Address by the Minister of Trade and Industry, Mandisi Mpahlwa to the National Council of Provinces on the Trade and Industry Budget Vote 2008/09

Chairperson
Members of the Executive Councils of Provinces
Heads of provincial departments
Honourable Members
Ladies and gentlemen

Yesterday, in the National Assembly, we addressed the Honourable Members on matters relating to the state of the economy and through you Chairperson; I wish to repeat some of the key points here today.

Firstly, we argued that at the inception of democracy this government was faced with the massive task of re-building the economy. In taking up this responsibility the policy choices were defined by the objectives of eliminating poverty, the reduction of inequality and to that end ensuring the sustainable growth of the economy. There is no doubt that we have done remarkably well in this task, and there is no reason to doubt that we can and must continue to aspire to the higher rates of growth that we envisage in Accelerated and Shared Growth Initiative of South Africa (Asgisa). And we must, all of us, aspire to continue this level of growth if we are to make further inroads into reducing unemployment, poverty and inequality.

Secondly, we expressed the view that our economy is stronger than ever because overall, the economy grew by 5, 4% in 2006 and at 5,1% in 2007. Fixed investment, a key indicator of the underlying capacity of the economy, has grown dramatically from 15 percent in 2004 to 21 percent in 2007. Real income per capita has been rising at around 4% per person annually since 2004 and the rate of unemployment fell from 31, 2% in March 2003 to 23% in September 2007. This translates into an increase of approximately 1,8 million employed people and this means that employment is beginning to respond to the economy's higher growth rate.

Thirdly, and very significantly, the majority of new jobs since 2004 have been within the services-related sub-sectors of trade construction, financial and business services, and the manufacturing sector, which together also reported the highest rates of gross domestic product (GDP) growth. Growth in these areas is significant because it shows that our economy has undergone deep structural changes and that the fastest growth is taking place in increasingly diverse and new sectors of the economy. In fact, the data I have quoted reveal that there is a strong underlying growth momentum in the economy that should ensure its resilience in the current environment and sustain the upward trend over the medium to long term.

And while we found that the domestic manufacturing sector could not take full advantage from strong demand conditions, both globally as well as in South Africa, this should change as the sector has been re-capitalising and re-tooling with a view to expanding production into the future. Quite clearly then, our growth has thrown up a set of new challenges, such as the electricity supply and pressures on the infrastructure but it is in taking up these challenges that we also now have very significant new opportunities to exploit for the benefit of our nation. These new opportunities involve responding to the everyday needs of our people, our enterprises and industries for more and better infrastructure, means of public transport and, freight amongst others and the dti has a key role to play in assisting industry to respond to these demands.

In addition, as the demand for goods and services increase in South Africa and as we ramp up our capacity to respond to this demand, we will also find that our capacity to export increases. In turn, as our exports increase and are diversified through increased value-addition, it will impact positively on the current account balance and help reinforce macro-economic stability.

It is for this reason that the Department of Trade and Industry (dti) has and will continue to pursue strategies that will respond to these new opportunities. In this regard, the National Industrial Policy Framework and Action Plan we have developed has, as its central objective, the diversification and strengthening of manufacturing with an emphasis on non traditional tradable goods and services and labour intensive activities. This framework has therefore become the fulcrum around which our interventions in the real economy will rest. So, we will continually expand our access to markets, encourage investments and boost our exports. Simultaneously, we have and will continue to promote competition, vigorously combat anti-competitive behaviour in certain industries, protect consumers, and broaden participation, by encouraging massive growth in small businesses and co-operatives as well as promote broad based black economic empowerment (BBBEE).

As a whole, these initiatives which must be undertaken in a co-ordinated and integrated manner which will enable us to reach the objectives of halving unemployment and poverty by 2014 as set out in the Accelerated and Shared Growth Initiative for South Africa (AsgiSA) programme. It is clear that pursuing these objectives is not the responsibility of the dti alone and we have been involved in intensive intra-departmental and inter-governmental co-ordination including through the Economic Cluster and MinMEC. As you know, in the context of the economic cluster, our work seeks to enhance economic efficiency in the economy by focusing on areas such as promoting dynamic growth sectors, and growing small enterprises. And the MinMEC is a vital forum and vehicle for us to engage and co-operate with provinces on these matters. In fact, we now have absolute clarity on what needs to be done and we have moved forward in implementing this plan.

Honourable Members, implementing our plan requires a national effort and no person in this country, in whichever province he or she may reside will be left untouched by these developments. But indeed at the policy and implementation levels it has been our experience that engagement with the provinces improves the depth and robustness of our work. During the past few years it has therefore been our privilege to work with provincial governments and municipal structures as we set about together building our economy. Our working together has enabled implementation in very significant ways and ensures the broadest possible impact of national policies and strategies.

For instance, the implementation of the Industrial Development Zones (IDZs) programme is an excellent example of how the efforts of the three spheres of government can be focused to achieve commonly desired goals. Since I last addressed this Council on this matter, the IDZ regulations have been amended in order to remove the "ultra vires" provisions of the Customs and Excise section, as well as in relation to issues regarding Value Added Tax administered by the South African Revenue Services. In addition, the IDZ enterprise permit has been replaced with broad guidelines which operators must comply with in assessing whether or not an enterprise can locate or trade within an IDZ or the Customs Controlled Area. These amendments improve the ease with which the establishment and operations of the IDZs can take place and together with the completion in February this year of the IDZ Operational Guidelines, has done much to promote investor certainty.

