BUSINESS DAY TV: A Vaal Triangle rejuvenation would make for good economics
Nampak CEO André de Ruyter talks to Business Day TV about moves to revitalise manufacturing in Gauteng by making the Vaal Triangle a special economic zone.
BUSINESS DAY TV: There are moves to classify the Vaal Triangle as a special economic zone (SEZ); this in a bid to revive the rather crumbling manufacturing sector in the region. In the studio now to motivate for the cause is André de Ruyter, the CEO of Nampak.
André welcome, tell us why you decided to champion the cause?
ANDRÉ DE RUYTER: In my capacity as chairman of the Manufacturing Circle and obviously, also to declare my interest, Nampak does have plants in the Vaal Triangle, so we seek to benefit from it. It became clear to us that we needed a catalyst to kick-start growth in that area. When you look at unemployment statistics, 40% unemployment, many young people having given up looking for jobs, it’s really a socioeconomic challenge, but also an opportunity that can benefit from preferential treatment.
BDTV: You said that the region is at risk of becoming a rust belt, is that largely because of the general economic malaise that we’re currently in? Is it from globalisation in the steel industry? What?
ADR: I think the DG (director-general) of the DTI (Department of Trade and Industry), Lionel October, the other day made a very true confession, if I may call it that, when he said that SA was ‘naive’ in dropping its tariff barriers to allow imports unfettered to come into the country, and that has really decimated our manufacturing industry. We have gone down to a contribution to GDP of less than 13%, where comparative studies show that we should be at 30%.
BDTV: You’re sounding very much like a Trump supporter?
ADR: I’m not a Trump supporter, I’m not advocating protectionism but you have to have a competitive tariff regime, and to open yourself up to imports when other countries are doing their utmost to protect and grow their manufacturing sectors is just not on.
BDTV: But are special economic zones designed for the export market?
ADR: They are designed for the export market and that is why this is a bit of a novel concept. So this does not require the construction of a huge new port; it does not require the investment of billions of rand in new infrastructures or …
BDTV: The point I’m trying to make is that with everybody going protectionist, the US, why were you focusing on getting our exports out when everybody is going protectionist anyway?
ADR: And that is why if you rejuvenate the Vaal Triangle, which is on the doorstep of the biggest market in sub-Saharan Africa, Gauteng, it makes for good economics, I think.
BDTV: Okay, let’s go through some of the factors of why you think the Vaal Triangle should be an SEZ: that there’s plentiful water from the Vaal Dam, it’s right next to the Vaal River and Vaal Dam, but given the drought we’ve been through and the low levels that the Vaal Dam went down to, is there such a thing such as water security in that region?
ADR: I think so. If you look at the speed with which the Vaal system has recovered, that certainly speaks to the resilience of that system. Having said that, we generally, as South Africans, have to become a lot more water wise. So that very definitely applies to industry as well.
BDTV: But is it viable and is it fair, do you think, that you want to create even more manufacturing industry in that sector when the Vaal Dam is the essential feeder for Johannesburg?
ADR: What would you rather have? A green garden irrigated very nicely with a hosepipe or a million jobs?
BDTV: No the point I’m trying to make is that it’s the only feeder for Johannesburg … one of the few cities of the world that is not based next to a river, so Johannesburg needs that?
ADR: Of course Johannesburg needs water, but SA needs jobs and economic growth and I’d rather that we become more water wise and more water efficient and focus on the creation of more jobs.
BDTV: Absolutely, and let’s talk about power stability, what’s it like in the area?
ADR: It’s pretty good from an Eskom supply perspective, however the local authorities — the municipalities — have really not kept up their infrastructure, so substations, cables, have really deteriorated to the point where even though Eskom have solved their problems, we are now having to run backup generators at our facilities in order to keep on supplying electricity. So that is a major issue and it’s clearly because their revenue base has been depleted because there’s been no growth.
BDTV: So that surely affects what new investors would be looking for. Are there moves afoot to find the solution?
ADR: We engage regularly with the local authorities, we try and assist, we try and build capacity, but it is a challenge because funding is a challenge, and I think one of the characteristics of a special economic zone is that it operates under the auspices of the national government. So there’s a lot more focus, a lot more facilitation and a lot more assistance that can be provided to these local authorities, to in fact be successful.
BDTV: What are the benefits to the existing companies that are in the region, like to Nampak, for instance?
ADR: Well, one off the benefits that has been mentioned in the policy and typically the benefits are tailor-made for a particular SEZ, so this is not cast in stone and obviously needs to be negotiated. But one of the benefits would be a job-creation credit. Another benefit would be a preferential tax rate of 15%, which has been mooted in the policy.
So I think that there are a number of attractive incentives that are competitive when compared to other incentives offered by competing investment destinations like India or Dubai, and that’s who we are up against.
BDTV: A 15% tax rate would be an absolute boost to any company. There must surely be a lot of regions vying to be classified as a special economic zone? Who are you competing with?
ADR: From a South African perspective of course, the policy has been around since 2012. The Special Economic Zones Act was promulgated in 2014 and to date two SEZs have been proclaimed: the one in Atlantis, in the Cape, and the other one in Harrismith. But that has been it so far. So we have had preliminary engagements with the Department of Trade and Industry and they’ve indicated that they’re very willing to consider this proposal.
BDTV: But is there is anywhere nearby in Gauteng and the Free State that is also vying for this?
BDTV: But, and just quickly, surely it’s more advantageous to the country to have these things at the coast for export?
ADR: You need to look at where you have existing industrial infrastructure. You look at ArcelorMittal, which has built a large steel plant in the inland area. You look at the Natref refinery, also located in the inland area. You look at the Sasol One plant, you look at Omnia, you look at Safripol, you look at a whole range of industries that have already been established in that area.
Now we can either choose to allow those to deteriorate through neglect or we can choose to reinvigorate them by creating a zone, which will attract further investment. I think we have to work with what we’ve got. To ask for billions upon billions to be poured into a new SEZ at this stage is just not within the realms of possibility.
BDTV: André good luck with your cause...