South Africa Paint Manufacturers Seeks Protection from Imports

South Africa has been one of the three most promising industrial paints and coatings markets in sub-Saharan Africa, according to growth projections by analysts, but the industry’s lobby in the country is now warning any future market expansion predictions could be under threat from unregulated importations.

The South Africa Paint Manufacturers Association (SAPMA), whose 200 members manufacture, supply or distribute an estimated 85 to 90 percent of South Africa’s paints and coatings, predicts poor performance of the country’s market unless President Jacob Zuma’s government, through the country’s International Trade Administration Commission (ITAC), urgently increases import tariffs on imported paints from the current 10 to 25 percent.

In addition to Kenya and Nigeria, analyst Frost & Sullivan recently indicated the South African paint and coatings industry, which is dominated by multi-nationals “is growing at a normal pace, although the infrastructure and construction industries are experiencing robust growth.”

Although SAPMA said it is still engaging with government through the Department of Trade and regulatory authorities on import tariffs and the protection of the South African coatings industry against illegal importation and dumping of paint and coatings products, it is worried industry gains achieved could be reversed if unregulated importation continues.

SAPMA executive director Deryck Spence said in early September an estimated $86 million worth of paint was imported into South Africa in 2015 “which is about 10 percent of the entire South African market.”

“Around 65 percent of the paint emanated from Europe – which is free of import duties in terms of Customs and Trade Agreements with the EU – and another 20 percent from the USA, on which only 10 percent import duties apply,” Spence told South Africa media.

“Now there are strong indications that more overseas countries, such as India in particular, are regarding South Africa as a lucrative export destination to be targeted on a large scale,” he said.

Spence said a large share of the paint imports are “mainly specialized, solvent-based paints – such as for the marine and automotive sectors – but there is every indication that dumping of paints much more competitive to the local industry are also earmarked for dumping in South Africa.”

“Although the paint now imported from Europe and the USA are generally of an acceptable standard, there is no guarantee that the same could be said of future imports from new sources,” said Spence.

He proposed raising of import duties on imported paints 15, except for the duty-free paints from Europe, to create fair competition in the industry and stop increasing dumping of the products in South Africa.

Currently, South Africa levies three types of import duties on imported goods, which include the anti-dumping and countervailing duties. This duty is for imports “considered being ‘dumped’ in South Africa and subsidized.”

According to South Africa’s South African Revenue Service, imports that attract antidumping duty “are the subject of investigations into pricing and export incentives in their country of origin.”

“The rate imposed will depend on the result of the investigations and can either be based on ad valorem (as a percentage of the value of goods) or as a specific duty (as cents per a unit).”

ITAC was quoted in early September saying despite the concerns by SAPMA, there is no specific manufacturer who has launched a complaint or request for increasing of the import tariffs as required by law to enable it launch an investigation into the proposal propagated by the Spence-led association.

“SAPMA intends acting on the ITAC directive and will now approach a suitable producer member to urgently lodge an appeal for ITAC to investigate the matter of raising import duties as soon as possible,” said Spence.

An estimated 40 percent of the paints in South Africa are distributed through the manufacturers’ owned professional wholesale depots, while the manufacturers’ owned Do-It-Yourself (DIY) outlets, hardware outlets and superstores/warehouses distribute 15 percent, 25 percent and 20 percent of the paints respectively according to a recent report by the Remburssi – Association of International Business, which is a group made of Aalto University students who are interested in international business.

Despite the structured distribution of paints in South Africa, the industry, has in addition to unregulated paints importation and dumping, continued to face other challenges that hinder it from contributing to the country’s economic growth, which the World Bank projects will this year stagnate at the 2.4 percent achieved in 2015 “due to a combination of domestic constrains and external headwinds arising from the fall in commodity prices and slowdown of the Chinese economy.”

Kansai Plascon Africa Ltd, which came into being in 2012 after the renaming of Plascon South Africa in a merger with Japan’s Kansai Paint, the world’s sixth largest coatings company, saw its performance deteriorate according to the global company’s annual report for the year ending March 31.

Kansai Paint president and representative director Hiroshi Ishino said in March “business results deteriorated in Africa because of factors including an economic slump in South Africa and neighboring countries.” The country’s GDP growth declined from 1.5 percent in 2014 to 1.3 percent in 2015, according to the African Development Bank and “is expected to weaken further to 0.7 percent in 2016” on the back of “electricity shortages, low commodity prices and low consumer and business confidence continue to restrain the growth of economic activity.”

“Despite continuing sales promotion efforts, sales fell slightly on a local currency basis at a time of weakness in the economies of South Africa and neighboring countries,” he said.
Ishino added that investment in sales promotion and other factors “put pressure on profits, and substantial currency conversion effects contributed to weak business results.” The company’s sales in Africa were $287 million, a 26 percent drop from 2014 sales.

SAPMA chairman Terry Ashmore said earlier described 2015 as the difficult year for South Africa’s paints and coatings industry because of local and international trends.

“Just as we start looking forward to increased economic growth, we get knocked backwards by more events that move South Africa down the foreign investment ladder,” he told SAPMA members during their 2015 annual general meeting.

He said the capacity challenges faced by South Africa’s electricity generation and distribution monopoly Eskom, recent xenophobic attacks added to the “to the continuing problems of unemployment, skills shortages, undisciplined union action and the ever increasing pressure on our global competitiveness.”

The Association’s vice chairman Sanjeev Bhatt said what South Africa’s manufacturing sector needs is “to take positive steps to combat declining investor confidence so that our economic activity and export performance are not affected.”

For South Africa’s paints and coatings industry, Bhatt aptly summed up its next cause of action when he said: “Businesses will have to adapt, change and implement new strategies at every point and the coatings industry will need out-of-the-box thinking coupled with focus on individual core businesses to yield positive results.”