5 November 2009
Johannesburg — WAY back in 1997, there was an air of excitement in the Port Elizabeth area after a feasibility study had shown that a deep-water port and industrial development zone at Coega, 22km outside the city, was indeed viable.
This was going to be the first industrial development zone in SA and bore the hallmarks of success. Substantial investment in power stations in the 1970s and 1980s had left SA with a surfeit of electricity generating capacity.
Naturally, power-hungry investors were the ideal suitors.
If ever there was such a thing as a match made in heaven, this was it. In fact, Gencor's (now Billiton's) search for a site for its proposed zinc refinery was one of the stimuli for the Coega dream.
The promoters of the zone -- initially the Port Elizabeth Regional Chamber of Commerce and Industry and later the Coega Development Corporation (CDC) -- had a number of other prospective investors in their sights.
This year is the 10th anniversary of the CDC. The optimism about Coega is still there.
Projects planned for the site include PetroSA's 10bn crude oil refinery. The plant is expected to come on line either late in 2014 or early 2015.
Kwezi Tiya, CDC business development executive manager, says as at March this year, 22 investors had signed lease agreements to locate in the industrial development zone. These cover sectors such as chemicals, logistics, motor vehicle components and manufacturing. The corporation says it has attracted investments worth R31,2bn to date.
But the Coega vision of the 1990s has dimmed somewhat.
Cheap electricity has ceased to be a hook with which to lure investors.
"For many years, SA's industrialisation agenda was underpinned by cheap electricity. That era came to an abrupt stop in 2007-8 when, for the first time in decades, the country experienced blackouts and Eskom started rationing electricity to industrial users," CDC chairman Moss Ngoasheng says.
Corporation CEO Pepi Silinga says the availability of cheap and abundant electricity was the backbone of SA's industrial strategy.
"This competitive advantage has since been eliminated because of the electricity supply shortages," he says.
Paul Jordan, deputy chairman of corporation, says SA has swung from a position where it had an excess electricity capacity of 5GWh "to nothing".
The Coega industrial development zone has had to adapt to the changes. He says Coega's initial mandate was to attract foreign direct investment.
"But our objective now is jobs. All of us have to put on our thinking caps and come up with jobs," Jordan says.
The corporation has adopted four new sectors which it considers areas of priority -- petrochemicals, biofuels, business process outsourcing and skills development.
The obsession with the concept of an anchor tenant has also disappeared.
Silinga this week jokingly wondered if the concept had not become a swearword these days.
Reliance on anchor tenants has proven to be risky. There is always the question of what happens if such an investor pulls out. Does the Coega cookie crumble every time a multinational pulls out?
The corporation suffered a setback last month when Eskom, Rio Tinto Alcan, the Industrial Development Corporation and the Department of Trade and Industry announced the cancellation of a power-supply agreement for a proposed aluminium smelter in the zone because of electricity woes facing SA.
The planned smelter had been the electricity-intensive anchor tenant that was supposed to underpin the whole zone. Silinga says CDC has been seeking an aluminium smelter investment since 2001.
Silinga says CDC has had to make a number of changes over the years, much like a snake shedding its skin in order to grow. "It is a painful process," Silinga says.
He says corporation has undergone a review of its mandate, resulting in a switch from an industrial development company focusing on the Coega zone to a services group. "The outcome of the strategic review ... has positioned the organisation to minimise the adverse impact of the economic recession," Silinga says.
In the past financial year, the corporation generated revenue of more than R55,3m.
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