 Dovorim. Vkomentujem rečenju na rečenju vsega valičnega spole vsega vsega kapitačnega vsega vsega vsega vsega vsega vsega. Znajim tudi za inovo zrčima, kaj je vsega gleda za vsega, in zelo vsega in vsega in vsega vsega. Ne bolj vsega vsega, vsega in vsega in vsega in vsega in vsega. Zato ističe za to, Effective data je zelo pravda. in FTI data. If you look at the amount of FTI stock in Zambia, it's quite impressive, it has been quite impressive. So it increased from around 4 billion US dollars in 2000 to 12 billion dollars in 2012. The Bank of Zambia estimates that in 2012, 9 billion of these FTI stock was actually in the mining sector. So the Bank of Zambia obviously went into mining capital equipment to recapitalize the mines. These raises, as for many other African countries, a number of issues in terms of local content requirements and how you can use upstream linkages to actually foster local industrialization processes. South Africa is without a doubt the regional hub for mining capital equipment and for associated specialized engineering services. Mining capital equipment, as many studies have shown, including by David Kaplan who is here, is the most dynamic sector actually in the capital equipment industry. Exports, this is industry data from the South African Export Council for Capital Equipment. Exports grew from 10 million rounds in 2005 to 46 in 2014, so quite significant. If you look at the top 10 export markets have shown only the four top here, Zambia is the most important one. Now if you look at trends in the past three years, you have the Zambia, the AC, Mozambique, Zimbabwe and if you add Namibia are consistently accounting for around 50% of exports. If you look at the top 10 exports, you have other two or three regional markets, for example Botswana. So obviously there's an important story going on here. Our research questions were firstly we wanted to understand what is driving the competitiveness of South African OEMs, original equipment manufacturers, everybody knows, but just in case. The second thing we wanted to map regional linkages, so to understand how South African based OEMs strategize in terms of entering the copper belt market. And third, most importantly, what the implications are for local supplier capabilities in Zambia. So what is the impact of having regional linkages on the copper belt? Obviously there's a big policy question here of what is the difference for the copper belt of having South African based OEMs versus European OEMs or American OEMs. So we wanted to specifically focus on the regional linkages story. And obviously the policy implications, so what opportunities going forward. We focused on four product clusters because they were particularly relevant in terms of trade data and because we know from interviews with the industry association that the industry association that South Africa is particularly competitive in these clusters. So it's mineral processing, off-road special vehicles, value equipment, not only, pumps and valves and conveyor systems. I'm not going to go into depth into this discussion, but there are two market dynamics in the global value chain for mining capital equipment that we need to keep in mind. So the mining houses have been under increasing pressures to reduce the total cost of ownership which means that they don't only look at the initial price of the equipment at the sales at the initial purchase of the equipment, but they look at the whole lifespan of the equipment. So what is the duration of the lifespan of the equipment? What is the likelihood of downtime? What is the accessibility and the quality of the aftermarket services? And that has been driven by a number of reasons, but the first one has been to outsource anything that is non-core activities. Actually the mining companies are now actually going to the point where they are even outsourcing the actual extraction of copper ores in the mines. So they just want to focus basically on the financial and organizational side of the business. They've also rationalized their supply chains, so fewer suppliers, more capable, and deeper buyer-supplier cooperation. And this is why you've seen a lot of global alliances with OEMs in the past 20 years. So there have been two implications in terms of these market dynamics. The first one is that the OEMs have become the most important source of innovation in the industry right now. They do a lot of incremental innovation rather than radical breakthrough and a lot of customization to the specific characteristics of the mining sites. The second implication is that aftermarket services have become absolutely critical for the mines. And that obviously has implications for South African OEMs. So aftermarket services are absolutely critical. And for that we refer to repair, maintenance and spares. Now just to give you an idea of the size of the aftermarket services, if you look at mineral processing and pumps, the aftermarket sales can account to anything between three and four-fifth of exports to the copper belts. So it's very significant in terms of procurement values. This is a sketch of the regional value chains for mining capital equipment. I don't know if you can see it. So the mining companies in the copper belt can basically source capital equipment through the OEMs based in South Africa. The OEMs can be either South African-owned or international ones like the Sandvik, the Atlas Copco, the situation. And the OEMs based in South Africa, they do a fair amount of manufacturing, actually. It's localized in South Africa. In the full report we go into details and we actually differentiate