Speech by Ebrahim Patel, Minister of Economic Development, during the occasion of the National Assembly`s Debate on the President`s State of the Nation Address

15 February 2010

Honourable President and Deputy President
Honourable Speaker and
Honourable Members

On Thursday evening, President Zuma set out a vision to South Africans - that placed jobs at the centre of our efforts as government - and called on all South Africans to join hands and work together to achieve that vision.

President, you set the tone in the State of the Nation Address for action and implementation.

The main focus of our economic policies will therefore be to achieve the goal of 5 million new jobs by 2020.

Honourable Members

This year we will take steps that will facilitate immediate job-creation and also lay the basis for long-term sustainable job creation.

Our approach is to begin with more modest targets for the first year and progressively build on these, to achieve the five million jobs by 2020.

The strategy to achieve the jobs vision builds on our natural resource-base, our location on the continent and our technological capacity and know-how, in order to enhance national wealth-creation and employment.

Our focus is to rebuild the productive sectors of the economy, to use the major investment commitments in the private sector and public enterprises to support a new growth path and to connect policy, resources, institutions and partnerships into a coherent package.

We have seen a historic rebalancing in the global economy, with a shift of growth and economic power to major developing countries and we are positioning South Africa to benefit from this.

We will focus on the opportunities that exist on the African continent. Africa is a market of one billion consumers and it has fast-growing economies. In a recent survey, the continent`s growth potential was estimated to be R7 trillion by 2020, with growth in consumer goods, infrastructure, mining and agriculture. Globally, six of the ten fastest-growing economies in the period 2000 to 2010 were African countries.

Our approach recognises that programmes that combat poverty, inequality and unemployment are sources for economic growth – that aside from its intrinsic benefits to the poor, the marginalised and the excluded, well-designed measures to promote development also supports and stimulates growth and employment.

The state will clearly play an important role in the New Growth Path but we can only achieve the five million new jobs if we unlock the employment-creating capacity in the private sector.

I would like to share with Honourable Members some elements of our strategy that addresses the “how” of job creation and growth.

Honourable Speaker

Let me use the example of the Auto sector, where government`s industrial incentive schemes and the solid platform for investment we created are now attracting new investment by major multinational corporations.

Mercedes Benz will use South Africa as one of only four locations globally to build the next generation popular C-class vehicle at its East London plant, creating about 1500 new jobs in supplier industries.

General Motors will produce the Spark entry-level passenger car at its Port Elizabeth plant, creating 500 additional jobs.

Volkswagen is now producing the new Polo left-hand drive in Uitenhage for export markets.

Ford Motor Company will produce a new-generation pick-up truck at its Pretoria plant and increase the local content of its vehicles from 35% to more than 60%.

BMW will produce the new 3-series all-wheel drive in SA from this month and in fact the first vehicles are coming off the production line this week.

Toyota has announced a major expansion of its warehouse capacity.

These announcements involve close to R10 billion of new investment and will create additional decent work opportunities. It is also a massive vote of confidence in the economy. We are now working to deepen the component manufacturing sector that supplies the major auto makers.

In other sectors, companies have announced major investment projects too, one of the largest being the R350 million Proctor & Gamble expansion of its manufacturing plant for baby care products.

My colleague Minister Rob Davies is leading government work to create conditions for faster growth in manufacturing. Indeed the Industrial Policy Action Plan (IPAP2) whose implementation he coordinates, is now the critical platform that we are using to drive the manufacturing goals of the New Growth Path.

President Zuma noted in the State of the Nation Address that we are changing from analogue to the more advanced, digital signals for radio and television broadcasting.

We will incentivise the manufacture of set-top boxes locally that can convert old-technology televisions to the new digital platform. This is where our approach on jobs and localisation comes in.

Minister Padayachee has finalised the standards for set-top boxes and production will start in South Africa within twelve months. More than 2 000 jobs will be created in the sector in manufacturing, packaging, distribution and installation and associated initiatives in the communication and creative industries.

It will also boost small businesses and is a good opportunity to bring young people into employment.

Private investment is held back in a number of cases by constraints and bottlenecks in energy, transport, water and communication infrastructure.

Many South Africans are kept out of the economic mainstream because of gaps in infrastructure, lack of roads linking rural areas to markets, energy grids that do not service all areas.

We need to fix this.

We will use infrastructure as a key trigger for growth and jobs.

