APPENDIX E Water Use and Dependency in the Mhlathuze Catchment: a Macro Economic and Sectoral Analysis

APPENDIX E Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

MACRO AND SECTORAL ECONOMIC ASSESSMENT OF WATER USE

Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

FINAL REPORT By Anthea Dallimore with Stuart Ferrer, Andrew Pott, David Thompson and BJ Ashburner APRIL 2000

DRA-DEVELOPMENT REPORT 2000/05.

DRA offices: DURBAN PRETORIA PORT ELIZABETH JOHANNESBURG CAPE TOWN Address: 59 Rosebank Avenue Lobby1, Bankfin Building, 53 Avondale Village, 237 Wyoming Avenue 3 Orange Street, Roseglen. Brooklyn. Avondale, Crestview. Berario. Newlands.

Post Box: 37656, Overport, 4067 12139, Hatfield, 0028 3433, Newton Pork, 6055 52503, Saxonwold, 2132 as above, 7700 Email: [email protected] [email protected] [email protected] [email protected] [email protected] Telephone: +27-31-208-4112 +27-12-346-8350 +27-41-360-7257 +27-82-558-3011 083-703-0180 Facsimile: +27-31-208-4113 +27-12-346-8633 +27-41-360-7257 +27-11-478-2187 +27-21-683-0314

DRA-development 1 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

TABLE ON CONTENTS

1 SECTION ONE: INTRODUCTION ...... 3 1.1 OBJECTIVES OF THE STUDY AND TERMS OF REFERENCE...... 3 1.2 RESEARCH METHODOLOGY ...... 3 1.3 INTRODUCTION ...... 4 2 SECTION TWO: THE MACRO-ECONOMY...... 5 2.1 THE INTERNATIONAL SETTING...... 5 2.2 NATIONAL CHARACTERISTICS...... 6 2.2.1 Poverty and Inequality...... 6 2.2.2 Interest Rates...... 7 2.2.3 Employment and Labour Relations...... 8 2.2.4 Production and Output...... 10 2.2.5 Investment...... 12 2.3 THE MHLATHUZE CATCHMENT IN KWAZULU-NATAL ...... 12 Demographic and Socio-Economic Features...... 13 2.3.2 Production and Output...... 18 2.3.3 Investment – Past, Present and Future...... 20 2.3.4 Transport, Utilities and other Infrastructure ...... 21 2.3.5 Water Resource Management...... 22 2.4 SECTION TWO: DISCUSSION AND CONCLUSIONS ...... 24 3 SECTION THREE: ECONOMIES OF THE DOMINANT SECTORS ...... 26 3.1 INDUSTRY ...... 26 3.1.1 Aluminium - Hillside and Bayside...... 26 3.1.2 Heavy Machinery - Bell Equipment...... 29 3.1.3 Fertilisers - Indian Ocean Fertilisers...... 31 3.1.4 Paper and Pulp - Mondi Kraft...... 32 3.1.5 Mining - Richards Bay Minerals ...... 33 3.1.6 Other Industries in Catchment ...... 35 3.1.7 Corporate Social Investment...... 36 3.2 AGRICULTURE...... 37 3.3 COMMERCIAL AGRICULTURE ...... 37 3.3.1 Sugar Cane...... 38 3.3.2 Sugar within the Mhlathuze Catchment...... 39 3.3.3 Citrus...... 42 3.3.4 Citrus in the Mhlathuze Catchment...... 42 3.3.5 Other factors affecting Commercial Agriculture in the Mhlathuze...... 43 3.4 SUBSISTANCE AGRICULTURE ...... 45 3.5 FORESTRY ...... 49 3.5.1 Global Context...... 49 3.5.2 Forestry in South Africa...... 50 3.5.3 Growth Potential of the Industry...... 51 3.5.4 Efficiency of the Sector ...... 52 3.5.5 Competition within the Industry...... 52 3.5.6 Forestry in the Mhlathuze Catchment...... 53 3.6 SECTION THREE: DISCUSSION AND CONCLUSIONS...... 55 4 SECTION FOUR: COMPARATIVE ECONOMICS ...... 57

4.1 SECTION FOUR: DISCUSSION AND CONCLUSIONS...... 59 5 REFERENCES...... 60

6 APPENDIX 1: ASSUMPTIONS FOR COMMERCIAL AGRICULTURE...... 62

DRA-development 2 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

1 Section One: Introduction

1.1 OBJECTIVES OF THE STUDY AND TERMS OF REFERENCE

The objective of this research is to develop a decision making tool which will inform the Strategic Environmental Assessment (SEA) which is currently being undertaken by the Department of Water Affairs and Forestry’s Sub-directorate: Stream Flow Reduction Allocations. The implementation needs of the National Water Act and the necessity to take a participatory approach has resulted in the brief being widened to consider all forms of water use. The SEA has identified three key components – environmental, social and economic – which need to be evaluated and weighed up in terms of their costs and benefits, with each component having equal consideration. The move towards establishing Catchment Management Agencies to manage water resources in South Africa has influenced the decision to undertake a “case study” of a catchment in order to gain a greater understanding of how these key components interact with each other. In this instance the Mhlathuze Catchment, in the Kwazulu-Natal province of South Africa has been chosen.

This particular dimension of the SEA is concentrating on the economic component. Specific focus is on the macro-economy and the dominant sectors within the catchment. The aim is to develop an understanding of what factors are driving development in the region, with a particular reference to the use and dependency on water. The Terms of Reference requests that an “economic picture” be drawn at: a macro-level – taking into consideration major and external factors important to development and water resources; the sector economy – an analysis of the dominant sectors with specific reference to water resources; and the socio-economy – considering the impacts on society.

1.2 RESEARCH METHODOLOGY

This research document is largely based upon secondary research data – meaning that in only a few instances original data collection took place. Instead, researchers gathered information from reports, articles and data bases that already existed. In instances where such information was not available key informant interviews were held in order to gain access to specific information. The amount of data available, the level of accuracy and age of the data, as well as the willingness of particular groups to divulge information varied greatly across the sectors that were investigated. As a result the research findings are not uniform in their depth and breadth between the various sectors.

One of the key challenges of undertaking such research was finding data dis-aggregated to a catchment level. In many cases this was not available and in such instances estimations had to be made. Other sources of data have been brought into question by both the author and local experts, especially data drawn from the 1996 census where it is believed that significant sections of the catchment were not included. At this point, given limited funds and time, such information is utilised primarily to facilitate a broad and general understanding of trends within the catchment. It is also recognised that much of the data used is dated and may not as accurately depict the current situation. It is requested that this is kept in mind whilst reading this report.

DRA-development 3 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

1.3 INTRODUCTION

Water has traditionally been viewed as a public utility in which access and usage should be at a minimal cost. However water does in fact have an intrinsic economic value and should be viewed as an economic good. It meets the criteria of scarcity and demand, it can be traded and access can be denied. Water however is not a “want” but a “need”. It is essential for the existence of human, animal and plant life on this planet. A paradox thus becomes obvious in that humans, animals and plants cannot be reduced solely to economic agents, yet if water is to be utilised efficiently the cost of water to its users must reflect its true worth. As a result there needs to be a paradigm shift in the way water is viewed and managed. Demand for water is ever increasing yet supply, in the greater sense, is limited.

Currently the purchase price of water in South Africa primarily reflects the service cost of having water treated and delivered. It does not reflect the various competing demands for this finite resource. The major competing players are people – for individual consumption and hygiene, the environment, agriculture, and industry – which incorporates all forms of commercial activity. Some of these players are well organised and articulated, whilst the environment, for example – requires others to speak on its behalf. The National Water Act has recognised this and has built into its legislation a “reserve” which gives first preference of water resources to the environment and for human consumption. Any excess above this reserve is made available for stakeholders to compete for. Incorporating a price mechanism as the means of distributing available water should result in water being distributed in a more efficient manner.

In order to understand how this may play out in practice in is first necessary to understand current dynamics. This entails asking questions such as:

¨ What are the macro-economic features of the catchment. ¨ How are they influenced by the regional, national and international economy ¨ What are the dominant sectors and how do they contribute to the regional, national and international economy. ¨ How dependent are each of the sectors on water and are they currently using water efficiently. ¨ How is wealth and access to resources distributed throughout the catchment.

Comprehension of such should enable a projection of how different sectors will respond to the change in water prices, which sectors should be favoured and which should be penalised and most importantly, how economic dimensions may impact and influence decision making. This report attempts to begin to answer such questions. Further in-depth analysis and greater levels of co- operation and data-collection from all stakeholders is required before any extensive decision making can take place.

DRA-development 4 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

2 Section Two: The Macro-Economy

A Catchment in Context: Mhlathuze in an International, National and Regional Context

In order to understand the economic dynamics and defining characteristics of the Mhlathuze Catchment it is first necessary to gain an appreciation of the context in which the catchment operates and functions. This will facilitate a comparative analysis of the ways in which the catchment conforms and is shaped by national characteristics as well as the manner in which it differs. This section will give a brief overview of the South African economy in an international context, an overview of the national economy and an analysis of the Mhlathuze Catchment within a provincial context. Finally conclusions will be drawn on how each level impacts upon the other.

2.1 THE INTERNATIONAL SETTING

South Africa’s recognition within the international sphere has long been associated with its apartheid regime, which elicited political, social, and economic responses and reactions of the international community for many decades. Whilst the end of this dispensation in 1994 was greatly welcomed, South Africa’s full reintegration into the international arena has not been an easy task. The structure of the national economy and its capacity to compete at an international level has very much been hampered by the semi-isolationist policies of the past which were based on highly priced primary exports, a highly protected industrial sector and a very unequal society. As a result South Africa has had to “speed up” its integration process in the context of a rapidly globalising international economy.

In terms of its level of human development South Africa is ranked 90th in the world out of a total of 175 countries1 and compares to other countries such as Sri Lanka, Peru and Latvia. It is classified as a middle income country, sharing per capita incomes similar to Botswana, Brazil and Malaysia. However South Africa does not fare as favourably in terms of income distribution, having the unfortunate claim to of one of the most unequal distributions of income in the world (PIR:1998).

Integration into the international economy has meant that South Africa is now vulnerable to international crises, such as that which occurred in Asia during the late 1990’s; has reduced its level of protection so that local manufacturers must now compete with cheaper imports; and has loosened exchange rate controls resulting in greater fluctuations in exchange rate prices. South Africa’s falling exchange rate has in fact been one of the most defining features of this reintegration. The following figure illustrates this well.

1 According to the Human Development Index calculated by the United Nations Development Programme in 1997.

DRA-development 5 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

Figure 1: Exchange Rates of the Rand

1990=100 Source: South African Reserve Bank Annual Economic Report 1999 pg 24

The Reserve Bank has attributed much of the recent decline of the exchange rate to exogenous shocks including declining confidence in emerging markets and a falling gold price (Reserve Bank:1999). A depreciating exchange rate, although associated with uncertainty in a national economy, is not all bad news. South African exports are now more competitive and those sectors with a strong export focus stand to gain. The converse however is the higher cost of imported goods. Whilst this makes local producer prices more competitive it does increase the cost of production of goods that rely heavily on imported inputs. Increases in the cost of imports may also result in increases in inflation.

2.2 NATIONAL CHARACTERISTICS

The national economy of South Africa in many ways reflects characteristics typical to most developing countries, whilst at the same time maintaining attributes of a developed country. The importance of understanding the national economy which, as mentioned earlier, is still shaped by the legacies of apartheid, enables an appreciation of what sectors drive the economy as well as an understanding of which factors hinder growth. The South African economy has taken a significant change of direction with the new dispensations’ “Reconstruction and Development Programme (RDP)” which has changed the focus from maintaining and protecting the interests of a wealthy minority to a developmental state committed to reducing poverty and inequality.

2.2.1 Poverty and Inequality Whilst South Africa is ranked as a middle income country many of its inhabitants receive an income well below the per capita average and have inadequate access to important resources such as

DRA-development 6 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis water, sanitation, health care, security services and basic education. According RDP classifications of a poverty line2 just under 50% of the population – 19 million people - are considered poor and have a monthly expenditure of less that R350 whilst 27% of the population – 10 million people – are considered ‘ultra-poor’ and live on less than R194 per month (PIR:1998).

The distribution of poverty in South Africa is very much defined by race and geographic location. Whilst there is almost a 50:50 split in the rural to urban population, 72 % of the country’s poorest live in rural areas. In terms of access to basic services, only 17% of the rural population have running water inside their dwelling, compared with 74% of the urban population. Slightly more (21%) of the rural population have electricity connected to their dwelling whilst the majority (82%) of urban dwellers enjoy such comforts (Ibid.).

South Africa has one of the most unequal distributions of income in the world. The distribution of poverty across the population groups also demonstrates high levels of inequality. Figure two depicts this well.

Figure 2: Poverty rate by population group

70% 60.7% 60% 50% 40% 38.2% 30% 20% 10% 5.4% 0% 1.0% African Coloured Indian White

Source: Poverty and Inequality Report 1998 pg. 29

2.2.2 Interest Rates Interest rates in the last five years in South Africa have been comparatively high. They peaked in September 1998 when, due to tightened monetary conditions, the rate reached 24%. Since then the country has experienced a steady downward trend in the rate of interest, which in April 200 stands at 14.5%. Figure three below highlights this.

2 The poorest 40% of households are classified as poor and the poorest 20% of households are classified as ultra- poor.

DRA-development 7 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

Figure 3: Prime overdraft rate

Source: South African Reserve Bank Annual Economic Report 1999. Pg 31.

Whilst high interest rates can be seen as desirable in that they attract foreign investment, they can have quite a constraining affect on business who find the cost of finance prohibitory. This limits investments by local firms, with small and medium enterprises being affected alongside big business. High interest rates can also have the affect of slowing down the economy as those with loan commitments (especially mortgages) have less disposable income to spend.

2.2.3 Employment and Labour Relations South Africa’s labour force is characterised by a very large pool of unskilled labour, who typically experience high levels of unemployment. The likelihood of unemployment is most strongly defined according to race and gender. These disparities are illustrated below in figure four.

DRA-development 8 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

Figure 4: Unemployment rates by population group and gender

Men Women 60% 52.4% 50% 34.1% 40% 24.1% 30% 18.3% 20% 11.1% 14.0% 10% 4.2% 5.1% 0%

White White African Indian African Indian Coloured Coloured

Source: 1996 Census, Statistics SA

When considering employment according to economic sector, “community, social and personal services” employs the most amount of people, followed by manufacturing. Mining, transport and the electricity sector employ the least amount of people (see figure five)

Figure 5: Percentage of employed by economic sector

Manufacturi ng 14.3% Trade 14.1% Agriculture 10.4% Finance Community 8.7% 30.8% Constructio Electricity n 7.1% 1.4% Mining 6.9% Transport 6.2%

Source: 1996 Census, Statistics SA

DRA-development 9 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

The total number of people employed3, in non-agricultural employment, declined by 1.7% in 1997, 3.7% in 1998 and 3.8% in the second quarter of 1999. Approximately 50 000 workers became redundant in the first half of 1999. The construction sector experienced the largest rate of decline, shedding 16.2% of its workforce, followed by the mining sector which reduced the number of people employed by 1.7%. An increase in employment was experienced in some sectors with transport and communication experiencing an increase of 24.1% (mainly due in increased part-time employment) with the financial sector experiencing an increase of 4.3% (Reserve Bank:2000)

Clearly, given the already high and disproportionate rates of poverty in South Africa, such declining employment trends are of considerable concern to the government and the public. Employment creation is therefore seen as one of the most pressing challenges facing the South African economy.

