Despite the global financial crisis and fall in commodity prices, the distributed control systems (DCS) market in South Africa grew at an estimated 10,1% in 2008. Strong demand from the power, food and beverage, chemicals and petrochemicals and the metals and mining sectors contributed to this growth.
However, market growth is expected to continue on a downward trend over the next three years up to 2011 due to decreasing demand in key industries, led by the metals and mining sector. Overall, Frost & Sullivan anticipates that the value of the total DCS market in South Africa will be over $160 million in 2009. This will grow to just short of $250 million by 2015. Annual revenue growth over the period 2009 to 2015 is expected to average 7,8%.
The refurbishment and building of new power stations will be a major source of retrofit revenues and new installations for DCS solutions. Suppliers stand to benefit significantly from the high number of projects planned by Eskom to address power shortages. Revenues from the power generation sector will represent just under a third of total revenues in the DCS market by 2015, taking it ahead of the chemicals and petrochemicals sector as the largest market for DCS. As Eskom has indicated that it would like to broaden its supplier base, the current dominance by Siemens and ABB in this sector could be challenged by other participants such as Emerson, GE Fanuc, Honeywell, Protea and Yokogawa.
In the metals and mining sector, the fall in commodity prices has led to the postponement of a number of projects. Mining projects in the platinum, gold and base metals sub-sectors remain particularly vulnerable. This will see the mining and metals DCS market reduce in size due to the lack of green field projects. However, retrofit demand is expected to remain stable as more companies seek to increase efficiency.
South African suppliers will also benefit form the strong demand for DCS in neighbouring countries. The needs of the metals and mining industries in Botswana, the DRC, Namibia, Zambia and Zimbabwe have created a market for both retrofit and new installations, while the growing oil and gas industry in Angola is expected to boost revenues. Furthermore, planned power projects in the DRC, Mozambique, Tanzania, Zambia and Zimbabwe should be of interest to South African-based suppliers, as they are the main market participants in these countries as well.
DCS suppliers will however do well to focus particular energy on the provision of services related to system maintenance, system integration and system upgrading. Increasing end-user demand for services due to the shortage of engineering and technical skills is offering huge potential for vendors. Suppliers with strong engineering teams capable of offering services and support on large projects are expected to benefit most from this.
Around 50% of revenues in the DCS market are currently earned from services, and this trend will continue. At the same time, the proportion of revenues generated from hardware is likely to reduce due to falling prices as hardware becomes more commoditised. After-sales support is therefore becoming increasingly critical for success.
The shortage of technical skills at the end-user level is however also presenting DCS suppliers with a challenge that will have to be addressed through increased direct marketing and education of end-users. There is a shortage of experienced end-user representatives buying automation and control solutions, causing DCS suppliers to find it increasingly finding it difficult to change end-user mindsets to move from the use of PLC and scada based systems. This may limit the penetration of DCS solutions in conservative end user segments such as the metals and mining industries in neighbouring countries.
The growth in the DCS market in South Africa will be driven by increasing a strong pipeline of projects in the power generation, food and beverage, and chemicals and petrochemicals sectors. DCS suppliers are increasingly moving from their traditional vertical markets into new verticals in order to broaden their client base. This is expected to intensify competition and lead to further price reductions. The large installed base of the top tier competitors is likely to ensure market position, but as some major customers, such as Eskom indicate an interest in broadening their supplier base; smaller and new market players may have a better opportunity than ever to increase their market shares.
For more information contact Patrick Cairns, Frost & Sullivan, +27 (0)83 258 4219, [email protected], www.frost.com
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