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Interview

with Siphiwe Ngwenya, Acting Chief Executive Officer, Gauteng Economic Development Agency (GEDA)

30.01.2012 / Energyboardroom

When Focus Reports met your predecessor Keith Khosa back in 2006, he already briefed the readers on how the Gauteng region had developed from a mining-based economy into a much more diversified economy, an economic powerhouse for South Africa as a whole and even the 4th largest economy within the African continent. Five years down the line, how has this prestigious economic status of the Province evolved?

Gauteng still remains the most important province in South Africa through its contribution to the GDP, which now amounts to 33%. We still contribute over 25% of the GDP of the SADEC region and have remained a powerhouse in terms of manufacturing industries in Southern Africa. We have a high concentration of companies’ headquarters and remain a powerhouse for the financial services sector too. Recently, we have witnessed insurance companies from the Western Cape relocating to Gauteng, which is consolidating the financial services sector in the Province.

Gauteng is growing by diversifying into smart industries as it is our role to be a tertiary economy-driven province. Primary industries in mining and agriculture are not our strengths for example, as we have moved up into areas such as agro-processing instead. To that effect, we have worked closely with the City of Tshwane.

With regards to the mining sector, we have increased our role in terms of mineral beneficiation. An Industrial Development Zone (IDZ) has been set up in the airport to put up a jewellery manufacturing precinct, particularly around precious metals, to ensure better value added around materials such as diamond, gold and platinum.

In the context of manufacturing, we are also trying to have an Africa-focused program. Within this program, we target various African countries that produce minerals that are related to manufacturing, such as Lithium, in order to use them in our manufacturing processes. We sign bilateral agreements with other African States to assist in the exploration as well the extraction phase and add the value here in South Africa. After this value has been added, we try to make sure that these materials can be used in manufacturing before they are exported elsewhere. These bilateral agreements have resulted in a redefined way of CSI community investments. While we develop the mines and extract the minerals, we also look at the needs of that country in terms of how our manufacturing gains will benefit that particular community.
We have a high concentration of higher learning institutions in South Africa compared to most other African states. Many of these countries nonetheless look into how to improve their Human Development Index. For this, we assist in the training of various African students, to prevent them from migrating to Europe and other places. We rather train them in order to return to their respective countries and work within the sectors that fit within these bilateral agreements.

South Africa is a country that produces neither oil nor gas, even though studies on the latter are being done in the Western Cape. The biggest consumer of energy in the country, however, is the Gauteng Province because of its high concentration of manufacturing industries. Because of the growth in the automotive sector, focused around BMW, Ford and Nissan, we have high energy needs. The steel industry is also located in the region, which further requires significant energy.

The energy need stimulates us to find ways to source gas as a form of clean energy to support the reduction of carbon emissions. We drive the green energy agenda, while we also need to source oil at the same time. Today alone, we have over 10 million vehicles in Gauteng, which also makes us the biggest consumer of fuel. This is why the pipeline from Durban to Johannesburg is required. Within this context, we are also entering into discussion with Transnet, for them to consider using their old pipelines for gas too. We are also looking into different municipalities to drive gas as an alternative energy for housewarming and cooking.

As Eskom plans to build new power stations, the company had to take a loan from the World Bank. This loan has 2 conditions, one being that the company would also develop green energy. In second instance, this has resulted in higher prices for the consumers which, in turn, is going to affect manufacturing too. For Gauteng it will thus remain essential to keep energy production moving because of this high energy need in the province.
In a nutshell, Gauteng has no alternative but to grow, and to grow faster. On this growth path, the Province needs to look at different growth sectors which will not lie in the primary industries. Based on the comparative regions of Gauteng, we have also developed different nodes.
To this end, we are coming up with a Smart City of ICT concept, where we would like to profile ourselves as the backyard of Business Process Outsourcing (BPO) internationally. For this, we will be using the infrastructure that was put in place during the World Cup. This requires that we increase our broadband connectivity in Gauteng, to make sure that from every corner of the province information can be transferred with speed. Therefore, we see the opportunity for such Smart City of ICT to host a number of data analysis centers. Meanwhile, more and more international companies set up their call centres here, which creates an opportunity to absorb some of our unemployment figures, which remain a key challenge for our economy. These figures are even expected to rise, as people from rural areas continue to migrate to our growing cosmopolitan area.

While we are South Africa’s smallest province geographically, we see enormous challenges in transport connectivity and ICT. Various smart industries require us to bring in different approaches of growth. This is also why we see Gauteng as the Gateway of Africa, because we will both rely on growing our industries in Africa as well as the imports of raw materials into South Africa and Gauteng in particular.

Smart Access for Business in Africa is indeed the GEDA motto. Many of the recent investment decisions around E&P developments along the Sub-Saharan coasts and within South Africa go through Gauteng. How do you see the importance for Gauteng as a “financial decision hub”, not only within South Africa but also to the region as a whole?

