Z Mkhize: Business breakfast on growth coalition

11 August 2006

Programme Director,
Honourable Premier, Mr SJ Ndebele,
Honourable colleagues in the Provincial Executive,
Mr John Barton, Co-Chairperson of the Growth Coalition,
President and other office holders in the united KwaZulu-Natal Chamber of
Business,
Leaders of business represented here today,
Co-presenters,
Heads of department and other government officials,
Honoured guests,
Ladies and gentlemen

It is almost a year since the KwaZulu-Natal Growth Coalition was officially
launched. As a partnership established to promote economic growth in the
province, we set ourselves certain goals and objectives a year ago. This
represents an opportune time to take stock of our mutual achievements over the
last year, and the challenges which still confront us.

Let me begin by reminding you of what we said a year ago about the
provincial government’s economic growth and development strategy. Anticipating
the formal adoption of the Accelerated and Shared Growth Initiative for South
Africa (AsgiSA), we said a year ago that our main aim was to achieve
sustainably higher growth rates in the provincial economy with a view to
halving the rate of poverty and unemployment over ten years. We said we would
do this by means of a comprehensive economic development strategy aimed at
transforming the one economy by breaking down the barriers which exist between
the developed first economy and the marginalised second economy. Government’s
integrated economic development strategy would seek to:
* increase investment into the province
* increase the competitiveness of the regional economy
* broaden participation in the economy
* develop critical skills and the province’s human resource base.

I shared with you some of the specific strategies and programmes we were
implementing to give effect to our developmental and economic growth
objectives, interventions which can be divided into two distinct categories. In
the first category, I explained that government has instituted several
programmes and strategic interventions in the regional economy aimed at
boosting economic growth rates in the province to a higher level, on a
sustainable basis, in line with the AsgiSA objectives. These interventions are
the following:
* promotion and attraction of Foreign Direct Investment
* investment in infrastructure: Dube Trade Port Provincial, Growth Fund
and
2010 Soccer World Cup, an investment in supporting infrastructure
* sector Development
* corridor development.

In all these interventions we have made significant progress over the last
year:
In respect of promoting foreign trade and investment, we have undertaken
several very successful foreign trade missions since August last year to
Germany, Italy, Korea, Japan, India and to four states in the Gulf Region.
These visits have already resulted in specific commitments to invest in the
province in a range of sectors from manufacturing, furniture, automotive and
related industries, while we are currently liaising with investors from Korea
interested in reviving the coal mining industry. We are in the process of
facilitating South Africa’s number of opportunities for local businessmen
particularly the Gulf Region, in the agricultural, equine, construction,
engineering and tourism sectors.

In respect of the Dube Trade Port, we are on track to have the King Shaka
International Airport operational by the end of 2009 in time for the World Cup.
We can expect the earthmovers on site by January next year. Our negotiations
with Airports Company South Africa (ACSA) for the sale and transfer of the La
Mercy site and for ACSA’s involvement as a partner in the project have borne
fruit.

We welcome with excitement the announcement made by the national Minister of
Transport yesterday. It is a result of many months of intense negotiations with
to get ACSA to participate meaningfully in the airport project. What we have
achieved is what we initially sought when the project was initiated several
years ago. The Premier will elaborate on details of the agreement for those who
may have missed the announcement.

As for the Growth Fund which we established last year, this project too is
progressing extremely well. Perhaps I should first remind you that the
KwaZulu-Natal Growth Fund was established to provide loan finance for catalytic
economic projects in the Province, which would stimulate growth, job creation
and Black Economic Empowerment. The Fund, to which government has committed
R500 million in this financial year alone, has received overwhelming support
from private finance institutions.

Whilst we had targeted to leverage about R1 billion, the Fund has to date
received written offers for participation by private finance institutions,
totalling over R2 billion. The Fund is now in the process of finalising the
allocations and legal agreements with these institutions. We will in due course
be able to publicly announce the details about our investment partners in the
Fund.

Major progress has already been made in developing a pipeline of projects
that fit the key criteria of the Fund. Already one of the first projects we
funded, that is, the shipbuilding park in Durban, has reportedly won a R120
million tender to build two new Government ocean-going vessels. At present, the
Growth Fund team and Investment Committee are looking at projects with a total
project value of R2,3 billion of which the loan component is R980 million.

