The past year has proved to be a challenging one for the component distribution industry. The Rand has strengthened again after weakening a little earlier in the year. This has not helped either the component, or the exporting companies.
Component prices are at an all-time low and many companies are struggling to meet their turnover and profit growth targets. Although the market for components is relatively flat, it is still highly competitive with a host of companies chasing the available business.
The spirit of the entrepreneur is alive and well in South Africa, with new designs, developments and projects continuing to appear. Many South African designs in the telecoms and security industries have found favour in overseas markets which augurs well for the future. Economists continue to forecast the weakening of the Rand, which would assist the efforts of the exporting companies.
According to the Reserve Bank, South Africa is currently enjoying the longest economic upswing in history. Growth has averaged 3,5% over the last 25 quarters or more than six years. GDP growth for the last quarter was a higher than expected 4,8% which was considerably higher than that for the first quarter of this year, with the prospect of even higher rates in the future.
Inflation is down and interest rate cuts have driven commercial lending rates to 24-year lows. A number of capital projects have been announced such as the investments to be made by Transnet in infrastructure upgrades to rail lines and ports, the Gautrain, developments at Richards Bay and the improvements to the country's airports that the Airports Company will institute before the World Cup etc. All these will have a positive effect on our industry.
On the negative side, domestic savings and investment rates are still too low. According to the central bank 'the ratio of gross fixed capital formation to GDP is only about 17%, which is widely deemed as inadequate for the sustainable growth and development of South Africa.' Also, the high oil price will adversely affect the rate of inflation if it does not moderate soon and will tend to curb the consumer spending boom, which has been a driver of the current good growth being experienced in the economy.
Moore's Law, that the numbers of transistors per square inch on integrated circuits will double every year to 18 months, continues to hold, and improvements in technology continue to flow from the semiconductor manufacturers. Passive device producers are also producing new and innovative products and techniques which do not always get as much exposure as their semiconductor counterparts.
The components industry will continue to thrive and developments such as VoIP, Wi-Fi and new applications for GPS etc, will encourage the entrepreneurs to bring new products to market and expand the industry. It is too early to forecast the arrival of boom times, but the signs are that business is likely to improve for the component companies and that next year should be better than 2005.
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