Remarks by the Minister of Public Enterprises, Mr Malusi Gigaba MP, at the TNA-SABC business briefing in Johannesburg
Today, I do not intend to give a detailed account of how infrastructure rollout has been going, as I believe the President may do so during the State of the Nation Address soon, giving full account of how this government has, during the past 20 years, made South Africa a better place to live in than it was in 1994 when we, the people of South Africa, defeated the apartheid and started embarking on a journey to put behind us of colonialism and racial supremacy.
Indeed, much as daunting challenges still persist, we have a good story to tell and we cannot turn back; we must move South Africa forward, all the time. Because when all is said and done, all our efforts have been, are still and must continue to be guided by the abiding notion to improve the quality of lives of our people, to create a better life for all by creating jobs, fighting poverty and inequality.
Over the next five years, radical economic transformation is the most important question that must be answered.
Our people want social justice now!
Of course, to create economic inclusion and hence social justice requires that we act today, with urgency and speed, to implement radical economic programmes, including the infrastructure development and industrialisation programmes.
The South African economy is projected to grow at 2.8% in 2014 and more than 3% in 2015/16. The key driver of this growth is capital gross formation from both public corporations, private enterprises including the general government.
The global economy is showing strong signals of recovery, which augurs well for the South African economy although growth will not happen all by itself, but will require a concerted effort from government, capital, labour and community as a whole. Infrastructure programmes remain a stimulant in our economy to-date as well as the driver and enabler of economic development and growth.
The very process of building infrastructure and providing related services is a key source of investment demand and economic activity. To-date, our State-Owned Companies (SOCs) have acted as catalysts for additional investment in the economy boosting our economic gross capital formation to 4.4% of the gross domestic product (GDP).
However, the way that SOC provide capacity, charge for their services and procure their requirements can either support or retard the processes of industrialization and economic transformation.
Hence the department has undertaken new initiatives of improving sectorial co-ordination through the establishment of joint forums between customers and SOC to deal with market failures and inefficiencies. I will dwell on this issue much later. 19% of GDP was invested in fixed capital in 2013.
Two-thirds of South Africa’s investment in fixed capital over the last year was made by the private sector, whilst public corporations accounted for just over half of total government investment. In this regard, it is important to understand the magnitude of Eskom and Transnet’s investment programmes.
They account for half of government’s investment in fixed assets. Eskom will be investing over R500 billion in the next five years, whilst Transnet will be investing over R300 billion over seven years. To give you a sense of how rapidly the programme is growing, three years ago, our portfolio of SOC invested R53billion; but in the current financial year, we will be investing over R113 billion, an increase of over 100%.
A programme of this scale is unprecedented in South Africa’s history and it must change the patterns of ownership in the economy as well as our industrial outlook. It is important to get a tangible understanding of what this money will buy.
Based on our existing plans, by 2020:
- An additional 11 719 MW will have been added into the electricity system and 6596 km of transmission network installed to support security of supply
- Existing logistics corridors will be expanded upon and new corridors will have been established, and 1317 new locomotives and 25 000 new wagons will have been procured, and procured in a manner that puts in place a world-class, export-oriented, rail manufacturing sector
- 6405 km of rail will have been replaced for the general freight, coal and ore lines, increasing the rail network capacity by 149.7 million tons
- 13 125 km of fibre optic cable would have been refurbished and strengthened to ensure carrier grade status and our broadband network would have been expanded to include metros and underserviced areas. Access to affordable broadband is critical for the integration of informal and mainstream economy improvements in access to quality education and health care.
In concrete terms, this will have a dramatic impact on the mining sector and will dramatically improve our capacity to industrialise our economy as well as our ability to export manufactured goods with stronger backwards and forward linkages in the economy.
We will be able to increase our exports of coal and iron ore by over 50%, our ability to move general freight on rail will have more than doubled in capacity and Transnet’s container handling capacity will increase by 75%.
Of course, the dramatic increase in our rail infrastructure and rolling stock will have a positive effect on our roads and reduce the burden currently carried by many roads as a result of heavy cargo transported by road instead of rail and will improve efficiencies, safety and the quality of the roads, resulting in less accidents caused by poor and degraded roads.
The shift from road to rail for both passengers and freight is associated with many positive externalities and is good for the economy. Our infrastructure SOCs are already key providers of employment, and with the additional infrastructure capacity that will be built, will become even more important sources of employment:
- Transnet’s operational and capital expenditure activities were associated directly and indirectly with the employment of 205 000 people
- By 2017, Transnet’s activities will support the direct and indirect employment of 330 000 people
- In 2013, Eskom accounted for the direct and indirect employment of 290 000 people
- By 2015, Eskom will support the direct and indirect employment of 430 000 people. SOCs are playing a leading role in skills development and will be investing over R2.8 billion in training during this year.
Over the last year, more than 16 000 learners were trained in various scarce and critical skills learning programmes within the SOCs in the Department of Public Enterprises (DPE) Portfolio. Transnet has secured an amount of R175 million from the Department of Higher Education and Training to train an additional 1 000 learners on maritime engineering who are being across provinces during this year.
This will increase artisan learners at Transnet training facilities to 3000 learners. Emerging industrial sectors make up small components of SOC revenue, yet they are strategic to support the government’s industrialization programme and economic transformation.
