3. 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
4. Study scopeStudyscope
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
6. 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)
7. 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
8. 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
9. 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
10. 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
• Driver’s license,
• Housing
Soft-landing
services
11. 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
12. Facility requirements
General size
1. Self-sufficiency benchmark:
• 2 000m²
• 70% gross rentable area
2. Tenants: 8-12
3. Space:
• Flexible to allow enlarging or
dividing on a modular basis
• 10-150m² per unit/tenant
4. 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.
14. 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
Upstream
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
Downstream
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)
15. Technology intensity of the chemical sector
Technology 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 footwear
Source: OECD, 2011
16. 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)
17. Chemical sector - Gauteng
• Accounts for 44.4% of SA’s 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)
18. Chemical sector composition (2007)
Sub-sector/industry GA TOTAL
Upstream
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
Downstream
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 979
1867
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
19. 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 38% (215) of patent grants in SA (2014)
– 40% (85) of these are associated with downstream industries
• Basic material chemistry (35 grants)
• Pharmaceuticals (26 grants)
• Biotechnology (12)
• Technology generators with strong chemical field R&D (mainly
upstream):
– Ten in Gauteng
– Four in KZN
– Four in the Eastern Cape
20. Market viability – existing domestic businesses
5 downstream
chemicals
One pulp and
paper
manufacturing
9 waste
management
related industry
15
projects
• Insulating varnish
• Fuel performance catalyst
• Sodium Hydrogen Diacetate
• High purity ferric sulphate in
powdered form
• PHMB, chlorhexidine base and
DKB inhibitor
• Chemical and chemical products
industry
• Linkages with HEIs
• 8 materials recovery industry projects
o Heavy metals recovery
o Chromium oxide green recovery
o Waste oil recovery
o Al oxide and titanium dioxide extraction
o Activated carbon
o Aggregate from fly ash
o Petroleum jelly and caustic recovery
• One waste management project
o Waste water treatment
• Not a downstream chemical industry
• But an emerging industry with high
growth potential
21. Market viability – potential for domestic spinoffs
• Downstream industries – suitable for incubation
• Gauteng – notable opportunities:
– High concentration of the industry
– Established and relatively-large other chemicals & man-made
fibres industry
– Hosts half of chemical-related businesses in SA
– Hundreds of downstream businesses
– Significant R&D capability by technology generators
– Largest prospects for spinoff companies
• Feedback from HEIs:
– Many technologies are licenced to existing companies
– Pharmaceuticals and cosmetics – most viable
– Need for labs and manufacturing facilities
22. Demand for business incubation services
For businesses in development
stage (Incubation)
• Market validation
• Technical feasibility/lab tests
• Market studies and evaluations
• IP evaluations and IP protection
applications
• Economic feasibility assessments
• Engineering and pre-production
prototypes
• Marketing and business plans
• Labs and manufacturing space
For businesses in commercialisation
stage (Post-incubation)
• Production activities
• Market monitoring
• Business growth advice
• Product support
• Market diversification
• Technology marketing
• Licensing
• Entrepreneurs frequently engaged/experts in technical matters
– Insufficient knowledge and time for business and admin matters
• Internal (to incubator) or third-party support is needed
• Training and skills development – customised and practical learning
23. Viability statement – business incubator
• A truly chemical sector incubator → not practical
– Half of incubatees should be from the sector
– Existing business pipeline:
• Majority non-chemical industry
• Include chemical transformation
• Marketing as “high-tech incubator” → not reasonable
– Existing businesses within “material recovery” should be
retained
– Material recovery - innovative but not high-tech industry
– Downstream chemicals – mainly medium-high tech industries
24. Recommendations
• Re-define the target market
– Medium-tech chemical activities
– Material recovery involving chemical transformation
• Refrain from using “high-tech chemistry incubator”
• Market as “downstream chemical and chemical materials
recovery incubator with focus on innovative businesses”
• Marketing efforts:
– Rebrand
– Intensively publicise “new Chemin” targeting past partnerships
and new target markets
– Initiate a business plan competition
– Establish affiliations with HEIs and research facilities
– Improve network and collaborations with the CSIR, ARC, etc.
