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Tuesday, June 12, 2007

Alcan in the South African Political and Economic Context

Since 1994, an ANC government positively aligned to the needs of both domestic and foreign capital has dominated South African politics; there are no reasons to suggest that this will change in the next decade. Further, the current Government is highly sensitive to criticism, extremely reluctant to reverse policy decisions, and ready to lash out (including with the race card) against any potential threats. Cooption remains one of the ANC’s primary weapons against civil society and independent political thought.

The Government has employed a macro-economic strategy that can only be described as anti-poor and pro-business. The facts speak for themselves; more South Africans are in poverty today than in 1994, unemployment has nearly doubled since 1994, standards of health care are crumbling, and capital has enjoyed years of consistent growth (with the economy growing by 40% since 1994). On the positive side, a measure of political stability has been achieved, the judiciary has asserted its independence, and political violence has largely disappeared.

South Africa is now one of the most unequal societies on the earth. If economics is the art of distributing wealth across of society, the artists have decided to keep most of the wealth for themselves. This has resulted in a powerful alliance between ANC and COSATU elite, black business elite, domestic white capital, and international capital (including IFI’s). This capitalist class seeks, as capitalists have done throughout history, to consolidate its position of power and wealth (the middle class has also entrenched its position). For this reason, the struggle for social justice necessarily finds itself in opposition to the requirements of South Africa’s current capitalist class; for example, the working class seek higher wages and the unemployed wages of any kind, while business and government seek to depress wages and only seek, at best, to mitigate the worst impacts of unemployment; a large pool of unemployed and underemployed citizens keeps wages depressed and reduces cost of production (ensuring high profits). In fact, the fundamental structure of the South African economy breeds poverty and inequality, and nothing substantial has changed in this regard since the days of Apartheid capital.

For the past 12 years, the ANC Government has done everything in its power to facilitate both the expansion of domestic capital into the rest of Africa and international capital into South Africa. While foreign direct investment (FDI) can hardly be said to have flooded into the country, what has come has been done under favourable conditions and with total government support. Even some of biggest and unapologetic supporters of Apartheid have been welcomed back into the country, with the Government refusing to deal with, what Archbishop Desmond Tutu calls, “the unfinished business of the Truth and Reconciliation Commission”, i.e. the role of big business in Apartheid. This is consistent with the pro-business strategies of GEAR (and its spawn, ASGISA), which believe that FDI will result in wealth trickling down to the poor. Trickle down economics were once described as “voodoo economics”, and have yet, anywhere in the world, proved to provide real development. The global evidence is that economics of this sort provide great wealth to elite groups and great poverty to everyone else.

Further, the Government seems committed to the continued privatisation of state assets and basic services. Water, health care, education, electricity and other basic services have all come under the privatisation spotlight (in its many forms). The fact that Eskom has not been privatised can be seen as a rare victory for progressive elements within the country; although, there is potential for a backdoor privatisation with private capital taking over a significant percentage (30% is the punted figure) of generating capacity.

A prime example of the Government’s unwavering commitment to a pro-business development strategy is the Coega IDZ. The IDZ is, essentially, a free trade zone with very few advantages for foreign capital when compared to other free trade zones across the world. Labour costs are relatively high (union rates) and tax relief low or non-existent. Why build factories and make computers in South Africa when China beckons with (virtual) slave labour and lax environmental controls?

For years, economists and members of civil society have declared Coega to be a white elephant and a virtual black hole for government funds; for example, it seems that the deep-water port at Coega is already beginning to silt up. Given the ANC’s dislike of losing face and stubborn approach to policy, it is unlikely that the Government would abandon the Coega project, which is Mbeki’s pet project. Therefore, a way had to be found to make the IDZ appear to work. Enter the Canadian Multinational Alcan and cheap electricity.

If Alcan were to build a large aluminium smelter at Coega, the IDZ would have an anchor industry and Coega could be declared a success. How, then, to entice Alcan to build a smelter? The answer has to be cheap electricity, for there is no other reason why Alcan would build in South Africa. Smelting aluminium is an incredibly electricity-intensive operation and Alcan will use 1300MW of electricity (about half of Cape Town’s usage).

Both the desperation within the Coega Development Corporation (CDC) and from IDZ pundits in the ANC more than likely resulted in Alcan being able to force a very, very good deal. The CDC is also stumping up cash for the smelter; this is effectively a form of a cash incentive for Alcan. Eskom will have to bear the cost of finding additional capacity and Alcan-related infrastructure (minimum of R6 billion for transmission lines). But, the key element to the whole situation is the cost of electricity.



  • I agree that South Africa's electricity subsidies to Alcan are bad news for South Africans, but the irony is that special deals on electricity pricing probably weren't even necessary. The cost of electricity in Canada is virtually the same as in South Africa (without discounts) as I wrote at the end of May. Electricity in both countries is too cheap, and doesn't reflect the true costs of production.

    Alcan's decision probably has more to do with location (port, markets, inputs, labour?) than extra electricity subsidies.

    The Canadian government probably doesn't want the smelter in Canada, because it would push up carbon emissions and dependence on fossil fuels. They're leaving us to foot the environmental bill.

    Certainly the IDZ must be getting desperate by now for an anchor tenant. Perhaps they lost their nerve at the bargaining table.

    By Anonymous Rory Williams, At 9:47 pm  

  • Cool site, Rory. Yeah, I think Alcan played hard to get and shove a bad deal down the throats of the government, who swallowed get the idea.

    By Blogger Tristen, At 10:34 am  

  • Excellent post Tristen!

    By Anonymous Andreas, At 12:05 pm  

  • Well said Tristen. Add to that the CDC are desperately trying to save face AND their jobs.

    By Anonymous alcant, At 1:33 pm  

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