2.2.4 Production and Output The second half of the 1990’s saw a dramatic slowdown in the growth rate of Gross Domestic Product (GDP) after a strong period during the middle of the decade (see Figure six below). Rates of growth that is below the current population growth rate of 2.7% indicate that the country is not currently able to improve its per capita income.

Figure 6: GDP Growth

91 92 93 94 95 96 97 98 4

-1 % Annual growth -2

-3

-4 Year

Source: 1998 Medium Term Budget Policy Statement pg.23

Whilst overall growth in domestic output has been sluggish there has been a diversity of outcomes by different sectors of the economy. Growth in the mining sector has been hampered by a slump in international commodity prices and low international demand. However due to an improved climate for platinum and coal, non-gold mining companies did experience some improvement during the first half of 1999. Real manufacturing production flattened out after experiencing a decline of 5% in 1998. Stronger export demand was attributed to this halt in decline with an

3 Reference to absolute numbers would have been more useful but were unfortunately unavailable.

DRA-development 10 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis improvement in the price competitiveness of South African manufactured goods and a stronger export demand for motor vehicles (Reserve Bank:1999).

A slowdown in private sector demand for non-residential and residential buildings contributed to a slowdown in the construction industry after enjoying a growth rate of 2% in 1998. The commercial sector also fared poorly due to a decline in overall domestic demand. The sectors which did however enjoy strong rates of growth were transport, storage and communication – due primarily to an expansion in communication services to previously under-serviced communities – and finance, insurance, real estate and business service sector (Ibid.). The following table illustrates the rates of growth according to the various sectors of the national economy.

Table 1: Real gross domestic product Percentage change at seasonally adjusted and annualised rates 1997 1998 1999 1st half Primary sectors 2 -½ 1 Agriculture 2 ½ -1 4 Mining 1½ -½ -1 Secondary sectors 2½ -1 0 Manufacturing 2½ 3½ 0 Electricity, gas & water 4 ½ 0 Construction 2½ 2 -½ Tertiary Sectors 2½ 11/2 ½ Commerce ½ -1½ -½ Transportation and communication 6½ 6 1½ Financial Services 4½ 3½ 1 Non-agricultural sectors 2½ -½ 0 Total 2½ ½ ½ Source: South African Reserve Bank Annual Economic Report 1999. Pg 7.

The variation in growth rates according to sector has resulted in a significant shift in the structure of the national economy and the contribution each sector makes. The tertiary sector’s share of value added has increased from 54.6% in 1990 to 64.9% in 1999 whilst the other two sectors, secondary and primary, have dramatically decreased from 31.3% to 24.5% and 14.1% to 10.6% respectively. Figure seven illustrates this well.

Figure 7: Composition of gross domestic product

1990 First half of 1999 Primary 14% 11% Sectors

25% Secondary Sectors 55% 31% 64% Tertiary Sectors

Source: South African Reserve Bank Annual Economic Report 1999. Pg 7.

DRA-development 11 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

This is not necessarily a negative trend but is reflective of the changing structure of advanced economies of the world. However, what is of interest to South Africa is the capacity of the services sector to create sustainable employment, compared with those sectors that are in decline.

2.2.5 Investment Investment in the South African economy has generally been poor if not frightening and has been in decline for most of the decade. Although gross domestic fixed capital formation (as a percentage of gross domestic capital) rose from 16% in 1997 to 161/2% in 1998, this was below the long term average of 22% and is not considered great enough to set the economy on a higher growth path. This rate is also significantly lower than other rapidly growing emerging market economies. In the private sector levels of investment declined in 1998 and 1999 in all sectors except for mining and manufacturing (Reserve Bank:1999).

2.3 THE MHLATHUZE CATCHMENT IN KWAZULU-NATAL

As mentioned in the objectives and terms of reference for this study, one of the main aims of this research is to try and gain an understanding of how the local economy of the Mhlathuze Catchment operates, how it is influenced by the international, national and regional economy and what are its defining characteristics. The following section will attempt to do this, and where possible reference will be made to the regional economy of Kwazulu-Natal in order to provide context to the analysis. Figures eight illustrates the location of the catchment in the province whilst figure nine highlights main boundaries and towns.

Figure 8: Mhlathuze Catchment in Kwazulu-Natal

NAT AL

Richa rds Bay

Durba n

50 0 50 Kilometer s

DRA-development 12 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

Figure 9: Boundaries and Major Towns

# Baba nan go Ulu ndi # St. L ucia Estuary#

Mtub atu ba #

Melmoth # Nk and la # # Kw aMbon ambi

# Rich ards Bay Empan geni #

Esh owe #

Mtun zini #

Gingind lo vu # N

Isitheb e #

10 0 10 20 Kil ometers

Tug ela

2.3.1 Demographic and Socio-Economic Features4 A depiction of the demographic and socio-economic features of the catchment enables an appreciation of the human composition of the catchment and what quality of life its inhabitants experience. All of the following data is drawn from the 1996 Census. It must be kept in mind that this information is now four years old and some changes may have since occurred. Estimates of such shifts will be made where possible. Also, as mentioned previously, some residents within the catchment stated that large areas, especially those in the western end of the catchment, were not recorded during the census. Economic activities in these areas are primarily focused around agriculture.

Table 2: Basic Data Mhlathuze Kwazulu-Natal Catchment as % of KZN Catchment Area (km2) 4209 91481 4% Population 681125 8417021 8.1% Population Density 104 92 (# of people per km2) Average Household Size 6.4 5 Source: 1996 Census and Demarcation Board

The catchment represents 4% of the geographic area of Kwazulu-Natal and 8% of its population. The catchment has a slightly higher population density than the province with, on average, 12 more

4 Data from this section was taken from boundaries of the new District Council 28. The area demarcated does not exactly fit that of catchment but is the closest proximation that could be found.

DRA-development 13 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis people inhabiting each square kilometre. Average household size is also higher (6.4 people) than the province’s (5 people). Table 3: Population Group Mhlathuze Catchment Kwazulu-Natal

African 92.1% 81.7% Coloured 0.4% 1.4% Indian 1.3% 9.4% White 5.0% 6.6% Other 1.1% 0.8% Total 100.0% 100.0% Source: 1996 Census and Demarcation Board

Table 4: Gender Mhlathuze Catchment Kwazulu-Natal

Male 46.4% 46.9% Female 53.6% 53.1% Total 100.0% 100.0% Source: 1996 Census and Demarcation Board

Whist the gender split of the catchment almost mirrors that of the province; population distribution varies more greatly. Africans are the largest population group and are present in a greater proportion than in the province whilst Indians and Coloureds are under-represented. The number of whites does not vary greatly from the provincial distribution.

Table 5: Age Distribution Mhlathuze Catchment Kwazulu-Natal

0-4 years 13.1% 11.5% 5-19 years 39.5% 34.9% 20-29 years 16.9% 18.3% 30-49 years 19.2% 21.9% 50-64 years 6.2% 7.6% Over 65 years 4.0% 4.5% Unknown 1.1% 1.4% Total 100.0% 100.0% Source: 1996 Census and Demarcation Board

The age distribution of the catchment follows a similar distribution to that of the province and the country, with a generally young population – a defining characteristic of most developing countries. The catchment however is even more “youthful” with just over half of the population (53%) being under the age of 20, compared with the provincial dispersion of 46%.

Table 6: Employment figures of those economically active Mhlathuze Catchment Kwazulu-Natal

Employed 57.2% 60.9% Unemployed 42.8% 39.1% Total 100.0% 100.0% Source: 1996 Census and Demarcation Board

DRA-development 14 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

The economically active are defined as all people between the ages of 15 and 65 who are either employed or unemployed. The unemployed are defined as those who are actively looking for work and are ready to start work immediately. South Africa in general has an unacceptably high rate of unemployment, which as discussed earlier is experienced disproportionately according to race. The catchment has an unemployment rate that is higher than the provincial average. This may be explained by the higher than average presence of Africans in the area, which on average, also experience much higher rates of unemployment.

Table 7: Occupation Type Mhlathuze Catchment Kwazulu-Natal

Senior Officials & Management 3.4% 3.9% Professionals 13.9% 11.5% Technicians and associate professionals 6.7% 7.1% Clerks 8.1% 8.5% Service workers, shop & sales workers 9.8% 9.9% Skilled and agricultural workers 5.0% 4.0% Craft and Trade 14.5% 14.7% Plant and machine operators 11.5% 10.9% Elementary occupations 27.1% 29.4% Total 100.0% 100.0% Source: 1996 Census and Demarcation Board

The catchment has a slightly higher number of professionals, skilled and agricultural workers, and plant and machine operators compared with the province. This is to be expected given the composition of the local economy (see forthcoming discussion).

Table 8: Employment by Economic Sector Mhlathuze Kwazulu-Natal Catchment Farming 12.6% 7.5% Mining 3.9% 1.0% Manufacturing 13.0% 16.9% Utilities 1.3% 0.9% Construction 7.9% 5.4% Trade 12.3% 10.8% Transport 8.5% 5.5% Business Services 6.0% 6.3% Social Services 22.2% 16.3% Private household 12.2% 11.1% Unspecified 0.1% 18.3% Total 100.0% 100.0% Source: 1996 Census and Demarcation Board

According to the above table, social services, manufacturing, farming, trade and private households employ the greatest proportion of people within the catchment. Local experts in the area hold that employment within the agriculture sector is under-estimated in the above table (due to certain areas not visited during the census) and could in fact be close to double of that which is presented above. Higher than average employment rates, according to sector, occurred in mining, construction and social services. The existence of a university and a number of regional hospitals

DRA-development 15 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis in the area may explain high levels of employment in the services sector, compared with the province. It is also quite possible that the number of people employed in the construction sector has since declined given the general downturn in this sector as well as the large number of construction projects that were occurring in the area during the time of the census.

Table 9: Monthly Household Income Mhlathuze Catchment Mhlathuze Catchment (with unspecified removed) None 14.7% 17.1% R1- R200 7.0% 8.2% R201- R500 17.3% 20.1% R501- R1 000 13.5% 15.7% R1 001- R1 500 8.4% 9.8% R1 501- R2 500 7.7% 9.0% R2 501- R3 500 3.9% 4.5% R3 501- R4 500 2.9% 3.4% R 4 501- R6 000 3.2% 3.7% R6 001- R8 000 2.3% 2.7% R8 001- R11 000 2.5% 2.9% R11 001- R16 000 1.5% 1.7% R16 001- R30 000 0.9% 1.0% Over R30 000 0.2% 0.2% Unspecified 14.0% - Total 100.0% 100.0% Source: 1996 Census and Demarcation Board

Comparable figures for the province were not available. However the above table still clearly highlights the large number of households who live on small incomes with more than half (52.5%) of the catchments’ households living on R 1 000 per month or less in 1996. If one removes “unspecified” from the distribution, than the proportion of households living on R 1 000 a month or less increases to 61%.

The following set of tables denotes the various levels of access to basic services. This gives some indication of the standard of living experienced by those people living in the catchment and is compared with the rest of the province. It needs to be noted that this information is now four years old, and given governmental commitment to providing basic infrastructure, it is expected that some improvement should have occurred in the interim.

Table 10: Household Access to Water Mhlathuze Kwazulu-Natal Catchment Piped water in dwelling 26.1% 39.2% Piped water on site 2.8% 8.7% Public tap 8.0% 18.3% Water carrier/tanker 1.1% 1.2% Borehole/rainwater tank 11.3% 6.7% Dam/river/stream 49.1% 24.3% Unspecified/other 1.6% 1.6% Total 100.0% 100.0% Source: 1996 Census and Demarcation Board

DRA-development 16 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

Just over a quarter of households in the catchment have piped water in their dwellings whilst just under one half collect water from a dam, river or stream – a source which is generally considered unsafe. This number is twice that of the provincial average and represents a serious threat to the standard of living and health of a large proportion of the catchment’s residents.

Table 11: Household access to sanitation services Mhlathuze Catchment Kwazulu-Natal

Flush toilet 27.2% 41.7% Pit latrine 38.1% 41.6% Bucket latrine 0.8% 0.9% None 32.8% 15.1% Unspecified 1.1% 0.6% Total 100.0% 100.0% Source: 1996 Census and Demarcation Board

Access to adequate household sanitation such as a flush toilet or a pit latrine in the Mhlathuze is well below the provincial average. Almost one-third of households in the catchment had no household sanitation facilities. Poor or non-existent sanitation facilities dramatically increase likelihood of disease and poor health and currently an unacceptable number of people have their health put at risk on a daily basis.

Table 12: Household access to electricity for lighting Mhlathuze Kwazulu-Natal Catchment Electricity 47.1% 53.5% Gas 0.4% 0.5% Paraffin 3.1% 5.2% Candles 48.0% 39.9% Unspecified/other 1.4% 0.9% Total 100.0% 100.0% Source: 1996 Census and Demarcation Board

Table 13: Household access to a telephone Mhlathuze Kwazulu-Natal Catchment Telephone in dwelling/cellular phone 16.4% 26.9% Telephone at neighbour nearby 5.5% 7.4% Public telephone nearby 25.5% 32.9% At another location nearby 4.1% 4.6% At another location not nearby 11.6% 7.7% No access to telephone 35.4% 19.8% Unspecified 1.5% 0.7% Total 100.0% 100.0% Source: 1996 Census and Demarcation Board

Access to electricity in the catchment followed similar distribution patterns to that of the province, albeit almost 10% more households in the catchment used candles as their source of lighting. A significantly lesser proportion of the catchment have telephones in their homes or nearby, and over one-third claimed to have had no access to telephonic services at all.

DRA-development 17 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

2.3.2 Production and Output The regional economy is dominated by the presence of large industry which is primarily based around Richards Bay and Empangeni. The rest of the area is characterised by commercial and subsistence agriculture, predominately sugar cane and forestry. The sub-region in total makes an important economic contribution to Kwazulu-Natal and is the third most important sub-region after Durban and Pietermaritzburg. It contributes 7.6% to the provincial GGP and 5.5% to total formal employment. The estimated GGP in 1997 was R 3 704 million (RB SDI: 1998).

The area has also been characterised by unusually high rates of economic growth, which at an average rate of 7.3% per annum between 1980 and 1991 outstrips the province - at 4.3% p.a. and the country – at 1.1% p.a. Growth rates between 1988 and 1997 were recorded at 6.4%. Such high rates of economic growth have been attributed primarily to: the development of a deep water bulk port in Richards Bay; the abundance of natural resources including timber plantations and significant mineral deposits; and significant government investment (see following section) within Richards Bay. Growth within the area however has not been constant but has typically followed boom-bust cycles closely related to single large-scale investment projects and international trends. (Todes & Vaughan :1999).

In similar fashion to the national economy, only particular sectors experienced high rates of growth whilst others, have been in decline. Figure ten portrays the various rates of growth per economic sector between the period of 1980 to 1991. Manufacturing, agriculture and transport appear to demonstrate the highest growth rates, whilst mining, construction and trade were in decline.

Figure 10: Average Annual Growth Percentage in GGP5 by Economic Sector (1980-1991)

12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% Total Trade Mining Finance Services Transport Electricity Agriculture Construction Manufacturing

Source: Richards Bay Spatial Development Initiative - DBSA

5 References to GGP in this section refer to that of the lower Imfolozi sub-district except where otherwise stated.

DRA-development 18 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

The following graph illustrates the sectoral contribution to Gross Geographic Product (GGP) in 1997.

