SOUTH AFRICA Market Overview

South Africa’s boatbuilders have found the going more challenging in recent years. Exchange rate shifts have been responsible for the nation’s wares no longer looking quite so attractive in export markets. And that has meant serious trouble for an industry heavily reliant on a few niche markets that for much of the past decade were cultivated on a low-price platform.

What took everyone by surprise was the sudden and significant strengthening of the rand (ZAR) three and a half years ago. And, alas for the nation’s exporters, things haven’t shifted back much since. Yes the rand is a little weaker now than it was, but then so is the US dollar, and much of the South African marine industry’s export focus has been to the US and the dollar-driven Caribbean.

As to how much of a shock that the currency shift has had, one need only compare the exchange rates of today with three and a half years ago. Then the rand was at a record low, with the US dollar buying ZAR16. Now it is back to ZAR7.4.

After all boats for mainstream international markets can only be so cheap, principally because 40-50 per cent of the cost of what goes into them is down to internationally sourced materials and equipment. Cheap labour only saves so much.

A fair wage these days in South Africa would see a shop foreman earn around ZAR15,000 per month, a carpenter ZAR5,200 per month and a laminater ZAR3,100. But many yards probably pay substantially less than this, although such things tend to be kept quiet for obvious reasons.

With the rand at its weakest, only the incompetent could do much wrong. As the majority of the industry produces reasonable quality products, whether that be boats or equipment, the currency made such wares extremely attractive in the major markets of North America, Europe and even in Australasia — even after transportation costs and all the necessary distribution-chain margins.

The big problem now that exchange rates have been realigned is that the South African marine industry has been notoriously poor at managing costs. It was always easier to throw men at any problems, rather than organise the problems away properly. At ZAR16 to the US dollar that was okay. And even at ZAR12-13 to the dollar such manpower solutions were understandable. But at ZAR7.4 efficiency is what is really important. South Africa is still cheap, but it is still a very long way away from its export clients. And the main competitors in Europe and in the US continue to improve their efficiencies all the time.

The past three years have already seen a number of the least efficient yards go to the wall — which has at least had the effect of raising the whole industry’s game — although having said that each failed yard’s tooling does have a habit of resurfacing in new and not necessarily more experienced hands. Thankfully South Africa has always built relatively good boats, but efficiency gains mean it is now building better than ever.

The other development is a gradual shift in focus towards Europe. You can see this happening now slowly but surely. Hardly any South Africans were quoting prices in euros last time IBI conducted a South African Business Report three years ago. This time most were. And while the euro-rand rate remains more attractive than the dollar-rand rate it will gather pace. Indeed that may well see the industry gradually begin to swing from its catamaran bias towards monohulls, which is over-crowded Europe’s core interest. Having said that however the majority of South African yards rely heavily on US and Caribbean markets.

As regards the current make up of the South African boatbuilding industry, Bruce Tedder, who served up until August 2006 as managing director of the SABBC — the South African Boatbuilders Business Council — is well placed to comment. “For sure we’ve seen something of a shake up over the past three and a half years,” says Tedder. “The exchange rate position has impacted business significantly, although some have suffered more than others. It’s been a case of the survival of the fittest.”

Boatbuilding activity in South Africa really reflects the transportation issues of getting product to the major boating markets of the USA and Europe to the North, as well as to the other significant markets of Asia and Australasia. “Consequently our yards have tended to build either small boats such as RIBs that can fit into freight containers or medium-size boats and yachts from 10m-30m (33ft-100ft) that can be delivered on their own bottoms. Most are sailboats, particularly cruising cats bound for the US and Caribbean... But boats departing as deck cargo are increasing too, particularly the larger powercat models. Delivering a powercat on her own bottom is problematic for the fact that fuel stops are so far apart... The health of the yacht charter market impacts much of this industry, as does the liveaboard or bluewater cruising community... For example, South Africa now ranks as the world’s second-largest producer of cruising cats after France... A few long-distance motorcruisers are also beginning to emerge. Currently South Africa is building around 120 sailing boats a year over 10m (33ft) and probably 4,200-4,500 RIBs and inflatables...”

Tedder’s successor Veda Raubenheimer is now continuing his work of getting the industry to come together and promote its activities jointly at the key shows and via the media in the main boating markets. Beyond export drives, the council is also involved with regional initiatives that involve training programmes, an important issue for many builders.

What few equipment manufacturers there are in the country grew up supplying the local builders. Spars and sails are what they do best. And similarly much of the equipment imported is OEM product that no sooner bolted on will be shipped back out indirectly.

Until recently imported boats hardly figured in South Africa’s market makeup, but the strong rand and a more prosperous economy has fostered some surprising results in that department.

To read Key Market Facts on South Africa Click here

Summarised from IBI's South African Business Report in IBI's October 2006 issue. The full report can be purchased from International Boat Industry - Back Issues Department, PO Box 772, Peterborough PE2 6WJ, UK Tel: +44 (0) 1733 385 170. Fax: +44 (0) 1733 239 356 mailto:backissues@johndentonservices.com Copies are £15 each plus postage (£1 UK; £2 airmail Europe; £4 airmail elsewhere)