South Africa’s economy and businesses are beginning to count their losses from the devastating drought that has wreaked havoc throughout the country.
Economists have warned that the drought will push food inflation higher as farmers scale down production to avoid taking risks on the uncertain weather conditions. This, they said, could ultimately feed into consumer inflation and higher interest rates.
Azar Jammine, an economist at Econometrix, said the drought would cut down agricultural production and curtail overall economic growth by at least 1 percent.
Jammine said that, because of the currency’s recent slide, farmers would struggle to contain input costs. This would result in more exports sought to feed livestock.
“For a country that has been able to sustain its own supply to meet its domestic demand, it now needs to turn to imports. This would put downward pressure on the balance of trade,” Jammine said.
“It is not only the consumers who are going to feel the pressure, but the general economy, too, because people will not be able to participate actively in normal economic activity.”
This week reports emerged that crop farming in the North West and Free State provinces had all but come to a halt, with farmers planting less than 10 percent, while in Mpumalanga, planting was at less than 40 percent.
Agri SA executive director Omri van Zyl said the situation was being made worse by the fact that the planting season was already six weeks behind because of the drought.
Van Zyl said the real impact would be felt during the harvesting season, when production would be much lower than expected if the drought continued.
“There is too much uncertainty in the industry, so most farmers do not want to take a risk and end up having to carry huge costs as a result,” Van Zyl said. “The moisture in the soil is just too low for any productive farming to take place.”
The SA Chamber of Commerce and Industry (Sacci) said it planned to lobby the government for lenience from financial institutions.
Sacci chief executive Alan Mukoki said the organisation was concerned about the effects of the drought on the overall industry in South Africa.
“We feel for our members. We will urge banks to take it easy on them in terms of debt servicing. A lot of people are insured, but you cannot be insured for the long term,” Mukoki said, adding that the drought was a threat to economic growth and inflation, and would probably add to unemployment.
The Red Meat Producers Organisation said most of its members were selling livestock at below-market prices to avoid the fatalities that had left many of their stock dying of dehydration.
The organisation’s chief executive, Gerhard Schutte, said that in KwaZulu-Natal alone, more than 40 000 cattle had perished from dehydration. “If you consider that in a good season, we sell cattle at an average price of R6 500 each, then you will see that we are losing millions of rand, and that’s in one province only.
“We are collecting information from other provinces, but I am afraid the figure could go well into the billions.”
Yesterday, organised agriculture held an emergency meeting with the country’s big commercial banks to discuss the effect of the rapidly deteriorating drought situation on the broader agricultural sector and food security in particular.
The meeting agreed to set up a task team of all the major stakeholders in the industry, including Agri SA, the Industrial Development Corporation and the Department of Agriculture, Forestry and Fisheries to draft action plans that would assist in mitigating the indicated risks that this serious drought posed.
Van Zyl said the plans would also include engaging the government to ensure food security and the sustainability of the industry.
“Good rainfall in the summer rainfall region of South Africa over the next months is possible and can still break the drought cycle and ensure relief for crop and livestock farmers especially,” Van Zyl said.
“However, scenarios are increasingly pointing to a situation where significant imports of maize, as a staple food crop, will become necessary, as well as the provision of fodder for breeding herds of livestock to be maintained.”
Christo Conradie, VinPro’s manager, said although it was still too early to quantify the real effects of the drought, the wine industry was expecting a smaller harvest this season.
“This might have a negative effect on producers’ financial bottom line,” Conradie said.
“The nature of the wine industry (as opposed to other agricultural commodities), is also as such that there is not necessary a direct correlation between supply and demand and consumer prices moving upwards or downward.”
It’s all systems go for the implementation of agri-parks in the North West province.
This after the recentvisit by Rural Development and Land Reform Minister Gugile Nkwinti and the North West MEC for Rural Environmental and Agricultural Development, Manketsi Tlhape, to the agri-park at Springbokpan.
The visit was to assess the state of readiness of the Springbokpan silos. The Silo is being refurbished as part of the establishment of agri-parks in the province.
Three agri-parks have been identified for the North West province which are Springbokpan, Moretele and Vryburg.