Figure 11: Percentage Contribution to GGP

Mining 0% Agriculture Com Services Services 6% 5% 4% Finance 7%

Manufacturing Transport 55% 15% Trade 4% Construction 3% Electricity 1%

Source: Richards Bay Spatial Development Initiative – DBSA

Manufacturing clearly dominates in its contribution to GGP, comprising of over half of all output. Transport (15%), financial services (7%) and agriculture (6%) follow this. Manufacturing activities are predominately based around a few large extraction and processing industries in Richards Bay, who are predominately export orientated. The transport sector serves predominately as support services to these industries.

In terms of employment creation, absorption according to sector does not reflect the above distribution. As depicted in table eight, manufacturing comprises only 13% of all employment in the catchment and transport 8.5%. This is explained by Todes and Vaughan (1999) who describe the large firms as “highly capital-intensive, producing few jobs relative to investment” with the situation being worsened during the 1990’s “as firms have restructured to an increasingly competitive international market, often shedding jobs and/or shifting to greater capital intensity and a more skilled work force” (pg.2.) Agriculture however on the other hand absorbs 12.6% of the labour force, twice that of its GGP contribution, illustrating a relatively labour intensive sector.

The development of small industries around these large dominate ones have been described as “limited” with metal, machinery and motor related firms being most dominate (Ibid.) The Richards

DRA-development 19 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

Bay Spatial Development Initiative has recognised this weak link and is currently identifying benefaction projects to help develop small and medium sized enterprises.

The town of Empangeni (population 30 000) serves as an important regional centre with approximately 50 000 people coming into the area daily from surrounding townships and rural areas for shopping, work and the use of services. The town contains a number of regional administrative functions including agricultural organisations, the magistrate’s seat, the offices of the chamber of business as well as the regional offices for the Department of Education (Ibid.). Tourism has also been identified as having growth potential in the area, especially given the areas’ proximity to world class game parks, nature conservation areas and cultural heritage sites.

2.3.3 Investment – Past, Present and Future The unusually high rates of economic growth that has occurred in the sub-region has been of particular interest to government and academics who raise the question of whether or not such economic performance can be replicated elsewhere. Most of this economic boom has been attributed the opening of Richards Bay Harbour and various other interventions by the state. Whilst this research is trying to maintain focus upon the entire catchment it is not possible to do so without specific reference to Richards Bay.

Aniruth and Barnes (1998) refer to four distinct growth periods; each characterised by specific government interventions that were strategic to the growth and development of the area. Previous to 1970 Richards Bay was a small village engaged mainly in fishing, sugar farming and sugar milling. In 1966 the government of the time authorised the construction of a railway line to be built from Vryheid to Empangani. During the early 1970’s Richards Bay was chosen as the site for the development of a new harbour, necessitated by the increasing demand for South African exports. The modern deep-water harbour was opened in 1976. Another anchor project initiated by the Industrial Development Corporation was the building of an aluminium smelter which began production in 1971. Other large investors soon to follow during the seventies were Richards Bay Minerals, Triomf Fertilisers (now known as Indian Ocean Fertilisers) and the Richards Bay Coal Terminal, the largest coal terminal in the world.

Other industries were attracted to the area during the 1980’s following the designation of Richards Bay as an industrial growth point by the ‘Good Hope Plan: 1982-1990. Major industries that located in the region included the Central Timber Co-operative, Suncrush, Bell Equipment and Mondi Kraft. The 1990’s however saw the downscaling of many of the incentives offered by the government to industry. However larger companies still came to settle in the area; including SilvaCel and Syncat as well as the construction of a second aluminium smelter, Hillside, in 1995.

It is well documented that the development and economic growth of Richards Bay was driven by direct government investment and initiative with the opening of the harbour and other transport infrastructure being quite strategic. Although the South African government has been withdrawing its direct support since the beginning of the 1990’s, 1998 saw the launch of the Richards Bay Spatial Development Initiative (SDI). The SDI, although an initiative of the Department of Trade and Industry and then taken over by the Development Bank of Southern Africa, is expected to

DRA-development 20 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis become self-funding in the near future. The purpose of the SDI is to attract new investments into the area and to build upon the already existing strengths of the area.

It has been recognised by many that the strong export focus of the area, primarily of commodities and raw materials, has resulted in relatively poor links between the major industries in the area and the local economy. It is the specific goal of the SDI to strengthen those links.

Following are some of the immediate and future investment plans for the area:

¨ Creation of an Industrial Development Zone. ¨ Upgrading of the John Ross Highway – which currently serves as a major transport bottleneck in the area. ¨ Building of a Passenger Terminal and Cold Storage Facilities in the port. ¨ Regional Waste Disposal Site. ¨ The building of an additional coal terminal – South Dunes. ¨ Privatisation of Richards Bay Airport. ¨ A regional prison has been constructed in Empangeni and is due to be opened within months.

A number of potential industrial projects have been identified by the SDI and are currently undergoing further research. These include the beneficiation of aluminium, sugar products, heavy minerals, iron & steel, chemicals & fertilisers, and forestry products. SMME (small, medium and micro enterprises) and tourism investment opportunities have also been identified to play a key role in the economic diversification and employment creating goals of the SDI.

2.3.4 Transport, Utilities and other Infrastructure The most notable and already mentioned transport infrastructure within the catchment is the port in Ricards Bay. This port, opened in 1976 and operated by Portnet, has the largest bulk handing facilities in South Africa and handles more than half of all cargo passing through South African terminals. The port offers a wide range of facilities including the largest coal handling terminal in the world (privately operated), a dry bulk terminal, bulk metal terminal, and a combi terminal which handles a diverse range of cargo (Portnet: 1998). There has also been request for the extension of the container handling facilities, but to date Portnet has not given any committed to extend beyond existing facilities.

Although the overall value of investment that has gone into the harbour has not been totaled it runs into the tens of billions with R3bn being spent in the last four years alone. Further investments and upgrades are planned for the future. The port is undoubtedly seen as the major catalyst for the growth of industry in the region with most of the major industries using the facilities to receive imported goods used in their production, to export their output or both. Many of the industries have direct rail or conveyor belt links to the port, otherwise road transport is utilised.

A network of railway facilities exists and is utilised, especially for the shipment of coal from other regions of the country to the coal terminal. Road infrastructure is considered generally adequate with a national toll road running through the catchment. The John Ross Highway which runs between Richards Bay and Empangeni has however been problematic and construction on a major

DRA-development 21 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis upgrade is about to commence. Airfields and passenger services in the area are also considered adequate to meet current demand.

Water-borne sanitation and purification plants in the catchment exist only in the two transitional local councils (TLC’s) – Richards Bay and Empangeni. Facilities elsewhere, except where the use of septic tanks and French drains are utilised, are generally considered inadequate and may pose a threat to the quality of the underground water system. Landfill sites for refuse disposal exist but are also considered inadequate, especially in and around burgeoning informal settlements. In terms of electricity, sufficient capacity exists and although Eskom is currently implementing a programme to supply rural areas, denser settlements are afforded greater priority. Telecommunication facilities are also undergoing further expansion and upgrading with Telkom’s long-term aim being the provision of telephonic services within 30 minutes walking distance for all residents. Coverage provided by cellular phone networks has also rapidly expanded and it is expected that total coverage from satellite will be foreseeable in the future (uThungulu Regional Council:2000).

According to the Imfolozi Subregional Plan, in terms of health services, seven new health facilities are required to meet present demand, whilst 12 additional secondary schools and 30 additional primary schools are required in the sub-regional. Tertiary educational facilities however appear adequate with the presence of Technical Colleges in Richards Bay, an Agricultural College in Empangeni and the University of Zululand (Ibid.).

2.3.5 Water Resource Management As the overall management of water resources in the catchment has already been well documented in other reports commissioned by the Department of Water Affairs, this section will focus primarily on domestic water supply and pricing within the two TLC’s that exist in catchment, namely Richards Bay and Empangeni.

2.3.5.1 Richards Bay TLC All water reticulated within the Richards Bay TLC comes by way of a pump and purification plant that draws water from Lake Mzingazi. This lake supplies all domestic, commercial and industrial (with a few exceptions) users that fall within the boundaries of the TLC. The pump draws between 38-40 megalitres per day – which is the maximum sustainable amount.

Whilst the TLC does not draw on any water supplied by Mhlathuze Water there is an emergency system in place whereby the water board can direct water straight into the lake if the need arises. The TLC pays Mhlathuze Water a fee of R 2 million per year for this guarantee. The TLC is also responsible for providing reticulated water to the three surrounding townships of Esikhawini, Vulindlela, Nseleni and the University of Zululand. These areas are supplied by a series of freshwater lakes and reservoirs except for the Nseleni Township, which draws its water from the Nseleni River. The TLC also supplies the small village of Kwambonambi with raw water.

The TLC believes that currently there is plenty of capacity to supply domestic consumption and growth in domestic demand should not cause any problems. The current average monthly consumption per stand was estimated between 30-35 kilolitres. The charges per stand per day issued by the TLC are:

DRA-development 22 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

¨ 0-500 litres R0.69 + VAT ¨ 500-1000 litres – R1.66 + VAT ¨ over 1000 litres – R1.93 per kilolitre + VAT

However a new pricing policy is to be introduced in July which will more heavily penalise those that consume more than one kilolitre per day per stand.

There is no difference in the price charged to households, businesses and industrial users within the TLC, or to the price during the wet and dry seasons. Within the TLC there are currently 21, 300 household stands and 1,700 commercial and industrial stands. The current water pricing strategy represents the cost of service delivery plus 10%, which is transferred to the TLC’s treasury. The TLC also has to pay a 50% abstraction levy to the Department of Water Affairs for the water drawn for Nseleni and Esikhawini.

The TLC is aware of problems of water wastage and is currently undertaking measures to counteract this. It is believed that up to 30% of water supplied to the three townships is wasted. This is due primarily to poor quality infrastructure and measures are currently being undertaken to address this. Wastage within the town of Richards Bay is at 10%, which is considered acceptable. The TLC to encourage greater efficiency in the use of water for domestic consumers imposes a number of restrictions and practices. At present there are no restrictions in place for industrial users.

2.3.5.2 Empangeni TLC Mhlathuze Water supplies the Empangeni TLC with water to its’ four reservoir sites in Empangeni and Ngwelezane. A total of 12 megalitres are pumped per day to keep the reservoirs full. Household and industrial tariffs are charged at the same rate, and due to recent capital expenditures, are more expensive than for Richards Bay, that being:

¨ 0 to 6 kilolitres per month – R 1.60 per kilolitre + VAT ¨ 6 to 30 kilolitres per month - R 4.41 per kilolitre + VAT ¨ Above 30 kilolitres per month – R 5.35 per kilolitre + VAT

The average monthly domestic water consumption is 19.8 kilolitres per occupied stand with a total of 6,449 households within the TLC reticulated with water. There are 181 general and light industries that are supplied with water. The average monthly consumption for commercial properties is 267 kilolitres and for industrial properties, 135 kilolitres. There are no major industries located within the Empangeni TLC. The price of water does not vary over the wet and dry periods (although an increase in demand is experienced over summer).

The TLC believes it can cope with the current level of demand and has responded to increases in demand over the past three years by the construction of a five megalitre reservoir at the Hillview site. This will supply a newly constructed prison, which is expected to require 2.3 megalitres per day. The new demarcation of district councils in South Africa has resulted in the two TLC’s being combined. How water resources will subsequently be managed by these TLC’s has not yet been resolved.

DRA-development 23 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

2.4 SECTION TWO: DISCUSSION AND CONCLUSIONS

South Africa, as a nation and as an economy faces a number of key challenges at this given point in history. In essence a paradigm shift has occurred in the governance of the country, from a separatist and semi-isolationist state to a developmental state geared towards a fairer distribution of resources. Whilst the ideology driving the country has essentially changed “overnight” the lag between changes in policy and their intended benefits is much greater.

The first key challenge of the economy is to at least avoid decline and to achieve growth in the economy. At a minimum this requires a growth rate in the gross domestic product which is at least equal to or above the population growth rate. Redistribution policies and strategies are also required to ensure a fairer distribution of what the economy does produce. The second major challenge, which is not detached from the first, is the need to address the high and unacceptable levels of poverty within the country. Whilst again policies and programmes geared towards delivering much needed basic infrastructure to the vast numbers of people who are without is essential, the creation of sustainable employment is the only long term solution.

In terms of the first challenge, the economy that operates within the Mhlathuze Catchment has made significant contributions. It is the third most important sub-region in the province and has achieved rates of growth twice that of the province and, at times, seven times that of the national economy. The major contributors to this growth have been manufacturing, agriculture and transport.

The catchment also has a strong link to the international economy with a significant amount of output destined for international markets. This has been primarily the contribution of a few large extraction and processing industries who have taken advantage of the abundance of natural resources, agricultural produce from the area, and the provision of specific infrastructure. The export orientation these industries play an important role is allowing the economy to gain access to much needed foreign exchange. The declining exchange rate of the South African Rand has generally been of benefit to these industries, the majority of whom are net exporters, making them much more competitive in international markets.

Although the area has achieved well in terms of economic growth, income and poverty measures appear to indicate that those living in the catchment have not benefited to the same extent. Compared with provincial statistics, it appears that the catchment has higher rates of unemployment, low levels of income, and those living within the catchment have poorer access to important services such as water, sanitation, electricity and telephones. Demographically, the catchment contains a slightly denser population, a higher proportion of Africans and a younger age distribution.

Employment according to sector does not reflect the proportion of each sectors’ contribution to output. Whilst the manufacturing sector contributes 55% to the regional GGP it only employs 13% of the workforce. On the other hand agriculture only contributes 6% to GGP yet employs 12.6% of the workforce. Clearly whilst the catchment can be termed an “engine of growth” within the South African economy, the same can not be said about its ability to generate employment. Both are of equal importance to the well being of the country.

DRA-development 24 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

Structurally there appears to be relatively weak links between the large industries and the rest of commercial activity within the catchment, whilst the agricultural sector has demonstrated much stronger links. This has been recognised by those in the area that are active in promoting economic growth, especially the Richards Bay Spatial Development Initiative and the Zululand Chamber of Commerce. These and other organisations are actively encouraging investment in activities that add value to that which is already produced in the area, with the creation of employment and entrepreneurial opportunities being the main criteria.

Whilst it will take a number of years for the benefits of these initiatives to be realised, it is a step in the right direction. However, given the great need throughout the catchment the extent to which benefits will be felt beyond the immediate Richards Bay/Empangeni area to the upper reaches of the catchment is limited. The creation of livelihoods and opportunities in these areas will require a greater focus on utilising natural resources and agricultural opportunities along with promoting local economic development.

This section has provided a general overview of how the Mhlathuze Catchment Area operates within a provincial, national and international characteristics, highlighting both similarities and differences. This then sets the context for investigating and analysing the dominant sectors within the catchment, namely industry and agriculture, and how these sectors vary in their contribution to output, employment, and their reliance on water and linkages to other economic activities within the catchment.

DRA-development 25 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

3 Section Three: Economies of the Dominant Sectors

The main purpose of this section is to examine in more detail the dominant sectors that exist within the catchment. Focus was maintained on trying to appreciate how much each sector contributes to the catchment in terms of: income generation; employment creation; strength of upstream and downstream linkages; reliance on water; and profitability. The main sectors investigated were: Industry – incorporating Paper/Pulp, Aluminium, Fertilizer, and Heavy Machinery; Mining – specifically Richards Bay Minerals; Agriculture – Subsistence and Commercial with a specific focus on sugar and forestry.

It must be noted at this point a number of constraints were faced that did not allow a comprehensive and all-encompassing analysis to be undertaken. This constraints included:

¨ Time – the research was undertaken within a limited timeframe.

¨ Shortage of comprehensive, specific and recent data.

¨ Sensitivity of Information. In most instances information required to carry out a comprehensive analysis was considered by most of the stakeholders to be of a sensitive nature and not available for external use. In other instances such information was not known or readily available to the key informant.

