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1.Introduction

Dear Madam Speaker, Honourable Members of this house, Ladies and Gentlemen, I would like to thank you for the opportunity to once again address you on the DTI budget. The Director-General, Dr Ruiters, and his team, have presented the budget to both the Portfolio Committee and the NCOP Select Committee responsible for trade and industry. We are very fortunate as a Department to have such active committees under the leadership of Dr Rob Davies and Mr Mosheen Moosa. I thank them for their continued support and active interest in the success of our work.

When our President addressed this house at the opening of Parliament he indicated our macro-economic successes. He set out an integrated action plan that placed greater emphasis on further micro-economic reform. The integrated economic action plan focuses on specific areas with the objectives of raising the growth rate and accelerating employment creation, reducing poverty and inequality and having a greater impact on small enterprise development and black economic empowerment.

2.The State of the Economy

Macroeconomic conditions

Ladies and gentlemen there is no doubt that we have moved South Africa onto a sustainable growth path. Last year our economy experienced a growth rate of 3, 1 percent. It is also important to note that since the Asian and Russian crises of 1998, South Africa has experienced ten consecutive quarters of economic growth. Though the quarter-on-quarter growth rate figure for the first quarter of 2001 was somewhat disappointing at 2 percent, this was partly a result of climatic factors that led to a significant fall in agricultural production. The transport, communications, finance, commerce and tourism sectors remain strong, while real estate sales continue to provide positive indicators. The progress towards our inflation target is good and we have stabilised producer prices. This increases our macro policy flexibility.

On the trade front, our performance has also been very strong this year. Exports have performed exceptionally well, rising to a total of R78, 5 billion for the first four months of 2001. This is a 29% increase on the same four months in 2000. Imports have grown more slowly, leaving us with a positive balance of R14, 1 billion for 2001 so far.

We don't expect the current account to continue to perform at such an exceptional level-exports will probably grow more slowly for the rest of the year due to a softening in world market conditions. Also imports are likely to grow a little faster as investment plans by government and the private sector are implemented. But most economists are still confident that the world-wide slowdown will be fairly short and not too deep, and could turn around later this year or early next year.

Manufacturing Economy Trends

We can now look back on the period since 1994 and assess our performance in the manufacturing sector. Overall, production in this sector is rising slowly, at a little over one percent per annum. This could be seen as weak, but in the light of the tremendous pressure we have put on manufacturing to restructure through tariff reform and more effective competition policies, it could have been worse. Certainly, many countries going through similar structural reforms as we have gone through have seen manufacturing shrink in real terms. Ours is still growing.

When it comes to manufacturing exports, we have done pretty well. Between 1994 and the end of 2000, exports grew from 15 percent to 28 percent of total manufacturing production. Overall, manufactured exports grew at about 11 percent per year, in real terms. At the same time, the overall role of manufactured products in our export range has grown very substantially. The strongest growing sub-sectors have been transport equipment, electronic consumer products, and electrical machinery and equipment. This shows that we do have the capacity to be competitive in sophisticated segments of the world economy.

At the same time, investment in manufacturing has generally been weak. Real gross investment in manufacturing has grown by only 2,8 percent per year since 1994. Some sectors, such as transport, equipment, and petrochemicals have done better, at 5 to 6 percent, but overall the level is far too low. Clearly, one of the key objectives of the DTI must be to support higher levels of investment in manufacturing.

As a result of this deep restructuring in manufacturing formal employment growth is a problem area. The figures we have indicate that formal employment in the manufacturing sector has fallen by about 1,7 percent per year since 1994. There is no doubt that some of this apparent fall derives from changes in the classification of workers, as manufacturing companies outsource more and more activities like transport, cleaning, design, information technology, and so on. Also, we suspect that the number of employees in the less formal part of the manufacturing sector has risen considerably.

On the other hand, the improvement in productivity levels in manufacturing has been very impressive. One South African banking economist recently wrote "We are having a productivity revolution on a par with Australia in the 1980s, that is leaving the US standing still."(1) To be a little more precise, output per employee in manufacturing has grown on average at over three percent per year, every year since 1994. The only sector that has experienced a significant decline in labour productivity has been the clothing, textile and footwear sector. Another key contributor to improved manufacturing productivity must be the decline in person days lost due to strike activity since the improvement in the industrial relations environment since 1994.

