African Reserves Loans

Environmental costs aside, the Musina-Makhado Special E…

The architects of the “Musina-Makhado Special Economic Zone” promise deliverance to impoverished Limpopo and proclaim themselves visionaries who will give birth to the Witwatersrand of the next century, built not on gold, but on steel and coal.

In reality, control of a pristine part of South Africa has been ceded to a Chinese businessman of dubious reputation for a century and the SA taxpayer will find itself indebted to China to the tune of R100 billion in order to to build the largest and most dangerous industrial area in South African history, in every sense of the word. In short, the Musina-Makhado SEZ is a case study in the SEZ’s flawed plan for reindustrialization and a siren of the dangers of Sino-African “cooperation”.

A special economic zone This Ministry of Trade, Industry and Competition (dtic) speaks of an industrial zone offering special sweeteners, paid for with public funds, to attract the highly fetishized foreign direct investment in the manufacturing sector. They are meant to be small utopias for big business – places where electricity and water are cheap and the taxman is barred from the same factory gates where workers even lose their right to strike.

It is a model that China evangelizes, part of a developmental state orthodoxy distorted by mining and industry to which the South African government has converted. Since the passage of SEZ Act in 2014, 11 such zones were created across the country. So far, the results are disappointing.

The MMSEZ, as it is dubbed, is a sprawling 60 km² SEZ in the northern district of Vhembe, Limpopo, encompassing several development sites, including a Chinese steelmaking megaproject at a site north of Soutpansberg in the UNESCO Vhembe Biosphere Reserve which will more than double SA. annual crude steel production. At full scale, the steel mills will be supplied by four new surface coal mines, a mega-dam on the Limpopo River which will harvest 60% of its annual flow, supplemented by a water transfer system from Zimbabwean springs, and a dedicated dam 3,300 MW power plant.

Supported by the DTICthe IDC and the provincial government of Limpopo, the MMSEZ was sanctioned as a “China-Africa capability cooperation” project under a memorandum of understanding signed by President Cyril Ramaphosa and China’s Xi Jinping during the 2018 China-Africa Cooperation Forum. (Focac).

Capacity cooperation is a Chinese policy of building infrastructure and industrial capacity in Africa and other regions, usually funded by loans from Chinese state-owned banks, to mop up excess manufacturing and construction capacity that emerged as its economic boom slowed.

In other words, it is a ploy to avoid a painful and potentially destabilizing contraction in China by artificially stimulating demand abroad with debt. But the misunderstanding loans from China to win contracts for factories that have been sitting idle in China only makes sense if borrowers in Africa really need the industry or the infrastructure and can afford to repay the loans . In the case of the MMSEZ, it is unlikely that either condition has been met.

Considering that the South African primary steel industry is plagued by overcapacity and spends its days trying to protect itself from dumping by China with high tariffs and subsidies at the expense of taxpayers and downstream steel consuming industries, why SA is cooperating with the Bank of China to increase its steel production capacity by a factor of two to three, and from a remote pristine site in northern Limpopo, is not immediately apparent.

The costs of overcoming the location’s water, electricity and logistical handicaps will be exorbitant and the damage compared to a location in, say, the rust belts of the Witwatersrand, will be greatly magnified. Although details of the financing plans remain opaque, the internal master plan priced the development of the area at R344 billion, of which the South African tax authorities are responsible for R96 billion of bulk infrastructure (excluding cost of the “smart city” which will be attached to the industrial zone).

And that’s just the down payment. Much of the actual cost will be outsourced, but pollution and CO² emissions equivalent to 10% greenhouse gases (GHGs) from all sectors, the vast amounts of water needed for coal-based development in a water-scarce region, the 100,000 trees that will be bulldozed to clear the 8,000 ha site, the environmental damage will be severe and will have a corresponding effect on agriculture, tourism and other local industries and their potential, as well as on human health in the rural communities surrounding the harmful area.

Governance failures will undoubtedly weigh down the balance sheet: Shenzhen Hoi Mor, the Chinese operator to which the DTIC has ceded almost absolute control of the area for a period of 120 years, is a little more than a front company that facades for its CEO, Ning Yat Hoi.

Sacked from his last job running London-listed ASA Resources Group (formerly Mwana Africa) amid confirmed fraud and embezzlement allegations in the UK High Court Judgment, Ning was fleeing an arrest warrant for new fraud charges when the MMSEZ deal was signed with then Minister Rob Davies.

Special Economic Zones are meant to function as engines of reindustrialization, but they can backfire when the erasure within these islands of hard-earned legal protections against capitalism’s worst predations only serves to rescue competitors. unfairly advantaged foreigners who then cannibalize local businesses. .

However, after presiding over chronic economic stagnation and a bloodbath in employment, the ANC fantasies fell into the mirage of the “Shenzhen Miracle” in China (the province where the SEZ model was launched in China) and handfuls of silver offered to drive it away. As a result, MMSEZ is subjected to a bogus environmental permitting process by a deeply conflicted state developer, willfully blind to the risk of labor and environmental exploitation at the Shenzhen level, which which could presumably lead ArcelorMittal to mothball its remaining aging steelworks, before collapsing for lack of a market for its annual production of 13 million tonnes.

In the end, the MMSEZ is only a reality because a megaproject with a decade of civil contracts is in China’s interests and its project approval system is surprisingly bottom-up, allowing opportunists like Ning to sell dodgy deals to party leaders. But a last-day Iscor is being built in the far north of Limpopo on the weakest and most skewed economic cost-benefit cases, also because DMRE and dtic are still coal-loving and don’t have not lost faith in its power to fuel a second South African industrial revolution despite the demise of the gold mining giant with its ability to sustain secondary industry – and let’s face it, because executives have mega-egos and a muzzle for a hollow.

Indeed, the list of winners at the southern end of this win-win Global South partnership appears capped at provincial politicians sucking up mining permits in the district and struggling South Australian mining company MC Mining (formerly CoAl of Africa) and its investors (including, it is no coincidence, the Industrial Development Corporation), for whom the materialization of a large coal smelter on the edge of its coal mines in the Vhembe is quite miraculous.

It’s not just that the Musina-Makhado SEZ should be decommissioned yesterday – as a parable of the pitfalls of these supposed engines of economic growth and job creation, the SEZ policy and the aptly named Focac deserve a very careful examination. DM