J Radebe: Breakfast briefing to American Chamber of Commerce

25 August 2006

Greetings,

During the past few months I have had the pleasure of attending and
addressing various conferences on aviation, demonstrating both the increased
importance of the industry in promoting economic growth on our continent
through the movement of goods and persons, and the various safety and security
challenges that face the industry. We have emphasised in these forums the
seriousness with which we take safety and security in our airspace, and I shall
not go into great detail on that here today.

Last week we launched the Airlift Strategy of South Africa, whose main
objective is to increase aviation's contribution towards sustainable economic
growth and job creation. The Strategy aims at enhancing the prospects of South
Africa as a preferred air travel destination and to synchronise the basis for
bilateral air services negotiations with other national priorities.

The International Air Transport Association (IATA) has projected that that
air travel to and from South Africa will, for the five years to the year 2010,
grow at an average annual rate of 5 percent. In the last 12 years, the aviation
and tourism sectors' contribution to the economy has increased substantially,
growing from approximately 1 million tourist arrivals in 1990 to over 7 million
in 2005, a clear demonstration of sustained growth in the aviation
industry.

South Africa and the United States of America (USA/US) signed a Bilateral
Air Services Agreement in May 1996, which catered for 21 frequencies, as part
of efforts to further strengthen this growth. Until this year with the interest
of Delta Airlines to operate the Johannesburg-Dakar-US route, with all the
growth in our domestic airlines industry no US airlines had taken up
frequencies. This is truly puzzling to us and requires US business in
particular to apply pressure on US airlines and administration to take the
routing seriously.

Let me take the liberty to highlight the following as key issues in the
Airlift strategy, which as I already stated we launched last week:

* That mandates for air services negotiations must be aligned with
government policies and strategies, especially Tourism Growth Strategies
* Unblocking capacity constraints through the negotiation of air service
capacity ahead of demand. In planning for capacity, an aircraft passenger
load-factor of 70 percent will be applied in respect of key markets. This will
provide for capacity ahead of demand of approximately 10 percent to 15 percent.
This is aimed at ensuring availability of adequate capacity enabling airlines
to rapidly respond to market demand.
* We will also set targets in respect of liberalising key elements of bilateral
air services agreements, in particular with regard to the multiple designation
of airlines, tariff regimes, code-share frameworks and implementation of the
Yamoussoukro Decision (YD).
* Addressing airline safety oversight capacity at an institutional level.
* The "use-it-or-loose-it" principle is an approach aimed at preventing one
airline blocking another from introducing new air services or to expand current
services through retention of unused traffic rights. In terms of our tactical
approach to this principle, a South African airline not using its capacity
allotment in terms of its international air service license within a specified
period, will loose its rights to such capacity allotment.
* Additional capacity in terms of a particular air services agreement will be
granted to compensate for the capacity shortfall on a route due to the
non-performance of a South African airline.
* Airport slots not used by airlines, both foreign and South African, at least
80 percent of the time within a given IATA timetable period, will be withdrawn
and re-allocated.
* Due to globalisation and high levels of airline co-operation worldwide, air
services agreements and routes are interdependent and the setting of
negotiation mandates will be evaluated in terms of actual and potential impact
on the network of air services serving South Africa and its key markets. In
particular, the African Union (AU) Common External Air Transport Policy in
respect of open-skies arrangements (other than YD) and the European Union
(EU)-Ownership clause (once approved) will be applied.
* Efficient airports and effective airspace management are critical to the
future development of air transport.

The Airlift Strategy is a practical expression of our desire to see the
accelerated implementation of the Yamoussoukro Decision (YD) through the
modernisation of Bilateral Air Services Agreements with all like-minded African
states as interim measure, pending full implementation across Africa on a
multilateral level. This will include studies to quantify the economic cost of
regulatory constraints, including benefits that could be reaped as a direct
result of the implementation of the Yamoussoukro Decision. This will guide
South Africa's approach towards the Yamoussoukro Decision when engaging with
the African Union, New Partnership for Africa’s Development (NEPAD) and
bilateral counterparts in Africa.

