André Vlok
SAPPI Ltd., Braamfontein
South African economy
The South African economy expanded by about 3 percent in 1996 after having achieved a real GDP growth of 3.4 percent in the previous year. This may not be completely satisfactory given the 2.1 percent annual population growth, but is a marked improvement on the annual average growth of 1.5 percent for the period 1980 to 1994. The growth rate is expected to stabilize in 1997, but is certainly expected to remain well above the long-run average of the last decade or so.
There are several factors that could stimulate optimism about the long-run growth prospects of the South African economy.
Political stability since the new government came into power in 1994 has created a climate of confidence where local business is committing to expansion of capacity; meeting the changing demands of the domestic market and to compete more aggressively on world markets.
Inflow of foreign capital has raised the capacity for growth of the South African economy and the economy is benefiting from opening up to the rest of the world in trade and finance.
The government is gradually dismantling controls and establishing markets that operate more freely. Though this has opened up import competition, it is also improving the efficiency of the economy.
Furthermore, income redistribution is leading to the emergence of new markets and, although there has been a slow start, new investment in infrastructure such as housing, water reticulation and electricity will stimulate growth.
On the negative side, unemployment is likely to remain high for the foreseeable future and crime rate remains high although it is declining. The international community has obviously not yet developed complete confidence in the consistency of South African Government policy.
Inflation averaged 7.3 percent in 1996 after the 8.6 percent of 1995. This compares most favourably with the annual average of about 14 percent during the period 1980 to 1994.
The South African Rand currency is now about 10 percent weaker than a year ago after a spurt that took it down 20 percent. The main reason is probably uncertainty by foreign investors in the economic policy of the South African authorities. Should these fears subside, as now appears to be the case, the Rand should be relatively stable in 1997. Inflation could be expected to rise during 1997 due to the Rand depreciation and food inflation; as farmers rebuild live stock herds following good rains after a devastating drought. It is however unlikely to reach double digit figures again.
Prime overdraft interest rate is currently 20.25 percent compared to 18.5 percent a year ago. The rise was due to Rand depreciation and growth in private sector credit demand. These factors should ease during 1997 and interest rates could decline during the year.
Performance of the forest and paper industry
Financial
After the short-lived survival in the world industry during 1994 and 1995, the industry was hit by a dramatic reversal in demand and price levels. This resulted in commercial downtime being taken and a slump in profitability. In line with the world industry, there are now signs of a hesitant recovery, but margins remain under pressure and a recovery to the peaks of 1994/95 is not in sight.
Production capacity - Paper and board
Total production capacity is about 2.4 million tons per year with the main players being:
|
· Sappi |
48 percent |
|
· Mondi |
45 percent |
|
· Nampak |
4 percent |
|
· Carlton |
2 percent |
Production capacity per main product lines are distributed as follows:
|
· Linerboard, corrugating medium, sack paper, boxboard and other packaging and industrial grades |
55 percent |
|
· Newsprint and mechanical printings |
21 percent |
|
· Coated and uncoated printing and writing paper |
19 percent |
|
· Tissue |
5 percent |
Production capacity - Pulp
Total production capacity is about 2.4 million tons, distributed as follows:
|
· Bleached and unbleached paper grade chemical and semi-chemical pulp |
62 percent |
|
· Dissolving pulp |
23 percent |
|
· Mechanical pulp |
15 percent |
Waste recycling
This is steadily increasing and is approaching 40 percent of domestic consumption. Recycling is mainly into packaging products but a second de-inking plant is currently under construction.
Consumption and trade
Apparent domestic consumption of paper has been growing steadily in line with population growth and GDP to a level of around 2 million tons. Domestic capacity utilization for pulp and paper stayed above 90 percent.
Exports of paper and board ran at 22 percent of production with main exports being linerboard and newsprint. Exports of pulp represented 32 percent of production.
Imports of paper and board was equivalent to 17 percent of apparent consumption with the main items being coated paper and paper board.
Raw material
Sustainable plantation grown timber is the main raw material source. The pulp and paper industry is the main driver for the Forest industry, utilizing over 60 percent of domestic wood production. Chip exports, mainly to Japan, run in excess of 1 million tons per year.
The industry focus is on sustainable management of forests with voluntary audit programmes gradually being converted to ISO standards.
The industry has also successfully introduced woodlot projects that enables entrepreneurs to enter the timber growing business through financial and technical assistance with small-scale tree planting.
Since South Africa has scarce water resources, afforestation is being controlled by a permit system. This system is currently being reviewed by the government. Whilst the country is currently more than self-sufficient in timber resources, the long-term future will largely be influenced by government policy. Afforestation in neighbouring countries, notably Mozambique, is currently receiving serious consideration.
Pulp from sugar cane fibre represents about 6 percent of chemical pulping capacity. Future expansion of this resource is limited by transport cost and energy replacement value.
Investment
Recent significant investments related mainly to capacity enhancements through machine rebuilds; plant modernization and environmental projects. Except for one small bleached bagasse pulp mill, all bleached pulp production is ECF.
Outlook
The long-term future of the industry will be largely determined by afforestation policy. The short- to medium-term outlook will depend on the behaviour of the world cycle; which seems to be precariously poised. However, the South African industry is well-positioned to capitalize on improved market conditions.
