Monday, October 19, 2009

Rio Tinto pullout: An economic blow of staggering proportions

I agree wholeheartedly with the DA on this one. Insofar as it correct that we cannot spare the electricity to power such a beast, we ought to have been able to. The loss of jobs and investment and more importantly, the perception of South Africa as a country where you cannot really do business is very damaging. The recent MTN Bharti merger, the Cosatu court action to stop Vodacom, these say to investors your money's not safe. Like I've said repeatedly, businessmen have many options, they hold no allegiances and socio aspects of deals are not what matters. Making money is their purpose and if they see South Africa as a place where the government is meddlesome, they will look elsewhere. This is where we see the pointy end of 16 years of mismanagement of the country.

Related:
Rio Tinto Alcan shelves S.African smelter
Eskom wants electricity prices to TRIPLE
Eskom 'lying again'
Now you see why Eskom needed the massive tariff increase

Read also;
South Africa Getting Major New Auto Plant? - A new 50,000-vehicle-a-year manufacturing plant is being planned for the coastal town of East London in South Africa.

It is becoming increasingly difficult - as the scale of the ANC's maladministration and the consequences that have resulted from it escalate exponentially - to properly articulate the degree to which our economy and ordinary South Africans are affected.

The decision by Rio Tinto to scrap its plans to build a multi-million Rand aluminium smelter at Coega, because Eskom's electricity supply is unreliable and its proposed tariff hikes unreasonable, is a largely self-inflicted economic blow of staggering proportions. Our economy at large and the creation of new jobs in particular will both suffer dramatically.

If Rio Tinto's decision becomes some sort of precedent or yardstick, against which other potential international investors gauge the economic climate in South Africa, there could be further consequences for other projects involving direct foreign investment.

The problem is plain to see: years of poor investment in our infrastructure produced a tipping point, with country wide blackouts and load shedding (not only Eskom's electricity infrastructure, but roads, railways, water and other elements of South Africa economic mainframe). Everyday Eskom still hovers on the red line as a result. That shortcoming -
the result of neglect and poor planning - resulted in a series of massive loans to Eskom, money which although now essentially spent in this regard, only served to keep the parastatal hovering on the edge of the abyss, as opposed to falling over. Needing more money still, it has been forced to hike its tariffs, to a degree that far exceeds what can reasonably be expected from a public who have had to watch on helplessly as the administration they invested their faith in flounders and obfuscates - almost every day, a new component to Eskom's mismanagement surfaces.

All of this has now resulted in one of the largest companies in the world declaring that South Africa is no longer a destination in which it can, in good faith, invest money, because the services it provides are unreliable and the prices it charges, unaffordable. South Africa has become an enemy of foreign direct investment.

Coupled with the cost of the R64 billion loaned to Eskom to keep it afloat, the direct and resultant costs of Rio Tinto's decision mean the mismanagement of Eskom has cost South Africa a breathtaking amount of money. Our entire budget deficit is in the region of R200 billion, no doubt it could be halved had Eskom been properly managed.

It is an indictment and the impact will be felt by ordinary South Africans, especially those in Port Elizabeth and surrounds, who would have been looking to the smelter for new jobs.

Statement issued by Kobus Marais, MP, Democratic Alliance shadow minister of trade and industry.

1 Opinion(s):

Anonymous said...

Wouldn't want another smelter. The Richards Bay one alone uses too much of our electricity: "The Richards Bay smelter cluster has an estimated electricity demand of around 1.5 megawatts (Mw). This is the same demand as a large city."
(ekogaia.org)
Add that to eskom elec. being used to power the Mozal Smelter and the 600 jobs provided pale into insignificance.
This personal deal between Mbeki and Rio Tinto has already cost us ordinary S'Africans far too much by causing outages costing us thousands of business hours!

From an environmental point of view, smelters would be better off in Brazil or Australia, where the raw material required for Aluminium production is actually mined!

Common Sense