EAST LONDON'S INDUSTRIAL DEVELOPMENT ZONE SPEEDS

UNCLAS CAPE TOWN 000057


PLEASE PASS TO AF/S, RUSH MARBURG

E.O. 12958: N/A
TAGS: EIND EINV ETRD SA
SUBJECT: EAST LONDON'S INDUSTRIAL DEVELOPMENT ZONE SPEEDS
AHEAD


1. Summary: The East London Industrial Development Zone
(ELIDZ),established in 2002, is a South African Government
initiative to encourage export-driven growth and to diversify
the mostly rural Eastern Cape economy. Since its inception,
the ELIDZ has grown quickly and now includes fourteen
investors already operational in the zone. Seven new ones
will come on-line in April 2009. The zone incorporates a
cluster approach for locating investors in the zone, with
many of the current plants located in the Automotive Supplier
Park (ASP). Another cluster, located near the ocean, is home
to several seafarming projects. Another future investor
plans to implement a biofuels project that will include a
rural development component. ELIDZ officials expect to meet
their medium-term goal of twenty-five investors located in
the zone with a value of R2 billion (USD 200 million) by the
end of the 2009/2010 financial year. However, they
acknowledged that the global economic downturn has had an
impact on the zone's labor force. ELIDZ officials welcome
U.S. investors and seek to market the zone in the U.S. with
export-oriented industries (i.e., manufacturing and
information technology) to promote future investment when the
global economy turns around. End Summary.

What is the IDZ?
--------------


2. ELIDZ Executive Manager Tembela Zweni, Business
Development Manager Msokoli Ntombana and Marketing Specialist
Ngoni Katsere met with Consulate Econoff to discuss business
activity in the IDZ. Zone literature points out that the
South African Government established the ELIDZ in 2002 in an
attempt to diversify the provincial economy and to attract
both local and foreign investors. The officials indicated
that the zone, which is located on the outskirts of the
Eastern Cape coastal city of East London, already has one
hundred serviced sites that include complete water supply,
electricity, information technology, logistics and security
services. The zone incorporates a "cluster approach" which
locates investors in similar sectors within the same area of
the zone. Here the firms can access the aforementioned
services and share costs, thus enabling them to focus more on
their core businesses. They do not have to worry about
security, for example, because the zone already provides a
high level of security services. Executive manager Zweni
also volunteered that the zone uses world-class
infrastructure and affords easy access to transportation.
The ELIDZ is six kilometers from the city harbor and only two
kilometers from the airport.


3. The ELIDZ, like its sister IDZ in Port Elizabeth, is a
(PTY) Ltd. private company. Comment: A PTY Ltd. company is
similar to a limited liability company in the U.S. End
Comment. Zweni volunteered that ELIDZ, though funded in part
by the government, has an independent board of directors,
which includes individuals from both the public and private
sectors. The board appoints the zone's CEO, whom the
government then endorses. The officials expressed confidence
that they will reach their goal of twenty-five investors in
the zone with an investment value of R2 billion (USD 200
million) by the end of the 2009/10 financial year. Zweni
indicated that they had almost reached that goal already with
several other projects in the pipeline.

Who are the Investors?
--------------


4. Business Development Manager Ntombana shared that the
ELIDZ has twenty-one confirmed investors, fourteen of whom
QELIDZ has twenty-one confirmed investors, fourteen of whom
are already operating there. Total investment, at this time,
amounts to R1.1 billion (USD 110 million). Most of the
companies who are on the ground are manufacturers in the
automotive, aquaculture, transport and logistics sectors.
Auto parts companies supply various vehicle components for
car companies Mercedes Benz, Volkswagen and General Motors
(GM). They deliver "just-in-time" products to the car
companies which are then exported to other countries. Zweni
shared that some of the vehicle suppliers, such as
"CarCoustics", provide car parts to GM Brazil. Another auto
parts company, Feltex, supplies Mercedes Benz, Volkwagen and
GM with sun visors, carpeting and upholstery. Two other
companies, Seatek and Espadon Marine are involved in
seafarming. The following list provides the names of the
companies operational in the zone and their particular type
of business.

