Minister Gugile Nkwinti: Economic Sector, Employment and Infrastructure Development Cluster post-SoNA media briefing

24 Feb 2015

Ministers and Deputy Ministers
Directors-General
Members of the media
Ladies and gentlemen

Good morning

You will be aware that South Africa’s biggest economic challenge is that our economy has not grown fast enough, for long enough. When we had growth of over 5% in the mid-2000s, it was driven by financial services and commodity exports. In addition to these structural challenges, South Africa, as a middle-income Developing Country, also faces a host of constraints to growth such as (i) electricity challenges; (ii) inadequate economic infrastructure in general; (iii) unwieldy regulatory processes which delay investment; and (iv) insufficient Government coordination, which contributes contributed to investor uncertainty.

Having carefully these constraints, the government has developed a 9-Point Plan comprising simultaneous actions in key strategic areas, at a scale large enough to constitute a ‘Big Push’ to ignite  economic growth.

As the President highlighted in the SoNA , the 9-Point Plan consists of the following:
1) Resolving the energy challenge;
2) Revitalising the Agriculture and the agro-processing value chain;
3) Advancing beneficiation and adding value to our mineral wealth;
4) More effective implementation of a higher-impact Industrial Policy Action Plan;
5) Encouraging private sector investment;
6) Moderating workplace conflict;
7) Unlocking the potential of SMMEs, Co-ops, Township and Rural enterprises;
8) State reform, including boosting the role of state owned companies in broadband, water, sanitation and transport infrastructure; and,
9) Growing the Ocean Economy and Tourism.

1. Resolving the energy challenge

The Energy War Room is working intensively to implement Cabinet’s 5-Point Energy Plan to resolve the energy challenge.

The Government will provide R23bn to Eskom in the next fiscal year to improve its finances, to minimise load-shedding. The 5 Point Plan entails (i) Eskom’s maintenance and capacity improvement programme; (ii) introducing new generation capacity through coal; (iii) entering into cogeneration contracts with the private sector; (iv) introducing gas-to-power; and, (v) accelerating demand side management.

In respect of Eskom’s capacity improvement programme, the testing of Medupi’s Unit 6 is progressing well and. Eskom has indicated that Unit 6 will provide its full load in July 2015.

The process of renewing the existing co-generation contracts will be concluded before end-February 2015; and, negotiations on additional co-gen power will be concluded during the first half of this year. These efforts are directed at diversifying our country’s energy sources.

In this regard, State-Owned Companies (SOCs) are accelerating the exploration for oil and gas. A number of exploration wells will be drilled over the next ten years, in partnership with the private sector. This means building more refining capacity, pipelines, storage tanks and port terminal facilities.

In terms of nuclear, the government has signed Inter-Governmental Agreements and carried out vendor Parades with 5 countries (USA, South Korea, Russia, France and China). In the coming financial year we will engage with all these vendors in a fair, transparent, and competitive procurement process to select a strategic partner or partners to undertake the nuclear build programme, in line with the approved IRP 2010-2030 .

2. Revitalising Agriculture and the Agro-processing value chain

This is the action plan for the 2015/16 financial year, to speed up land reform and stimulating the rural economy.

The following are its key elements:

i. Future ownership of agricultural land by foreign nationals will be prohibited. However, Foreign Nationals will be eligible to long term leasehold of a minimum of 30 years. This policy does not apply to residential property.

ii. A maximum ceiling of 12 000 hectares on agricultural land will apply to all legal and natural persons.

iii. With regard to the two policy measures mentioned above, `The Regulation of Land Holdings Bill’ (RLHB) should be processed through Parliament and signed into law this year.

iv. The 50/50 Policy Framework will be implemented immediately. Government has received a number of proposals from commercial farmers; and, will pilot at least 50 projects during this term.

v. To revitalise agriculture, government will progressively establish Agri-Parks in all 53 District Municipalities. However, during the 2015/16 financial year, government will prioritise the 27 poorest District Municipalities. These will be fully fledged agro-hubs that will offer all services along the various commodity value chains. This ‘One District, One Agri-Park’ and ‘Every Municipality a CRDP Site’ approach will include the selection and training of Smallholder Farmers, in partnering with the District Land Reform Committees. R2 billion has been set aside to implement this Programme in the coming financial year (2015/16). An Interdepartmental Task Team, involving organised agriculture is already working on plans to implement the Programme.

vi. The government will construct 50 dip-tanks in communal areas across the country during this term; well-trained and well-equipped staff of extension support practitioners will be appropriately placed; and, 1 million hectares of under-utilised land in communal areas and land reform farms will be brought into production. It is estimated that the 238 000 hectares set aside for soybean production will create about 14,000 jobs; and, the 61 000 hectares earmarked for wheat will create about 8 000 jobs.

vii. The government will, this year, implement a 30% local procurement programme; fast-track the provision of ‘set-asides’ for strategic agricultural commodities; and, develop a robust import- replacement strategy.