3.1 INDUSTRY Almost all industrial activity within the catchment is located in Richards Bay. Five major companies dominate the landscape and have often been referred to as “the Big Five”, that being; Billiton – Hillside and Bayside Aluminium Smelters, Bell Equipment, Indian Ocean Fertilizers, Mondi Kraft and Richards Bay Minerals. A discussion on each follows.

3.1.1 Aluminium - Hillside and Bayside

3.1.1.1 History Richards Bay hosts South Africa’s only two aluminium smelters - Bayside and Hillside. Formerly known as Alusaf, the Bayside smelter was one of the first industries to be established in Richards Bay, commencing production in May 1971 with Genmin, Eskom and the Industrial Development Corporation being its major shareholders (SSM: 1993). Commencement of the new Hillside began in 1993 and was completed in 1995 to the value of R5.2bn. The decision to build Bayside, and subsequently Hillside, in Richards Bay was based upon the existence of the harbour and available land close to the harbour, and Eskom’s ability to supply the required high voltage electricity to the two plants. Billiton took 100% ownership of the two plants in June 1996.

DRA-development 26 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

3.1.1.2 Production and Output The Hillside smelter produces high quality aluminium ingots whilst the Bayside plant produces rod, which is used for electrical cabling, casting alloy – for wheels, billet – which is used by the building industry, slab – aluminum sheeting and t-bar – which is used for remelting.

Table 14: Key Indicators - Aluminium Hillside Bayside

Output in tons for 1999 501 000 178 000 Contribution to GGP in 1999 R 3.6 bn R 1.46bn % of Output Exported 100 % 33 % Estimated Value of Fixed Capital* R11.2 bn R 3.8 bn Major Inputs: Imported Alumina, Petcoke, Pitch Alumina, Petcoke Locally Sourced Electricity Pitch, Electricity Number of Employees 1050 1200 Human Resource Costs p.a. – Permanent Contractors R 144m R 180m R 12m Value of procurement to local firms R 300m – R 400m *Based on an industry standard of US $3500 per tonne produced

The Hillside smelter has an international focus with all of its output being exported, as well as a large proportion of its inputs being imported. Declines in the exchange rate have not had a negative affect on the smelter as increases in the price of inputs have been offset by increases in the export price. All aluminium is sold on the London Metal Exchange which determines prices according to world supply and demand and as such the two smelters have no influence over the price at which they sell their aluminium. The marketing of the commodity is undertaken by a company based in Holland which attempts to hedge against fluctuating prices.

The Bayside smelter produces a wider range of products which require more complex processes and as a result the smelter is more labour intensive. This can be seen by the fact that it employs roughly the same amount of people as Hillside which produces 2.5 times more in output. Such labour intensity is also due to the much older technology that exists at this smelter. Two-thirds of the products are sold within South Africa and the marketing takes place in Richards Bay. Two of the largest buyers are Huletts – who are based in Pietermaritzburg and Tiger Wheels, who are based in Gautang. All other products are distributed throughout the country. As their products are used by a number of industries demand is not based on any one particular cycle and therefor remains reasonably constant.

The Hillside smelter is currently operating at maximum capacity and produces 42, 000 tons of aluminium per month. A one-year feasibility study is currently being undertaken to consider adding another “half-sized” potline which would increased production by 30% and create an additional 2, 000 jobs during construction and 100 permanent jobs. The value of the expansion would be R2.5bn (Zululand Observer, Feb 29,2000).

The current prospects for aluminium look extremely positive with the industry enjoying a growth rate of 12.5% per annum. There does not appear to be any major threats to the viability and sustainability of the industry. The Hillside smelter does not benefit from any government protection

DRA-development 27 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis measures and neither does Bayside. However in the past Bayside did benefit from the General Export Incentive Scheme and Accelerated Tax Allowances.

3.1.1.3 Upstream and Downstream Linkages The Hillside Smelter has limited linkages to the local and regional economy. As illustrated above other than labour and electricity, major inputs to the smelter are imported and all of its output is exported. However service requirements that are not part of the core activities of the smelter, such as transportation and some maintenance functions, are out-sourced to local businesses – to the value of R300 - 400m per year. The smelter also gives approximately R10m per year to the Corporate Social Investment Programme which is run by the Zululand Chamber of Business Foundation.

There are currently a number of feasibility studies being undertaken which are investigating the potential for locally based aluminium beneficiation. Possible projects identified by the SDI include an aluminium auto components foundry, cast aluminium wheels, aluminium extrusions and alunimium components for residential buildings.

3.1.1.4 Employment and Labour Relations Hillside Aluminium smelter employees 1, 050 people, all of whom are either skilled workers or professionals. The minimum qualification required of all workers is a matric pass. When the smelter recruited its workers the majority were drawn from the surrounding area with 200-300 employees recruited at a national level. A small team of eight aluminium experts drawn from an international pool is also currently under contract.

The Bayside smelter currently employees 1, 200 people although it is in the process of retrenching workers in order to reduce costs. It is expected that the number of people employed will decline to 1, 000 over the next 18 months.

3.1.1.5 Water Usage The Bayside and Hillside smelter vary greatly in their use of water and what they pay for it. In the case of Hillside, the smelter purchases its’ water directly from the Richards Bay TLC and consumes approximately 65 000m3 per month. At rates provided by the TLC this translates to an approximate expense of R1.7m (including VAT) per annum. Although on its own this appears to be a large amount of money, compared with overall output the expense is less than 0.5 % of the plants turnover. Relatively speaking, Hillside does not consider itself a water-intensive operation and is not overly concerned with water prices.

The situation however varies somewhat when considering the Bayside smelter. This smelter is nearly thirty years old and is not as technologically advanced and efficient as the Hillside smelter. In particular Bayside uses a “wet” scrubbing system to clean pots whilst Hillside utilises a “dry” system. As a result Bayside consumes a considerably higher amount of water and draws 115 583m3 per month but only has a water bill of R240, 000 per annum. This is due to the fact that the smelter has free extraction rights from Lake Mzingazi from which it draws 3, 500m3 per day. The

DRA-development 28 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis remaining daily consumption of 300m3 is used for human consumption and is bought from the TLC. The smelter does have to pay for the maintenance of the pipes to the lake, but this is quite minimal.

Bayside undertook research last year to establish if the recycling of water would be possible. It was found that it was not feasible and in any case would have only save 1, 000m3 per day as the remaining water is too toxic for reclamation. Even though Bayside uses 1.78 times more water than Hillside, it’s current water expenses are 14% of Hillside’s. If Bayside was to pay the same for its water usage as other users, its water expense would increase fifteen fold to R3.75m. Such an increase in the cost of water may influence the financial viability of the plant.

3.1.2 Heavy Machinery - Bell Equipment

3.1.2.1 History Bell Equipment are manufacturers of heavy vehicles including articulated dump trucks, front-end loaders and sugar and timber handling equipment. The company was established in 1960 in Empangeni and moved to Richards Bay in 1984. Unlike other major industries, the decision to locate in Richards Bay was based upon the preference of the founder was a local resident. Bell Equipment is not reliant on local features, such as the harbour, for its operation and in fact most of their goods move though the Durban harbour.

3.1.2.2 Output and Production Table 15: Key Indicators – Heavy Equipment 1999 Contribution to GGP R 604m % of Output Exported 55 % Estimated Value of Fixed Capital R 25 m Major Inputs: Imported Engines, tyres & rims, transmissions, Locally Sourced labour, steel Number of Employees 1000-1200 Human Resource Costs p.a. R 108m Value of procurement to local firms 15% of operating expenses

Whilst all manufacturing activities take place in Richards Bay, the Bell Group consists of branches and subsidiaries throughout Southern Africa, Europe, the Americas, Australasia and Asia, who are primarily responsible for sales and after market support. Most of Bells’ products are sold to construction, forestry, sugar and mining industries and agriculture and as a result the company is very much affected by commodity cycles, and in particular the Gross Domestic Fixed Investment Cycle.

Due to the nature of their business, Bell is very working capital intensive with long supply chains. This leaves their operations reliant on access to finance with the past few years of high interest rates having a very negative affect on their operations and profitability. Bell has made every effort to come up with other solutions to this problem without resorting to labour retrenchments as the company places high value on its labour and level of skills it has invested in them. One such solution has been the recent strategic alliance with “John Deere Construction Equipment Company” – an international leader in the industry. This alliance consisted of a 30% transfer of

DRA-development 29 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis ownership to the approximate value of R180m. As a result the company now has access to additional working capital as well as a major construction equipment player that will distribute their products under the “John Deere” label.

The company did, for some time, benefit from General Export Incentive Scheme which offered protection to the value of R15m, which has since been lost. However the company is currently participating in the Support Programme for Industrial Innovation - which offers a matching grant of up to R1.5m of direct costs, and the Motor Industry Development Programme.

Growth potential of the company is very much dependent on quality demand and labour productivity. If increases in labour costs are not matched with increased labour productivity then Bell could be forced to consider moving some of its production activities offshore.

3.1.2.3 Upstream and Downstream Linkages Upstream and Downstream Linkages between Bell and the rest of the catchment are weak. Other than the R 108m that is spent annually on human resources and 15% of operating expenses which are spent locally, most of the linkages to and from Bell Equipment are at a national and international level. Only 2-3% of sales of Bell Equipment takes place within the Zululand region. However, it was estimated by Bell that for every one job created at Richards Bay three other jobs are created elsewhere in the region. There was no way of verifying this.

3.1.2.4 Employment and Labour Relations Bell Equipment describes its manufacturing activities as ‘labour intensive’ with the majority of all value added attributable to its employees. As such it is one of the largest employers in Richards Bay. As mentioned earlier the company makes every effort to retain its employees despite large fluctuations in the market and has not yet taken on forced retrenchments. Bell maintains a close working relationship with labour unions and to date has not been affected by any major industrial action.

The skill structure of the staff at the Richards Bay plant consists of 100 professionals – mainly engineers, 100 clerical staff, 200 skilled workers, 500 semi-skilled workers and 100 unskilled workers. Most of the workers come from surrounding areas with 35% coming from Richards Bay, 10% from Empangeni and the remainder from Esikhawini and other surrounding areas. One issue of concern regarding labour raised by Bell was that of HIV/AIDS which the company has recognised as a potential threat to its human resources and as a result has already engaged in awareness raising campaigns

3.1.2.5 Water Usage The operations of the plant are not reliant upon water and water consumed represents mainly human consumption and hygiene. For 1999 the plant consumed 32, 900 m3 of water for the year and had a water bill of approximately R63, 000 which equates to less that 0.5 % of its output. Water to the plant is supplied by Richards Bay TLC.

DRA-development 30 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

3.1.3 Fertilisers - Indian Ocean Fertilisers

3.1.3.1 History Indian Ocean Fertilisers (IOF) was established in 1987 under the joint ownership of Foskor and OTP, the state-owned Togolese phosphate rock producer. The plant was bought from Triomph Fertilizers who built the facilities in 1976. The plant manufactures phosphoric acid and granulated fertilizers and is the largest phosphoric acid manufacturing facility in the Southern Hemisphere.

3.1.3.2 Output and Production The IOF plant can produce 750, 000 tonnes of phosphoric acid and 500, 000 tonnes of fertiliser per year. The company has enjoyed continued increasing demand with the rand value of gross output more than doubling between 1995 and 1999 (not adjusted for inflation). New markets, increased sale prices and favourable foreign exchange rates have been the main contributing factors to this growth. Concurrent to this has been an average fixed capital investment of R20 million per year for the past five years. Also currently under construction is a R1.5bn extension that will enable an 80% expansion of present facilities, create 90 new permanent jobs (1, 000 the construction phase) and increase turnover to R 2 billion per year. The construction phase is expected to last 2 years and the company will benefit from a 2-year tax holiday on this investment. IOF has benefited from the General Export Incentive Scheme in the past.

Table 16: Key Indicators – Fertilisers 1999 Contribution to GGP R 946m % of Output Exported 78 % Estimated Value of Fixed Capital R 1 bn Major Inputs: Imported phosphoric rock, sulphur, ammonia Locally Sourced electricity, labour, water, ammonia Number of Employees 525 Human Resource Costs p.a. R 70 m

Over half of the plants inputs are imported whilst 78% of its products are exported. The primary buyers of the phosphoric acid are India, Brazil and Indonesia, whilst Australia, Pakistan, India, Mauritius and Vietnam buy most of its granular fertiliser. The company’s major competitors are OCP of Morocco, GCT of Tunisia and Phoschem of the USA. Internationally, the industry is not heavily protected and IOF is a relatively small player on the world market. Overall, the growth potential of the industry as a whole is estimated at 2% per year.

3.1.3.3 Upstream and Downstream Linkages Linkages between IOF and the catchment appear relatively weak as the majority of its output is destined for export markets and no further beneficiation occurs after production. Just over half of the value of its inputs (52%) is exported, with the majority of the remainder – labour, electricity and water, being sourced from within the catchment. IOF has recently implemented an affirmative procurement programme which gives preference to locally based empowerment companies.

DRA-development 31 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

3.1.3.4 Employment and Labour Relations IOF employs 525 people, comprising of 15 unskilled, 220 semi-skilled and 290 skilled and professional employees. All of the plant’s labour is sourced from within the catchment area. Sub- contractors and consultants make up approximately 1.5% of the human resource budget. Whilst the Labour Equity Act and the Skill Development Act has impacted upon IOF, it has not lead to any shift towards greater capital intensity.

3.1.3.5 Water Usage Indian Ocean Fertilisers consumes 5.6 million m3 of water per annum which it purchases from Mhlathuze Water at a price of R1.93m3. Their total annual water bill is approximately R11 million. This expense represents 1.2% of its overall gross output. IOF does not have any options to improve its efficiency in water consumption. The plant currently recycles storm water that is collected at its storm water sump – which reduces the use of treated water that is purchased from Mhlathuze Water.

3.1.4 Paper and Pulp - Mondi Kraft

3.1.4.1 History Mondi Kraft is a division of Mondi LTD which belongs to the Anglo American Group. The Mondi Kraft mill was built in 1985 and is one of the largest single-line operations of its kind in the world. The mill produces pulp and linerboard for paper making and packaging.

3.1.4.2 Output and Production Table 17: Key Indicators – Paper and Pulp 1999

Mill Capacity 600 000 tonnes per annum Contribution to GDP > R 2.457bn* % of Output Exported 65% Estimated Value of Fixed Capital R 3 bn Major Inputs: Imported Chemicals Locally Sourced wood, water, electricity, chemicals Number of Employees 940 Human Resource Costs p.a. >R200 million Value of procurement to local firms > R100 million *Estimated from other sources.

The main reason for the mill to be located in Richards Bay was it’s close location to Mondi plantations and to the harbour, as a large percentage of its processed timber is exported. Transportation costs are the single largest costs to foresters, so the mills’ location is obviously strategic. The mill underwent two expansions, in 1995 and 1996 which increased its capacity by 110 000 tonnes per annum. The site has the capacity to significantly increase its output. However due to uncertainties in the forestry industry, especially regarding the new National Water Act, all investments have since been put on hold.

DRA-development 32 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

3.1.4.3 Upstream and Downstream Linkages Apart from direct linkages to the economy through the employment of labour at the mill, as well as the purchase of inputs such as water, electricity and chemicals, the mill has a strong link to various catchments in that it is dependent on fibre for production. Mondi processes timber grown by Mondi plantations, as well as Safcol, Sappi, private and small growers. The mill processes fibre grown along the northern Kwazulu-Natal coastal belt, and inland as far as Sabie in Mpumalanga. The forestry plantations located in the Mhlathuze catchment play an important role in providing the mill with fibre as the Mhlathuze is a high yielding catchment, in close proximity of the mill. There is a total area of approximately 55, 400ha of forestry planted within the Mhlathuze catchment, which accounts for 13% of the catchment area, of which Mondi owns approximately 25, 000 ha (45% of that total).

