Speech delivered at the Gauteng Investor Conference by Ebrahim Patel, Minister of Economic Development
13 Oct 2011
Acting Premier, Mayathula Khoza
Programme Director, MEC Mahlangu
MECs and councillors
Leaders of organised business
Leaders of organised labour in Gauteng,
Leaders of the Gauteng Provincial Government and Gauteng municipalities,
Colleagues and friends,
I am pleased to be with you at this important conference in the industrial heartland of South Africa.
I welcome the initiative by the Gauteng government to look at ways to develop an integrated economy that creates quality jobs.
Your focus on investment is timely and appropriate.
The global economy is going through challenging times and thus the external context is less supportive of growth than even a year ago.
The economic slowdown in Europe, Japan and the United States affect the local economy through the channels of trade and financial flows. Global economic uncertainty and weak performance elsewhere deeply affect demand for our products and thus our ability to create jobs.
This places more focus on what we can do in efforts to boost domestic demand, using the policy space available to South Africa.
In this context, the key is to invest strongly:
- in infrastructure,
- in people,
- in innovation and
- in enterprises.
Both public investment as well as private investment is critical for us to meet our development objectives.
Investment is one of the key drivers of growth and employment creation. As a general rule of thumb, fast-growing economies have investment of at least around 25% of GDP over a sustained period. Not only is the rate of investment important, but also the quality of that employment, in other words, the job-generating impact of the investment.
Since 1994, our economy has grown as fast as the average for other middle-income economies if we exclude China and India. Yet we continue to face deep poverty, high levels of joblessness and amongst the worst income inequalities.
Much of our past growth has been consumption-driven, without a strong productive sector that underpins it. The economy remained reliant on the export of raw materials – iron-ore, gold, platinum – and the import of electronic goods, clothing and textiles, machinery and some processed foods.
Savings rates were low, making us dependent on inflows of capital from other parts of the world. Domestic production faced challenges of monopoly prices and low skills levels. Put differently, our growth relied too much on consumers borrowing to buy goods; retailers importing goods to supply the consumption boom; and we financed some of this with the earnings from the commodity boom as well as short-term inflows of foreign capital.
This model was not sustainable.
Last year, Government adopted the New Growth Path.
It seeks to overcome some of the structural challenges of the past growth models and at the same time grasp the new opportunities that present themselves.
The NGP framework places the focus on rebuilding strong, dynamic productive sectors of the economy.
We set a goal: to create five million new jobs by 2020.
We identified sectors where jobs could be created on scale –
- the main economic sectors of mining and beneficiation, agriculture and agro-processing, manufacturing, and tourism and high-level services
- the social economy and public services
- the green economy and the knowledge economy.
Jobs are now at the centre of our national economic policy. This requires growth in the labour-absorbing sectors of the economy.
We can only achieve this goal if we bring the key economic stakeholders, particularly business and labour, into strong partnerships that can build the economy, help to create jobs and address income inequalities, ensure rising productivity, and support higher investment.
These partnerships are vital to turn our ambitious goals into reality.
The private sector can play a crucial role by raising levels of investment and employment.
Government has committed to increasing investment in infrastructure and people, which are necessary to support private sector investment and to provide opportunities for our people.
The benefits of this public investment programme will only be realised if the private sector reciprocate.
The national government has taken some important steps toward putting the proposals of the New Growth Path into practice.
I point to a few of them here.
We are driving infrastructure investment – building roads, rail-lines, dams, power-stations, communication networks - as the foundation for strong growth.
Government recently established a Presidential Infrastructure Coordination Commission that brings together all the economic and infrastructure ministries, the nine premiers, the executive mayors of the metros with SALGA and the main state-owned enterprises and development finance institutions.
The Commission will drive public investment initiatives, speed up decision-making and delivery and develop a 10-year project pipeline.
We committed to expanding the community work programme to provide a million opportunities over the next two years.
