Address by Minister Malusi Gigaba MP, on the occasion of a business breakfast hosted by the Black Management Forum (BMF) in Mangaung, Bloemfontein
Infrastructure Development and the role of Black Business: Dissecting Strategic Integrated Project 11 (SIP 2) – The Gauteng-Free State-Durban Corridor
I would like to take this opportunity to thank the Black Management Forum (BMF) for the invitation to address you this morning on this important topic of infrastructure development, particularly the Strategic Integrated Project 11 – the Gauteng-Free State-Durban Logistics Corridor.
Indeed, it is urgent and most timely that together we should intensify our focus on the questions of economic growth and development, precisely because we should try to answer the question, as South Africa celebrates its 20 years of democracy, have we done all that is necessary to ensure that all our citizens, particularly those that were the victims of apartheid-colonialism, now enjoy equally the Constitutionally-guaranteed right to a better life for all!
The South African Constitution, the Supreme Law of our Republic, enjoins us all both:
- to “Heal the division of the past and establish a society based on democratic values, social justice and fundamental human rights”; as well as
- to “Improve the quality of life of all citizens and free the potential of each person”.
Surely, the Constitution would not have envisaged such enormous undertaking in conditions wherein the socio-economic injustices of the past remained intact even as we dismantled the political injustices of that past.
The very pursuit of the improvement of the quality of life of all citizens and the freeing of the potential of each person presupposes that we deliberately and through conscious effort create the conditions wherein these objectives can be met.
The Constitution made these injunctions precisely because the historical injustice – apartheid-colonialism – had consisted not merely in the denial of basic rights and political freedoms for the majority, on the basis of their race, but also on the denial for this majority of fundamental human rights and the right to participate in productive economic activity and benefit from the economy of the country.
Accordingly, ours was a struggle not merely for formal political democracy, but that for fundamental total emancipation precisely because to achieve freedom whilst leaving property relations and the basic structure of the economy as is, predicated as it was on the exclusion and marginalisation of the majority, on the basis of their race, would have both been a hollow and meaningless exercise, which would turn the freedom achieved into a sham, thus making a complete mockery of the entire struggle for freedom, and would have perpetuated the basic structure of oppression and racial domination.
We evoke the past, not just to reopen the wounds, or as some have charged, because we are stuck in the past and refuse to make the bold move into the future, but in order to make the fundamental point that in order indeed to move South African forward, as we must, we must make the deliberate decision that we shall embark on the conscious effort to depart from the past, never to return to or be tempted by it, seeking as we do a future which shall be a deliberate antithesis of the past from which we have departed and to which we shall never return!
For, this is precisely what our present actions are about – a choice between a return to the past and bold journey into the future; and hence all our actions today and tomorrow, indeed all our policy choices from infrastructure development and industrialisation, the National Development Plan, the National Health Insurance, the relinquishment of the “willing buyer, willing seller” principle and the adoption of the “just and equitable compensation” principle in terms of land reform and other policies we have and shall in the near future adopt as we pursue radical economic transformation are all predicated on this notion that we are making a choice about the type of future we seek that is an antithesis of the past and is a just future in which we shall free the potential of each person, as directed by our Constitution.
Anything short of this boldness will be a sham.
Ultimately, the question of radical and faster, more fundamental economic transformation will be the most important question the near and medium-to-long-term future must answer in order the firmer to determine if we shall fulfil the injunctions of our democratic and very progressive Constitution.
As we usher in the second phase of our transition during which we shall pursue the radical economic emancipation of our people, we have an obligation, as President Zuma stated it on 11 January this year, to pursue an inclusive economy which draws on the skills and enterprise of all South Africans, affirms our people and reduces income inequality as we undo the legacy of discrimination at work on the grounds of race, gender and disability.
Twenty years on since the historic advent of our democratic state, South African citizens enjoy constitutional rights which guarantee social security both in terms of income protection – social grants – as well as in the labour market in the form of unemployment insurance and the protection of workers in vulnerable sectors the economy.