Another indication of the very considerable progress we have made since 1994 is the trend in the registration of new companies. By the end of 1993, the total number of registered companies and close corporations stood at 42, 076. This number had been slowly falling before 1993. By the beginning of 1996 this number had grown rapidly to 73, 425. The numbers continued to grow in 2000, reaching a total of 108, 886 companies and close corporations registered in a single year - a record for the companies' office. Also noteworthy is that since 1994, 1200 foreign-owned companies have registered in South Africa.

The meaning of these company registration numbers is: firstly, that the rate of economic activity has increased considerably; secondly, that optimism amongst entrepreneurs continues to grow; and, thirdly, that there is a very significant growth in the establishment of companies by historically disadvantaged individuals. This could also include the formalisation of some previously informal firms.

3. Microeconomic reform strategy

The President has issued us with a challenge: to move beyond macroeconomic stability to implementing microeconomic reforms. Our task is to examine more closely the nature of competitiveness at the level of the firm. This is the focus of DTI's recently released integrated industrial strategy. It asks the question: what determines a firm's competitiveness? There are two categories of factors: those internal to the firm and those within the environment within which the firm is located.

The four primary external factors to ensure the competitiveness of South African firms are:

First, we must have lower input costs, particularly energy, telecommunications and transport costs, as this would lower the cost structure of the entire economy.

Second, a lower regulatory burden for firms is essential and this must achieved through a more efficient and effective government capable of managing a sophisticated regulatory regime.

Third, we, as government, sometimes in partnership with the private sector, must invest in infrastructure such as roads, railways, and ports.

The fourth factor is access to finance.

5. Industrial Strategy

The internal factors that drive firm-level competitiveness are dealt with at length in the industrial strategy paper that you have in front of you, Honourable Members. The main thrust of the document is that South Africa's firms must adapt to the fact that the world economy is rapidly becoming a "knowledge-based economy". This means that the value embodied in products is increasingly derived from the knowledge embodied in the products rather than the value of the materials incorporated in the product. This is a result of: firstly, the fact that information and communications technologies are changing the nature of products, the way they are made, and the way they are sold; secondly, that the rate of innovation and new product development is faster today than ever before; and, thirdly, that the relationship between suppliers and customers is changing in such a way that customers are able to demand more and more precisely the type of products they need.

The services that accompany the development, supply and support for the product contribute an increasingly significant part of the value of the product. The contribution of the cost of the raw materials embodied in the products is increasingly less significant. And more and more products in the average shopping basket are services rather than material goods.

The old modes of competitiveness are less and less useful in this environment. The cost of the raw materials, access to cheap labour, control over proprietary technologies, and privileged access to markets-these advantages are less and less valuable. This does not mean that our strengths in manufacturing based on energy and raw materials are not receiving attention but rather that we seek to further enhance these basic competitive advantages by integrating knowledge intensive processes into these sectors.

The success of the industrial strategy depends upon a complementary socio-economic strategy that is able to counter the powerful tendencies towards inequality, uneven development and marginalisation that characterises the globalisation process. This strategy must address the challenges of black economic empowerment, the promotion of small businesses, and the creation of sustainable, well-paid employment. The Integrated Human Resource Development Strategy can only achieve this latter objective through widespread education and training and the DTI welcomes the framework provided. Extending the scope of industrial strategy to sectors such as tourism, health services and telecommunications, has the potential to impact significantly on aggregate employment.

The integrated industrial strategy must not be read in isolation from the DTI's international economic strategy - which you will find in Sizebenza Sonke, DTI's new policy journal, included in your packs. This international economic strategy includes a number of elements: exploiting preferential trade agreements and arrangements like the African Growth and Opportunity Act; restructuring the DTI's foreign offices; improving the regulation of international trade, and providing export credit reinsurance.

Underpinning all of this is a regulatory system that establishes and enforces a set of rules that govern economic conduct. These rules ensure the effective functioning of markets, price competition, innovation and easy entry into the market. These rules also encompass provisions designed to safeguard the public interest.

Increasingly public interest issues are coming to the fore and DTI will be paying greater attention to areas such as the economic and social impact of gambling; we are also planning to introduce new liquor legislation this year; and we will continue our efforts to promote greater transparency in the corporate governance regime through amendments to the Companies and Close Corporations Act. Consumer protection is an area that we will readily admit the department needs to strengthen. Through institutional changes in the department and increased financial support this deficiency will be remedied.

