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Address by the Minister of Trade and Industry, Dr Rob Davies during the debate on the President's State of the Nation Address

16 February 2016

Speaker, Mr President, in your state of the nation address you did not seek to hide the fact that South Africa will face very serious economic challenges in the year that lie ahead. We will continue this year to be battered by an unresolved global economic crisis that has taken on few features that threaten to strike economies like ours right in our soft underbellies. Demand for mineral commodities have slumped with consequence sharp falls in the dollar prices of almost all mineral commodities. With 36% of our total export consisting of precious stones and metals, oils, iron and steel, we have been and will continue to be seriously affected.

The price of gold in January this year was one third down on the corresponding level of 2013. Platinum was 40% down and iron ore at $42 a ton was only one third of the $135 it was in early 2013. While these effects are partly being mitigated by the devaluation of the rand, they have had and will continue to have very serious dampening effects on our economy. On top of that, this year we are facing an El Nino which is associated in Southern Africa with drought. What is more of this particular El Nino is that the World Bank says this year "may be the strongest since detailed data have been available."

I make these points because I suspect that a number of speakers who follow me will attempt to portray our economic challenges as emanating solely or mainly from actual or alleged error by this government. The fact is, however, that all mineral exporting countries which are developed or developing have been and are continue to be affected. Canada has just emerged from recession. Australia is experiencing its most oppressed conditions since the 1960s and as the President pointed out during sona that Brazil and Russia are forecast by the International Monetary Fund, IMF, to be in recession this year. Many African mineral exporting countries including oil producers are also facing tough times. An appreciation of these realities is also important to underscore the point that anyone who tells us that they have a quick fix capable of delivering high rates of economic growth or dramatically curtailing unemployment in the immediate future is misleading our people. They are the equivalent of scale oil sales people offering a quick remedy that does not work.

President, you told us in the SONA that ours is not to lament the global conditions nor is it to offer these as excuses for not doing what we can do better to whether the storms ahead. You said, and I quote, "We cannot change the global conditions but we can do a lot to change the local conditions." The circumstances we are confronting right now are not of our making and they require at least four kinds of responses from us. First, we need to make inescapable but often painful adjustments to maintain a stance of fiscal prudence. The President gave something of the flavour of these in the sona and this will be further elaborated on in the Budget Speech by the Minister of Finance next week. Secondly, we need to correct mistakes and make improvements in our performance in a number of areas. A good example of what we have done in this regard is in the energy sphere. This time last year we were in the midst of load shedding. Through improvements in the performance of Eskom and the bringing into force of alternative sources of energy including renewables supported by one of the internationally recognized best programmes, the renewable energy IPP, we have achieved greatest stability even though we are not yet out of the woods.

Thirdly, we will need to act to mitigate the effects of these challenges in vulnerable sectors including mining and agriculture and particularly the impact they will have on workers and families dependent on those sectors for their livelihoods. Fourthly, we will need to identify available sources of growth and job creation and to build on these. Mr President, a number of analysts and commentators who look at South Africa point out that while we are confronting the challenges of the sort that I have outlined, South Africa actually has a number of strengths and achievements that we can build on. The Oxford Business Group, for example, when it launched it reported earlier this year that South Africa faces many of the same global challenges as other developing markets including lower commodity prices and the risk of rising interest rates but this country has reason to be upbeat. They said that their take on South Africa is that in the long-term the country's fundamentals are very encouraging and that there is a lot in South Africa's favour but right now is a tricky time. Two examples of things they said we can build on were the renewable energy programme and the automated production and development programme which has created certainty in the automotive sector. The report went on to say and I think that this is quiet significant, that the pessimism of local business in the country is not necessarily shared by those outside.

I think this is telling us something that what we need to do as South Africa is to find ourselves the opportunities that we have and to build on those. In other words we have strengths and capacities that we can build on. Since the start of this administration we have followed in pursuit of the objectives of the National Development Plan, a programme that can be characterized in six I's: Infrastructure, industrialisation, investment, innovation, inclusion and integration. Advances that we have made in all of these areas give us significant building blocks in our attempts to promote higher levels of inclusive economic growth. For example, Mr President, with the onset of the global economic crisis we launched a much higher impact infrastructure programme which has been given more effect by the establishment of the Presidential Infrastructure Co-ordination Commission, an infrastructure programme which delivered in the last term of government double the amount that was actually spent on infrastructure at anytime in this country's history.

