Chairperson of the National Council of Provinces,
Deputy Chairperson of the National Council of Provinces,
Honorable Members,
MEC’s for Economic Development,
Ladies and gentlemen.
Introduction
Minister Patel and other colleagues within the economic cluster, thank you for shaping a shared vision which I am talking to today.
It gives me great pleasure to participate during this fourth budget vote of the Department of Economic Development. Our triple challenges: joblessness, poverty and inequality have a long history, emanating from colonial rule and the Apartheid Laws.
During the Business and Labour hearings of the Truth and Reconciliation Commission Professor Sampie Terreblanche, an academic Economist and a writer said, “Apartheid was beneficial to white owned business because it was an integral part of a system premised on the exploitation of black workers and the destruction of black entrepreneurial activity.”
The year 2013 marks 100 years since the promulgation of the Native Land Act of 1913 - which saw blacks being forcefully removed and uprooted from commercial land of their birth and shipped away to the outskirts. This legislation was part of machinery which was established to systematically impoverish, marginalise and exploit the oppressed, thereby creating the haves and the have nots who will die of hunger and hopelessness.
The effects of this history are still with us. To this day, 45% of African women are disproportionately located in the former homelands. Just over a third of the population lives in these regions, but over half of Africans aged below 15 and over 65 also still live in these regions, as well as over 2 out of 5 African women of working age.
Our economic context
Mr. Pravin Gordhan, the Minister of Finance during his 2013 Budget Speech, stated that, “South Africa’s economy has continued to grow, but at a slower rate than projected at the time of the 2012 Budget. The GDP growth reached 2.5 per cent in 2012 and is expected to grow at 2.7 per cent in 2013, rising to 3.8 per cent in 2015. Inflation has remained moderate, with consumer prices rising by 5.7 per cent in 2012 and projected to increase by an average of 5.5 per cent a year over the period ahead.”
Provincially, unemployment levels are highest in those provinces where economic activity is concentrated and where individuals migrate to in search of jobs such as Gauteng at 24% followed by KwaZulu-Natal at 21%. The Eastern Cape is third at 13% then the Western Cape at 11%. Limpopo is the province with the fifth highest level of unemployment at 10% followed by Mpumalanga at 7%. Free State and North West are both at 6% while the Northern Cape has the least level of unemployment at 2%.
Government’s Policy and Programmatic Response
I have articulated our challenges, but I am happy to talk about how we are today turning a tide by systematically leveraging on government’s trade policies and investments.
Within the economic transformation cluster, the department plays an enabling role and also that of an integrator for systematic and sustainable economic inclusion across the board. Also, we are the chief negotiator with all other partners.
Our role is therefore crystallised in working with others. Built into our policy strategies, is the need to fast track economic participation of the most vulnerable groups. Success in this regard, to a large extend depends on coordination and the strength of partnerships between spheres of government, NGO’s, big corporations and communities.
Having noted the magnitude of the problem, we have deliberately targeted poor rural municipalities and inner city communities, as critical focal points for economic inclusion.
We have held economic community dialogues specifically targeting some of the municipalities located in the 23 poorest districts, inner cities and rural communities. In line with principles of the Social Accords, we facilitated the participation of other sister departments, enterprises and development finance agencies such as SEFA and SEDA.
I am happy to acknowledge the Chairperson of SEFA, Mrs Sizakele Rensberg in our midst and to say we congratulate them on their anti-poverty strategy, characterised by an outreach monthly programme to vulnerable communities. We await outcomes and hon. Members are invited to join these public engagements so as to direct the agency.
With each planned community economic forum, we have ensured the inclusion of vulnerable members: out of school, unskilled and unemployed youth, women entrepreneurs, the disabled and those who live on the farms and rural neighbourhoods. In all these marginalized communities, there are cross-cutting challenges, inter alia:
- poor infrastructure
- lack of bankable projects
- barriers to credit access and
- lack of skills.
With hindsight, we are learning that, if we leave out business partners and professional bodies during our community economic indaba we are delaying our victory.
Opportunities for Economic Inclusion
As of today, it is common knowledge that through an integrated and coordinated infrastructure program, government has made huge investments in ensuring that we have a conducive environment for economic growth. For example, in the Eastern Cape SIP 3 aims to strengthen economic development through a smelter, a refinery in Coega and rail upgrades for the automotive sector.
In the Free State SIP 2 aims to integrate marginalised rural production centres surrounding the Durban-Free State-Gauteng logistics and industrial corridor.
In Mpumalanga SIP 1 aims to extend rail capacity to Mpumalanga for the exporting of coal via Richards Bay.
In the North West SIP 4 investments in road and rail infrastructure is crucial for beneficiation in mining and agriculture.
Umhlathuze Municipality is home to an industrial development zone and has specialized manufacturing that is export-oriented and can provide jobs. It is also rich in natural assets.
