“Only big companies can do big, difficult things.” That was the view of Harry Oppenheimer, chair of Anglo American when it was a multisector conglomerate that controlled more than half of the JSE. More recently, the fashion has been for companies to slim down and focus on their “core” businesses.
That may not always be the best way, especially in a country with a complex business environment. Rand Merchant Bank’s “Where to Invest in Africa 2024” report paints a bleak picture of South Africa as an investment destination, with low economic growth, high unemployment and ailing infrastructure weighing on the country’s economic output.
While it was ranked No 1 in market accessibility, South Africa ranked seventh in economic stability and investment climate. Companies have to deal with bottlenecks in infrastructure delivery, port and rail inefficiencies, water supply issues, construction mafias and occasional extreme weather.
Being big and diverse certainly seems to have made things easier in South Africa and Africa for KAP Industrial Holdings, the diversified industrial, logistics and chemical group. The JSE-listed company has a market capitalisation of R8.53bn.
Its PG Bison division recently opened a R2bn medium-density fibreboard (MDF) plant in the Mpumalanga town of Mkhondo, which will enable it to meet growing local and international demand.
CEO Gary Chaplin tells the FM from KAP’s headquarters in Stellenbosch that the operating environment in South Africa has been tough, especially with failing infrastructure.
“As a company that spans multiple industries, we are obviously [affected] by that. We’ve become quite adept at managing the environment and finding opportunities to grow. In certain sectors we can occupy a leadership position. The decorative panels sector is one, and MDF is in short supply. So we saw the opportunity to build a new plant to supply local demand as well as export.”
Chaplin says the past few years have been challenging for its various businesses. They include Unitrans, a provider of logistics and supply chain solutions; Safripol, the second-largest polymer producer in Sub-Saharan Africa; and automotive components manufacturer Feltex.
KAP’s growth came during uncertain times. “Our best growth was in the last years of the Zuma era. Companies were sitting on cash on their balance sheets. But we went against the grain and invested heavily, and coming out of that we gained significant market share.” He expects those investments to pay off as the economy improves.
Economist Dawie Roodt tells the FM that the economic environment has been brutal for South African companies. “It’s not a plug-and-play country. You cannot use a US business model, for instance, and bring it here. You won’t make it in South Africa. You have to be streetwise, and KAP has been. It understands how the country works. Once you deal with one problem, a week later you have another. There are issues all the time.”
Chaplin says KAP has broad and deep experience, with all the different entities under its umbrella. He gives credit to his management team for being agile in identifying issues and finding solutions. “Internally we have embarked on a strategy of resilience, creating a degree of independence in terms of energy and water supply, security, distribution and infrastructure.”
Reflecting on the Mpumalanga plant, Chaplin says a huge amount of work went on in the background, unrelated to actually building the project, “like navigating through various government organisations to get permissions to be able to do certain things”.
For trade union federation Cosatu, the huge KAP investment in a depressed part of the country is good news. Parliamentary co-ordinator Matthew Parks says: “We are excited about this. It’s an injection into Mpumalanga to create safe jobs. It will stimulate the economy in a province that is at risk in the just energy transition and in danger of creating ghost towns as several coal-fired plants face decommissioning.” Cosatu says once plants such as Komati close, communities are often left to fend for themselves.
It believes entities such as KAP, with diversified interests that cut across many sectors and segments of the market, should be supported, especially as they are investing in areas and provinces undergoing huge change. Cosatu also wants the government and banks to step in. “We need to explore how banks can support new investments, and how the government can subsidise programmes to help cushion communities and businesses that invest,” says Parks.
Chaplin says though KAP has not been affected, most companies that want to build anything significant have encountered the construction mafia. This is shorthand for criminal groups who disrupt construction projects and try to extort money. Legal firm Cliffe Dekker Hofmeyr notes that “South Africa’s construction industry continues to be held to ransom. What began as isolated incidents of extortion in early 2015 has now evolved into a nationwide threat, costing the country billions of rand in revenue and jeopardising vital infrastructure development.”
The mafias’ extortion strategy relies on recruiting residents who are apparently part of the affected community. These residents, says the report, are then used to hinder construction activities, effectively strong-arming the construction companies to adhere to their demands.
However, the authorities finally seem to be waking up to the issue. In October, parliament’s police portfolio committee adopted an oversight framework to ensure more focused and intense monitoring of interventions to end the rising tide of extortions in the country.
With Unitrans and Feltex, KAP is also a key player in the automotive sector. South Africa has built millions of cars and the sector is one of the country’s largest, contributing 4.3% to GDP. The industry is also the country’s fifth-largest export sector, accounting for 18.1% of total exports and employing more than 110,000 people.
You have to be streetwise [in South Africa], and KAP has been. It understands how the country works
— Dawie Roodt
However, the world is moving towards electric vehicles (EVs). Chaplin says the absence of a clear policy directive on EVs up to now has been “a major constraint for the industry, and there’s been concern voiced by both the original equipment and component manufacturers”.
That seems set to change. Addressing the South African Auto Week event in Cape Town recently, President Cyril Ramaphosa said the motor industry has to adapt to EVs, and that the country has to be part of the global supply chain. “This is a major industrialisation opportunity for South Africa and the region, particularly within the context of the African Continental Free Trade Area [AfCFTA], and it will position South Africa as a forward-thinking green economy. It will advance our aspirations to be a global automotive hub.”
The AfCFTA aims to create a single market for goods and services on the continent. It’s expected to move 55 economies into a single megamarket of more than a billion people, making it one of the biggest free trade areas in the world. This presents a significant opportunity for KAP to expand its market reach and increase trade within Africa. In 2024 exports comprised 16% of KAP’s revenue, so there’s room for growth.
Already close to 100 products are approved for a trade pilot programme where countries can use the AfCFTA rules-of-origin certificate — a document that certifies where the product is made and sourced, making it eligible for lower customs fees.
Chaplin says KAP’s presence in the Southern African Development Community and East Africa, predominantly through PG Bison and Unitrans, will allow it to capitalise quickly on the opportunities presented by the AfCFTA. “South Africa is our manufacturing base, and we can then sell into those markets, and we have followed our existing customers there.”
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