South Africa is a country of contrasts and nowhere is this more evident than in the three most populous provinces – Kwazulu-Natal, Gauteng and the Eastern Cape. James Eedes reports.

Gauteng, with its centrepiece Johannesburg, is South Africa’s commercial and industrial heartland, a metropolitan sprawl that is home to many of the country’s biggest and most important companies. Kwazulu-Natal and the Eastern Cape, at the other end of the spectrum, are underdeveloped and characterised by the widest disparity of income distribution in the country.

Whereas 98% of Gauteng’s citizens are urbanised, the figure is just 44% in Kwazulu-Natal and 37% in the Eastern Cape. Gross product per capita in Gauteng is R32,000, triple the figure in Kwazulu-Natal and more than four times that of the Eastern Cape.

Development indicators such as these confirm casual observation on the ground. It is not uncommon in deep rural areas of Kwazulu-Natal to come across local villages for whom the site of a white face or a 4x4 vehicle is a unique experience. That said, each of these provinces in different ways is brimming with development opportunities, providing investors with an exciting range of prospects that span a multitude of industries.

Apartheid’s legacy

To understand why these opportunities have remained unexploited you have to understand the history of the country. In the case of Kwazulu-Natal and the Eastern Cape, vast tracts of these provinces were declared “independent” homelands under the apartheid system. These areas were set aside by the white minority government for blacks to live in, excluding them from the rest of the country. Although funded from Pretoria, the country’s administrative capital, the homelands were never developed.

This was ironic. In carving up the country, the apartheid government had given away some of the country’s prime land – fertile farming areas; land close to sea ports and so on. When the African National Congress (ANC) was elected to government in 1994, developing these areas became a priority – and not just because the ANC had a strong constituency in these parts. It was quickly recognised that key industrial infrastructure and services – ports, road and rail networks, electricity and labour – were in place but being underused. There was an opportunity to unlock the potential with relatively little effort.

Slow progress

To the frustration of an electorate eager to see improvement, the new government moved slowly to implement an industrial framework and to then see through the implementation of the policies arising from the framework. There is, however, at last tangible evidence that plans are coming to fruition. This is particularly so in Gauteng, Kwazulu-Natal and the Eastern Cape, where massive investment projects are now tangible.

Gauteng has been galvanised into action under the banner of Blue IQ, a multi-billion rand initiative set in motion by the provincial government to invest in economic infrastructure (see box, page 54). Funding is aimed at investment in technology, high value-added manufacturing, transport and tourism. The objective is to attract around R100bn in FDI in the next 10 years, creating an environment of high growth and development.

The Gauteng provincial government has three main strands to its economic policy. Firstly, the manufacturing sector needs to be realigned away from traditional heavy industry and low value-added production towards sophisticated, high value-added goods.

Secondly, emphasis is being placed on turning Gauteng into the “smart centre” of the country, with specific focus on information technology; telecommunications equipment; research and development and bio-medical industries.

Finally, expanding the finance and business service sector is seen as crucial. Specific emphasis is being placed on financial services; auxiliary business services; corporate head office location and business tourism.

Gauteng accounts for 38% of the total output of the South African economy, equating to R370bn ($36.6bn). This is larger than the output of all other southern African states, and similar in size to countries such as Hungary and the Czech Republic.

Initially, mining activities dominated the economy of the province but in recent decades the secondary and tertiary sectors have become bigger contributors to total output. The value of manufacturing in Gauteng exceeds R85bn a year. The principal contributors are basic iron and steel products; paper, glass and metal products; machinery; electrical appliances and electricity supplies; food; motor vehicle parts; and chemical products.

With the new policy direction – and the shift in focus towards information and communication technologies and higher value-added manufacturing – tourism, technology-related sectors, motor vehicle components, furniture, leather goods, transport equipment and pharmaceuticals are expected to be the fastest growing manufacturing sub-sectors.

Gauteng’s attractions

Gauteng has a number factors in its favour. The province is the economic hub of the country, attracting the cream of the skills base. Salaries in Gauteng are generally higher than elsewhere in South Africa but are internationally competitive, comparing favourably with countries such as the UK, Singapore, Malaysia and Brazil.

Labour costs per worker in the manufacturing sector also compare favourably with other countries and are substantially lower than those in the US, the UK, Singapore, Israel, Ireland and Germany. Gauteng has an edge on its provincial counterparts in that it has a high number of skilled blue-collar workers.

Though landlocked, Gauteng is served by an advanced transport and logistics infrastructure. The City Deep container terminal, a massive transhipment hub, is being upgraded as part of the Blue IQ project including the establishment of an industrial development zone nearby.

In contrast to Gauteng, the Eastern Cape is coming up from behind. But it is catching up fast.

At 7.5% of total national output, yet constituting 16% of the national population, the province is relatively small in the economic stakes. Low investment and under-utilisation of existing infrastructure has kept the Eastern Cape from more rapid development.