I can also report that the IDZ Policy Review has been completed and presented to MinMEC and other relevant stakeholders for inputs. Furthermore, we have completed an international benchmark study to ensure that we develop a competitive value proposition and I am confident that we will have a new policy in the near future. Together all of these initiatives and the possible introduction in future of an IDZ Bill will allow us to adapt our programme to ensure that we build on the momentum that has been generated in the four designated Industrial Development Zones. And certainly, what we have seen is that the Zones are increasingly being seen as attractive nodes for manufacturing and related service industries.

For instance, I am informed that the Coega IDZ has been able to generate private sector investment in excess of R49 billion. An interesting story to emerge from this IDZ is with regard to the firm Dynamic Products, which exports frozen yoghurt and pepper. The firm employs 650 people of whom over 80% are women, all from the surrounding areas, and the suppliers are mostly emerging farmers from the area. In using this business model, the firm is successfully exporting 25 tons of yoghurt per day to the United States, Canada and Europe. I relate this example because I think this is a good case study of the economic benefits to communities surrounding IDZs and in particular the potential for surrounding communities to build sustainable businesses based on the anchor IDZ investment.

We are therefore encouraged that the Richards Bay IDZ has secured major investors and that the Johannesburg International Airport IDZ is set to begin operating in the foreseeable future. Similarly, now that an International Airport License has been granted to the Mafikeng Airport, a major obstacle to the designation of the Mafikeng IDZ has been removed and further work can be done in this regard.

Chairperson, we have made this progress even though we could not take anything for granted when we undertook these initiatives. Yes there are and will be challenges but the fact is that we are succeeding in attracting investments that would not have materialised without the active intervention of government to enable such investments.

It is in this context that I raised the investment opportunities regarding Business Process Outsourcing (BPO) in the National Assembly yesterday and I wish to do the same here today. Because over the next few years the global BPO industry is forecast to grow at approximately 50% per annum and because we have several competitive advantages to offer investors, a window of opportunity exists for South Africa to realise significant value by developing this sector.

In fact, since the dti started supporting this sector in 2007, a significant number of direct and indirect jobs have been created and approximately R700 million in investment value realised. We have furthermore set a 100 000 jobs target and current indications are that we can achieve this if we continue to work hard at promoting this sector. I raise this matter here, Honourable Members, since I believe that BPO offers an opportunity to achieve some of our regional development objectives as already a number of localities-some in rural areas - have been identified as suitable for call centres. But I also raise this matter here because the mere possibility that such a highly technology dependant industry can locate in a rural area should alert us to the great many possibilities of investment for economic development, in whichever province or municipality we may find ourselves.

And provinces must become increasingly alert to this new range of possibilities. Consider for instance that the dti has during the past year - in its work to mobilise domestic and international investment - generated a pipeline of 74 projects worth R206 billion with the potential to create over 30 000 new jobs. Of this, domestic investment projects are worth R153 billion and foreign investment R53 billion, and already, R171 billion in the pipeline is committed or in progress. Manufacturing accounts for R19,7 billion, resources R182,7 billion and services R3,6 billion. I am also glad to be able to report that our trade and investment division have had great success working hand in hand with provincial investment agencies leading to the very significant R7, 7 billion Heineken brewery investment in Sedibeng, the new R3,2 billion cement plant investment by Larfarge in Mafikeng, and the Unilever and Cognis investments in a R750 million Hoodia extraction plant in the Western Cape as well as Agronomy investments in Karbees in the Northern Cape.

In the same way as the spin-offs from the IDZ investments, these investments will result in enormous opportunities for especially Black Economic Empowerment (BEE) companies entering the manufacturing sector, as suppliers in glass bottling and canning. Furthermore, procurement opportunities from local South Africa companies will be released in respect of raw materials, construction, distribution, warehousing, and transport, marketing and adverting.

Honourable Members, I have spoken to the detail of these opportunities to illustrate the importance of building local economic development capacity to ensure that we can respond effectively to the type of investments I have described.

In this regard, we have as the dti, working with the Department of Provincial and Local Government and other role players, begun to implement Project Khulisumnotho, which involves during 2008, addressing the Local Economic Development (LED) capacity building needs in 17 of our district municipalities.

The intention of this project is to assist district municipalities (or Metropolitan areas) in building capacity in order to ultimately develop credible LED strategies and bankable projects with viable business plans, thereby allowing them to take up investment opportunities when they arise. However, a key aspect to sustainable LED capacity building is the involvement of provinces in identifying the broader regional economic projects that are of industrial significance and that will impact on the selected districts and I thus urge all provinces to partner us in this project.

Honourable Members, in this way, from national to provincial to municipal, we can jointly give impetus to industrial development, on a more regionally spread basis, which in turn, can sustain growth in our economy for generations to come.

Finally, through you Chairperson, I wish to thank the National Council of Provinces, for its role in the dti's legislative programme. Since 2004, the Council has applied its wisdom to, amongst others, the National Gambling Act, the National Small Business Amendment Act, the Co-operatives Act, the National Credit Act and legislation relating to our technical infrastructure. All of this legislation, together with those pieces of legislation that you will be asked to consider this year, has a huge impact on our society and our economy. We are privileged to have been able to walk this journey with you.

Issued by: Department of Trade and Industry
29 May 2008