Honoured guests
Members of the media present
Good morning
First and foremost, I would like to express my heartfelt gratitude to all of you on behalf of the provincial government. Thank you for heeding our call.
Compatriots, it is true that our political liberation was achieved as a result of support from organised labour, business and other social partners. When we intensified the fight for political liberation in the '70s, '80s and '90s, we shared ideas and strategies against one common enemy; the apartheid regime.
Having triumphed against decades of discrimination and oppression we are now faced by another enemy, the global recession which threatens to reverse the gains of this democratic government. As the provincial government, we have no doubt that the women and men assembled this morning are more than up to the tasks of devising a collective strategy which will help us defeat this enemy.
The great response to our call is proof that we are prepared to march to 2014 working in concert. We are determined to achieve our common objectives of getting our province onto a path of growth and prosperity.
Programme director, the global crisis has altered the political climate for investment policy making. It has imposed hardships on millions of people and heightened the public’s fears and anxiety, for example; about jobs and pensions. It has undermined confidence in economic institutions, both public and private.
Faced with rising public fear and distrust, governments are now focused on restoring national economic and employment growth and financial stability.
Although they recognise that open markets will ultimately contribute to a sustainable recovery, domestic economic and political pressures might make them less mindful of their international commitments to openness. In this context, there is a risk that countries will be tempted to adopt inward looking policies, including investment protectionism in various guises and unfair incentives to attract or retain investments.
For the investment policy community, the immediate challenge is to counter such pressures and to promote the adoption of investment policies that are open, transparent, non discriminatory and that effectively address legitimate recipient country concerns. High level policy makers have acknowledged the dangers of protectionism and reaffirmed their commitment to openness. For example, the G20 leaders declaration on the World Economy and Financial Markets (Washington 15 November 2008) states: “we underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services”.
Similarly, in a 14 February 2009 statement, the G7 recognised the continued need for openness: “An open system of global trade and investment is indispensable for global prosperity. The G7 remains committed to avoiding protectionist measures, which would only exacerbate the downturn (and) to refraining from raising new barriers”.
What makes KwaZulu-Natal vulnerable to the global financial crisis is that this province has, effectively, become a global player. Along with the rest of the country, KwaZulu-Natal has managed to fully integrate our economy to the rest of the world. This has both benefits and costs. On the positive side, barriers to global economic integration are diminishing rapidly. New technologies are shrinking economic distance dramatically. The shrinking of economic distance has opened up new opportunities for competitive activity for developing countries like ours, but it also threatens us with new competition.
Unfortunately, our fairly new administration is facing the daunting task of counting the losses as a result of the global economic crisis. Transport and logistics, are a major contributor to our economy through the two ports. Between last year and 2009, Durban port reported a reduction of 17 to 23 percent of volumes. We can all guess the impact thereof.
Our research has shown that the pace of deals in the global industrial manufacturing industry likely to benefit KwaZulu-Natal has slowed significantly during the first three quarters of 2008. Most, if not all, newspapers these days barely report any deals, especially those with a disclosed value of at least 50 dollars, which was very prevalent prior to the crisis. In the global context, research does show somewhat a very worrying picture, especially to countries and provinces like us which depend on foreign direct investment as an instrument for economic recovery.
It has been told that the majority of deals that took place so far this year in the industrial manufacturing sector involved industrial machinery targets (42 percent), which is consistent with previous years. Interest in electronic and electrical equipment targets accounted for 20 percent of deals while rubber and plastic products categories accounted for 15 percent through the third quarter of 2008. In addition, acquisitions of public and subsidiary entities led all deal targets over $50 million (68 percent) during the first three quarters of 2008 while deals for privately owned targets continue to increase steadily over time, accounting for 30 percent of all targets in the first three quarters of the year, rising from 27 percent in 2007 and 23 percent in all of 2006.
The global credit crisis and intensified recessionary concerns have taken a significant toll on both the pace and value of deal making in the industrial manufacturing industry. This year’s reduction in large deal announcements is the direct result of a weak financing environment, along with a decreased role of financial investors in deals. In the past, financial buyers have typically been involved in larger deals with higher values. In 2008, financial investors participated in only 33 deals, allowing strategic investors to claim 74 percent of the ownership of industrial manufacturing deals.
Of the four emerging economies abbreviated as Brazil, Russia, India and China (BRIC), which is an influential economic block, China remains the most attractive, accounting for the majority of deals (over 90 percent) during the first three quarters of 2008. This state of affairs forces us to look at internal sources of growth, by leveraging state capital expenditure framework to achieve such growth. We have to work together in a partnership and return our economy to the path of sustained social and economic development. Even though we have suffered the most as compared to other provinces in terms of job loses, a great deal of work has been done to extricate the province out of the economic difficulties.
In this regard, a working partnership between government, business and labour has become imperative. We have much to gain from the development of a deeper, long term and stable partnership than waiting for an invisible hand of the market to solve our problems. We believe that this summit is the foundation for the building of this partnership, and then we can say: “From the challenge of the economic contraction, as the people of KwaZulu-Natal we were able to forge a united front which will continue to give our province the competitive edge long after the economic contraction has ceased to make headlines”. That is why we are excited to be part of this august conference whose objective is to deal with the difficult topic of economic contraction and job loses. We do believe that solutions lie within all of us.
Programme director, in order for this summit to yield the desired results, we must speak frankly but must ensure that our utterances seek to contribute to a solution to our collective challenge. This summit cannot degenerate to a mourning session or name calling because, as leaders in our respective fields, our constituencies expect far more and far better from us. In other words, this summit must be driven by our collective quest to find solutions instead of seeking to apportion blame to any one.