Carcoustics - heat shields exported

MC Synchro - assembly of tyres and rims for Mercedes
Benz South Africa (MBSA)

Feltex automotive trim - moulded carpets, sound
insulators, sun visors for BMW, Toyota, Ford, Nissan and MBSA

Feltex Caravelle - loose lay carpet for MBSA, VW and
Toyota

Feltex Fehrer - seat pads and head rests for VW, Toyota,
Ford and MBSA

Feltex Futuris - tufted carpet for supply to Feltex Trim
and Feltex Caravelle for MBSA

Foxtec-Ikhwezi - manufacturing of rear axel sub
assemblies and castings for MBSA

Johnson Controls - dashboard and overhead liners for
MBSA, VW, Ford and Nissan

Milltrans - Transport and logistics

Molan Pino - Polypropylene foam components for MBSA

Seatek - Abalone farming

TI Automotive - Brake and fuel pipes for MBSA, Toyota,
BMW, Ford, VW and Delta

TI Automotive Fuel Systems - complete automotive fuel
system for MBSA

UTI - Logistics


5. The officials further indicated that the ELIDZ is
planning to diversify away from the automotive manufacturing
subsector to other areas, such as energy, agroprocessing,
construction and services. For example, Matla Solar Energy,
one of the newer investments, will invest R40 million (USD 4
million) to produce solar water heaters. Another investor,
Espadon Marine will invest in seafarming technology, using
recirculating systems. Still another new investor, unnamed,
plans to produce biofuels by raising canola on one million
hectares in a poor rural area. This project, which will
promote rural development, envisages that forty percent of
the resulting canola crop will be used to produce bio-diesel
and sixty percent will go to fertilizer. Since canola is
primarily a winter crop, the rural community will be able to
raise maize in the summer, thereby providing them with both
"cash-crops" and "food crops." Ntombana maintained that the
two crops go well together and will help to get "buy-in" from
the community and the government. He expects the project to
be finalized this year. Comment: South Africa currently
plants about a total of 33,000 hectares of canola. An
agricultural economist maintains that increasing the planted
area by a factor of thirty seems unrealistic, particularly if
it is concentrated in only one province. Similarly, maize is
produced on only about 15,000 hectares in the Eastern Cape
although an official from the Border Kei Chamber of Commerce
asserts that far more could be grown here. End Comment.

Effects of the Global Economic Downturn
--------------


6. Zweni and Ntombana acknowledged that the downturn in the
global economy had led to a drop in business but remained
sanguine about the future. They noted that before the
downturn, there were about 1000 individuals employed in the
ASP. Now, there were 650 peopled employed there. Ntombana
maintained, however, that investors were still inquiring
about the zone, and he anticipated ongoing growth. One of
the automotive parts suppliers said it was increasingly
difficult to turn a profit but added that they were doing
their best to continue doing business.


7. The three officials further mentioned that they were
continuing to market the IDZ abroad in anticipation of the
eventual turnaround in the global economy. They noted that
they would welcome U.S. investors to the zone and asked for a
list of potentially interested U.S. companies and industrial
associations, particularly in the manufacturing and
information technology sectors. They would like to create
their own "road show" to present to interested firms. Zweni
Qtheir own "road show" to present to interested firms. Zweni
noted that the current economic downturn would not last
forever and that they wanted to be ready for new investment
when the global economy turns the corner.


8. Comment: The IDZ is easily found - just a stone's throw
from the East London airport. The cluster approach of
locating potential investors with shared services already
provided is both attractive to potential investors and
clever. The officials there appeared sophisticated,
professional and enthusiastic about the IDZ's potential.
They are correct, however, to diversify the IDZ away from the
automotive sector although this sector will continue to play
a role here. Diversification will be beneficial for the
zone, the provincial economy and future employment. What
surprised an outside visitor was the officials'
forward-looking perspective. Seemingly undaunted by the
global economic downturn, the ELIDZ officials talked about
preparing for more investment when the downturn ends and
discussed specific ways of achieving that goal. This forward
planning should bode well for the ELIDZ. End Comment.


MAYBERRY