– Establish partnerships with potential funders and set-up in-house
funds (where feasible)
26. Soft-landing services potential target market
• Foreign start-up companies:
– In early concept stage
– With a functional product and in early validation
stage
– Commercialised foreign start-ups looking to scale
in South Africa and beyond
• Returned SA ex-pats
• SA scholars/researchers based overseas
• Incubation graduate businesses from other
countries interested in expanding their global
markets
27. Demand for soft-landing services
• Current size → limited:
– Sector-specific focus
– Competition from other countries that are currently
offering both financial and non-financial support to
attract foreign start-ups
– Competition from private sector and foreign
government supported platforms in SA (embassies
and other expat business networks)
• Potential to attract → restricted :
– Lack of track record in incubating high-tech businesses
– Lack of experience in hosting foreign businesses
– No established partnerships with other foreign
incubators in the same sector
28. Recommendations
• Overall demand → insufficient in the immediate future
– Using exiting staff may jeopardise the quality of services
provided to incubatees
– Hiring new staff not cost-effective at the moment
• Refrain from offering these services as part of Chemin
• A wider target market should be explored in the short-
term (i.e. include other industries)
• Recommended approach:
– Unit within SEDA but outside Chemin
– Focus on provision of services to businesses from a variety of
sectors
– Seek specific advise and services from specific incubators
when needed (i.e. networking)
30. Recommendations
• Existing headquarters in Midrand (i.e. Willows Office Park) – not
suitable for the incubator:
– Not owned by Chemin - limited flexibility
– Small office space to host incubatees (250 m²)
– No manufacturing space
– No longer available for lease
• Midrand – generally an ideal location
– Home to many “smart” and high-tech industries
– Central location relative to:
• HEIs and research institutions in Gauteng
• Embassies and consulates
• Central to the consumer/market
• New location and offices should be chosen wisely:
– Mogale City is not suitable (sub-part facility, small size, services supply
challenges, remote location)
– New office would need to offer both office space and manufacturing space
(may make Mogale City facility redundant)
32. Incubation framework
Model Non-profit
Target market
A innovative domestic venture operating in:
Downstream chemical sector
Waste recovery industry (chem. processes & formulations)
Type
Primary focus: facility-based incubator
Secondary focus: virtual support
Capacity & Expertise
Internal expertise
External expertise
Tenant-businesses supported 8 – 10
Average incubation period Three years
Facility ownership
Rented (long-term lease) space
Customisable facilities for production activities
Location
General location: Midrand, Gauteng
Site-specific requirements:
o Easily accessible from the N1
o Accommodates light industries
o Offers modern office facilities
33. Incubation model
Concept Phase Development Phase Commercialisation Phase
Pre-incubation Incubation Post-incubation
• Not Included as
part of the
programme
• Pre-incubation
support to be
offered through
universities
Entry point: Stringent
selection process
Graduation: exit
policy
• Seed funding
support for
deserving tenants
• Analysis and
validation
• Technology support
Early
commercialisation
support
Virtual post-
incubation
support
34. Entry process
• Complete application form
• Presentation of the basic business plan to the selection committee
Application
• Post-concept phase
• Innovation-based business model
• Early stages of development with high-growth potential
• Provide economic benefits to South Africa
• Illustrated ability to pay incubator rents while they develop positive
cash flow
• At least one project champion fully committed and involved in the
project
• Business has legal freedom to operate
• Business idea – financial viable
• Preference – intention to set up a business in Gauteng
Evaluation
(criteria)
• Support to be provided
• Payment conditions
• Incubation period
• Progress monitoring and meetings
• Exist policy
Signing MOU and
Lease Agreements
35. Facility size and CAPEX requirements
• Optimum space requirements – 872m²
• CAPEX requirements:
– Self build option: R6.3 million
– Renting: R1.1 million
– Collaboration with HEIs: almost as much as with R6.3 million excluding labs
Space function Size per unit (m²) Number of units Total space (m²)
Client office space 15 10 150
Incubation manager's office 15 1 15
Internal experts' offices 15 2 30
Administrator's office 12 1 12
Small boardroom 24 1 24
Large meeting room 51 1 51
Subtotal 282
Circulation factor (30%) 85
Usable square meters (office component) 367
Common area factor, including kitchen and canteen area, reception area, printer area (15%) 55
Total office component 422
Lab space 50 1 50
General light manufacturing & storage space 40 10 400
TOTAL 872
36. HR composition
• Minimum six permanent staff members:
• External experts:
– Registrar of preferred companies/individuals with track record and proof of
expertise
– Offering assistance that cannot be provided by internal experts
– Hired on a need-based only
Required Staff Number Contract type
Management Incubation Manager 1 Full time
Internal Experts 2 Full time
Support staff
Receptionist 1 Full time
Admin 1 Full time
General 1 Full time
External experts Consultants Project based Project based
37. Incubation stage services
Secretarial services
Shared receptionist
Mail and business address
Infrastructure and facility based services
Fully furnished office space
Manufacturing/storage space
Material handling equipment (hand trucks, lifts, etc.)
