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12 April 2005

Madam Speaker
Cabinet Ministers and Deputy Ministers
Members of the National Assembly
MECs and HODs
Officials of the dti and COTII
Leaders of business and labour
Distinguished guests; and
Ladies and gentlemen

An active, coordinated approach for a growing economy

Today the South African economy is stronger and more resilient than ever before. Our economy grew by 3.7% in 2004. We forecast that it will grow even more in 2005, by 4.3%. Our growth rate range has increased from 2 - 3% a few years ago to 3 - 4%. Our investment rate has increased from 14% to 17% of GDP. Business confidence is at record highs. We are making good progress towards a higher rate of economic growth, which brings us closer to our developmental goals, in particular addressing poverty eradication and unemployment.

To reinforce and sustain this positive trajectory the Government will focus on three key areas of intervention, namely increasing the rate of investment, improving levels of competitiveness, and broadening economic participation. This requires that we accelerate the Microeconomic Reform Strategy and place increased emphasis on creating an enabling economic environment and lowering the cost of doing business.

Madam speaker, as part of the shift to increasing the levels of support for the micro-economy, the dti will adopt a more active and robust industrial and trade policy, including targeted sectoral interventions and a more strengthened competition regime. In addition, efforts will be stepped up to increase participation in the mainstream of the economy and bridge the divide between the first and the second economy.

Key micro-economic interventions

An essential element of the micro-economic reform strategy is to reduce the cost of doing business and remove constraints to growth. In this regard, government continues to work towards more cost-effective administered prices. There is also a need to address private sector pricing practices. Import parity pricing has been identified as a major constraint to growth and expansion of the downstream sectors such as metals and chemicals. Dti research indicates that domestic prices to downstream producers are in some cases 30% to 50% above international prices. To address this and other market failures we will be reviewing our competition policy with a view to creating more competitive markets. Among other options, we are engaging various upstream producers to reduce overall price levels to domestic producers. Through these interventions we seek to unlock the potential of our more labour-intensive downstream sectors and improve the levels of beneficiation in our economy.

Major challenges in building a growing, competitive economy is to make sure that we manage the capital intensity of our economic growth and ensure that we develop deliberate interventions to increase job-creating investments. The dti sectoral strategies are instrumental in addressing this challenge. These strategies include providing appropriate support to identified priority and emerging sectors with high growth and employment potential.

Madam speaker, the dti has set itself the objective of promoting direct investment into priority sectors.

Our investment strategy relates to our need to grow domestic industry and expand exports. The dti is aware that exports have tended to be more capital-intensive, and imports have tended to affect more labour-intensive sectors. However we are confident that more can be done to promote labour-intensive sectors, including protecting industries against illegal and unfair imports and through increasing labour-intensive exports, such as services.

The automotive sector has emerged as a success story, and is an example as to what can be achieved by the combined efforts of key stakeholders. Growth in this industry can largely be attributed to the Motor Industry Development Programme (MIDP). Part of the success of the MIDP has been due to periodic reviews that have taken account of changing conditions domestically and globally. In this vein, the dti will soon undertake another review of the MIDP to ensure its sustainability and maximise its impact. The sector has also benefited from strong domestic demand and has seen an overall increase in vehicle sales volumes of 22% during the 2004 calendar year. The automotive sector is the leading manufacturing sector and the third largest sector in the South African economy. The sector’s contribution to the GDP in 2003 amounted to 6,4% up from the 5,7% in 2002 and 5,4% in 1999.

Madam speaker, the dti is committed to seeing the continuation of the MIDP. As government support to industries is governed by international trade rules, we are periodically requested to provide information on such support on a multilateral basis, and to respond to any concerns that our trade partners may have. In this regard, the dti has had consultations with Australia regarding its concerns about certain aspects of the MIDP. These concerns were constructively addressed and do not warrant the negative speculation that has been reported in the media. Recommendations on any adjustments to the existing MIDP will take account of South Africa’s international trade obligations, government’s strategic objectives and the simplification of administration procedures. All relevant stakeholders from labour, government and business, who are represented in the Motor Industry Development Council, have been briefed and will actively participate in this review process.

