EC puts its money on Project Mthombo

Figures published by the Eastern Cape Gambling and Betting board show that gambling raised just over R104 million in tax from gaming and betting in the first nine months of the 2014/15 year for the Eastern Cape government. This made it one of the biggest contributors to the provincial fiscus, which is almost totally dependent on central government funding. It is an apt metaphor for the province’s approach to investment – put all the money on red (or black) and hope for the best. The logistics sector is relegated to being observers in the crowd rather than players in the game. This is evident in the relative lack of growth in the sector in the Eastern Cape, despite the opening of the port of Ngqura and the creation of the East London and Coega Industrial Development Zones. Instead of waiting for the jackpot to pay out Eastern Cape freight forwarders, clearing houses and logistics suppliers have focused on market niches – particularly in the automotive and agricultural sectors. Some have become so good at it that they have expanded their operations into other provinces. One of the results of this focus is that the logistics industry has largely disappeared off the public radar, and it has no public voice when it comes to commenting on the bets the authorities are making on behalf of Eastern Cape business and the province’s people. At present the money is on Project Mthombo – a proposed oil refinery for the Coega Industrial Development Zone (IDZ). Estimated costs have escalated from R90 billion to over R200 billion, and that excludes the logistics premium of transporting the finished product to the main Gauteng market. It will have to be transhipped to Durban to be pumped down the pipeline on which Transnet has just spent R20 billion. Alternatively, the building of a new pipeline from the Eastern Cape has been proposed – or the refined product will have to travel by rail and road. Both of these alternatives leave the Durban pipeline under-utilised. Undeterred by these logistical challenges the Eastern Cape provincial government, the Nelson Mandela Bay Business Chamber and the Coega Industrial Development Corporation have all put their money on Mthombo, which at best estimate will create 1 000 direct jobs when operational. Very few of the required skills for construction or the running of the refinery are currently available in the Eastern Cape. Previously all the money was on a zinc smelter – which is what led to the creation of the Coega IDZ, followed by an aluminium smelter – for which the port of Ngqura was built. Neither materialised, and years of effort and opportunity were lost. The other big bet at present is the export of manganese from the Northern Cape through Ngqura – another priority of Coega, the business chamber and local government despite the fact that the exports will create few additional jobs in the Eastern Cape itself. With a focus on the bulk rail service between the Northern Cape and Ngqura there is little emphasis on improving the freight link between the Reef and Ngqura or Port Elizabeth in order to support manufacturing in the province – an investment which would also stimulate the provincial logistics industry. The money is on a powerhungry manganese smelter in what is now the Coega special economic zone to create jobs. Given the current state and prospects of South Africa’s power supply, investors in either the refinery or manganese smelter would demand a risk premium if they have any appetite at all for processes that are reliant on the continuous uninterrupted supply of power. Eastern Cape companies involved in all aspects of the logistics chain are surviving – and in some cases growing – by hedging their bets and focusing on supporting the sectors in which the province has a natural competitive advantage rather than waiting for one big pay-out.