Coega Development Corporation

C O E GA D E V E LO P M E N T C O R P O R AT I O N

COEGA DEVELOPMENT CORPORATION

CDC Reaches its

Ambitious 2020 Investment Target PRODUCTION: Manelesi Dumasi & the CDC

As one of South Africa’s top performing State Owned Enterprises (SOE’s), the Coega Development Corporation (CDC) is an organisation that constantly achieves and exceeds its targets for job creation, SMME development, training and development, investment attraction and economic development. After a challenging 2017, the CDC started to make significant progress in 2018 and is now looking forward to an extremely exciting future, with many new strategic investment projects set to advance the sterling reputation of this world-renowned Special Economic Zone (SEZ) and infrastructure development business.

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Cemza Cement

INDUSTRY FOCUS: INFRASTRUCTURE

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The new South Africa has seen five Presidents attempt to fuel the economy, once described as the engine of Africa because of its mineral wealth. But today, GDP growth has slowed, the economy is often labelled as unpredictable, and South Africa has been overtaken by Nigeria as the continent’s biggest economy (32nd in the world according the IMF’s 2018 report). Traditionally, the drivers of the economy have been the South Africa’s State Owned Enterprises (SOE’s) – those businesses that provide large scale employment and build highly valuable international partnerships, often in infrastructure development. However, the country’s SOE’s have been under the spotlight recently, often highly criticised for poor management, weak governance and overall ineffectiveness.

But this is not the case at CDC, a SOE under the Eastern Cape Provincial Government and Department of Trade and Industry (DTI), which manages the Coega Special Economic Zone (SEZ) under the Special Economic Zone Act No. 16 of 2014. A shining light among the country’s SOE’s, the CDC is celebrating its 20th year of operation by continuing to do what it has done best for two decades – successfully attracting investment, creating employment opportunities, promoting small business development, providing training and

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skills development for the indigenous communities, reducing poverty and inequality, as well as helping investors to thrive.

At the Coega SEZ - a 9003-hectare prime industrial site and gateway to African and world markets, situated in the eastern side of the bustling Nelson Mandela Bay Metro – amazing development has happened. Since its establishment in 1999, Coega has changed dramatically. Previously unused greenfield coastal land - now offering resident investors many national and municipal incentives including 15% corporate tax, rebates, discounts on rates and services and duty incentives, among others – is currently a completely transformed industrial, manufacturing and business hub which aims to drive local and foreign direct investments (FDI) in export-oriented industries, positioning South Africa as the hub for Southern African trade.

To date, 43 local and international investors have chosen Coega as their home and right now, much activity is underway onsite as some of the most recent additions begin to make their ambitions a reality. CDC’s Head of Marketing, Brand and Communications, Dr Ayanda Vilakazi, explains.

“CEMZA Cement (formerly known as OSHO Cement), a R600 million investment, is in the final stages of

// WE ARE APPROACHING THE LAST YEAR OF OUR FIVE-YEAR 20152020 STRATEGIC PLAN AND WE HAVE ALREADY ACHIEVED AND EXCEEDED OUR INVESTMENT TARGET // completing the construction of the cement grinding plant, and is expected to begin production in Q1 2019,” he says.

“HELLA Automotive, a R50 million expansion, is due to complete construction in the middle of 2019 and production should begin before the end of the year.

“BAIC SA - a R11 billion investment - according to latest reports, should complete the construction of their Semi Knocked Down (SKD) assembly plant by Q2/3 2019. Production is expected to start materialising at the end of 2019 or beginning of 2020. BAIC SA is planning to produce 50,000 vehicles per annum when they begin production, and ramp that up to 100,000 vehicles per annum within the next five years.

“The construction of the 7000 m² warehouse for the manufacturer of gas cylinders for MM Engineering, a R350 million investment, has been completed and is expected to begin production this year.

“Akacia Medicals, a R100 million investment, is planning to complete construction towards the end of this year and will be ready to begin production, thereafter.

“The R100 million expansion of Agni Steel SA, a steel recycling and processing plant, is expected to be completed within the next 24 months.

