R84bn project: who benefits?

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Johannesburg - Questions linger over the construction of a “new city” in Johannesburg, when focus should be on consolidating existing business zones and developing dormant townships.

This comes as Hong Kong-listed Shanghai Zendai held a glitzy investors briefing on its R84 billion development in Modderfontein, Johannesburg last week.

Zendai is planning to construct a business zone that will compete with Sandton and Rosebank once it has been completed in 15 years time.

Gauteng Premier Nomvula Mokonyane, a guest at the event, called for support for the project and spoke at length to dispel the myths about Chinese companies.

“We must be careful in South Africa not to protect the former colonisers at the expense of those who have been with us in the struggle,” she said. “We are appealing to everyone to give China the benefit of the doubt.”

She was referring to stories of exploitation of African states by Chinese investors who are accused of bringing their own labour from China to complete African projects and claims that employees, both African and Chinese, had been mistreated. She said the people of Alexandra and Tembisa townships would be part of the development.

The 1 600 hectare Modderfontein property, on which the development will be built, was acquired for R1bn from JSE-listed explosives and chemicals group AECI in November.

The sale had come under fire from Julius Malema’s Economic Freedom Fighters, who raised concerns about the quality of jobs from the project, before it was approved by the local competition authority in January.

Now it is all systems go for the development that will boast nine functional zones, ranging from a central district to an international convention centre.

Zendai said it would spend R3bn on infrastructure development in the area over the next three years. It expects to build a contemporary arts museum, a university, a vocational college and bilingual primary and high schools, whose construction is scheduled to start next year.

A housing complex focused on the black middle class, and a retirement village are also in the pipeline next year. The group has applied for the area to be declared an economic development zone.

Consolidating business nodes rather than having them dotted across the city was likely to be a better solution, John Loos, a property development strategist at First National Bank Home Loans said.

Loos said the business zones should also be developed along with the city’s transport corridors, which contain highways and main roads.

“Business zones are all over the place, and people travel in various directions each day to reach their workplaces. I think business zones should be linked through construction of retail centres on existing transport corridors. This will change the shape of the city’s economy,” Loos said on Friday.

While the development will create much needed jobs, the dormant former black townships need to be the focus of such developments.

Modderfontein, which is east of Johannesburg, began as a mining town over 100 years ago and is adjacent to the Modder River.

Zendai founder Zikhang Dai said the development would retain its name Modderfontein, which is Afrikaans for “muddy fountain”, because to him fountains meant wealth and a bright future.

Dai unveiled his grand plans for the development, which is being funded through own equity and Chinese government banks.

Dai expects 50 000 jobs to be created, about 100 000 residents to live in the housing complex, and 1 000 companies to become tenants on the property once construction is completed.

“We will create as many jobs for locals as possible,” Dai said.

The manufacturing and processing business that will be housed in the development will be from China and other parts of the world.

Zendai, which was founded in 1992, has previously built luxury apartments in Luanda, Angola that are standing idle because locals cannot afford the steep rental.

It has also constructed Mandarin Palace, Chinese-style luxury villas, and the Himalayas Centre, in China. Its Thumb Plaza, is the first community-based commercial centre in Shanghai.

The Bureau of Economic Research at the University of Stellenbosch showed that the implementation of Modderfontein’s previously approved spatial development framework will cost about R77bn.

Over the project’s 15-year project lifespan, 33 000 houses will be built and 22 000 jobs will be created. Of those jobs, 65 percent will be semi-skilled and unskilled.

While R1bn will be generated in local government rates and taxes, direct and indirect benefits for the national economy will be R14bn. The development will support the local construction industry and entrepreneurs.

The plan comes at a time when the group has been hit by low sales, a high debt level and overall weak credit metrics that constrain its financial flexibility, according to ratings agency Moody’s Investors Service.

Last year, the group’s gross margin narrowed to 28.8 percent from 39.2 percent in 2012, reflecting the recognition of low-margin projects in its completed properties.

It reported a 24 percent year-on-year increase in gross debt to HK$6.1bn (R8.2bn) at the end of last year.

Business Report


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