COMPARATIVE AND COMPETITIVE ADVANTAGE

1. COMPARATIVE AND COMPETITIVEADVANTAGE Dr. Paul Jourdan CEO Mintek

3. Comparative advantage A region/firm has a comparative advantage at producing something that they can produce at lower cost than others. Key is not the absolute cost of production but the ease with which they can produce different kinds of things and gain by specialising on that with the least opportunity cost. Every region/firm and person has a comparative advantage at producing something

4. Comparative advantage South Africa has comparative advantages in its resources: minerals, energy, agriculture, forestry, tourism, etc. Reflected in Resource-based exports (>60% of exports) minerals/metals such as gold, coal, PGMs, ferro-alloys, aluminium, copper, diamonds, chemicals. exporter of agriculture-based commodities (fruit juices & wines, confectionary, wood/paper/pulp, wool, meat, etc.) exporter of energy intensive (coal-based) products (aluminium, chemicals, ferro-alloys, etc) natural resource based tourism (conservancies, fauna/flora, geomorphology, etc.) Increasing manufactured exports, but off a very low base. Limited culture-based tourism (dynamic). Essentially, SA is competitive on areas where we have the natural resources

5. Competitive advantage Firms have a competitive advantage over rivals when organisation and managerial processes, position and technology competencies (skills) give them superior value creating processes Competitive advantages are skills intensive, knowledge-based competencies SA has very weak Human Resource base, due to the apartheid HRD neglect, except for a few niche competencies

6. Playing to Strengths SA must build its economy on its resource comparative advantages to realise its competitiveness at micro, meso and macro level – i.e. local, provincial & national levels LED opportunities are frequently in sectors supplying into industries with established static comparative advantage Development methodology must start with a scan of what is available to build upon. Identifying raw materials opens up development activity

7. Approach: processing of raw materials Short to medium term potential lies in our natural comparative advantage, vis: resource-based industries, which will create a competitive platform for finished products in the longer term. However, the resource-based feedstock is not necessarily the principal cost driver (eg for aluminium its electricity rather than alumina) meaning that a “cluster” approach is necessary whereby all the cost-drivers are identified in order to manufacture an internationally competitive product. One of these is the cost resource exploitation and processing capital goods & services which could also provide a “platform” for technological migration into other, non-resource, sectors…. The main cost drivers, other than the prime feedstock, are captial, infrastructure, energy, other feedstocks, consumables, services, capital goods, design and marketing. In fact the principle cost advantage for most of the large invests over the last decade has been energy rather than resources (Alusaf, Namakwa Sands, Saldanha Steel, Columbus, etc.) though our electricity advantage is derived from a low cost resource, namely, coal.Short to medium term potential lies in our natural comparative advantage, vis: resource-based industries, which will create a competitive platform for finished products in the longer term. However, the resource-based feedstock is not necessarily the principal cost driver (eg for aluminium its electricity rather than alumina) meaning that a “cluster” approach is necessary whereby all the cost-drivers are identified in order to manufacture an internationally competitive product. One of these is the cost resource exploitation and processing capital goods & services which could also provide a “platform” for technological migration into other, non-resource, sectors…. The main cost drivers, other than the prime feedstock, are captial, infrastructure, energy, other feedstocks, consumables, services, capital goods, design and marketing. In fact the principle cost advantage for most of the large invests over the last decade has been energy rather than resources (Alusaf, Namakwa Sands, Saldanha Steel, Columbus, etc.) though our electricity advantage is derived from a low cost resource, namely, coal.

8. Resource Demand Gives Producers a Development Window

9. Experience from the SDI Methodology Scan the region’s potential, especially i.t.o. local raw materials; Aggregate demand for the economic provision of infrastructure on a sustainable basis; Scope potential resource-based investment opportunities; and crowd-in investment: private, PPPs and CPPPs; Government has critical role to synchronise infrastructure with productive investment; at Local, Provincial and National level

13. Local “SDI”

15. Scan for real economy opportunities Search for economic opportunities for which an area has a comparative advantage, typically: Mineral resources: Commercial deposits Minor mineral deposits (pegmatites, semi-precs) Industrial minerals (clay, stone, lmst, dolomite) Forestry resources (natural/plantation) Tourism resources (natural & cultural) Agriculture & livestock resources Fishing & aquaculture resources Waste streams resources

16. Turning a resource to account Resources that are uneconomic at one scale can be viable at a different scale: Example: a clay deposit in Lichtenburg Uneconomic to truck raw material to the market in Gauteng. Conclusion: no potential Place processing on deposit, covert raw material to tiles to truck to market. Changes the cost dynamics. Conclusion: viable local economic development depending on infra Critical infra: e.g. access road to plant, elec supply, water supply, skills

17. Re-examining Sources of Potential Competitive advantages exist in tradition of African beadwork Manufacture of beads from recycled glass bottles (a waste stream) creates jewellery manufacturing business opportunity Mix of comparative (glass & energy) & competitive (cultural skills)!

18. Re-examining Sources of Potential e.g: SLASH: Low-cost soil ameliorant made from Sewerage, Lime & Ash, raises soil productivity for food security and market gardening. (many places have these raw materials!)

19. LED drivers for success Scan for niches with real potential; Typically LED entry points are supplying industries with a static comparative advantage in mining, agriculture, forestry, tourism; Configure the requisite infrastructure; Encourage development of Human Resources in parallel to provide skills to develop a competitive advantages in design, research and innovation.