Without going into detail, I can say that the applications for funding
involve projects that are in diverse economic sectors (biodiesel, industrial
park development, agro-processing, township hotel development, tourism resort
development, regional airport upgrading, new logistics facilities, etc.) The
projects are similarly diverse in their location, stretching from Mkhuze, to
Newcastle, to Richards Bay, to Hibiscus Coast, to Msunduzi, to St Lucia, to
Ethekwini.

In respect of corridor and sector development, I can share with you that we
are putting the finishing touches to a comprehensive spatial economic
development strategy for the province which will be presented at next week’s
Cabinet meeting. The spatial development strategy identifies specific
development nodes and corridors across the province which will receive priority
attention for government investment in economic infrastructure and projects,
particularly in the industrial, agriculture, tourism and logistics sectors. The
objective is to give a spatial context to the provincial priorities and
development programmes identified in the Provincial Growth and Development
Strategy. From the perspective of the business leaders gathered here today, I
should mention that we intend to compile specific packages of projects in the
identified nodes and corridors, in which both domestic and foreign investors
will be invited to participate.

I will not go into detail on the province’s preparations for the 2010 Soccer
World Cups, as this has been covered in Dr Sutcliffe’s presentation. Suffice to
say that the provincial government will be fully involved as partners not only
in the construction and management of the King Senzangakhona Stadium but also
in supporting infrastructure development in other centres across the
province.

Chairperson, ladies and gentlemen, as I explained a year ago at the launch
of the coalition, in addition to these programmes aimed specifically at
stimulating economic growth and job creation, the Provincial Government has
developed a comprehensive strategy to address the issues of poverty and
joblessness for the millions of our citizens trapped in the impoverished second
economy. The strategy consists of the “stepwise rise to prosperity” concept and
focused programmes aimed at supporting and empowering small businesses and
black entrepreneurs in the province. Key features of this approach are:

* the creation of a dedicated fund to support the establishment of
co-operatives to effect local food security and household income
improvements;
* the creation of various financing mechanisms and funds to support the
establishment and development of Small, Medium and Micro Enterprises
(SMMEs);
* mechanisms to assist co-operatives and SMMEs in terms of training and skills
development through the provincial FET colleges
* reform of supply chain management procurement in the provincial government to
support Black Economic Empowerment (BEE) and to position government procurement
spend as a market for co-operatives and black-owned SMMEs; and
* the agrarian revolution programme, including co-ordinated land reform and
restitution, aimed at exploiting the province’s enormous latent agricultural
potential and comparative advantages to the full as a means to create basic
income and food security and to stimulate growth, employment creation and the
eradication of poverty in rural areas.

In these second economy interventions, too we have achieved measurable
successes, as I reported in the Budget address in February. I am pleased to
report too that we are at last seeing increased commitment from the private
banking sector to provide affordable financing to black-owned small businesses
and entrepreneurs. We have an agreement with ABSA for a fund to be available to
small business up to the value of R3 million. Similarly, Standard Bank has also
signed an agreement to support our European Union (EU) fund for local economic
development projects. The fund is available for groups of businesses and
municipalities and valued at R300 million for a period of six years.

Standard Bank has agreed to co-finance businesses that have been successful
through the Gijima project, whilst they have also embarked on a partnership
with the Department of Agriculture in the establishment of black subsistence
and commercial farmers. You will recall that we also launched a joint venture
fund with ABSA at the end of June this year and we are close to concluding
similar partnership arrangements with other banks in the very near future.

In summary, I believe that these first and second economy interventions of
government are beginning to exercise a positive impact on the performance of
the provincial economy, even if we still lack the tools to precisely quantify
this impact. You will know that the provincial economy is estimated to have
grown by 5,2% last year, well above the national average. This suggests that at
least as far as KwaZulu-Natal is concerned, the AsgiSA targets are eminently
achievable. The bottom line is that KZN needs to sustain this level of growth
rate to make inroads into the unacceptably high poverty and unemployment levels
and huge service delivery backlogs, which we have indicated from apartheid’s
legacy.

Perhaps I should challenge the coalition partners, indeed to commit to
growing the provincial economy at an even faster than the national average, so
that the province’s contribution to Gross Domestic Product (GDP) (currently
16,1%) increases, with a view to closing the gap on Gauteng, which currently
contributes 33,3 % to GDP. In this way, over time, it is quite possible for KZN
to become the largest regional economy in the country, in line with its status
as the most populous province. We should not regard this goal as too
ambitious.

