Director of Proceedings;
The Co-chairperson of the KwaZulu-Natal (KZN) Growth Coalition, Mr Moses Tembe;
The President of the Zululand Chamber of Commerce and Industry, Esteemed business leaders;
Members of the Media;
Ladies and gentlemen;
All protocol observed
We are indeed honoured to be part of this great occasion wherein we meet with the key stakeholders of our economy – the business sector – to share ideas on how we can accelerate our social transformation project through sustainable economic growth with a particular focus on the greater Zululand/Richards Bay belt of our province.
Fellow stakeholders, in unpacking the role that the state plays in fostering economic growth in general, and the prosperity of this corridor in particular, we feel that we must go back to the basics of defining what we consider our state to be. This exercise, we feel, will assist in locating the state, particularly in the eyes of our stakeholders in the business sector, in terms of our shared objective of fostering growth and prosperity.
Precisely because of our history and our goal of achieving equality and inclusivity in all spheres of human endeavour, including the economy, we have adopted the developmental state model. This model is where the state plays the role of an enabler for transformation.
The state, through targeted programmes, policies and legislation, among other instruments, consciously creates conditions for all people to participate, on an equal footing, in the economy of our country. Policies like Broad Based Black Economic Empowerment; Acts like Employment Equity; Programmes like Preferential Procurement; Institutions like the Ithala.
Development Finance Corporation as well as tailored-funds like our province’s Black Economic Empowerment Equity Fund form a continuum of measures to build a society characterised by equality and prosperity.
While these interventions might exist in other economies in the world, nowhere does one find all of these interventions, and many others not mentioned here, in a single economy. South Africa, because of its unique past has had to adopt these policies, acts, programmes and institutions, in order to deal with the effects of its past and to craft a new future for our country where South Africa will not only be self-sustaining but globally-competitive. I will get back to the subject of global competitiveness in a short while.
Director of Proceedings, the developmental state is not a welfare state. It is a state that allows individual excellence, innovation and creativity to thrive. Critically, it is a state that, in particular, understands the role that the business sector has to play in growing the economy and rendering the economy globally-competitive.
Therefore, a business person in KwaZulu-Natal faces the same challenges as a business person in Germany. It would be highly counter-productive for the state to assume the role of business and that approach would ensure that our economy is not competitive.
Therefore, our first message to the business sector this morning is that business needs to be at the forefront of our economic transformation and economic growth agenda because the two are interconnected.
At this juncture, allow us Director of Proceedings, to share with our fellow stakeholders how we view the state of the economy. Globally, there are real fears that the world is headed for another economic downturn. For the first time, the world’s biggest economy credit rating– the United States (US)’ – was downgraded by Standard and Poor’s in August this year. Part of the reason for this, according to Standard and Poor’s was because of the brinkmanship between leading political parties in that country around the approach in dealing with its debt. And, Standard and Poor’s does not believe that the US will, in the short term, regain its rating.
As we speak, the European Union is also valiantly trying to address the debilitating Euro zone debt crisis with peripheral economies in the zone, like Greece, tottering on the brink of collapse. Indeed, it has been mooted that perhaps the best way to save the Euro zone might be to force certain member countries to pull out of the Euro zone.
Unfortunately, Director of Proceedings, debt developments in the euro zone entered a new phase in recent times, with the focus moving from the peripheral countries to some of the larger economies in the region. The global systemic risks posed by any failure to overcome the sovereign debt crisis are enormous. Europe is South Africa's two largest trading region after Asia. Recession in the euro area will inevitably affect South Africa's trade able sector and this will in turn impact on domestic output leading to unemployment.
Now let us turn our attention to how our economy has performed for the second quarter of the year.
The general sluggish rate of economic growth that characterised the South African economy during the second quarter was also felt at a provincial level. Against this background, KwaZulu-Natal posted an estimated meagre growth rate of 1% in the two quarter following a growth rate of 5.3% in the one quarter.
The decline in the pace of economic growth in KwaZulu-Natal and South Africa in general is linked to the trend observed in many developing and industrialised economies where lethargic growth trends were observed during the period under review. It is evident that economic growth in KwaZulu-Natal remained very volatile post the recession period. This largely explains why employment creation remained below government expectations. Gloomy economic climate is expected to linger against a background of poor showing in developed countries and the sovereign debt quagmire bedeviling the Euro area.
The high degree of openness of both the provincial and national economies to the global economy implies high susceptibility to the global economic woes. Decisive action and commitment in the implementation of government programmes such as infrastructure development, job creation fund and other interventions are critical to avert the volatile economic growth trajectory.
As can be seen, the current global economic environment demands extraordinary action from economic stakeholders for their countries’ economies to, in the first instance, stay afloat and, secondly, be globally-competitive. Critically then the question that the business stakeholders from the greater Uthungulu district need to answer is how well-equipped they are to take up the challenge and also take advantage of the global economic situation.
It is a known fact that after the 2008 economic downturn, the attention of investors moved from the established economies to emerging economies which saw growth of developing economies. With the situation still fluid at the world economic level, shrewd business people would be looking at ways of how to harness and exploit the opportunities that have been brought about by the recession.
