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Coega and the Radiohead song

Every time I drive through the upgraded stretch of road around the turn-off to the Coega Industrial Development Zone (IDZ), just before Port Elizabeth, a song floats unbidden into my head.

The Coega IDZ is a multibillion-rand industrial development complex covering 11 000ha, centred on a new deepwater port.

Nude is the haunting song, from Radiohead’s latest CD, In Rainbows. More pertinently the line that runs through my head is “not gonna happen”. Actually, the refrain is, “Don’t get any big ideas/They’re not gonna happen”.

I’m beginning to think the same about the aluminium smelter at Coega, a big idea if ever there was one. Ever since the IDZ was launched, there have been promises that the smelter would be up and running soon.

The aluminium smelter is the flagship for the job-creating initiative, an important one for this underdeveloped province, cursed with being the site of one of the first Bantustan experiments.

It’s almost treasonous in this part of the world to suggest that the port is a folly, though after R8-billion of investment in infrastructure with little to show, it is beginning to look like one.

The first thing to delay the go-ahead for the multibillion-rand smelter was a series of takeovers involving the company that originally planned the project. The latest takeover was of Alcan by Rio Tinto.

Now doubts about South African power utility Eskom’s ability to generate the cheap electricity needed for the energy-intensive smelter puts a big question mark over the project.

For those who don’t know why electricity is pivotal, remember that South Africa’s aluminium smelters basically export cheap electricity and know-how.

The ore to make the aluminium is imported in vessels that need a deepwater port, because the ore is heavy. It’s turned into aluminium at the smelter, and most of that aluminium is then put back on ships and exported right out again.

It’s a massive project, but not unique: a smelter at Richards Bay is well-established, and one in Maputo, Mozambique, has been running for years.

They don’t employ many people relative to the capital invested, but they bring in foreign exchange.

But you’ve read lots about other factories and plants and plans at Coega, right?

None of them is worth a string of coral-tree beans, compared with the smelter.

The 2007 annual report of the Coega Development Corporation notes that all the other investments are worth around R400-million compared with the smelter’s R20-billion. That’s 2%.

According to Coega Development Corporation business development director Khwezi Tiya, in a Moneyweb interview, about 14 investments in total are to be located in the Coega area, and the corporation is negotiating with at least six other investors.

It’s the Alcan smelter that really counts, though.

The number of proposed and potential investments in Coega projects that have fallen by the wayside over the years is extensive. They include an offset steel project, a Belgian textile factory, a $450-million zinc refinery, and fertiliser, cement and industrial gas plants.

The actual commissioning of the smelter would restore credibility to the Coega development.

So, for the sake of the people who planned this trailblazing IDZ, let’s hope the refrain of the Radiohead song is wrong.

Incidentally, what does Coega tell us about the difficulties of running a developmental state?

Author

  • A journalist for more than two decades, Reg Rumney has just returned from Grahamstown to Johannesburg after spending more than seven years at Rhodes University, teaching economics journalism. He is keenly interested in the role of business in society, and he founded the Mail & Guardian Investing in the Future Awards in 1990 to celebrate excellence in South African corporate social responsibility. Most recently, as executive director of BusinessMap, he was responsible for producing reports on foreign investment, black economic empowerment and privatisation, and carried out research work in Africa on issues related to the investment climate. He writes on, amon other things, foreign investment and BEE, focusing on equity transactions.

21 Comments

  1. hedmekanik hedmekanik 17 March 2008

    Hi Reg;

    The name of the tune is ‘Nude’, and the refrain is ‘Don’t get any big ideas /
    they’re not gonna happen.’

    As you can gather, I’m a bit of a Radiohead fan.

    Cheers

  2. Keith Phillips Keith Phillips 17 March 2008

    which Radiohead album is that song on?

  3. Perry Curling-Hope Perry Curling-Hope 17 March 2008

    “Incidentally, what does Coega tell us about the difficulties of running a developmental state?”

    I think, more pertinently, what does it tell us about the difficulties of running a centrally planned socialist state?

    Perhaps Africa’s penchant for ‘Big Government’ blurs the distinction between ‘developmental’ and ‘centrally planned’ The exercise of these political structures introduce artificial distortions into the economy, which cannot be sustained indefinitely, as in our case.

    Our much vaunted ‘cheap’ electricity existed only because the parastatal monopoly, Eskom could impose price fixing at someone else’s expense, resulting in an enterprise operating unprofitably and protected from market forces.
    During ‘apartheid’, a perverse brand of National Socialism, the cheapness of Eskom’s electricity relied on the exploitation of cheap labor, a disregard for environmental and social issues, and limited service delivery obligations to the general populace. This is much like the transitional situation which underlies China’s global competitiveness today.

    With the advent of our tripartite alliance came worker’s rights and labor legislation. Our labor is no longer cheap, and future electricity generation will not be unusually competitive on the global stage, making large scale aluminum smelting not such a great idea anymore.

  4. Darb Darb 17 March 2008

    Just saw http://www.treevolution.co.za/?p=261 which suggested there is a BioDiesel plant going in to Coega which could produce up to 288-million litres of fuel/annum. Valued at R1.5 Billion.

