ATC150508: Report of the Portfolio Committee on Economic on its Oversight visits to the Cape Town Film Studios, Hisense South Africa, Kalagadi Manganese, Noble Resources and Middelburg Ferrochrome (Pty) Ltd – (24 – 26 November 2014), dated 17 March 2015

Economic Development

REPORT OF THE PORTFOLIO COMMITTEE ON ECONOMIC ON ITS OVERSIGHT VISITS TO THE CAPE TOWN FILM STUDIOS, HISENSE SOUTH AFRICA, KALAGADI MANGANESE, NOBLE RESOURCES AND MIDDELBURG FERROCHROME (PTY) LTD – (24 – 26 NOVEMBER 2014), DATED 17 MARCH 2015
 

            INTRODUCTION

1.         On 24-26 November 2014 , the Portfolio Committee on Economic Development  (the Committee) undertook oversight visits to the Cape Town Film Studios, Hisense South Africa (Western Cape); Kalagadi Manganese (Northern Cape); Noble Resources and Middelburg Ferrochrome (Pty) Ltd (Mpumalanga).  

 

2.         This report comprises of the brief profiles of each of the projects/establishments visited (Parts A-E), as well as the Committee’s findings and recommendations (Part F).

 

3.         The visits comprised of orientation briefings by the various management at the places that were visited, tours of the facilities, formal interactions with the management teams and stakeholders, and committee de-briefing sessions.

 

4.         Over and above executing its oversight mandate, the Committee saw the visits as an opportunity to further induct its members, the majority of whom are new to the portfolio, to the functioning of the economic projects, both state-funded and private.  

 

5.         The five (5) projects that were visited were either funded directly by government, or were supported through various forms of concessions. The goals of the oversight were to ensure that government policy interventions are effective and that the objectives of the projects are met.

 

 

POLICY CONTEXT  

 

Over the last 7 years, since the adoption of the National Industrial Policy Framework (NIPF) in 2007, South Africa has actively supported or intervened in strategic sectors to encourage manufacturing and re-industrialization of the productive sectors.  The NIPF has been implemented in various Industrial Policy Action Plans (IPAP); the last iteration being IPAP 6 of May 2014.

 

The IPAP is informed by the 2011 National Development Plan (NDP) and the 2010 New Growth Path (NGP). The NDP provides a very broad vision of the type of development through sustained economic growth for South Africa to achieve in 30 years. The NGP presents a programmatic approach to development with a particular focus on employment creation and growth. IPAP, therefore, is a growth tool that seeks to facilitate employment creation, diversify South Africa’s exports from raw material to value added or finished products, and further address the question of the historically marginalized by increasing their participation in the economy.

 

Consequently, the role of the government through support grants, various incentives and other concessions such as land and infrastructure are significant in the success of the projects under oversight. Government intervention in the five (5) projects sought to increase competitiveness, encourage beneficiation (extending upstream and downstream value chains), facilitate infrastructure development (addressing the national backlog through private/public partnership), enable local procurement and suppliers, and for regional economic development.

 

PART A:           CAPE TOWN FILM STUDIOS  

The Cape Town Film Studios is a joint-venture private company, the first of its size and style in Africa. Given its strategic nature in the sector/industry, the national (the Department of Trade and Industry (DTI)), provincial (Western Cape government via Wesgro) and local government support the company through production incentives and other support programmes. It meets the statutory requirements in terms of BBBEE compliance, employment and other requirements.

 

The company has positioned itself not only as studio facilities, but provides all necessary facilities – including casting etc. that are required in the media, film and entertainment industry. These are all provided in-house.

 

The company further acts as an agent by facilitating support options from national government, the Industrial Development Corporation (IDC), the National Film and Video Foundation (NFVF), and the Department of Trade and Industry  aimed at ensuring that film production through these facilities are commercially viable and a success.

 

PART B: HISENSE SOUTH AFRICA

 

Hisense is a Chinese multinational corporate investment in Atlantis which is crucial for the regeneration of the manufacturing town and for employment. Atlantis was a large player in the clothing and textile sector but got hit by the liberalization of the sector post 1998 and the dominance of the Chinese manufacturing.

 

The Hisense investment is about R350milion with current employment of about 350 people. The investment received about R30 million from the manufacturing investment programme (MIP), specifically the foreign incentive grant (FIG), administered by the dti. MIP essentially aims at stimulating investment and growth in the manufacturing sector through government providing a reimbursable cash grant of up to 30% of investment costs such as machinery, equipment, and land.