Economically viable sites in all 27 priority districts have been identified across the country for the construction of agri-parks and R2 billion has been made available for the agri-park initiative, of which 1% will go into capacity building especially in municipalities.
The establishment of the agri-parks follows a pronouncement by President Jacob Zuma in his State of the Nation address earlier this year when he committed government to promoting agri-parks and transforming rural economies.
Springbokpan agri-parks will consist of Milling (starch and animal), mechanization warehouse, input warehouse as well as Foodbank.
In its essence, the creation of agri-parks will assist the province with amongst others, to contribute to its earmarked 6% economic growth with the Department of Rural Environmental and Agricultural Development being one of the leaders.
It is also meant to ensure job creation, generate revenue as well as to empower women and youth. It is envisaged to attract investment in both domestic and international fund markets and ensure food security in rural households and revival of food gardens in rural areas.
The agri-parks will also implement sub sector operator model to enforce clustering and processing thereby creating market access.
Elaborating on the agri-park concept, MEC Tlhape said the initiative is meant to support farmers.
She said it is important for farmers to be hands-on on the initiative.
The MEC said the farmers have the task of producing what would be in the Silos.
MEC Tlhape said government is still to decide on the percentage that farmers are to contribute to the silos.
“It is therefore up to the farmers to ensure that the agri-parks concept lives,” she said.
Minister Nkwinti spoke eagerly on this national government initiative, adding that the concept is ready for implementation and should therefore go ahead.
The Minister also echoed MEC Tlhape’s sentiments that farmers should be part of the initiative.
He emphasised the need for communities in the North West to ensure that every land is productive.
“If we have a productive land then our Silos would fulfil their purpose,” he said.
The Minister also announced government’s plan for the producers to own 70% of the agri-parks. The remaining 30% will be for government and other contributors.
Minister Nkwinti reiterated that it was important for government to look into the existing infrastructure hence the refurbishment at Springbokpan.
Morule, one of the Ngaka Modiri Molema District farmers, was excited about the agri-park initiative and urged other farmers to embrace it.
He said he was happy that government was now leading them in a way they had always wanted. He said the resuscitation of the silos was long overdue.
With the progress made on the Springbokpan agri-park, Minister Nkwinti was confident that the national launch led by President Jacob Zuma would be hosted by the North West province.
North West Premier Supra Mahumapelo on Saturday announced a R9 million cash injection to develop water infrastructure in Majakaneng.
He said a contractor was already on site and would work together with Magalies Water, Sedibeng Water, the Department of Water and Sanitation, the Madibeng Local Municipality and Bapo-ba-Mogale Tribal Authority to ensure that water is restored by the end of next week.
The Premier was speaking at a meeting with the residents of Majakaneng to discuss feasible solutions to the service delivery challenges which led to a week-long protest by the community. Residents barricaded the N4 between Rustenburg and Pretoria and prevented learners from attending school.
He pleaded with the community to cooperate with the appointed contractor, saying the provision of water in the area will be done in phases. The second phase will be implemented through the R9 million that has been set aside.
The Premier was accompanied by the MEC for Local Government and Human Settlements, the Mayors of Bojanala Platinum District and Madibeng Local Municipality, as well as the Chief Executive Officer of Bapo-ba-Mogale Tribal Authority.
Responding to some of the service delivery challenges raised by the community, the Premier announced immediate interventions, which he said were earmarked for Majakaneng only.
He said the Bojanala Platinum District Municipality will lead a process to make relevant resources available for the access roads project to commence. Due to commence on 10 February 2015, this project will prioritise roads leading to service delivery sites such as schools and health facilities.
He urged members of the community who needed houses to register their names with the Department of Local Government and Human Settlements to determine the housing development needs of Majakaneng. This would inform a housing project which is to be initiated.
Premier Mahumapelo urged the community to work together with the provincial government and ensure that peace and stability prevail in the area.
“We must remain united as a society, and focus our energies towards reconciling and renewing our province. We assure you of our firm commitment to ensuring that basic services are delivered as planned, and that constant engagements with you on these issues are not taken for granted,” the Premier told the community.
Premier Mahumapelo said more meetings will be held in future to further engage the residents about progress made and plans for the future.