Over the four years to 2014, our infrastructure expenditure estimates provide for more than a quarter trillion Rands a year.

But money is not all that we need – it also requires careful planning and execution to ensure we achieve the largest number of jobs and promote economic sustainability.

To give effect to this, national departments, state-owned enterprises and development finance institutions are beginning to work in a much more strategically coordinated way.

My colleague Minister Gigaba has led a discussion with a number of state-owned enterprises – in transport, energy, aerospace manufacturing, broadband provision, mining and forestry, to spell this out.

Our mandate to the SOEs are clear - speed up the core areas: build roads and railway lines, construct power stations, provide flights that link us to key economic zones, reduce the cost of broadband…but it also involves building a South African supply-base that can manufacture the turbines, boiler components, locomotives and train carriages for the infrastructure programme and so deepen the level of localisation. The industry that emerges from this initiative will be able to supply the massive infrastructure programmes on the African continent as a whole, worth an estimated R1,4 trillion annually by 2020.

We have now set clear goals for artisan training, jobs to be created and projects to be completed. For example, by 2015, Eskom will have enrolled 8 000 apprentices and expects to have 6 800 new qualified artisans.

I wish to emphasise that the jobs that Eskom and Transnet will directly create are part of a broader role: by providing a solid and reliable energy supply and transport networks, they unlock investment projects that will create jobs on scale.

Infrastructure can also play a key role in to expand farming output and draw small-holder farmers into the economic mainstream.

But we will also need finance, competitive market conditions and focussed support if we are to become a larger food producer.

This support package coordinated by Minister Tina Joemat-Pettersen will include help with seeds, tractors, storage facilities such as silos, setting up rural coops and identifying access to water.

Organised agriculture has welcomed our focus on the sector and committed to partner with us.

Complementing our efforts on the farms, we will support efforts to expand agro-processing industries, for our domestic market as well as for exports.

Investment is critical. The IDC will make R5 billion available over the next five years for investments in the agro-processing activities in partnership with the private sector. Nestle is building factories for the manufacture of cereal, noodles and specialised proteins, in a half-a-billion rand investment that will create hundreds of new jobs. Pioneer Foods is increasing its investment to R2 billion over the next two years.

We have initiated successful efforts through the Competition Commission to combat price-fixing and monopoly behaviour and improve competition in the food sector, with action on fertilisers, bread, flour, poultry, maize and wheat.

We will work with the mining sector to expand mineral output and I note that the latest mineral production statistics have shown the first year-on-year rise in output since 2005 (mainly in manganese, diamonds, iron ore and platinum) and according to the Chamber of Mines, mining created about 17 000 new jobs in 2010.

Minister Shabangu has put a stakeholder committee in place that has done work on where new jobs can be created in 2011.

Further increases to our mining output require that we address infrastructure and skills bottlenecks, which we are now doing.

But in order to achieve the greatest employment and development benefits, we cannot rely simply on selling raw materials to the rest of the world. Government is finalising a beneficiation strategy to incentivise the greater processing of minerals locally, where possible to final consumer or capital goods production as part of the approach to create more decent work opportunities. Some of the key value-chains include iron-ore, coal and platinum.

We are working on is a project to set up the world`s first integrated metals plant beneficiating titanium, zirconium, vanadium, magnesium and silicone, which if it is confirmed through the feasibility study being undertaken, will involve a R15 billion investment and can create more than 7 000 jobs in construction as well as the operation of the plant.

There are also significant job opportunities in new sectors such as the green economy, which is growing on the back of the new tide of green industrialisation that is reshaping industries and energy generation across the world.

Minister Peters is finalising the IRP2 Plan and it includes a substantial commitment to renewable energy.

The regulatory framework to ensure a renewable energy feed-in tariff will be implemented during this year.

We have compiled a database of potential projects in green energy, manufacturing, waste-management, eco-tourism, agriculture and mining. In order to address funding challenges in a new sector, the IDC has committed to allocate R25 billion to new investments in the Green Economy over the next five years.

In addition to this, Minister Gordhan will next week announce further financial commitments that will be made in the Budget, to promote opportunities in this sector.

There are immediate successes in the green economy that we can already show. We have started with installation of solar water geysers in new low-cost houses and to date have 25 000 units installed through a partnership that includes the IDC. With a further 170 000 units planned, this project will contribute to employment creation as well as strengthening the local manufacture of components as we intend to improve the sourcing of components to at least 85% local content shortly.

