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Date : 21/09/2004
Source: Ministry of Trade and Industry
Title: M Mpahlwa: Opening of African Aerospace & Defence Trade Show


SPEECH BY MINISTER OF TRADE AND INDUSTRY, MR MPAHLWA, AT THE OPENING OF AFRICAN AEROSPACE & DEFENCE TRADE SHOW, 21 September 2004

Programme Director
Dignitaries present here today
Ladies and Gentlemen

Introduction

South Africa is celebrating 10 years of democracy this year and during this period South Africa has seen many changes at both the social and institutional level - South Africa has indeed come a long way. The changes that have taken place across our society have been in deep and structural ways. One area of change that I would like to talk to you about today is how we now approach economic development. This approach is relevant in the context of today's aerospace and defence trade show because through our approach we are seeking to unlock the potential of the South African aerospace industry.

Growth Strategy

Even before the dawn of democracy in 1994 it was clear that the structure of the South African economy, which was still very dependent on the resources sector, was not going to create the levels of growth required to sustain the needs of all South Africans. The resources sector remains an important part of our economy, however, international trends have shown that manufacturing, and high technology manufacturing industries offer the greatest opportunities for growth.

The government's strategy has therefore over the past few years been to find ways to grow our manufacturing base and develop our industry. In summary this is being done through developing and supporting South African industry through World Trade Organisation compliant incentives, tax rebates, industry development programmes, as well as through growing the small business sector, promoting greater equity through our broad based black economic empowerment programmes, attracting new investments and ensuring an efficient business environment. We have also seen the importance of assisting our business sector through opening up of new markets by concluding bilateral and multilateral trade agreements, supporting trade missions and creating scope for our businesses in world markets through the negotiations in the World Trade Organisation. Our economic and political relations with the rest of Africa have also dramatically improved and created many new business opportunities.

Our approach, which is captured in our Micro Economic Reform Strategy and in our Integrated Manufacturing Strategy, further recognises that we need co-ordination across government departments to address input sectors such as road and rail infrastructure, telecommunications, more efficient ports, continued access to cheap and efficient sources of energy and an excellent logistics framework. These strategy documents also identify key sectors that need to be supported and recognise that in order for South Africa to be successful we should be export orientated, and in certain sectors we need to form part of international supply chains.

The impact of our approach to developing the economy and our approach to macro-economic stability has yielded positive results. For example, South Africa is experiencing its longest period of economic growth ever and a recent report by the Bureau for Economic Research revealed that business confidence levels in South Africa are at a 16 year high. Part of which also needs to be attributed to signs that world economic growth is starting to pick up.

This positive sentiment has also been created through our efforts to enhance investor perceptions and despite the merits and demerits of the debate on risk in South Africa, a great deal has been done to create a stable political environment and a favourable business environment in South Africa. While others have said that black economic empowerment has created some economic risks in our country, I would strongly argue that our greatest risk to the country is that we do not have successful broad based black economic empowerment and we do not address the issues of inequality in South Africa. Development economists will tell you that achieving greater equality is an important stimulator of economic growth, which is a view that we hold in government.

South African Aerospace Industry

Ladies and Gentlemen, through our strategy of developing industry, growing our economy and attracting investment into the country we have recognised the importance of the aerospace industry. This industry falls squarely into our approach to economic development and we have seen that it has potential for export growth, value addition and through international subcontracting arrangements, stimulates industrial innovation, competitiveness and growth further down the supply chain.

Over the past year there have been a series of meetings and discussions between government and leading defence and aerospace companies to create broad consensus on the future of this industry and how to unlock the potential that exists. These meetings are in addition to research that government has done into this industry and endorse an outcome of this research, which identified the need to create institutional support for the industry. Consequently, a dedicated Aerospace Industry Support Initiative to be implemented in partnership between government, industry and the CSIR will be created. A high-level advisory task team, comprising a number of stakeholders, business people and industrialists will shortly be appointed to oversee the work being undertaken through this initiative.

Areas that are being looked at to stimulate growth in the aerospace industry include:

* Ensuring that we support and promote the high standards and quality required in this industry
* Encouraging training of industry personnel to continuously improve their capabilities
* Working with Universities, Science Councils, and other research and academic institutions to not only promote further research in this area but also to encourage students, including high school students, to consider the aerospace industry as a career option. This collaboration, in partnership with industry players, should culminate in the establishment of an Aerospace Centre of Excellence to support the development of skills, research, and technology
* Supporting the growth of the Space Industry. South Africa already has capabilities in this industry, which can offer great benefits to Africa through increasing the connectivity of and communication between African countries
* Partnering with Brazil in the development of new products both in the defence and regional travel industry; as well as utilising synergies between India, Brazil and South Africa, which President Mbeki spoke about last week during the visit of the President of India.

Defence and National Industrial Participation

It is not only through supply side support measures that we are able to support the growth of the aerospace industry in South Africa, it is also through our procurement that we are able to drive growth in the industry. Our defence and military requirements are large and have spawned the development of international players in the defence industry such as Denel, which as most of us know is a key player in the domestic industry. It is critically important for us to use our defence spending to ensure that we further encourage the growth of our domestic aerospace industry. Already we have made progress in this area through the National Industrial Participation programme and I am hoping that this progress will be extended through the co-operation between industry and government in the Aerospace Industry Support Initiative that I mentioned earlier. It is important that through such initiatives we are able to create a service industry in South Africa that is able to maintain, repair, and upgrade our aerospace and defence purchases.

The National Industrial Participation programme, for those of you who are not aware, is an initiative that requires reinvestment in South African industry by companies who are awarded contracts to supply government or state owned enterprises. The programme is only applicable to purchases where the amount of the imported content is greater than $10 million; this requirement is applicable to purchases from both domestic and international companies. While the SANDF defence purchases over the past few years have been the biggest contributor to this programme, the SAA purchases from Boeing and Airbus have been significant contributors with obligations to the tune of almost $800 million.

Whilst the National Industrial Participation programme allows companies to fulfil their obligations from any of the sectors promoted by the department of trade and industry, the Industrial Participation Secretariat encourages these companies to direct a greater part of their activities to the aerospace industry in view of the current initiatives to develop the aerospace industry. Already we have had success stories in this area, for example, Boeing, as part of its fulfilment of the obligation, has transferred high technology equipment from its Seattle facilities to two local companies, Denel Aviation and Aerosud for the manufacturer of aircraft components for the range of Boeing aircraft. These local companies are the sole supplier to Boeing for some of the components.

Conclusion

To conclude, the aerospace industry is an exciting and interesting industry that holds a lot of potential for our country. The government, as you have heard today has a comprehensive approach to stimulating economic growth and the development of high value added industries. We see the opportunities that the aerospace industry can create in our country and have included this industry as one of our priority areas. We now have the framework for a multi-faceted approach to growing this industry, attracting new entrants into this field and becoming part of the global aerospace industry.

Part of our commitment to this industry is the hosting of the African Aerospace and Defence 2004 Trade Show, which we hope will result in many deals being concluded and the formation of new business ventures. Before ending I would like to invite you to visit the Department of Trade and Industry pavilion in Hall 5, where we are supporting the participation of 16 small and medium enterprises. These enterprises offer amongst other things services and products in avionics, engineering services and manufacture of uniforms. We hope that soon they also form part of international supply chains.

I thank you.

Issued by: Ministry of Trade and Industry
21 September 2004

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