Through the provision of free anti-retrovirals, we have not only extended the life expectancy of South Africans but gave an additional lifeline to the people living with HIV and AIDS and guaranteed immunisation to young children under seven years.
My emphasis on the social security policy and implementation progress is based on the fact that no country can build stable society with productive citizens without access to quality health care and social safety nets.
The adoption of the National Health Insurance and the pursuit of a radical plan to make drugs cheaper in South Africa is itself informed by the same notion of creating universal access to quality health care for all our people, in a country where access to medical aid is less that 25% and where drugs are relatively more expensive than in many countries, including many developed nations.
Over the years, South Africa’s growth had always lagged behind when compared with its peers in the developing countries and this was due to inadequate economic infrastructure to facilitate domestic trade and smooth exiting of goods to the international markets.
This created enormous and very painful social and economic repercussions, the most notable being de-industrialisation, lack of sustainable and decent jobs, particularly for the youth, lack of skills and hence the intensification of income inequalities and the persistence of poverty, even though the last 20 years witnessed extreme poverty being cut by half due to the social incomes interventions.
As a response to this structural bottleneck, in 2012 South Africa announced, the very first multi-trillion rand public investments programme with an objective to stimulate the economy through domestic demand, reviving infrastructure driven sectors and the development of new industries.
An amount of R827 billion will be spent in the economy in the next three years in the building of new and the upgrading of existing infrastructure.
This long-term government-led economic infrastructure investment programme is intended at transforming the economy by directing the allocation of national resources, stimulating growth and creating a significant number of new, decent and sustainable jobs.
All of this will not be achieved without an economic governance architecture which seeks to correct government failures, market failures and improve efficiencies, hence the establishment of the Presidential Infrastructure Coordinating Commission (PICC) to facilitate coordination between the various spheres of government as well as the rest of the economy.
Critical in the infrastructure development programme is:
- First, the very fact that after a long interregnum, government is spearheading the development and rollout of massive infrastructure which is bound to many positive externalities, and most particularly that will create jobs, develop skills, grow and industrialise the economy,
- Secondly, we have embedded the very notions of long-term planning – through the National Development Plan (NDP), the New Growth Path (NGP) and the infrastructure development programme which provides a 20-year horizon, coordination – PICC and integration – the strategic integrated projects (SIPS) into the very fabric of government’s economic programmes.
Of course, further to this, the ruling party has directed that 60% of all new jobs in the infrastructure programme will be set aside for the youth and 75% of contents and other inputs required for the infrastructure programme will be procured from the local suppliers and industries.
It is our firm belief that long-term planning enables business strategically to position themselves and forge partnerships, even with international partners, to take advantage of the current and future opportunities in the infrastructure programme.
Coordination shall ensure the better implementation of projects to avoid duplications and the delays experienced in projects implementation arising out of silo exercise, resulting in project delays, cost-overruns and loss of credibility.
Integration ensures that each project is not viewed in isolation from the broader impact it has on the rest of the economy across the country and across the provinces.
For example, one could not think of expanding the Durban Port Terminal by adding the dig-out port without considering how this will impact on the entire freight logistics movement through the logistics corridor from Gauteng, through the Free State to Durban; and how the new port will impact the roads, pipeline, rail, water and electricity infrastructure; and what impact all of this will have on business, not just in Durban or eThekwini metro as a whole, but throughout Ekurhuleni, Harrismith, Ladysmith, and even in the entire Southern Africa region.
The biggest chunk of these investments in infrastructure will come from State-Owned Companies, mainly Transnet and Eskom.
For example, Eskom will invest R205.1 billion over the next three years, whilst Transnet will spend R27.5 billion in the current financial year on infrastructure investment as part of its rolling seven-year R307 billion plan aimed at rejuvenating its railways, ports and pipelines improving logistics infrastructure.
Broadband Infraco invested R140 million over the last year and has plans to spend over R700 million to upgrade technology and improve network performance and reach this financial year.
