Programme director
MEC for Economic Development and Tourism, Mike Mabuyakhulu
Deputy Mayor of the Ethekwini Municipality, Logie Naidoo
Distinguished guests
And above all, exporters from KwaZulu-Natal
Although my various commitments have made it very difficult for me to visit this province as often as I would like to, I am very glad to be able to be here tonight recognising and honouring KwaZulu-Natal exporters of the year.
Why is it that on an occasion like this we recognise and honour those who have excelled in export performance? Certainly not because export orientated industries are the only important industries in our economy, nor is it because production for the domestic market and for domestic consumption is not important. Rather the reason for this focus on export performance is appropriate because export industries and export performance have a particular strategic role to play in the achievement of our economic growth and developmental targets.
Our country like many other developing countries has historically exported primary products, in our case mainly minerals and agricultural products. Like other developing countries, we have imported higher value added manufactured goods. Our manufacturing industries have not historically been important exporters, with the significant exception of exports to the African continent and particularly to the Southern African region. However, our minerals products in particular are a wasting asset. The gold mining industry passed its prime in the late 1970’s and although it remains an important sector in our economy, its relative significance has been declining ever since. Like many resource-based economies, we need to effect a transition away from reliance of primary product exports, through encouraging more diversified and higher value added involvement in exporting.
This is a key policy approach in the national industrial policy framework, which recognises that a structural shift is required in what we produce and trade in order to reduce unemployment. To illustrate this point, recent research indicates that although KwaZulu-Natal (like the country as a whole) experienced before this recession, the longest period of uninterrupted growth, unemployment in this province remained almost constant at approximately 29%, throughout the period from 2000 to 2007.
This statistic is significant because what is striking about the economic structure of KwaZulu-Natal is that the manufacturing sector is the single biggest employer; with upwards of 350 000 people employed. Secondly, exports from this region play a very important part in South Africa’s economy. For the past decade, KwaZulu-Natal has maintained a share of more than 15 percent of total South African exports, thereby consolidating its position as the second largest contributor to export trade.
It would therefore be natural to be concerned about the impact of the global economic crisis on exports. We do know that this crisis has led to South Africa’s first recession in many years. While this recession is not of our making, it is impacting on us as it has on all countries of the world. Its impact has been particularly severe on the major developed country economies that have historically been the major markets for South African exports such as the United States (US), Europe and Japan, which together account for around 60 percent of South Africa’s total exports.
From November 2008, South Africa has experienced a sharp decline in export volumes and value. In this province, the economy contracted by close to nine percent in the first quarter of 2009 with manufacturing contracting by approximately 22 percent. In South Africa as a whole, we have experienced a 53 percent drop in vehicle exports, 32 percent drop in precious metals, 14 percent drop in base metals as well as 36 percent drop in exports of electrical equipment. Because of our historical reliance on exports of primary commodities, the decline in demand as well as fall in prices of commodities has impacted seriously on primary product exports.
What this grim picture underscores is the need for us to make structural changes in the way in which we participate in international trade based on a careful assessment of the opportunities likely to be available to a country like South Africa. At present, more than half of South Africa’s exports are destined to the European Union and the United States of America (USA), where our export basket is dominated by primary products. These two regions have been particularly heavily hit by the global recession. On the other hand, countries of the so-called global south, like China, India and Brazil, have continued to grow and most commentators agree are the new emerging economic powers that will lead the world economy out of recession. In such a context, we cannot afford simply to allow the reproduction of historical patterns of trade. In the first place, we need to lower our risk exposure by not having too high a percentage of our exports concentrated on few destinations that are, at the same time, the worst affected by the down turn. South Africa needs rather to pursue an active market diversification strategy.
Such a strategy would not ignore our historical markets in the developed world. We still need to actively work to retain export volumes and values to these destinations, while seeking to increase the percentage of value added products in our export basket. At the same time, we must prioritise the higher growth potential markets that have also shown resilience during the current global crisis, in particular in the so-called global south, bearing in mind and building on the good political relations we enjoy with those countries. A third vital priority must be to advance developmental regional integration on the African continent and in the Southern African region in particular. In this regard, the immediate priorities, in our view, are to consolidate the free trade area in SADC by advancing the agenda of trade facilitation and sectoral cooperation, and to work to broaden this to a SADC-Comesa-East African Community FTA, which would consolidate a free trade area from Cape to Cairo in a region with a total population of 700 million people.
A trade diversification strategy should also aim at product diversification and be complemented by supportive trade policies. Almost a quarter of our exports go to Asia, yet the bulk of these exports are commodities. In the area of South-South trade too, the challenge would be to diversify our basket of products to increase the proportion of higher value added products, notably manufactured products and high value services.
This brings me to the important point that our research shows that the manufacture of medium tech products exhibit the most potential to create decent work on a sustainable basis and so help us achieve the structural shifts we seek to tackle high unemployment. At the same time, the external environment though challenging, is now more favourable to exporters based in South Africa than ever before. We have trade agreements allowing relatively favourable terms of market access to the European Union, the European Free Trade Area, Russia, the United States, Southern African Development Community (SADC), Mercosur and a number of countries in the Asian continent. I have discovered in the process of preparing this speech, which KwaZulu-Natal is ahead of the pack in seeking out new opportunities. Already in 2007, Asia was the largest market for KwaZulu-Natal exports. This fact, together with the progress being made with the Dube Trade Port which will provide state-of-the-art airfreight handling, leaves me in no doubt that this province has a bright export future.
Finally, the drive to promote export jobs which I have argued we need to prioritise, must involve all of us paying more attention to what is required to be a successful exporter. Qualities required include innovation, diligence, the ability to think in non-traditional ways and out of the box, attention to detail, persistence and a willingness to take risks. These are qualities we will be honouring and celebrating in the recipients of the awards that will be conferred on the winners tonight. These are qualities which we need to encourage and support if we are to make the structural changes we need to place our economy on a new growth path, capable of creating decent work for our people. It is therefore a great pleasure to be able to extend congratulations and good wishes from the Department of Trade and Industry and of me personally, to the winners for a job well done.
Thank you.
Issued by: Department of Trade and Industry
30 October 2009
Source: Department of Trade and Industry (http://www.dti.gov.za/)
