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THE SA ECONOMY AT PRESENT AND ITS FORECAST FOR THE FUTURE'

"We are at the beginning of a new era, characterised by great insecurity, permanent crisis and the absence of any status."

It is not very difficult to guess what Michael Sturmer was trying to say to us when he described the new millennium and its political and economic discourses.

Discussions about the sole purpose of our economies should seek to deal with this reality much ubiquitous in the developing world. South Africa, with its promising future belongs in this category of nations and hence it extends its warm hand for economic friendship to world partners with whom it shares the commitment to humanity and its survival.

I feel very honoured to be part of this important gathering today and I hope our discussions will contribute towards the ongoing effort of building sustainable growth in the economies of developing countries. Indeed the economies of the South develop within a particular global power balance and the demands on those economies are unique in many ways. This by no means suggests that our economies in the South must develop separately without mutual connection with more developed economies of the North and so on.

It is very critical that as we establish new or further enhance already existing economic relations, we do so with the integrity of protecting cross border investment interests without sacrificing the local demands of our respective economies.

South Africa's economy, like many other economies has a history. We know how colonisation changed the economic and political profile of many African states, South Africa being no exception. Its economy has gone through difficult times since those days. Internally, there was a time when it was designed to exclude many black South Africans who largely provided the economy with labour and could not get any close to the significant benefits of that economy even at times when it experienced growth.

When South Africa became a democracy in April 1994, a great deal of economic change was to take place as well. We knew quite well that one of the key tasks of our new democratic state was the de-racialisation and democratisation of the South African economy. We wanted to create an economy that would maximise the participation of ordinary citizens and improve their material conditions and thus generate more interest in main stream economic activity.

In this sense we had to define how our democratic state would relate with private capital, both locally and internationally. South Africa's racist past and inequality imposed immense challenges on the new state.

As much as many political changes occurred and opportunities began to open up, there are realities of South Africa that were to remain with us for a long time. South Africa entered the world economy at a time when the world was witnessing globalisation and cross-border capital inflow was more constant. It was a fast economic pace. We had to keep up with it.

In Durban last year at the World Economic Forum's "Southern Africa Economic Summit", one leader of a multinational company was asked what exactly South Africa needed to win more foreign investment. He said, "A track record" and this provoked President Mbeki to respond without wasting time, saying, "Yes, but how long is the track?" The relevance of his statement was that South Africa's economy must be judged against the background of how much it has leaped from a dark history to a position of higher moral and much celebrated status as a world player. When our democracy was new and investors often uncertain about the future, our economy had moments of decline. 1996 and 1998 saw our currency, the Rand, depreciating and at some point we even experienced much capital flight.

These were the years of great policy changes in our economic framework and it was a period of shadow boxing between the state, business and labour. Naturally, it was not a period of sudden consensus. There was a bit of uncertainty, not just for investors but also for all of us as we began to deal with the questions of how to develop an economy that was historically exploited to serve a minority of citizens to one that would serve all citizens.

While this challenge persisted, the world was itself undergoing tremendous changes and South Africa had to straddle the roles of ensuring an economic paradigm shift within itself and putting up with world's rapid economic changes. This was the time when in the words of Samuel Huntington 'global politics had become multipolar' and capital between countries was flowing much faster than it had.

It was a challenging time, yet we have emerged with an economy with great potential regardless.

In the early year of our nascent democracy we were looking for answers. We wanted to provide a catalyst for economic growth while we reduce the crowding-out effect of government's borrowing on the local market. There was no room for compromising fiscal rectitude and prudence, and yet the demands resulting from massive unemployment and apartheid which created poverty, were not diminishing. As you can imagine, tensions between government, business and labour would soon develop. Sound ways of establishing consensus were urgent in order to create an environment in which our investing partners across our borders would find assuring.

In terms of the economy our country has been defined as a middle income country with a good supply of natural resources and a well developed infrastructure for transport and communication. The Johannesburg Stock Exchange ranks among the ten largest in the world. This state of affairs is no indication that the challenges of poverty and other ravages of the political system before 1994 are now behind us.

At the time when the emerging economies experienced a financial market crisis, South Africa's more developed and more stable macro-economic environment, shielded the country against many of the severe implications. But even with this environment, our economy was diverted from its growth trajectory in 1998.

This declining trend in 1998 was due to a number of factors, including the fact that there was a slow down in the growth of domestic final demand, there was a decline in the growth of exports and there was some decline in the activity of our primary sectors like agriculture and manufacturing. This was also the time at which South African industry has to compete internationally and infiltrate the global village. The good news is that South Africa has now identified various economic sectors at which it can compete against the world market. The most promising sectors are Information Technology, Telecommunications, Pharmaceuticals, Food Processing, Automotive Parts and Components, Beer and Malt Beverages and Carbonated soft drinks. Tourism with the emphasis on business tourism, is certainly also contributing toward increased economic growth.

One renowned economic magazine has said this about the current South African Economy: "South Africa is one of the most sophisticated and promising markets in the world". The unique combination of a highly developed first-world infrastructure and a huge emergent economy has given rise to a strong entrepreneurial and dynamic investment environment with many global competitive advantage and opportunities.

There is already an environment for sustained growth, healthy net capital inflows and improved investor confidence. The recent agreements on trade, development and co-operation between South Africa and the European Union will pave the way for our economy to develop secure markets for itself and the southern African region.

In 1997 we launched Investment South Africa, whose mission was to attract, facilitate and support foreign direct investment into South Africa. In Gauteng Province we have established GEDA, the Gauteng Economic Development Agency, which has a very focused project approach towards both inward and outward investment and liaises very closely with the national investment strategies. Our delegation lso includes GEDA and a very high level Information Technology delegation from South Africa. This business delegation has been actively occupied this week in Israel, in "one to one" business meetings.

Our macro-economic strategy defines our challenges and creates a framework for sustained economic growth. It aims to enhance export performance and increase private sector investment. It also aims to ensure greater infrastructural development and service delivery. Very important is our more focused approach toward a skilled labour force. This strategy is aligned and in conjunction with where the skills needs will be in the foreseeable future to fulfil the ever growing investor and production demands.

The strategy seeks to ensure fiscal prudence, a consistent monetary policy and exchange rates which are friendly to our own needs and our trading partners across our borders.

When I spoke to the Israel Chamber of Commerce in October 1999 I made the point that investment by Israeli companies in South Africa's economy has consolidated good friendship between our two countries. Apart from government to government relations, we are also very grateful for the trade between local business people and their Israeli counterparts, as this has contributed to the economic expansion of our countries.

The province of Gauteng is the economic heartland of South Africa and we have put in place an infrastructure consistent with the demands of the 21st century economies. We are improving transportation of people and goods between our ports and a communication infrastructure is already there.

Our projections remain optimistic, not as a result of unfounded hope, but because we believe we have a truly competitive economy and a macro-economic framework, which is equal to the demands of global markets. South Africa continues to play a critical role in the stabilisation of the Southern Africa region. The floods that hit Mozambique and the recent developments in other parts of the region are well under control and the leaders of the region have shown sufficient commitment to a prosperous region.

I am certain that South Africa, as you may well have experienced, is a safe investor destination and I believe our economy guarantees incredible returns on investment for our domestic investors and especially potential foreign investors.

I thank you.

Issued by the Office of the Premier, Gauteng, 18 May 2000