Faced with a problem of significant deindustrialisation, the South African government has drawn up a plan to tackle this by setting policies and identifying special economic zones (SEZs) that will promote re-industrialisation and position South Africa as the ‘gateway to Africa’.
JLL research1 illustrates how the secondary sectors have shown a downward trend in GDP contribution, with manufacturing’s contribution declining to just 14% in recent years compared to the 22% contribution from the financial services sector. This begs the question of what has been done to address industrial challenges faced in the South African economy.
In 2011, it was announced that the Ekurhuleni Metropolitan Municipality would be transformed into an aerotropolis city which, according to Pieter Swanepoel, Divisional Head: Specialist Projects, Ekurhuleni Metropolitan Municipality and manager of the Aerotropolis project, would be formed on the basis of the strength of O. R. Tambo International Airport. The aim of this transformation is for businesses to leverage off of the close proximity to the international airport and create more trade opportunities.
Since the announcement, many real estate developments have been taking place in areas surrounding the airport. One of the first projects to be launched was the 25 hectare Plumbago Business Park which accommodates many blue-chip multinational companies, ideally located within five minutes from the airport. A notable amount of the industrial developments in the Ekurhuleni Aerotropolis have been for warehousing, logistics, freight-forwarding and distribution centres. To put this in perspective, Plumbago Business Park is home to DHL, Sky Logistics and Fast Freight, to name a few.
Nevertheless, this has not shifted the focus from manufacturing. There are plans to develop Rhodesfield, an area within the airport radius, into a medical equipment manufacturing hub, while Bonaero Park will host a jewellery manufacturing facility. And there are clear intentions to promote manufacturing. A case in point is Denel, the South African state-owned aerospace and defence technology conglomerate, which is planning to host aerospace manufacturing and aviation facilities training in Bonaero Park to bring about growth in the manufacturing sector of the economy. Other projects being carried out to revitalise manufacturing in the East of Johannesburg are the facilitation of the Tambo Springs Inland Port and the Prasa-Gibela manufacturing plant for new train stock.
It is important to note that building an urban airport city and re-industrialisation are not mutually exclusive, especially in the South African context. For example, the aerotropolis master plan involves developing an advanced manufacturing hub, while also investing in reactivating the already existing manufacturing industries. It is also essential to applaud Ekurhuleni for the efforts and new approaches it has taken to re-industrialise the area. An example of this is the recently concluded Manufacturing Indaba, which is an annual event started in 2014, focusing on addressing issues that affect the manufacturing sector and how to create economic growth from the sector.
The development of an airport city has proven to be a long awaited restructuring tool that has helped the industrial real estate market to respond zealously to the change in the type of accommodation demanded. It has also attracted many other developments for two main reasons: firstly, close proximity to the airport (mainly its cargo terminal) and, secondly, easy accessibility to major highways and roads linking to the rest of South Africa and Africa.
The positive impact of an aerotropolis on industrial real estate is also evident in Durban where demand for manufacturing, warehousing and logistics facilities has been met with the establishment of the Dube TradePort and Cornubia Industrial Park, both of which are close to the airport and span up to 77 and 17.19 hectares respectively. It is important to also highlight the impact this has had on trade activity. According to Hamish Erskine, acting CEO of Dube TradePort Corporation, international cargo volumes at the Dube Cargo Terminal have risen by 12% in the past year.
The vigorous demand from firms to be located within an airport city has seen the second phase of the DubeTradePort development rolled out ahead of schedule, further reinforcing the favourable impact of an aerotropolis on the industrial real estate market. The hope is that these developments will create more trade opportunities for South Africa within the African continent and globally, while also addressing the issues faced by the industrial real estate market. Lastly, you may ask if South Africa is on the right path to positioning itself as the gateway to Africa. The answer is a resounding yes!
For more on trade trends, view the Trade Trends Research from JLL.
1Trade trends and the impact on industrial real estate