This is an example of a project on the green economy where we are moving from vision to action.

Honourable Members, what these strategies show is the opportunity to grow the economy and to expand the number of decent work opportunities.

The spending by the state is a big driver of economic activity. We are finalising a major overhaul of our procurement system to place more focus on local procurement.

The state will require major supplies for infrastructure, state agencies and government departments to be manufactured locally.

Longer-term contracts are envisaged in order to provide investors with some certainty and with the necessary scale that will make it attractive to establish manufacturing facilities in South Africa. Regulations will be changed to ensure this happens across government.

Honourable Members

As President Zuma indicated in the SONA, we expect our development finance institutions to step up to the pace of job creation. Investment is a key driver of growth and of jobs and the IDC will be a critical agency to provide co-investment and loans to entrepreneurs.

I am pleased to note that the first of a series of development bonds was issued by the IDC during 2010, for the sum of R2 billion which was fully subscribed by the Unemployment Insurance Fund at a 5% fixed interest rate, in order to promote investment in job creating economic activities.

It has had a positive impact, with R1,2 billion already approved, which will account for 9 200 new jobs created and 5 300 existing jobs saved.

But the IDC can do more. It will now strengthen investment on industrialisation focussing on the sectors identified in the new growth path.

The IDC has been asked to review its pricing of loans and the period it takes to finalise applications and to ensure it has an optimal internal structure to achieve our ambitious goals. I wish to thank the Portfolio Committee on Economic Development which has kept the cost of the IDC facilities on our radar-screen.

I am pleased to advise this House that the IDC will expand its investment across all the priority sectors identified in the State of the Nation Address, in addition to the R10 billion new facility announced by President Zuma. Further details will be provided shortly.

Honourable Members, we have taken steps to make resources available. It will however require viable projects and we invite the private sector to work closely with the IDC to identify such opportunities and to tap these resources.

Cutting across all the jobs drivers is the emphasis on skills development. We have set concrete targets for State-owned enterprises and have held an important dialogue with the private sector at which very concrete commitments are being made on expanding the levels of and funding for training in the private sector. Minister Nzimande will address this august House on key areas during the course of today.

In the past year the President has emphasised the importance of youth employment, of the urgent need to draw young people into training, community service and employment. We have identified a number of measures and will be rolling these out in the course of the year. In some cases, these will be done in partnership with the private sector and consultations are underway. We will also work with all social partners to ensure that good ideas about youth employment find the necessary support from the state.

In the year ahead, we will promote enterprise development, cut unnecessary red tape and support small businesses. We will support entrepreneurs in the informal economy.

President Zuma has announced the merger of three small business funding agencies. The next phase will see a better connection between these funding agencies and the mentoring and support agencies such as Seda, with the intention to combine our agencies into a one-stop shop.

But why are we doing so? It is to make access easier to small businesses and to the many South Africans in the informal economy. Through a single infrastructure, we will cut down on administration, avoid waste and duplication and make sure more money reaches the intended beneficiaries.

Together with this, we will roll-out a new direct small business funding programme this year on a pilot basis, with details to be announced next week.

One challenge is to improve repayment rates and to learn from the successful micro-funding experiences of Latin America and Asia where greater community co-responsibility models have emerged.

Honourable Members

All these elements will benefit from partnerships.

A week ago, we held a meeting with our social partners.

The meeting confirmed a joint commitment to create 5 million new jobs by 2020 and to work together to achieve this.

We agreed we would start with some low-hanging fruit – areas where we could immediately work together. Business and labour made commitments on skills development, the green economy and strengthening the schooling system.

This is an important step in mobilising society behind the vision of jobs as the key priority.

Instead of policies that we are urged by some to adopt, that will plunge us into a decade of industrial strife and conflict, we will instead develop partnerships at the workplace, founded on improving productivity, promoting innovation, supported by skill enhancement. Therein lies the opportunity for South Africa – to build a shared commitment to what is required to achieve five million new jobs.

Honourable Speaker

In this debate and in the Budget speeches over the next few weeks and months, Government will provide members of this House with more details of the actions we are undertaking to achieve our goals including in other important areas such as tourism, the creative industries, the social economy and cooperatives and action by the competition authorities.

In responding to the vision set out in the State of the Nation Address, Mr President, we are rolling up our sleeves and getting South Africans working.