Honourable members, in addition to the automotive sector programme of the dti, there were 10 other Customised Sector Programmes at various stages of development. The majority of these sectors have been or are being researched and analysed. Our intention is to have all Customised Sector Programmes developed by end August 2005, and start process of implementing high impact projects by September 2005.

At the same time as the dti focuses on new growth sectors we are very aware that important sectors are facing crisis and decline, particularly those that have significant employment and social implications. The strengthening of the Rand emphasises that we can no longer rely on a weak currency to drive exports. We therefore need to focus on upgrading our fundamental competitiveness capabilities to engage in a challenging global environment. In this regard, the dti will continue to research, analyse and develop strategic options for sectors in distress.

The dti, for example, is now actively engaging with clothing and textile employers and unions. On the one hand the dti is looking at a combination of short-term safeguards while, on the other hand, requiring that the industry increase its levels of investment and underlying competitiveness (as was achieved in the auto sector) to make the sector sustainable in the long-term. A clothing and textiles task team report is being finalised, and will be submitted to the dti in the next month.

Similarly, the dti, through a combination of social dialogue and Sector Jobs Summits processes, will engage business and trade unions to find appropriate sector strategies to meet the challenge of a transforming economy.

Madam speaker, it is our view that demanding and well-informed consumers with access to redress are essential to building an equitable, socially efficient and competitive economy. In this regard, the dti has published a Consumer Protection Policy. The policy, which was drafted and published for public comment in 2004, provides for the formulation of better consumer legislation. Such legislation was previously fragmented and provided vague guidelines for redress. The dti has also published a Consumer Credit Bill designed to protect consumers in the credit industry from reckless lending. The Bill covers all forms of credit provision, including banks and retail credit providers such as furniture and clothing stores. In addition, a debt-counselling project has been implemented. Through such an approach we are confident that we shall protect consumers while lowering the cost of bad debts in the industry. Consultations with key stakeholders, particularly through Nedlac, are currently underway.

In line with this focus on strengthening the hand of the consumer, the department has improved its investigations into consumer complaints, and has reduced the average turnaround time for an investigation from 168 days in April 2004 to 61 days in January 2005.

Further strengthening and effective implementation of consumer protection will continue this year. The department will establish a new consumer credit regulator, develop a policy on internet gambling and assess the impact of gambling, consumer credit and liquor.

Improving economic inclusion

Honourable Members, a second essential part of government’s micro economic reform strategy is increasing participation in the economy. Government is committed to improving economic inclusion through speeding up broad based BEE, small business development, promoting cooperatives, and strengthening consumer policies.

I must emphasise that the dti is promoting co-operatives as a new form of enterprise, for all economic sectors. The dti has taken over responsibility for co-operatives from the Department of Agriculture, and over the past year we have completed consultation with all stakeholders on a new co-operatives policy and strategy. We have also introduced a new Co-operatives Bill into Parliament. The public consultation process has been concluded and the Portfolio Committee will be finalising the matter by the end of this week. We are also finalising incentives and capacity building grants for start-up cooperatives. Furthermore, Khula, SEDA and other relevant dti institutions have been given the mandate to strongly support co-operatives.

Madam speaker, through our BEE strategy we are increasing the number of black people who manage, own, and participation in the country’s economy. Black economic empowerment is increasing across all sectors of our economy. We are also seeing an increasing emphasis being placed on the other elements of empowerment such as skills development, employment equity, affirmative procurement and enterprise development. As part of providing greater certainty to the BEE process, the dti released of the Codes of Good Practice at the end of last year for public comment. I am pleased with the response from a broad range of interest groups. It is important to emphasise that the Broad Based BEE Act only sets out the broad policy framework on empowerment and the purpose of the codes is to provide a clear set of guidelines and standards on the implementation of BEE. It seeks to codify BEE and harmonise the various sector charter initiatives. The codes also seek to ensure that empowerment remains broad based and that underlying financial structures are sustainable.

The dti is currently in consultation with key stakeholders and we hope to finalise the Codes by May 2005. Thereafter the President will be announcing the BEE Advisory Council.

A critical aspect of our strategy for growth and broader economic participation is the promotion of micro and small businesses. Given the significant role that such businesses play in stimulating economic growth and job creation, the National Small Business Act was amended in 2004 to provide for the merging of Ntsika and NAMAC and the birth of an integrated, single Small Enterprise Development Agency (SEDA). Over the next six months, SEDA will engage with the provincial and local government to set up local offices.