We have established a Ministerial team to overcome blockages to major private sector investments and programmes. Business in particular as well as the Gauteng provincial government has been invited to identify the key projects that are delayed as a result of red-tape or lack of infrastructure. We will focus on unblocking as many of these projects as possible.
The New Growth Path’s manufacturing driver, the Industrial Policy Action Plan (IPAP), aims to lay the foundation for a more diversified and industrialised economy. IPAP foresees a range of supports for specific industries, including auto, capital goods production and high-level services, that are particularly important for Gauteng.
My Department has engaged the IDC in particular to expand lending over the next five years to over R100 billion rand, with a focus on the jobs drivers of the NGP. Moreover, the IDC has reduced the cost of industrial funding to projects with a large jobs impact.
Many of the IDC’s projects and programmes are located here, in Gauteng. In the past five years, the province accounted for almost 40% of the IDC’s total lending, which created an estimated 40 000 jobs.
We are also working to ensure a more low-cost environment for businesses and workers through the strategic approach of the Competition Commission.
It has tackled monopolies and price-fixing for key inputs like fertiliser, steel and construction services, and for basic foods such as bread. Its remedies ensure both a stimulus to industrial production and improved living conditions for working people.
Finally, we are directing ITAC to take a more strategic approach to industry. We need to review how we manage tariffs, dumping provisions and other forms of relief to support long-term, sustainable diversification of our economy.
What does all of this mean for Gauteng?
The province is of course the dynamo of the South African economy accounting for a significant proportion of value added by a number of sectors.
Overall, Gauteng contributed 35% of gross value added in manufacturing in 2010. It accounts for between 20% and 58% of value added across several manufacturing subsectors.
By one estimate Gauteng accounts for just under half of national production of machinery and equipment (both consumer and capital) other than cars, and over 40% of transport equipment, heavy chemicals, financial services and furniture.
Measured by GDP, if Gauteng was a country, it would be the fifth largest economy in Africa and the 58th largest economy in the world. In per capita terms, it would rank around 50th, although SA as a whole ranks only 73rd.
The province is therefore key to supporting government’s overall development and growth objectives. Central to Gauteng’s continued prosperity is the maintenance of high-quality, low-cost infrastructure.
As we attract investment to Gauteng, we can do so from a number of important platforms.
First, you are well-located in a growth centre globally.
Africa is a continent with one billion consumers. The IMF has projected growth of national economies over the next five years. Seven of the ten fastest-growing economies in the world over this period are African countries.
Africa has enormous reserves of natural resources and a youthful population.
Gauteng is Africa’s economic centre, with the continent’s largest concentrations of financiers and engineers and the largest capital market, manufacturing base and higher education hub on this continent that is finding its growth rhythm.
Our job now is to link these two – the capacity in this province and the opportunity on this continent.
This means we need to strengthen Joburg’s role as a gateway. It requires better transport links with the rest of the continent, products geared to the needs of neighbouring countries and a focussed drive to build economic links.
As investors look for solid economic returns, and governments look for good social returns, Gauteng is well-placed to attract new investment.
Second, the new Growth Path jobs drivers will provide new opportunities. This province can contribute and it can benefit.
Gauteng has the potential to drive the greening of our economy, which provides a host of opportunities around technology and innovation, local manufacture and the building or installation of green products, infrastructure or processes.
The province’s depth in manufacturing competencies and its innovation culture mean that it should be able to take advantage of these new opportunities, with cutting-edge manufacturing industries. It is a real presence in agro-processing sectors and pharmaceuticals and is a fashion centre.
The establishment of green industries depends on a range of regulatory innovations as well as in some cases support for technological developments and initial capital.
Government is now accelerating the introduction of the necessary standards and support systems around renewable energy. The three spheres of government need to ensure standards for recycling and for new buildings, especially in the commercial and retail sectors. Organised business and labour can facilitate new investments - in the case of labour, through encouraging retirement funds to invest in the green economy.