  5. Mgculisi Qwabe Mgculisi Qwabe 17 March 2008

    One thing I learned is that investments of this nature are very futuristic in nature. The Richards Bay that you allude to, was seen as an apartheid Afrikaner job creation white elephant scheme using taxpayer’s money. Can you shut down that harbour today?

    This does not mean there are no white elephants. I can count a lot of them including the capitals of Qwaqwa, Venda, KwaZulu, Transkei, etc.

    When I came to Jo’burg 13 years ago, some people were still talking of the then very quiet Krugersdorp Freeway (N12) as a white elephant. Those people cannot talk like that now, thanks to Diepsloot and other property developments in the area.

    Reg, be patient. That infrastructure will not go to waste. Returns will not necessarily be in the short term. Management of the port must guard against quick, ill-researched gains. The prawn story is a case in point.

    Fight the dti to invest and assist you in marketing the IDZ port. Get the right anchor tenant. In 15 years time, Reg will be singing another song.

  6. hedmekanik hedmekanik 17 March 2008

    @ Keith Phillips:

    ‘In Rainbows’, their seventh, which was released on 10th October last year.

  7. Not Deluded Not Deluded 17 March 2008

    @ Reg,

    Let’s rather call a spade a spade and speak about the competency of those who run the Coega Development Corporation. What has been the cost of maintaining this bloated Corporation since its inception compared to the benefits emanating from it? How much “expertise” is there really in the “Corporation” or is it all AA, BEE and “baantjies for boeties”?

    I had dealings with this “Corporation” some years ago but gave up in disgust as it was obvious that the PE Mafia had their sticky fingers in the pie there as well, which meant that very few SMEs not owned by or connected to those in the “holy circle” would benefit from this “fantastic development”.

    Is this not the same lot that spent many tens of thousands of Rand on “team building sessions” for their staff which ended up in drunken orgies around the swimming pool?

    Poor old PE, how many good schemes have not been sunk by the greed of its organizers? I proved this for myself by moving out a number of years ago after knocking on smirking, closed doors for about 3 years. Within two years I had made my millions elsewhere.

    So, my message to those poor souls in business in PE is:
    Go elsewhere if you want to make money. If Coega happens it is unlikely to benefit the larger SME community. You can always go back for holidays.

  8. Reg Rumney Reg Rumney Post author | 17 March 2008

    My thanks to hedmekanik. I have corrected the title of the song and the refrain. The song is off the CD In Rainbows.

  9. Rory Short Rory Short 17 March 2008

    It is always easy playing with other people’s money and governments are past masters at the game. Sometimes the playing is successful and at other times it is not. If the Aluminium smelter does make an appearance at Coega the project might be rated as a success in conventional economic terms but in fact the whole Coega project is an environmental disaster which will be enormously amplified if the smelter does arrive.

  10. Craig Craig 17 March 2008

    If only you could dive by and think of “no alarms and no surprises…” ;-)

  11. Grant Grant 17 March 2008

    Oh dear, Reg, still a real old-style economist aren’t you. Haven’t woken up and seen the ecological limits coming.

    These aluminium smelters, as you note, generate few jobs and a truly horrendous amount of pollution, mostly at the power plants that supply them with taxpayer-subsidised power. The profits from the plants fly offshore, but the costs of this pollution are passed on to us, the South African taxpayer, in the form of acid rain, destroyed water resources due to acid mine drainage, and diseases caused by mercury poisoning (all of which don’t get reported on thanks to our generally underpaid and uneducated media corps).

    I hope we never get Alcan or any other aluminium smelters at Coega. Mozal in Maputo looks great on paper until you realise the ‘forex earnings’ are just a trick of the books, a typical confusion between GDP and GNP. The plant was just a strategic trick for Eskom to gain an infrastructural power-hold over our neighbour. Meanwhile the Mozambicans become poorer by the day – witness last month’s food and fuel riots.

    You’re out of touch, Reg! It’s time to look up from the balance sheets and out into the real world.

    http://www.paecon.net

    Grant

  12. jose barreira jose barreira 17 March 2008

    Knowing that aluminium smelters depend on cheap energy, we should make consider the following:

    1 – Low cost energy had better days in SA, and probably won’t come back before a couple of nuke centrals start work in this country;
    2 – Even so – considering that Eskom monopolises energy providing in SA – the state company could still offer a low-cost energy contract to Coega aluminium. But in this case, who will pay the balance ? (Let’s guess…)
    3 – If the people are not to pay that balance (directly or indirectly), then who’s gonna provide that cheap energy to Coega aluminium?
    4 – After this, if the elephant is not to be white, Coega promoters better start buying a lot of ink… did Radiohead ever thought of this ????

  13. MFB MFB 18 March 2008

    Whenever I drive past Coega, I reflect: at least the money was spent on something that might someday be productive. If we don’t need a harbour there now, we will surely need more harbour space in the Eastern Cape eventually.

