Economic zones turn out to be not so special
Why listed property investors may be better off buying into tried and tested property stocks in 2017 and 2018
Special economic zones are a key driver to attaining industrialisation and economic transformation, the government says. Deputy director-general for special economic zones and economic transformation at the Department of Trade and Industry Sipho Zikode says SA needs to fast-track the establishment of these zones "to ensure that we attract investors" and accelerate the creation of jobs that are sustainable and knowledge-based.
Zikode says special economic zones are a long-term development and an important platform for collaboration across all spheres of government.
But it is precisely because he does not mention the private sector that investors have been slow to react, despite a raft of new incentives including a 15% tax rate.
Two foreign vehicle brands have provided different takes on SA’s attractiveness as a manufacturing base. China’s state-owned Beijing Automotive Industry is building an R11bn assembly plant at the Coega development zone near Port Elizabeth. SA’s state-mandated Industrial Development Corporation is a 35% partner. But where is the private sector?
Chinese state-owned truck maker FAW has also invested in Coega. But this investment is about a 10th of the size of the one by Beijing Automotive Industry.
Meanwhile, Datsun’s global head, Vincent Cobee, has stated that the Nissan-owned car brand would not begin production in SA, saying the "time and circumstances" were not right.
It has also taken a long time for Dube TradePort in KwaZulu-Natal to interest investors. Cipla BioTec has indicated it would build Africa’s first fully integrated biopharmaceutical plant there for about R1.3bn.
These investments come from Brics partners China and India, which is all well and good. But there has been negligible real investment in such zones since their inception. In fact, aluminium smelters and steel entities have been shut down, for reasons including Eskom.
Listed property investors may be better off buying into tried and tested property stocks in 2017 and 2018 if 2016’s uncertainty and volatility continue. For much of 2016, investors who held offshore stocks enjoyed strong share price and dividend growth.
Much of those returns were wiped out after the Brexit vote. The rand’s gain against sterling dampened rand returns, though some of the bigger UK companies, such as Capital & Counties and Redefine International, could bounce back in 2017.
Capital & Regional, a UK shopping centre owner, said on Thursday that British consumer spending had risen in the last quarter of 2016. Sainsbury’s reported a record week over Christmas that it attributed to extended shopping hours.
But the South African stalwarts of the past decade or so could offer value. The likes of Growthpoint, Redefine, Hyprop Investments and SA Corporate Real Estate Fund saw out the year with respectable performances. Growthpoint’s return was 19.95%, Redefine’s was 24.88%, Hyprop’s was 19.47% and SA Corporate’s was 32.76%.
These companies have been listed for a relatively long time compared with their peers and have built up portfolios with reliable tenants. They also maintained strong distribution growth. Shrewd management and limited shocks to SA’s economy should allow them to do so again in 2017.
• Neels Blom edits Company Comment