The Coega Development Corporation (CDC) has 10 projects in the pipeline that could lead to investments worth R287 billion and free the Eastern Cape from its dependence on the automotive industry.
The CDC is the operator of the Coega special economic zone (SEZ) in Nelson Mandela Bay.
The 10 projects comprise two abalone farms; a maize-processing and grain-milling plant; an animal feed facility; a renewable energy components factory; a gas-to-power plant; a solar rooftop project; a stainless steel strip mill; a stainless steel smelter; and Project Mthombo, an oil refinery.
“This is just a basket of some of our bankable projects that we are looking at over the next five to 10 years. Some will be implemented within a year from now,” said CDC spokesperson Ayanda Vilakazi.
The stainless steel smelter, boasting an investment worth R174 billion, would be the biggest ever investment in the Eastern Cape. Phase one is expected to start in January 2021 and be completed in 2024.
The smelter is forecast to create 30 000 jobs during construction and 4 500 when operational. It will be built by Lamergyre Stainless Steel, a local company with consortium partners.
The business plan and financial forecast have been completed. About 80% of the smelter’s production will be reserved for export. At full capacity, 9 000 tons of stainless steel will be produced a year, and annual sales revenue is projected to be in excess of R500 million.
According to Vilakazi, during phase one, the smelter is set to produce massive volumes of thin, strip-coiled materials in various shapes and sizes, to customer specifications.
Given Eskom’s power supply problems, plans are under way for the smelter to install its own combined cycle gas turbines, a seawater desalination plant and its own liquefied natural gas tank farm.
“Even at the project’s early stage, the proof-of-concept investigation, we were aware that electrical power, water and the supply of natural gas had to be given proper consideration to ensure that these resources were sufficiently available at the lowest cost possible, and under the smelter and steel plants’ control,” said Vilakazi.
The stainless steel strip mill will create 600 jobs during construction, 130 permanent jobs and 5 000 downstream jobs. The market study, bankable business plan and due diligence have all been completed.
While part of the funding will be sourced from the Automotive Incentive Scheme and the Public Investment Corporation, 50% of funds have been secured from the Industrial Development Corporation.
The CDC lists Project Mthombo – Petro SA’s greenfield initiative to build a crude oil refinery with a generating capacity of 300 000 barrels a day (see insert) – among its initiatives, despite the project’s implementors declaring that plans had been shelved because of a lack of funds. The CDC still projects operations starting in 2025, with feasibility studies to be completed in 2020.
Project Mthombo is estimated to create 7 000 direct jobs during construction and 14 000 indirect ones. When fully operational, about 1 000 jobs are envisaged and 4 000 indirect jobs.
The department of trade and industry is expected to fund Project Mthombo, the two abalone farms and the animal feed production plant.
The first abalone farm will be developed by Mamjoli Marine Enterprise and Abalone. It is expected to create 100 jobs during construction and 420 permanent jobs.
The second farm will be developed by Taconic Abalone. Output is projected to start in October 2020. It is set to create 100 jobs during construction and 280 permanent jobs.
The grain-milling project will create 100 jobs during construction and 160 jobs when operational. It will be implemented by NewCo Milling. Production starts next year.
The animal feed production plant will be built by Chinese company New Hope. Construction starts next year, with full production realised in 2021.
A total of 100 jobs will be created during construction, and another 100 when fully operational.
The Coega gas-to-power project will supply power from 2026, according to the draft Integrated Resource Plan of 2018. All preliminary processes – an environmental impact assessment, site readiness, and technical and engineering studies – have been completed.
The Coega solar rooftop project’s development plan will be completed by the end of the CDC’s 2020 financial year.
It will be implemented by a private developer and funding will come from both carbon footprint reduction incentives and SEZ incentives.
Sod-turning ceremony for liquid bulk facility
In another development at Coega, a sod-turning ceremony was held last week to mark the long-awaited relocation of the old tank farm from the Port of Port Elizabeth to the Port of Ngqura, where a new liquid bulk tank facility will be built.
The relocation is set to begin in two weeks.
The new facility will pave the way for a new petroleum trading hub for southern Africa as it will also be used as a stopover for refilling by international vessels.
