Engineering News

The recent Chinese economic slowdown has had a negative effect on local exports and South Africa’s fate is similar to the fate of other sub-Saharan Africa resource-dependent economies, Kutoane Kutoane, CEO of the official South African export credit agency, Export Credit Insurance Corporation of South African (ECIC), tells Engineering News. “South Africa has been negatively affected in the past by commodity cycles that did not move in the country’s favour and, while the commodity prices were robust, the country didn’t do much to diversify its economy. We are feeling the effects of that now,” he says. He adds that, with China being the largest importer of commodities globally and the recent decline of commodity prices, South Africa’s economy is feeling the pressure of the commodity cycle more strongly than ever before. “It has also affected the strength of our currency, since we are not able to take advantage of the competitive price of our currency and our goods owing to the rigidity in transforming the economy from primary commodities to value- added manufacturing,” Kutoane states. He points out that the country’s manufacturing base has failed to pick up in response to price stimulation in global currency markets. Kutoane says that, given the sharp depreciation of the rand, South Africa’s import industry is considered to be expensive and this should attract the purchasing of local goods and services; however, the industry is unable to react or respond quickly to the weakness of the rand. “We are currently in an interest rate spiral where there are more indications now from the Reserve Bank to increase the interest rate, which punishes capital resource,” he says. He adds that this makes it more expensive to source investment capital locally and brings volatility that actually destabilises local capital markets. “However, there are initiatives that are in place to boost our economic competitiveness. Through industrial policy action plans and trade facilitation though various government incentive programmes, South African producers will be able to produce at a competitive cost.” Kutoane points out that most of the countries that are of interest to South African exporters have failed to diversify their economies into value- added manufacturing, which has increased the risk of doing business with some of these countries. “The public debt position in many countries in West and Southern Africa is worsening, which leads to the lowering of the sovereign ratings of these countries, along with the companies located in those countries, which are our prospective buyers,” he explains. He adds that countries such as Nigeria depend heavily on oil and gas. When the oil price went down, there was a major devaluation of the naira and the public debt position was knocked out of kilter. Cenpower JSE-listed construction and engineering firm Group Five was awarded a R11-billion engineering, procurement and construction contract by Ghanaian energy group Cenpower Generation last year, which is insured by the ECIC. Cenpower is a special-purpose vehicle created to develop the 340 MW Cenpower Kpone independent power plant, in the Tema industrial zone, close to Accra, Ghana’s capital. “The project is scheduled to come on stream in 2017. Kpone will be the largest private independent power producer in the country, accounting for 10% of Ghana’s total installed capacity and 20% of its available thermal generation capacity,” he states. As a combined-cycle gas turbine plant, it will be among Ghana’s most fuel-efficient thermal power stations. Once in production, Kpone will become a critical baseload component in meeting Ghana’s growing electricity demand.