Minister of Public Enterprises, Malusi Gigaba,
Guests and delegates.
I wish to start my remarks with a reflection on a few framing issues for this Conference.
Manufacturing matters
Our economy needs a larger manufacturing sector, measured by its contribution to the GDP and its employment absorption.
Manufacturing creates jobs directly, generally quality employment. It has a positive impact on forex, both on export earnings and in reducing the import bill. It expands the technological base of the society, creating capacity in research and higher education institutions. Above all, it creates jobs in supplier industries, from mineral processing to services that support manufacturing. It is a vital component of a balanced, high performance economy.
The African market matters
Some 90 000 direct jobs in South Africa is wholly dependent on exports from South Africa to the rest of the continent. We need to use our local consumption base to provide the platform to export more, starting on the continent.
Competitiveness matters
While the state has a key role to play to support industrialisation, companies must keep working on their competitiveness: on price, on product innovation, on service to customers.
This requires the long view by company boards, instead of a philosophy of short-termism that seek to maximise return over the next year or two. Sustainable profit flows require investment in people, in machinery, in production systems, in research and development.
Policy certainty matters
The National Development Plan sets out the overall vision of where we want to be as a society by 2030. The economic strategy of government, the New Growth Path, seeks to place the economy on a more job-absorbing trajectory to help achieve that vision.
The NGP jobs drivers in turn include the National Infrastructure Plan and the Industrial Policy Action Plan. Government creates the legal and regulatory framework within which companies operate. We recognise that certainty about the direction of policy helps greatly in fostering investment decisions. We have placed our cards on the table.
We will support localisation. We will support efforts to expand the domestic manufacturing base. It is government policy. The ruling party has, if anything, strengthened its commitment to industrialisation, at the Mangaung Conference. This provides clarity about the direction of policy.
Partnership matters
The expansion of our industrial base requires closer working relations between business and labour. A fractious and conflictual shopfloor is not conducive to the joint effort that is at the heart of successful industrialisation in a society. Workers and entrepreneurs need to cooperate to expand employment, develop industrial competencies, improve skills, strengthen productivity and address income and social inequalities. This is central to our progress as a nation.
Let me now share with you some of our experience and initiatives.
Recently, an international survey of 200 senior auto sector executives by consultancy firm, KPMG, found South Africa to be the fifth best investment choice by car makers globally. It placed us above Japan and Western European and North American countries but also above other emerging economies such as Indonesia, Turkey, Vietnam and Colombia.
This is an example of the successes that are achieved where the state works closely in the economy with private sector partners. It is recognised by KPMG, which attributes the attractiveness of South Africa as an investment destination in automotive sector to the “result of the government’s commitment to retain, support and grow the existing manufacturers and component suppliers operating in the country”.
The examples from the industry confirm this. For instance, at Ford in Pretoria, the Industrial Development Corporation (IDC) assisted the company to expand. As a result, its locally manufactured Ford Ranger bakkie is now being exported to 148 countries. For the first time in its 45-year history in South Africa, Ford has added a second shift to its production and has created 550 jobs, of which 100 are with smaller suppliers.
BMW created almost 500 new jobs last year and invested R2.2 billion, manufacturing its new 3-series locally. It estimates that it supports 4 500 jobs at its local suppliers of side panels, floor trims, seat belts and alloy rims.
In the case of the automotive sector, government has created an environment using industry support measures and trade instruments for increased production and localisation. Add to this the industrial financing offered by the IDC and this sector serves as an excellent example of what integrated, coordinated government action can achieve working with the private sector.
Our support efforts are not confined to car manufacturing.
Since last year, government has begun to designate sectors and products which may only be purchased from local manufacturers. These new regulations bind all state-owned companies, provinces and municipalities. They cover products such as power pylons, bus bodies, locomotives and trains, valves, cables, set top boxes, solar water heating components and manual and pneumatic actuators. These designations are now set out in tender conditions for contracts by the state. This new approach go beyond only designated products: public entities are strongly encouraged to identify other opportunities to promote local manufacturing.
Using this we are managing to revitalise local train building – driven by Transnet and PRASA. This will result in significant localisation of coaches, wagons and locomotive manufacturing. Already, a local company has landed a contract to supply South African manufactured wagons and locomotives to Mozambique.
Bus manufacturing is receiving a significant boost as the major metros are increasingly buying buses locally. Joburg and Cape Town have put local conditions into their tender documents, requiring that 80% of bus bodies be made locally. Close to 250 buses will be made in South Africa, creating jobs.
The City of Johannesburg recently concluded a tender for the supply of 134 buses for its rapid transport scheme worth R327 million. These buses will be manufactured at Marco Polo’s plant in Gauteng, while the chassis will be made at Mercedes Benz in East London. Importantly, it will see a total reversal from the first phase of its rapid transport scheme where all 146 buses purchased were imported from Brazil.
