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Date : 24/08/2006
Source: Department of Public Enterprises
Title: Erwin: Port Elizabeth Property Investors’ Conference


Speech by the Minister of Public Enterprises, Alec Erwin, at the Port Elizabeth Property Investors’ Conference

Introduction

The country is experiencing positive growth, inflation levels are low and returns on investment in property are high. South Africa is a good place to be. The Accelerated and Shared Growth Initiative for South Africa (AsgiSA), provides even more reason for optimism. This initiative to drive South Africa to growth levels of at least 6% will see an investment in infrastructure exceeding R320 billion, presenting both opportunities and challenges for South African businesses. Government and our State-owned Enterprises (SOEs) are procuring on a large scale and local businesses have to ensure that they are geared to meet the demand, both in respect of quality and quantity.

The construction industry, in particular, will be an important contributor to AsgiSA. The expeditious implementation of major capital expansion projects needs to be driven by local developers. You have the experience and the skills to ensure that the standards of service are world-class. It is for this reason that I have accepted the invitation to address this conference. Excellent property development, be it industrial, commercial or residential, not only results in job creation, but is also a symbol of national pride. It shapes perceptions of residents, tourists and investors and is a pivotal factor in whether people decide to stay in South Africa or not.

Property disposals

Opportunities for property developers will also arise from our disposal process. SOEs are divesting themselves of assets and enterprises that are no longer integral to their business operations, as their activities become more focused. My department, the Department of Public Enterprises, has established a Joint Projects Facility to identify optimal ways to dispose of non-core property and to manage the disposal process.

Non-core properties have been identified by the SOEs and classified as commercial or non-commercial portfolios. The properties have been further classified under the following broad categories indicating optimum disposal options namely, sale, housing, disposal to government departments and development.

My department is currently engaging with the Department of Housing to identify properties which have the potential to alleviate the national housing shortage and a sales agreement will be concluded in due course. The Department of Education has also expressed interest in the list of properties that have the potential to be used for public interest purposes and a bilateral negotiation is imminent. We have also set aside vacant or undeveloped land of a strategic nature around ports or Convention of Biological Diversity (CBDs) for public development.

Once the public sector disposals have been concluded, the remainder of properties will be put out to the market.

The role of the State in property development

In respect of these properties we see government's role as that of a facilitator - facilitating development in support of urban regeneration and broader social and economic development. Government recognises that strategic non-core SOE landholdings in Port Elizabeth and elsewhere around the country have the potential to play a catalytic role in job creation, tourism development, urban development and property sector transformation. Each of these properties for development requires significant investment or enablement before the property can be taken to market. Enablement includes for example environmental rehabilitation, resoning, securing of development rights and substantial infrastructure investment. The SOE do not have the mandate or appetite to undertake development and we are examining appropriate institutional mechanisms to facilitate this. This is likely to see the participation of the private sector.

Urban development in Port Elizabeth harbour is currently constrained by the location of the manganese ore and oil terminals, which are located on prime real estate, known as the southern port area, in close proximity to the Port Elizabeth (PE) CBD.

The relocation of the manganese ore terminal to Ngqura in support of broader national strategy to relocate dirty industries outside of cities to outlying industrial ports is a key consideration. Operationalisation of Ngqura would provide an opportunity for the relocation, catalyse the minerals cluster at Ngqura and free up land for alternative use in PE harbour. The economic multipliers of a proposed waterfront development suggest increases in jobs, Gross Domestic Product (GDP) (for the city and region) and revenue collection. We believe that the opportunity costs associated with the current location of these facilities are significant. A cost-benefit analysis is currently being conducted and we hope to announce our decision on the relocation before this end of this year.

Properties for sale and Broad-Based Black Economic Empowerment

Prospective purchasers thus need to prepare. Properties for sale will be put out to an open and competitive tender process that aims to promote transformation of the property sector.

My department has developed a set of Broad Based Black Economic Empowerment Guidelines, which will be placed on our website in the near future (http://www.dpe.gov.za). The guidelines are based on the Department of Trade and Industry (dti) Codes of Good Practice and the Property Sector Charter. Any enterprise bidding for SOE property will need a Black Empowerment (BEE) verification certificate from an accredited BEE verification agency (listed on http://www.abva.co.za). In order to obtain a certificate, enterprises will be measured against the dti’s BEE Scorecard and accordingly allocated a BEE status level.

We have set a minimum target of 70% of all asset disposals by value (other than those for transfer to government or for housing) by each SOE to entities with a BEE status of at least Level 4, i.e. entities with scorecard points equal to and above 65%.

In order to qualify to bid, individuals and enterprises will be subject to the qualification criteria which have been set according to various value thresholds of the property for disposal. Black individuals bidding in their personal capacity will be recognised as level 1 during adjudication:

Level A - up to R5 million. No bids will be considered unless bidders have a BEE status level of at least 4 or at least 51% of the economic interest is held by black people.

Level B - between R5 million and R30 million. No bids will be considered unless bidders have a BEE status level of at least 4 or at least 30% of the economic interest is held by black people.

Level C - between R30 million and R100 million. No bids will be considered unless bidders have a BEE status level of at least 5 or at least 25% of the economic interest is held by black people.

Level D - above R100 million. No bids will be considered unless bidders have at least a level 6 BEE status or at least 20% of the economic interest is held by black people.

A series of road shows has been planned to inform the public about possible opportunities across the provinces. My department will publicise its plans in this regard closer to the disposals.

Conclusion

Developments around infrastructural projects such as Ngqura mean that my department and I will always have a keen interest in Port Elizabeth. We are aware of your concerns, and these concerns, as well as the concerns of other parties, are receiving serious consideration.

The Nelson Mandela Municipality is amongst the most beautiful in South Africa. The initiative to revitalise the central business district and inner city of Port Elizabeth is central to unleashing the economic potential of this picturesque part of the country. I trust that deliberations at this conference will result in the acceleration of the revitalisation process and wish you well in your endeavours.

Enquires:
Ms Gaynor Kast
Ministerial Spokesperson
Cell: 083 271 4350
Issued by: Department of Public Enterprises 24 August 2006

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