The strategic infrastructure projects will therefore ensure that we are able to upgrade our electricity transmission networks, as well as our ports, our railway networks so that we are able to meet the supply requirements of growing economy.
Yesterday morning the International Monetary Fund has predicted that South Africa's economy will grow by 3,8% and will be driven by exports, which signals recovery, improved industrial output projections and it is positive for our economy.
Whilst this signals positive projections, it is not sustainable for South Africa to build its economy on an export-led strategy; we must anchor our economy also on domestic consumption as well.
The infrastructure investment will contribute to that objective.
The multiplier effect of the infrastructure investment is that businesses will be able to grow, new manufacturing sectors will be established and hence households and communities should take advantage of new opportunities.
Investing in economic infrastructure will provide much needed impetus to growing the economy and raising the standard of living for South Africans.
Jobs will be created in construction, operations, maintenance, mining, manufacturing and other sectors.
Jobs will be created directly as well as indirectly as SIPS are expected to unlock job creation opportunities in other sectors which depend on reliable infrastructure due to the multiplier effect of infrastructure spending.
Bearing in mind our history of segregation, part of South Africa’s democratic success will be measured by our ability to build industrial capabilities, as well as grow a strong black industrial class.
Indeed, President Zuma further said on 11 January this year that:
“Building an inclusive economy will include continued transformation to promote broad-based black economic empowerment.”
Our infrastructure programme will, by consequence, and without reservation, expand the black industrial class, create new industrialists and improve social wellbeing.
However, no economy creates new class of industrialists without hard work and hands-on application; and we expect the same from black business so that they become true entrepreneurs and not mere middle men.
As government, we are committed to support the effort to build a cadre of black industrialists that are ready, able and willing to get their hands in the mud to create long-term, sustainable, job-creating and skill-developing and inclusive wealth, indeed who will reposition Africa as a “change agent” and build the prerequisite industrial capabilities to compete with the rest of the world.
We are committed to the creation of a new generation of black industrialists who are “creators”, “producers”, “strategists” and “decision-makers”.
This is more than just an economic imperative but a moral requirement; an economic solution in keeping not only with the values and principles of equity enshrined in our Constitution, but an economic solution also consistent with Africa’s broader socio-economic aspirations as well.
A strong black industrial class is a prerequisite for robust entrepreneurship and innovation in Africa at large.
There are many financial institutions that are under the control of government; they must shift in how they finance black business, they must encourage people to take risks to industrialise and boldly support these efforts.
The Durban-Free State-Gauteng Logistics and Industrial Corridor (SIP 2) will also build cargo nodes – Harrismith, Cato Ridge, Tambo Springs, the Dube Trade Port – and will further upgrade existing cargo nodes such as City Deep, Pyramid, West Rand and Sentrarand.
SIP 2 is intended to improve access to Durban’s export and import facilities, integrate the Free State Industrial Strategy activities into the corridor, integrate the currently disconnected industrial and logistics activities, and integrate marginalised rural production centres surrounding the corridor that are currently isolated from the main logistics system.
It will expand rail capacity and rolling stock to meet forecast demand from 67Mt per annum to 167Mt in 2037.
It will be worth 205 billion over the next coming five years.
By the third quarter of 2013, 11 118 jobs had been created by SIP 2 and 98.2% localisation in spend had been achieved.
This presents an opportunity for black business to explore both downstream and upstream initiatives, high value-added goods and growth sector in the infrastructure value chain, like cement plants, stone mining, modern brick building and others.
Sustaining the industrial capabilities of this region depends on the qualitative aspects of industrial activities.
And I am hoping by now research and development of market opportunities have already been completed and you have already organised yourselves around starting various initiatives located around this corridor.
As you already know, this province is prone to communities and people living under dire socio-economic conditions.
That is precisely why we will continue to use our infrastructure programme, and without reservation, as a mechanism and economic lever to open economic opportunities to previously disadvantaged groups.
As government, we will work, together with business, labour and other community constituencies to build socio-economic infrastructure in order to support immediate capacity expansion and contribute significantly towards sustained economic growth for these regions lasting well beyond the construction expenditure of its projects.