On 8th May, I expressed my concern about the trickle of applications for good cause lottery funds being received by the Central Applications Office of the National Lottery. I am pleased to report that in the past month there has been a significant increase in applications.

6. The Role of the DTI

In order to realise the above, DTI must play an integrating role. This role requires "connected government", DTI, together with other economic departments, is managing our microeconomic reform programme. This includes other levels of government and in the last year the DTI has intensified its efforts to align economic policies through co-operative governance. These efforts have included the review of mandates and the consolidation of the various agencies and institutions that report to the DTI and that now comprise what is referred to as the DTI Group. This brings into DTI's ambit assets to the value of R25bn to be managed in support of DTI's objectives. A greater capacity for co-ordination has been developed in DTI through the establishment of an Executive Management Unit that provides institutional and policy co-ordination to the department and the DTI Group. This capacity has been extensively used to support the co-ordination of economic departments, at national and provincial level, and to assist the Presidency in developing an implementation plan for MAP.

As a department, we have recognised the need to review our support measures to firms in terms of their effectiveness in enhancing competitiveness. This review has led us to introduce a number of new programmes as well as continuing with those that have proved their effectiveness. This review process will conclude with a consolidation of DTI's many supply-side support measures and incentives, as well as the introduction of innovative marketing and delivery systems that reach out to economic citizens in their places of work, businesses and communities.

Allied to this, a new suite of investment incentives has been implemented to promote skills development, modern production methods, and investment in critical economic infrastructure. I am pleased to announce that discussions with National Treasury on the operational details of the Strategic Investment Programme have been concluded. The Revenue Amendment Bill to be tabled in this house next week will clear the way for the implementation of the programme later this year. This new suite of incentives is the key to unlocking domestic investment. This year, Honourable Members, I am pleased to announce that we have set aside over R1bn to stimulate domestic investment in our economy.

More importantly, one of the most significant functions the DTI performs is to connect people to economic opportunities by providing information, guidance and direct assistance; and by connecting firms to markets, to finance, and to other firms to promote learning. As a first step, a cyber-café and resource centre has been opened in the lobby of the DTI in Pretoria. We are planning to introduce similar initiatives at the provincial level soon.

When I addressed you last year, I spoke to you about the changes we were introducing in the department. One year is a very short time in the lifespan of a large institution like the DTI. However, we have had great success in this process. We are transforming the DTI into a thinking institution that keeps its fingers on our economic pulse and is capable of responding to diverse needs of stakeholders: workers, consumers, investors, and entrepreneurs. I am pleased that the changes we have introduced into the department have resulted in visible improvements in management. These improvements are evident in the improved physical environment, reform of the procurement system, effective budgeting and monitoring of expenditure.

Finally, as government we need to ensure that we know how well we are doing, as quickly as possible to respond timeously to changing circumstances, so we need more effective monitoring and evaluation systems. A Chief Economist's Office has been established to develop key performance indicators of DTI's impact on the economy.

It is this way that the DTI will itself become a more competitive organisation, capable of competing with the best institutions around the world.

I hope that the quality and range of information available in the document packs provided to you today will be of interest. This information will enable you to access our work and plans. Please use this to interact with the DTI and your own constituents in a structured way. I invite you to view our exhibition where more information about DTI and the DTI Group is available. I also invite you view the DTI home page. I am also pleased to refer you to the DTI's 1999-2000 annual report that was tabled in the house this morning. I think this reflects a different department. It looks different; it feels different; it acts different; it is different.

7. Conclusion

In the past year, the DTI has embraced a simple lesson: its success depends on our ability to manage change effectively: a changing department, a changing economy, and an always changing world. We are no longer afraid of change. As an institution we are building our capacities, forging a common set of values for the DTI Group, and reaching out to our stakeholders, be they in this house, in the provinces, or in rural areas. It is precisely this approach that has given us confidence. The more we share this confidence the more we will infuse others with confidence. A confident economy will be a growing economy.

Express your confidence in our economy's future by supporting Vote 31.

Thank you.

(1) Dr Cees Bruggemans, "Playing with Interest Rates" FNB, 7 May 2001

Issued by Ministry of Trade and Industry

08 June 2001