29 May 2007
Madam Speaker
Cabinet Ministers and Deputy Ministers
Members of the National Assembly
MECs and Heads of Departments (HODs)
Officials of the Department of Trade and Industry (dti) and Council of Trade
and Industry Institutions (COTII)
Leaders of organised Business and Labour
Distinguished guests
Ladies and gentlemen
South Africa is experiencing an era of unprecedented growth. Our economy has
grown for a record 90 consecutive months. We have seen our average Gross
Domestic Product (GDP) growth accelerate from 2,7% per annum between 1994 and
2000 to 5% for 2006. We have also seen the number of people employed in our
economy grow by over a million in the two years to September 2006. We should
celebrate this step change in economic growth, but when we look deeper at the
foundations of our economic growth we find that approximately 85% of our
economic growth between 2004 and 2006 can be attributed to household
consumption. Moreover, much of that consumer demand is being met by imported
goods.
The traditional reliance of our economy on commodities continues to have a
significant impact on our macro-economy and exposes the country to fluctuations
in commodities' prices over which we have little control. In 2006, mining
exports comprised over 30% of total exports and recorded 25% growth. While
manufacturing exports comprised over 60% of total exports (with a growth rate
of 18%) much of these exports are composed of upstream minerals and chemicals
processing and so the dependence on minerals and minerals processing. Therefore
the challenge is sustainable growth for the benefit of all; this is the
challenge the dti needs to respond to. We are however confident that the
policies and strategies that we have been developing are equal to the
challenge. I will elaborate on the key elements later on in the speech.
Madam Speaker looking deeper into the structural foundations of the economy,
it is clear that the dominance of commodity in the economy persists, exposing
the economy to potential external shocks. A diversified economy is much more
resilient and adaptive to external shocks and imbalance. It is for this reason
that a key objective of our policy responses must be a more diversified economy
with a strong value adding productive capacity; as such our economy will be a
lot more able to sustain the growth to evolve us to achieve our objective of
lowering poverty and unemployment by 2014. To achieve this objective, it is
clear that the state has to intervene to boost the economy's productive
capacity and competitiveness, focusing on key sectors and on labour
absorption.
Encouragingly Madam Speaker, there is mounting evidence that there are
important underlying changes unfolding in the real economy. The research done
by the Bureau for Economic Research shows that our manufacturing sector is
turning around onto an upward growth trajectory from the recent period of
contraction. The evidence is that manufacturing capacity utilisation is at a
historic high and giving way to strong fixed investment growth in several
sectors and showing an upward trend in competitiveness and production volume
during the past three years. The recent contraction we have experienced in
manufacturing exports is bottoming out. What is interesting in this bottoming
out is sector export expectations, so for instance, manufacturers associated
with printing, rubber, beverages and chemicals amongst others, are very
optimistic regarding exports. Whereas those exporting clothing, non-metal
minerals, food and paper amongst others are less optimistic, but overall it was
found that manufacturing fixed investment increased during 2006 and remains
strong in 2007. Furthermore service sectors have been stellar performers.
Building construction, civil engineering, electricity and gas and water supply
all exhibited fixed investment growth of range of 20% per year between
2003-2005. The strong performance of these three sectors can be linked to the
growth of government capital expenditure. Sectors such as motor vehicles,
non-electrical machinery and processed foods exceeded 20% growth per year.
Madam Speaker, however, the poor performance in a set of other sectors such as
clothing, non-metal minerals, food and paper amongst others, paints a mixed
overall picture for the real economy as a whole. The challenge for the dti is
to respond in ways that reinforce the emerging turnaround of manufacturing
whilst at the same time, assisting weak sectors to achieve the necessary
structural adjustments. In this regard, I am pleased Madam Speaker to announce
that the dti has completed a National Industrial Policy Framework and is
finalising an action plan to give effect to the strategic programmes identified
in the framework.
Central to the vision we have elaborated for industrial policy is a
structural diversification of the economy with greater emphasis on value
addition, knowledge assimilation and labour absorption. A strong industrial
policy is essential in driving this structural diversification of the economy.
However, industrial policy cannot succeed without coherent and simultaneous
supporting policies. The most critical of these are, a competitive exchange
rate, a skills development system which is aligned to our industrial policy
priorities and traditional and modern infrastructure of the necessary quantum,
quality and pricing necessary for our industrialisation needs, a supportive
regulatory environment which encourages investment and employment creation
amongst firms of all sizes. Industrial policy is the role of the whole of
government which will leverage off the back of ongoing improvements in
intra-governmental co-ordination.
