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SA: Malusi Gigaba: Address by the Minister of Public Enterprises, on the occasion of the celebration and delivery of the Botswana railways salt wagon (11/12/2012)

11th December 2012

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We are here today to launch the salt wagons that have been manufactured for Botswana Rail to convey bulk chemical grade salt from Sau Pan in Botswana to Sasol Polymer in South Africa.

I would like, from the outset, to thank our colleagues from Botswana Rail who demonstrated confidence in Transnet’s capabilities and who, through this order, have greatly enhanced intra-African as well as regional trade.

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I am certain you will all agree with me that improving intra-African and regional trade is perhaps our most urgent challenge as Africans.

Another most urgent challenge for Africa is to learn to trust ourselves and each other as business partners, increasingly to do business with one another, to prefer each other’s’ products instead of always giving business preference to foreign companies.

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Secondly, I would like to thank Transnet and, in particular, Transnet Rail Engineering (TRE) for delivering on this project and thus rewarding the confidence of their customer, Botswana Rail.

We need emphatically to disprove the notion that Africans are incapable of doing business, that we are not customer-focused and are lackadaisical.

Ladies and Gentlemen:

The design of these wagons posed a number of challenges in that it needed to prevent any leakage of brine, be non-corrosive, enable off-loading by means of an automated tippler at Sasol, operate with either vacuum or air brakes and be stable at high speed and carry 20 tons per axle.

The conclusion of this project is testimony to the growing confidence and capability of TRE’s engineering and manufacturing processes.

From signing the contract in May this year, a prototype was developed by mid-August and we are here today launching the manufactured product, 85% of whose raw materials and components were sourced from local suppliers or manufactured in-house.

Overall, this contract shows very clearly that Transnet Rail Engineering, and particularly the Wagons Plant at Uitenhage, can compete with the best rolling stock manufacturers in the world.

Early this year, we witnessed the export of 200 wagons manufactured at this very same Uitenhage plant destined for Rio Tinto in Mozambique.

These are moments of pride that we need to celebrate as they demonstrate that TRE, an African outfit, can act as both an Original Equipment Manufacturer (OEM) as well as a Prime Contractor for the design and manufacture of complex and safety-critical rolling stock.

It is clear that we have strong design, planning and engineering capabilities around the production of mechanical components in the rail value chain, which is a good indicator that South Africa has the right ingredients for industrialisation and all that it requires is investment and access to finance at affordable rates.

However, we need to move into the ability to manufacture and then design higher value and more technologically-complex electro-mechanical and electronic systems.

Ladies and Gentlemen:

We are living in an age where systems are optimised through continuous innovation in the way digital and other electronic systems optimise the productivity of mechanical systems.

It is this capability that separates advanced economies from emerging economies and we are not very far.

Shifting our industrial capability to electro-complex design is going to require enormous focus and effort by all stakeholders in the South African economy.

We need to break down traditional silos in our economy that are holding back our move into a more technologically sophisticated rail supply chain.

For example, Denel has highly-specialised digital control system capabilities.

Eskom’s manufacturing and maintenance arm, Rotek, has the most modern facilities and associated capabilities related to electro-mechanical areas such as large motors, alternators and transformers.

Our deep-level mining industry’s supply chain has world class capabilities in very specialised traction motors, alternators and cooling equipment.

If we are to be successful and optimise our existing technological base, we need to see intellectual property collaboration across and between all our State-Owned Companies (SOC).

I expect TRE to play a central coordinating role across these different stakeholders as we start systematically moving to localise new areas of the rail supply chain.

We need to have confidence in ourselves that we can master this new terrain which is associated with complex learning curves and large investments in plant, technology and skills.

This complexity and scale is also associated with higher levels of risk and no economy has shifted from semi-primitive to modern technology without transition and economic premium for sustainable growth.

It is probable that in some of these areas, such as large engine manufacturing, we will need to have a long-term perspective that will not be palatable to the private sector.

As an SOC, with the mission to drive an industrialisation process, TRE needs to play a leading role in entering into the necessary partnerships with global technology leaders and making the required investments to master these strategically important, but extremely difficult, capabilities.

Ladies and Gentlemen:

We cannot achieve our industrial ambitions if we enter into short-term transactional relationships with our suppliers.

The time has come for the SOC to move towards long-term strategic partnerships with key suppliers who can become industrial champions focused on building complex, technologically-advanced capabilities.

A key element of this process is moving the status of South African suppliers from a sub-contractor relationship with the OEMs to that of a prime contractor, taking full responsibility for the delivery of a complex value chain.

I would like to remind you that I raised this exact challenge very sharply when we unveiled the 50 fuel-tank wagons destined for the Transnet Pipelines (TPL).

While I appreciate that this comes with risk, it is a global trend and has been a core instrument that has been, and continues to be, used by successful developmental states.

