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  • FEASIBILITY ASSESSMENT OF A HIGH

    TECHNOLOGY INCUBATOR IN THE SOUTH

    AFRICAN CHEMICAL SECTOR

    KEY FINDINGS

    11 March 2011

  • Study overview

  • Study background

    Chemin plans to remodel and reaffirm its mandate to incubate innovative and high technology chemical sector-related projects

    Envisaged high-tech start-up and business incubator: Goal:

    Increase capacity base and depth of chemical processing technologies in SA

    Targeted activities: Innovative technologies with intensive R&D base Downstream activities in the chemical sector

    Targeted businesses: Domestic high-tech start-ups and businesses Foreign companies entering SA market

    Location: Midrand, Gauteng

  • Study scope St

    ud

    y sc

    op

    e Feasibility analysis

    Locational analysis

    Target marketing profiling

    Market viability assessment

    Operational model

    Incubation model

    Operating funding requirements

    Human resource requirements

    Incubation services and soft-landing services

    Seed funding requirements

  • Best practices in brief

  • General trends observed

    Most of incubators in Asia and Latin America have a technology focus Developed countries: mixed-client incubators most common

    Greater inclination towards semi-virtual and virtual service offerings

    Some offer soft-landing services, but these are: Established incubators:

    Incubators proven to be successful

    Incubators with positive track record offering support to domestic businesses

    Transformed from incubators with international potential (international partnerships)

  • General challenges experienced

    1. Financial constraints: Inadequate or under-estimated start-up finance

    Working capital limitations

    2. Inadequate management capabilities

    3. Poor location chosen for political considerations

    4. Constraints around seed capital for tenants Bureaucratic appraisal

    High collateral

    Lack of information on sources

    5. Overambitious measures of performance set by the government

  • Funding and finances

    1. Non-profit model most common Mainly public sector funded

    2. Two prerequisites for success:a) Diversification of sources:

    o Reduce dependency on one source/public sector

    o Incubators deriving larger revenue from own activities-tend to be more successful

    b) Secure funding for continued support

  • Management and operations

    1. Sound management practices the key 2. Representative governing board:

    A graduate firm

    Experts (Technology transfer, accounting, legal, IP)

    Local government representation

    National development agency representation

    3. A strict selection and exit criteria a must

    4. Three years incubation period average

    5. Graduation only after satisfying exist criteria

  • Service offerings

    Value added sharing of know-how rather than physical aspects

    Shared administrative services

    Office equipment

    High-speed internet

    Assistance with client

    Presentations

    Training in business etiquette

    Basic services

    Entrepreneurial training (business basics to management)

    Increased access to investment

    Relationship building with local R&D and HE institutions

    Assistance in setting up production

    Strong mentor programme

    Value-adding services

    Assistance with import/export law

    Cost of doing business

    Translation

    Language training

    Visa and permits

    Drivers license,

    Housing

    Soft-landing services

  • Soft-landing services - come in packages

    Premium

    Standard

    Basic/Welcoming

    package

    Office space rent (1 month)

    Meeting room access (12h)

    Business development support/advice (12h)

    Environmental scanning of local competitors

    Organised meetings with stakeholders (3-7)

    Networking event attendance

    Office space rent (5-15 days)

    Business development support/advice (4-8h)

    Meeting room access (8h)

    Envionmental scanning of local competitiors

    Organised meetings with stakeholders (1-2)

    First talk/introduction

    Brief local market entry consulation

    Initial partner search

    Initial business development advice (2-4h)

    Meeting room access (2-4h)