However, with the national shift towards a competitive, export-oriented industrial policy, the Eastern Cape is set to benefit. Already, the province has a strong, diversified productive sector. A number of global companies have invested in the area, including Volkswagen, DaimlerChrysler, Goodyear, Cadbury’s and Johnson & Johnson. Roughly half the 120 large enterprises in the province are part of international corporations.

Coega development

The most exciting new development in the province is the Coega industrial development zone, incorporating the construction of a deep-water port. The centrepiece of the new port will be a container terminal and transhipment hub, designed and built to accommodate the latest shipping and logistics requirements.

The actual industrial development zone is a 12,000-hectare piece of land providing serviced industrial sites with a purpose-built infrastructure. A key feature is the “customs-secured area”, deemed to be outside of South Africa for customs purposes, so companies within it can import inputs duty free. The first phase is expected to draw R800m in government funding.

French aluminium giant Pechiney has indicated it is close to making a R16.2bn investment in Coega. The plan is to build one of the world’s most sophisticated smelters. News of the investment has sparked renewed interest from other potential investors, including mining and metals group BHP Billiton, which three years ago pulled out of a proposed zinc refinery project at Coega.

On a smaller scale but along similar lines is the East London industrial development zone and the Wild Coast Spacial Development Initiative. The former is a 500-hectare industrial site that is to be developed alongside the East London port, a world-class facility operating well within its capacity. The Wild Coast SDI is designed to facilitate investment in labour-intensive high-value agriculture and tourism.

Eastern Cape success

The Eastern Cape is already the hub of South Africa’s automotive industry. Success is the result of the government co-ordinated Motor Industry Development Programme (MIDP), a plan to focus the industry on fewer models but at greater volume. It is a telling endorsement of government’s industrial policy.

In 1996, before the impact of the MIDP was felt, South Africa motor companies exported 11,500 vehicles worth R750m. This year, they will export around 130,000 cars and commercial vehicles worth nearly R15bn. Exports of automotive components have also taken off. From just over R4bn in 1996, their value has rocketed to an expected R20bn in 2002. In six years, total annual automotive exports have risen from R4.8bn to R35bn. The real story is not in the numbers, though. None of this could have happened without transforming the labour force – quashing historical perceptions that the Eastern Cape could not match up in terms of quality of labour.

A new, educated generation of workers is taking over. At most companies, job applicants need a secondary level qualification. The newcomers are more interested in personal fulfilment – training, career prospects and so on – than politics, meaning fewer strikes and shutdowns. Better-trained workers means better productivity. In 1996, the average annual number of vehicles produced by each employee in the vehicle assembly industry was a slow 7.5. By last year it was 12.6.

That is the icing on the cake for a province that already outperforms the other three main industrial centres of Gauteng, Cape Town and Durban in respect of wages, local rates and taxes, electricity and factory rentals. Kwazulu-Natal is somewhere in between Gauteng and the Eastern Cape in the development stakes. Durban harbour, adjoining the province’s most important city, is Africa’s busiest and one of the 10 biggest worldwide. A new international airport is under consideration for the city, promising improved passenger and cargo handling facilities.

This will further enhance the attractiveness of the province’s main economic and industrial centre. The Durban metropolitan areas accounts for 60% of the gross geographic product of Kwazulu-Natal; 18% of South Africa’s manufactured exports and 12% of total manufactured output.

Kwazulu-Natal’s hope

However, like the Eastern Cape, Kwazulu-Natal has a large, under-skilled rural population. It is in these rural parts that many of the provinces most exciting investment opportunities – particularly in tourism – exist. Kwazulu-Natal has some of the most breathtaking wilderness and coastal areas in the country, which have remained largely under-exploited.

Kwazulu-Natal’s manufacturing sector is concentrated on textiles, clothing, leather and footwear; pulp and paper products; basic metals; food and beverages; and chemicals, rubber and plastics. Close proximity to world-class port facilities means companies are increasingly looking to the export market. The provincial department of economic development and tourism has initiated a number of industrial clusters where companies can establish themselves with a strong infrastructural backbone.

Kwazulu-Natal has a number of SDIs under way. These are government-assisted programmes that target areas where there is inherent, under-used economic potential. The aim is to identify and assess investment projects before presenting them to the private sector.

The Pietermartizburg-Msunduzi SDI is centred around the provincial capital in Pietermartizburg. The focus is on the leather and footwear industries; wood products and furniture; the aluminium industry and the establishment of a tourism cluster. These industries are already well established, with good infrastructure meeting their needs. The SDI is working to build linkages between existing companies and new investors.

