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14 March 2008

Programme director
Mr Chris Beyers, Chairperson of the Capital Projects Feasibility Programme
Adjudication Committee
Ladies and gentleman

Thank you for the invitation to participate in the launch of this programme and in particular to say a few words at this commemorative dinner. The Capital Projects Feasibility Programme, which we are launching today, has the potential to contribute significantly to the advancement of a number of objectives that government has set in recent years.

Firstly, I am sure that as everyone knows, our country is undertaking a major infrastructure investment programme. During the current Medium Term Expenditure Framework period, more than R400 billion will be spent on a range of infrastructure projects. The current projects are, however, only part of a much larger programme which can be expected to continue for the next quarter century or so. For example, the energy build programme is expected to involve expenditure well in excess of a trillion rand over the next 25 to 30 years. In this context, the Industrial Policy Action Plan has identified the capital goods and transport equipment sector as one of the lead Industrial Policy Action Plan (IPAP) priority sectors in the period moving ahead.

The advancement of this sector is indeed of critical importance in our quest to raise our growth rate and to deliver on the infrastructure programme which is so critical in this regard. We need to ensure that the import component of the infrastructure spent is indeed reduced from the 40 percent estimated at present to the 30 percent which we have identified as a target in our Industrial Policy Action Plan. We need to do this to reduce the pressure on the current account on the balance of payments which remains one of the main macro-economic points of vulnerability that we will have to manage as we move ahead.

If we achieve what we are seeking in the capital goods and transport equipment development programme, we will also have contributed to reducing a major vulnerability which the South African economy has always had, namely its dependence on imported means of production. This is becoming more urgent, because it is becoming clear that as other economies larger than ours, also embark on major infrastructure development programmes, the capacity to source key components of infrastructure build programmes abroad is becoming more and more difficult. This will be even more magnified for other countries on our continent whose economies and therefore the scale of their infrastructure development programmes, are even smaller than ours.

What this last point means is that we cannot afford to see the objectives of our programmes in the capital goods and transport equipment sectors as being narrowly confined to creating capacities to respond only to the needs of our own domestic infrastructure investment programme. Rather, we need to use our response to domestic infrastructure investment programme as a catalyst to support the emergence of capital goods and transport equipment sectors capable of serving a wider regional and continental market. Put bluntly, as major international firms seem likely in the future to be tied up with projects in economies bigger even than ours; we need to recognise the opening of an important potential niche for our companies to become more involved in smaller and medium scale capital projects across our continent.

This brings us to an important second objective to which the Capital Projects Feasibility Programme could contribute: the advancement of the New Partnership for African Development (Nepad). A critical element of the Nepad programme is recognition of the centrality of forging partnerships to advance critical infrastructure and capital investment programmes across the African continent, particularly those that are only feasible on a cross border basis. The African Union has identified a number of targets for the achievement of the long standing dream of promoting regional economic integration on the continent. In the current phase, emphasis is placed on advancing regional integration programmes within the framework of the various Regional Economic Communities existing in different sub-regions of the continent. Regional integration in developing regions needs, however, to be recognised as a process that has, necessarily, to reach far beyond the mere adoption of formal models of free trade areas, customs unions, and economic communities and so on.

Advancing regional integration in the developing world depends critically on the implementation of programmes of sectoral co-operation that can address deep seated challenges of inadequate infrastructure and under developed production structures that hamper the increase of intra regional trade. This is evidenced by the experience of our own Southern African Development Community (SADC) region.

Later this year, we will be formally launching the Free Trade Area for the Southern African Development Community. However, South Africa and South African Custom Union (SACU) had already implemented some three years ago, the tariff concessions which we made to other members of the SADC area involving the removal of duties on over 97 percent of products entering the South African market from other members of SADC. Yet the trade imbalance between us and them is pretty much what it has always been, underscoring the reality that what prevents neighbouring countries from accessing opportunities in the South African market are not fundamentally tariffs and regulatory barriers but inadequate infrastructure and underdeveloped production structures.

A programme like the one we are launching today will facilitate a greater involvement by South African companies in capital projects both on the African continent and further abroad by offering support for feasibility studies necessary to launch such projects. The programme will take the form of a matching grant facility for feasibility studies for capital projects both inside the country and abroad. For projects in Africa, government will advance 55 percent of the costs of a feasibility project within a range of R100 000 00 to R5 million and 50 percent of the cost of feasibility studies for projects outside the African continent.

This facility is not limited to infrastructure projects but to a range of projects that will require capital investment, including projects in the manufacturing and other productive sectors. The feasibility work will need to be undertaken by South African concerns that achieve at least some modest level of Broad Based Black Economic Empowerment (BBBEE) recognition. Scoping work of the type that will be supported by this facility is of course absolutely critical in the launch and undertaking of capital projects.

We are convinced that an expansion of capital projects across the African continent and elsewhere, such as South America and the Middle East, will provide an important stimulus in demand for capital equipment that South African companies will be well placed to respond to. Amongst these will be firms in the engineering procurement and construction management (EPCM) business, consulting engineering firms and equipment suppliers. We must remember that the multiplier effect in terms of after market sales created by the installation of original equipment in such projects, is significant and ongoing, providing that South African companies position themselves well in order to work this market.

Ladies and gentlemen, the Capital Goods Feasibility Programme is of course, just one initiative that will assist us in this endeavour, but we believe it is an important one. Tonight we are celebrating the launch of a fully fledged programme located now in the Department of Trade and Industry, with its own budget line and linked to the Export Marketing and Investment Assistance (EMIA) scheme. From the side of the Ministry, let me wish those that will be involved in administering the programme, as well as potential beneficiaries, all the best, and assure you of our continued support.

Thank you very much.

Issued by: Department of Trade and Industry
14 March 2008
Source: Department of Trade and Industry (http://www.dti.gov.za)