Address by Mr. Malusi Gigaba MP, Minister of Public Enterprises, at the Tshwane Trade and Investment Conference at the CSIR Convention Centre in Pretoria
23 May 2012
I am happy to have been invited to address this trade and investment conference at this very important City.
Obviously, the municipality is confronted with a challenge of improving access to good quality social and economic infrastructure in order to improve economic efficiency.
The challenge of fighting unemployment, poverty and inequality is as prevalent in this city as it is anywhere else in South Africa.
The South African economy continues to be affected by the global economic slowdown, particularly in the Eurozone which remains our key trading partner as an important destination for our exports and very important source of foreign direct investments into our continent.
While Europe has continued to languish in crisis, the International Monetary Fund (IMF) forecasts emerging and developing economies to grow by 5.4 % in 2012.
Government has responded to the global economic crisis through a robust set of policies, most notably through bold public investments to upgrade the social and economic infrastructure, an investment programme expected to relieve critical bottlenecks in electricity and transportation, among others, whilst supporting demand in the short run and crowding in private investments.
The fact is that despite this sizeable public infrastructure investment programme, South Africa’s infrastructure needs remain large and for this infrastructure programme to succeed, the balance sheet of the private sector must be unlocked.
Innovative ways must be found to achieve private sector participation in infrastructure development in spite of the fact that business confidence is still low as a result of global economic uncertainties.
To grow, South Africa must focus on strengthening both domestic and regional trade and investments through, among others, domestic and regional infrastructure development, developing institutions and human capital.
By nature, infrastructure projects have a legacy impact in an economy in the form of job creation, skills development, the development of local capacity in terms of the management of mega projects, technical expertise and it stimulates demand through job creation and the demand for goods and services in the goods market.
For cities such as Tshwane to benefit from the infrastructure projects, they need to focus on strengthening their capability to deliver and in particular their project management expertise.
At the same time, the City can leverage on the national infrastructure roll out but will miss the opportunity to change the city landscape if there is no better co-ordination such as in the form of the Presidential Infrastructure Coordinating Commission (PICC) to better manager capital investment and resource allocation.
It is well known that Eskom and Transnet have significant investment programmes to expand their capacities.
Eskom is projected to spend over R330 billion in capital expenditure over the next five years.
In addition, excluding primary energy, Eskom will be spending over R150 billion in operational expenditure over the same period.
When Eskom’s role in the updated Integrated Resource Plan is announced it is possible that these amounts may be revised upwards.
At the same time, Transnet has expanded its capital expenditure budget from R110 billion over five years to R300 billion over seven years.
Critical in this strategy is that 55% of the Capex will be investments in new logistics capacity, which goes beyond the predominant maintenance focus of the previous Capex plans.
Over the seven years, excluding electricity and fuel, Transnet will also be procuring an additional R62 billion on operational expenditure.
The question is, what do these investment programmes mean in relation to stimulating the development of the broader economy and of Tshwane in particular?
Infrastructure investment and associated capacity both enables and promotes economic activity.
It enables economic activity in that it would be inconceivable to establish any industrial activity without the electricity to power the plant and the logistics infrastructure to move materials to and from the plant.
But at another level, infrastructure investment promotes qualitatively new economic activity.
The demand created by the investment programmes of the State-Owned Companies (SOC) and their on-going operational activities is also a profound stimulus to the development of the supplier industries to the SOCs, particularly those involved in the manufacturing of capital equipment and associated components.
Our supplier industries were particularly badly impacted by the low levels of investment from 1984 to 2004, both industrial capacity and capabilities were lost in this period.
Accordingly, the investment programme creates a profound opportunity for the development of these sectors.
The Tshwane economy is characterised by unusually high levels of international trade with exports almost forming half of the city’s economy.
The automotive, the iron and steel and machinery and equipment and the furniture manufacturing sectors are all very significant exporters based in Tshwane.
In addition, there are a range of other, more niche manufactured exporters including, for example, electrical machinery and transport equipment.
Similarly, imports both as inputs for manufacture and as consumables are a vital component of the economy.
