Economic Growth Agency (MEGA), Crocodile Country Inn
13 September 2006
Programme Director
MEC for Economic Development and Planning, Sipho Lubisi
MEGA Board Chairperson, Mr Phillip Dexter
Members of the board of MEGA
The Acting Chief Executive, Mr Anton Scheepers
Distinguished guests
Ladies and gentlemen
We have come a long way since the decision was made to form MEGA. As we
observed at the opening of the legislature early this year, a lot of people
played a role in ensuring that we achieve our objective. Today we can proudly
say congratulations and a job well done. It is pleasing that the process was
transparent and consultative.
The most obvious question of the moment is what then is the role of MEGA? I
am certain that as an organisation you will or may already have engaged in your
own planning processes seeking to answer exactly this question. Allow me to
share a few reflections for whatever they are worth. It is almost a clich� that
government can only create an enabling environment for economic growth through
its policies. Through institutions such as MEGA, a developmental state can play
an even more interventionist role. Such intervention would be justified because
under-development signals distortions of the market economy. In defining the
role of MEGA we must see an active, catalytic facilitator of economic
growth.
MEGA was conceived in order to enable the province to have a public
institution that has an exclusive focus on economic growth. That clearly
indicates the critical importance of economic growth in the policy agenda of
government. The task of growing the economy however is being pursued in an
environment of widespread poverty in which black people largely remain marginal
players in the economy of the country and the province. As the founding Act of
the organisation compels us, we must "develop the business sector in
Mpumalanga, and provide funding in respect of approved enterprise development
focusing primarily on the previously disadvantaged individuals." We are also
called upon to promote trade and investment. Black Economic Empowerment (BEE)
therefore has to be a central operating tenet of the work of MEGA.
None of us is under any doubt as to the significance of the institution we
are here to launch and inaugurate tonight in the context of the mission of our
government in this province. Our administration's mission is premised on the
goals of the African National Congress (ANC) 2006 elections manifesto, that of
"creating work in order to fight poverty", the economic rehabilitation of the
overwhelming population of our country, the previously disadvantaged.
It is for this reason that from the very beginning of this administration's
term of office, changes were made to the government formation with the creation
of the Department of Economic Development and Planning, a department where the
parastatal we are launching tonight, is located. In spite of the many
challenges which we must still overcome, this department was by design intended
to be the focal point of our overarching strategy. With that understanding, you
will appreciate that MEGA must therefore constitute the eyeball of our
administration.
Let me hasten to add that there is no contradiction between the goal of
economic growth and empowerment. In fact economies with the highest levels of
inequality have been shown to struggle to achieve reasonably high growth
levels. Business thrives where there is buying power for goods and
services.
The following are some of the challenges we need to overcome in order to
reach our goals:
* Like the development institutions in other provinces and nationally, MEGA
must generate surpluses from its own operations that in turn can fund your
approved enterprise developments. In other words, MEGA must be an active player
in the economy that is run as a sustainable business without losing sight of
its developmental focus.
* Given the current limited financial resources at your disposal, the
organisation must fulfil its role by finding ways of leveraging resources and
partnering with like-minded institutions that complement our strengths.
* It is easy to come up with a whole range of areas where MEGA must intervene
in the economy. Such areas of intervention could be in all sectors of the
economy, covering all areas of the province. In order to achieve maximum impact
we must intervene in areas with the highest concentration of people and in
sectors where prospects for growth are highest.
* MEGA's areas of focus must interface with the high impact programs of
government and the private sector to ensure that our efforts and resources
support each other rather than dissipate in the broader economy. This will
require that you are informed about such programs and you have the research and
analytical capacity to pursue business plans in those value chains. Examples
are the current public and private focus on 'bio-fuels', the Federation
International Football Association (FIFA) 2010 programme, infrastructure
programmes, etc. MEGA must be an active participant in such programmes. As was
the case before, MEGA's deportment must be a proactive one. We must actively
seek out entrepreneurs in the province who can partner with big enterprise in
these areas and in high growth sectors.
* A critical area of intervention by MEGA is the facilitation of BEE in the
procurement expenditure of big companies in the province. My office is engaged
in a process that in partnership with the private sector will in due course
unlock value in the area of procurement spend of big companies in the
province.
* MEGA must sharpen and streamline its relationship with the Small Enterprise
Development Agency (Seda) so as to have clear roles and co-operation on
financial and non-financial support for entrepreneurs. Duplications and turf
wars must be avoided.
It is common knowledge that our capacity to undermine poverty and achieve
higher levels of human development is enhanced if we achieve consistently high
levels of economic growth. It is therefore important that we appreciate both
the global as well as the local economic environment in which we seek to
achieve these higher levels of human development.