 

PART  C:          KALAGADI MANGANESE

 

Kalagadi Manganese is a mining enterprise with shareholding from ArcelorMittal, Kalahari Resources and the Industrial Development Corporation . Of significance about the mine is that it was founded by black African women entrepreneurs in 2001.

 

In 2005 a new order prospecting license for manganese was granted in the Kalahari Manganese Field. The license covers an area of approximately 6300 hectares spanning three farms which are located approximately north-west of Hotazel, in the manganese-rich area of the Northern Cape Province.

 

 Kalagadi has set-up what is considered the world’s largest manganese sinter plant. What differentiates this mining enterprise is the commitment to beneficiate the mined ore from 36% (mining grade) to 78% after smelter. The first two phases of value addition takes place in Kalagadi in the Northern Cape, and the last phase before export (smelter) of the manganese will be done in COEGA in a yet to be constructed smelter plant the Eastern Cape. The size of this investment, and impact, straddles the two provinces.

 

Notable achievements of the company include the selling of the 50 percent stake to ArcelorMittal during 2008, where an investment of US$433 million was made and also contributed to the country’s foreign direct investment pool. The shareholders have funded the project to the amount of R3.8 billion to date compared to the project budget of R6.8 billion for the mine and sinter plant in the Northern Cape. A facility of EUR150 million was also concluded with the African Development Bank.

 

PART D:           MIDDELBURG FERROCHROME (MIDDELBURG STEEL REHABILITATION PROJECT)

 

Middelburg Steel Rehabilitation Project emanated from the Columbus Joint venture. The Columbus Joint Venture was a partnership between IDC, Samancor Limited and Highveld Steel. The company was officially opened in 1996 by former president Nelson Mandela. At the time the company was the largest stainless steel plant in the world. The plant held the greatest potential for value addition opportunities from its products (stainless steel). At launch in 1996, the dti believed that it had a possible employment creation potential of 100 000 jobs in 10years - 2006. These not only included direct jobs in the plant, but indirect jobs from value-addition of the product, maintenance and general services offered to the plant including environmental issues. The rehabilitation includes the responsibility for managing a hazardous waste site in Middelburg, Mpumalanga. According to the IDC, the total expenditure for the past year amounted to R1.14 million.

 

PART E: NOBLE RESOURCES

 

Noble Resources is part of a broader multinational, strategically positioned in its value-chain. It is a R650 million soya crushing plant located in Standerton currently processing 1350 tons of soya per day (90% of capacity). It employs 120 direct jobs and provides indirect employment of 2000 to 3000 farming and trucking jobs.

 

 

 

PART F:           FINDINGS AND RECOMMENDATIONS

 

  1. Cape Town Film Studios

 

The Committee made the following findings:

 

  1. Cape Town Film Studios is a private commercial entity whose primary motive is to provide movie making facilities to make profitable movies in South Africa;
  2. Local content / local movies ought to be commercially viable with the necessary resourcing to be produced in these studios; and
  3. The ‘film tourism’ potential that the Film Studios present has not been fully explored and exploited.

 

Recommendations:

 

  1. As the biggest film studios in Africa, it has other positive ‘spin-offs’ benefits such as film tourism that ought to be explored. The Economic Development Department (EDD), in collaboration with the Department of Tourism, should investigate the other economic benefits that can be derived from the set-up;
  2. The EDD, together with the Department of Trade and Industry (the dti) and the Department of Arts and Culture, should explore viable (such a rebates or subsidies for local productions) to increase local stories and commissioning local content in productions taking place in the studios; and
  3. The establishment is indeed a good advertisement for the country and its film industry. The idea should be replicated and spread to other parts of the country and infrastructure for this built.

 

 

  1. Hisense South Africa – Atlantis operation

 

The Committee made the following findings:

 

From an economic and investment perspective;

 

  1. Hisense is not new in the South African and African markets, having operated in Johannesburg before moving to Atlantis;
  2. There is an expressed willingness to increase production; a commitment to establish a significant local and African market share of the television and refrigeration industry;
  3. Difficulties have been experienced in penetrating some Southern African Development Community  (SADC) markets, Angola mainly, largely due to cross-border processes and requirements, essentially non-tariff barriers (NTBs);
  4. Local content on the refrigeration production is very high (at 80%), whereas there is negligible to no local content on the television side of production;
  5. The expansion ambitions of Hisense bode well for the revival of the Atlantis industrial area and economy;

 

From a social and labour perspective;

 

  1. The Committee noted some unconducive working conditions – no safety clothing, proper ventilation, and inaccessible emergency first aid necessities. However a Health and Safety official had been appointed at the time of visit.
  2. Signage in the factory is in the English and Chinese languages whereas the factory is located and staffed by predominantly Afrikaans speaking staff. 
  3. The Committee noted the positive report on active corporate social responsibilities such as the sponsorships of schools, collaborations with Further Education and Training (FET) colleges, and providing internship opportunities for young people and other social interventions in the surrounding communities with high drug and crime related abuses.