3. Advancing beneficiation (adding value to our mineral wealth)

We are at an advanced stage of planning for the Mining Phakisa, which will focus amongst others on mineral beneficiation, in which we will be seeking to find enduring “Win-Win” solutions. The outcome of this process will be used to augment government plans designed to unlock investment, enhance the nation’s productive capacity and provide clarity on the roles of various participants across the prioritised mineral value chains. We will also expand current support measures to attract downstream value-adding manufacturers.

The value chains to be prioritised will include the following:

  • Titanium: Here Government will work towards commercialising Titanium Powder technology (developed by the DST and CSIR) by 2018.
  •  Platinum: We will continue to expand the SA Auto catalyst sector annum through various support mechanisms of government. Government will amongst others, utilise Special Economic Zones (SEZs) targeting the Platinum Group Metals to support commercialisation of the fuel-cell developed by the University of the Western Cape and supported by DST. We will continue to engage local and foreign investors, such as Anglo Platinum and Ballard to encourage them to invest in a local fuel cell manufacturing plant to produce electricity generation units to supply areas where Eskom grid connections are not viable.
  •  Iron and Steel: SA steel prices do not reflect the availability and price advantage of SA’s iron-ore resource. To introduce competition in the steel industry, Government is finalising a feasibility study to establish a new steel plant. We will also implement measures to restrict the export of scrap metal and encourage the use of scrap-metal in the production of steel.

4. More effective implementation of a higher impact IPAP

Industrialisation remains the key route to creating sustainable jobs at appropriate skills levels and in the quantities that South Africa requires to achieve inclusive, job rich growth.

Consequently the 2015/16 IPAP to be launched in April 2015 will prioritise the development and expansion of industries supplying Government’s trillion Rand infrastructure build programme, especially in areas such as ICT, Energy, Transport, Oil, Gas, and Water and Sanitation.

Government will also fast-track the implementation of its Black Industrialists programme to create large-scale transformed industrial sectors, with a financing and incentive programme being finalised with the Industrial Development Corporation, Public Investment Corporation, National Empowerment Fund and the DTI.

Government will continue to partner with the private-sector to invest in the Manufacturing and Service sectors such as Business Process Services and Film. In the coming year, Government will add to its suite of financial incentives further announcements of Special Economic Zones to follow the successful launch of the Dube Trade-Port last year. In order to ensure that investors are not constrained by red-tape, we will establish a fast-track, inter-Departmental clearing house for investor problem-solving and de-bottlenecking. This structure will involve all relevant Departments, and oversight will rest with the Economic Sectors, Employment and Infrastructure Development Cluster of Government, to ensure its effectiveness.

5. Crowding in private-sector investment

The private-sector has a clear role to play in growing the South African economy. Government has repeatedly articulated this and we believe that the US$8 billion in Foreign Direct Investment which flowed into SA in 2013 bears testimony to this.

Where concrete constraints to investment have been identified Government has moved to address these, for example with regard to Water-use Licences and EIAs. What has been more difficult to address has been the perception of a trust deficit between government and the private-sector. Government has therefore decided to commission a credible, independent research organisation to undertake an empirical study of the investment environment.

We will also convene a regular interaction with the private sector to better communicate our policies to create policy certainty.

It should bereiterated that there are big investment opportunities for the private sector in the massive public infrastructure build programme. Our industrial policy initiatives will therefore include partnerships with the private-sector to manufacture inputs, which go into the public infrastructure build programme. Already we have achieved notable successes in locomotive and bus production.

We will also actively support domestic manufacturing enterprises including shipbuilding and marine engineering more generally.  And localisation plans with the private-sector, in each Strategic Infrastructure Programme, will be completed.