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United World had the pleasure of catching up with the CEO of North West Development Corporation to discuss advancements in the business environment in North West and the province’s plan to industrialise and attract key investors to the province.
There is a lot of regional competition in South Africa and Africa in general to attract investors. What are the sectors that are flourishing here in North West and can you tell us about the opportunities in those sectors?
The biggest sector in the North West province is mining, it occupies a large percentage of the GDP input and is followed by agriculture, tourism and manufacturing to a certain degree and the services industry broadly speaking.
Now, in mining, as far as we are concerned, we are leading as a province but we don’t think we are competitive enough as long as we are still exporting primary goods. We want to move a little bit further to get into the beneficiation of the minerals that we have. If you look at countries like America and other developed countries, we would want to work with these kinds of companies, given their level of development as far as technology is concerned. Beneficiation would require more technology and skill, which are the things we are still lacking in the province, so we need to build the skills base and the utilization of advanced technology to make sure we are competitive as a province.
I must indicate that the Premier’s view is that we must focus on agriculture, culture and tourism. For obvious reasons, as far as tourism is concerned, we have been, as a province, a leading attraction given golf course destinations such as Sun City and the Lost City. It has been one of the most attractive destinations for a number of years. We will be hosting the Nedbank Golf Challenge with a number of key players in the world, both from the US PGA and the European PGA attending. So, most of the people come around this time for that but, generally, Asian markets dominate the visits to Sun City and recently we have been attracting more visitors from Africa.
But beyond that, North West is amongst the leading provinces when it comes to game or safari, as people say; if you want safari you will find it in the North West province. We are second or third to Kruger National Park, we have Pilanesberg, we have the Madikwe Game Resort, but we are developing more and more tourism for that. Also, the world yacht competition is held in the North West Province in an area called Bloemhof Dam. Every year we have the world competition coming down to our shores.
On the cultural side the idea is to develop what we want to call cultural tourism, to make sure there are cultural products that people can learn more about. When I was growing up the most famous film from Africa was one called The Gods must be crazy. If you watch that film all that you see is the African that is still wearing skins and a really bad stereotype of Africa. It is not our worry that we are showing the international community we are still wearing skins, what is key is the exposure that we are making to the international community about what our heritage is, the cultural heritage of South Africa.
Remember, the pride of South Africa is this diversified culture of Africans and Afrikaners and so on. So you will find a diversity of cultural orientation in South Africa, and North West is a host of a number of these cultures, you will find them in terms of different activities that are happening and this is what we want to promote.
On the agricultural side, we are predominately a rural economy. What I mean by rural economy is that you have vast arable lands that are not utilized the way they are supposed to. Of course, we still have challenges of rain here and there but given the new technologies to bring about irrigation systems and so on we believe that land can be better utilized in our province. We are the leading producers of maize, we are the leading producers of sunflowers and there are quite a number of other fruits that you can find in the North West province. We simply want to enhance this capacity.
But this challenge of vast land is also an opportunity, because gradually there are a lot of economic development activities that are happening, in Johannesburg, for instance, and which will probably expand to other places, but in this province we want to be the home for food security, we want to secure food for people, we want to bring back the importance of agriculture so far as production is concerned.
So these are the key issues you will find in the North West as far as the economy is concerned. We still boast that we have a university with two campuses and is ranked amongst the top five in the country. So we think that there could be a good relationship between the university and the economic activities to make sure that we increase our skills base.
One of the first considerations of an enterprise thinking of coming into South Africa is not only the cost of doing business but also the business environment and infrastructure they are going to find here. How would you rate the infrastructure in the North West?
Comparatively speaking we are up there with the best, but we still have some difficulties. For instance, with regard to roads; the roads in the North West province have deteriorated due to the heavy rains we have experienced and the replacement, resealing and maintenance of roads has been slow. Of course, among other things, it is due to the limited resources we have. We have not as yet had high demand for electricity, for instance, the supply that we have in the North West province we consider to be adequate, for example, when there have been electricity shortages in the country we have never faced outages but by and large we are able to resolve our electricity problems.