    Now, when I carry on down the N2 and drive through the Garbage Route and see all the golf estates and luxury housing and casino developments, and if I get to Cape Town I can hang a right and check out GrandWest and Century City — there I see what capitalism wants to spend money on. Unproductive bullshit, in short.

    That’s the difference between the developmental state and the capitalist state. The developmental state sometimes makes mistakes. The capitalist state is intrinsically a mistake, in itself.

  14. zonkie zonkie 18 March 2008

    Biodiesel plant…ptooey!
    Aluminium smelter…blech!

    Where are the REAL employment-generating enterprises at Coega? Shades of Mossgas, if you ask me. The acme of centrally-planned, politically-motivated, poorly thought through and unnecessary “investment”…

  15. Daniel Daniel 18 March 2008

    Grant, you obviously are not in any proximity to a smelter. Bayside aluminium in Richardsbay is closing two of it’s three potlines to assist incompetence at Eskom. This has endangered almost every single contractor in Richardsbay, which in return threaten upwards of 20 000 jobs. At Bayside only (sarcasm intended) 400 jobs will be lost, but for most of the contracting firms it will mean retrenchments, up to a third of the industrial workforce.

    A smelter does not create many jobs internally, but will result in the employment of many unemployed due to their high service demands. AT any one day you will 2000-3000 outside contractors on site at the smelters in Richardsbay performing maintenance, with double that amount in support at their various workshops and factories.

    The closure of the two potlines has caused massive tension in the engineering industry, of which I am part. Our company will close down if they decide to close Bayside completely, as our contract of responsibility is to the remaining potline.

    Rory, as for pollution, modern smelters have modern systems that , when maintained properly, will ensure that the air released is 98% clean. Older technology potlines cannot match this, which was another consideration in the closure of the two potlines at Bayside, 40 year old technology. Stop driving your cars and cycle if you are really concerned about pollution, instead of paying it lipservice to try and prove a point.

  16. Phil Phil 18 March 2008

    Hey Reg my next exporter column is oh so similar in subject. I submitted it last week though, so no accusing me of IP theft! And thanks for confirming many suspicions I had about ol’ Coega. The EL-IDZ is older and not doing much better. The majority of the investments there are in the autos sector, and they’re in it for MIDP handouts, not wishy washy IDZ freedoms.

  17. Mgculisi Qwabe Mgculisi Qwabe 19 March 2008

    Now I get it

    Greed
    BEE or the P E Mafia
    Cheap electricity
    Pollution
    Developmental and capitlist investment

    I still think its better than the money we are spending on the Gautrain, 2010 and Taxi recaptailsation combined.

  18. Eagle Eagle 19 March 2008

    Mgculisis says:
    “Now I get it
    Greed
    BEE or the P E Mafia”

    Sorry Mgculisi Qwabe, I don’t get what you are trying to say. Maybe you are missing my point which is:

    Do something about the mismanagement of the Coega Development Corporation and give all SME’s in PE an equal chance to benefit from this project and it would be much more worthwhile than what you have now.

    It is the unfortunately the attitude that you are displaying which has placed the Eastern Cape in the depressed state that it is.

    What I do agree with you on is; The Coega project, the Gautrain project, 2010 and Taxi recapitalization programme all appear to be a waste of money at this point in time.

    However, you can be sure that someone, somewhere, is making money out of these projects. Lots of money. And at the exclusion of the small businessman, which is where my sympathies are.

    And I am not talking of the sideline businesses discreetly owned by some of the organisers who somehow, always seem to end up with a slice of the pie.

    Think about it. 120% taxation and exclusion from those projects which might have sustained them. What chance to small business owners have?

  19. semarumi semarumi 19 March 2008

    You guys worry me.

    Of course we should be forgetting about Coega as a site for big heavy energy aluminium plants. That made sense in 1994 when we still had ten years of cheap electricity to play with. Unfortunately, our political leadership seem to have no sense of time so its only when the energy has run out that we are ready to go ahead … they need to learn from the Chinese who would have had the project up and running within two years

    But I will lay good odds that in ten years time that site will be busy. There is a great deal of regional logistics that could be diverted there from Durban; with all the unemployed people, there is the possibility of a manufacturing base if we can keep the Rand’s value down; and that’s before we look at other more sensible, less energy intensive, commodity based options. for all those woh don’t like the idea, how would you solve the employment problem in the Eastern Cape?

    Of course we may have to clean out the CDC first but that will only happen when enough people get pissed off enough with government to demand that competence takes priority over the new BEE version of baantjies for broeders which is doing so much damage across the country … maybe even bring in some Chinese expertise to see how real projects can be fast tracked?

  20. jose barreira jose barreira 19 March 2008

    See what I mean? 50% energy fare increase just proposed. And who’s gonna promote Coega’s viability? Mr. who?… Yeah, Mrs. and Mr. South African, ah, ah, …
    (I guess now the white elephant is turning red…. or is it the other way around ?)

  21. Chris Chris 18 March 2009

    Hi Reg

    It has now been one year and 2 Days since this Article was published.

    Has there been anny progress maybe on the Progress and Construcion of any of the Anchor projects such as the Zink and Alliminium Smelters

    Thank You

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