Infrastructure is a jobs driver in the New Growth Path, one that has a central role in supporting long-term growth as well as a counter-cyclical stimulus. The provision of infrastructure is a central responsibility of the state. Gauteng has the advantage of relatively advanced economic, social and household infrastructure. Clearly, however, more needs to be done, including around transport, electricity, communications and water.
But the province can benefit from better infrastructure in other parts of the country and better links with Gauteng. Improvement of our rail, road and communication infrastructure will help connect Gauteng as an economic hub with the rest of the country and the world: for example agro-processing based in Gauteng will have easier access to feedstock and raw materials produced in other provinces. Significant improvement of the OR Tambo airport will support the smart logistics base that can move fresh fruit from KwaZulu-Natal via Gauteng to export markets by air.
Improving infrastructure will also help unlock opportunities in tourism to offer tourists a South African package that connects the nine provinces: beaches in the southern provinces, game parks in the neighbouring provinces, township, shopping and cultural tourism in Gauteng.
Gauteng is home to the biggest airport in Africa and investment in infrastructure will leverage this asset to facilitate swift links with other tourisms hubs.
It remains a challenge that the rail to the coast is often slow and unreliable, while our ports are expensive by international standards and not particularly efficient. For Gauteng, these are particularly difficult issues, since they largely lie outside its borders yet determine its long-term well-being. We recognise this challenge and are working with Transnet to address these.
As I noted earlier, the government nationally has established an Infrastructure Commission to identify and prioritise projects, ensure efficient funding and improve the process of procuring infrastructure services. Critically, we need to consistently balance the costs and benefits of infrastructure projects from the standpoint of increasingly inclusive economic development.
We call on the stakeholders here to help identify the gaps in infrastructure as part of the development of a 10-year project pipeline.
Every country identifies its competitive edge. Turkey is located next to Europe. China has an enormous market. We have minerals. We must add value to these minerals locally.
Our partnership will need to ensure continued growth along the mining value chain, and in particular the production of capital goods, industrial inputs as well as manufactured outputs. We recognise that sustaining industry will require continued efforts to get the regulatory framework right as well as ensuring adequate, reliable and affordable infrastructure – especially electricity, bulk transport and water. We need to work together to identify the main bottlenecks and shortcomings and to address them.
We will use state procurement to drive greater localisation. We have introduced new regulations to designate certain sectors where all state purchases are purchased from local manufacturers. For example, the purchase of office furniture is being considered, which would give a boost to local furniture-making.
Gauteng also enjoys the presence of a number of excellent universities as well as several national research bodies and the Innovation Hub. We need to harness this advantage more systematically to grow the economy and employment in what the NGP calls the knowledge-based sectors.
There are opportunities in innovation in green technologies, and support for technical advances in key industries such as mining, agro processing and pharmaceuticals. The award of the bulk of the ARV tender about ten months ago to local manufacturers, at a significant cost-saving to the state, is an example of what can be done.
Successful knowledge-based industries rely on close collaboration between the academic establishment, the state and economic stakeholders.
A particular challenge is to ensure the adaption of technologies for labour-intensive industries and small enterprise as well as the national economic priorities.
This summit should explore institutional mechanisms to achieve real progress in the prioritised activities.
The university sector can also create employment, bolster export earnings and support continental development by providing places for foreign students, turning South Africa into the education centre of choice for higher education in Africa.
Finally, Gauteng is a supply centre as well as the industrial heartland of the region, not just our own country.
Every day, hundreds of entrepreneurs from nearby countries arrive to buy our goods, use our services and enter into business partnerships. We need to ensure that these relations maximise growth and development not just in this province, but across our region.
Third, we are addressing the skills bottlenecks.
A few months ago, government, business and labour signed a key Accord to promote upscaling of skills in the economy and an Accord to improve the performance of high-schools.