Leveraging on trade policies
I have made reference to infrastructure developments so as to highlight the fact that it is time to utilise partnerships between government, business and other social partners to accelerate economic inclusion of our vulnerable groups in partnership with relevant empowering industries.
Research by the World Bank shows that in other countries, “small firm-large firm relationships” have contributed greatly to “highly successful business practices”. These countries include Japan, China and Russia. Small and medium enterprises had an impact on economic growth through the “synergistic relationship” they had with large enterprises. The sustainability of small enterprises rested on large enterprises as a source of inputs and a source for marketing their products.
There is consensus with provinces about the value of SEZs in the transformation of our economy. Our sister Department, the DTI is finalising legislation that spells out the institutional arrangements for the smooth running of SEZs. This process must ensure that small and medium enterprises are included in the resultant supply value chains in order for economic growth to be sustainable.
These SEZs will be established in all the provinces and they will involve different economic sectors, from mining, agro-processing and renewable energy. The SEZs will contribute to the development of new industrial regions and deliver socio-economic benefits through job creation. An additional benefit will be to diversify the industrial economy and create new hubs in under-developed regions.
The creation of SEZs in South Africa provides an avenue for forging links of this nature between small enterprises and large corporations – what the World Bank calls “purpose-built alliances” and “sub-contracting relationships”.
Evidence from other countries reveals that a large small and medium enterprise sector is consistently associated with a growing economy. This means one simple way of gauging whether an economy is growing or not is by constantly evaluating the growth of its small and medium enterprise sector. In addition, an increasing presence of small and medium enterprises has been found to enhance competitiveness within economies.
For small enterprises to become integrated in the global value chains of foreign multinational companies located within SEZ’s and supply quality products of acceptable standards at required scales, they will need a conducive institutional environment where barriers of entry for newly established enterprises are removed.
In addition, beneficiaries from SMEs such as women, youth and rural based entrepreneurs will have to undergo training and be provided with the necessary skills to manufacture inputs at scale. Education and skills development is another critical aspect in the triangle. Again in all our focal areas there are schools, FET Colleges and Universities. Professional bodies are of crucial importance in our endeavour to skill our youth.
The South African institute of Chartered Accountants is being financed by the department of Economic Development to train our youth. Currently we are financing a training programme for more than 100 young people and during the budget vote Minister Patel committed R9 million for the programme.
The critical partner is the industry. It is the industry which has a value chain. Of importance is the shift of the mind-set so as to ensure that we intensify our capacitation programs, by including innovation, research and development. Industry linked skills development is absolutely critical as a foundation for SME support, it should be an entry for millions of our youth.
ICT holds great prospects for young people. Trends in the sector indicates that there is very little local manufacturing happening in the ICT sector. South Africa is a net importer when it comes to ICT goods. This budget should target employment opportunities for youth in the ICT sector, especially providing them with skills for full participation throughout the value chain.
During the dialogue forum initiated by business, recently, it was apparent that there is scope for incubation programmes that will promote import replacement of IT components in townships. As increased access to broadband is achieved, the demand for IT-related components and manufacturers will increase and so will demands from the Square Kilometre Array.
This effort to increase the productive capacity of SMEs will require huge investments and resources. Colleges and training institutions will need to partner with industries to provide market related skills. Development finance institutions (DFIs) such as SEFA and IDC will need to ensure that SMEs access credit with ease. We continue to learn from all our partners in the continent and other multi-lateral structures like other BRICS member states about the utilization of development finance in a developmental context.
The Memorandum of Understanding (MoU) signed between the IDC and the Bank of Russia as part of the 5th BRICS Summit is a welcomed move. As part of its strategy to mitigate the effects of the economic recession, Russia is placing focus on supporting SMEs through the provision of access to finance. The signing of the MoU is therefore in line with our desire to support small enterprises since it is intended to help South African SMEs to develop their businesses.
Through this MoU, a subsidiary of the Bank of Russia, the Small Enterprise Bank will cooperate with SEFA in exchanging ideas for the development of small enterprises in South Africa through training, delegation visits and business forums. The ultimate outcomes of providing this comprehensive support to SMEs will include economic growth and sustainable job creation.
Non-financial support such as access to markets and product development from SEDA will also be necessary. In this regard lessons can be drawn from the support framework put in place for SMEs in Mexico. The Mexican government created a strong policy support system for SMEs that started with the development of entrepreneurs, micro-enterprises, small and medium enterprises to forging links with larger firms. This system was also accompanied by improved coordination between government departments.
Conclusion
I would like to reiterate that this is the time (Ke nako in Sesotho) for us to turn the tide of the triple challenges inequalities, poverty and unemployment by working together for sustainability.
It is in the interest of business to develop SMEs so that they become suppliers of scale throughout the value chain. It is in the interest of business to assist SMEs to enter the global value chain. Honouring our commitments and citizenry responsibility as partners in sustainable business will help government to see value for our huge investments in the development of our people.