For us to do this, our economy needs to strive for global-competitiveness. According to the World Economic Forum (WEF) competitiveness defined as set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the level of prosperity that can be earned by an economy. The productivity level also determines the rates of return obtained by investments in an economy, which in turn are the fundamental drivers of its growth rates. In other words, a more competitive economy is one that is likely to grow faster over time.
The concept of competitiveness thus involves static and dynamic components: although the productivity of a country determines its ability to sustain a high level of income, it is also one of the central determinants of its returns to investment, which is one of the key factors explaining an economy’s growth potential. For an economy to be competitive, the WEF suggests that there are twelve pillars that the economy should have in place.
These pillars include infrastructure; institutions; macroeconomic environment; higher education and training; goods market efficiency; labour market efficiency; financial market development; technological readiness; market size; business sophistication and innovation.
As can be seen, almost all, if not all of these twelve pillars are present in our economic mix. What is outstanding is how we use the presence of these pillars in our economy to be competitive.
Obviously no single social partner can ensure the presence of all these pillars in the economic mix. While government has the responsibility for pointing the way in terms of our economic growth trajectory given the developmental state model that we have adopted, other partners, including business, labour and civil society must also weigh in with their inputs. The business sophistication; innovation and goods market efficiency, for example, are pillars that fall squarely or partially on the shoulders of the business sector. Business then must play its role in moulding these pillars and ensuring their presence in our economic mix.
The basis for global competitiveness is already in place if one looks at some of the comparative advantages that our province and particularly this district possesses. We will take the liberty of mentioning some of these advantages.
The ports of Durban (Largest Port in Africa in terms of cargo handling and volume of vessels) and Richards Bay, together handle over 60% of South Africa's cargo tonnage. KwaZulu-Natal also boasts of the newly built King Shaka International Airport, which handled 1.2 million passengers in the second quarter of 2011 and the Dube Trade Port, aimed at stimulating promoting the export of perishable goods.
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KwaZulu-Natal boasts of highly advanced manufacturing sector which contributes close to 20% of the province's Gross Domestic Product (GDP).
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Richards Bay is the centre of the country's aluminium industry operations, producing over 4% of the world's export of aluminium. It is also the seat of the world's largest sand mining and mineral producing operations.
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KwaZulu-Natal boasts of a highly diversified agricultural sector. The province is the country's leading producer of timber, processing over half of all timber used in the country, and accounting for a significant percentage of the country's wood exports. Sugar cane is also a premier produce in the province with some of the country's largest sugar processing plants.
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KwaZulu-Natal is a premier tourist destination, recording 1.2 million foreign tourists in 2009, and has one of the best hotel occupancy rates in the country. The province boasts of the iconic Moses Mabhida Stadium, host to the World Cup semi- final; as well as two World Heritage Sites in the form of the Drakensberg Mountains and the Isimangaliso Wetland Park.
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The province has the highest export propensity, as well as the highest level of industrialisation in the country.
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The province is second only to Gauteng in terms of its percentage contribution to South Africa's GDP, contributing about 16% to South Africa’s GDP
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The province has the lowest strict unemployment rate, and the second biggest labour force in the country.
In order to build on these comparative advantages, our government, both at national, provincial and local government levels has put in place the following interventions:
1. Government’s available funding for the promotion of commerce and industry
1.1. Trade, Export and Investment Financial Assistance (Incentives)
a. Automotive Investment Scheme (AIS)
The Automotive Investment Scheme (AIS) is an incentive designed to grow and develop the automotives sector through investment in technologically advanced automotive production and investment. AIS provides for a taxable cash grant of 20 % of the value of qualifying investment in productive assets approved by the Department of Trade and Industry (DTI).
b. Capital Projects Feasibility Programme (CPFP)
The Capital Projects Feasibility Programme (CPFP) incentive is a cost sharing grant providing a contribution to the cost of feasibility studies that are likely to lead to feasibility projects outside South Africa that will increase local exports and stimulate the market for South African capital goods and services.
c. Critical Infrastructure Programme (CIP)
The Critical Infrastructure Programme (CIP) is a non-refundable scheme that covers between 10% and 30% of the total development costs of the qualifying infrastructure. The cash grant is made available to the approved beneficiary upon the completion of the infrastructure project.
d. Enterprise Investment Programme (EIP)
The Minister of Trade and Industry, Dr Rob Davies (MP), has approved the revised guidelines pertaining to the Enterprise Investment Programme (EIP) and its sub- programmes, the Manufacturing Investment Programme (MIP) and Tourism Support Programme (TSP).
e. Export Marketing and Investment Assistance (EMIA)
The Export Marketing and Investment Assistance (EMIA) scheme develops export market for South African product and services and to recruit new foreign direct investment into the country. The purpose of assistance under the scheme is to partially compensate exporters for costs incurred in respect of activities aimed at developing export market for South African product & services and to recruit new foreign direct investment into South Africa.