“The world-class deep-water container transhipment hub for sub-

COEGA DEVELOPMENT CORPORATION

Saharan Africa, the Port of Ngqura, is also undergoing expansion. The 18m depth Chart Datum Port of Ngqura’s expansion is being developed in phases.

The expansion includes the Manganese ORE Export Terminal: C100-C101, as the port plans to become a global leader in manganese ore exports. Export Terminal expansion includes storage capacity of 1222 Mtpa. In addition, Liquid Bulk Facility: B100 is planned by Oiltanking Grindrod Calulo (OGTC), who intend to construct and operate the liquid bulk handling and storage facility. Another development includes the establishment of a ship repair facility in the long-term. Finally, the port plans to become an energy hub, importing LNG and supporting Coega’s gas to power programme.”

Strategic projects in the pipeline at Coega worth more than R280 billion include the R80 billion crude oil refinery plant that will be processing crude oil into final fuel products. It is expected to be built at Coega and is estimated to create more than 26,000 jobs (construction and operational).

“This oil refinery will completely change the Eastern Cape’s economic landscape. It is going to contribute towards drastically reducing the migration of skills to the other regions, such as Johannesburg, Durban and Cape Town,” says Dr Vilakazi.

The pre-feasibility study for the refinery was completed in 2012/13, however the feasibility study is expected to be completed in December 2020.

The front-end engineering duration will take 14 months to complete, while construction duration is expected to take three to four years, with the muchanticipated start of operations in 2025.

The refinery is expected to contribute a massive 5.5% per annum to the EC economy.

Going forward, all of these projects will require a constant supply of skills and expertise in different areas of operations, from research to engineering and project management. Therefore, continuous skills development is critical for the region; it will improve the Eastern Cape’s

competitiveness through increased worker productivity and ensures a smooth flow of production and avoid skills gaps.

“What is exciting for us is that the aforementioned investors are already employing a large number of people during the construction phase. The much-anticipated milestone is the start of production; we hope more people will be employed during the operational phase on a sustainable basis,” says Dr Vilakazi.

BUOYANT BEGINNINGS 2018 was a tumultuous year for the investment environment in South Africa. Notwithstanding the longterm government policy, the National Development Plan 2030, political instability locally and internationally did not help to improve the investment climate. Geo-political instability and

macro-economic factors including international market volatility and Brexit are some of the externalities that have contributed to a very challenging business environment, which negatively impacted on FDI and economic growth in South Africa. Operating within the eco-system, the Coega SEZ is not immune to these challenges. The SEZ found itself “swimming against the tide,” notwithstanding that FDI grew in 2018 by 446% to $7.1 billion, according to a United Nations report. This was after a sharp decline in FDI since 2014.

Despite this reported increase in FDI, it is not enough. More FDI is required to stimulate economic growth in South Africa. The World Bank has projected that the South African economy will grow by a meagre 1.3% in 2019.

The South African Treasury projected an economic growth slowdown from

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INDUSTRY FOCUS: INFRASTRUCTURE

1.8% to 1.7%, this year. Subsequently, the Finance Minister, in the 2019 budget speech, highlighted that the economic outlook has weakened since the 2018 mini budget, with GDP growth now projected to increase from 1.5% to 2.1% in 2021 compared to forecasts of 1.8% for 2019 and 2.1% for 2020, last February.

“Such low levels of growth will certainly put a lot of pressure on FDI promotion agencies like Coega to attract more investment that will stimulate jobs,” says Dr Vilakazi.

But as the year closed in 2018, some positive sentiment emerged, and the atmosphere was positive, with President Cyril Ramaphosa’s constant iteration that South Africa is ‘open for business.

“We are very encouraged by the effort of the President to stimulate economic growth; we are equally thrilled to hear of his plans to attract $100 billion of investment over the next five years,” says Dr Vilakazi.

Consequently, after a slow start to 2018, the CDC as of February 2019 (one month before the end of its financial year) has already attracted 10 new investors with an investment value pledged of R1.491 billion, exceeding the investment target by 215%. Dr Vilakazi is buoyant about the rest of 2019 and the future.

“We are approaching the last year of our five-year 2015-2020 strategic plan and we have already achieved and exceeded our investment target by 492%.

Despite the difficult investment climate and challenges over the past four years, we have worked very closely with our stakeholders locally and internationally in order to meet our objectives.

