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The rationale for Musina-Makhado Special Economic Zone is an industrial-scale lie

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Lauren Liebenberg is a spokesperson for Living Limpopo, which campaigns to oppose the Musina-Makhado Special Economic Zone and promote a more sustainable development model for the Vhembe. https://livinglimpopo.org/

Whatever profits are to be made will be pocketed not by South African pension funds invested in JSE-listed firms, but by Chinese-owned contractors. The South African taxpayer will be saddled with paying the debt to China to construct all the infrastructure needed.

Were the hapless South African taxpayer ever afforded an opportunity to appraise the investment prospectus for the Musina-Makhado Special Economic Zone – the coal-fuelled steel manufacturing megaproject planned for a sprawling Chinese-controlled “Special Economic Zone” located in the far northern Vhembe District of Limpopo – it’s unlikely ground would ever be broken.

The cost to develop the industrial zone quoted in the September 2019 masterplan is a whopping R344-billion. Funding will be split between the SA public purse, the Chinese operator of the zone and prospective Chinese private investors. The South African taxpayer is liable for the bulk infrastructure estimated at R96-billion.

The Musina-Makhado Special Economic Zone’s state backers, including the Department of Trade, Industry and Competition (the dtic), the Limpopo government and China’s National Development and Reform Commission motivate for this China Africa Capacity Cooperation deal on the basis of the net economic gains after costs.

But consider the risks: there is a chronic glut in the global steel market which has emerged as China’s construction boom has slowed. Both China and South Africa’s domestic steel industries now operate well below their production capacities – with dumping by none other than China into the stagnant local market blamed for the contraction in the SA industry, which now survives ironically on none other than taxpayer-funded handouts.

This cold reality is openly acknowledged in the voluminous economic rationale reports produced in support of the project, none of which makes any attempt to identify a sneaky gap in any market for the zone’s annual output of 13 megatons of steel, probably because frankly there is no demand for the metal that will be “Made-In-Makhado”.

As any bank loan clerk could tell the dtic, this is a glaring flaw in its iron-cast business plan. No sales plan means a high risk of failure for the investor and a not-insignificant chance that the SA taxpayer is in this case going to be building yet another Chinese zombie factory, just on South African soil.

It’s harder still to see how it makes sense to increase South Africa’s steel production capacity by a factor of two to three using coal to stoke the furnaces in the context of the climate crisis and the global trend to decarbonise, including in the steel sector, which is rapidly shifting towards “green steel”, produced with green hydrogen or electric arc furnaces using recycled steel input, as ArcelorMittal South Africa now plans to do in Saldanha. The future risk of “climate sanctions” being imposed on dirty producers and their host countries under the EU’s Carbon Border Adjustment Mechanism, for instance, cannot be discounted.

At a business opportunity showcase held in Polokwane on 2 March 2022, the CEO of the Musina-Makhado Special Economic Zone SOC, Lehlogonolo Masoga, insisted that the zone would now be powered by solar energy, and yet at the international Dubai Expo 2020 he and fellow salesmen from the dtic continued to punt the 1,300MW coal-fired power station, which forms part of the now-approved plans for the plant. Even if it is shed, the zone’s staggering GHG emissions of 50Mt/a will decrease by only 20Mt/a – the entire plan was and still is about coal reserve exploitation.

In every respect, the economic cost-benefit case for this Special Economic Zone is not just weak but heavily skewed. Downside risks and costs have been stripped out of the SOC’s balance sheet and dumped on the SA fiscus, other sectors of the economy, the environment and wider society, while much of the upside will accrue to the coal miners of the Soutpansberg coalfields or bleed offshore.

In the government’s many cringe-worthy Proudly-Industrialised SA promos of this Special Economic Zone, the mantra of “minerals beneficiation for export” is chanted ad nauseum. In reality, it is not at all clear how South Africa actually benefits from the exporting of minerals beneficiated on our soil – as opposed to the “disgrace” of selling raw commodities – when the so-called exporters are foreign: Under the FDI paradigm, South Africa suffers the severe water resource depletion and environmental damage, along with the knock-on effects for other industries from agriculture to tourism, in order to perversely subsidise a form of home-brewed foreign competitor that will cannibalise a share of the shrinking regional steel market.

What profits are to be made – mostly in the construction phase – will be pocketed not by South African pension funds invested in JSE-listed firms, but by Chinese-owned contractors. Meanwhile, the beleaguered South African taxpayer will be saddled with paying the debt to China to construct all the infrastructure needed to overcome the serious water, power and logistical handicaps of the location in the remote and water-scarce Vhembe, in exchange for a meagre contribution to the public coffers, thanks to slashed tax rates inside Special Economic Zones, of R773-million cumulatively over 20 years, according to the Mintek Economic Rationale Report – assuming of course that the rent-paying foreign factory tenants do in fact materialise and that the great dirty white elephant doesn’t go belly-up.

While the promised jobs will doubtless be created, transport infrastructure upgraded and the local economy benefit from a stimulus effect, there has been no evaluation of alternative models of development to achieve these economic gains for the region at a lower risk and cost – as required under SA environmental law. It seems highly implausible that capital (or indeed water, an equally scarce resource in Limpopo) is flowing to the most productive use here; where returns are highest.

In sum, the economic rationale for the Musina-Makhado Special Economic Zone is an industrial-scale lie that’s nevertheless gaining dangerous momentum. Taxpayer beware. DM

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  • Ms Liebenberg. While you make many valid points the gigantic glaring flaw in your argument is that there is currently a worldwide shortage of steel, not a glut! Worldwide steel prices are astronomical and in SA we pay import price parity as there is a monopoly i.e no competition. This worldwide shortage is partly because of the Russia Ukraine war but predominately because China has recently closed several of its major old polluting steel producing plants as part of its climate change commitments. The chinese no doubt knew these closures were coming and are putting alternatives in place – to the potential benefit of South Africa. Yes there are risks, but please dont just throw the baby out with the bathwater…

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