A large percentage of the pulp that is not exported by Mondi is sent to Mondi Merebank (just south of Durban), which processes the pulp into paper. The implication of this is that the production from the Richards Bay mill supports the Durban regional economy in that further inputs are needed to process the pulp into paper.

Both Mondi forests and the mills are managed from various locations throughout South Africa. Although the mill is not solely responsible for the employment of all the management staff, it does contribute significantly to their employment. Consequently, the mill has strong linkages with the local, regional and national economy.

3.1.4.4 Water Usage Subsequent to the recent increase in production capacity, the mill is estimated to use 80,000 m3 per day or 29.2 million m3 per annum. The water is purchased directly from Mhlathuze Water Board at a cost of R1.28/m3. This equates to a water bill of R3, 072,000 for an average month, or R37, 376,000 Rand per annum.

Mondi has researched the feasibility of recycling the effluent water, approximately 70,000m3/day, however given current levels of technology, such an option was found to be unfeasible. Should Mondi double its processing capacity and introduce increased water use efficient processing technology, the new production process will use a fraction of the water currently used.

3.1.5 Mining - Richards Bay Minerals

3.1.5.1 History Richards Bay Minerals (RBM) was established in 1976 by the Industrial Development Corporation, which had discovered evidence of large heavy mineral deposits in the dunes near Richards Bay. At the time the other major stakeholders were Gencor, Old Mutual and RTZ – an internationally based organisation (SSM:1993). Richards Bay Minerals is now jointly owned by Billiton plc, a London based company and Rio Tinto plc, a Canadian company. RBM is a leading world producer of high purity iron, zircon and titanium minerals and meets all of South Africa’s demand for titanium and zircon sand, and most of its pig iron requirements. Other than the existence of ore bodies, the availability of water and power was the other determining factor for choosing the Richards Bay location.

DRA-development 33 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

3.1.5.2 Output and Production Table 19: Key Indicators – Mining 1999 Contribution to GGP R 3.5 bn % of Output Exported 95 % Estimated Value of Fixed Capital R 12 bn Major Inputs: Imported Process control computers, instrumentation, transformers Locally Sourced Labour, electricity, coal (60%), electrodes, water, heavy mineral concentrate Number of Employees 2 180 Human Resource Costs p.a. Not available Value of procurement to local firms 48% of support services budget

RBM has enjoyed a continual growth in demand for its products with its output growing from R 778m in 1990 to R 3.5 bn in 1999 and, like other industries, has been adversely affected by high interest rates which have increased their cost of finance. However as almost all of the output is exported and only a minimal amount or inputs are imported, declining exchange rates have been advantageous to RBM. International sales are not hedged on world markets whilst the purchase of its imported inputs are. Products, which are exported, include Titania slag, high quality pig iron, rutile and zircon. The majority of these exports (80%) go to North America and Europe whilst the remainder goes to South East Asia and the Far East.

As mentioned earlier, RBM is a leading producer and currently supplies one-quarter of the world’s pigment and welding rod market, one-quarter of the worlds supply of iron for ductile iron castings and one-third of the world’s zircon supplies. As a result RBM does have a significant influence on international prices. The company’s major competitors include Australian and Norwegian companies and Namakwa Sands, located on the west coast of South Africa – which is owned by Anglo American. RBM however is probably the most dominant competitor of the group.

Major investments that have taken place in the last five years include the building of a fifth mining plant, which cost approximately R 1 bn. No major investments are planned for the near future. Growth in the mining industry is currently around 2.5% p.a. with economic reserves available for the next twenty-five years. The major determinants of this growth, especially in Richards Bay, are the availability of suitable ore bodies.

RBM has also been actively involved in social investment and has been running programmes since 1976. The main focus of these programmes have been on education, rural development, primary health care and job creation through RBM’s Small Business Advice Centre. Approximately R22m was directed through the Zululand Chamber of Business Foundation in SMME procurement in 1999.

3.1.5.3 Upstream and Downstream Linkages Although the majority of output from RBM is exported, representing weaker downstream linkages, upstream linkages between the company and the catchment appear much stronger. All of the major inputs required by the operation, which include labour, electricity, electrodes, water and

DRA-development 34 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis heavy mineral concentrate are all sourced from within the catchment whilst 60% the other major input, coal, is sourced from within the catchment. Of the total amount spent on support and commercial services, 48% is procured from within the catchment.

3.1.5.4 Employment and Labour Relations Introduction of new legislation including the Labour Relations Act, Basic Conditions of Employment Act, Skills Development Act, Employment Equity Act and Skills Development Levies Act have impacted on RBM and they have adjusted their conditions of services accordingly. Whilst RBM does not have a retrenchment policy and relies on natural attrition, the increasing labour costs and labour ‘rights’ has led to a tendency to reduce dependency on labour. There have been a number of projects that have resulted in a reduction in the amount of manual labour required as a result.

Nine out of ten of all unskilled labour comes from within the Richards Bay TLC whilst this is true for 99% of all skilled labour. Also at any given time, the operations employ approximately 1, 500 contract and part time employees.

3.1.5.5 Water Usage The mining operations of RBM falls outside the Richards Bay TLC and water is therefore not purchased from them. The water operations of RBM are highly water intensive with the four mining plants plus the smelter using 90 000m3 per day. This demand is expected to increase to 110 000m3 per day for 2000. The total water demand for 1999, including recycled water, was 32.9 million m3. RBM recycles 25% of its total demand and 80% of water used seeps back into the ground water system. Water is sourced from the Umfolozi River (Sokhulu Reservoir) and the Nhlabane and Mposa lakes.

Apart from an emergency supply that is available from Mhlathuze Water, RBM put in place the entire infrastructure to access water from the above sources. The cost per month varies depending on the where the water is sourced from, with the amount ranging from R 250 000 to R 720 000 per month – although this does not include the maintenance and operating expenses.

3.1.6 Other Industries in Catchment

Numerous other industries exist within the catchment which also make important contributions to the area. Whilst it is not possible to survey them all a few others deserve mention. The Central Timber Cooperative was established in Richards Bay in 1981 and is one of the top producers of wood chips for South Africa and is one of the top six suppliers in the world. A larger proportion of the wood chips is exported to Japan, Taiwan and Finland. The plant receives inputs from within the catchment and other areas of the country and represents a downstream linkage from the forestry sector. SilvaCel, another important downstream linkage from the forestry sector, also produces wood chips for the export market (SSM:1993).

Suncrush, one of South Africa’s largest producers of carbonated soft drinks is located in Richards Bay. The factory’s main inputs include carbon dioxide concentrate – which is imported, sugar and

DRA-development 35 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis water. Syncat – the only producers of Zeolite catalysts in South Africa – is also located in Richards Bay. The company is 60% owned by the Central Energy Fund with a German company holding the remaining share. Approximately 90% of the operations’ inputs are imported and, as well as supplying South Africa, its products are also exported to the US, Europe and the Far East (SSM: 1993).

The Felixton Sugar Mill, owned by Tongaat-Hulett, is located on the Mhlathuze River crushes 2.5 million tonnes of cane in a nine-month season and receives cane grown mainly within the catchment. A total of 350 people are employed at the mill during its nine months per year operation whilst the plant generates a turnover of R 400m. The plant is a net generator of water in that the volume of water extracted and treated from the sugar cane is greater than what the plant takes from the river. Approximately 2, 000 m3 is returned to the Mhlathuze River each season.

3.1.7 Corporate Social Investment Many businesses within the catchment have recognised the relatively low impact of their operations on levels of impoverishment and have been actively involved in corporate social investment since the 1980’s. Richards Bay Minerals initiated a Business Advice Centre in 1986, which is now widely funded and serves to promote small business through training, free advisory services, affirmative procurements and helping small business gain access to credit. The Zululand Chamber of Business has recently developed a tendering service which gives accreditation to SMME’s (Todes et al:1999).

The Zululand Chamber of Business Foundation was founded in 1994 and has four main portfolios: education; SMME development; Health and Welfare; and Finance and Administration. From March 1999 to February 2000 approximately R11 million in procurement was directed through the foundation from the private sector. The main services utilised include construction, civil engineering, services such as gardening and cleaning, and transport.

DRA-development 36 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

3.2 AGRICULTURE Agricultural production, both in the commercial and subsistence, forms another dominant sector of the catchment landscape. The depth and accuracy of information gathered on this sector varied greatly and was dependant upon the level of research that had already taken place in the catchment as well as the willingness of stakeholders to disclose confidential information.

3.3 COMMERCIAL AGRICULTURE6

Much of the information in this section of the report is based on organisational knowledge and informal discussion with farmers and involved persons. The information may therefore be subjective at times. The areas of the major crops grown in the catchment with the value of the investment, turnover, foreign exchange earning, and employment will be shown.

The future growth of commercial agriculture in the region is limited by the availability of land and water. Macro economic factors affect the profitability of existing commercial agriculture and the balance between which crops which are grown on the existing cultivated lands. Added to the economic factors is the effect of variable weather conditions leading to a production risk.

Commercial agriculture in the region is highly dependent on the world markets for citrus and sugar and the exchange rate to determine rand prices and profitability. Further to this there is a high level of borrowing in the commercial agricultural sector, which make the region sensitive to high interest rates. Any new development in agriculture is unlikely given the present levels and uncertainty of the above factors. Given a change in these macro economic factors the present situation may change.

The contribution of commercial agriculture to the catchment is reflected in Table 21 and 22 (see further) in terms of turnover, foreign exchange and employment and is discussed later. However the stability and security which commercial agriculture brings to the rural areas must be a major economic asset to the catchment area. Approximately 60% of the water available for abstraction from the Goedetrouw Dam and the Mhlathuze River system has been allocated by government for agricultural use (Braum, 1997).

6 See Appendix One for the assumptions that the following analysis is based on.

DRA-development 37 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

3.3.1 Sugar Cane

3.3.1.1 Global Context The sugar industry is mature, well established, and organised through the South African Sugar Association. Within a global context, table 20 reflects that South Africa is the 12th largest producer of sugar with Brazil, the European Union (EU) and India producing a large proportion of the world production. South Africa is the 7th largest exporter of sugar with Brazil, the EU and Australia being the dominant exporters. In terms of production costs of sugar South Africa ranked 9th for the period 1987 to 1991. This situation would change with fluctuations in the exchange rate. However it does reflect that South Africa is competitive on a global basis in terms of the production costs. It is important to note that the EU is the second largest producer and exporter even though the production costs are almost doubles that of South Africa.

Table 20 Estimated 1998/99 World Sugar Production, Exports Costs (1987/88-1991/92) World Production (top 20) World Exports (top 20) World Sugar Production Cost Tonnes Tonnes * Stowed (million) (million) Rank Country Sugar Rank Country Sugar Rank Country Cost ($) (per tonne) 1 Brazil 19.1 1 Brazil 10.1 1 Guatemala 234 2 EU 17.5 2 EU 5.2 2 Zimbabwe 235 3 India 16.4 3 Australia 4.4 3 Swaziland 250 4 China 8.9 4 Thailand 3.6 4 Thailand 251 5 USA 7.3 5 Cuba 3.1 5 Columbia 256 6 Thailand 5.5 6 Guatemala 1.3 6 Brazil (CS) 258 7 Australia 5.2 7 South Africa 1.3 7 Fiji 271 8 Mexico 5.0 8 Colombia 0.9 8 Australia 273 9 Pakistan 3.8 9 Mexico 0.7 9 South Africa 294 10 Cuba 3.6 10 Turkey 0.7 10 India 303 11 Turkey 2.9 11 Mauritius 0.6 11 Mauritius 314 12 South Africa 2.6 12 Pakistan 0.6 12 Philippines 320 13 Poland 2.3 13 Poland 0.5 13 Cuba 338 14 Colombia 2.2 14 China 0.5 14 El Salvador 348 15 Ukraine 2.0 15 Persian Gulf 0.4 15 Dominican Rep. 349 16 Argentina 1.9 16 Ukraine 0.4 16 Argentina 371 17 Guatemala 1.8 17 Swaziland 0.3 17 China 485 18 Indonesia 1.6 18 Fiji 0.3 18 Turkey 485 19 Philippines 1.6 19 US 0.3 19 Poland 563 20 Russia 1.4 20 Guyana 0.2 20 EU (France) 570 Source: LMC/SACGA

DRA-development 38 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

* = Total cost of growing, milling and transportation of sugar to exportable point

The South African sugar industry is protected by an import tariff that effectively excludes competition from imports. Approximately 75% of the world’s consumption is consumed within each producers country, on average. About 16% of consumption is tied up with long term contracts and trade agreements (e.g. LOME and USA quotas). Only 9% is traded on the New York and London commodities market.

Thus the world price is extremely volatile. This has lead to protection in most sugar producing countries. The EU and USA in particular have very high levels of protection. Consequently, South African producers cannot compete on the local market without protection despite being internationally competitive.

3.3.2 Sugar within the Mhlathuze Catchment Within the South African sugar industry the Mhlathuze catchment area is one of the higher yielding regions. The average for the Felixton mill cane supply area was 58 tons per ha per annum in 1999 compared to the industry average of 50 tons per ha per annum. The Mhlathuze catchment produces about 12% of the industry's cane. Figure 12 below illustrates the distribution of sugar cane growing areas within the catchment7.

Figure 12: Sugar cane growing areas in the Mhlathuze Catchment.

# Babanango Ulundi # St. Lucia E stuary#

M tubatu ba #

Mel moth # Nkandla # # KwaMbonambi

# Empangeni Goedertrouw D am # Richards Bay

Eshowe #

Mtunzini #

Gingindlovu # N

Isithebe #

1 0 0 1 0 20 K ilomete rs

Tugela

7 Please note that this map is in the process of being updated and does not represent all sugar cane grown in the area.

DRA-development 39 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

The Felixton sugar mill owned by Tongaat Hulett Sugar Ltd. is relatively modern, being completed in 1984. It is the largest mill in South Africa and the South African milling efficiency is world competitive producing high quality sugar. This efficiency is reflected in the low cost of producing sugar. Thus overall the Mhlathuze cane growing area is competitive within the South African sugar industry and the industry is competitive within a global context.

3.3.2.1 Investment, Turnover and Foreign exchange Earning Table 21 reflects the areas of major crops under irrigated and dryland agriculture and the total value (investment) of the agricultural areas based on assumed land values. These land values are estimated and, although considered to be reasonable, are based on personal knowledge. No detailed study of the average value has been done. The cane area shows total values of R 229m and R346m for irrigated commercial cane and dryland commercial cane areas respectively.

Table 21 Major Irrigated and Dryland Crops, Areas, Investment, Annual Turnover and Foreign Exchange earnings Area Investment Turnover Forex Ha R millions R millions R millions Irrigated Crops Citrus 2,206 88.24 67.50 67.50 Fruits/Vegetable 377 9.43 4.50 - Commercial cane 9,547 229.14 77.64 34.94 Small grower cane 910 11.19 6.50 2.93 Total irrigated 13,040 338.00 156.14 105.36

Dryland Crops Commercial cane 19,237 346.26 134.64 60.59 Small grower cane 8,820 73.20 33.92 15.27 Total dryland 28,057 419.47 168.56 75.85

Irrigated and dryland Total Irrigated 13,040 338.00 156.14 105.36 Total Dryland 28,057 419.47 168.56 75.85 Total 41,097 757.46 324.70 181.22

The small grower sector has been valued at the cost of standing crop and roots only with no value being attached to the land, which does not have a secure tenure basis. The turnover at an average expected yield based on the latest declared provisional sucrose price from South African Sugar Association is shown in table 21. The total turnover from irrigated sugar cane is estimated at R84 million and from dryland cane at R168 million. The foreign exchange earnings are based on exporting 45% of the crop and thus the irrigated cane estimate is R38 million and the dryland cane estimated at R76 million.

