JV Gokal and Company, one of India’s largest exporters of tea, together with the German submarine consortium’s commercial partner Ferrostaal, after having been identified by the Eastern Cape Development Corporation (ECDC) as ideal partners for Magwa Tea Estate, have been appointed by the Eastern Cape government.

The government’s decision, comes with the full support of all stakeholders including the estate’s current management team and Cosatu, and points to a secure future for Magwa’s 1300 employees. The recommendation came after months of deliberation by the ECDC who were mandated by the government to find an investor who met several essential criteria.

“We are extremely happy to make this announcement and believe Magwa has a real chance at survival with this appointment. JV Gokal, as an experienced tea industry player, brings invaluable technical and marketing know-how to the partnership, on the one hand while on the other, Ferrostaal provides substantial financial muscle,” says ECDC CEO Mcebisi Jonas.

The 50-year old JV Gokal is a major global player in the tea industry with operations in India, Sri Lanka, Russia, Kazakhstan, Hong Kong and Dubai. It also sells to over 35 countries and its consolidated turnover exceeds R900 million (USD 150 million). Ferrostaal is responsible for bringing economic benefit to South Africa under the German submarine consortium’s industrial participation obligations linked to the navy’s acquisition of three type-U209/1400 submarines.

The long-awaited agreement comprises two parts, an interim management phase, which sees the appointment of JV Gokal as the interim management phase manager.

“Per this agreement, JV Gokal is responsible for the day-to-day operations of the estate as well as its rehabilitation. Its core deliverables are to provide stable management, retain current employment levels, provide technical input, manage the rehabilitation of the estate, research and prepare a marketing plan which emphasises value addition and compile a business plan for the investment phase. ECDC has committed two people who will serve on the project team with JV Gokal,” says JV Gokal CEO Nakul Jagjivan.

Other elements of the agreement include investigating the possibility of producing organic products as well as promoting eco-tourism on the estate.

This phase is effective immediately and is expected to last for eight months.

The second phase, the investment phase, is linked to the government’s defence procurement industrial participation programme. Under this programme, Ferrostaal has agreed to generate economic benefit for South Africa, including inward investment and export promotion, as well as promoting the creation and sustaining of jobs.

“We are very pleased that the Magwa project agreed between the dti, the ECDC, and Ferrostaal has received the green light. We are committed to our partnership with the dti and the Eastern Cape through the ECDC, and we believe the appointment of Gokal to the interim management shows that Magwa can work and that it can be sustainable in the interests of the people of the region,” says Ferrostaal South Africa chief Stephan Gehlhoff.

“We know how important Magwa is to fighting poverty and creating work in the Lusikisiki region. That is why we are committed to making the project work in the same way we are committed to our offset obligations and to the long term future of South Africa.”

The German company’s investment will come into effect in the second phase of the project. This will be done on the adoption of the business plan by JV Gokal and ECDC, and after consultation with Ferrostal.

In this phase, a new company will be established where JV Gokal will have a shareholding of between 50 to 74 per cent equity. Local partners (including the workers’ trust) will own the remaining shareholding. The ECDC has also included a clause in the contract that will allow the local partners to grow its equity to 50 per cent.

A critical element of the investment phase is the social plan and outgrowers' scheme. JV Gokal and its partner aim to develop and implement a skills development plan, promote substantial skills transfer, consider establishing an outgrowers’ scheme, and along with government, evaluate various options in order to enhance the welfare of employees and their immediate offspring in respect of education and health.

Already JV Gokal has provided an experienced manager in order to assess what critical interventions are required to get production underway. A further three employees are now en route to South Africa to strengthen the JV Gokal team at the estate.

“The most important task ahead for the estate is the pruning, which is well overdue and is expected to last until the end of September. Other important priorities are the assessment of the plant stock, plant and machinery as well as the formulation of a business plan which is due within four months,” says Jagjivan.

“There is a lot of serious work to be done and it’s not going to be smooth sailing. Success is not guaranteed. There are still some serious historic and cultural issues which need to be dealt with. However, I am confident that we have right partnership in the place, with the right amount of commitment, to make it work,” adds Jonas.

“With the appointment of the manager now in the place, the last remaining challenge is to close the chapter on the estate’s past debts,” ends Jonas.