Transnet has allocated 20 hectares of land for the development of the facility by Oiltanking Grindrod Calulo. Operations are expected to start by the end of 2020.
About 500 jobs will be created during construction and 50 permanent ones when operations begin.
Speaking at the sod-turning function, Ngqura port manager Thandi Lebakeng said: “The new facility will develop the Port of Ngqura’s liquid bulk capacity for commodities such as petroleum, diesel, jet fuel, illuminating paraffin and liquid petroleum gas. Once operational, the terminal will facilitate substantially increased throughputs over current volumes handled at the Port of Port Elizabeth due to its deeper draught, which allows it to handle much larger vessels.”
The Eastern Cape is anxious about possibly losing its R80 billion oil refinery project to Richards Bay in KwaZulu-Natal.
For more than a decade, the initiative, known as Project Mthombo, was planned for location at Port Elizabeth’s Coega special economic zone. But this, as well as a possible investment by Saudi Arabia in the project, could soon be lost because of the Durban/Gauteng oil pipeline that is already in existence.
Oscar Mabuyane, the Eastern Cape MEC for finance, economic development, environmental affairs and tourism, said there was uncertainty about the project because a decision had yet to be made.
“It is clear that there are two sites being explored: the Coega site that government has worked on for some time now, as well as the Richards Bay site, which has been added to the equation,” he said. “Our argument is that government has already incurred costs in developing the Coega site, so this could result in fruitless expenditure.”
Mabuyane believes that, more than an economic project, the initiative also carries political clout in that it will take bold political decision making to keep Project Mthombo in the Eastern Cape. And, he believes, doing so will also address a potential fuel security risk.
Project Mthombo was mooted by PetroSA as its answer to South Africa’s persistent fuel supply problems, given the refinery’s projected output of 300 000 barrels a day of crude oil. As things stand, South Africa’s fuel demands make the country vulnerable to imports, and it is hoped that this project goes some way towards mitigating that.
“People use the argument of Richards Bay’s connection to Durban and Johannesburg via an already existing Transnet pipe that pumps oil from that side,” said Mabuyane. “But from a security point of view, it is a risky situation. If something happens there, what then? How do you connect to Johannesburg? We have an opportunity as government to look at the situation broadly and open our minds.”
He said the private sector could easily fund a pipe connection between Port Elizabeth and Johannesburg.
Mabuyane said the project, as currently mooted, was solid and was the result of a 15-year investment by government.
“Project Mthombo is massive. It is unprecedented.
It is one project that connects about five regions in the province, including municipalities such as Sarah Baartman, Buffalo City, Amathole, Chris Hani and Nelson Mandela Bay.
“When you talk about the project you also talk of the biofuel project in Cradock, and the opportunity from that.
“We believe that it is a project that will be really catalytic, in the literal sense of the word. Driving it from here means that its impact and expansion – and how it connects with almost every participating region in the province – will be felt by many, and its potential of attracting more than 27 000 jobs cannot be ignored.”
Mabuyane expressed the view that government should work with the province and stop sending mixed signals about the project as it was “high time” that there was this kind of investment in the Eastern Cape.
Mabuyane said that, for too long, the province had been isolated, and government needed to change this.
“We believe that a lot needs to be done to lift our province to the level of other provinces, so that it can also participate in the country’s GDP.
The South African government is forecast to be hit by a tax revenue shortfall of almost R43 billion for the tax year ending next month, Finance Minister Tito Mboweni indicated in his budget speech on Wednesday.
There were pronounced risks to the local economic outlook with the main risk of concern being power utility Eskom and its financial woes, the 2019 budget review report indicated.
The report indicated that government tax revenue for the 2019 fiscal year would come in at R43 billion under the target set at the 2018 budget speech.
“There are pronounced risks to the economic outlook. The main risk of concern is Eskom. Failure to fully implement the reconfiguration of Eskom could lead to a negative market reaction that would prompt capital outlflows, with greater pressure on the rand. It would also perpetuate weak investor confidence and reduce economic growth,” the report said.
In the worst case scenario, National Treasury is forecasting negative 1% growth this year while its best-case scenario is just over 2% growth.