3.3.2.2 Growth Potential There is limited potential for horizontal growth of commercial cane within the Mhlathuze catchment area. The potential growth would be within the small grower sector. There are approximately 1, 000 ha of irrigated area for which there is water allocation at this stage. Further to this it is estimated by

DRA-development 40 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis the Tongaat Hulett’s extension services that there is the potential for another 2, 000 ha of dryland cane. Further, research has indicated that the Mhlathuze river system has a moderate sodicity hazard and relatively high chloride concentrations, thus limiting the potential for increased growing of sugarcane under irrigation in the Mhlathuze catchment (Meyer and van Antwerpen, 1995).

3.3.2.3 Employment Table 22 reflects that 2, 296 people are employed on commercial irrigated cane farms and 3, 982 people are employed in commercial dryland cane. Realised employment figures are higher than those originally predicted by Ridgway (cited in Compton, 1993) for the Heatonville Irrigation Scheme.

The majority of employees are provided with housing in villages on the farms and are given various levels of services in terms of running water and electricity at the direct expense of the grower. The total of labour costs, as given in table 23 come to R65.15 million which averages out to an annual wage of R 8026.36 per employee.

Table 22 Major Irrigated and Dryland Crops showing Employment and Dependants Area Direct ha Employment Irrigated Crops Citrus 2,206 1,655 Fruits/Vegetable 377 377 Commercial cane 9,547 2,296 Small grower cane 910 296 Total irrigated 13,040 4,623

Dryland Crops Commercial cane 19,237 3,982 Small grower cane 8,820 1,543 Total dryland 28,057 5,525

Irrigated and dryland Total Irrigated 13,040 4,623 Total Dryland 28,057 5,525 Total 41,097 10,149

3.3.2.4 Linkages The bulk of cane grown in the catchment area is delivered to the Felixton sugar mill, which is situated at Felixton. The balance of the cane (5, 130 ha from Melmoth) is delivered to the Amatikulu sugar mill situated outside the catchment area at Amatikulu. The Felixton mill averages 405 direct employees annually. The sugar is sent to a refinery in Durban and either sold on the local market or exported via the sugar terminals in Durban. The replacement value of the sugar mill would be in the region of R1, 200 million.

DRA-development 41 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

3.3.2.5 Downstream activities Apart from seedcane requirements all cane produced is sold to the sugar mills from which it is sent to a refinery in Durban.

3.3.2.6 Upstream activities The suppliers of inputs into cane growing would constitute the major upstream activity. Table 23 illustrates the major costs of growing cane and the approximate expenditure for the catchment area as a whole. It can be seen that irrigated cane would spend approximately R54 m excluding labour costs, and the dryland area R95 m. Additional to this cane growing is carried out essentially by small family farms and little money is transmitted outside the region in terms of dividends or profits.

Table 23 Upstream expenditure on cane Irrigated – 10 457 ha Dryland – 20 857 ha Total

Costs R/ha R million R/ha R million R million Transport 1063 11.11 856 24.02 35.14 Fert/chem 1088 11.38 1129 31.66 43.04 Labour 1873 19.59 1624 45.56 65.15 Maintenance 870 9.10 491 13.77 22.87 Fuels 428 4.48 269 7.54 12.02 Admin 854 8.93 491 13.78 22.71 Elect/water 872 9.11 137 3.84 12.95 Total 7048 73.70 4997 140.18 213.89

3.3.3 Citrus The citrus industry in South Africa has to a certain extent been fragmented particularly with regard to marketing. There has been a transition to more open marketing with a number of new exporters. This has contributed to difficulties in recent years.

South African citrus is of a high quality in world terms and has historically been acceptable on the world markets. The Mhlathuze catchment production is no exception. The citrus is produced for the sole purpose of export and the local market sales for juice are small. No subsidies or protection is involved in the citrus industry.

3.3.4 Citrus in the Mhlathuze Catchment Table 21 reflects the area of citrus as 2, 206 ha, of which approximately 70% are grapefruit with the balance being Valencia oranges. Of this area it is estimated that 50% is between three and five years old . Trade liberalization and the opening of export markets to South African products during the 1990’s prompted the new planting of citrus. Irrigation allocations are estimated to be 11 000m3 per hectare per annum The consequence of this is that production can be expected to increase rapidly as the new trees come into production.

The total investment in citrus is difficult to assess, with the newly planted areas being such a high proportion. Added to this the actual market for citrus farms in the area shows little movement

DRA-development 42 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis except for forced sales. Therefore the value (investment) in citrus is a very subjective figure but is estimated at R88 m. The turnover from citrus is in the region of R67 m and is expected to rise significantly with the growing crop. This is all considered to be export citrus and therefore the foreign exchange earnings are also R67 m.

3.3.4.1 Growth Potential The growth of the citrus in the catchment area is mostly dependent on the marketing prospects. The last three years have seen disastrously low export prices and this has reduced confidence in the market (particularly grapefruit). The physical potential exists for replacing cane land with citrus. The exception to this is the Heatonville Irrigation scheme (some 5, 000 ha) which has a milling agreement whereby only cane can be grown.

3.3.4.2 Employment Table 22 shows the direct employment of 1, 655 employees in citrus. As with the cane farms the citrus farms also provide the housing and services to the majority of the direct employees.

3.3.4.3 Downstream activities There are 13 packsheds most of which pack for a number of growers. These are however essentially on-farm activities and the employment is included in the above figures. The packed citrus essentially goes from farm to the harbour with only the transport and the exporter involved.

3.3.4.4 Upstream activities The farm inputs required for citrus would include the fertilizer and chemicals at approximately R4.5 million, the maintenance requirements at R 2m, fuels at R2m and packaging requirements at some R10m.

3.3.5 Other factors affecting Commercial Agriculture in the Mhlathuze

3.3.5.1 Cost and Pricing of Water At present the cost of water is R0.0167 per m3. This equates to R184 / ha with 11 000 m3 per ha.

Table 24 shows the profitability of cane in the Mhlathuze region and of irrigated cane in general. It must be noted that the sample size of the Heatonville and the Nkwalini surveys are too small to be reliable and that the figures are for 1997 or 1998 thus they must be regarded as a guideline only.

From these figures it appears that the net farm income (before interest, depreciation and management) is in the region of R2, 000 to R3, 000 per ha. Thus water charges are already 6% to 9% of the net farm income. In the case of the total irrigation survey and the Heatonville survey there is effectively no ability to pay more for water with the net farm cashflow being negative or just positive. Thus the conclusion is that there is little room for an additional charge for water based on

DRA-development 43 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

these figures. However further investigation with a larger more representative sample would be required.

Table 24: Indication of the Profitability of Irrigated Cane Heatonville Nkwalini SACGA Total Irrigated SACGA Survey 1998* Survey 1997** Survey 1997 Item R/ton R/ha R/ton R/ha R/ton R/ha Income 131.72 8,382 124.22 9,344 125.03 10,979 Direct farm costs 104.75 6,666 85.36 6,421 92.47 8,120 Net farm income 26.97 1,716 38.86 2,923 32.56 2,859 Leases/H.P's/rent/interest: 42.58 2,710 8.79 661 26.45 2,323 Management: 10.20 649 5.52 415 2.64 232 Net farm cashflow (25.81) (1,643) 24.55 1,847 3.46 304 Average yield (t cane/ha) 64*** 75 88 Sources: Heatonville Survey Burns Economic Agriculture 1999, SA Cane Growers annual cost survey * = Sample size 6 growers, ** = Sample size 3 growers, *** = Area includes some dryland cane

No specific production costs are available but citrus in the region has been under substantial financial stress due to poor export prices. This highlights the risk involved in the growing of export fruits and thus the ability to pay the water tariffs as calculated by the water pricing policy is doubtful.

Any incentive to reduce the use of water, would need to revolve around the following:

· Charging only for water actually used and not per ha scheduled.

· Reduction in price per m3 with reduced usage to encourage more efficient irrigation systems, namely drip irrigation versus overhead would be considered if the additional water used by the overhead was at a greater price.

The present level of profitably from irrigation in the Mhlathuze catchment area is such that additional costs for water, as proposed by the pricing policy whereby the water charge increases to levels of R0.30 per m3 by the year 2008 or the equivalent present value of R2, 281 per ha, would make the growing of cane and citrus uneconomic.

There are effectively no alternative crops to replace the scale of the irrigated area. Thus the strategy of the irrigators would be one of fight or flight and either control would become extremely difficult or the water rights would be sold or relinquished with consequent socio-economic problems, unless the new water users created alternative employment.

3.3.5.2 Labour laws The labour laws have had the impact of effectively increasing the real cost of employing people. This has definitely caused a change to increased mechanisation. Mechanical loaders have been introduced on a wide scale and mechanical harvesters are now being introduced, but not on a wide scale at present.

DRA-development 44 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

3.4 SUBSISTANCE AGRICULTURE

Subsistence and small-scale commercial agriculture are important in the macro-economy of the Mhlathuze catchment area from the perspective that these activities account for 72% of land use in the catchment. Approximately 72.5% of these 256, 866ha are used for livestock grazing, primarily on unimproved grassland, degraded unimproved grassland, thicket and bush, and degraded thicket and bush. A further 23.8% is used primarily as land for arable subsistence crops (white and yellow maize, sorghum, dry beans, potatoes, sweet potatoes, amaDumbi, vegetables, fruit, cassava and cotton production (Natal Town and Regional Planning Commission, 1983)) and cash crops such as small-scale dryland sugarcane. Cultivated commercial sugarcane production takes place on 2, 456 ha, 1, 606ha of which, at Nkwaleni, is irrigated. Forestry plantations total 3, 556ha. The remainder of the land is mostly under natural forests, wetlands, mines and quarries, barren rock and urban areas (GIS data from CSIR database). Figure 13 illustrates the distribution of subsistence dryland agriculture within the catchment.

Figure 13: Subsistence Dryland Agriculture

# Babanango Ulundi # St. Lucia E stuary#

M tubatu ba #

Mel moth # Nkandla # # KwaMbonambi

# Empangeni Goedertrouw D am # Richards Bay

Eshowe #

Mtunzini #

Gingindlovu # N

Isithebe #

1 0 0 1 0 20 K ilomete rs

Tugela

Households in the former KwaZulu regions do not posses title deeds to their land. Use rights are assigned to the household head by a tribal authority in accordance with tribal laws and customs. Typically, households have exclusive rights to cultivated land and communal rights to grazing land. Customary law precludes the legal generation of a sale market for agricultural land.

DRA-development 45 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

The majority of arable land allocations are less than 2 ha per household. Fixed costs, e.g. indivisible costs of family labour, management, information and transaction costs, spread over these small areas imply that even under optimal technological conditions income from agriculture is low relative to wages in employment. Due to an imperfect land rental market8, plots are not consolidated. Consequently, few households farm their land intensively and much arable land lies idle (Fenwick, 1998). Even small-scale sugarcane farms normally only provide supplementary income for households (Anonymous, 1998).

Data from two study areas are used to describe small-scale agriculture in the Mhlathuzi catchment and to identify the impact of proximity to the Richards Bay Industrial Complex on small-scale agriculture and rural households. The first is Mkhwanazi Tribal Authority, situated in the Ongoye II magisterial district, 15km south of Empangeni. The area is 4400ha and experiences average rainfall in excess of 850mm per annum. Subsistence crops, as well as sugarcane (the principal cash crop), are grown with the occasional timber enterprise. The Second area, Mpambeni Ward in Hlabisa district, although not in the Mhlathuze catchment, is representative of small scale agriculture inland from the coast and the Richards Bay Industrial Complex9.

Household demographics are described in Table 25. Households tend to be large in both areas and levels of education are low, although higher in Mkhwanazi Tribal Authority. The higher incidence of migrant workers and the higher incidence of male de facto household heads in Mkhwanazi are ascribed to its proximity to the Richards Bay Industrial Complex. Table 25 Descriptive statistics of rural households engaged in small-scale agriculture.

Mkhwanazi Mpambeni Mean family size 9.03 8.53 Mean de facto head education (years) 5.12 3.73 Mean Migrant workers per household 1.54 1.18 % de facto household heads (male) 32 24 Mean years household had resided in the area 37 28

Table 26 describes land use in arable land allotments in subsistence areas. Less than half of households in both areas use all their arable land. The relatively high proportion of households that do not fully utilize their arable land allotments is symptomatic of an imperfect land market. This is supported by the low incidence of land rental. Crop production is further inhibited by the high incidence of crop damage by livestock, which is often uncompensated. Fenwick (1998) found that a substantial proportion of households that do not use all their arable land are apparently not constrained by liquidity problems as they possess formal savings. Consequently, liquidity may not be the most important constraint to farming for these households.

8 As Tribal Land is not bought and sold on an open market the term “imperfect” is used to refer such land markets and values. 9 Data reported are from Fenwick (1998).

DRA-development 46 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

Table 26: Use of arable land in small-scale agriculture areas. Mkhwanazi Mpambeni

Area of arable land (ha) 2.1 1.9 % households with zero cultivation on arable land 14 1 % households that use all their arable land 47 49 % households that rent land in 8 14 % households that rent land out 3 17 % households that suffered crop damage from livestock. >33

Information on household annual incomes (in 1996 prices) is reported in Table 27. Farm incomes (remittances and pensions) are low, both in absolute terms and relative to off-farm income. Off- farm income accounts for 94% of gross cash income. The majority of households receive no income from crops. Thirty-six and 13 percent of households in Mkhwanazi and Mpambeni respectively supplement their income by participation in micro-enterprises. Crop incomes are clearly boosted in Mkhwanazi relative to Mpambeni due to its closer proximity to Richards Bay and the small-scale sugarcane growers in that region. No information was reported on income from livestock, however, it was reported that households in Mkhwanazi own a mean of 3 head of cattle and 8 smaller livestock units (e.g. goats), whereas households in Mpambeni owned a mean of 6 head of cattle and 13 smaller livestock units.

Table 27: Household incomes Mkhwanazi Mpambeni

Mean annual farm income R 15 825 R16 031 Mean annual off-farm income R 9 360 R 7 780 Mean gross annual cash crop income R 971 R 323 Median annual crop income R 0 R 0

No information was reported on the value of on-farm consumption of agricultural produce in these regions, however, it is likely that these areas are net-importers of food from the rest of the economy. The relative importance of the urban economy to the rural economy and rural subsistence households is highlighted by an analysis of household assets. It is evident from Table 28 that transport, electricity, refrigeration and television sets are more prevalent than investment in agricultural implements and machinery, especially for Mkhwanazi. The focus on agriculture is greater further away from the industrial complex at Richards Bay.

