Speech by Arthur Moloto on the Appropriation Bill First Debate

23 March 2006

Honourable Members

Yesterday, The Honourabe Davidson of the DA said that this budget is unimaginative, indirectly implying that it is of no consequence and cannot make a meaningful impact on the South African economy. I want to focus most of my speech on dealing in refuting this assertion.

The Construction Industry has benefited greatly from the infrastructural projects initiated by this government.

Currently, the Big Four construction companies in South Africa, (i.e. Murray & Roberts, Group 5, Aveng and WBHO) have a collective order book exceeding R30 billion of contract spread over the next three years. These are signed contracts ready for implementation or already in the implementation phase.

In actual fact, Grinaker LTA Construction (a subsidiary of Aveng) had to withdraw from the Middle East in order to concentrate on the opportunities offered by these budgetary allocations.

Cement production industry is already investing more than R3 billion in new plants to match the increasing demand of cement. We should also bear in mind that the construction industry is labour intensive.

This budget indicates that R372 billion will be spent on infrastructure development over the next three years. These are projects initiated by the three spheres of government and state owned enterprises.

These projects are critical to the development of road and rail infrastructure, power stations, hospital revitalization, housing and dam construction amongst others.

Obviously, this is going to require a lot of skilled artisans, engineers and quantity surveyors. This is a challenge identified in ASGI –SA and will receive the required attention.

I am mentioning some of these developments because the Honourable Member of the DA said that this is unimaginative implying that is has no economic impact.

The retail industry has also benefited greatly from the massive consumer spending encouraged by the reduction in personal tax and lower interest rates.

However, I need to concede and concur with the view of government that a consumer-led growth is not sustainable in the long run. It is very susceptible to changes in interest rates. A substantial hike in interest could easily dampen the consumer boom. We definitely need a producer-led growth.

Going back to the issue of the performance of the retail sector, one would easily realize that shopping malls across the country have experienced a phenomenal increase in market value due to lower vacancy rates. Obviously, this lower vacancy can be traced back or are as a result of a very strong consumer demand.
This is a positive development for insurance companies and pension funds who are mainly the owners of these shopping centres in South Africa. Let us bear in mind that these policy holders’ money and workers’ pension money are invested in these developments.Â

A better illustration of a phenomenal increase in value of shopping malls is the case of Canal Walk in Cape Town (which claims to be the biggest shopping mall in Africa). It was sold 2½ years ago by Nedbank to Hyprop for R1.1 billion. Currently it is valued at R2.5 billion. This is double the price in less than three years. Again we need to sound a caution on the sustainability of a consumer-led growth.

The financial sector is performing very well as a result of home loans and low cost of borrowing. The exempt of threshold for transfer duty has been increased from R190 000 to R500 000. This has the potential to kick-start the secondary housing market in South African townships. I have been reliably informed that the property market in townships is gaining momentum and banks stand to profit.

These positive developments are spread across all industries.

I have been reliably informed that for the first time, receipts or income generated by tourism exceeded that of gold mining. I have been informed that tourism is now regarded as the new gold. Tourism is increasingly becoming an important source of foreign exchange. In 2005, receipts from transportation and travel which is an indicator of tourism activity exceeded R50 billion.

The argument that says that we should lower corporate tax rate to 25% is failing to acknowledge that government has already offered good tax incentives to business to encourage capital investment and production.Â
The accelerated depreciation allowance offered to business does incentivise business to undertake investments. In actual fact, if you look at the financial publications in South Africa you will easily realize that business is doing well and reporting good profits.Â

I don’t understand how the Honourable Davidson from the DA can maintain that the budget is unimaginative.Â

We definitely need a producer-led growth. An accelerated and sustained growth can only be realized through massive private investment matched by strong infrastructural investment by government and state owned enterprises.Â
This budget clearly maps out that path.

Eskom has a 5-year capital expenditure plan which amounts to R98 billion.

Transnet’s three year capital expenditure plan amounts to R32 billion. This will address bottlenecks in the logistics chain. One is encouraged by Transnet for insisting that half of manufactured content of its announced R3.5 billion locomotive acquisition programme will be carried out in South Africa.
The import reduction strategy of Transnet has to be followed by all state owned enterprises where possible.
This intervention will strengthen the manufacturing industry in South
Africa and put it on a solid foundation to claim its place in the global value chain.

This import-reducing strategy will have a multiplier effect across various sectors of our economy. It will strengthen South African manufacturing capacity in metal products, electrical and non-electrical machinery and transportation equipment, amongst others.

The Engineering News of March 10th – 16th 2006 reported that more international companies are increasingly choosing South Africa as an off-shore location for their call centres.Â
It indicates that the call centre industry already creates employment for 80 000 people and there are indications that 100 000 additional jobs will be created by 2009.
Funding allocated by this budget to SENTECH and from the debt market will increase broadband wireless coverage as well as investment in the East Africa submarine system which connects South Africa and East African states to the global optical fibre network.

I am mentioning this to underline the importance of public investment in matching private sector investment matching private sector investment to accelerate growth.
These are very exciting developments which creates Business Process Outsourcing opportunities for South Africa.Â

Prof Kenichi Ohmae, one of the World’s leading business strategist and former Senior Partner of McKinsey in Japan, analyses the opportunities arising from BPO across the globe.
They range from architectural design, IT support to back offices operations linked to the financial services industry. Prof Kenichi Omae’s seminal work, The Next Global Stage, emphasizes the relationship between skilled labour force, proper telecommunications infrastructure and competitiveness in BPO.

South Africa is better placed to advance in this area.Â
Indeed democracy has been good for business in South Africa. Together we can build a better country, with growth shared among all our people.