between South African-owned OEMs and international OEMs with a basis in South Africa. But the bottom line is that the South African-owned OEMs do a lot more innovation, obviously, in the domestic. They undertake a lot of innovation domestically. So there is more control of the IP of the intellectual property, obviously, domestically. So it's quite important strategically. South Africa is also a fairly well-developed network of tier-two suppliers. There has some previous research has shown that somehow the competitiveness of the network has been eroded in the past 20 years, but I will not go into that. And then the mining companies can buy also through agents and distributors in the copper belt because we are the majority of the suppliers in the copper belt. This is what they do, most of them. They are agents and distributors. So there has been a loss of manufacturing capacities and thousands of suppliers became agents and distributors. Some of them, the so-called briefcase businessmen don't even have an office. They literally operate out of the briefcase. But others actually have established premises and they are able to provide repair and maintenance services. So we have different levels of capabilities. And then they can buy, obviously, from subsidiaries. So the OEM subsidiaries in the copper belt. An estimate in 2012 accounts for 80% of the purchases of mining capital equipment happening through the subsidiaries. Subsidiaries, in theory, will have local tier-two suppliers, but as we'll see later, this is a very weak network of suppliers. And then a lot of the, not some of the aftermarket services are done by independent, local engineering firms. The mining companies can also buy mining capital equipment through the engineering procurement construction and management firms, which are mostly South African based. And they are usually in charge of brownfield and greenfield projects. So as part of that, they also procure mining capital equipment. So what is driving the competitiveness of the South African OEMs? As I said, South African OEMs do a lot of incremental innovation. And they really, it's really a quality driven supply chain. So they compete based on quality. They are not the cheapest suppliers in the market and they have been under, obviously, as we imagine, increasing pressures from the Chinese OEMs. In particular, because the Chinese OEMs are now involved in reverse engineering. So they always, South African OEMs, this means that, literally, the innovation aspects of the business is critical because it gives them an edge compared to Chinese OEMs and also Indians increasingly. We saw a lot of lateral migrations of technologies, which we think it's very important. And there is some research on this, and it's an issue that deserves more study. A lot of the OEMs have been involved, so come from other sectors, or they've moved into other sectors, including electricity, the food industry, infrastructure, construction, forestry, sugar, transport and even defense. We confirm what other studies have found, which is that these EPCM firms actually move into the region with the taping into the South African supply chain. So they actually move in the copper belt using to a large extent South African suppliers. This is obviously problematic for Zambia because the Zambian suppliers are completely cut out of greenfield and brownfield projects. And this is also expected, obviously, in terms of local supplier capabilities, but there is also an issue of freely, the ability of Zambian firms to market their products or be involved in this project. So these are really deals concluded between the copper belt mines, the mines in the copper belt and the EPCM firms here in cutting out the local suppliers. South African OEMs have a particular issue, which is very important. Their expansion in the region has been delayed compared to international OEMs. They started later and they actually struggled to set up a value-added presence in the copper belt. So what happens is that an Atlas Copco has been in Zambia maybe from 1940 and a lot of South African own OEMs are actually struggling now even if they have a significant market in the copper belt, they actually struggle to set up a presence there. That this aspect of the aftermarket services will be very important for these businesses because the South African market has been pretty stagnant. So the major opportunities in the South African market for some aftermarket services, automation, mechanization of extraction activities and low profile and extra low profile equipment. Setting up a presence in the copper belt is not easy because of the sunk cost and because of the overheads. So it has been estimated that just for rent and stuff companies will have to spend around $20,000 a month and that's without keeping stock. One of the OEMs reported holding stock worth $5 million in the premises. So for smaller South African OEMs these are basic, significant expenses and obviously holding stock is the whole point of having aftermarket services in the copper belt because you have to be able to supply within very short lead times. The stock aspect is absolutely critical. Just one last thing. The engineering firms reported that one of the reasons why they also supply regional linkages. South African OEMs are increasingly projected towards the region. The region is particularly important for the mineral processing OEMs. Up to 95% of their sales in the past three years has gone to the region. So for some of them, literally the region is a lifeline. Zambia is also a subregional hub for the whole of Central Africa and in particular for the DRC