LAUREN LIEBENBERG: Chinese-run Goliath at Musina-Makhado is bad news for ailing SA rivals

The proposed Musina-Makhado Special Economic Zone (SEZ), a taxpayer-subsidised project backed by the SA and Chinese governments, is likely to be another hefty blow to the country’s ailing steel and cement sectors if it goes ahead.

Situated near the coal belt in the backwaters of Limpopo’s Vhembe district, the proposed industrial zone would house a Chinese-owned coal-powered steel foundry and a lime plant that would benefit from tax incentives and other favourable operating parameters not granted to local players.

This industrial development plan, which is being punted by the department of trade, industry & competition, seems completely at odds with the department’s own efforts to safeguard SA’s steel industry, which, according to industry body Seifsa, provides more than 200,000 jobs when downstream activities are included.

The steel industry is already on its knees in the face of weak demand in our own backyard and an oversupply of steel on the global market, which is forcing prices and margins lower. Its struggles have been compounded by persistent load-shedding and electricity tariff hikes.

Moreover, local players are contending with imports of cheap steel into a shrinking market, particularly from China. The world’s second-largest economy has joined the ranks of net steel exporters in recent years as its construction boom slows.

Ironically, the department has measures in place to prop up the industry and protect local players from Chinese and other imports. Tariffs on imports have been ramped up to the maximum rates allowed under World Trade Organisation rules.

Considering the state of the SA steel and cement sectors, the direct introduction of subsidised foreign competitors makes no sense. Unlike their SA counterparts outside the SEZ, the foreign investors in the Chinese operator-controlled zone will be granted significant corporate tax breaks (15% versus 28%), import duty protection and an escape from costly encumbrances such as the right to strike.

They will also enjoy subsidised bulk infrastructure, including vast quantities of water that will be supplied from a costly megadam to be built on the vulnerable Limpopo River, as well as their own dedicated coal-fired power station for load-shedding-free ore smelting.

This will result in the creation of an unfairly advantaged Goliath of a foreign competitor. And there are no clear plans regarding the intended destination of the zone’s subsidised output, aside from vague pronouncements about markets “in Africa” or “in China”.

The plans for the funding of the zone are equally as opaque. Agreements from roadshows since 2014 show that the Industrial Development Corporation (IDC), the China Development Bank and the China Africa Development Fund will be involved. And, of course, the SA taxpayer.

The cost of any local jobs created would be huge. And in any case, the project is unlikely to absorb the 31,000 steel industry workers laid off in the decade to 2019. There is also a glaring lack of binding obligations on the part of the investors, even in terms of employing locals or using local content.

The beneficiaries of the SEZ include project coal supplier MC Mining, formerly Coal of Africa, whose investors include the IDC. Another is Chinese businessman Ning Yat Hoi, whose Chinese-registered company, Shenzen Hoimor Resources Holding Company, was appointed by the department as the de facto operator of the zone for an effective term of 120 years.

In addition to the economic and employment risks, the SEZ would cause significant environmental and social harm in a biosensitive and water-scarce part of the country. Over and above its direct carbon emissions, it would entail the destruction of a Unesco biosphere reserve and its protected areas, and the plundering of the important Limpopo River. It would severely affect commercial and small-scale agriculture, and the largely invisible rural communities in the area.

Environmental advocacy and other civil society groups, which have long decried the threat the SEZ represents, have been vigorously opposing it. Left dazed by the pace at which the zone was gazetted, the state-owned company established and the operator permit issued, lawyers at the Centre for Environmental Rights (CER), acting for Earth Life Africa, GroundWork and Mejcon, are taking action on the grounds that the environmental impact assessment process was fatally flawed. They are being supported by a coalition represented by Christo Reeders that includes the Unesco Vhembe Biosphere Reserve, the Endangered Wildlife Trust and agricultural players in the Vhembe district.

The coalition is seeking to promote a more sensible and sustainable biological resources-based development model for the Vhembe district, dubbed “Living Limpopo”. International organisations including Germany’s Friedrich Ebert Foundation are funding research by policy think-tanks, including the University of the Western Cape’s African Centre for Citizenship and Democracy and the Society, Work and Politics Institute at Wits University.

We will not go down without a fight.

• Liebenberg is biological management chair of Herd Reserve Limpopo and spokesperson for the Living Limpopo coalition campaign.