I wish to take this opportunity to thank you for the invitation to speak here tonight.
I take it that the reason you have sacrificed this portion of the evening with your families is because you are all interested in engaging in a discussion about our economy and the future of our democracy.
Recently, Board of some of our State-Owned Companies have raised with me concerns about nationalisation, rising populism within the ANC and some trade unions, policy uncertainty, corruption and poor infrastructure delivery.
This challenge arises today with even greater intensity given the global financial crisis and the urgent need to respond to this situation in a manner that ensures sustained growth and development, creating jobs and eradicating poverty and inequality in the process.
The question that we face as a country is, how do we accelerate sustained levels of growth that create sufficient wealth to enhance the standard of living of all South Africans, dramatically increasing employment creation; develop industrial capabilities to decrease our dependence on commodity exports; and transform the ownership and management profile of the economy to reflect that of the broader South African population.
Given the global economic slowdown, and the fact that it is felt the most in the real economy, we are duty-bound to utilise the State-Owned Companies (SOC) both to prioritise infrastructure spending and encourage and support business investment in the real economy in order to stimulate the economy and create jobs.
In this regard, between them, Transnet and Eskom are going to invest R101.8bn during this financial year in their build programmes.
Together with this, we must also improve the capacity to manage capital budgets and construction contracts, and ensure greater accountability on the part of our SOC to ensure we meet our targets.
The minerals-energy complex on which our economy has historically been built is extremely dependent upon rail, not just to remain competitive, but for its very existence.
Indeed, the expansion of our mining and resource processing industries, which are key exporters in our economy, is going to depend on the growth of rail capacity and improvement in productivity and efficiency of both rail and the ports.
The same should be the said of the other sectors of our economy, including particularly the automotive sector.
I am certain that the automotive sector is positioned to provide leadership in developing our advanced manufacturing capability, through building partnerships throughout the supply chain.
The transport equipment sector, which includes the automotive sector, is an important manufacturing sector in South Africa and is the biggest manufacturing group in the Eastern Cape in terms of both output and employment.
It has been noted that the automotive sector is affected, amongst others, by inadequate levels of local content, the performance of the global economy affecting aggregate demand in key export markets, input costs, such as energy tariffs and port cargo duties, a relatively small size of the domestic market (less than 1% of global the market) and distance to key automotive markets.
Critically, access to and availability of port capacity for the sector is critical to the successful implementation of the sector’s business beyond our shores.
In this regard, the discussions that the sector recently had with the President are important and we intend responding practically to the issues that you raised with him and to continue engaging constructively with you as part of the “developmental coalitions” we intend forging with our various stakeholders through leveraging the SOC in order to achieve alignment across key stakeholder groups..
This alignment will involve agreement around identifying the interventions requisite to support business, raising the required resources for the interventions and driving and monitoring implementation.
Most importantly, we will be guiding the private sector’s investment plans and business practices towards those areas that will have a significant impact on our developmental objectives, particularly around building the productive and employment absorbing sectors of the economy.
There are a range of strategic and tactical developmental interventions around which these stakeholder coalitions can be formed. These include:
- increasing infrastructure capacity, efficiency and access
- developing scarce and critical skills
- the expansion of our industrial and technological capacity and capabilities
- particularly in the supply chains that are core to the delivery of infrastructure
- mining and resource processing activities, and
- regional infrastructure and economic integration.
As part of this process, I will be convening “summits” around the above issues with different sectors of industry, including the automotive sector, the objectives of which will be to demonstrate SOC leadership in developing practical interventions in the above areas and to start a process of engaging with the private sector to emulate these practices and partner the SOC in enhancing their impact.
Our intention is for these summits to produce concrete plans of action and give a sense of direction to our work and shape the focus of the Shareholder.
Recently, we have started engaging the provincial governments around these very issues, and we have already gone to Gauteng, the Northern Cape and Eastern Cape, and are due to go to North-West and KZN before the end of the year.
In the Eastern Cape, the issue of port capacity, particularly at the Port of East London, was raised very sharply both by ourselves as well as the Provincial Government.
Developmental procurement is core to automotive manufacturing competitiveness.
A range of policies have been developed that demonstrate the commitment of the South African government to overcome these challenges, namely the Industrial Policy Action Plan, the New Growth Path and the Performance Evaluation Framework.
It is therefore critical that we start a dialogue to build our national capability to develop our supplier communities.
Transnet and the National Association of Automotive Manufacturers of South Africa have established a joint working group to undertake special projects and oversee efficiency initiatives.
I would like strongly to endorse these collaborative initiatives.
We currently have the capacity to handle over 650,000 units at our automotive terminals and we recognise that at 80% capacity utilisation Durban and Port Elizabeth will require capacity expansion in the near future to ensure we keep up with demand.
The working group has targeted improvements in port efficiencies to achieve global best practices and the group is also exploring the possibility of tariff reform.
I also note that there is a project to create more capacity to transport cars by rail instead of road. Presently, only around 30% of cars are being transported by rail.
The Transnet Freight Rail Business Plan intends making investments of around R900 million into additional wagons so that we can have capacity to increase market share to 45% nationally by 2015.
I would like to challenge the working group to think “outside the box” to see how we can radically support the shift from road.
Given the specialised nature of automotive rail wagons, I am keen to see how the industry can form a partnership with Transnet to fund and procure these specialised wagons.
Another area where the industry and Transnet can partner is on the development of an inland automotive hub.
