Keynote address of the Minister of Trade and Industry, Mandisi Mpahlwa, at the ceremonial signing of the Chemicals Sector Summit Agreement, Pretoria

Chairperson
Deputy Minister of Science and Technology, Mr Derek Hanekom
Executive director of Nedlac
General Secretary of Cosatu
Chairman of the Chemicals and Allied Industries Association (CAIA)
Director-General of the Department of Trade and Industry
Distinguished guests
Social partners at Nedlac

There is a widely held view that the field of manufacturing is confronted with many changes due to increasing and worldwide competition, technological advances and demanding customers. Therefore, efficient and effective change management is also of great importance in this area. The 2003 Growth and Development (GD) summit agreement to hold a chemical sector summit heralded the beginning of change for this sector. And we are here to add momentum to this change.

We are all aware that the process leading up to the chemicals sector summit agreement has been a steep learning curve for all of us, and this is so precisely because it is about change. The road to our summit has been a long and arduous one involving many preparatory workshops and the participation of the social partners in various sub-sectors within the chemicals sector in South Africa. We are fully satisfied that we have tried to engage all social partners in this process and that their participation has enriched and given meaning to the chemicals sector summit agreement.

Often, major change processes such as this one, falls at the first hurdle. This has not happened in this case and it is important that we have reached this far as the chemicals sector currently matters a great deal to the South Africa economy and should become increasingly important in future.

To appreciate the emphasis we are placing on this sector we need to be reminded that subsequent to the GD summit, and building on its vision, government released the National Industrial Policy Framework (NIPF) and the associated action plan and this event today has direct relevance to all of these developments. In the NIPF, the argument is made that in the medium to long term South Africa cannot rely so heavily on either consumption or commodities as the basis for our growth and development. Consumption growth is sustainable only when strongly underpinned by growing productive capacity, while commodity prices are inherently volatile, making the economy vulnerable to external shocks such as the so-called Dutch disease. The framework goes on to say that the major weakness identified in the South African economy is the relatively poor performance of non-traditional tradable goods and services that are generally the most low-skill intensive sectors and hence have a central role to play in addressing our unemployment problem.

The Framework therefore directs us to facilitate diversification beyond our current reliance on traditional commodities and non-tradable services by promoting increased value addition per capita in non-traditional tradable goods and services that compete in export markets as well as against imports. Secondly, it directs that we promote a more labour absorbing industrialisation path with a particular emphasis on tradable labour absorbing goods and services and economic linkages that catalyse employment creation. Thirdly, that we promote a broader based industrialisation path characterised by greater levels of participation of historically disadvantaged people and marginalised regions in the mainstream of the industrial economy. And finally, this framework recognises our role in contributing to industrial development on the African continent with a strong emphasis on building its productive capabilities.

Ladies and gentlemen, so, a measure of the importance of the chemical sector is that it is one of four sectors identified in the Industrial Policy Action Plan (IPAP), a plan that we believe must provide the substance to the framework. We are convinced that the sector qualifies for such support based on the substantial downstream growth and employment potential, the existing and future diversification and the further potential for growth of exports. It is also a leading sector in respect of research activity and self-discovery processes.

Furthermore, we know that the chemicals sector is highly integrated into almost all other sectors of the economy. The impact of this sector on society is often underestimated or not properly recognised as it also plays a critical social role through the provision of basic necessities and key agricultural and pharmaceutical inputs and products. Currently, we have only begun to scratch the surface given that out of an estimated 80 000 types of basic or pure chemicals currently manufactured on a commercial basis world wide, South Africa only manufactures around 300 types, or 0,4%. Most of the pure chemicals manufactured in South Africa are regarded as commodity, low value and high volume products. However, globally by far the majority 95% plus of these pure chemicals are classified as fine chemicals, or high value, low volume chemicals.

Notwithstanding this, in South Africa (SA) the chemicals sector employs around 140 000 on a permanent basis and in decent jobs; directly in Liquid Fuels, Plastic Products, Consumer Formulated Chemicals, Inorganic Chemicals, Primary Polymers and Rubbers, Pharmaceuticals, Rubber Products, Bulk Formulated, Organic Chemicals, Pure Functional and Specialties, and Fine Chemicals and accounts for 4,3% of Gross Domestic Product (GDP). As I have indicated earlier, products of the chemical sector are also the basis for almost every manufacturing activity in SA.

We are currently a net importer of various types of chemicals. In 2007, we imported about R80 billion worth of chemicals and exported about R40 billion. We need to build on our comparative and competitive advantages to reverse this situation. Certainly from government's side we will continually work to create an environment conducive for the development of all sectors of the economy including the chemicals sector. It is therefore absolutely clear that the future development of the local sector has benefits in respect of increased employment, growth and the further provision of critical inputs into economic and social life.

Our challenge now is to narrow the range of possible interventions to those areas identifiable as critical success factors and to ensure that these receive attention. In particular, feedstock availability and cost, utilities, effluent disposal arrangements, cost of ancillary chemicals, transport costs, the size of the local market and scale of economic production facilities, are all very important.