Mboweni cut the National Treasury’s forecast for economic growth for this year from 1.7% to 1.5% due to “fragile recovery in employment and investment, and a less supportive global trade environment”.
By 2021, the National Treasury’s best-case scenario is growth of 3% and its worst-case scenario is 1%.
“The economic and revenue outlook has deteriorated since the October 2018 medium-term budgetary policy statement and funding pressures from state-owned companies have increased,” the medium-term budgetary policy statement said.
“Several other state-owned companies are also in financial distress and have requested government support. As a result, the contingency reserve has been revised up by R6 billion in 2019/20 and any funding provided will be offset by the sale of non-core assets. Additional reforms to strengthen the governance, finances and operations of state-owned companies will be announced in the months ahead,” the 2019 budget review report said.
State companies that are looking for bailouts include the South African Broadcasting Corporation (SABC) and Denel.
“Several state-owned companies face negative cash flows and are financing operations from debt, which has become increasingly difficult to raise. This moves them perilously close to default unless they receive some form of recapitalisation.”
In another worrying sign, debt owed to municipalities is increasing. At the end of March, debt owed to municipalities is forecast to climb to almost R159 billion from almost R99 billion at the end of March 2015.
Of debts owed by municipalities that are more than 90 days in arrears, Eskom is the major creditor – it is owed R12.8 billion – followed by water boards with R6.4 billion.
“From July 2018 to June 2019 municipal financial year, 113 municipal councils adopted unfunded budgets, up from 83 the prior year.”
The government is expecting to issue $2 billion (about R28 billion) in debt by the end of the 2019 fiscal year.
Over the next three years, the government will raise an additional $8 billion (about R114 billion) in global capital markets.
“This year’s budget underlines the National Treasury’s continued commitment to these requirements in a difficult environment in which economic growth remains weak, public debt and debt-service costs have accelerated and governance and operational concerns are manifest across the public sector,” the review report said.
“Weak economic performance and residual problems in tax administration have resulted in large revenue shortfalls,” the report said.
“The deteriorating financial position of state-owned companies has put additional pressure on the public finances,” the report added.
“The government’s efforts to reform state-owned companies and the launch of the infrastructure fund are expected to increase growth and investment in the year ahead,” the 2019 budget review report said.
For the 2020 fiscal year, consolidated government expenditure is forecast to R1.83 trillion.
A multimillion-rand tender with the City of Johannesburg (COJ) – that had the potential to be one of the good stories of government’s vision to empower black women – has gone sour and the city is being sued R8 million for not honouring the contract.
Faithfulness Business Enterprise was awarded a contract to supply and deliver protective footwear for members of the metro police department – JMPD – valued at R23.760 million over three years in 2014.
In accordance with the tender, the company subsequently spent millions of rands and hired more staff to deliver on its contractual obligations.
However, the city placed only a single order for R660 000 in December 2014 and then placed orders with other suppliers, leaving the company with a mountain of costs and no orders.
Two years into the contract and a single order later, the city applied to the Johannesburg High Court, seeking to terminate the service level agreement on the basis that the tender process was flawed and that there were a number of irregularities.
However, none of the alleged irregularities was related to the company or because of its influence.
The court dismissed with costs of the city’s application in February last year and upheld the service level agreement as binding and valid.
But the city still did not place any orders with the company.
The company took the city to court to recoup its losses, which it initially estimated at R17 million, but after being audited amounted to R8.666 million.
In a letter of demand sent to the city, the company said it had suffered damages amounting to more than R17 million in respect of rental expenditure incurred in leasing premises suitable for the storage and sorting of the contracted quantities of footwear; salaries and wages of staff who were employed to ensure the capacity to meet the future orders; stationery and printing costs; vehicle costs, office equipment; and loss of profits.
Speaking to City Press, Selina Siganga, ownerof Faithfulness Business Enterprise, said the tender had left her worse off and had paralysed her business.
“Because of that contract, the banks increased the overdrafts and now I have to deal with them. I have had to lay off people I had employed and had to negotiate with them not to take me to the Commission for Conciliation, Mediation and Arbitration because I was paying their salaries but not getting orders.
“This government always says it wants to support black woman in business and wants employment [to create jobs] but it is killing us,” she said.