In this connection, it is clear that most sectors display common challenges
and needs, which require a systematic and well targeted response by the dti and
the rest of government. Therefore Madam Speaker, our longer-term vision for the
South African economy is a movement to a more labour-intensive and value-adding
economy. This will require that we do the hard work to diversify our economy
away from its current reliance on minerals and minerals processing. It
requires, too, that we invest in the education and skills of our people to
support labour-absorption into a knowledge economy. Moreover, it requires that
we transform the institutional arrangements in our economy to enable greater
participation of historically excluded people and marginalised regions.
It is for this reason that starting this year the Industrial Policy Action
Plan, is at the core of the government's Programme of Action for the economic
cluster. Whilst this work will cover as broad a spectrum of sectors as possible
as announced by the President in the State of the Nation Address, in future,
the intention is to focus on a set of priority sectors in each period on an
ongoing basis. A critical element of the immediate work is to establish the
criteria for sector priorities. It is however clear that these criteria will
need to include the sectors potential to the Accelerated and Shared Growth
targets and in particular the contribution to growth, investment and employment
creation. To effectively advance the Industrial Policy programme would require
that we revamp our working methods with government and in relation to industry,
business and our social partners. Our strength will depend on the strength of
our co-ordination and co-operation.
At this point Madam Speaker, it is perhaps necessary to address a few
sectors and issues in relation to our work on Industrial Policy: With respect
to the motor industry development programme I'd like to dispel the speculation
in connection with our policy intentions. Madam Speaker, let there be no doubt
of our commitment to providing this industry with a supportive environment for
it to realise its maximum potential. To that effect we will shortly commence
the proposed modifications to the Motor Industry Development Programme. Key
result areas in the continued support of the industry will include production
volumes and employment, local content and broad based economic empowerment.
Clothing and textiles, by contrast is an industry where deep structural
transformation has yet to occur and this is at the root of the current crisis
that confronts the industry. This is despite the facts that the sector enjoys
above average tariff protection and the continued support measure in the form
of the Duty Credit Certificate Scheme. In light of the negative commentary
about our response, I'd like to give an account of our efforts in this sector.
It is not very hard to see that the leading stakeholders in the sectors viz.
manufacturing and labour retailers have not for a long time found a common
platform to tackle the challenges of the industry. Achieving this common
platform and consensus has been the dti's preoccupation over the last 18
months, leading to the completion of a comprehensive sector strategy. We are
very close to including in the consensus all the major players in the retail
sectors which will pave the way for effective co-ordination and the strong
implementation of the Customised Sector Programme (CSP).
However it has been necessary in the interim to undertake important measures
such as effective surveillance on important surges especially illegal imports,
as well as introducing quotas on Chinese imports. Against this background it
must be understood that the management of these quotas and any necessary
adjustments that we have and may need to make is decidedly in context of the
co-operation and consultation amongst the key stakeholders and is far from any
"miss-shooting on our part." I am also pleased that the quotas are having the
effect of fostering encouraging pockets of collaboration among stakeholders,
demonstrating what we could achieve in stemming the crisis of the sector.
I'd like to thank all the stakeholders and especially the retailers who are
co-operating with the measures. Having said all of this it must be on record
that the import quotas have been introduced by no means as a panacea for the
ills of the industry. I would now like to cover a range of areas of work of the
department that going forward will receive focused attention and reinforcement
in alignment with our overarching strategy.
Industrial Financing
In the area of industrial financing and incentives we have a comprehensive
review of the suite of measures we have on hand to support industrial
development. This has enabled us to affirm programmes that have been successful
and effect necessary modifications. In this connection I'd like to single out
the Small and Medium Enterprise Development Programme (SMEDP) as an important
programme that has been very effective but has needed to be modified in line
with the emphasis on better targeting enterprise support. This has necessitated
the temporary suspension of the programme which the department regrets. The
SMEDP has to date recorded approvals to 11 000 small enterprises to start or
expand their operations
In the Critical Infrastructure Programme 22 infrastructure projects have
been approved to date, and the ten already underway are to the value of R9,2
billion. These projects will provide the much needed infrastructure and
logistical support which will enable investment estimated at R17,5 billion.
Major projects include the Lion Ferrochrome Smelter in Mpumalanga (the world's
largest ferrochrome expansion worth R1,6 billion) and the innovative Landfill
gas project in Durban (which is the first of its kind in Southern Africa to
commercially exploit the gas that is naturally generated by landfill sites and
convert that gas into electricity).