We still have challenges in the case of water supply, there are certain parts of the North West where we don’t have adequate water. We are currently working on key economic infrastructure premises, for instance, industrial parks. The special economic zone is one of those but we are trying to establish as many industrial parks as possible. Currently we have premises that we lease out to small and medium firms and as far as costs are concerned we consider ourselves to be the lowest given where we are. And we can still provide more particularly, as the development corporation responsible for the allocation of factory space.
We have an airport at Mafikeng that was supposed to be highly functional by now, but there have been challenges in the past given the demand from the passengers. But we are currently working on this airport to become a cargo airport from where we are going to export.
One of the key issues you deal with here is bringing foreign investment into the North West. Can you tell us a little bit more about the services that your corporation can offer investors?
The first key element is that we as the corporation are promoting the entry model of joint ventures. It becomes easy, for instance, for companies from the outside to work together with companies that are already in South Africa, and such kinds of partnerships are key because you already exploit the experience of local companies, the knowledge of the terrain and the competition in the country. So we think it would be easier for international companies to come through joint ventures and we do facilitate that as a corporation.
If anybody comes and says they are starting from scratch we are going to be very excited. There are generic incentives that you get in South Africa provided by the department of trade and industry, including tax tariffs and so on. In the province, what we ensure is that if there were companies that need startup capital, for instance, or need local people to make a contribution, it becomes our role to make sure that we facilitate the process through our national industrial development corporation for people to be able to access equity funds or funds that are going to contribute to that.
We engage local municipalities, for instance, to make sure that rates and taxes for international companies are competitive. We had a few companies for which we have approached the municipality to negotiate rates and so the taxes are going to be affordable for those companies. And we also provide factory space, but if a company needs land to start we have a good relationship with our local traditional leaders here, in whose hands you will find most of the land, and we negotiate and facilitate the process for them to make land available.
These are the key attractive elements we provide as a province but we really utilize the national incentive schemes that are available.
Can you think of any examples of companies that have come here to invest?
In the main there are companies in the mining sector. Currently we have companies in the automotive sector that are supplying the OEMs, like Nissan, Volkswagen, Bosch and the Malaysian company, Pasdec. These are the companies that have been granted licenses to provide OEMs and they have been in the business for quite some time. We are working on creating a support center for them so that they are able to secure whatever assistance they need, in case of economic hardships they are able to access funding for companies in distress. We are also helping them with challenges like electricity and water in the area where they are operating. In the retail sector we also have some companies. We have a company, Choppies, from Botswana.
The economic development zone is a key project, how far advanced is it and what kind of availability is there?
We now have 147 hectares of land available with infrastructure, water and electricity already available. We have combined this zone with a factory space, which is about 47 hectares of land. These are factories that are already available for anybody who wants to start manufacturing. We have started now marketing the zone, on the 26th of this month we will be in Japan and on the 27th some Canadian companies will be arriving and we will talk to them about investment. There is a key company that has already showed interest, just like Fuji, which is a Chinese company. There is also a German company that has shown interest in manufacturing mining equipment in the area.
The zone is going to be dual in nature: heavy manufacturing as far as fuel cells are concerned, but on the other hand there will be mining suppliers. The zone is sitting within a radius of 18 kilometers in a reachable distance of about 4 mines that are leading producers, and that is why we are situated there. It is almost within a reachable distance to Pretoria and about 200 kilometers to O. R. Tambo International Airport.
Our view is that any company that is ready now, we will be ready to accept them. The DTI has worked out special incentives for economic zones that are different from the generic incentives in the rest of the country, especially incentives for the zones to be issued in due course by the Department of Trade and Industry. So we are ready to move, we have a project executive structure in place that can begin discussions with whoever. For instance, one of the leading companies that are helping us is Anglo American; in fact they spearheaded the installment of a project were fuel cells were used as energy supply for a village. And we are working on piloting another village in the North West province where we are going to demonstrate that fuel cells can actually become alternative sources of energy.
So the special economic zone project is going to move with momentum and immediately take off. Hopefully after our international marketing trips we will have secured a few of those people that will be interested to come and manufacture here different types of products that use fuel cells, be they portable or highly mechanized programs. And we will be happy to host them.
When you do talk to international investors what are the common misperceptions about Africa?