We are also busy developing various other strategies aimed at improving
infrastructure in the aviation sector, and these include, the Air Freight
Logistics Project, the creation of a National Airports Development Plan, and a
project aimed at the possible establishment of an independent slot-coordinator
for South Africa.

The Airports Company of South Africa (ACSA) has committed some R8 billion
over the next few years for modernisation and upgrading projects at our major
airports, including the building of a new passenger and cargo airport as part
of the Dube TradePort complex, north of Durban. The Air Traffic and Navigation
Services Company (ATNS) has made major strides to improve our airspace
management, and some of their capital expenditure programmes include R96
million for the renewal of terrestrial aeronautical navigation systems and some
R160 million for the replacement of existing older radar systems in certain
areas of South Africa.

In general, our government is gearing up, and in certain cases as we have
demonstrated above has started, to roll out the massive infrastructure
development programme across various sectors, estimated at R400 billion,
including planned R134 billion investments by Eskom and Transnet in the next
five years.

For national roads, government is planning to mobilise investment in excess
of R25 billion from both public and private sources, over the next 5 years, and
has committed about 63 billion for the next three years in the three spheres of
government. The R25 billion, is over and above the more than R2 billion
baseline allocations made to the South African National Roads Agency per annum
to manage the non-toll national road system.

A total of R10,7 billion will be used to expand the state toll road network.
In addition, the private sector will invest an estimated R16 billion in
concession toll roads including the N2 Wild Coast. A significant proportion of
this total investment will be focused on the three major metropolitan nodes to
address the escalating congestion challenges. With reference to other roads,
Government is gearing up to invest R5,4 billion in the development of access
roads across the country in the next three years, using labour intensive
methods with a focus on maximising job creation and skills development. A
further 500 million has been secured for investment in strategic secondary
roads that are critical for the movement of freight.

Regarding freight transport, Transnet has committed to invest R41 billion
over the next five years to improve services and ensure seamless freight
logistics. Investments will be made in the areas of ports, pipelines and rail.
Of the rail portion, R8,9 billion will be invested in the coal line and R2,7
billion in the iron line, while R10,8 billion is planned for improving
infrastructure in the general freight business.

Eskom and Spoornet are also concluding talks to develop a new coal rail line
that will supply the Majuba power station, estimated at about R2 billion.
Government is also finalising a rail branch line development strategy, which
will pave the way for the development of an investment plan for branch lines
across the country. Currently, three projects are underway i.e. the Kei Rail,
Nkwalini and Belmont Douglas at costs of over R100 million, R10 million and R89
million respectively.

Transnet is planning expansions at most of South Africa's ports, as well as
a R3,2 billion rand investment in the new port of Ngqurha. Some of the major
investments will be made at the Durban port, i.e. R6 billion to improve the car
and container terminals and Maydon Wharf. Another R6 billion will go towards
the expansion of the Bayhead complex. Cape Town and Richards Bay will also get
around a billion rands each worth of improvements. These investments are
critical for increasing the throughput of our ports in line with the National
Freight Logistics Strategy.

On the passenger rail side, Government is finalising the National Rail Plan
and associated business plans, which will focus on upgrading infrastructure and
improving services in priority corridors across the country, as part of our
efforts to improve public transport in our country.

As part of our preparations for the 2010 World Cup, R3,5 billion has been
allocated for public transport infrastructure. R241 million, outside of the
above figure, has already been allocated to host cities for the improvement of
public and non-motorised transport in the vicinity of the stadiums; in Central
Business Districts (CBDs) and stadia linkages; in key corridors linking
residential areas with CBDs and stadia; as well as in communities where people
live. The R3,5 billion will be allocated across the next three years to 2009
with R700 million for 2006/07, R1.8 billion in 2007/08 and R1 billion in
2008/09. Projects to be funded include dedicated public transport
infrastructure, interventions to ensure public transport-friendly routes,
non-motorised transport facilities including pedestrian facilities, and
intelligent transport systems.