The benefits of higher economic growth in the country as a whole and the
province in particular are obvious, with a projected decrease in unemployment
rate halved by 2014, income per capita rises by 50% over next 10 yrs,
socio-economic backlogs can be cleared with larger contributions from the
fiscus, crime levels decrease and foreign direct investment grows. But of
course attaining these ambitious socio-economic targets and sustainable higher
growth rates will depend in the first instance on a strong partnership between
government and the private sector, which is exactly the purpose of the Growth
Coalition. Does this mean that we can relax in our efforts to grow and
transform the economy and to promote black economic empowerment in particular?
I do not think so!

Let me be frank on this point. Both the Honourable Premier and I have
alluded on several occasions in recent months to our continuing disappointment
at the level of involvement and commitment of the business sector in this
province to the cause of transformation and empowerment. We were embarrassed
when we were asked by the team of Eminent Persons of the African Peer Review
Mechanism a few weeks ago to give an example of one major empowerment project
meaningfully owned and operated by previously disadvantaged people of
KwaZulu-Natal that would be an example for the past 12 years.

We could not answer that. I am not aware of a single empowerment deal of any
consequence which has taken place in this province since 1994, at least in
terms of businesses with head offices situated in the province. The structure
of the provincial economy in terms of boardroom control and decision-making
power remains untransformed and highly concentrated in the hands of a few
well-established white male businessmen.

I will continue to make the point that this narrow based structure of the
provincial economy is both economically unsustainable and politically
unacceptable. For one thing if we do not succeed in broadening and deepening
participation in the economy across all sectors of society very soon we can
forget about achieving sustainable higher growth rates of six percent and more
over the medium term, there will simply not be enough entrepreneurs and
consumers in the higher income levels with the turnover and buying power to
sustain such growth rates. So what does this imply?

It implies that the Growth Coalition should set itself some very specific
targets in terms of transforming the economy over the next three years. It
implies that we should redouble our efforts to achieve synergies between
government economic policies and programmes and the private sector’s business
activities and opportunities in the province. In what areas can the private
sector become more involved in supporting government’s economic development and
transformation programme?

Let me suggest a few, some of these I mentioned a year ago at the Coalition
launch. Business has a major role to play in positioning KZN as a two-way trade
and investment gateway into the country and continent. I have been pleased at
the level of support from the business sector for the trade missions I have led
in the last 12 months, but I believe that we can achieve even more in this
regard if we integrate our efforts at all levels and share information at every
opportunity.

We need you to believe and invest in the province’s potential and future,
and promote the province at every opportunity in national and international
platforms; business in all sectors in the province needs to lobby to bring more
company head offices into the province. I am sure you will have noted the
commendable efforts of the Premier in recent months to contact

KwaZulu-Natal alumni across the country have a view to persuade them to play
a role in the development of their province. Very importantly, businesses and
industries located in the province should take maximum advantage of
opportunities being offered by the Growth Fund, SMME Fund, Dube Trade Port and
2010 Soccer World Cup infrastructure investment. We want KZN-based companies to
tender for these major contracts and to co-invest with government in the spirit
of the Growth Coalition.

Business can and must play a critical role in identifying and addressing the
skills shortages in the province in key areas such as project management,
engineering disciplines and technical trades, if we do not partner in this
effort we will not only constrain the supply side of the economic growth
equation but seriously jeopardise our chances of staging a world class world
cup in 2010.

Finally and above all, regional captains of industry and business need to do
much more to transform their enterprises and promote broad-based black economic
empowerment in the true sense of the term. As I have mentioned KZN is seriously
lagging the rest of the country in this regard and unless we succeed in
broadening participation in the economy to a much greater extent our goals of
achieve sustainable higher growth rates and haling poverty and unemployment
levels will come to naught, instead of overtaking other provinces, we will in
fact fall irretrievably behind and risk becoming an economic backwater.

In conclusion, programme director, ladies and gentlemen, allow me to
reaffirm what the Growth Coalition is all about as we enter its second year of
existence. Both government and the business community accept that as a province
we cannot hope to achieve our common objective of placing the economy on a
permanently and sustainable higher growth path unless we work in close
partnership. The challenge is to find ways to operationalise the Growth
Coalition so that it can measurably contribute to the overall objective.

Thank you.

Issued by: KwaZulu-Natal Provincial Government
11 August 2006
Source: Department of Finance and Economic Development, KwaZulu-Natal
Provincial Government (http://www.kwazulunatal.gov.za)