We all have an interest to see the highest levels of operational efficiency on our rail network and Transnet and the Department is open to proposals around how industry and Transnet rail can work together to continuously improve rail performance.
My department is tasked with the vital responsibility of providing shareholder oversight and leadership to nine State Owned Companies, which are strategic instruments of Industrial Policy and core players in the New Growth Path.
The question is, how we can direct them to optimise their impact!
Infrastructure related SOC in particular, like Transnet and Eskom are in a powerful position to drive growth in the economy as key sectors of the economy are completely dependent on the availability of infrastructure capacity for their existence and growth.
For example:
- a large scale export orientated iron ore mining organisation, located in the hinterland, cannot exist, let alone compete without a very efficient logistics link with the port
- a foundry or smelter cannot be established without guarantee of supply and competitively priced electricity
- a locomotive manufacturer on the Southern tip of Africa cannot survive if the national rail company is not consistently buying and maintaining locomotives.
As a result, SOC either constrain growth or they act as a catalyst for additional investment in these sectors and so we cannot see them in isolation from the impact they have on their customers and suppliers.
Given their strategic position, SOC can play a leadership role in driving programmes that catalyse socio-economic transformation.
Together with the private sector, they are pivotal in repositioning the economy onto a higher growth path, central to which is the overriding priority of job creation and poverty alleviation.
It is for that that our department’s new vision is to drive investment, efficiencies and transformation in its portfolio of State Owned Companies, their customers and their suppliers to unlock growth, create jobs and develop skills.
To achieve the high levels of growth implicit in this vision, we need to plan for high levels of growth, which means that we have to understand what will unlock our SOC customers growth potential.
We need to understand how we can tie SOC investment to new investment by customer sectors and leverage this investment to develop our manufacturing sector.
Historically, we have planned investments around what the SOC balance sheets could afford, but we need to look beyond the balance sheets to what our economy really needs to meet our growth aspirations.
In the past, we invested based on what made sense to the enterprise (SOC), but now we need to look at what will yield the best returns for society and our people.
Consequently, we have a vision that recognises the intrinsic link between the investment of SOC and the growth of the SOC customers and suppliers.
We need a planning paradigm that is not restricted to narrow balance sheets but one that is based on optimising the overall impact of the SOC on the economy and society at large.
Accordingly, we are seeking new sources of funding and are presently designing funding approaches and instruments that will involve our major customers and the financial services sector, without compromising Government’s strategic control of infrastructure assets.
We have asked Transnet to expand its capital expenditure plans and are working with the Department of Economic Development and the Industrial Development Corporation (IDC) to unlock its balance sheet to support some of the infrastructure roll-out on an urgent basis, and in a manner that is sure to stimulate economic activity.
In implementing the investment programmes, we need to build on progress in the Competitive Supplier Development Programme (CSDP) to entrench procurement leverage in the fabric of our SOEs.
SOEs need to move from short-term ad-hoc relationships with suppliers to long-term strategic partnerships so that they build Centres of Excellence that will, over time, export to a regional and global market.
In this regard, our fleet procurement process will establish this foundation for industrial development.
We are working closely with the Department of Trade and Industry and the Department of Economic Development to ensure suppliers get adequate support to respond coherently to our demand signals.
We are also working with the Department of Higher Education to access additional resources so that we optimise the use of SOC training facilities. Our target is to provide technical and artisanal skills for a growing economy, not just to meet SOC requirements.
It is recognised that in certain areas, SOC are not as operationally efficient as they should be and hence I am personally regularly meeting with the Chairpersons and CEOs to ensure that initiatives are put in place to effect operational improvements, in line with the targets as set out in the Shareholder Compacts.
I think it is critical to appreciate that government needs to build a holistic and pragmatic partnership with business, labour and other stakeholders if we are to achieve our objectives.
What is apparent is that our present situation of high unemployment and an extremely skewed income distribution is unsustainable.
Addressing unemployment and correcting income disparities cannot be the responsibility of government alone – this is a collective effort.
At the same time, many private sector business leaders know there is a problem – that business cannot flourish in a politically and socially unstable context.
They recognise that unless business contributes to employment creation and economic development in a more concerted manner, there will be no future for their enterprises.
I believe that the DPE and its portfolio of SOC can start to play an active role in guiding business in the development of practical solutions.
I think that if we can accelerate our infrastructure roll-out we can be able to give a degree of certainty to investors about some of the issues I referred to earlier in my presentation as matters concerning investors.
I must say, however, that the investment community must have more faith in the endurance, maturity and sanity of our democracy and the ANC, and trust that the ANC is run, not through popular sound-bites, but by a sane and time-tested leadership and consistent and sustainable policies.
I believe that when 2012 comes we will re-affirm the mixed-economic policy of the ANC, where both the public and private sectors have an important role to play and can complement each other in creating a shared prosperity for our people.
When the noise and the dust settles, ANC maturity and sanity will prevail!
I wish to challenge the South African business and investment to demonstrate more faith in our political and economic system by investing in the real economy and thus attracting foreign investors also to increase their direct investments.
The South Africa capitalist class must demonstrate more patriotism, which would be demonstrated by increasing investments rather the mere fact that one is black.
The automotive industry has done its part and we expect it still to do more.
On our part, we stand ready to provide you with the infrastructure support required for you to engage in investments and trade whilst realising returns on those investments.
I thank you.