Often there are questions about labor issues. There are companies that believe the South African labor market is rigid and that the rigidity of the market is such that it poses high risks for them to be able to operate. Our answer all along has been that the issue of conflict in the economy between labor and market is not unique to South Africa, in fact, this conflict between employer and employees goes way back. What we see in South Africa is just a situation where the desire to strike a balance between making profits and sharing in the profit has not reached levels where the workers who are the contributors of profit, and the owners as contributors of capital, are reaching an equitable share.
The good thing is that this whole discussion is not happening outside the framework of government. The South African government has provided bargaining councils, it has provided a platform where workers and owners are able to negotiate issues of salaries. The concern is when sometimes these discussions get out of hand and there is violence and people abuse the system that has been put in place to ensure that these issues of salaries must be quickly resolved without having to cost the economy or costing businesses to lose money. So such platforms are within the framework of the South African government’s policies, so there is nothing unique about it as far as we are concerned.
Secondly, you come across people talking about crime and you come across certain reports that appear in the media and on TV and so on and our response is, as it would be in Mexico or elsewhere: we are a country that is not immune to having individuals with criminal minds. Criminal minds are all over the world, in South Africa you still find people who believe they can make a living through criminal activity. Of course on our side, we get solace from the fact that the type of police system we have put in place is supposed to help us make sure we bring the level of crime down. Recent statistics have shown that we were able to deal with violent crimes and it has also shown that crimes such as murder have gone down. So as much as it is a concern of investors, all we are saying is you can still find this elsewhere, but find comfort in the fact that we don’t leave it to be. I believe as a country we still have the most effective judicial system that is able to make sure that whoever is offended in the country finds justice.
Recently we have been seeing public reports from rating companies, the most notorious one is Moody’s that continuously rates South Africa down and down. So I started trying to look deeper and find why we are rated in this way, and one of the things I discovered is that we are rated against developed countries, so if we are rated against the United States or the United Kingdom we are obviously going to come out at the bottom. But if we were rated with other developing countries we believe we would be somewhere at the top. But South Africa doesn’t take these ratings for granted; they are an important indicator that shows certain things we must deal with.
We see much enthusiasm and excitement from those who happen to understand South Africa for the first time, when we introduce them and they would want to know more, they would want to come. Given the trend of the global economy now, Africa is beginning to become the promising economy and people want to exploit the advantages and they want to come first. And, as South Africa, we provide that base. If any country wants to register their brand now, let them come now, let the people get used to that brand, because when more and more people start coming down to Africa at that time they will be those that have already occupied the center stage and will be more competitive than the newcomers. So we are getting more and more interest coming forward.
If you were to describe the North West as a brand, what would be the characteristics you would associate the North West brand with?
We always say we are a trade and tourism destination. The people in the North West province are still conservative in terms of taste movement. If you go to Johannesburg or any other developed metropolitan area you will find that your product wouldn’t last for three days because there would be more products coming in, so the taste movement is very frequent, but in North West if you have established yourself, you have established yourself.
The province is not necessarily crime free but compared to other areas we still feel we have low levels of crime. And there is very good quality of life. You have heritage and a very rich culture. There is still a lot of open space and fresh air.
On a personal level what motivates you and drives you to work towards attracting investment for the province?
We have about 3.5 million people in the North West province. We have high levels of unemployment and a desire to develop young people, in terms of them going to school but at the same time to start making a living at early ages. Broadly speaking, development is the key and I measure development in three ways: there must be good life, people must have longer life expectancy and people must have good health to achieve that; and for them to be able to have income generating activities the literacy level must go up. These issues are the ones that makes you wake up early in the morning and come to work and say to investors: “Come down to the North West, because with you being here people are going to enjoy the benefit of trade.
And benefit of trade does not only come in money and returns, it also comes in terms of technology transfer and in terms of developing infrastructure. And once you have improving capital formation in the country, for me, I see the potential for savings to increase. Now, North West is limited in terms of this, but it will become a future hub: after London has saturated, after Moscow has saturated, Tokyo, Beijing, Johannesburg, where else do you go? North West is supposed the next destination for you to build cities, to bring about more industrial development and so on and so forth. When all of this happens I think our cost of developing people will be met.
Source: The World Folio