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
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
- 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
- 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
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.
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 one 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
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.
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.
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.