6. Moderating workplace conflict

The Labour Relations (LR) Indaba convened under the auspices of NEDLAC and led by the Deputy President was held on 4 November 2014. The LR Indaba effectively launched a comprehensive process of engagement among social partners (organised labour; organised business and community constituencies in NEDLAC). It resulted in the Ekurhuleni Declaration which contains principles, points of recognition, resolutions and a way forward. The Declaration has two focal points namely, addressing wage inequality (national minimum wage) and promoting labour market stability. To date the Technical Task Team has agreed on the terms of reference which have been endorsed by the Committee of Principals. This has cleared the way for the Technical Task Team to commence with negotiations.

Going forward we will conclude the discussions on the modalities of introducing a National minimum wage, currently taking place at NEDLAC, and submit a progress report in July 2015; implement sector frameworks for business stability in collaboration with DMR, Chamber of Mines, South African Mining Development Association and various Trade Unions, (already, certain aspects of these sector frameworks have been implemented); establish stability committees composed of employer and union representatives as well as police by August 2015;  pilot workplace mediation programmes in the mining and construction sector by October 2015, and promote capacity building initiatives to empower participants to manage conflict. In this regard the CCMA has developed a capacity building programme to be rolled out in the course of 2015.

7. Unlocking SMME, co-ops, township and rural enterprises’ potential

Most SMMEs and co-ops in SA fail due to a lack of business opportunities in both the public and private sectors. Policy and regulatory constraints which hinder the development, growth and competitiveness of small businesses include lack of finance, under-investment in economic infrastructure in townships and rural areas, and lack of appropriate policies to protect informal businesses.

Government will therefore increase procurement from SMMEs, co-ops, rural enterprises, township and smallholder farmers, with a target of 30% set aside for designated categories of state procurement. To operationalise this, National Treasury will issue instructions in the form of Practice Notes to all spheres of government, and the DSBD will enter into transversal agreements with key procuring government departments and state agencies.

To create the conditions for the informal business sector to increase its contribution to the economy, Government will develop a framework to strengthen and regulate the informal business sector including directly supporting township enterprises with economic infrastructure (industrial parks, incubators etc.), and basic machinery and equipment. In addition a business rescue strategy aimed at supporting SMMEs and Co-operatives in financial distress will be developed.  The Small Enterprise Finance Agency will also be migrated to the Department of Small Business Development.

8. State reform, including boosting the role of the state owned companies, broadband, water, sanitation and transport infrastructure

Water and Sanitation. Our interventions will include synchronisation of Departmental processes so that one system of authorisations is created. This integrated regulatory regime will provide for a maximum of 300 days for EIA, water and mining rights; reconfigure the laws, institutions and methodology for water allocation and regulations to ensure equity and access; issue of Water Licences for strategic sectors such as Agriculture, Mining, Manufacturing, Infrastructure e.g. Energy and communities; and integratethe current master-plan for water resource infrastructure and maintenance, in partnership with municipalities.

Considering that the water provision is generally a monopolistic environment, government will establish an Economic Regulator to protect the interests of consumers, through the analysis of tariffs for customer satisfaction and ensuring the water service institutions sustainability.

The Department of Water and Sanitation will develop a master plan for water resource infrastructure in partnership with municipalities in the next 18 months. In an effort to minimise water losses we will appoint Water Ants. The training of the 15 000 artisans and plumbers will assist us in ensuring that we are able to stem this tide, especially in the local spheres of government.

Transport

The interventions in this sector will include reform of the port tariff structure to incentivise export of processed products; funding for transport infrastructure development within an overall funding framework which addresses the need to fund and maintain infrastructure, including the ‘UserPay’ principle, and maintenance of transport infrastructure; developing a policy framework on private sector participation in the ports and railway sectors ; endorsement of the Implementation of the Yamoussoukro Decision, and giving consideration to reviewing visa regulations, particularly on transit visas.

Strengthening State Owned Companies

Given the current economic outlook and continued depressed demand from the private sector, the state has taken the lead to drive investment in the short to medium term, and leverage this to unlock private sector investment and boost demand in the economy. The South African Reserve Bank data showed that public corporation gross fixed investments increased from R213 billion in 2001 to R409 billion in 2013. In the first 3 quarters of 2014, R294 billion had been invested by public corporations.

