South Africa Embraces Corporate Welfare: Mega Deal Subsidies over Services for the Poor

By Bond, Patrick | Multinational Monitor, September-October 2006 | Go to article overview

South Africa Embraces Corporate Welfare: Mega Deal Subsidies over Services for the Poor


Bond, Patrick, Multinational Monitor


DURBAN, SOUTH AFRICA -- The South African government is channeling Africa's largest-ever industrial subsidies into the Coega industrial zone complex and port, located in the country's fourth largest city, the Nelson Mandela Metropole (better known by its apartheid-era name, Port Elizabeth). Government proponents say Coega represents sound industrial and development policy, but a growing legion of critics are labeling it a corporate welfare boondoggle in a country that does not have resources to spare.

Aside from tailor-made infrastructure, including a 20-meter deep port, the key attraction of Coega for foreign investors is super-cheap energy. Following a year of frequent brownouts in the two largest metropolitan areas, Johannesburg and Cape Town, a fierce debate has erupted over the idea of providing discounted electricity to industrial users when citizens cannot get a dependable supply at any price. Mismanagement of the state electricity company, Eskom, in the course of its corporatization has interfered with a steady supply.

The main beneficiary of Coega's cheap energy, the Canadian firm Alcan, agreed in December 2006 to a quarter-century power supply deal from Eskom--the world's fourth-largest power company--at an extremely generous price, less than the two cents per hour that bulk industrial consumers pay. This is already the world's cheapest electricity, but Alcan insisted on the subsidy due to volatile commodity prices, a factor that has caused consternation in prior deals the South African government made with large mining houses and metals smelters such as BHP Billiton, the Anglo American group and Mittal Steel.

Alcan and Eskom claim that the deal will bring job creation and foreign exchange earnings, and pay off for the country. Using imported bauxite, Coega's $3 billion aluminum smelter could by 2014 produce 720,000 tons of the metal annually in one of the world's biggest smelters. Fewer than 1,000 permanent jobs will be created in the process, however.

Chief Executive Officer of the Coega Development Corporation Ongama Mtimka insists that Coega will create economic development. "Both business and ordinary citizens in the Nelson Mandela Bay see economic opportunities which have been rather concentrated on a few big cities in South Africa," according to Mtimka.

Mtimka says "the Coega Development Corporation (CDC) will not be drawn into an argument about whether Coega is or is not a white elephant." But he contends, "Our studies show that Coega is a viable business proposition. Alcan's Cynthia Carroll's comment that Coega has the best infrastructure she has seen throughout the world affirms the competitiveness of the Coega IDZ (Industrial Development Zone) relative to its global counterparts."

Coega is one in a long list of post-apartheid megaprojects undertaken by the South African government. These include the Pebble Bed Nuclear Reactors (one of the first global deployments of a new nuclear energy technology that purports to offer new safety guarantees), the Lesotho Highlands Water Project (six vast dams under construction) which supplies water to Johannesburg [see "Making the Earth Rumble," Multinational Monitor, May 1996], and the "Gautrain" elite fast rail network that will link Johannesburg, Pretoria and the country's largest airport.

An impoverished South African majority, increasingly well organized and mobilized, is challenging these megaprojects and demanding instead that state resources be deployed to deliver basic services to the majority, on a more ecologically sustainable basis.

THE COSTS OF CORPORATE WELFARE

Coega's site will include a new port, container terminal and Industrial Development Zone, utilizing vast public investments--at least $1.5 billion, including a $300 million tax break for Alcan--and enormous quantities of land, water and electricity. The new employment anticipated at the port/IDZ would be the most expensive, in terms of capital per job, of any major facility in Africa.

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