Table 28 : Percentages of Households owning various assets. Mkhwanazi Mpambeni

Vehicle 17 % 10 % Tractor 1 % 7 % Trailer / cart 1 % 1 % Plough 1 % 13 % Planter 0 % 1 % Hammer mill 0 % 1 % Generator 7 % 1 % Television 50 % 12 % Fridge / freezer 55 % 24 %

DRA-development 47 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

With the exception of sale of sugarcane and forestry produced by subsistence households to sugar and paper mills, there are no significant forward linkages to the rest of the economy from small- scale agriculture. These areas do, however, contribute labour to commercial agriculture, the Richards Bay region as well as other areas of the economy. Inputs used in small-scale agriculture do constitute significant backward linkages to fertilizer, seed, and chemical production, as well as to ploughing, transport and equipment hire services within the region. Generally purchase of farming inputs and services is higher in Mkhwanazi. Lower incidence of ploughing and seed purchase in that region reflects that sugarcane ratoons, hence these inputs are only purchased every five to ten years. Small-scale agriculture tends to rely on family labour, however, the incidence of hired labour is relatively high in the small-scale sugarcane growing areas. Data on the use of inputs by rural households is presented in Table 29.

Table 29: Percentages of households purchasing farm inputs and services Mkhwanazi Mpambeni

Fertilizer 60% 33% Seed 37% 85% Chemicals 21% 17% Ploughing 31% 60% Transport 14% 7% Equipment 1% 4% Labour 26% 1%

Efficiency within the small-scale sector is hampered by communal tenure to grazing land, small mean areas of arable plots, the absence of land or rental markets and by high fixed costs in commercial agricultural production. Low liquidity of some households may also constrain their use of arable land. Consequently, from a perspective of agricultural production, small-scale areas are inefficient relative to commercial agriculture. Although the sizes of arable plot allocations are unlikely to improve and there is little indication that the land rental market shall become more efficient, this status quo has started to change. Efforts in recent years by the sugar mills to reduce fixed costs faced by small-scale farmers (management, information, transaction and contractor development costs) have been key to the emergence of small-scale sugarcane growers from within the small-scale sector (Lynsky, 1998).

Because of their location, these programmes contribute disproportionately to provision of income in the poorest areas of the economy. However, because the sizes of the arable allotments are small, these programme normally only provide supplementary income for families. Irrigation plays an important role in small-scale grower production, establishing the establishment of small-scale sugarcane growers in areas of the catchment that are not suited to dryland agriculture (e.g. Nkwaleni). However, the extent of small-grower programmes and irrigation activities within small- scale agriculture is currently small in the upper catchment, the area that is relatively more reliant on agriculture to provide livelihood.

DRA-development 48 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

3.5 FORESTRY

The Forestry Industry relates to the specific growing of trees whilst the forest product industry relates to processing activities and the processing of such trees. Both exist within the Mhlathuze catchment and is perhaps one of the most integrated industries within the catchment with strong upstream and downstream linkages. This section will look primarily at forest plantations whilst the previous section dealt with processing when it considered the Mondi Kraft mill in Richards Bay. However it is difficult to difficult to entirely separate the two as the demand and price for raw wood products are determined by the demand also for processed wood products.

3.5.1 Global Context South Africa is a net exporter of timber and forestry related products. The most notable export products include pulp and paper. South Africa is currently the 19th largest pulp producer in the world, and the worlds’ 21st largest paper producer. This ranking is not expected to improve due to the limited growth potential of forestry in South Africa. Tables 30, 31 and 32 show the value of imports, exports and difference between exports and imports respectively.

Table 30 Rand Value of Imported Wood and Wood Products (Rands in millions) Base = 1998 Year Pulp Paper Solid Wood Other TOTAL (matches & tannin extract) 1992 67.5 1628.8 589.2 6.5 2292.0 1993 99.3 1693.3 726.2 8.0 2526.8 1994 185.2 1991.7 745.1 11.8 2933.8 1995 241.4 2439.5 857.5 6.6 3545.0 1996 296.6 2207.1 898.6 6.4 3408.7 1997 125.6 2211.3 920.4 6.3 3263.6 1998 169.2 2150.3 754.1 5.5 3079.1 Source: Records held by FOA

Table 31 Rand Value of Exported Wood and Wood Products (Rands in millions) Base = 1998 Pulp Paper Solid Wood Other TOTAL (matches & tannin extract) 1992 1620.7 1397.2 613.3 154.0 3785.2 1993 1430.3 1371.3 944.6 146.5 3892.7 1994 1785.5 1651.2 1042.7 177.4 4656.8 1995 2783.2 1998.1 1107.1 157.9 6046.3 1996 1738.5 2351.6 1079.2 170.9 5340.2 1997 2031.6 1596.5 1191.4 162.6 4982.1 1998 1877.1 2107.3 1410.1 161.0 5555.5 Source: Records held by FOA

DRA-development 49 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

Table 32 Rand Value of Net Exports (Rands in millions) Base = 1998 Pulp Paper Solid Wood Other TOTAL (matches & tannin extract) 1992 1553.2 -231.6 24.1 147.5 1493.2 1993 1331.0 -322.0 218.4 138.5 1365.9 1994 1600.3 -340.5 297.6 165.6 1723.0 1995 2541.8 -441.4 249.6 151.3 2501.3 1996 1441.9 144.5 180.6 164.5 1931.5 1997 1906.0 -614.8 271.0 156.3 1718.5 1998 1707.9 -43.0 656.0 155.5 2476.4 Source: Records held by FOA

South Africa is a net exporter of wood products, which earned R2.4bn in foreign exchange in 1998, and like other industry’s it is benefiting from declining exchange rates. However it can be seen from table 32 that South Africa is still a net importer of paper products, although this is a declining trend. Demand for pulp and solid wood appeared less stable with high export years followed by low export years and vice versa.

The forestry industry has at no stage received any form of subsidy or protection in South Africa, unlike in other competing countries such as Chile. In terms of the Forest Products Industry, tariff protection on imported lumber, forest products and paper is non-existent, and minimal in the case of sawn timber. In the past the saw milling industry did however receive protection in the form of very cheap saw logs from government plantations. The industry also benefited from price fixing agreements, which consequently resulted in the industry becoming very inefficient. Such measures no longer exist.

3.5.2 Forestry in South Africa The following table indicates the contribution the forestry industry makes to South Africa’s gross domestic product.

Table 33: Forestry’s contribution to Gross Domestic Product 94/95 95/96 96/97 97/98 Total G.D.P.of South Africa (Millions of rands) 503,559 529,970 539,757 550,309 Forestry as % to Agricultural G.D.P. 8.26% 8.37% 7.32% 8.49% Forest Products as % to Manufacturing G.D.P. 7.72% 8.20% 7.57% 6.99% Forest Products as % to total G.D.P. 1.84% 1.97% 1.80% 1.66%

Source: Records held by FOA

Whilst some countries offer protection to their forestry industries, forestry in South Africa is affected by a number of policies that restrict its development and growth of the industry. Originally afforestation permits had to be issued before a forest could be planted. Recently, forestry was declared a Streamflow Reduction Activity and such foresters must now apply for “water use licences”.

DRA-development 50 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

There are a number of other pieces of legislation which also impact on the Forestry Industry. The implementation of provisions in the National Water Act is currently the industry’s greatest concern. This act deals with many aspects, with the more important ones being water pricing, Streamflow Reduction Activity issues, and the establishment of Catchment Management Agencies.

Other recent legislation that impacts on the forestry industry fall into two main categories – those that impact on the functioning of business and those that impact directly upon forestry operations. Members of the forestry industry believe that government legislation is making both the forestry and forest products industries less competitive with the compliance to legislation being costly. These acts are as follows:

3.5.2.1 Impacts on Business Functions · Extension of Security of Tenure Act (62 of 1997) · Prevention of Illegal Eviction from and Unlawful Occupation of Land Act (19 of 1998) · National Water Act (36 of 1998) · National Forests Act (84 of 1998) · National Veld and Forest Fire Act (101 of 1998) · National Environmental Management Act (107 of 1998) · Water Services Act (108 of 1998)

3.5.2.2 Impacts on Forestry Operations · Labour Relations Act (66 of 1995) · Basic Conditions of Employment Act (75 of 1997) · Employment Equity Act (55 of 1998) · Skills Development Act (97 of 1998) · Labour Relations Amendment Act (127 of 1998) · Promotion of Equality and Prevention of Unfair Discrimination Bill

3.5.3 Growth Potential of the Industry There is currently approximately 1.5 million hectares of planted forestry in South Africa. Due to restrictions placed on further afforestation, it is believed that at best a potential of 300 000 hectares of land may still be planted to forestry. Unless fibres can be imported for processing in South Africa, or more land is made available to afforestation, there seems to be little room for future growth, in spite of the export earning capacity of the operations.

At present there is some potential for expansion in the Eastern Cape. The forestry industry is investigating the possibility of increasing output per hectare through tree breeding and site/species matching. In terms of forestry products industry, growth is also limited locally due to constraints on fibre availability. Other than improving productivity major companies such as Mondi and Sappi will have to look towards increasing overseas investment, especially in neighbouring countries where there are no restrictions on afforestation.

DRA-development 51 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

3.5.4 Efficiency of the Sector Due to South Africa’s ideal growing conditions, (i.e. climate, latitude & soils) advanced tree breeding technology and intensive silvicultural practices, tree species have relatively short rotation periods. The implication of this is that more timber can be produced over a given time period than in colder environments. The South African labour force however has a low productivity, resulting in reduced efficiency that is due to the relatively low levels of mechanisation employed in forestry operations. This low productivity mainly effects the processing activities rather than the actual growing of the trees.

Processing facilities experience greater efficiency with larger scales of operations as a result of increasing returns to scale. As forestry is currently not being promoted, the scope to increase the efficiency of the mills seems limited. A concern is that increased government pressure on the forestry industry may indeed result in a reduction in afforestation, which may have sever consequences on the efficiency and competitiveness of the South African forestry industry.

In South Africa, the driving force within the industry is the pulp and paper sector, which is highly capital intensive, large scale and employs world-class technology. It is highly efficient and competitive. Due to the fact that the expansion of the forestry industry is unlikely, an increase in the level of pulp and paper manufacture is not going to occur as fibre resources will not be available.

The following table illustrates the labour intensity of South African forestry plantations.

Table 34 Employment in the forestry plantations Average employees per Average hectares per Total Hectares Total Number of Employees 1, 000 ha employee Softwood 34.2 29.2 797,610 27,315 Eucalyptus 60.0 16.7 608,499 36,437 Wattle 90.5 11.0 112,029 10,184 Total 48.7 20.5 1,518,138 73,936 Source: Records held by FOA * An additional 60000 jobs are created in the forestry processing plants.

3.5.5 Competition within the Industry Mondi, Sappi and Safcol are South Africa’s major forest owners. Mondi and Sappi trade as publicly owned companies. Mondi is a subsidiary of Anglo American PLC. Both Sappi and Anglo American PLC are listed on the Johannesburg Stock Exchange. SAFCOL is a parastal with the only shareholder being the South African government. However there are currently plans to have Safcol privatised.

Safcol grows virtually no pulpwood and concentrates on growing softwood sawlogs leaving Mondi and Sappi as the only two main competitors in the local pulp and paper industry. Mondi and Sappi are also actively involved in other processing activities such as sawmilling, wattle extraction and mining timber. Safcol owns very few processing plants with five to six small-scale sawmills and pole treating plants.

DRA-development 52 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

The forestry industry is particularly sensitive to increases in transportation costs, as they are the single largest cost to forestry operations. Consequently, increases in fuel prices, vehicle costs, or other factors which impact on transportation costs, influence the economic feasibility of forestry operations.

3.5.6 Forestry in the Mhlathuze Catchment The following table indicates forestry plantation areas within the Mhlathuze catchment. As can be seen from the figure, the forestry is largely restricted to the high lying areas around Melmoth and Babanango, as well as around Kwambonambi close to the Indian Ocean, with very little forestry in the middle of the catchment. The forestry areas per Quaternary Catchment are illustrated in table 35 below. Mondi owns approximately 25, 000ha (25km2) of the 55, 400 ha (55.4km2) in the catchment. This is approximately 45% of the forestry in the Mhlathuze catchment. Sappi, Safcol and private growers own the balance. An exact breakdown of the forestry by species is not available presently, however is believed to be constituted by 60% eucalyptus, 20% pine and 20% wattle.

Table 35: A breakdown of forestry area by Quaternary Catchment Catchment Catchment Area (Km2) Forestry Area (Km2) % W12A 623 167 27 W12B 656 81 12 W12C 570 152 27 W12D 569 15 3 W12E 249 0 0 W12F 399 0 0 W12G 326 0 0 W12H 485 99 20 W12J 332 40 12 TOTAL 4, 209 554 13 Source: DWAF draft hydrological report for the Mhlathuze Catchment, February 2000

Figure 14: Forestry in the Mhlathuze Catchment

# Babanango Ul undi # St. Lucia Estuary#

Mtubatuba #

Mel moth # Nkandla # # KwaMbonambi

# Empangeni Go edertro uw Dam # Richards B ay

Eshowe #

Mtunz ini #

Gingindl ovu # N

Isithebe #

1 0 0 1 0 20 Kil omet ers

Tugel a

DRA-development 53 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

Although the Mhlathuze catchment is a potentially high yielding catchment, only 13% of the catchment is currently afforested due to a moratorium prohibiting further afforestation in the catchment. The forestry in the catchment is well established, with most of the plantations in excess of 70 years old. A combination of high yields, and a relatively close proximity to the Mondi Kraft makes forestry growing operations in the Mhlathuze catchment economically advantageous. Those forests located along the coastline are particularly high yielding.

3.5.6.1 Growth Potential Due to the moratorium prohibiting increased afforestation in the catchment, the potential for future growth seems limited. The forestry industry has clearly indicated that should afforestation be permitted, it would increase its forestry operations. Although the forestry industry is currently not explicitly paying for water, the inability to increase forestry operations in the catchment is seen as an opportunity cost, which could potentially be related to water use. These costs are currently being researched and will form part of the parallel hydrological economic modelling project.

3.5.6.2 Employment Due to the fact that the forestry operations extend beyond the boundaries of the catchment, precise employee numbers cannot be given for the Mhlathuze catchment. Consequently the industry averages shown in table 34 have been used in conjunction with the afforested area to determine the amount of labour employed by the forestry operations in the Mhlathuze Catchment. Calculations suggest that 3, 400 people are employed by the forestry operations, which can be broken down into 2, 000 for Eucalyptus plantations, 1, 000 for wattle plantations and 400 on pine plantations. The majority of employees are provided with houses on the forestry estates and are given various levels of services in terms of running water, electricity at the direct expense of the foresters.

3.5.6.3 Linkages The bulk of the timber grown in the Mhlathuze catchment is delivered to the Mondi mill located at Richards Bay. Sappi has a mill located at Mandini on the Tugela River, which services most of the wood grown by Sappi in the Mhlathuze Catchment. The Mondi mill processes the forestry fibres into pulp, which are either directly exported, or sent to the Mondi Merebank mill where the pulp is manufactured into paper, which in turn is either directly exported or sold locally. As Sappi and Mondi are a vertically integrated operations, with the companies owning both forests as well as processing facilities, which are located in various parts of the country, the companies are managed partially from within as well as outside the confines of the Mhlathuze Catchment. The implication is that the forestry plantations and milling operations in the Mhlathuze Catchment contribute to the regional and national economy.

DRA-development 54 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

3.6 SECTION THREE: DISCUSSION AND CONCLUSIONS

One of the main challenges in trying to draw conclusions about industry and agriculture within the catchment has been the variation in the types of available data. This unfortunately does not allow any uniform comparison of these sectors. Any statements and conclusions about these sectors, with possible exceptions existing in each case, can only be seen as broad generalisations. Main themes that were investigated included overall output of each sector; employment capacity; efficiency; forward and backward linkages; and reliance on water. Two main points that were not examined but require noting are the issues of company ownership and disbursement of profits, and external impacts.