The Industrial Development Zones (IDZ) programme continues to gain momentum.
Twenty-one investors have already committed to locate within the designated
Industrial Development Zones. In the Coega IDZ, the Alcan Aluminium Smelter
will be the largest single Greenfield Project in the country since 1994, with
an investment value in excess of R21 billion. The project is expected to
crowd-in aluminium beneficiation projects and agreement has been reached by
government and Alcan to supply aluminium to downstream industry at competitive
prices. Other investments include the Indian Tata Steel Ferrochrome Smelter and
a pulp mill involving Swedish partners, planned to locate in the Richards Bay
IDZ to the combined value of R2,6 billion. At East London IDZ, twelve investors
with investment worth R594 million have been secured. Four of these are already
operating on site with a combined investment value of R300 million, mainly in
the automotive sector.
There will be some major developments in the IDZ programme in 2007/8. In the
Coega IDZ, over 10 000 jobs will be created during the construction phase and
an additional 3 000 permanent jobs during the operational phase of these
investments. Moreover, the Automotive Supplier Park at the East London
Industrial Development Zone will be completed. It is clear that the IDZ
programme is making good progress. In fact, the success to date is motivation
enough to consider extending the programme, where the economic potential
exists. We take note of the impressive work done on the Mafikeng IDZ programme.
Future developments in that area will involve policy and legislative
interventions to put the governance of the programme on a clearer footing. With
regard to the Business Process Outsourcing (BPO), I am pleased that we are open
for business with respect to potential candidates for our incentive programme.
To date, twenty four potential BPO operators have been in discussions with us
and we expect several of them to start submitting applications for the
incentive programme. In light of this any speculation as to the failure of the
programme is at best premature or at worst mischievous.
Madam speaker, in line with this integrated approach I made reference too,
we recognise the need to address the regulatory environment to promote a more
modern and competitive economy where consumers are adequately protected through
a package of regulatory interventions. The area of regulation has seen many
historic developments that will feed into improving the environment for
enterprise and industrial development. In this regard, the Companies Bill has
gained Cabinet approval and was published for public comment. The Bill is
expected to be approved by Parliament during the latter half of this financial
year following extensive public consultations and we anticipate that the
company's commission will be operational by April 2009. The Consumer Protection
Bill has been amended following a public consultation process and will be
reintroduced into Cabinet during the coming financial year. Regulations under
the National Credit Act have been finalised and published for implementation.
Under the auspices of the National Credit Act, the National Credit Regulator
was established on 1 June 2006 and the National Consumer Tribunal was
established on 1 September 2006.
The outstanding provisions of the National Credit Act will become
operational on the 1st of June 2007. May I use this opportunity to thank
members of the House for their sterling contribution to the development of the
Act, an Act which will undoubtedly change the lives of many of our people for
the better. In order to promote an inclusive economy and competitive outcomes,
amendments to the Competition Act designed to bring South African legislation
in line with international best practice rather than a wholesale review, will
be presented to Cabinet during the course of the year.
Madam Speaker it is common cause that the department has been fully seized
with the challenge of broadening economic inclusion and promoting
transformation in the economy through strategies and programmes such as the
Broad Based Black Economic Empowerment (BEE), the Small Business Strategy as
well as initiatives to support Micro�enterprises and Co-operatives. I am
pleased that with regard to all of these, the department has been making
significant progress. In February 2007, the Codes of Good Practice were
gazetted. In the year ahead, the dti will establish institutional mechanisms
for monitoring and evaluating the implementation progress of Broad Based Black
Economic Empowerment (BBBEE) throughout the economy. These mechanisms will
include the establishment of a BEE Advisory Council and the aligning of BEE Act
with other pieces of legislation. This takes place within the current positive
context of significantly increased participation by black women and an
increasingly diverse ownership and management base in the mainstream of the
economy.
In line with the promotion of inclusivity and in fulfilling its mandate as a
promoter of long-term savings and investment opportunities to black people, I
am pleased to announce that the National Empowerment Fund (NEF) will launch
their first BEE retail product this year. This blue chip product will allow
eligible broad based savings groups (such as stokvel associations) and
individuals to subscribe for shares of a listed company currently held by the
NEF on a once-off offer basis. The area of small business has seen impressive
growth which we hope to reinforce through the strategy we are finalising. In
the preceding year, small business has grown at 7%, for outstripping the growth
of the economy generally.