Over the past two years the global economy has continued on a resilient
growth trajectory with the 2005 global growth estimated to be about 4,8%. This
growth occurred despite the persistent threat of higher oil prices and natural
disasters in various parts of the world. In 2006 and 2007 global growth is
projected to be again at an average of 4,8%.
Sub Saharan African gross domestic product (GDP) growth in 2005 was
estimated at about 5,5% and is projected to average 5,75% in the coming two
years. Although the United States economy continues to be the engine of global
economic growth, economic expansion in the world is more broadly based than
before, with Japan, the Euro region, China, India and Russia contributing
significantly to global growth.
The main threat to the projected growth is oil prices, which remain high and
volatile, driven largely by concerns about future supplies rather than demand,
which was lower in 2005 than the previous year. Although geopolitical threats
to supplies related to the Iran-United States standoff and instability in Iraq
and Nigeria persisted, they remain short-term in nature. It is the rapid
expansion of the Chinese economic behemoth and other rapidly growing economies
such as India that are gobbling up global energy supplies, thus presenting a
future supply conundrum. This has sharply underlined the global imperative for
alternative renewable sources of energy, which is particularly relevant to
Mpumalanga as the energy hub of South Africa.
Relative to a forecasted global growth rate of about 4,8% the South African
economy is expected to grow somewhere between 4,2% to 4,8% in 2006. While
private consumption expenditure has been the main driver of growth in recent
months and years, the growth in this consumption expenditure is expected to
slow down in 2006.
Moving into 2007, a more prominent driver of growth is expected to be
government investment expenditure in infrastructure. This fixed capital
investment will also serve to catalyse a significant amount of private sector
investment, especially in the construction sector. The main threat here is
government capacity to drive the infrastructure investments.
Whereas in the short term a greater number of jobs are easier to create in
the primary industries (agriculture and mining), these are to a significant
extent low value and unsustainable jobs. More long-term value and wealth lies
in the secondary and tertiary industries, especially knowledge driven ones like
information and communications as well as biotechnology. It is important,
however, that both the primary and secondary sectors continue to grow in order
to support the tertiary sector.
The recent provincial and national trend of negative growth (i.e. decline in
output) in both agriculture and manufacturing over the past four years is most
unwelcome. We can never undermine the importance of manufacturing.
Firstly, the importance of manufacturing goes beyond value added per
product. Manufacturing is generally regarded as the engine of growth due to its
backward and forward linkages to the other key sectors and due to its internal
symbiosis. Whilst primary sector outputs (mining and agriculture) get processed
and refined in manufacturing, manufacturing outputs easily become inputs in
other sub-sectors of manufacturing and in both primary and tertiary (services)
sectors of the economy. This dynamic nature of competitive advantage embodied
in manufacturing generates higher value. This is because even in its most basic
form manufacturing is characterised by innovation through higher levels of
productivity to transform inputs into better outputs.
Continued agricultural decline has dire consequences not only for national
food security but also for macroeconomic stability because importing food will
simply exacerbate the balance of payments (i.e. we will unnecessarily deplete
our precious foreign exchange reserves) and import inflation. Given the size of
our agricultural sector and its importance for the national economy, we in
Mpumalanga should lead the debate as to whether there is a need to review the
level of support given to agriculture given the historical evidence that such
support played a major role in driving economic growth.
A critical area of constraint to growth in our province relates to transport
infrastructure for collieries linked to power generation. There is ever
increasing evidence that even if improvements and maintenance of colliery
routes happen, road transportation of coal for power generation may never cope
with future demand. Eventually, it may result in higher power generation
costs.
The rationale behind the decision to amalgamate investment promotion and
enterprise support must still be justified by what MEGA will in time achieve. I
am convinced that the future of business in Mpumalanga has never been brighter,
with the potential and innovative spirit we all sense in MEGA. It is the hope
of all of us, that this novel initiative will breathe new life and give further
impetus to the not-so-strong endeavour to realise the strategic goal of
ensuring shared growth and the deracialisation of Mpumalanga's economy.
We will not be able to meet all these challenges as MEGA unless we attract
and retain the best talent. This will also help reduce reliance on external
consulting services, the curse of South Africa's public service today. Internal
capacity building becomes a critical area of intervention for a developmental
state. Let me conclude by expressing the hope that we will not be a new
organisation in name only, but more importantly we must cultivate and nurture a
new culture, a culture of believing in cutting edge practices in everything we
do to engender hope amongst our people.
We wish you all the best in your endeavours.
Thank you.
Issued by: Office of the Premier, Mpumalanga Provincial Government
13 September 2006