After all, development cannot be achieved without being ambitious and bold and, accordingly, we need to learn how to pursue the bold ambitions whilst managing the risks, because it will be extremely difficult to achieve our objectives based on a business-as-usual approach.

As I have stated it earlier, we need to utilise the Transnet locomotive fleet-procurement to develop new capabilities in areas where we have been historically importing, which must include complex components such as engines, traction motors, drive controls and traction converters.

The benefits of this approach are immense and hence the need for cooperation between the various stakeholders to ensure success in formulating a strategy for the development of each of these components as part of the locomotive fleet-procurement, as well as in promoting the development of domestic industries and locomotive suppliers in particular.

These tasks do not belong to our Department or Transnet alone; the Department of Trade and Industry will have to partner with us in a meaningful way.

The localisation process of our rail, ports and pipeline supply chains will be a fifteen-to-twenty year programme and hence, although the Competitive Supplier Development Plans provide a clear sense of how the seven-year Market Demand Strategy (MDS) will be leveraged to develop relevant supply chain, we need to have a localisation roadmap that spans a longer duration.

This roadmap must provide strategies for the localisation of complex components, such as locomotive engines; it should identify areas in which we need to select national champions and it also needs to define the key milestones and requirements for switching national suppliers from having a sub-contracting relationship to being the prime contractors.

This roadmap can provide a clear context for target setting for the supplier development plans so that we maintain both momentum and direction in our localisation processes.

It can provide all the different stakeholders in the South African economy with a clear sense of direction for the industry so that we can move forward with vision and confidence.

Ladies and Gentlemen:

Today’s ceremony is also significant in that it demonstrates our commitment to regional integration and capital goods’ trade.

It is important to also recognise the long-term strategic importance of regional integration for South Africa and we have a vested interest in seeing African economies grow.

Over the years South Africa and Botswana have enjoyed strong trade relations and this transaction reinforces those relations.

There are four fundamental drivers relating to the African growth story; that is, commodity exports to China, access to education and health care; services’ enterprises and the growth of the African middle class as an important market for locally based manufacturing.

While resources make up 24% of the African economy, retail, agriculture, manufacturing and transport and telecommunications make up over 40% of the economy.

It is estimated that around 40% of the African population can now be classified as middle-income or affluent; and this number is estimated to grow to over 50% by 2020.

It is consequently estimated that the consumer-related sectors will be two-and-a-half times the size of the resources sector.

The establishment of a Tripartite Free Trade Agreement between Southern African Development Community (SADC), the East African Community (EAC) and Common Market of Eastern and Southern Africa (COMESA) will create a larger regional market whose economic potential will be considerable as it will establish a market of 26 countries with a combined Gross domestic product (GDP) of US$ 1 trillion and a population of approximately 600 million people.

A larger, integrated and growing regional market should be extremely attractive to foreign investors.

However, we realise that we will not achieve regional integration simply by removing trade tariffs, as non-trade barriers are even more restrictive to intra-regional trade.

Investment in infrastructure will be a key driver in ensuring inter-connectivity between the different regional economies.

In comparison to other parts of the developing world, Africa lags behind on about every measure of infrastructure coverage and the World Bank has estimated that Africa requires around US$93 billion of infrastructure investment a year to begin to address this backlog.

As a medium-sized economy, South Africa is at a structural disadvantage in building our industrial base given our remoteness from major global markets which hinders our ability to invest in adequate economies of scale, realise technology learning-curves and build robust clusters that are the backbone to a competitive industrial economy.

The growth of the South African economy is intrinsically tied to that of Africa, provided of course, that we achieve higher levels of trade and investment integration.

A sustainable infrastructure system that unlocks growth in our neighbours and enables deeper levels of economic integration is the absolute core to this vision.

We have a deep vested interest in supporting and participating in the regional infrastructure development process.

Hence, we must provide our continental partner companies and countries with holistic solutions that transcend being mere equipment suppliers; we must build capacity in their economies through supporting their localisation efforts, particularly around the maintenance of their fixed infrastructure and operating equipment to ensure our integration efforts are sustainable.

We need to make our training facilities available to our partner companies and these countries and start partnering them around the development and operational management of new corridors that will unlock economic growth in their countries and consequently in the region.

Transnet has developed unique capabilities in the design and management of bulk logistics corridors and we need to export these to our neighbours.

We should involve our DFIs in the funding of these mega projects and must develop a uniquely South African value proposition and engagement model for our relationships with neighbouring infrastructure companies; and our SOC should be leading this process.

This TRE facility in Uitenhage, employing approximately 1 245 employees, is the largest wagon refurbishing and new-build plant in Africa whose clients include Ghana, Botswana and Kei Rail.

I hope that over the next twenty years we will see massive growth in this facility as we become much more active participants in the African growth story.

I thank you.

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