 

Recommendations:

 

  1. An immediate and urgent intervention is required from the Department of Labour and other relevant institutions to ensure that the issues of health and safety in line with the Occupational Health and Safety Act of 1993 are adhered to;
  2. The Department of Trade and Industry, in its Africa regional multilateral forum (SADC) engagements and through export promotion programmes, must assist the Hisense deal with the Angolan NTBs.
  3. The EDD, together with the dti, should assist Hisense in increasing the local content in the television production side, in line with national local content / localization policies;
  4. Hisense is managed by a local ‘plant’ manager reporting directly to the company’s headquarters in China.  The Department should look into the governance of the production company. The turn-around in decision making, especially where it relates to employee welfare including health and safety, may be constrained by the current management structure; and
  5. The Committee will undertake a follow-up visit to the plant in future to engage the management further on, amongst other things, its labour recruitment practices and remuneration strategies.

 

 

  1. Kalagadi Manganese

 

The Committee made the following findings:

 

  1. The new mine seemed committed to value addition (beneficiation) of the ore mined in the area;
  2. Important social infrastructure investments such as roads, housing and schools in the area have been made;
  3. The project is run and managed by a team of largely young black African professionals, a commendable feat in the national quest to transform the country’s key industries;  
  4. Although operations are expected to begin by the end of 2015, some value addition of manganese was already taking place with raw manganese sourced from neighbouring mines. The purpose is to test the market and also establish some market share;
  5. The African Development Bank has extended credit to Kgalagadi to complete the capital investment and begin production; and
  6. Equity for the next phase (the smelter) has not yet been raised. The Coega Development Corporation has acknowledged and considers the smelter one of two very crucial projects to unlock major job creation in the area.

 

 

Recommendations:

 

  1. The Committee will conduct a follow-up oversight to the mine before the end of the financial year 2016/17.
  2. State support, in the form of assistance in raising the finance for the next phase of the smelter should be facilitated and led by the EDD. The smelter meets the policy priorities of government to ensure value addition and beneficiation of the country’s mineral resources. Therefore, to ensure the implementation of this phase of the Kalagadi project, as it relates to funding/capital, the Department should lead in capital raising via:

 

  1. Exploring a partnership between the State Mining Company and Kalagadi in the construction of the smelter in COEGA – this ensures that while the state would have invested in the project, there is a secured return of investment or ownership of assets; and
  2. Explore the creation of a special purpose vehicle between Kalagadi and the COEGA. The effect would be the same as in the point made above (1).

 

  1. The Committee is of the view that this is one of the best projects of its kind, and one from which similar investment projects can and should learn. Further support must be afforded to the project to ensure its ultimate desired success.
  2. The Committee will also invite the  EDD and IDC to brief the committee on their future plans for Kalagadi (This flows from the need to raise funds for the smelter)

 

 

  1. Middelburg Ferrochrome (Steel Rehabilitation Project)

 

  1. The visit highlighted a miscommunication between the Economic Department’s reporting on the project (including the IDC’s Annual Report), and what obtains on site. The rehabilitation project is not the major activity of the company. Whilst there is a long-term positive environmental effect, the investment on the rehabilitation project has no obvious immediate employment and economic benefit; and
  2. The Committee decided that there is need for further engagement between the EDD and IDC with the Committee so the latter can be properly appraised of the rationale behind such an investment. 

 

 

  1. Noble Resources

 

  1. The Committee notes that the investment is relatively new with full production effectively starting in early 2014. The absence of the company’s executives limited the interaction between the Committee and the decision makers in the company; and
  2. The Committee decided that the local / provincial department of economic development should produce a comprehensive report on governments’ involvement – concessionary or financial exposure - in the investment. The report is due by the first quarter of 2015.

 

 

CONCLUSION

The Committee intends undertaking visits to more projects championed with the assistance of government in the near future.

 

The Committee requests that the Minister of Economic Development (the Minister), where applicable, ensures that the recommendations made herein are considered and due consideration is given to their implementation. The Minister should further ensure that responses on recommendations’ feasibility and/or implementation are submitted to Parliament, within one month of the adoption of the report by the National Assembly (NA).

 

 

Report to be considered.

 

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