Among others, they committed to
- Enrol 30 000 apprentices for artisanal training over the next twelve months, in order to increase the skills base available to industry
- Take on 17 000 interns in their businesses to provide young people with work experience and an opportunity to complete their degrees in cases where it requires workplace exposure
- Increase spending on training above the 1% compulsory training levy, with a target of spending between 4 and 6% of payroll on training
- Utilise vacant company-level training facilities by training above the needs of a company
- Recognise that trainees are not employees and would not be covered by all the normal collective bargaining provisions
- Adopt poorly-performing schools and assist them, including by ensuring school textbooks have been received, teachers are at school on time teaching, and parents play their role in school governance.
We now look to the provincial members of both constituencies to help with implementation.
Specifically, that would mean:
- Identifying how many additional apprentices Gauteng businesses will take on over the next six to twelve months.
- Putting company-level internship arrangements in place – Tswane, Ekurhuleni and Johannesburg should take on at least a third of the national target of interns and apprentices, proportional to the provinces share in total employment
- Negotiating conditions for additional apprentices that would recognise that the employer might not be able to offer them a permanent job
- Implementing partnerships with universities and FET Colleges, for example to ensure the Tshwane and Johannesburg Universities of Technology are able to offer courses geared to the sectors identified in the NGP.
- Identifying schools in poor communities to adopt and getting managers and shop stewards to work together to help improve school governance.
The national government has committed to increasing the number of interns and learners to equal 5% of public service employment in the next two years.
In the Gauteng, that would mean national departments and provincial government as well as the metros and local government should put public-sector internship arrangements in place.
One important aim is to provide work experience for students who need it to finish their qualifications. This is an area where business, labour and the universities can contribute with the design of useful internships and by identifying candidates who need the practical experience for their degrees.
Fourth, we are ready to grow our enterprises.
New enterprises, and specifically small and medium enterprises as well as social enterprises, must ultimately provide much of the necessary growth in employment as well as ensuring a more equitable and representative economy.
There are a number of ways in which enterprises can be promoted.
Effective growth of small and medium enterprises means access to markets, to finance, to technology and to entrepreneurial and management skills and mentoring.
We are taking steps as national government to improve small business funding. We are working to expand lending to small and medium enterprise through Khula, both by linking it more strongly to the IDC and by establishing a direct lending function, Khula Direct.
There is an important role for larger businesses in procuring from smaller businesses. More: we would like to see them establish incubators for their smaller suppliers, and in the process provide mentorship, support and assistance in order to help generate a large base of dynamic small businesses.
We need to help fragile, informal businesses to make the transition to sustainable, mainstream businesses, part of a dynamic small business sector.
My department is already working with the University of Johannesburg to set up an incubator for social economy enterprises.
Enterprise development rests however on more than the technical supports that can be provided. It also needs strong commitments for partnership on the shopfloor in order to improve productivity and workplace innovation.
This in turn requires that the workplace deal must be seen to be fair, that workers see that improvements in company performance are coupled with expansion in jobs and earnings. At the same time, employers and workers must find ways to work better together in order to build the enterprise and settle disputes constructively.
Gauteng’s social economy in particular is too small. The social economy encompasses all the activities that groups and individuals undertake collectively to improve their conditions and their communities. This includes cooperatives and community investment vehicles, as well as other social enterprises.
We need initiatives at local level to develop green co-ops and social enterprises aimed at providing affordable retail, community services and manufactured products.
Trade unions working with local community organisations and municipalities can play an important role. This may include some set-asides in local procurement to kick-start the development of social enterprises.
Colleagues and friends,
As the economic centre of South Africa, there is a special role that the province plays in driving investment and innovation.
To achieve our goals, we need to work differently.
It will not always be easy.
It is certainly easier to shout across the divides of the society than to build consensus and develop practical projects. That requires patience, consistency, hard work and a preparedness to rethink old positions.
As government, we have committed to creating conditions for viable investments by ensuring a more competitive and efficient environment through improvements in regulations, infrastructure and skills development.
We look to this conference to come up with actions to strengthen the New Growth Path.
I thank you!!
Cell: 082 698 6677
Issued by: Economic Development Department
13 Oct 2011
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