The quality of the logistics link between Tshwane and the ports are therefore extremely important to the city economy.
Transnet is investing R38.5 billion in the Durban-Gauteng corridor to increase both capacity and efficiencies, a key element of which will be the upgrading of intermodal terminals in Gauteng as part of the process of establishing a seamless rail ring around the Province.
Transnet has completed a concept study to establish a super-intermodal terminal handling both container and automotive cargo at Pyramid.
The facility will be developed in partnership with the private sector and will be linked to the Blue IQ supported Automotive Park and terminal at Rosslyn.
A study has also been initiated to enhance the corridor between Ngqura and Gauteng.
However, a key insight is that for the process of promoting investment to be optimised in both our customer and supplier communities, we cannot just announce high level plans and hope that the market will respond.
In other words, we need dialogue and coordination with the private sector so that the SOC investment programme and operations results in predictable and sustained investment and competitiveness improvements in our customers and suppliers.
In order to systematise the process of collaborating with customers, we have, and will continue to be establishing, project based forums between SOCs and key customer sectors.
For example, we have established an Automotive forum involving the Department, Transnet and the key Original Equipment Manufacturers that will focus on improving operational efficiencies on rail and at the ports, increasing investment in specialised automotive related rail and port capacity and ensuring security of electricity supply.
The forum will produce quarterly reports that will allow me to systematically track and add value to priority projects.
In this way, we hope to be able systematically to promote additional investment in the automotive sector – which will clearly be of benefit to Tshwane.
We are working with the Department of Trade and Industry to identify other prioritised sectors for the establishment of these competitiveness forums.
In markets where the SOCs are the major customers for capital goods, it is the quantity, quality and predictability of the demand signal presented by the SOCs that will lay a foundation for the development of industrial capabilities in the relevant supply chains.
The Competitive Supplier Development Programme was established by the department to ensure that the procurement planning and execution and on-going supplier management is aligned with our industry development objectives.
SOC Procurement policies, processes and related systems have been revised to ensure that supplier development concerns are integrated into all significant procurements.
The department will also be hosting a Supplier Development Summit where SOC procurement and supplier development plans will be comprehensively shared with all interested stakeholders.
Long-term fleet procurements have also been introduced to enable the development of strategic partnerships with suppliers to develop national industry.
Transnet is planning the procurement of a fleet of 1 064 locomotives in the next quarter which will result in a seven year strategic partnership with the selected.
Eskom is also planning long-term power station filter bag procurement with similar industry development objectives.
I encourage the City of Tshwane and all those present today to engage with the SOC Competitive Supplier Development Programme.
For example, Tshwane is already host to a major Transnet Rail Engineering (TRE) locomotive and wagon manufacturing facility.
In the context of our upcoming locomotive fleet procurement, the TRE facility can form the anchor for the development of an extensive supplier cluster.
The development of this cluster will be significantly enhanced if a cluster park is established to house suppliers in close proximity to TRE and supporting infrastructural investments in roads, electricity distribution and water is made by the City.
We can only enhance the impacts of our programmes through effective coordination.
The department has also established forums to enable collaboration between the Provinces and the SOCs.
These forums have the objective of aligning and coordinating the investment programmes of different stakeholders, providing support for the implementation of the build programmes and enhancing communication in order to rapidly resolve service delivery problems, design flagship projects and build business relationships between the SOCs and the Provincial governments.
I am pleased to say that the response from the Provinces to this initiative has been very positive and we can already see the benefits flowing from enhanced communication.
A new unit called “Strategic Partnerships” has been established in the department to provide systematic oversight and support for these investment promotion processes.
In addition, the department is establishing an Integrated Project Office to focus on providing more effective monitoring of the infrastructure roll-out, to unblock bottlenecks in the process, enhance our joint learning as the roll-out progresses and to support the supplier development process with the SOCs.
In conclusion, I would like to congratulate Tshwane on hosting this conference.
I believe that the public and private sector need to build a culture of systematically sharing our visions and investment plans.
This conference is a powerful platform to support the process of alignment.
I thank you.
Issued by: Department of Public Enterprises
23 May 2012
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