Spokesperson for the city Nthatisi Modingoane opted not to comment on the matter.
“The matter is before the courts and thus the city will wait for the court process,” Modingoane said.
In truth, the currency started from a very low base: the Nenegate crisis in 2015.
Its performance this year has not been stellar, but most experts expect it to remain below R15/$ in 2019.
Over the past three years, the rand has been the world's strongest major currency against the dollar.
The rand has strengthened by almost 6.3% against the dollar since mid-December 2015, according to data compiled by the independent analyst Johann Biermann. By comparison, the Mexican peso weakened by more than 16% and the Turkish lira lost an almighty 79% of its value. The UK pound fell almost 20% over the past three years as Brexit fears wreaked havoc.
Only the Russian rouble, which gained by 6% over this time, the euro (+3%) and the yen (+6.2%) could keep up with the rand.
It is of course worth noting that three years ago the rand was in a very bad state amid the Nenegate crisis.
On December 9th 2015, former president Jacob Zuma fired then finance minister Nhlanhla Nene, replacing him with back-bencher Des van Rooyen.
"After all is said and done, the rand has been one of the strongest currencies over the last three years - obviously benefiting from the low base created by Nenegate," Biermann said this week. "Still, not many would've predicted that the rand would outperform these majors in years to come."
Unfortunately, 2018 has been tough on the local currency: the rand has lost a painful 14.5% of its value against the dollar - on par with the rouble (-15%) and the Brazilian real (-17%). Even traditionally stable currencies - including the Australian dollar (-8%) and the euro (-6%) - took a hit.
The rand/dollar rate over the past five years. (So
The dollar/rand rate over the past five years. (Source: XE)
But most currency experts are not expecting the rand to take a massive hit in 2019.
The currency is expected to end 2019 between R12 to R15 a dollar, according to almost 70% of the 160 South African-based bankers, CEOs, CFOs, corporate treasurers as well as foreign exchange and hedge fund executives polled at the Bloomberg Foreign Exchange Summit last week.
The rand will probably trade near R13.40 to the dollar by the end of next year, Standard Bank economist Elna Moolman said, according to a press report.
"The expectation is partly based on a dollar story, but also on the assumption that we will see political and policy improvements to support a stronger currency."
Moolman said the next big local events that could influence the rand are the Budget in February, the response from Moody’s (the only agency that has not yet rated South Africa as "junk") and then the natonal elections, expected in May 2019.
If the US economy weakens and/or the equity markets fall apart, which means that the Fed won’t hike interest rates by as much as expected, the rand may benefit, according to Biermann.
“Also, sentiment towards emerging markets has been very negative in 2018. If it starts to turn, the rand will get a boost."
But there are risks – chief among them, Eskom’s R100 billion debt burden.
“If government took over the debt, our credit rating will be further downgraded – which will be negative for the rand.”
Ratings agencies have also been clear that further slippage in terms of property rights could prompt downgrades, Biermann said.
Marlboro cigarette maker Altria's $1.8 billion investment in the cannabis producer Cronos is a win-win, according to an analyst.
"Cronos provides Altria a unique entry into cannabis and we do not think Altria is taking on outsized risk while entering a new high-growth category," Vivien Azer, an analyst at Cowen, said in a note out on Monday.
Cronos has a relatively smaller cultivation capacity than most of the other major Canadian cannabis producers, but a higher efficient operating line, Azer says. While Cronos's revenue over the last 12 months - $12 million sales - ranked only the sixth among major Canadian marijuana producers, its gross margin ranked second.
"Cronos has been judicious with capital, and has embraced an asset light model that does not prioritise cultivation (consistent with tobacco)," Azer noted. "Their business model is less capital focused and more reliant on sourcing cannabis from local farmers, similar to tobacco companies."
Moreover, Cronos' focus on rare cannabinoids is a point of differentiation for Altria, Azer said.
"While the potential uses of cannabinoids are vast, Cronos believes the key to successfully bringing cannabinoid-based products to market is in creating reliable, consistent and scalable production of a full spectrum of the ~100 cannabinoids, not just THC and CBD," which are the two primary cannabinoids that occur naturally in the Cannabis, she added.