Lab facilities and equipment
Fully furnished training and meeting space
Fully furnished kitchen area
Canteen facilities
Internet access (high-speed)
Shared office equipment
Funding and access to financing
Seed funding
Fundraising - access to external sources of funding
Customised training and access to knowledge
Business training programmes
Link to higher education and their resources
Access to library and knowledge databases
Business services
Technical Feasibility/Lab Test
Market Study and Evaluation
IP Management
Economic Feasibility
Engineering Prototype
Marketing Plan
Business Plan
Pre-Production Prototype
Market Validation
Product development
Market Monitoring
Business Growth
Product Support
Technology Marketing
Assigning/licensing
EIA authorisation
Networking opportunities
Mentoring and coaching
Networking among incubatees
Linkages to experts, mentors and investors
38. Post-incubation services
• Virtual-based services
• Range:
– Assistance with increment of sales
– Assistance with improving the production
processes
– Internationalisation
– Technology transfer
– Business model change
39. Operating budget (estimate)
Office and manufacturing space
Total: R3.0 million pa
• About R1.7 million for salaries and
wages
• R0.7 million for renting office and
industrial space
• R0.2 – utilities
• R0.1 – maintenance and repairs
Only office space
Total: R2.5 million pa
• About R1.7 million for salaries
and wages
• R0.4 million for renting office and
industrial space
• R0.1 – utilities
• R0.05 – maintenance and repairs
40. Seed funding requirements
Services covered by seed funding
Technical feasibility (R45k)
Market Study and Evaluation (R60k)
IP Management (evaluation and
protection) (R90k)
Business Plan (R150k)
Economic Feasibility (R100k)
Marketing Plan (Part of BP)
Market Validation (15% of product
development cost)
Engineering Prototype
Pre-Production Prototype
Services NOT covered by seed funding
Proof of Concept
Market Needs Assessment
Venture Assessment
Disclosure of Invention
Product development – mass production
Market Monitoring
Business Growth
Product Support
Market Diversification
Technology Marketing
Assigning/licensing
EIA authorisation
R400-R500k
Project
dependent
TOTAL SEED funding requirements:
• R5 million per incubation round
• Competition-based
• Supports TEN incubatees physically located at the incubator
• Prototypes to be funded using external sources
42. Chemical sector and R&D classification
R&D field The DTI classification
SIC edition 5 (SIC5) and SIC
edition 7 (SIC7) codes
Food chemistry; Surface
technology and coating; Selected
basic material chemistry
Sub-sector 6: Pure Functional &
Specialities
SIC5 335/SIC7 202: Other chemical
products
SIC7 201: Pharmaceuticals,
medicinal chemical and botanical
products
Selected basic material chemistry Sub-sector 7: Bulk Formulated
Chemical
Pharmaceuticals; biotechnology;
Micro-structure and nano-
technology
Sub-sector 8: Pharmaceuticals
- Sub-sector 9: Consumer Formulated
