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A province of vast opportunity

Mar 12 2017 06:02
Mehmood Ahmed

The Northern Cape takes up nearly a third of South Africa’s land area.

It may make the smallest contribution to the country’s economy and have the lowest population density, but, within these numbers, the Industrial Development Corporation (IDC) still sees tremendous opportunity in this province.

A wealth of opportunities

The Northern Cape, with its stark beauty, natural resources and the mighty Orange River, offers many unique opportunities, such as adventure and activity-based tourism that beckons to be developed. The province has several national parks, of which the Kgalagadi Transfrontier Park is the second largest in the country.

The game viewing and trophy hunting industries are experiencing marked growth and create more than 9 000 jobs in the province.

In line with the region’s economic activity, 34% of our current portfolio is dedicated to the mining sector. We have many mines in this province, which we can leverage to strengthen and localise the mining supplier industry.

Johannesburg started out as mining town and is now one of the biggest business hubs on the continent. There is no reason our province cannot emulate that.

We are excited about the future prospects for the Gamsberg zinc mine, which is being developed in conjunction with Vedanta near Aggeneys. This resource is said to be one of the world’s largest undeveloped zinc deposits, and therefore holds tremendous potential for long-term operations and job creation.

Within the agricultural sector, which constitutes slightly more than 9% of our portfolio, we are focused on increasing agroprocessing capacity.

This is being driven by projects such as the Namakwa irrigation scheme, and the replacement of ageing vineyards and aquaculture. This ties in with Agri-parks initiatives across various districts in the province that aim to promote processing and transformation in the agriculture industry.

Upington has been earmarked as a special economic zone and one of the possible sites for a proposed solar park. This will go a long way to unlocking localisation opportunities in the renewable and agroprocessing industries.

Economic challenges

The effects of an economic downturn are particularly acute in a smaller province with predominantly primary industries and high unemployment.

The decline in commodity prices such as iron ore had a significant effect on the mining industry in the Northern Cape, which affected not only the mining companies, but also its suppliers.

To keep up with the challenging economic climate and create much needed jobs, the province has to start developing a secondary industry through beneficiation and manufacturing.

Diversifying the province’s investments and placing emphasis on the renewable sector has helped to mitigate the negative effect of the global economic downturn and slump in commodity prices, which would otherwise have crippled the province’s economy.

The IDC assists companies in distress to enable them to retain jobs and maintain productive capacity in the economy.

We have seen a similar effect during the recent drought in the farming industry. Other than the normal distressed funding offered by the IDC, we also availed drought relief either directly or through the Land and Agricultural Development Bank of SA to producers.

Renewable energy is the way to go

The nature of the IDC’s involvement in the province is through large-scale projects that have a major effect. This is evident in the funding approvals of R21.5 billion in the past five years, resulting in close to 8 000 jobs being created during this period. These approvals were largely in the renewable energy industry, followed by mining and metals, as well as agroprocessing and tourism.

The IDC has also been one of the largest funders of government’s Renewable Energy Independent Power Producer Procurement Programme.

Of the R14.2 billion we have committed to this transformative programme, R11.4 billion has been directed towards projects in the Northern Cape.

The renewable energy programme has already received recognition far and wide as one of the country’s most successful public-private partnership programmes dedicated to building much-needed infrastructure.

The Northern Cape proudly takes centre stage as one of the prime drivers of this success.

Some of the IDC-funded projects include the Abengoa Khi Solar One concentrated solar power farm near Upington and the Kakamas Hydro Electric Power project, which is harnessing energy from the water in the Orange River.

The IDC acknowledges that renewable energy is a sector on the rise and may just be the one demanding the most funding in the near future.

It’s a huge injection for this province and it is quite strategic for the country’s energy needs. With the number of approvals for renewable energies in the province, it has moved the Northern Cape to second in terms of IDC provincial exposure, only behind Gauteng.

The Abengoa plant, with its 4 000 solar mirrors, will generate up to 50 megawatts of energy, and the hydro project in Kakamas will provide 10 megawatts.

When it comes to solar power projects in particular, our approach is unique compared with other funders: we buy shares for communities close to these projects.

Once in operation, these solar power plants do not usually employ a lot of people, so, to offset the limited job opportunities, the IDC invested up to 20% in community trusts on behalf of the surrounding communities. Once these projects start generating income, the dividends will benefit these communities.

Another important achievement stemming from our involvement in this programme is that we have successfully started to diversify the Northern Cape’s economy away from its strong mining bias.

Benefits for entrepreneurs

The Northern Cape as an underdeveloped province offers many opportunities for entrepreneurs who are willing to identify and develop these prospective businesses.

These opportunities are more pronounced downstream of the agriculture, mining and renewable energy value chains.

Diversifying the Northern Cape economy

We are proactively pursuing opportunities through the establishment of the Intergovernmental Agriculture Technical Forum to develop 1 500 hectares of community-owned agricultural land.

Development finance institutions such as the IDC can be key players in this initiative.

The envisaged Kathu Industrial Park, a joint development with Anglo American, seeks to localise supplier development to the mining industry. It aims to act as a catalyst to promote a diversified local economy beyond the life of a mine.

Empowerment initiatives

One of our key overriding considerations in supporting industrial and economic development in South Africa has been to grow the number of black, female and youth entrepreneurs.

The corporation’s role in the development of these entrepreneurs remains paramount, such as the provision of risk capital. This is evident in the IDC’s funding of Kalagadi Manganese, a mine based in Hotazel, which is partly owned and managed by a female entrepreneur.

During the 2015/16 financial year, the IDC approved the provision of R360 million to youth-empowered businesses; R711 million to BEE businesses; and R150 million to black industrialists in the Northern Cape alone.

Top tips for entrepreneurs in the province

. Take ownership of the business planning process.

. Ensure the application is complete (beyond the business plan).

. Have knowledge of red tape and legal compliance requirements in the relevant industry.

. Understand your industry (market, competition, business cycles).

. Bring in partners to add skills, experience and investment, especially for youth applications.

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