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Disastrous environmental costs aside, the Musina-Makhado SEZ makes little economic sense

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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/

A latter-day Iscor is being built in the far northern reaches of Limpopo on the weakest and most skewed of economic cost-benefit cases because the Department of Mineral Resources and Energy and Department of Trade, Industry and Competition are still infatuated with coal and haven’t lost faith in its power to fuel a second South African industrial revolution.

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

In reality, control of a pristine piece of South Africa has been signed over to a Chinese businessman of dubious repute for a century and the SA taxpayer will wind up indebted to China to the tune of R100-billion in order to build the biggest and most hazardous industrial zone in South African history, in every sense of the word. In short, the Musina-Makhado SEZ is a case study in the flawed SEZ plan for re-industrialisation and a siren for the dangers of Chinese-Africa “cooperation”.

A Special Economic Zone is Department of Trade, Industry and Competition (dtic) speak for an industrial zone offering special sweeteners, paid for from the public purse, to attract much-fetishised foreign direct investment in manufacturing. They are meant to be little utopias for big business – places where power and water are cheap and the taxman is barred at the same factory gates where workers even lose their right to strike.

It’s a model China evangelises, part of a mining and industry-skewed developmental state orthodoxy to which the SA government is a convert. Since the passing of the SEZ Act in 2014, 11 such zones have sprouted across the country. Results so far disappoint.

The MMSEZ, as it is dubbed, is a sprawling 60km² SEZ in Limpopo’s northern Vhembe District encompassing multiple development sites, including a Chinese steel manufacturing mega-project at a site north of the Soutpansberg in the Unesco Vhembe Biosphere Reserve that will more than double SA’s annual crude steel production. At full scale, the steel mills will be supplied by four new coal strip-mines, a mega-dam on the Limpopo River that will harvest 60% of its annual flow, supplemented by a scheme to transfer water from Zimbabwean sources, and a dedicated 3,300MW power plant.

Backed by the DTIC, the IDC and the Limpopo provincial government, the MMSEZ has been sanctioned as a “China-Africa capacity cooperation” project under a memorandum of understanding (MOU) signed by President Cyril Ramaphosa and China’s Xi Jinping at the 2018 Forum on China-Africa Cooperation (Focac).

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

In other words, it’s a scheme to stave off a painful and potentially destabilising contraction in China by artificially stimulating demand offshore with debt. But the quid pro quo of loans extended by China to win contracts for the factories that have fallen idle back home in China only makes sense if the borrowers in Africa actually need the industry or infrastructure and can afford to repay the loans. In the case of the MMSEZ, it is improbable that either condition has been met.

Considering that the SA primary steel industry is plagued with over-capacity and spends its days trying to protect itself from dumping by China with heavy tariffs and subsidies at the expense of taxpayers and downstream steel-consuming industries, the rationale for why SA is cooperating with the Bank of China to ramp up its steel production capacity by a factor of two to three, and from a remote virgin site in northern Limpopo, isn’t immediately apparent.

The costs of overcoming the water, power and logistical handicaps of the location will be eye-watering and the damage compared with a location in, say, the Witwatersrand rustbelts, greatly amplified. Although the details of the funding plans remain opaque, the internal masterplan puts the price tag to develop the zone at R344-billion, of which the South African fiscus is liable for R96-billion of the bulk infrastructure (excluding the cost of the “smart city” that will be attached to the industrial zone).

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

Governance failures will doubtless add to the toll: Shenzhen Hoi Mor, the Chinese operator to whom DTIC has ceded near-unfettered control of the zone for a term of 120 years, is little more than a shell company that fronts for its CEO, Ning Yat Hoi.

Fired from his last job as head of London-listed ASA Resources Group (formerly Mwana Africa) amid allegations of fraud and embezzlement upheld in a UK High Court judgment, Ning was evading an arrest warrant on further charges of fraud when the MMSEZ deal was signed with then-minister Rob Davies.

Special Economic Zones are meant to work as engines of re-industrialisation, but they can backfire when the erasure inside these islands of the hard-won legal protections from the worst predations of capitalism serves only to succour unfairly advantaged foreign competitors that then cannibalise local firms.

Having presided over chronic economic stagnation and a jobs bloodbath, however, ANC fantasists have fallen for the mirage of China’s “Shenzhen miracle” (the province where the SEZ model was pioneered in China) and the fistfuls of cash on offer to chase it. As a consequence, the MMSEZ is being railroaded through a sham environmental authorisation process by a deeply conflicted state developer wilfully blind to the risk of Shenzhen-level exploitation of labour and the environment, which could plausibly drive ArcelorMittal to mothball its remaining ageing steel mills, before going bust itself when a market for its annual output of 13 million tons cannot be found.

Ultimately, the MMSEZ is a reality only because a megaproject with a decade’s worth of civils contracts is in China’s interests and its system of project approval is surprisingly bottom-up, allowing for opportunists like Ning to hawk dodgy deals to party bosses. But a latter-day Iscor is being built in the far northern reaches of Limpopo on the weakest and most skewed of economic cost-benefit cases also because the DMRE and dtic are still infatuated with coal and haven’t lost faith in its power to fuel a second South African industrial revolution despite the demise of the gold mining goliath with its capacity to support secondary industry – and let’s face it, because the cadres have mega-egos and a snout for a trough.

Indeed, the list of winners at the actual southern end of this win-win partnership of the Global South appears capped at the provincial politicians who are hoovering up mining permits in the district, and ailing SA-Australian mining house, MC Mining (formerly CoAl of Africa) and its investors (which include, not coincidentally, the Industrial Development Corporation), for whom a great coal-burning ore smelter materialising on the very edge of its coal pits in the Vhembe is quite miraculous.

It is not just that the Musina-Makhado SEZ should be de-gazetted yesterday – as a parable for the pitfalls of these purported engines of economic growth and job creation, the SEZ Policy and the aptly named Focac deserve some very close scrutiny. DM

 

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