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Date: 01/03/2007
Source: Department of Public Enterprises
Title: Erwin: Southern African-German Chamber of Commerce and Industry


Minister Alec Erwin's speech to Southern African-German Chamber of Commerce and Industry (SAGCCI), Arabella Sheraton Grand Hotel, Ball Room East

Chairperson thank you for this invitation to address the Southern African-German Chamber of Commerce and Industry today on the exciting infrastructure programme that is currently unfolding in South Africa. It is a particular pleasure to address the chamber since I have had a long link with it in my former position as the Minister of Trade and Industry. The close links that South Africa has with the German economy provides a very real opportunity to expand and deepen that link. Germany being part of the European Union (EU) is also located within South Africa's major trading partner.

Germany is our largest import partner and fourth largest export partner. Investment by Germany totalled nearly EUR3 billion in 2005. This was primarily in the automotive, chemical, mechanical and electrical engineering sectors.

In expanding our infrastructure in the key networks of energy, freight transportation, air travel and broadband infrastructure the large State Owned Enterprises (SOE) that report to the Department of Public Enterprises (DPE) will play a key role. However, this involvement of the SOE will open many opportunities for the private sector rather than close them. In addition to these infrastructure companies the DPE is also responsible for the key defence related industry company Denel. It too will have an important impact on the manufacturing sector in the next few years. The South African economy is certainly an exciting place to be in the next few years.

President Mbeki in his State of the Nation Address (SONA) reported on the significant progress that has been made to accelerate shared growth. The economy grew by 4,9% in 2006. Public and private sector investment has been increasing at about 11% and total fixed investment as a percentage of the Gross Domestic Product (GDP) is now at 18,4%. March 2005 to March 2006 witnessed the creation of 300 000 jobs in the formal sector, outside of agriculture. The 2007 Budget Review indicates that growth is expected to average about 5% over the medium term.

If we are to sustain this growth then energy in general and electricity in particular are critical. There is no need to stress this to a Western Cape audience. In April 2006 the projected spend for Eskom over five years was R97 billion. Just over R14 billion was set aside for the 2006/07 financial year. About R11 billion of that amount has already been spent. Because Eskom generated more electricity than was needed in the past, some of the power stations were mothballed. Three of the mothballed stations are now in the process of being returned to service and Camden, Grootvlei and Komati will all be operational within this year. In respect of the generation of new capacity, projects in Atlantis and Mossel Bay are on schedule to supply as from the winter of 2007. Braamhoek is progressing well and is on schedule.

As the President indicated South Africa is planning that a larger contribution to the primary energy source for electricity will be derived form nuclear power. This will be a combination of conventional current technology and the new fourth generation high temperature reactors offered by the Pebble Bed Modular Reactor (PBMR). In regard to the PBMR the key projects are the helium test facility, the pilot fuel plant and hopefully from 2008 the construction of the first reactor at the Koeberg site. Major announcements on the detail of the nuclear industry strategy for South Africa are due in the first four months of the year.

With regard to rail, ports and pipelines, Transnet has allocated R64 billion to ensure that it is able to meet current and future freight demands. Transnet is now concentrating on improving the condition of strategic infrastructure and on expanding capacity to meet the growth in demand. Key projects include locomotives and wagon fleet renewal and modernisation; ore line expansions, new port capacity and the new pipeline from Durban to Gauteng.

Additional container capacity will be developed at Cape Town Container terminal, pending the outcomes of the revised environmental impact assessment. It is anticipated that phase one at the port of Ngqura will be completed before the end of this financial year and a business case for the construction of a new container terminal at the port has been developed. The feasibility studying for widening the Durban Harbour and deepening its channel is underway. And civil contracts for the new container terminal at Durban Pier one has been awarded.

South African Airways (SAA) has been separated from Transnet. In addition to focusing on strengthening SAA's balance sheet, the separation will enable us to more concretely shape the airline's role in respect of growing the tourism industry, facilitating international trade and contributing to air transport capacity on the continent. The introduction of Mango, our bustling new low cost carrier has increased the accessibility of flight travel.

The rapidly expanding knowledge economy, preparations for the 2010 World Cup and our bid for the Square Kilometre Array (SKA) has increased domestic broadband demand. The new State owned broadband company to be known as Broadband InfraCo will manage the national long distance Full Services Network (FSN) held by Eskom and Transnet. InfraCo will support the new second network operator, Neotel. It will be responsible for the implementation of long distance backbone capacities between the Metropolitan Centres, while Neotel will be responsible for the implementation of the distribution networks within the metropolitan areas. In the near future the introduction of this new company into the market should lead to a reduction of telephony costs.

South Africa's infrastructural development programme is integrally linked to the New Partnership for Africa's Development (NEPAD) programme. Infrastructure on the continent has to expand at a commensurate level if South Africa is to reach its full growth potential. Hence SOEs are encouraged to incorporate NEPAD related activities into their business plans. Eskom, for example, participates in a Southern African Power Pool (SAPP) which ensures reliable and economic power supply to all members of the Southern African Development Community (SADC). It is heartening to know that SAGCCI has an investment support desk that focuses on projects on the continent. This desk as well as Germany's leading position in the Group of Eight (G-8) and the African Partnership Forum of the European Union, can advance north-south co-operation in support of NEPAD considerably.

Ladies and gentlemen, reliable, efficient and effective economic infrastructural services will significantly reduce the costs of production and delivery, thereby increasing the country's competitiveness. And investment is the only real contributor to new employment opportunities. Investing in infrastructure is thus an investment in long term economic development. While public sector investment will have a direct positive socio-economic impact, it will do so in an environment conducive to private sector growth. Government's build programme offers a number of opportunities for private sector participation. Currently we are experiencing supply chain constraints. Bold investments, particularly in capital equipment and human capacity, are required.

As I said at the beginning, this is an exciting time for economic growth and bold investment decisions.

Thank you and happy investing.

Issued by: Department of Public Enterprises
1 March 2007

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