The IDC is also playing its role here: it has introduced a programme to support the manufacture of medium and heavy commercial vehicles. One of its projects is supporting Busmark to set up a new factory in Cape Town to manufacture that city’s buses there.
By extending government support measures to include taxi manufacturing, we are also addressing an opportunity: how to leverage jobs off the large commuter base we have for other forms of mass transport. The reality is that since 2007, all taxis bought annually in South Africa were imported.
Following discussions we initiated in 2009 as one of the first actions of the newly-created Economic Development Department, Toyota agreed to set up a local manufacturing operation. Last year, Toyota started assembling taxis locally, creating 110 jobs in Ethekwini, which will grow to 230 in its second phase.
The IDC has stepped in to partner a Chinese OEM, Beijing Automobile Works, to manufacture taxis locally and employing 470 people. The result: from 2015, as much as two thirds of taxis sold here will be assembled locally.
The successful intervention in this sector, using several tools, including industry incentives, trade instruments, government procurement and industrial financing, is being used in other areas as well, including infrastructure.
Government’s infrastructure programme, the National Infrastructure Plan with its 18 Strategic Infrastructure Projects (SIPs), is a key driver of investment and jobs across the economy, with an impact far beyond employment in construction and operations.
Government has identified this as a further tool to increase localisation.
Renewal of infrastructure must assist to deepen industrialisation and increase localisation of products used in our infrastructure build programme. Therefore, the infrastructure plan includes a localisation strategy to leverage spending on raw material inputs, capital equipment and machinery in the SIPs.
Critical requirements for the infrastructure projects, including steel, cement and timber, will open additional opportunities for local production and investment. Our infrastructure programme can help to arrest the slump in employment in those manufacturing sectors which supply the private construction sector, including wood, cement and bricks.
Already, the PICC-monitored part of the state's infrastructure programme provides jobs to more than 150 000 people across the country. As in the transport sector, localisation in infrastructure work is being driven using several tools.
We have drafted an Infrastructure Bill that will help us fast-track projects. To maximise the impact of the infrastructure programme on South Africa’s industrial base, the IDC has been tasked to develop a localisation strategy across all SIPs to leverage spending on common inputs and equipment.
The IDC is also working with Eskom and Transnet to identify their suppliers which need assistance. For instance, last year the IDC partnered with a local company to complete a contract for the supply, manufacture and erection of an air-cooled condenser system for Eskom’s Kusile power station. The contract value is R2,4 billion. It will use 53 000 tons of steel and create about 750 jobs.
The IDC also provided a loan to a company to set up a specialist workshop to assist it in manufacturing rail tankers for Transnet. Our trade administration agency, International Trade Administration Commission of South Africa (ITAC), is playing its role to deepen localisation of products. In line with the NGP, ITAC has adopted a developmental approach to trade measures and tariff setting that aims to promote domestic manufacturing and localisation.
For instance, it recently introduced anti-dumping duties on set-screws, used in infrastructure but also in manufacturing. The industry believes this will turn around a situation where 53% of all set-screws sold in South Africa were imported. The industry will be able to win back 50% or almost 2700 tons of the market it had lost.
In the past year, the Commission has also recommended tariff increases for other products used in our infrastructure build programme, including water supply meters, set top boxes and geosynthetic clay lining, used in power-stations, waste management and landfill containment barriers.
To ensure that successful bidders are responsive to price fluctuations, are internationally competitive and are prepared to eliminate unethical practices, the Presidential Infrastructure Coordinating Commission (PICC) has drafted policy frameworks to combat corruption and to contain costs in the infrastructure programme.
These examples illustrate what the Local Procurement Accord sets out to achieve. Organised business and labour, Government and community representatives made important commitments to support a more productive, inclusive, green and labour absorbing economy. The Local Procurement Accord recognises local procurement as a key tool for industrial deepening and a response to the global slowdown.
Since the signing of the Accord in October 2011, we have seen a substantial increase in local procurement by the state. While large companies are re-tooling supply chains, progress is slow. We need the private sector to do more to implement its commitments in the Accord and utilise the opportunities.
We are seeing positive signs including the recent announcement by the South African Breweries of an investment of R700 million in a new malting plant in Gauteng, which will allow it to reduce the amount of malted barley it imports.
The private sector need to indicate which products designated by government for exclusive local purchase, it can co-commit to purchasing locally. In this way we can expand the market for locally-sourced goods and thus boost investment and help to reduce prices.
The Chamber of Mines is working with government to map procurement in the mining sector, including by analysing the sector's top 50 suppliers and the main products being procured. In the next couple of months, the preliminary results should show where the mining sector could collaborate with government in procurement.
Working together, we can also ensure that smaller businesses are brought into local supply chains and black industrialists are supported and grown over the next five years.
This Conference is the forum where private sector suppliers can work with state-owned companies to see how we can achieve these goals, deepen our industrial capacity and create the 5 million new jobs we need by 2020.
Enquiries:
Dougie Oakes
Director
Cell: 082 045 1167
Email: doakes@economic.gov.za
