a crucial juncture, and there is an urgent need to develop policy responses to these challenges and opportunities that are promotive of the broader objective of inclusive growth.…”