This approach requires stronger SOCs that can lead in the transformation of the economy. Our SOCs are faced with a number of challenges that require decisive actions from the shareholder. We do recognise that most SOCs play a fundamental role in the economy and their services are used by other sectors. Therefore, their operational efficiency has a wider and far reaching impact in the economy. The Cluster is committed to strengthening the regulatory environment within which SOCs operate, improving their operational efficiency and forging the partnership between the SOCs and the private sector:

The following actions will be undertaken over the medium term:

  • Finalise the State Owned Companies Act that will streamline the governance of the SOC across the different spheres of government and departments;
  • Introduce a private sector participation framework that will forge sustainable partnerships between the SOCs and the private sector;
  • Set clear remuneration standards that will ensure that will link remuneration to the size of the company and performance bonuses to the sustainability of the company. This will ensure that there is greater accountability and consequences for poor performance;
  • Streamline the government’s shareholding in the ICT sector to accelerate investments in broadband infrastructure.

9. Growing the ocean economy and tourism

South Africa’s oceans could generate an estimated GDP contribution of R129-R177 billion by 2033 (compared to R54 billion in 2010). Jobs linked to the ocean sub sectors could rise to a range 800 000 to 1 million by 2033 (compared to 316 000 in 2010). Although some sectors will achieve their potential through current policies and plans, others require strategic interventions to unlock their value. Our strategic partners have committed themselves to enhance the ocean economy through investment, increased trade, technology transfer, skills and capacity development. Our plan includes unlocking the economic potential in four focus areas:

a) Marine Transport and Manufacturing

This will include establishing purpose-built oil and gas port infrastructure at Saldanha Bay and other ports,(R9.2bn already confirmed for Saldanha); maintaining and refurbishing existing port and ship repair facilities; fast-tracking decisions on issuing of licences in terms of Section 79 of National Ports Act; reforming the port tariff structure to incentivise export of value-added / processed goods; designation of port facilities for boat, ship repair and rig repair with localisation; establishing a supporting funding model  for infrastructure development in ports in order to support manufacturing and establish purpose-built infrastructure for the oil and gas industry, allowing access for SMMEs and B-BBEE firms and advancing local procurement and local content.

Off-shore Oil and Gas Exploration

The plan includes finalising the regulatory environment for the offshore oil and gas sector and appropriate institutional arrangements to streamline authorisation processes and promote private sector investment.

Aquaculture

Finalising legislative reform (draft Bill already prepared) to promote aquaculture development; addressing access to land and sea/port infrastructure, including leases;streamlining authorisations through the establishment of an inter-departmental authorisations committee; addressing funding arrangements and market access; initiating implementation of 24 prioritised Aquaculture projects(twelve proclaimed small harbours to be functional by June 2015);  and initiating the process to proclaim 28 new harbours by mid-2016.

Marine Protection Services and Ocean Governance

We will address ocean governance through the finalisation of ocean legislation; establish an enhanced and coordinated programme to protect our ocean and coastal resources as well as our sovereignty; embark on Marine Spatial Panning to designate special use zones within the ocean space, and implement Science Platforms for Monitoring and Surveillance

Tourism Growth

Through its direct and indirect impacts, tourism is estimated to contribute over 9% to GDP and the sector supports 1.4 million job opportunities in the country. Air connectivity and travel facilitation are significant facilitators of tourism. In this respect, the Air Transport Strategy has been finalised by DOT, Tourism and DTI, and is being processed for Cabinet approval. To advance travel facilitation, the President has announced a high-level review of visa regulations. This collaborative review will be aimed at balancing national security and tourism growth imperatives so as to advance our economic and social development objectives as outlined in the NDP. In addition to rolling out a cutting-edge global tourism marketing strategy, NDT is focussed on enhancing our destination's competitiveness, including through product enhancement and diversification as part of a broader destination development initiative.

In order to ensure that the five priorities described above are successfully implemented, the following initiatives are pre-requisites:

10. Broadband Roll Out

This year marks the beginning of the first phase of broadband roll-out. Government will connect government facilities in eight district municipalities. These are Dr Kenneth Kaunda in North West, Gert Sibande in Mpumalanga, OR Tambo in the Eastern Cape, Pixley ka Seme in the Northern Cape, Thabo Mofutsanyane in the Free State, Umgungundlovu and Umzinyathi in KwaZulu-Natal, and Vhembe in Limpopo. These are areas that have been identified to have the greatest need and have the biggest infrastructure gap. Working with the National Treasury, funds have been set aside for this pilot phase of the broadband rollout.

Government has also taken a decision to designate Telkom as the lead entity to assist with broadband rollout. This decision will assist to accelerate the rollout of broadband because Telkom has the largest broadband network.

I thank you

Enquiries:
Nikelwa Tengimfene
Cell: 082 574 5495