Keynote address by Minister of Trade and Industry M Mpahlwa at the Department of Trade and Industry Technology Awards 2007

Honourable Premier of the Eastern Cape Ms N Balindlela
MEC for Economic Development and Tourism Mr Mbulelo Sogoni
Executive Mayor of the Nelson Mandela Metropolitan Municipality, Ms Nondumiso Maphazi
Heads of Departments and Council of Trade and Industry Institutions (COTII)
Director-General and officials of the Department of Trade and Industry
Leaders of organised business and labour
Distinguished guests
Ladies and gentleman

South Africa is experiencing an era of unprecedented growth. Our economy has grown for a record 90 consecutive months. We have seen our average Gross Domestic Product (GDP) growth accelerate from 2,7% per annum between 1994 and 2000 to five percent for 2006. We have also seen the number of people employed in our economy grow by over a million in the two years to September 2006.

We should celebrate this step change in economic growth. But when we look deeper at the foundations of our economic growth, we find that approximately 85% of our economic growth between 2004 and 2006 can be attributed to household consumption. Moreover, much of that consumer demand is being met by imported goods.

Programme Director, if we look deeper into the structural foundations of the economy, it is also clear that the dominance of commodity in the economy persists, exposing the economy to potential external shocks. A diversified economy such as ours is much more resilient and adaptive to external shocks and imbalance. It is for this reason that our industrial policy response is swayed more towards a diversified economy with a strong value adding productive capacity to ensure that our economy will be a lot more able to sustain the growth to evolve us to achieve our objective of lowering poverty and unemployment by 2014.

There is evidence that manufacturing capacity utilisation is at a historic high and giving way to strong fixed investment growth in several sectors and showing an upward trend in competitiveness and production volume during the past three years. However, there has also been contraction experienced in manufacturing exports, a situation which is offset by sector export performance linked to growth of government capital expenditure.

The challenge for Department of Trade and Industry is to respond in ways that reinforce the emerging turnaround of manufacturing whilst at the same time, assisting weak sectors to achieve the necessary structural adjustments. In this regard, I am pleased to announce that Cabinet has approved the National Industrial Policy Framework and the Industrial Policy Action Plan. Central to the vision elaborated for industrial policy is a structural diversification of the economy with greater emphasis on value addition, technology deepening, knowledge assimilation and labour absorption.

A strong industrial policy is essential in driving this structural diversification of the economy. However, industrial policy cannot succeed without coherent and simultaneous supporting policies. The most critical of these are: a competitive exchange rate, a skills development system aligned to our industrial policy priorities; and traditional and modern infrastructure of the necessary quantum, quality and pricing necessary for our industrialisation needs, a supportive regulatory environment which encourages investment and employment creation amongst firms of all sizes.

The Department of Trade and Industry is implementing a comprehensive suite of interventions to resolve second economy challenges. Going forward, the department will align the work on promoting economic inclusion with the more coherent framework for supporting the second economy, which government is in the course of elaborating. Our work in supporting growth, developing our industries and enterprises, need to be complimented by our efforts at securing a supportive global economic environment in order to stimulate exports and investment.

Globalisation, a force that has been shaping the political and commercial worlds for most of our working lives, is entering a new and more complex phase. It is no longer a concept exported to the emerging world by the traditionally dominant economies of the world. Emerging economies have grasped globalisation, packaged it up and are every day, sending new versions of it back to the West.

We are at a critical moment as a global economy. Move one way, toward greater freedom of trade, the possibilities of new technologies, the promotion of skills, the promotion of education and skills training on a vast scale ...and the opportunities seem endless. Step the other way, toward the retrenchment into tariffs, a rejection of the newest things and a reluctance to change the social and cultural patterns of generations...and those opportunities could be lost.

The multi-polar world has been born out of and is thriving on competition on an unprecedented scale; new markets are open not only to traditional players but also to local and resourceful operations that understand them more closely. In order to achieve high performance, businesses will need to continually refine market focus and position, and develop distinctive capabilities that can adapt to shifting sources of competitive advantage, as well as harness innovation to create new markets.