g. Film Incentive (Film Incentive)
The Film Production incentive comprises the Foreign Film and Television Production Incentive which aims to attract foreign-based film productions to shoot on location in South Africa; and the South African Film and Television Production and Co-Production Incentive, which aims to assist local film producers in the production of local content. The Film Production incentive is intended to increase local content generation and improve location competitiveness for filming in South Africa.
h. Manufacturing Investment Programme (MIP)
The Manufacturing Investment Programme (MIP) is an incentive designed to stimulate investment growth, in line with the South African government’s National Industrial Policy Framework.
i. Section 12i Tax Allowance Incentive (12i TAI)
Section 12i of the Income Tax Act is a tax allowance programme based on investment in new manufacturing assets and training, provided to employees in the project. The two components of the programme comprise an investment allowance of up to a maximum of R900 million, and a training allowance of up to a maximum of R30 million per project, dependent on compliance with certain criteria.
j. Sector Specific Assistance Scheme (SSAS)
The Sector Specific Assistance Scheme (SSAS) is a reimbursable 80:20 cost-sharing grant whereby financial support is granted to Export Councils, Joint Action Groups and Industry Associations.
1.2. Industrial Development Financial Assistance (Incentives)
a. Business Process Services (BPS)
The South African government implemented a Business Process Outsourcing and Off shoring (BPO&O) incentive programme from July 2007. Between July 2007 and March
2010, the incentive resulted in the creation of at least 6 000 new jobs and attracted R303 million in direct investment.
b. Capital Projects Feasibility Programme (CPFP)
The Capital Projects Feasibility Programme (CPFP) incentive is a cost sharing grant providing a contribution to the cost of feasibility studies that are likely to lead to feasibility projects outside South Africa that will increase local exports and stimulate the market for South African capital goods and services.
c. Clothing and Textile Competitiveness Improvement Programme (CTCIP)
The Clothing and Textile Competitiveness Improvement Programme (CTCIP) aims to build capacity among manufacturers and in other areas of the apparel value chain in South Africa, to enable them to effectively supply their customers and compete on a global scale. Such competitiveness encompasses issues of cost, quality, flexibility, reliability, adaptability and the capability to innovate.
d. Critical Infrastructure Programme (CIP)
The Critical Infrastructure Programme (CIP) is a non-refundable scheme that covers between 10% and 30% of the total development costs of the qualifying infrastructure. The cash grant is made available to the approved beneficiary upon the completion of the infrastructure project.
e. Enterprise Investment Programme (EIP)
The Minister of Trade and Industry, Dr Rob Davies (MP), has approved the revised guidelines pertaining to the Enterprise Investment Programme (EIP) and its sub- programmes, the Manufacturing Investment Programme (MIP) and Tourism Support Programme (TSP).
f. Production Incentive (PI)
The Production Incentive (PI) forms part of the overall Clothing and Textile Competitiveness Programme (CTCP) and flows from the implementation, by the Department of Trade and Industry (the dti), of customised sector programmes (CSPs) for the clothing, textiles, footwear, leather and leather goods industries. The PI Guidelines seek to enable companies to present their business cases to the CTCP Desk of the Industrial Development Corporation (IDC). They also provide a framework for the CTCP Desk to evaluate such cases.
g. Sector Specific Assistance Scheme (SSAS)
The Sector Specific Assistance Scheme (SSAS) is a reimbursable 80:20 cost-sharing grant whereby financial support is granted to Export Councils, Joint Action Groups and Industry Associations. The purpose is to enable the funding; in respect of Generic Funding and Project Funding for Emerging Exporters; of non-profit business organisations in sectors and sub-sectors prioritised by the dti.
h. Seda Technology Programme (STP)
Seda Technology Programme is a division of Seda (Small Enterprise Development Agency) focusing on Technology Business Incubation, Quality and standards and Technology Transfer services and support to small enterprises.
i. Support Programme for Industrial Innovation (SPII)
The Support Programme for Industrial Innovation (SPII) is designed to promote technology development in South Africa’s industry, through the provision of financial assistance for the development of innovative products and/or processes.
j. Tourism Support Programme (TSP)
The Tourism Support Programme (TSP) is a targeted incentive programme to support the development of tourism enterprises that will stimulate job creation and encourage a geographic spread of tourism investment.
As many of you are also aware, our government has also announced a battery of funds which include the job creation fund of R9 billion and the manufacturing the revalisation fund of R10 billion to help crank up the economy. Because we want our business people from the province to be the first to tap into those funds, we have set up mechanisms to ensure that this becomes a reality. In this regard we are analysing the requirements for business people to access these funds and we stand ready to assist all business people who want to benefit from these funds.
Director of Proceedings, in conclusion we want to stress that while our government continuously strives to ensure that the environment for business to thrive is conductive, ultimately it is the role of business to ensure that they grab those opportunities. The fluid global economic situation means that more than ever before we need business people who are enterprising and innovative. The challenge facing us is to mourn our fate or do something about it. As the saying goes, behind every challenge is an opportunity. We dare not fail.
I thank you