There are further challenges such as the extent to which local demand can be stimulated through appropriate policy measures, for instance in supporting investment to update ageing machinery and equipment stock through appropriate targeting and scale. Industrial upgrading to deepen manufacturing capabilities support and cluster specific infrastructure will be equally important and finally we must address issues related to monopoly pricing. In addressing all of these matters we must also be very conscious of the fact that many of the products of the sector generally serve as raw materials for downstream manufacturing and the cost of these products may fundamentally influence the cost of the final downstream product.

Ladies and gentlemen, to achieve success in this massive undertaking will require systematic, co-ordinated effort. And the evidence is that collectively, we are progressing. I said earlier that given the modern competitive environment, change will be important. A concern has been that previously big companies had their own lines of communication with Government however, we have steadily progressed and today the sector as a whole has excellent lines of communication with Government through the establishment of the Chemicals Sector Expert Advisory Committee (CSEAC) comprised of senior representatives of the sector and relevant government departments.

The work of this committee has assisted in building a partnership between business, labour and government to realise opportunities and overcome blockages to growth. A particular and important emphasis placed by the committee is in identifying the actions that the sector itself will embark on in order to realise its full potential. In this way, the approach of the committee has also encouraged the sector to develop wherever possible, internally based solutions to its challenges. Again, we must emphasise the significance of these changes because the NIPF calls for "a robust ‘self-discovery' process with the main stakeholders in business, labour and civil society to arrive at a clear identification of the constraints or opportunities that require government intervention. The ‘self-discovery' process must include intensive but robust consultation with business and social stakeholders. The process must identify where the key sectoral constraints and opportunities lie. In the process, the parties should critique the initial analysis and work together to identify the key actions required from each stakeholder."

So, as we continue our robust consultations I think that an outcome of these developments is that in line with the changing nature of the relationship between government and stakeholders in the chemicals sector, we ought to shift the dialogue further and further away from simply lobbying to mutual understanding and synergistic action. Indeed for South Africa this is an innovative approach but it can, and I dare say must, work. It is my understanding that already we have begun to see, through the chemicals sector expert advisory committee process, a powerful and encouraging new way of working together, thus giving concrete content to partnership between government and stakeholders. Certainly, because we are covering new ground, we should expect a set of new challenges but we must simply then re-double our efforts to ensure success.

We must also build on the fact-driven process employed within the chemicals sector summit to finalise the agreement. This is particularly so as this process represents the first attempt at generating a common understanding, rooted in objective analysis of key strategic challenges and opportunities facing the South African chemicals sector. It therefore provides a new platform to move beyond planning to action, based on a common vision as demonstrated by the chemicals sector development strategy and programmes (commonly known as CSP), the industrial policy action plan and the Advanced Manufacturing Technology Strategy (AMTS).

Ladies and gentlemen, this chemicals sector summit agreement in essence commits all of us to a common vision for promoting increased levels of growth, investment, job creation, decent work and people centered development. It is a commitment that enjoins all of us as government and stakeholders to clearly identify and act on the key action programmes and related interventions that must be implemented to deal with production and market failures facing the chemicals sector. However, I think it is also proper for me to advise and provide the assurance that this agreement is not set in stone or an instant success formula. We must regard it as a firm foundation from which to move forward.

So, even as we are aware that the long-standing challenges of competitiveness, exports and investments as well as employment and equity will not be solved overnight, we now do have an industrial policy action plan with concrete time frames. Again, having set these time frames it will present the challenge of meeting or beating the various milestones along the way but I am confident that this can be achieved by ensuring optimal co-operation from all. To assist this process benchmarks have been developed to measure and report on progress.

Ladies and gentlemen, in all of this, we continue to work within an ever globalising external environment wherein it is less and less possible to isolate the economy from fair competitive pressures through restrictions on international trade. Nor are we in the business of providing bottomless subsidies to domestic companies. But as government we are committed to supporting the sector in a number of ways and in increasing market access we have been working very hard to conclude favourable trade agreements the world over.

Councils

Finally, I think we will all agree that this agreement must deliver real outcomes, underpinned by real commitment from all stakeholders. Above all we hope that the agreement will form the basis for an even stronger partnership and more effective action in support of the chemicals sector in South Africa.

To conclude, we must especially thank the Chairperson, Hebert Mkhize of the National Economic Development (NED) and Labour Council, Neville Crosse, Executive Chairman of Omnia (Pty) Ltd and former Chairperson of the Chemical and Allied Industries, Welile Nolingo, Secretary-General of the Chemical Energy Pulp Paper Wood and Allied Workers Union and Thulani Mkhwanazi, Chief Director of the Department of Trade and Industry, supported by their respective teams in the steering committee of the chemicals sector summit for steering this process to its successful conclusion.

We also thank everyone who has assisted the Nedlac Secretariat with the writing of this document. In this regard, the Departments of Science and Technology, Trade and Industry, Environmental Affairs and Tourism, the Chemical Energy Pulp Paper Wood and Allied Workers Union, South African Chemical Workers Union, UASA, the Chemicals and Allied Industry Association and the Plastics Federation of South Africa all deserve special mention.

Issued by: Department of Trade and Industry
14 April 2008