At the same time, the challenge of ensuring a corporate culture that embraces diversity will be more acute. Having processes and core values that are universal will be essential as organisations operate across borders, within different cultures and with more dispersed structures. I want to use this opportunity tonight to look at what the key global forces are that are impacting on society today taking into account the market assumptions regarding workforce and technology development trends.

1. Key global market forces

Economic: Economic power is becoming more dispersed. This can be seen in the following areas:

* growth of emerging market economies
* emerging economies contribute a growing share of the world's output with trade and investment, accounting for 50% of global GDP
* China will become the world's biggest economy by 2025, followed by India in third place with others such as Vietnam and Russia growing nearly as fast
* growth of emerging market multi-nationals
* emerging economy multi-nationals account for 61 of the Global Fortune 500
* BRIC (Brazil, Russia, India and China) stock markets produced the four best performances with returns as high as 102% versus 14% for the United States of America (USA)
* growth of multi-nationals in emerging markets
* of the world's 100 largest multi-nationals, 65% of their affiliates are located outside their country
* a billion new customers will enter the global marketplace in the next decade.

By 2025, global consumer demand will look different with China the biggest consumer market.

Technological: Technological labour is no longer the preserve of developed economies:

* The industrialised world is witnessing a shrinking pool of young skilled employees, there are insufficient graduates with relevant technical skills and this applies to South Africa (SA) as well.
* In the European Union (EU), the number of workers aged between 50 and 64 will increase by 25% over the next two decades; the ageing workforce.
* Governments of emerging economies are nimble and are aggressively pursuing to move up the value chain
* Emerging economies have 33 million university graduates, which is twice the number of the developed world
* Technology leapfrogging is happening in which emerging economies skip less efficient, more expensive and more polluting technologies and move to more advanced ones. For example, straight to mobile phones skipping land lines e.g Africa.
* Emergence of technology clusters and the global supply chain - innovation is becoming much more geographically spread out with clusters of innovation cropping up in many parts of the developing world.
* Growth in innovation, in particular the bio-economy by 2020 it is likely that there will be global standards and legislation for energy consumption and waste, forcing manufacturers to develop low energy production techniques and to convert to products with renewable inputs. There will be new forms of renewable energy that we have barely even dreamt of today, for example, the use of human kinetic energy.

Programme Director, ladies and gentlemen, I am painting this picture to demonstrate that as we celebrate the dti technology awards tonight, and pass on words of encouragement and appreciation to those entrepreneurs, researchers and students present here this evening, the challenges that lie ahead remain immense.

2. Facing demographic challenges

Governments and organisations are facing dramatic shifts in the demographic make-up of their workforce. An ageing workforce (and in SA a dying workforce) and increasing female participation will be further complicated by the high proportions of local employees spread across multi-nationals. In the developed world, falling birth rates and increased life expectancy means that the population is ageing rapidly with extensive implications for business, government, social structures and individuals.

In South Africa, there are a number of companies where 48% of the workforce is currently over 45 years with 12% over 55 years. Absent of intervention, these proportions will increase to 57% for 45 years and over, and 20% for 55 years and over by 2010.

Increasing female participation: Number of women in the workforce has risen dramatically as living standards demand higher net family incomes.

Skills crunch

An increased demand for skilled employees in the knowledge economies will be difficult to meet due to a middle management gap. Organisations will rely on importing a skilled workforce from emerging economies. Advanced industrial economies are moving to a position whereby knowledge-based organisations will soon generate more than half of total domestic product and employment. This places new demands on employees who need to develop competence-based skills (the ability to understand and use information), as well as technical skills (training in particular fields of engineering).

Ladies and Gentleman, to conclude, we must invest heavily in skills development and improve our technological capabilities to assist us in achieving higher levels of growth. The awards today, confirm to all of us that we are not tilting at windmills. I once again congratulate the winners here today and all of those who have competed, for not only their achievements but for showing leadership, for enhancing our material well being and for creating a wealth of ideas upon which, together with the efforts of other South Africans, our future prosperity relies.

I thank you.

Issued by: Department of Trade and Industry
17 September 2007