“Our success was recognised at the 16th Annual National Business Awards (Oscars of South African business) in Johannesburg, last year November. The CDC received the Top Performing Public Sector Award - a much sought-after accolade by all public sector companies.

The award celebrates national, provincial and local government departments, parastatals and/or agencies that have achieved remarkable performance results in the last financial year. The CDC

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has won this award three times within a short period of five years. No other SEZ, trade and investment promotion agency, and public sector company in the country and throughout SADC has won this award three times within the five-year period,” explains Dr Vilakazi.

“It shows that we are not just blowing our own horn when we say we are currently doing very well, despite a tough economic climate. Those who look to us for guidance and support with the development of SEZ in their regions are also beginning to reap the benefits of many years of collaboration, mentorship and knowledge sharing. For example, the Richards Bay SEZ in KwaZulu-Natal recently announced that they have concluded R3 billion in investment deals, bringing the total number of signed investors to eight. We worked very closely with the Richards Bay SEZ in earlier years to ensure they grow and contribute towards job creation in that region.”

LOOK EAST STRATEGY Perhaps one of the most important and exciting investment at the Coega SEZ recently is the R11 billion investment pledged by BAIC SA (Beijing Automotive International Corporation of South Africa), which is currently the largest single investment in the automotive sector in South Africa in four decades.

Beijing Automobile International Corporation (BAIC) is a wholly owned subsidiary company of BAIC International Development Co. Ltd, which was founded in 1958. The Beijing Automobile International Corporation’s R11 billion investment in the Coega SEZ is one of the outcomes of the Sixth Forum on China-Africa Co-operation (FOCAC) held in Johannesburg in December 2015, in which the IDC and BAIC signed a Memorandum of Understanding to establish the new US$800 million Original Equipment Manufacturer facility in South Africa to manufacture passenger vehicles. In July 2018, President Ramaphosa and China’s President Xi Jinping unveiled the first ever BAIC-made vehicle assembled in Africa.

// WE ARE THE ONLY SEZ IN SOUTH AFRICA THAT IS SERVED BY TWO MAJOR PORTS IN CLOSE PROXIMITY – THE CONTAINER DEEPWATER PORT OF NGQURA AND THE PORT OF PORT ELIZABETH. THE CAPACITY OF THESE TWO PORTS COMBINED IS OVER TWO MILLION TEU’S // As a result of the cooperation between the two countries, according to the UN report on FDI, last year China committed around R193 billion in new investment into South Africa.

WHY COEGA? So what is so special about the Coega SEZ, what attracts major international brands to a location that is not immediately adjacent to the major economic metros of the country?

According to Dr Vilakazi, it is precisely this location as well as a bouquet of other benefits which makes Coega not only the location of choice in South Africa, but also across the entire continent.

“We are strategically positioned on the main southern hemisphere east-west shipping route,” he says. “We are the only SEZ in South Africa that is served by two major ports in close proximity – the container deepwater Port of Ngqura and the port of Port Elizabeth. The capacity of these two ports combined is over two million TEU’s and there is no other SEZ in the country with such capacity,” says Dr Vilakazi.

South Africa has approximately

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INDUSTRY FOCUS: INFRASTRUCTURE

// WE ARE THE ONLY SEZ IN THE COUNTRY CURRENTLY THAT HAS FOUR CUSTOMS CONTROL AREAS (CCAS) IN THE LOGISTICS AND AUTOMOTIVE ZONES // 10 SEZ’s - including Richards Bay, East London, Saldanha Bay, Maluti-A-Phofung, Musina/Makhado, OR Tambo International Airport, Atlantis and Dube TradePort – but the success of Coega is unmatched.

“Simply, the achievements at Coega in the past four years are arguably greater than any other SEZ in South Africa,” Dr Vilakazi claims.

He says that existing infrastructure which includes electrical substations, telecommunications networks, bulk water and sewer networks, roads, railways and more world-class modern infrastructure, combined with a number

Coega Dairy

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of tax and duty incentives, offers any potential investor the opportunity to simply ‘plug in and play,’ a strategy that has proved to be very successful for the Coega SEZ. “We offer a ‘plug and play’ environment that enables investors a quick turnaround of their investment.