In order to ensure that these sectors receive special attention despite their relatively small size in the economy, the DPE has taken a number of initiatives. We established an Automotive Competitiveness Forum involving the SOC and the key automotive original equipment manufacturers (OEMs) in South Africa and National Association of Automobile Manufacturers of South Africa (NAAMSA), which has embarked on a number of collaborative initiatives, including particularly the recent launch by President Zuma of a single and double deck automotive wagon, designed and put together in South Africa, at Transnet Engineering.
There are certain non-negotiables when we procure equipment and services for our infrastructure programmes. For South Africa such a procurement of capital goods in particular must result in tangible industrial development with significant impact on our objective of creating a new class of black industrialists.
The past year has witnessed significant progress within Eskom and Transnet in embedding the Competitive Supplier Development Programme which has the objective of leveraging SOC capital and operational procurements to promote investment in plant, skills and technology, as well as to promote the development of new capabilities in existing, emerging and new suppliers of capital equipment and related services.
Procurement policies, processes and related systems have been revised to ensure that supplier development concerns are integrated into all strategic procurements. For CSDP objectives to be achieved, we are adopting an economic governance architecture which compels SOC to allocate specific strategic capital goods procurement programme with a focus on supplier development, localisation with economic transformation outcomes.
Economic transformation objectives must be deliberate and outcomes must not be an accident. We are determined to leverage SOC investment related procurements as well as their operational expenditure to achieve our transformation objectives. Eskom and Transnet have both identified specific areas of recurring and consistent operational expenditure which they will leverage to create opportunities for small businesses.
Transnet has established a one-stop-shop to provide a range of value added services to emerging enterprises and has entered into a range of partnerships to provide everything from incubation services to funding for aspirant entrepreneurs.
Eskom has set itself the target of spending over R24 billion a year on black youth-owned businesses by 2017. Thus far Eskom has reserved over ten-and-half billion rand of spend for youth-owned businesses in a range of industries including the national electrification project, vegetation management, coal mining, metering and wooden pole production.
These businesses will create over 4 700 skilled jobs. As part of its small business development strategy, Eskom is leveraging Rotek, an Eskom subsidiary focused on construction of power-lines and maintenance of power equipment to act as an incubator for small businesses. This involves Rotek sourcing high cost inputs such as steel for the emerging entrepreneurs as well as deploying Eskom engineers to provide direct technical support to small businesses to ensure that they meet quality requirements.
In addition, Eskom will be using different contracting methodologies to ensure that small business get partnered with and receive practical support from established businesses. Over five years, Eskom is projected to spend over R200 billion for the supply of coal.
In light of this, I had an engagement with established miners, the Chamber of Mines, South African Mining Development Association (SAMDA) and Emerging Miners in the coal and limestone value chain, after which I also launched the Black Emerging Miners Strategy, the aim of which is to increase black participation and ownership in the coal mining sector.
A key element of the strategy is to establish a Mine Development Fund to provide finance for the development of mines mainly at the early exploration stage. Eskom has finalised the design of this fund and we are in the process of implementing it. Alexkor is being repositioned to play a catalytic role to support the growth and development of the emerging mining sector as well as to support Eskom’s requirement for a secure, long-term supply of coal.
Alexkor will further play a facilitating role in the consolidation of emerging miners to achieve adequate economies of scale, through exploring opportunities for beneficiation and through providing technical support to emerging miners to enable applications to the fund. We intend to ensure that by 2018, Eskom procures over 50% of its coal from black coal miners, which would be a strategic act of transformation.
The establishment of new cost-plus mines to supply Eskom is an opportunity to implement a comprehensive empowerment process involving both high levels of ownership and the progressive building of black operating capacity and enterprises throughout the mining value chain at a large scale.
New Largo is an example of this kind of opportunity. I believe in the near future we will have something very exciting to announce in this regard. It is critical that we use our SOC to open up opportunities for black miners both to supply Eskom – which is a very sustainable business which has built many a giant coal mining firms – as well as to access export markets.
Eskom has negotiated an export capacity allocation in the South Dunes Coal Terminal at Richards Bay which will be used to provide emerging miners with access to global markets. We have established a task team involving Transnet and the Chamber of Mines to determine how the expansion of the Richards Bay Terminal can be leveraged to enable access to more capacity for junior miners.
The Presidential Infrastructure Coordinating Committee is taking the infrastructure programme to a new level and has been applauded as a great initiative, which has embedded in it the philosophy of long-term planning, coordination and integration.
The Strategic Integrated Projects (SIPS) are effective game-changers, in the sense that they will immediately enable qualitatively new economic activity on a significant scale and their successful implementation will require an extremely high level of coordination between different SOCs, government departments and agencies and private sector companies.
We recognise that the ability to design and efficiently implement game changing mega-projects is an extremely strategic capability for a South African developmental state. Mega projects create an economic momentum, both through the process of their construction and the on-going economic activity that they spawn.
In the coming months and years, these projects will gain traction and accumulate momentum that will allay the concerns about implementation and result in massive investments.
Meanwhile, profound lessons have been learnt by both Eskom and Transnet and significant new organisational capabilities in the form of methodologies, processes and systems have been, and continue to be, built to manage these programmes.
As a result, both these companies are fast becoming leaders in this field and will be able to implement and leverage projects of a scale and complexity that is beyond the capability of any other organisation in South Africa.
I hope I have been able to highlight the importance of our infrastructure SOC, their operations and their investment programmes in driving economic growth as a whole and industrialisation and transformation in particular.
In the process, they are also building key organizational capabilities that I believe will be extremely valuable assets for our developmental state into the future.
I thank you!