These positive additions to GDP are expected to continue beyond 2040.
Government will work closely with our black business partners in order to make sure that this project is a success and results in broad-based black economic empowerment, hence inclusive growth.
Companies in South Africa that deal with government or public enterprises must understand that in order to benefit from the government’s infrastructure programme, they are required by law to be ‘empowered’ as required by the preferential procurement legislation.
Of course, we are persisting in our effort, working other government departments, to seek a review in the Preferential Procurement Policy Framework Act in order to be able to achieve the goal of faster and more radical empowerment.
It is also critical that other structural forms of discrimination, namely gender-based discrimination and discrimination based on disability, are dealt with simultaneously with the process of de-racialisation.
Government remains the largest purchaser of goods and services in the economy.
We appreciate and recognise that we have the responsibility to leverage our purchasing power in the goods and services supply value chain in order to privilege and support of previously disempowered groups.
Our choice of business partners will be based on the dual mandate of the state.
We will pick partners not only based on commercial appetite or aptitude but we will choose partners who are committed to the social contract and social good.
It is our intention to ensure that we redistribute wealth creation opportunities across as broad a spectrum of the South African society as possible, which will include, most importantly, the inclusion of small-scale players, including worker and community cooperatives, youth-owned and women-owned enterprises.
We have recently prioritised programmes that privilege the creation of a new generation of black suppliers, black mine owners, as well as new enterprises which are intended to expand business opportunities for smaller enterprises and new entrants especially black-owned SMME’s through central portals.
The Transnet Enterprise Development Hub, in this instance, is the first of its kind and will be a one-stop shop for entrepreneurs and potential suppliers to Transnet who will receive advice on a broad range of opportunities, namely business development, procurement, tax registration and compliance, among others.
The plan is to roll out the concept across the country.
This historic infrastructure programme will, undoubtedly, therefore, result in the development of qualitatively new local industrial capabilities and the comprehensive transformation of the supply value chain of South Africa’s industry as a whole.
In order to support infrastructure roll out, we will put in place financing levers intended to support black industrialists and the transfer of wealth into black hands.
We recognise that the financing of emerging black industrialists is important for the economy; that BBBEE must have a credible financing component in order to proceed.
We will confront, and head on, the serious challenges characterised by the low levels of initial capital endowment of the black business community itself; which on their own are characteristic functions of apartheid colonialism.
We will use financing consortia or ‘special purpose vehicles’, deliberately, effectively, in order to compensate for the shortage of finance in black communities.
Government will also leverage both private sector funds and state funds to support economic empowerment and to open up space for emerging black industrialists to compete and to thrive.
As government, we will not accept the forms of price collusions that have we have seen lately in the infrastructure programmes, particularly in the construction sector, as well as monopolistic partnerships that do not create space for others to participate and to compete competitively, in particular to the disadvantage our small business partners.
Black business should partner with government in investing in building productive capabilities in construction, operations, maintenance, mining, manufacturing and so on.
Black business must continue investing in skills development.
As government, we plan to build capacity not only for construction materials and structural steel inputs but also for sophisticated equipment like locomotives and turbines. This includes developing the capabilities to implement, operate and maintain our infrastructure assets.
Our black business partners must partner with government in accelerating the development of highly advanced skills so that we are able to produce at the higher end of the supply value chain.
Black business must partner up with government to promote micro and small enterprises, as well as community cooperatives particularly for vulnerable groups.
This will provide opportunities for the poor to generate their own income.
Business, in partnership with government, must revitalise credit / investment / cash injection facilities to revitalise micro and small enterprises.
Without being explicit, the strategy that I have outlined above is anchored on the broad economic transformation strategy of the African National Congress, which spells out very clearly that continuously building am inclusive economy which will eradicate poverty, create sustainable jobs and reduce income inequality is the ultimate objectives of productive society.
Partnership between government and business, as well as labour and community constituencies, is a social capital that is critical to moving South Africa forward, together!
I thank you.