Without a ‘plug and play’ model, it would have taken BAIC SA, for example, not less than six years to complete their SKD facilities and realise their investment.

Instead, it has taken BAIC SA only two years from when they turned the sod in August 2016 to the first assembled vehicle off the production line in July 2018,” says Dr Vilakazi.

Concerned about local and regional legislation and business regulation? Not a problem - the CDC is well-versed in integrating sizeable operations into the local environment.

“We have world-class support systems, for example, in ICT; engineering; architecture; infrastructure development; human capital and project management solutions. We are the only SEZ in the country currently that has four customs control areas (CCAs) in the

logistics and automotive zones. This is important because a CCA is a dutyfree zone. In addition, there is the ‘state of the art’ one-stop-shop facility to assist investors with services. For example, we have established protocols regarding accessing services from the local municipality, such as approval of building plans, access to water and other critical services.

“In addition, we offer in-house services to investors, which include amongst others, recruitment and selection; corporate travel solutions; three-star accommodation facilities; 1000-seater conference centre, a newly built four-star hotel in Bluewater Bay; skills portal (gateway to opportunities with 350,000 candidates); and a labour management system (Nceda),” says Dr Vilakazi.

An important value proposition for investors is access to incentives.

Incentives are provided by the DTI at a national level as well as the Nelson Mandela Bay Municipality, locally. The DTI provides the following incentives: Industrial Development Incentives; Trade, Export and Investment Incentives;

COEGA DEVELOPMENT CORPORATION

Broadening Participation Incentives Black Industrialists Scheme (BIS) and Incubation Support Programme (ISP) - as well as sector specific incentives.

In addition, the local municipality offer the following incentives: Financial and non-financial support to investors and industry clusters. New investments that create 50 or more permanent jobs, depending on which sector the business operates, could benefit from the joint financing of feasibility study and/or business plan development; rebate on municipal building plan approval costs for approved investments; discounts on rates and services for new investments; and discount on municipal land and buildings. In addition, the investment must qualify as a medium or large business or be equal in size to a medium or large business - as defined by the National Small Business Amendment Act (2003) - in that the investment must employ more than 50 permanent staff, generate minimum turnover of between R5 million and R15 million, have minimum asset values of between R2 million and R5 million, and the investment must be a new investment or expansion, and must be of a commercial or industrial nature on land zoned for industrial or commercial activities.

Still unsure if Coega is the right place for your business? A total of 93% of current investors at Coega feel that the SEZ and its Logistics Park - where Volkswagen South Africa is located- are ideal locations for industries. “The most important benefits for investors located at Coega is the ease of doing business and its world-class infrastructure,” says Dr Vilakazi.

About 92% of the investors expressed positive sentiments about the future prospects of Coega, with some stating that it will become either a logistics or fast-moving consumer goods manufacturing hub of choice in the country. Most investors are of the opinion that the Coega SEZ offers a secure business environment and support services infrastructure.

Not yet convinced, the CDC is

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certified in the following ISO standards: ISO 9001; 14001; 20001; 27001; 31000; and OHSAS 18001.

As a state-owned enterprise, the CDC is audited by the Auditor-General of South Africa. Since inception 20 years ago, the CDC has achieved an unqualified audit opinion.

“Our organisation complies with various legislation, regulations, and maintains high levels of corporate governance, including King IV on corporate governance,” says Dr Vilakazi.

Ultimately, ROI is the gold that every investor is searching for, and away from Coega, that is challenging to find.

Fortunately, the Coega SEZ has a long and demonstrable history of delivering ROI for investors.

“The majority of the current investors at Coega have increased their productivity and profitability since locating in the zone. In the process, they

have increased their workforce due to expansions and the demand for their products and services.

“More investors can benefit from Coega’s success which stems from visionary leadership, shareholder support, supportive local communities, and efficient management of the zone.

“Investor satisfaction is our priority at Coega. We have a dedicated, competent, and hardworking workforce that put our investors first, all of the time.

“Therefore, why look elsewhere in the country for your future investment when you could join the company of the 43 successful resident investors in the Coega Special Economic Zone,” concludes Dr Vilakazi.

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