Azer believes Cronos can leverage Altria's expertise to create value-added form factors while focusing on ingredient composition without reliance on a massive cultivation infrastructure.
Azer has an "outperform" rating and a $74 price target for Altria - a 40% premium to where shares are trading on Monday.
Local licence holder for Starbucks in South Africa, Taste Holdings, has halted any plans to open more outlets of the US coffee chain as it struggles to make ends meet.
Taste, which also owns the jeweller Arthur Kaplan and Domino's Pizza, suffered operating losses of R87 million in the six months to end-August, with sales down 3%.
The group said that while the store network of twelve Starbucks outlets is profitable at a sales level, it's not producing the required return on its investment.
Setting up a new Starbucks store in South Africa costs between R5 million to R8 million, the group previously said. This is very expensive, says Simon Brown, founder and director of investment website JustOneLap.com. Brown estimates that the actual cost could now be higher than previously stated - perhaps even reaching R20 million.
Hitesh Patel, director of new business at Starbucks competitor Vida e Caffè, says the average cost of setting up one of its stores is only around R1.5 million.
That is is less than a third of the minimum cost of a new Starbucks outlet.
Taste has a 25-year licence deal to operate Starbucks stores in SA - and have to pay royalties to the US brand, which are proving to be costly, says Michael Treherne, retail analyst at the fund manager Vestact.
Due to the royalties and expensive store set-up costs, Treherne says Starbucks South Africa has had to resort to premium pricing - which is not at all good during a recession.
The difference between food prices is more pronounced. We could find a muffin at a Vida e Caffe outlet in Johannesburg for under R20, while the cheapest muffin at a Starbucks was R32.
While MTN saw strong subscriber growth outside SA, it lost 834,000 prepaid customers in South Africa from June to September of this year.
The company is losing customers to cheaper pre-paid options, including Telkom's R100 per gigabyte offer, says one analyst.
But MTN's revenue from pre-paid continued to climb, despite its declining subscriber base.
MTN released its quarterly update for the three months to end-September on Monday. The update showed strong overall growth in subscriber numbers.
Across all its markets, subscribers increased by 2.5 million to 225.4 million.
But while MTN saw strong subscriber and revenue growth from its markets outside of South Africa (revenue from Ghana and Nigeria grew by 23% and 17% respectively), the update confirms that the company is losing local prepaid customers at a rapid rate.
While the number of MTN contract subscribers increased by 120,000 to 5.7 million in this period, the mobile network lost 824,000 prepaid subscribers. It now has 23.7 million pre-paid subscribers.
The company lost a total of 1.5 million subscribers in South Africa in the year to September 2018.
Ruhan du Plessis, a telecommunication analyst at Avior Capital Markets, says increasingly competitive pricing is putting pressure on MTN.
Telkom, which is now offering a gigabyte for R100, has been particularly aggressive, and now offers significantly cheaper data packages compared to MTN, says Du Plessis. Also, newcomer Rain is offering R50 per GB of data.
"The challenging economic environment in SA has made customers more and more price sensitive. Given how easy it is to switch between operators these days, clients will move to cheaper alternatives to navigate turbulent times," says Du Plessis.
MTN extracted more revenue out of its remaining prepaid customers, though. Revenue from its prepaid service rose R2.8 million to R77.5 million despite the fall in subscribers.
JOHANNESBURG - President Cyril Ramaphosa says the money pledged at the Investment Conference will translate directly to more jobs in the sectors that contributed.
President Cyril Ramaphosa declared the conference an overwhelming success that will yield thousands of jobs for the people of South Africa.
At the end of the conference on Friday, Ramaphosa announced a combined amount of R290 billion in investments In South Africa.
Over 1,000 local and international investors attended the conference at the Sandton Convention Centre.
Anglo American, the Brics Development Bank and automotive traders were the big contributors, investing R71 billion, R29 billion and R40 billion, respectively. Vodacom announced R50 billion in investment.
President Ramaphosa says prominent among these announcements are the themes of beneficiation, innovation and entrepreneurship.
“The number of new jobs and people who will be employed is going to be phenomenal and unprecedented in the history of our country.”
He says the country has battled with bringing in investment to generate growth.