We cannot deny the fact that it is mostly the private sector that has benefited from the cycle of commodity boom of the recent past. Whilst this may be correct, given that we remain the net exporter of unprocessed raw material, we would expect that those employers who benefited from the commodity boom to lead the process of job preservation and must invest their huge profits in industrial development commitments.
We, therefore, believe that conferences such as this should be able to address the problem of job losses and identify other sources of development and partner with government in developing strategies for increasing local processing and investments, as well as value addition (the productive side of the economies).
It is the responsibility of all of us, particularly the business sector, to ensure that any industrial development strategy is accompanied by a clear programme of action and measures to ensure that the revenue flow from commodity boom is predictable. Indeed we must all accept that with these extraordinary times, it cannot be business as usual. Business, as all other social partners, needs to put concrete propositions on the table on how it plans to, looking within itself, contribute to efforts to stem the tide of job losses and boost economic recovery.
The labour movement must make recommendations to government on prudent fiscal and monetary policies, easing trade and capital account restrictions and how do we, as partners coordinate our activities around reducing the impact of job losses. Pointedly, at this summit, labour also needs to tell us what reasonable sacrifices they can make as way of contributing towards saving jobs.
Programme director, the reality is that we need a labour intensive industrial development, which will absorb the ever increasing numbers of our people who are without jobs. We fully agree that investments into industrial infrastructure through our capital expenditure programme and skills development must be priority to industrial development. However, we believe that such a strategy will largely depend on the nature of a state that is capable of intervening directly in the economy to address market failure. In our case, this matter has been settled. South Africa is and remains a developmental state capable of intervening where we see market failure and deal with growth constraints.
Investments into productive industrial infrastructure (including soft infrastructure such as skills) requires an activist state that can rely on national fiscus to generate the required skills. Government has made firm commitments to invest increasingly in infrastructure to drive growth during this recession. As South Africans, we agree with the analysis that domestic and foreign capital must play a role in industrial development. But we don’t agree that investment is always about the investor. It is also about government policies which are conducive to private capital formations.
In this province, a great deal of work has already been done to move towards realising the objectives of the national Job Summit of March 2009. We have agreed that we would use government procurement spend to stimulate industrial and enterprise development. We will be willing to work with our social partners to coordinate a programme where our capital expenditure programmes can be leveraged to save jobs. We have finalised our business retention and expansion strategy, whose objective is to coordinate with municipalities social plans and programmes aimed at minimising the impact of large scale job loses.
This programme will be implemented by the Department of Economic Development in KwaZulu-Natal and opportunities exist to partner with both labour and capital on this regard, especially on the impact of job losses in small towns. We believe that effective industrial policy and strategy can only be realised through effective state support in the formulation, design, promotion and implementation of programme for economic recovery.
If there is one lesson that can be gleaned from this economic crisis, it is that we can still afford to leave policy formulation solely to market forces. This conference must produce a coherent set of policy principles and guidelines which are in line with our developmental objective as a developmental state. We will give effect to resolutions that will come out of this conference by translating these into a legal framework, which will then become provincial government policy for economic recovery and job creation, given that this process would have been undertaken in consultation with our social partners.
The outcomes of this summit should be communicated to all interested stakeholders, even those that are not here, especially our municipalities. As a government, we will ensure that processes and internal institutional arrangements are in place to deliver on the resolutions. Already, the capacity of the state to deliver key strategic policy priorities is being reorganised in order to ensure that the policies can be easily accessed, the various activities delivered to the relevant parties in the correct time frames, and the results monitored and evaluated.
Governments and business need to work together to restore confidence in economic institutions There is a need for mutual dependence between business, labour and government, a business sector cannot prosper if the society in which it operates is failing. In these times, we need responsible business leadership. All of us in this partnership need to take actions to nurture and enhance this symbiotic relationship. Government must act to nurture this relationship by removing regulatory impediments and move towards appropriate responsible regulations and investment in the many public goods used by business
If this relationship of mutual dependence is to work for the benefit of all, the rights and responsibilities of each need to be clarified and understood. The global crisis has underscored the need for governments and the business community to clarify these rights and responsibilities in many fields. Our of this process we need an advisory council inclusive of business and labour to advise government on policy matters along the lines of National Economic Development and Labour Council (NEDLAC) to help us chart a way towards economic recovery.
Let us use this summit to formulate joint action to get into a process of reviewing our investment instruments and our investment strategies. Let us strategically promote those investment policies, appropriate policy frameworks and responsible business conduct that can transport us to a road to economic recovery. Through such a partnership, we can commit the provincial government of
KwaZulu-Natal to non-discriminatory investment policies and to well designed and carefully enforced regulatory frameworks.
We need to embark on a campaign to promote KwaZulu-Natal as a business friendly environment, encourage business’s headquarters to be located here. On the corporate responsibility side, we are inviting all big companies based in
KwaZulu-Natal, especially international business, to work with us in pursuit of this noble objective of ensuring that our economy is indeed placed on a path to recovery. This conference, indeed, heralds a new chapter of hope and cooperation of all our social partners for the greater good of our province and our nation.
Thank you
Issued by: Office of the Premier, KwaZulu-Natal Provincial Government
5 August 2009
Source: Office of the Premier, KwaZulu-Natal Provincial Government (http://www.kwazulunatal.gov.za/premier/index.htm)