copper belt. And this is very important in terms of the DRC finally offering some larger economies of scale added activities in the Zambian copper belt. We've noticed two patterns in terms of the internationalization strategies of the South African OEMs in the region. The first one is a lot of trial and errors. So OEMs reported having, trying with partnerships with international OEMs in the copper belt, trying to look for local partners in Zambia, et cetera, and a lot of failure. A lot of it has to do with trust, a lot with supplier capabilities that are different issues. There is also a progression usually from direct exports to the establishment of sole distributorships or agency agreements and for the ones who can afford it joint subsidiaries. So there seems to be really a trade-off obviously between the risks involved in externalizing after market services and the cost of internalizing these services. There is also struggle on the Zambian side in finding South African partners. The Zambian agents actually do want to partner with South African OEMs because they feel that would increase their competitiveness and their capabilities in the copper belt, but there is really a mismatch between the two sides. Nature of linkages. So what we find is as expected actually, it was not very surprising. There is a huge differences between South African OEMs and the copper belt by setting up subsidiaries and the ones who have joint ventures sole distributorship agreements or agreements with local agents. The subsidiaries provide lots of support. The OEMs provide lots of support to their subsidiaries through backup services, for example when there are very skills-intensive repair services that will fly in staff from South Africa. There is access to credit and in terms of joint promotion obviously the marketing aspect. The training one we wanted to zoom in. Most of it is done in house and in South Africa, but some of the OEMs actually do some training abroad. Very little support for local institutes. In terms of local subcontracting there is very little. Whether the OEMs work with the local partners or they have subsidiaries there is very local subcontracting between 10 and 30% of the value of the local sales and it's mostly made small metal fabrication it's nothing particularly value added. There is no R&D budget as expected in the copper belt very little in terms of product development. This is a critical question. We said there is a lot of customization so we know that South African OEMs actually travel a lot to the copper belt to customize the equipment to the mining specifications. We ask them whether at least at this stage they will involve the local staff at all and most of them have said no. So basically the local staff is just involved in the logistics of it but there is very little in terms of knowledge transfer. In terms of regional constraints we identified there is a pletora of problems at the national level but we focused on the regional ones here. The first one is that there are conflicting local content policies. So you have a situation where for example the engineering firms are supplying locally also because of the local content requirements of the export credit and insurance company of the DTI. So obviously the South Africa has local content requirements and increasing reclashing with local content requirements in the copper belt and this is not consistent obviously with the regional strategies of the OEMs. The second issue is that the DRC offers a very important market but it's a very risky environment so OEMs don't want to set up a presence there they are happy to set up a presence in the Zambian copper belt but the border between Zambian and DRC is very problematic so it's making supplying DRC mines very efficient. So this is the last slide, I promise. So there are two key policy implications. What we are saying is that basically these regional linkages offer an opportunity to see the Zambian copper belt not only as an export market but to see this regional value chain as an opportunity for cooperation in industrial development. We think there should be two pillars of this strategy as regional cooperation strategy. The first one is really build a truly regional market between Zambian and DRC and that is a whole of issues obviously between with the Zambian and DRC border and what can be done to make actually that border smoother including participation of the DRC for example in a bilateral or the Sadek FTA. Zambian is also considering a bilateral and the last one is in terms of leverage linkages between the South African OEMs and the copper belt suppliers. So we have seen that there are linkages we think that the current initiatives that the DTI and the Minister of Commerce Trade and Industry in Zambia are looking at in terms of clusters development should take into account these regional dynamics and that means for example that for the South African clusters in to the copper belt this process should be facilitated and should be facilitated for value added activities and that would be at the advantage of the South African OEMs because they would become more competitive versus the international OEMs but there would be also advantages for the Zambian in terms of employment and skills development. On the Zambian side this has to be part of a proper industrialization strategy and skills it's one of the critical issues they have to look at as well as opportunity for subcontracting that are now very low and we think this is an area where actually the two governments should cooperate and complement the regional strategies implemented by the privates. Thank you.