The actual rand value of turnover for industry within the catchment area is relatively large and for those five industries examined, comes to an approximate value of R12.57bn (1999), which represents a fraction over 1.5% of the country’s entire gross domestic product. The strong export focus of these industries resulted in a R10bn reduction in South Africa’s current account deficit. The total contribution of agriculture to the catcment’s output, in 1999, was R1.6bn, with forestry making the largest contribution (R1.27bn). A much smaller proportion (R244.6m) of agriculture’s output was exported. It must be noted however that although the forestry sector, which made the greatest contribution to agricultural output, records a relatively small contribution to exports, most of its output is purchased and processed by Mondi Kraft, who in turn exports 65% of its output.

In most instances information on the profitability of these activities was not forthcoming and therefore it is not possible to conclude which sector utilises their resources to their maximum potential. The profitability of each sector is also linked to efficiency, another important criteria, which also proved difficult to measure in any quantifiable way. In most instances there appeared little evidence of protection or subsidies, with the exception of sugar, for which imports are effectively banned. Micro-economic analysis of the efficiencies of individual firms or farms was not possible. The continued operation of these sectors, and in the case of Indian Ocean Fertilisers, Billiton Hillside and Richards Bay Minerals - who are either investigating or have commenced major expansions, are the main indicators that resources are being used efficiently enough to warrant their continued existence.

The number of people employed per sector also varied considerably and ranged from a high of 3, 400 employees in forestry down to 525 people in fertilisers. Information on the number of people engaged in subsistence farming within the catchment was not known. These figures are absolute numbers and what is of interest is the labour intensity of these sectors. These figures are expressed in table 36 and discussed in more detail in section four. Overall it can be concluded that agriculture is generally more labour intensive than industry, with the exception of heavy machinery. Estimations of the employment multiplier effect for each sector, which would have provided some appreciation of the extent to which other jobs are created outside the sector, was unfortunately not available.

The upstream and downstream linkages of the various sectors was also examined and is summarised in table 34. Again, given the shortage of available data, it was not possible to put a rand value to these linkages. The agricultural sector appeared to have much stronger upstream linkages with the catchments, with most of its inputs (the key one being land) being sourced from

DRA-development 55 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis within the catchment. A number of processing plants, including sugar and timber mills, and Mondi Kraft, meant that a lot of the downstream economic activities of these sectors were also located within the catchment. With the exception of mining, the various industrial sectors sourced a large proportion of their inputs from outside the catchment, representing weaker upstream linkages. The strong export focus of these activities also resulted in relatively few downstream economic linkages.

The reliance of these sectors on water varied considerably across the sectors and could not be generalised to industry and agriculture. Again, table 34 presents a number of measurements of water usage according to each economic activity. It must be noted that in the instance where water is not directly purchased, the stream flow reduction of that activity is used. What however must be reiterated here is that it is difficult to make any cross comparisons of the efficiency of water consumption of these sectors when that the price paid per m3 varies vastly - from R0.0167 to R 5.35. In this instance it is only possible to illustrate the volume of water consumed by each sector at its given price. If the price of water was uniform across these sectors then there is little doubt that the volume consumed would change considerably.

Where possible, the shareholders of each industry or agricultural activity were recorded. What was not examined was how profits generated by each activity are dispersed. This is of great interest when trying to appreciate the extent to which various economic activities benefit the catchment. It cannot automatically be assumed that industries owned by foreign companies’ expatriate all profits, or can it be assumed that profits generated by family farming activities are spent entirely within the catchment.

In the same vain it must also be noted that specific economic activities may also have negative (or positive) impacts outside the catchment. One example of this is electricity, which is an important input to some industries but is generated outside the catchment. Externalities such as pollution, is suffered by those living next to the power plant whilst those utilising the resource within the catchment are not affected. The same can be noted for positive externalities, namely those living next to the power plant may benefit from employment opportunities.

DRA-development 56 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

4 Section Four: Comparative Economics

Whilst the contribution of specific economic sectors within the catchment has been discussed in terms of the level of output, foreign exchange generated, use of resources, and the level of employment created, a more comparative analysis is required to enable final conclusions to be drawn. This involves the selection of a number of key indicators that illustrate the differences in output, employment, competitiveness, water consumption and linkages between the sectors of the economy within the catchment.

Table 36 attempts to capture and compare these differences. Again, care must be taken when considering such data as it is based upon a number of estimates and generalisations that cannot, in their entirety, be quantified. None the less it is a helpful starting point in trying to compare sectors that vary greatly in their activities and nature.

Aluminium, followed by mining, far outstrips the other sectors in terms of output generated, with each sector contributing R 5, 060m and R3, 500m respectively in 1999. On the whole, compared with industry, agriculture’s contribution to GGP was considerably lower, with the exception of Forestry, which contributed R 1, 266.9m in output. Dry Land Sugar – Small Growers made the smallest contribution to output, generating R6.5m in 1999. In terms of foreign exchange generated, similar distribution patterns exist with aluminium and mining dominating.

Overall output is not the only indicator that is of interest. To enable a comparison of the employment creating capacity of each sector, each R1 million invested in fixed capital for industry, and land for agriculture, was divided by the number of employees per sector. Whilst again, estimates were made, the calculations display a disparity between industry and agriculture (with the exception of heavy machinery and forestry). Using such calculations, Heavy Machinery appears to be the most labour intensive activity followed by Dry Land Sugar – Small Growers and Citrus. Mining and Aluminium appear to be the least labour intensive. The difference between small and commercial cane growers is mainly due to the under-valued land estimates for small growers based on tribal land, which does not have a market value, as well as the generally more labour intensive nature of small scale farming.

A comparison of the number of people employed to total output of each sector was also made. Similar distribution patterns emerged to that discussed above with Small Growers - Irrigated and Dry Land Sugar again appearing to be more labour intensive. One significant difference emerged for Heavy Machinery whose labour intensity dropped considerably when output was used as the denominator. None the less, such comparisons allow a generalisation that on the whole, the agriculture sector appears much more labour intensive than industry. However what was not available, but would have provided a useful comparison, was the multiplier effect of employment creation for each sector, as well as average wage rates.

When comparing water consumption per annum disparities appear to emerge between sectors, rather than across industry and agriculture. In this instance irrigated commercial sugar consumes the largest amount of water followed by mining, which uses one-third of that utilised by irrigated sugar. It must also be noted that calculations for agriculture are based on full allocation rights

DRA-development 57 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis which are not always fully utilised. Heavy machinery and aluminium appear to consume the least amount of water.

When water consumption is compared with the amount of Rands output generated by each sector, an almost inverse relationship occurs. In this instance, heavy machinery is the most efficient user of water, generating R 18 359 per one cubic metre of water consumed. Irrigated Sugar – Small farmers are least efficient, only generating R0.64 per cubic metre of water consumed. Comparisons were also made with water consumption and number of people employed. Again Heavy Machinery employed the most amounts of people per m3 followed by aluminium. Generally agriculture appears to be a far less "efficient” water user than industry.

The level of protection or assistance offered to each industry could also be seen as an indicator of the economic efficiency of each sector. In this instance, sugar cane receives the highest levels of protection (import tariffs effectively exclude competition) whilst protection in industry is either low or none existent.

Whilst multiplier effects of the economic contribution of each sector was not available, consideration given to the upstream and downstream linkages that each sector has within the catchment may give some indication of this. Again, conclusions on each sector are based on generalisations and the description of each is not based on quantitative data. On the whole, industrial activities appear to have reasonably weak links to the rest of the catchment, with their main focus being on the international market. One exception however is the paper and pulp industry, which receives most of its inputs, especially fibres, from within the catchment.

Agriculture on the other hand appears to have much stronger linkages, with most of the upstream inputs coming from the within the catchment. The location of sugar and paper, pulp and wood chipping mills within the catchment allows further beneficiation to take place locally.

DRA-development 58 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

Table 36: Comparative Analysis of Water Use of Different Sectors Output 1999 Value of # employed per # employed Water Rands # employed Levels of Downstream Linkages Upstream Linkages (millions) Exports R 1 million per Consumption output per per million Protection (millions) capital/land R 1 million p.a. (million) m3 m3 output Paper/pulp R 2, 457 R1, 597 0.31 0.38 29.2 m3 R 84 32.19 None Weak – Moderate Strong - 65% of output exported, all inputs sourced remainder sold locally nationally Aluminium R 5, 060 R 4, 082 0.15 0.44 2.17 m3 R 2 332 1037 None Weak – outputs mostly Weak – main inputs exported imported Heavy R 604 R 332.2 44 1.82 0.0329 m3 R 18 359 33, 435 Low Weak – outputs Weak – main inputs Machinery exported and distributed imported except labour nationally Fertilisers R 946 R 738 0.53 0.55 5.6 m3 R 169 93.75 Low Weak – outputs mainly Weak – main inputs exported imported Mining R 3, 500 R 3, 325 0.18 0.62 32.9 m3 R 106 66.26 None Weak – almost all Strong – almost all outputs exported inputs sourced locally Dry Land Sugar R 33.9 R 15.3 21.08 45.52 4.4 ** m3 R 7.70 350.68 High Strong – outputs sold to Strong – major inputs Small Growers local mills sourced locally Irrigated Sugar R 6.5 R 2.9 26 45.54 10.01* m3* R 0.65 29.57 High Strong – outputs sold to Strong – major inputs Small Growers local mills sourced locally Dry Land Sugar R 134.6 R 60.6 11.5 29.58 10.58** m3 R 12.72 376.37 High Strong – output sold to Strong – major inputs Commercial local mills sourced locally Irrigated Sugar R 77.6 R 35 10 29.58 105 *m3* R 0.74 21.86 High Strong – output sold to Strong – major inputs Commercial local mills sourced locally Citrus R 67.5 R 67.5 18.76 24.52 24.3* m3 R 2.78 68.10 None Weak – output exported Strong – major inputs sourced locally Forestry R 1, 266.9 R 63.3 1.24 2.7 46.9** m3 R 2.23 72.5 None Strong – fibres Strong – major inputs processed within sourced locally cathcment * Based on full utilisation of irrigation allowances of 11 000m3 per hectare per annum. ** Based on stream flow reduction.

DRA-development 58 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

4.1 SECTION FOUR: DISCUSSION AND CONCLUSIONS

Whilst a comparative analysis of the different sectors is an important step towards providing a decision making tool for water allocation, a number of shortcomings to this approach exist. Although each sector contributes differing amounts of output to the regional economy, this cannot necessarily lead one to conclude that any particular sector is more important than another, and therefore should be favoured over others. Diversification within a local and national economy has an important and strategic role to play. In the case of the Mhlathuze Catchment Area, the industrial sector dominates significantly. This however may not be the case in other catchments, and due to the presence of Richards Bay and its unique government involvement in industrial development, the catchment is more unique than typical.

Again, what has not been extensively examined in this report is the opportunity cost of land use. It is most likely the case that even though agriculture does not appear to make the same contribution as industry, it may well be using land, a resource who’s capacity is very location specific, to its fullest income generating potential. When considering employment capacity it would appear that preference should be given to agricultural development – which may indeed already be the case. However this again does not mean that industrial development should be discouraged or penalised, as it also makes an important contribution to the national economy, although not necessarily in terms of employment creation.

Comparisons of water consumption do well to highlight the various consumption levels of each sector. However the price paid for water varies significantly from R0.0167 per cubic metre for irrigation and to R5.35 per cubic metre for large consumers in Empangeni. Some degree of the variation in current application of water is most likely reflective of its relative cost whilst also reflecting the minimum amount of water any given activity requires. Micro-economic analysis of individual farms and firms which considers the cost of water relative to other inputs, along with marginal rates of profitability is required before it is possible to fully understand how adjustments in water prices would be responded to.

A comparison of Rand output and number of people employed per cubic metre also has flaws as an indicator of a “water worthy” sector. According to this analysis of the Mhlathuze Catchment, heavy machinery generates the highest output and number of people employed per cubic metre. This, however, cannot lead one to conclude that major preference of water allocation should be given to the heavy machinery manufacturing industry.

A broad overview of the downstream and upstream linkages indicates that, in general, agriculture displays much stronger upstream and downstream linkages within the catchment. The catchment however, only represents a relatively small geographic area and where the analysis to be broadened to a larger area then shifts might well occur in these relative strengths and weaknesses. It is also necessary to remember that the location of many of the industries within the Mhlathuze Catchment was based upon, among other things, the presence of the harbour in Richards Bay. The construction of the habour was a deliberate decision made by the government with an export focus in mind. Therefore it must be expected that such sectors would have weak downstream linkages.

DRA-development 59 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

5 References

Aniruth, J. and Barnes, J. (1998). Why Richards Bay grew as an industrial centre: lessons for SDIs, Development Southern Africa, 15 (5).

Anonymous (1998). Small-Scale Growers. South African Sugar Journal, 82: 166-167.

Braum, G. (1997). Heatonville Irrigation Scheme. South African Sugar Journal, 81: 618-619.

Compton, R. (1993). R115m Irrigation Scheme a Boost for Heatonville. South African Sugar Journal, 77: 90-94.

Fenwick, L.J. (1998). Use of credit and its impact on small-scale farm development in KwaZulu- Natal. Unpublished M.Sc.(Agric) thesis, Agricultural Economics, University of Natal, Pietermaritzburg.

Government Printers (1998). 1998 Medium Term Budget Policy Statement, Department of Finance, Republic of South Africa.

Lynsky, R. (1998). Mills Support Small Growers. South African Sugar Journal, 82: 258-261.

May 1998 (Ed) Poverty and Inequality in South Africa, Durban: Praxis Printing

Meyer, J.H., and van Antwerpen, R. (1995). Trends in Water Quality of Selected Rivers in the South African Sugar Industry. Proceedings of the South African Sugar Industry Technologists’ Association, 69:60-68.

Natal Town and Regional Planning Commission (1983). North Eastern Natal and Pongola Regional Survey.

Portnet (1998). Richards Bay Port Handbook 1998-99. Land & Marine Publications, Colchester. Seneque Smit and Maughan-Brown, (1993). Greater Mhlathuze development plan. Economic Development Work Group.

South African Reserve Bank: Annual Economic Report 1999. http://www.resbank.co.za/Economics/year99/Annual.pdf

South African Reserve Bank (2000): Quarterly Bulletin 4th Quarter 1999.

Todes, A. and Vaughan,A. (1999). Reasons for Growth and Investment in Particular Localities: Three Case Studies. McIntosh, Xaba & Associates, Durban.

United Nations Development Programme: Human Development Report 1997

Uthungulu Regional Council (2000). Imfolozi Sub-regional Plans.

DRA-development 60 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis http://196.25.88.254/SubRegionalPlans/Imfolozi_web/ch5.htm.

Zululand Observer “ R2,5bn smelter plan to be studied” Tuesday, February 29, 2000. http://www.rbm.co.za/frame.html

DRA-development 61 Water use and dependency in the Mhlathuze catchment: a macro economic and sectoral analysis

6 Appendix 1: Assumptions for Commercial Agriculture

Sucrose % 12.8% R/ton sucrose R 858.54 Percentage of sugar exported 45% Tons cane /ha (best 7 out last 10 years) 60 R/carton citrus R 27.00 Total cartons citrus production R 2,500,000 Labour units per 1000 tons commercial cane 3.25 Labour units per 1000 tons small grower cane 5.00 Labour units per ha citrus 0.75 Labour units per ha other 1.00 Indirect employment multiplier 1.5 Dependants per employee 6 Value of dryland cane/ha R 18,000 Value of irrigated cane /ha R 24,000 Value of citrus /ha R 40,000 Value of other /ha R 25,000 Value small grower irrigated cane / ha R 12,300 Value small grower dryland cane / ha R 8,300

DRA-development 62