Post-Covid Development Dilemmas: Reconciling Sustainable Development, South Africa’s Spiralling Debt, and Big Hopes for Special Economic Zones ( Part 2)

Reviewing the state of the economy as the country eases out of lockdown reveals the urgency of public debate on government’s development policies and levels of accountability in its sustainable development strategies.

Starting with the ongoing evils of Eskom, load-shedding in August. News of the SOE’s deepening structural weaknesses, including aging infrastructure, poor maintenance and unsustainable level of debt, is no laughing matter, especially when government starts mentioning using state pension funds to disappear the problem.

To make matters more painful for the South African taxpayer, is how much of the money Eskom has borrowed over the last decade has been inappropriately managed. The World Bank’s 2010 loan of US 3.05 billion for what was advertised to be the largest coal fired power station in the world, Medupi, could be regarded as odious debt.

Medupi is still incomplete 10 years later, and the state of its infrastructure and maintenance is appalling, as Eskom’s Operating manager Jan Oberholzer, self-confesses.

In February 2020, ESKOM CEO Andre de Ruyter confirmed a rumoured critical design flaw in both Medupi and Kusile, the two power stations lauded to end South Africa’s electricity problems. De Ruyter revealed that the boilers had design flaws. Business Day reported on the return of Medupi and Kusile’s Chickens to their Boilers:

“…(d)esign is one aspect that underpins this negatively, affecting cost and time frames. Other failures — procurement, construction, commission and testing, and operations and maintenance — are evident. An Eskom board minute requiring all projects to be commissioned on a turnkey basis was overridden and ignored, and construction at Medupi and Kusile were embarked upon for all the wrong reasons, including the accommodation of graft in a scenario that had no plan”.

The sheer ignominy of this incompetence is compounded by the corruption scandal surrounding Chancellor House Holdings and Hitachi, which implicated the ANCs investment arm in a contract of which approximately 60% was to local subsidiary Hitachi Power Africa- 25% owned by Chancellor House. The Mail and Guardian revealed that the ANC company then had a R3-billion stake in the contract.

Incompetence and corruption frequently go hand in hand, so it is less surprising then that Hitachi built Medupi and Kusile boilers too short. While the boilers are being repaired, Eskom is splitting the costs with Hitachi 50:50. Eskom can ill afford this. In trouble before lockdown to the tune of a debt burden of R450 billion, this has climbed to R480 billion in a matter of months., not to mention the R2.5 billion loss caused by lockdown. Worse still, R350 billion of Eskom’s debt is guaranteed by government.

Ironically, Mboweni’s February 2020 budget speech dismissed Eskom’s woes as “a tired topic”. As South Africa’s lockdown eases, the energy crisis and government debt are converging into a new and improved developmental disaster: Covid-19 has seen the biggest economic crisis South Africa has faced in decades, evidenced by a spate of borrowing from the IMF, New Development Bank and African Development Bank to the tune of R91.5 billion, bringing South Africa’s level of public debt to 87% of GDP for 2021-2022.

Reconciling these economic realities with the ANCs inclusive development strategy as laid out recently by the Economic Transformation Committee makes for a distinctly Utopian read.

Inclusive development through infrastructural expansion pivots on government’s hopes for Special Economic Zones to create import substitution value chains, lure FDI, boost exports, increase PAYE and VAT returns and the creation thousands of local jobs. Both Cyril Ramaphosa and Tito Mboweni have often referred to the Zones to drive South Africa’s development. This was recently again emphasized by the DTIC Deputy Minister, Fikile Majola.

Aside from energy and power issues, there is another glitch in government’s development matrix. Our research has shown that, thus far, South Africa’s SEZs have generated very few permanent jobs, despite the much-lauded establishment of the largest SEZ to date, Musina-Makhado (MMSEZ).

The MMSEZ is boasted to be creating over 21 000 local jobs, according to Limpopo Premier Mathabatha, As of 2019, government bragged that the Zone had attracted R150 billion in FDI. In March 2020, Mathabatha announced that a further R36.3-billion had been invested in mining over the last year. In anticipation of the SEZ, MC Mines (previously Coal of Africa) has secured a R40 million IDC Loan to expand its mining operations in Musina-Makhado.

Lots has happened under lockdown, including the advertising of MMSEZ tenders, despite the MMSEZ EIA process being incomplete. The Zone is also largely funded by loans from China and has the first non-South African operator: Shenzen Hoi Mor. Government has yet to explain how the SEZ, build around a hard-coking coal plant, will deliver on local jobs, and sidestep major environmental concerns. including impacts on community livelihoods.

Global Africa Network announced in May that the MMSEZ is Sub-`Saharan Africa’s “Developmental Hope”

Coming up next! We turn our focus to the MMSEZ and to the public participatory process in Musina-Makhado.

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