Many developments face bottlenecks because of two reasons: an inadequately organized business plan or lacking seed capital. With a number of financial institutions and banks based in Gauteng, we are capable to transact in any currency. Moreover, we are able to package deals in such a way that we can finance any infrastructure development in-house. The Gautrain has been a perfect example of a public-private partnership that represents such “packaged deal”. Many of these institutions have also become able to support companies to expand in the region. An example as such is NTM, a South African telecommunications company that has been able to roll out in several African states, most particularly in Nigeria. At the same time, this increases the need for South African technicians that we in turn are able to deploy within these African states.

The Euro-based financial companies still need to learn to understand the dynamics of the African society. They are overpowered by the financial institutions that are already established here and the latter have a clear advantage to finance various developments in the region. These developments, in turn, are determined by the agenda of institutions such as the African Union and SADEC. The South African Development Bank has also created business development models that look at various initiatives, before taking them into an incubation and testing phase. Government-owned institutions such as the South African Development Bank and the Industrial Development Corporation have an aggressive appetite in infrastructure. Their presence gives us an edge and boosts the role of Gauteng-based financial institutions to propel development in Africa.

GEDA itself has been around for more than 15 years. What will be the priorities in terms of economic development in the years to come?

Our priorities are focused around a number of sectors. The first is pharmaceuticals, whereas South Africa has received a hard hit by severe diseases such as malaria and HIV. The cost of medicine has been very high. With the various research institutions that exist in Gauteng, we should be able to move to a level where we start manufacturing Active Pharmaceutical Ingredients (APIs).

Secondly, we will increase our footprint in the BPO sector, in order to target new countries that we have not yet been able to address before. This will also require increased attention for the ICT side, in terms of broadband rollout activity. Our television network system is moving digital, which also poses a new opportunity to bring in new skills in terms of technology and technicians.

Third, we remain very concerned around the steel-manufacturing sector. Currently, there is a de facto monopoly which impacts us in terms of import-parity. We still buy steel at international market prices, because one of the biggest steel producers is now also owned by a company outside of South Africa.

We are also looking at food security as a fourth element, wherein agro-processing plays a key role. With a growing nation, we are required to process a certain amount of food for own consumption. This in turn also creates opportunities for retail chains to grow across the African continent, such as Pick ‘n Pay. Walmart’s investment in South Africa is also something we see happening. For us, the question is now how to support the local industries to become the suppliers of these sorts of investments. In this regard, we are looking into compiling an entire database of different suppliers.

Fifth, we aim to retain our space within the automotive industry as the world’s BMW 3 series manufacturers. Within this context, we have mobilized a number of SMMEs to position themselves as component suppliers to the industry. Such supply does not only relate to the manufacturing that takes place here in the country, but has encouraged us to look at supplying other countries in the world too.
Our textile industry has not been doing very well, which is why -in a sixth leg- we are looking at how to revive this sector. We aim to do so by partnering with other international fashion academies in the world. In this sense, we again not only aim to supply the Gauteng area or the African markets, but the international markets as a whole. Another example here has been cotton. We have looked into importing raw cotton from other African states, which is then to be processed and used in the industries in Gauteng.

Using the advantage that we are in positioned as a tertiary economy and service sector, we would like to expand our footprint to the African markets and beyond. Being a member of the BRICS club, we are now also studying our trade relations with Brazil, Russia and India. We would like to aggressively reverse the trade imbalances that we see here, and look at a number of other commodities for us to offer to these markets. Apart from increasing our supply of such commodities, it is also our priority to redefine the FDI that comes from these countries. Such FDI has to be of a sustainable nature, which implies more partnerships with South African companies and the development of local labor skills. Our resources should be used.

As a Province, we are also in discussion with our National Department of Trade and Industry to develop more provincial incentives for investors in Gauteng. To some extent we have developed Special Economic Zones (SEZs) and Industrial Development Zones (IDZs) that should be clearly targeted at specific non-domestic markets.

We further have the biggest international airport in Africa, which we aim to make more cargo-driven, in order to move what is being produced here while bringing in what South Africa needs in its economy. With this, we support the relocation of different cargo companies to our airport in order to develop the entire area as an aerotropolis, which exists of a city around the airport. The aim is for the industries around the airport to take advantage of the infrastructure to grow.

Gauteng has already been rather successful at attracting a particular number of companies, such as BP and Shell. At the same time, Gauteng remains home to the oil major Sasol, which is surely something the Province can be proud of. What can you tell the people of Tullow Oil or Chevron for example -which are not yet present here- on why they should move to Gauteng?

Our final message is that such companies should follow the smart management of the other oil and manufacturing companies. To be located in Gauteng is to be globally connected. As an oil-producing company in South Africa, you need to have a clear outlook on the continent. In order to really connect to the continent, we have all the facilities in place in Gauteng, including the skills, the space and other institutions that will back up such types of investments. We are moving into a space where we would like to see more headquarters of international companies to locate themselves in Gauteng to benefit from accessing the African markets from here. The supply in terms of inputs is readily available here, which reduces input costs and improves efficiency. In Gauteng, everyone understands the importance of speed. Here in Gauteng, we think that what is needed now, should be dealt with now. This, in turn, is based on the requirements of our industries.

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