    Working place (desk) with internet connection

  • Facility requirements

    General size

    1. Self-sufficiency benchmark: 2 000m 70% gross rentable area

    2. Tenants: 8-123. Space:

    Flexible to allow enlarging or dividing on a modular basis

    10-150m per unit/tenant4. Incubator manager to supported

    incubatees: 1:20

    Provided facilities

    1. Incubator space (offices, workshops, or halls)

    2. Security

    3. Laboratory space (manufacturing)

    4. Office equipment

    5. Specialised equipment or facilities e.g. library, warehouses, etc.

    6. Common areas: equipped conference rooms, exhibition space, training rooms, and reception

    7. Telecom infrastructure: telephone, local area network, and internet services

    8. Basic business equipment: computers, copiers, fax machines, etc.

  • Market viability: high-tech

    business incubator

  • Chemical sector classification

    The DTI classification SIC edition 5 (SIC5) and SIC edition 7 (SIC7) codes

    Sub-sector 2: Commodity Organics SIC5 331/SIC7 191: Coke Oven Products

    Sub-sector 1: Liquid Fuels SIC5 332/SIC7 192: Petroleum refiners/synthesisers

    Sub-sector 2: Commodity Organics Ups

    trea

    m

    SIC5 334/SIC7 201: Basic chemicals, including plastics

    and synthetic rubber in primary forms

    Sub-sector 3: Primary Polymers & Rubbers

    Sub-sector 4: Commodity Inorganics

    Sub-sector 5: Fine Chemicals

    Sub-sector 6: Pure Functional & Specialities

    Sub-sector 7: Bulk Formulated Chemical

    Sub-sector 2: Commodity Organics

    SIC5 335/SIC7 202: Other chemical products

    SIC7 201: Pharmaceuticals, medicinal chemical and

    botanical products

    Sub-sector 6: Pure Functional & Specialities Do

    wn

    stre

    am

    Sub-sector 7: Bulk Formulated Chemical

    Sub-sector 8: Pharmaceuticals

    Sub-sector 9: Consumer Formulated

    Sub-sector 11: Rubber Products SIC5 337/SIC7 221: Rubber products

    Sub-sector 10: Plastic Products SIC5 222: Plastic products

    Highly diversified industry with a number of classifications (the dti, CHIETA, and SIC)

  • Technology intensity of the chemical sectorTechnology intensity Manufacturing industry

    High-technology

    industries

    Aircraft and spacecraft

    Pharmaceuticals Office, accounting and computing machinery

    Radio, TV and communications equipment

    Medical, precision and optical instruments

    Medium-high

    technology industries

    Electrical machinery and apparatus, n.e.c.

    Motor vehicles, trailers and semi-trailers

    Chemicals excluding pharmaceuticals Railroad equipment and transport equipment, n.e.c.

    Machinery and equipment, n.e.c.

    Medium-low

    technology industries

    Building and repairing of ships and boats

    Rubber and plastics products Coke, refined petroleum products and nuclear fuel

    Basic metals and fabricated metal products

    Other non-metallic mineral products

    Low-technology

    industries

    Manufacturing, n.e.c.; Recycling Wood, pulp, paper, paper products, printing and publishing

    Food products, beverages and tobacco

    Textiles, textile products, leather and footwearSource: OECD, 2011

  • Chemical sector dynamics South Africa

    Contributed 2.4% to national GDP (2013)

    Accounted for 20.8% of the manufacturing industry (2013)

    Above average growth rate of 7.0% (2003-2013)

    SA: 3.6% (2003-2013)

    Highly reliant on imports to satisfy domestic demand

    Pharmaceuticals (42.5% of trade deficit in 2015)

  • Chemical sector - Gauteng

    Accounts for 44.4% of SAs chemical sector (2013)

    Downstream industries 57.9% (2013)

    Largest sub-sector: other chemicals & man-made fibres industry

    38.4% of the chemical sector

    66.3% of downstream industries

    Grew at 3.4% (2003-2013)

  • Chemical sector composition (2007)

    Sub-sector/industry GA TOTAL

    Up

    str

    ea

    m

    Fine Chemicals 2 5

    85 or

    4.5%

    Commodity Inorganics 25 48

    Primary Polymers & Rubbers 0 9

    Commodity Organics 5 17

    Liquid Fuels 0 6

    Do

    wn

    str

    ea

    m

    Rubber Conversion 70 139

    1 782

    or

    95.5%

    Plastic Conversion 389 758

    Consumer Chemicals 121 230

    Pharmaceuticals 70 95

    Bulk Formulated 14 51

    Specialties 283 509

    TOTAL 9791867

    Provincial distribution (%) 52.4%

    Majority of firms operated in the downstream industry

    Every 2nd company is located in Gauteng

    Largest concentration: specialities and consumer chemicals

    Gauteng is an ideal platform for the downstream chemical industries growth and development: cluster of industry and

    proximity to the market

  • Chemical sector R&D trends

    Chemical sciences - average R&D spending(2012/2013): R1.5 bn or 6.1% of all R&D spend by research field Ranked 6th out of 15 fields HEIs spending:

    Accounted for 30.4% of R&D spend Tripled in two years: R158.8 m in 2010/2011 to R444.3 in 2012.2013

    Chemical sector highly IP-intensive: Accounts for