As identified in the process culminating in the formulation of the
Accelerated and Shared Growth Initiative for South Africa (AsgiSA), our country
has some key inhibiting factors that are constraining the growth of our
economy. These constraints are evident at both the macro economic and sectoral
levels and need targeted focus to be effectively addressed. They include a need
for job creating activities; the development, acquisition and retention of
skilled personnel; ensuring sufficient amounts of resources (i.e. delivery
capacity - funds, human capital, materials, equipment and machinery); input
sector focus on supporting economic growth sectors; reduction of input costs;
regulatory environment constraints; and government specific organisational and
delivery capacity, among others.

We regard job creation as an area critical for first and second economy
integration. As we know, our economy has not created jobs faster than there are
entrants to the market, notwithstanding the positive growth we have been able
to sustain for several years. From an infrastructure perspective, delivery
through the Expanded Public Works Programme (EPWP) is critical for success in
job creation. This approach involves the application of labour intensive
methods to provide infrastructure. Success of this programme relies on the
mobilisation, training and effective use of the workforce on site to ensure a
streamlined and high quality delivery of infrastructure. This approach has
meant a change from conventional practice in the construction industry, and in
certain cases the learning curve has been steeper than expected causing delays
in programme rollout. However, government is geared up to address key
challenges in this regard.

Skills shortages have also been found to be a major inhibitor to the rollout
of key government programmes. This is so for both government internal capacity
and industry capacity. The recent study by the South African Institution of
Civil Engineering called "Numbers and Needs" clearly articulates the challenge
we face in the area of engineering, and the picture is equally worrying in
other fields, within and outside of the transport sector.

Just recently, I was told that in Gauteng alone in excess of R50 billion
will be invested in infrastructure projects in the next 5 years, and all these
will be competing for the same construction industry capacity. It is thus very
necessary that industry supports government in implementing capacity
development initiatives such as the Joint Initiative for Priority Skills
Acquisition (JIPSA) to bring the urgently needed skills to South Africa, while
also rolling out our medium to long-term capacity development strategies.

The construction industry not only faces a challenge in mobilising human
capital, but the sheer demand for construction will put a strain on the supply
of materials such as cement, steel, concrete, and other raw materials. This
will particularly be a problem in places such as Gauteng where projects such as
the Gautrain, the Freeway Improvement Scheme, South African Rail Commuter
Corporation (SARCC)/Metrorail infrastructure improvement programme,
Johannesburg International Airport (JIA) expansion, and stadium development are
all expected to happen at the same time.

This period will also require heavy machinery and equipment supply, which
will be thinly spread across the various projects. Going back to human capital,
specialised skills such as project management, engineering design, and
artisanry will be highly sought after. This presents a threat that is already
being observed in industry, that of price inflation in view of the increase in
demand. This trend needs to be arrested soon, otherwise team South Africa will
generate less infrastructure per allocated spend.

The National Freight Logistics Strategy identified the key bottlenecks in
the logistics system that inhibit seamless movement of cargo, as well as
increase the cost of doing business in South Africa. The strategy went further
to define a vision for seamless logistics and identified the necessary key
interventions to improve this situation. Our main challenge now is to
accelerate the rollout of the strategy to ensure implementation of elements
such as economic regulation in the rail and port environments, the improvement
of rail infrastructure, rolling stock and operations, the introduction of
competition to bring down costs and improve service and the achievement of an
appropriate modal split of cargo movement.

Among others, environmental regulations were identified as a challenge, the
sheer time it takes to obtain the go ahead to initiate development and the
cumbersome nature of the processes involved. Many projects across various
sectors are held up by this agreeably important step, which urgently needs
simplification and streamlining. However, government has realised this
challenge and is working towards its resolution, as evidenced by the
introduction of new Environmental Impact Assessment (EIA) regulations early
this year.

As you hear from this input, we have a long way ahead. The success of these
plans depends on all parties, the private sector, government and civil society
playing their part. We implore on you to identify areas of mutual benefit that
would bolster our investment program.

I also wish to thank the organisers of this meeting for inviting us to share
with you the transport investment program. I thank you

Issued by: Department of Transport
25 August 2006
Source: Department of Transport (http://www.transport.gov.za/)