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Development Impact of the Aluminium Industry: a South African Perspective

Development Impact of the Aluminium Industry: a South African Perspective

Paul Lochner

Council for Scientific and Industrial Research (CSIR)

P O Box 320, Stellenbosch, 7599, South Africa

Email: [email protected]

6 December 2006

mailto:[email protected]

© CSIR 2006 www.csir.co.za

Overview of presentationOverview of presentation

• Recent aluminium smelter developments in southern Africa

• Brief overview of the legal context and EIA process in South Africa

• Socio-economic impacts of aluminium smelters: recent analysis and predictions from the proposed Coega Aluminium Smelter, with supporting information from existing smelters

• Conclusions and recommendations


Recent aluminium smelter developments in southern AfricaRecent aluminium smelter developments in southern Africa

Smelters using AP30 series technology

Commence-ment of

production

Aluminium (tonnes/year)

(approx)

Hillside Aluminium,

Richards Bay, RSA

1995 680 000 (2004)

MOZAL, Beluluane,

Mozambique

2001 560 000(2005/6)

CoegaAluminium

Smelter, CoegaIDZ, RSA

Planned: 2009 (first potline)

> 720 000


Context of the smelter within the CoegaIndustrial Development ZoneContext of the smelter within the CoegaIndustrial Development Zone

• Economic upliftment of Eastern Cape province

• Development of an IDZ and associated deepwater port

• Smelter to be an anchor tenant • One of the largest post-apartheid

foreign direct investments in SA• Coega Development Corporation

(CDC) provides services to tenants (“one-stop-shop”) and sets policies, procedures and standards.

Computer simulation of smelter

Aerial photo of Coega port


Hierarchy of environmental law setting the context for the EIA process in South Africa

Hierarchy of environmental law setting the context for the EIA process in South Africa

• South Africa Constitution (Bill of Rights): “Everyone has the right -To an environment that is not harmful to their health or

well-being…To have the environment protected… through… measures

that… secure ecologically sustainable development and use of natural resources while promoting justifiable economic and social development.”

• National Environmental Management Act (1998) provides holistic definition of “environment” and requires cooperative governance from organs of state

• EIA Regulations (2006)


Holistic understanding of the term “environment”Holistic understanding of the term “environment”

• Environment is “surroundings within which humans exist”

• An holistic approach to environmental management requires inclusion of the biophysical (natural), social and economic components as well as the links within and between them

• EIA is required to assess impacts of development on all of these components of the environment, within the context of governance


Distinguishing feature of EIA in SA: public participation processDistinguishing feature of EIA in SA: public participation process

• Wide variety of stakeholders with diversity of skills, literacy levels, wealth, levels of education, access to information, languages and communication protocols.

• Requires range of mechanisms to engage with stakeholders.

• Feedback from stakeholders informs scope and content of the EIA.


Overview of key socio-economic impactsOverview of key socio-economic impacts

• Scope:• Positive (benefits) and negative (costs) impacts• Direct and indirect / secondary impacts• Construction and operations phases • Tangible and less tangible impacts• Socio-economic and macro-economic

• Based on recent analysis and predictions from the Coega Aluminium Smelter, with existing outcomes from Hillside and Mozalsmelters


Positive socio-economic impacts of the Coega Aluminium Smelter (1)Positive socio-economic impacts of the Coega Aluminium Smelter (1)

• Direct employment opportunities during construction period of 60-70 months for two potlines:• Average 4000 jobs; peaking at 6500 jobs• Approx 60% unskilled or semi-skilled jobs

• Direct employment during operational life of smelter (30-40 years):• 1050 employees (full-time)• 200-300 sub-contractors

• Indirect employment macro-economic analysis


Positive socio-economic impacts of the CoegaAluminium Smelter (2)Positive socio-economic impacts of the CoegaAluminium Smelter (2)

• Employment of local labour (i.e. from metro)

• Skills development and training

• Development of Small, Medium and Micro- Enterprises (SMMEs)

• Benefits of Corporate Social Investment programme to be established by CAS

• Increased investor confidence in IDZ


Negative socio-economic impacts of the Coega Aluminium SmelterNegative socio-economic impacts of the Coega Aluminium Smelter

• In-migration of job seekers

• Pressure on local services and infrastructure (e.g. housing, health, water & sanitation, crime prevention)

• Short-term nature of construction contracts (e.g. debt management)

• Potential for increased spread of HIV/AIDS


Positive macro-economic impacts of the Coega Aluminium SmelterPositive macro-economic impacts of the Coega Aluminium Smelter

• Contribution to economic growth at a local and national scale

• Direct employment creation

• Indirect employment in SA economy• Construction: 30 000 to 51 000• Operations: 9 000 to 15 000

• Government revenue (income tax, corporate tax, local government tax)

• Anchor tenant and catalyst for development in IDZ

• Potential effect on SA’s balance of payments and potential implications for exchange rate (neutral impact)


Macro-economic concerns regarding the Coega Aluminium SmelterMacro-economic concerns regarding the Coega Aluminium Smelter

• Relatively low level of job creation for substantial investment

• Opportunity cost in terms of power utilisation

• Externality costs not considered in the EIA, such as the indirect impact of CO2 emissions from generation of power


Hillside Aluminium: Examples of socio-economic impactsHillside Aluminium: Examples of socio-economic impacts

• Benefits of economic growth and employment creation• Direct employment: 1 200• Wider job creation in SA: 16 000

• Corporate Social Investment programme • Approx USD 1.5m/year (0.1% of EBIT,

Earnings Before Interest & Tax) in 2004

• Key beneficiaries of CSI:• Education, training and rural development• Health services and infrastructure• Job creation and SMME development• Agriculture


Mozal: Corporate Social InvestmentMozal: Corporate Social Investment

• Mozal Community Development Trust• USD 5m/year budget (approx 1% of

EBIT) in 2006

• Portfolio includes:• Community infrastructure• Education and training• Health and environment• Small business development• Sports and culture


Mozal:Success stories from CSI programmeMozal:Success stories from CSI programme

• Reduction in malaria from 80% to 8% in local area

• Contribution to local schooling• HIV Voluntary Confidential

Counselling and Testing Programme

• Crops from drought resistant seed provided to rural communities


Recommendations to enhance positive impactsRecommendations to enhance positive impacts

• Use of local labour• Coordinated as best as possible to ensure

continuity of employment in local area

• Coega: labour recruited via CDC

• Stipulated local content in sub-contracts

• Skills development and training • Focus on local persons

• Start training for operations phase well before operations commence through bursaries etc

• Multi-skilling of workers

• Mozal “job card” (during construction)


Recommendations to avoid or reduce negative impactsRecommendations to avoid or reduce negative impacts

• Downplay inflated job expectations and provide good communications

• AIDS education and awareness programme

• Manage informal trading (Construction)• Designated trading areas and

on-site services

• Financial training on debt management


ConclusionsConclusions

• Smelters provide a catalyst for development and economic growth in an area, although direct job creation during operations is relatively low

• Important to maximise the benefits, as well as reduce the negative impacts, during construction and operations phases

• In Coega example, crucial role to be played by CoegaDevelopment Corporation in coordinating services.

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