The Lubombo SDI is primarily a tourism-oriented initiative supported by the governments of South Africa, Mozambique and Swaziland. It is marketed as a project of unparalleled scale and grandeur. It focuses on untouched nature areas in the north of Kwazulu-Natal and Swaziland and reaching into the southern section of Mozambique, with a wealth of natural and cultural resources, including a majestic coastline, classic African game parks, the southern most coral reefs in Africa and rich indigenous cultural traditions. It is a well-known secret to those who have travelled to these parts that these areas are among the most spectacular in southern Africa.

Trade and Investment Kwazulu-Natal, the provincial government’s investment promotion agency, is negotiating R3.7bn in investment projects. The biggest is a R1.5bn investment by German textiles manufacturer Zimmer. According to the agency, South African companies invested R12bn in Kwazulu-Natal in 2001, a strong endorsement of the province’s prospects.

A global player

Debbie-Lee Kelly explains why KwaZulu-Natal is now the export hub of Africa.

KwaZulu-Natal (KZN) in South Africa is poised to become an international player in the global economy as a leading trade and investment destination. And Trade and Investment KwaZulu-Natal (TIK) is the central co-coordinating mechanism driving the province’s economic expansion and growth.

In operation since June 11, 2001, as the official trade and investment promotion agency for the province, TIK’s mandate is to develop, package and market trade and investment opportunities in 16 identified sectors by offering a professional and comprehensive service to investors, exporters and traders. The TIK board is represented by local government, parastatal representatives and captains of industry.

Meaningful partnerships and strong links have been forged with all stakeholders including local government and the private sector. “KZN as a provincial government is driving growth and moving towards an integrated export platform. Co-operation at national, provincial and local level is the key to our success,” says TIK CEO Bandile Mkhize.

Positioned as Africa’s global trade gateway, KZN is poised to compete for FDI and market share in a global eco-nomy. “A combination of a highly developed first world economic infrastructure and a huge emergent market economy has given rise to a strong entrepreneurial and dynamic investment environment in KZN,” says Dr Mkhize.

A survey by a Brussels-based international investment adviser has found that certain selected industrial undertakings can be operated more profitably in KZN than in competing investment regions in the world.

Geographically situated to service international markets and positioned as the export hub of South Africa, the region is well served by Durban and Richard’s Bay, two of Africa’s busiest ports, as well as a comprehensive road, rail, air and sophisticated communications network.

Major players in the region include international giants Unilever, Alusaf, Bell Equipment, Smith & Nephew, and the province’s only car manufacturer, Toyota South Africa.

“KwaZulu-Natal is the ideal location for companies involved in exports or planning export strategies,” says Albert Wessels, CEO at Toyota SA and a member of TIK’s board of directors. “Our company’s decision to retain its manufacturing base in KZN has proved to be extremely fortuitous. Benefits for all foreign investors include a supportive local government, an abundance of skilled labour and an environment conducive to attracting and retaining highly qualified staff.”

Blue iq project thinks big

Blue IQ is the project that dares South Africans to think big. When Gauteng provincial premier Mbhazima Shilowa announced plans to build a high-speed rail link between Johannesburg, Pretoria and Johannesburg International Airport, many dismissed the idea as the naďve musings of a politician out of touch with reality. After all, South Africa is a developing country that could not possibly afford such an ambitious project, or so the conventional wisdom went.

The sceptics are eating their words. A pre-qualification tender process has been undertaken; consortia have been identified to proceed to final bidding; environmental impact studies are far advanced, and the public has been invited to comment. Construction could start as soon as next year.

Blue IQ is a massive initiative conceived by the Gauteng provincial government to catapult South Africa’s wealthiest province to stronger economic growth. It is a multi-billion rand investment in economic infrastructure to create an environment that is irresistible to private sector investors. The target is R100bn ($9.9bn) of FDI in the next 10 years.

The provincial government hopes to achieve this by carefully targeted investment in key sectors, providing a boost to industries and companies that show that greatest growth potential.

The focus is on technology, high value-added manufacturing, transport and tourism. The objective is to create a “smart” province where knowledge-intensive companies can thrive.

Key projects in addition to the high-speed rail link include:

The Innovation Hub, a campus environment for high tech firms. The plan is to provide the critical IT infrastructure that these companies need.

Investment in transport and logistics infrastructure, including the Johannesburg International Airport and City Deep Terminal industrial development zones. The zones are purpose built to meet the needs of industry and strategically located near southern Africa’s biggest air freight and container hubs, respectively.

The expansion of the Gauteng automotive cluster, building on the existing operations of BMW, Fiat, Ford and Nissan. The plan is to establish world-class resources in competitiveness improvement; automotive engineering, design and testing; research and development; and human resource development.

The regeneration of the Wadeville-Alrode industrial corridor, combining the manufacturing resources of these two towns to create a super-manufacturing corridor. The area is already the strongest manufacturing hub in South Africa; the plan is to invest in building its capacity and attractiveness to investors.

Development and exploitation the province’s rich cultural heritage and eco-tourism potential. This includes a number of initiatives to improve Gauteng as a tourist destination.