During the 2006/07 financial year, the dti led a process which resulted in
the finalisation of the Integrated Small Enterprise Development Strategy.
During the 2006/07 financial year, the dti led a process which resulted in the
finalisation of the Integrated Small Enterprise Development Strategy. Madam
Speaker, in the year ahead we will be looking to the government to play a
leading role in boosting demand for the products of small and micro enterprises
(SMEs). In this regard, I am pleased to announce that the dti has completed
recommendations for government procurement that targets SMEs as preferred
service providers. Ten products have been identified for this purpose and they
will be used to monitor government procurement spend on SME products.
We shall also strengthen the focus on measures to improve outreach and
access to services such as the South African Micro Finance Apex Fund (SAMAF),
Khula and the Small Enterprise Development Agency (SEDA). There will be a shift
in the SEDA's strategic focus which will see it move from being a centrally
controlled organisation to a decentralised, flexible and customer-oriented
organisation. Madam Speaker, experience has led us to rethink the Khula finance
model. We have found that the current model of wholesaling undermines the
potential to address the R10 000 � R250 000 financing gap. Currently we work
through private intermediaries who are more risk averse and whose interests are
less centred on development. For the future, the dti is considering a shift to
the "small business bank" or retail model, which has proved successful in other
parts of the world and which will allow us to keep a closer handle on our
developmental objectives.
Thus, the dti is implementing a comprehensive suite of interventions to
resolve Second Economy challenges. Going forward the department will align our
work on promoting economic inclusion with the more coherent framework for
supporting the second economy, which government is in the course of
elaborating. Our work in supporting growth, developing our industries and
enterprises, needs to be complemented by our efforts at securing a supportive
global economic environment in order to stimulate exports and investment. In
this regard therefore we are fully seized with efforts to achieve a successful
conclusion of the Doha Development Round of the World Trade Organisation (WTO)
negotiations. Closer to home we will continue to pay attention to broadening
the frontiers of regional integration, focusing on consolidating Southern
African Customs Union (SACU) in alignment with the next steps in deepening
regional integration through Southern African Development Community (SADC).
Conclusion
In conclusion, Madam Speaker, what I have outlined here today covers key
aspects of the dti's response to developments in the real economy. By
implementing the Industrial Policy Action Plan we aim to strengthen and embed
the process of structural change that is currently underway. Fostering
strategic partnerships will be key to success in this endeavour. That is why we
consider our work in the Economic Cluster and National Economic Development and
Labour Council (Nedlac) indispensable. The Cluster departments provide
invaluable inputs into the Action Plan and our strategic engagements at NEDLAC
are moving us closer to a collective response to our challenges and
opportunities. We will also continue to strengthen our partnerships with
business and labour by utilising and improving where necessary the mechanisms
we have established for this purpose.
Madam Speaker, we are going to further strengthen our stakeholder
engagements in the year ahead. In particular, our engagement at sector levels
with organised business and labour will be a priority. The Industry Forum that
we convene will be revised to include all the key sectors and will emphasised
as a platform through which business and government can collectively identify
and address implementation opportunities and constraints.
Implementation requires that the dti works well. We are strengthening our
planning and performance management systems to ensure that our people and
resources deliver decisively on our mandate. As to our financial performance I
can share with you that in the past year the dti again received an unqualified
audit from the Auditor-General. We have also reduced our vacancy rate to 15%,
and made considerable progress in filling senior management posts. However,
given the skills generated by the department we have found the vacancy rate to
be something of a moving target! Innovative ways are nonetheless being found to
ensure that the best skills are being brought into the department. These
include establishing an industrial policy "think tank," including top
international and local academics and experts. We have also established a
Masters Degree bursary programme with leading university-based centres that
will see us mentor and recruit forty top master's degree graduates every two
years.
Madam speaker, in drawing to a conclusion, I would like to thank the Members
of Parliament and especially our Portfolio and Select Committees, for their
continued interest in the operations of the department and the crucial
oversight role they play. I also wish to extend my gratitude to the Deputy
Ministers, Elizabeth Thabethe and Rob Davies, the Director General, Tshediso
Matona, the senior management and staff in the department and the leadership of
the various COTII institutions for another year of devoted service to the dti
cause. Honourable Members, I ask this House to support the efforts of the dti
by approving its budget of R4,8 billion for this financial year.
Issued by: Department of Trade and Industry
29 May 2007
