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Labat to convert electronics facility to make ARV drugs
IC production will be outsourced to China
June 17, 2009
By Florence de Vries
Labat Africa, the listed black majority-owned group, is stopping production of integrated circuits (ICs) at its South African Micro Electronic Systems (Sames) plant in Koedoespoort - the only one in Africa. It will produce antiretroviral (ARV) drugs there instead.
Labat announced last week that because of market conditions, rand strength and aggressive competition from China, it would outsource the IC manufacturing capacity to China.
Executive chairman Brian van Rooyen said yesterday that the group was talking with an Indian company to become a preferred local manufacturer of ARV drugs.
The group's IC design division would manage the manufacturing outsourcing and continue designing and marketing the Sames product.
"It's a sign of the times," Absa Asset Managers analyst Chris Gilmour said of the move that would leave Africa with no facility to produce microelectronic systems. It was an indication that South Africa could not compete in ICs.
"In a converged world you have to let those countries with the economies of scale produce these things. There is no point in trying to compete in a globalised world."
Warwick Lucas, a senior investment analyst at Imara SP Reid, said manufacturing sufficient volumes was imperative and it would be difficult for a medium-sized market like South Africa to compete.
Van Rooyen said Labat would maintain the intellectual property and design capabilities. "We are going to work hard to keep the technology and design facilities here."
He always knew problems would arise in producing microchips and the group had been working on a contingency plan since 2007.
It has been decided to establish a facility to make active pharmaceutical ingredients and a pharmaceutical formulation facility in Koedoespoort.
Labat said: "Our investigations have confirmed that these facilities can be converted to supply the bulk of ARV drugs required in South Africa."
Van Rooyen said that the facility would be equipped to make the raw ingredients of ARVs and their formulation. "Close to R12 billion is spent on ARVs annually, of which almost all is imported from India and China."
Gilmour questioned Labat's ability to pull off this switch. "It is assumed that a licence would be acquired from an Indian company. However, it is difficult to make sense of the move into the pharmaceutical field if they haven't got the expertise."
Van Rooyen said the group might not have the expertise but the facility had everything it needed. "We employ top-class engineers who deal in hazardous chemicals, and with minor modifications it could be used as a pharmaceutical facility."
Labat closed unchanged at 3c on the JSE on Monday.
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