SA seeks to copy Asian ‘tiger’ economies with Coega

Posted On Wednesday, 11 February 2004 02:00 Published by eProp Commercial Property News
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South Africa, hoping to copy the miracle that created Asia's tiger economies, is building a multibillion-rand duty-free industrial park, the first in a series aimed at boosting economic growth.

Thabo MbekiThe Coega Industrial Development Zone project – comprising a duty-free industrial zone and deep-water port – is modelled on the industrial development zones in countries such as Singapore and China that have fuelled fast-paced export-led economic growth.

But the R7,4-billion ($1,05-billion) project, 20 km (12 miles) from the coastal city of Port Elizabeth, has not been without controversy.

Environmental groups have expressed concern about its possible impact to fragile coastal ecological systems.

Coega was also initially criticised as a white elephant – a fear that has returned since Canadian aluminium giant Alcan took over French group Pechiney, putting into doubt the latter's proposed $2-billion aluminium smelter there.

Eugene Heeger, executive manager for business development, dismisses the criticism. He says he has R8,5-billion ($1,21-billion) worth of proposed projects lined up, excluding the Pechiney smelter.

"I reject that assertion...Coega can never be shown to be a white elephant until it's proved to be a failure," Heeger said.

"We're not building a shopping centre where we get tenants. This is an industrial city we're developing over time," he added.

Coega is at the heart of a broader economic strategy by President Thabo Mbeki's government to transform South Africa into a competitive export-driven economy from one where domestic industries were protected and isolated during apartheid.

At least four duty-free industrial parks have been earmarked – including one in Kwazulu-Natal and another at Johannesburg International Airport – with Coega the flagship project.

Coega is expected to ease unemployment in the poor Eastern Cape province – estimated at about 42% – by creating more than 50 000 jobs in the next ten years.

The Eastern Cape is now one of the fastest growing of the country's nine provinces, at 3,99% outperforming the national average of 3% in the 2002/2003 fiscal year.

Since 1994, South Africa's economy has grown at an average 2,7%, not enough to create jobs for millions of unemployed people.

For this to happen, analysts say the country needs bigger amounts of foreign direct investment. It has struggled to attract long-term investment, but is hurt by perceptions of rampant crime and a devastating Aids pandemic.

Using a mix of sweeteners, such as tax exemptions, world-class transport, logistics and telecommunications infrastructure and, most temptingly, cheap electricity, Heeger hopes Coega will attract the much-needed foreign investors.

Coega is expected to start operations in late 2005 and will be sub-Saharan Africa's biggest such industrial project.

Projects lined up for the 11 000 ha (27 180 acre) park include two manganese ferroalloy projects, a ferrochrome and ferronickel project, as well as a steel billet plant.

A R550-million electrolytic manganese dioxide plant is in the feasibility stage, while an aluminium capacitor project – to manufacture aluminium foil to be used in future electric cars – worth R400-million rand is under negotiation.

Others include a bulk minerals storage yard – to supply manufacturers, as well as push out more commodity exports – and a steel rolling mill. A container project worth R640-million is in the feasibility stage.

Heeger also said Italian investors had expressed an interest in setting up textile manufacturing plants to export high-value finished products to Europe and the lucrative US market where some sub-Saharan countries enjoy special export privileges under the US African Growth and Opportunities Act.

The park will also house an air freight hub and a labour-intensive ship-repair dockyard. Adjacent to the industrial area will be the deep-water Ngqura port which will take bulk carriers of up to 175 000 DWT.

"Coega offers something Africa doesn't have at the moment, a deep-water port," said Tony Twine, economist at independent think-tank Econometrix.

However, Alcan's acquisition of Pechiney in December has thrown a spanner in the works.

The Canadian group inherited the Coega aluminium project when it took over Pechiney late last year. At an estimated cost of $2-billion, the proposed smelter accounts for about half of the current total investment envisaged for Coega.

Pechiney had committed itself to a 49% stake in the smelter. But its future now hangs in the balance following Pechiney's takeover late last year by Alcan.

Speculation has grown since it said in January that it would make Pechiney take a €45-million ($57,26-million) impairment charge for costs related to Coega, which some analysts said spelt the death knell for the project.

"It will be a big blow if Alcan decides not to go ahead with the project," said Colin McCarthy, a professor of economics at the University of Stellenbosch, pointing out that there were no concrete deals yet from the pipeline of projects. – Reuters.

Last modified on Thursday, 26 June 2014 19:00

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