Global commodities slump, a beneficiation opportunity: Coega Manager

BY SADICK DAVIDS - FEBRUARY 5, 2016

If one takes a conventional and – dare I say it – colonial viewpoint on the prospects for a commodity producer like South Africa then the signs aren’t good.

Bringing home the seriousness of the challenge facing the country is the announcement on Monday, February 1 by Kumba Iron Ore that it would be laying off over four thousand workers and contractors. Other mines will be under pressure - World Bank analysts expect prices for 37 of the 46 commodities the bank monitors to fall in 2016.

Economists and investors at the World Economic Forum held in January 2016 in Davos, Switzerland were almost unanimously pessimistic about short to medium-term prospects for countries in Africa and elsewhere reliant on commodity exports.

 Those commodity exporters which continue to see themselves as pure suppliers of rock and dirt to the world, and a market for the finished goods made from the minerals that are shipped out without any value being added are stuck in a colonial mind-set.

It is a vicious circle – the temptation is to dig as fast as one can when the commodity price is high in order to bring money into the country, and to put on hold plans to build the infrastructure and plants needed to add value. We are different. Few commodity exporters have made the same level of investment as South Africa in the country’s infrastructure to provide a foundation for the beneficiation of minerals.

Take the Coega Industrial Development Zone (IDZ), for example. We have the land. A fully integrated and new Industrial Location. Purpose built infrastructure, specific IDZ offering of 15% corporate rate tax, Custom Control Area (VAT exemption and Duty Suspension).

In addition, we further have the specific IDZ incentivised programs and services including – systems for skills development and recruitment, ICT Enablement & Recruitment and lastly One Stop Shop Investor Services Centre.

We have the environmental and construction approvals in place. We have the logistics in place – and we have the electricity needed by primary industrial plants such as smelters. Eskom has allocated sufficient power to the zone, the power lines have been upgraded, and the Dedisa peaking power plant in the zone provides back-up.

Ample supplies of industrial-grade water are also available from the nearby Fishwater Flats sewage plant. What we also have is a strong and unique industrial base which can add value to the steel, manganese, chrome or stainless steel produced by the smelters.

That base extends throughout the Southern African Development Community. Coega is the best-connected industrial or special economic zone in Africa. Road, rail and sea corridors link the zone to the rest of the continent.

Pans for building an international cargo airport in the medium term are also well advanced. Globally, we are connected through Africa’s newest and most efficient deep-water port to global markets and suppliers. Shipping lines already use Ngqura as a transhipment hub for distribution to both west and east Africa – again providing a market for value-added and finished goods.

For primary producers our rail line to the Northern Cape’s manganese and iron ore mines is also being upgraded – which means there is a ready supply of feedstock for investors, such as companies which will be producing steel and stainless steel in the zone over the next few years.

A weak rand makes South African exports even more competitive. One just has to look at the success of Agni Steels SA, which is processing scrap steel and is expanding less than two years after the furnaces first fired up to see how strong the business case is for investing in a zone like Coega IDZ/SEZ. Investors in Coega also benefit from the systems that are in place to help recruit, select and train workers and management.

Despite challenges with industrial relations, Coega is recognised as one the most labour-friendly trade zones in the world due to effective and efficient industrial relations practices. Thanks to these there have been minimal labour disruptions in the zone.

A recent example is the record completion time for the Dedisa Peaking Power Plant in less than two years.  Only 1,5% of time was lost due to industrial action  – a significant improvement on the national and industry average of 2,5%, according to construction industry figures.  In addition to all these pluses, the full ICT structure is also already in place, as are the power, sewage and water connections.

Coega is truly one of the only “plug and play” economic zones in the world. Which brings us to the question of why there are not more investors in the metals cluster? To answer the question one has to look at Coega in a global context, and a bit of history.

One of the main driving forces behind the creation of Coega was the prospect of first a zinc and then an aluminium smelter. Some negotiations are ongoing, while others are no longer on the table – mainly because of global developments outside the control of the investor or the CDC.

What is under the control of the South African authorities is the competitiveness of the country’s special economic zones (SEZs). Coega is in transition from being an industrial development zone to a special economic zone in terms of the new SEZ Act 2014.

While the introduction of SEZs has brought with it a raft of new incentives, one has to ask whether they are enough to draw sufficient investors to make a difference to job creation and the reindustrialisation of South Africa.

According to the Economist magazine, there are over 4 300 SEZs - three out of every four countries have at least one SEZ. All offer incentives in various forms to attract investors.  What we can offer is stronger or longer-lasting incentives in the form of tax breaks. This is the one question that comes up sooner rather than later in all our discussions with investors.

In return for tax concessions investors will create more jobs and deepen the industrial and manufacturing base of South Africa. A manganese smelter in Coega supports jobs at a mine in Hotazhel in the Northern Cape, as well as jobs in the Eastern Cape.

In concluding, the CDC is live to the fact of being the right Place for investors, at the right Time, and the lead up to right Choice’s pivotal to opportunities and needs.