Access to affordable finance remains a key constraint for emerging black business. In this regard, the National Empowerment Fund (NEF) was relaunched on the 31st of May 2004 and re-capacitated at executive management level in order for it to effectively carry out its mandate. The NEF was capitalised to an amount of R150 million during 2004/2005, which has now been fully committed to BEE transactions. A key development is that the NEF will substantially expand its reach to the poorer provinces.

Furthermore, Khula Enterprise Finance is engaged in a process of repackaging its financing activities and introduced a new strategic direction that is premised on maximising access to finance through increasing its growth in disbursements by 20% per annum, and expanding the impact through focusing on greater geographic spread of its disbursements. More importantly, Khula will improve its impact and outreach by introducing new delivery channels such as SEDA access points, as well as by forging new corporate partnerships that have better outreach across the country.

The non-availability of micro-finance for the informal, start-up and survivalist enterprises has been a glaring market failure. To address this, the dti has established the South African Micro-finance Apex Fund that will be launched at the end of April 2005. The fund will provide loans of up to R10,000. In the first 18 months lending will be undertaken through various retail channels such as micro-credit organizations (MCOs), Financial Services Co-ops (FSCs) and Post Bank, across all the nine provinces. The fund is aimed bringing about a delivery model that is appropriate and applicable to the unique conditions of the South African economy.

The developmental role of trade

Madam Speaker, additional efforts to build platforms for long-term economic growth have been in the global arena, reflecting our recognition that that trade policy and industrial policy are interlinked and mutually reinforcing

A key focus of our work, in this regard, concerns the World Trade Organisation, and in particular the current Doha Round of trade negotiations under its auspices. Our overarching objective in the WTO is to ensure that developmental interests of the South and Africa in particular, are secured in the WTO’s rules and outcomes. Specifically, it is important that the current Doha Round results in the elimination of agricultural subsidies that suffocate development in Africa and the developing world.

In the next few months, we will pay attention to ensuring that the WTO Ministerial meeting in December 2005 in Hong Kong takes decisions that will bring the Doha negotiations to a successful conclusion as soon as possible.

Our strategy for the WTO and the Doha Round involves enhancing our national negotiating capacity, including upgrading our representation to Geneva – the headquarters of the WTO – as well as forging common positions in Africa and with our partners in the G20.

South Africa’s strategic integration into the global economy has also been pursued at bilateral and regional levels. In view of the proliferation of regional trade arrangements around the world, it is critical that South Africa seeks a competitive presence in major markets through its own preferential arrangements. We have thus sought strengthened economic relations with key developed countries to “lock” in access to these large markets for goods, services, capital, technology and finance. We have also vigorously pursued South-South trade. Latin America and Asian countries with large, fast-growing markets offer important strategic opportunities as outlets for value-added exports. In this regard, I am pleased to announce that we have concluded a preferential trade agreement with Mercosur, South America’s trade block.

Going forward greater priority will be given to our interventions in regard to the promotion of African economic development. It has become clear that growth in our economy and that of the continent are interlinked, and that the manner in which South Africa relates economically to the rest of Africa must promote the industrialisation and development of the continent, within the NEPAD framework. In this regard, the dti will seek to coordinate the multiple activities of various government and private sector actors on the continent, to ensure maximum impact of our efforts.

Conclusion

To conclude, I would like to thank Members of Parliament, and particularly our Portfolio and Select Committees for their keen interest and involvement in the workings of the department. I also want to thank the Deputy Minister, my senior management, and the leadership of the various institutions related to the dti for their hard work. I want to thank the outgoing Director-General, Dr Alistair Ruiters. Through his dedication and that of dti staff, the department has a mission and vision that is aligned with government’s broader economic policy goals. He leaves behind a stronger department, focused on delivering on its mandate of economic growth, employment and equity. Going forward we will be placing strong emphasis on increasing the departments capacity to developing more specialised skills so as to be able to intervene more decisively in strategic areas of the economy.

Honourable Members, I ask this House to help us in our endeavours by voting to approve the budget of the dti of R3,076 million for this financial year.

I thank you.

Issued by: Department of Trade and Industry
12 April 2005