An analysis of possible effects of developmental pricing: A simulation study of the polypropylene industry in South Africa

Gova, Webster (2017-03)

Thesis (MEng)--Stellenbosch University, 2017.

Thesis

ENGLISH ABSTRACT: Beneficiation of locally extracted minerals to produce fully processed, highvalue utility products is currently limited in South Africa. However, in the polypropylene value chain, locally mined coal is fully beneficiated to produce petroleum equivalent fuels and chemicals. The polypropylene value chain contributes fully processed, high utility products for use in various sectors of the economy, including the plastics industry. The Departments of Mineral Resources (DMR), Trade and Industry (DTI), have respectively identified the petroleum and plastics industries as some of the priority industries for intervention in the beneficiation strategy. The polypropylene upstream industry is currently dominated by China, with capacity representing 19% of global supply, while South Africa only accounts for 1%. However, the current capacity in South Africa represents 53% of polypropylene supply on the African continent. The current study investigated possible effects of a cost-plus developmental pricing policy as a beneficiation strategy in the polypropylene upstream industry. The study focussed on evaluating possible effects of cost- plus pricing on the future attractiveness for investment in capital projects to expand polypropylene production capacity in South Africa. The study demonstrated a systematic approach combining simulation and decision models to account for unavailability of full information and high uncertainties in estimates for quantitative appraisals during industrial policy analysis. The study combined value chain analysis using the global value chain (GVC) framework and Monte Carlo (MC) stochastic simulation methodologies to evaluate the possible impact of developmental pricing. The GVC framework was used to analyse the polypropylene upstream value chain with respect to governance and input/output structure. The MC simulation was applied to a discounted cash- flow (DCF) model on net present value (NPV). The approach presented in this research accounts for limited or asymmetric information, high competition and uncertainty in the local polypropylene industry. In addition, this systematic approach to industrial policy analysis appears to be useful in achieving beneficiation strategy objectives in highly competitive, highly regulated globalised industries. This can enable policy-makers to identify measurable impacts in formulating policies for beneficiation strategies. In South Africa, beneficiation strategies for the polypropylene and plastics industry can focus on identifying other raw materials to compete with existing value chains in order to stimulate more upstream competition. This can allow local production of more internationally competitive upstream products and offer better prices to the downstream industries.

AFRIKAANSE OPSOMMING: Waardetoevoeging van inheemse minerale met die doel om volledig geprosesseerde, hoë-waarde nutprodukte te produseer is tans beperk in Suid-Afrika. Nietemin, in die polipropileen waardeketting word die waardetoevoeging van plaaslike steenkool ten volle gedoen deur die produksie van petroleum-ekwivalente brandstowwe en chemikalieë. Die polipropileen waardeketting dra geprosesseerde produkte van hoë nut by, vir gebruik in verskeie sektore van die ekonomie, insluitende die plastiekindustrie. Die Departement van Minerale Hulpbronne (DMR) en die Departement van Handel en Nywerheid (DTI) het die petroleum- en plastiekindustrie onderskeidelik geïdentifiseer in die waardetoevoegingstrategie as van die prioriteit-industrieë vir ingryping. Die stroomop industrie ë van die hoë-waarde polipropileen waardeketting word tans deur China gedomineer, met China wat 19% van die wôreld se produksie kapasiteit verteenwoordig, terwyl Suid-Afrika slegs 1% verteenwoordig. Nietemin, Suid-Afrika verteenwoordig 53% van polipropileen produksie kapasiteit in Afrika. Dié studie ondersoek die moontlike gevolge van die koste-plus ontwikkelingsprysbeleid as 'n waardetoevoeging strategie in die stroomop polipropileen industrie. Die studie het gefokus op die ondersoek van moontlike koste-plus prysregulering op die toekomstige aantreklikheid van beleggings in kapitaalprojekte om die polipropileen produksiekapasiteit in Suid-Afrika te verbreed. Die studie demonstreer 'n sistematiese benadering, wat simulasie en keuse-modelle kombineer om voorsiening te maak vir die onbeskikbaarheid van volledige informasie en hoë onsekerheid in skattings vir kwantitatiewe evaluerings gedurende nywerheidsbeleid-analise. Die studie het waardeketting-analise van die globale waardeketting ("GVC") raamwerk en Monte Carlo (MC) stogastiese simulasie gekombineer om die moontlike impak op ontwikkelingskoste te evalueer. Die "GVC" raamwerk was gebruik om die polipropileen-industrie waardeketting, met betrekking tot die bestuur en inset/uitset struktuur te analiseer. Die MC simulasie studie is uitgevoer op 'n verdiskontering van kontantvloei (DCF) model vir netto huidige waarde (NHW) evaluering van kapitale uitgawes vir kapasiteit toevoegings in die laaste dekade. Die benadering in die navorsing maak voorsiening vir beperkte of asimmetriese informasie, hoë kompetisie en onsekerheid in die plaaslike polipropileen industrie. Die sistematiese benadering tot nywerheidsbeleid-analise blyk sinvol te wees om die waardetoevoegingstrategie se uitkomste te evalueer in 'n hoogs kompeterende, hoogs gereguleerde geglobaliseerde industrie. Dit kan beleidsmakers in staat stel om meetbare impakte in die formulering van beleide vir waardetoevoegingstrategie ë te identifiseer. In Suid-Afrika kan waardetoevoeginstrategieë vir polipropileen en plastiek-nywerhede fokus op die identifisering van grondstowwe om te kompeteer met bestaande waardekettings om stroomop kompetisie te stimuleer. Dit sal plaaslike produksie in staat stel om meer hoë-waarde produkte te produseer wat kompeterend is op 'n internasionale vlak en beter pryse te bied in stroomaf industrieë.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/101233
This item appears in the following collections: