Coega IDZ: The birth of a business hub

The scope for collaboration between government and business has long been touted as the silver bullet for maximizing economic reach, growth and transforming the economy into one that is more inclusive and efficient. However, until now, this relationship has been the subject of speculation rather than real strategic development.

CDC Ngqura 2-2Historically, the ties between public and private sector have been a source of conjecture for many South Africans. Nevertheless as the country continues to develop its infrastructure and economy, the general consensus has changed and, for most people, it has become clear that one cannot succeed without the other.

In the context of developing economically and socially disadvantaged areas of South Africa, the government introduced Industrial Development Zones (IDZs) in the nineties – and, arguably, the relationships fostered between government and private businesses is seen in its best light in the case of IDZs.

One such region to benefit is the Eastern Cape, where the Coega IDZ – located in Nelson Mandela Bay, just 15 kilometres from the city centre, and adjacent to the deep-water Port of Ngqura – was taken from concept in 1997 to completion in 2005 and made operational since 2007. Leading the pack as one of the most successful IDZ cases, the Coega IDZ is a trailblazer in long-term planning coming to fruition.

Dr Peter Inman is the Senior Strategy Manager at Coega Development Corporation (CDC), a position he has held for the past 14 years, and an expert on the critical need for IDZs explain the rationale behind its development:

“The Eastern Cape is one of the poorest provinces in South Africa, with high unemployment figures. It has been one of the fundamentally underdeveloped regions in terms of infrastructure. Based on these facts, it was therefore important, when planning the IDZ, to look at ways to ensure fast-tracking sustainable employment opportunities and bringing development to the area – where retention of scarce skills was becoming problematic as the people left the Eastern Cape to seek work in other cities and provinces. We wanted through the IDZ to create a location where people can access opportunities thus minimising the migration into other provinces.”

The establishment of the Coega IDZ formed a strategy for the Eastern Cape development – but, of course, this required a substantial injection of funding into the Zone. By focusing on attracting businesses and major investors to the area, industry was the turn-key in government planning that could kick-start provincial growth and benefit local suppliers, while investment in infrastructure and the arrival or expansion of the businesses would all create much-needed employment.

“We were told from the outset to embrace a long term vision to ensure that there were sufficient investors here to achieve a set of objectives over 50 years,” Inman explained. “Between the turn of the century and 2006, the main focus was to ensure that the infrastructure was set up and of high quality so as to attract investors.

“Then from 2007 onwards, we began to promote the region and IDZ as an investment destination of choice, and to date we have been very successful attracting over 24 investors into the IDZ, a major feat considering the depressed economic climate from end 2008 until 2011,” Inman says.

Investors have come both from within South Africa and from much further afield, wooed by the prospects of available business space and land, purpose-built infrastructure, excellent transport links, a willing workforce and a viable suite of incentives.

driver simulatorThe first operational investor was Dynamic Commodities, a South African success story that established its export oriented production facility in the IDZ while maximizing the agro-processing supply chain and tapping into the citrus industry in nearby Addo.

Inman says that over the 50 year period of development, one of the main objectives will be to fill the whole 11,500 hectare site, which makes the Coega IDZ the largest of its kind in South Africa.

This, he says, will be achieved in smaller chunks, by virtue of a succession of five-year plans:

“Twenty years is of course a very long period of time and the environment can change drastically, so we run five-year plans that give us the opportunity to assess where we are and what we still need to achieve, so we can put targets in place for the number of jobs created, the number of investors onboard and the amount of investment needed.

“Our current plan began in 2009/10 and ends in 2013/14, by which time we need to have attracted R50-billion in cumulative investment and trained a significant number of people in new skills. At present we are on track to accomplish all of this – and we will then plan for the next five years.”

Of course having a 50 year plan is all very well, but will there be consistency in the context of management, overseeing the transition? Inman says that the management of the Coega IDZ has been stable, most Executives have been in the organisation for more than 10 years or since inception of the Coega IDZ. With that in mind, the IDZ should be able to safeguard continuity drawing on a wealth of organisational capacity and institutional memory.

What is perhaps less certain is the economic impact of global recession, particularly for an area hoping to attract foreign investment. Coega IDZ aims to entice investors through a number of strategic partnerships, including a mandate for foreign trade personnel working within the Department of Trade and Industry, to promote overseas investment.

The Coega Development Corporation team, tasked with managing the Coega IDZ, are also proactive in visiting target countries to discuss the virtues of Coega’s investment proposition, with targeted industrial sectors such as automotive, agro-processing, chemicals, business processing and energy all high on the promotion agenda.

“Obviously we are not immune to the effects of global economic downturn and we have seen examples where investors have delayed or become far more cautious on account of this, which has slowed down Coega’s investment attraction trajectory,” Inman says.

DSC_3069“That in turn has affected some of the industries we have targeted, but we are now starting to see things pick up once again. Industries like automotive have in fact had a historical home in the Eastern Cape and we have companies like Volkswagen. General Motors, Mercedes and Kuehne and Nagel all based here.

“We have also become known as a centre for microprocessing and we encourage businesses involved in renewable energy and have a German company based here that manufactures wind turbines, so the IDZ is not only looking to maintain existing businesses, but to encourage new industry’s development in the region,” he adds.

All of which brings the debate on the relationship between private and public sectors back full circle. It is an emotive subject and one that Inman has strong views on:

“Our government has focused on public-private partnerships and there has been lots of attention on infrastructure projects in recent years. It is apparent I think to everyone, that the public sector alone can’t succeed and there is always a need for partnerships. But the IDZ not only works with business, but with our parastatal organisations, such as Transnet, and other government agencies.

“For example, we work as the implementing agent on a number of different projects for different government departments, including the construction of schools, roads, bridges.”

Six years on from that first investment, Inman has time to reflect on Coega IDZ’s achievements to date and the road ahead:

“Our main success has been the fact that, as the biggest IDZ in the country, we have successfully implemented infrastructure that has served business in such a short time period – a truly remarkable feat. However I think that we have also been hugely successful in attracting the levels of investment that we have, in the face of global economic meltdown.

“We should also not lose sight of the number of people trained over the years, who have been given skills to set them on the road to work. To date we have trained 25,586; not to mention every year we take approximately 120 young people and provide on-the-job training through our internship programme. We also offer a state-of-the-art driver training programme capacitating 500 people a year with a necessary skills for employability – thus stimulating economic growth. .”

Of the year ahead, Ayanda Vilakazi, Head of Marketing and Communication at CDC says there are a number of loose ends to tie-up to meet the end of the five-year plan targets, but Coega IDZ remains on course to succeed:

“Our objective is to meet our goal for job creation and we are aiming to have 100 businesses up and running by 2013/14. We also want to achieve a 50 per cent budget spend with small suppliers and have 50,000 people trained for future work. We can then plan the next five years of development.”