The Nine-Point Plan which was enunciated in last year's state of the nation address and which was reaffirmed this year identifies priority actions to unlock bottlenecks and address weaknesses as well as to build on strengths which we have. In the time that is left to me I want to speak on just three elements or components of the Nine-Point Plan, a higher impact Industrial Policy Action Plan, minerals beneficiation and investment. The premise that underpinned Industrial Policy Action Plan was that even in the best of times when high rents we being earned from record mineral commodity prices being located in the global division of labour as a producer and exporter of primary products an importer of finished goods was not the best place to be located. Most of the jobs in global value chains are to be found in value added productive activities and associated high quality services. Moving up the value chain industrialising and diversifying was identified even in the good times as a path that not just South Africa but the entire African continent needed to follow. Now that we are being challenged and we are no longer in the best of times as far as commodity prices are concerned, moving in this direction has become even more imperative.

We can acknowledge that the macro statistics for manufacturing performance remain erratic. But in the third quarter of last year manufacturing delivered six percent growth quarter on quarter and was responsible for saving our economy from two quarters of negative growth. This kind of performance is not sustained across the sector as a whole. The reality is that the fortunes of important manufacturing subsectors are closely tiered to mining. Others such as the iron and steel value chain are facing additional problems such as the global glut of steel which has created challenges that I can say that government is working on and we are close to finalising an agreement on the sector on these.

But within the mix picture there are some quite significant successes. In clothing and textiles this sector was in terminal decline but what we did is that we took steps based on the Clothing and Textile Competitiveness Improvement Programme in such that between 2010 and March 2015 we supported R3.7 billion worth of competitiveness rising initiatives in the sector. As a result 68 000 jobs in this sector have been retained and 6 900 new jobs were been created. Twenty two new factories in the leather and footwear sector have been opened. The sector has been successfully stabilised and is steadily regaining its domestic market share and beginning to grow exports. A sign of this is that retailers such as Foschini have been happy to invest in productive clothing companies in this country because they realise that there is value to be had.

Four vertical clusters have been established involving successful value chains and textile companies in the power manufactures are poised to move further ahead as time goes on. In the automotive sector we have seen in the past five years R25 billion of investment by automotive companies. Last year following the successful review of the automotive production and development programme and indications of early work on its successor programme, BMW announced that at the time the largest single investment in the automotive sector, R6 billion. Within a few weeks they were followed by an announcement by Beijing Auto Works of R12 billion of investment. The trend is continuing, last week ...Mercedes Benz announced that new truck products will be manufactured at its East London plant. I can assure this House that there are further investments that will be announced in the auto sector in the weeks that lie ahead.

In addition to manufacturing passenger vehicles we are now also manufacturing public transport vehicles in this country. Minibus taxis which in 2007 were wholly imported are now increasingly being manufactured in South Africa. As late as the Fifa World Cup all procured buses to transport passengers for that event were fully imported. Now, all the buses that are being procured for the bus rapid transit systems are having their bodies manufactured in this country.

In the case of infrastructure driven industrialisation we have seen significant investments by companies that have come to South Africa and invested in this country to manufacture railway equipment. General Electric, for an example, announced a R700 million investment to create railway equipment in this country. And so successful has our programme been that the African Union has decided that South Africa should become the rail production hub for the African continent.

International companies in the fast moving consumer goods sector such as Unilever and Proctor and Gamble have seen that there are markets for their products not just in South Africa but in the rest of the continent and that South Africa is well placed for them to import their manufacturing activities here. In the television manufacturing sector, companies like Samsung and Hisense have invested in this country. Hisense made exports valued at $6 000 in 2014 and the value in 2015 has risen to $20 million. They are targeting exports with a total value of $200 million in five years time with localisation and supplier development operations announced by the company.

The rebate programme in the film industry which we have been running as the government since 2004 has supported 583 productions of which 336 are South African, 86 are coproductions but also they have included attracting major international film studios. One of the Oscar nominees this year is for a film that was made in South Africa with location scenes in our neighbouring country, Namibia. Right now this week, the final filming of one of the largest and most ambitious TV series is concluding here in Cape Town. These productions are employing local crews, supporting local companies as well as investing in this country and paying taxes. For an incentive amount of R3.3 billion over this period we have actually brought into this economy a value of R15.2 billion.

I could give similar stories in other sectors but what I want to say though is that all of these successes are the product of not just incentives which will be provided by government but by the policy framework which we have put in place including the developmental stance we took on tariff setting, the work which we have done on standards to defend our borders against influxes of substandard products, in the product of the designations that we have made which have supported localisation and other support measures which have been tailored to the needs of particular subsectors.

The higher level of localisation that we have achieved has been achieved in a sense that we now have firms that would have supplied us with imports that are now coming into South Africa investing and producing here. But we are not in a point in localisation where we have sufficient local companies particularly companies that are owned by the majority of this country's population who are driving industrialisation. It is for that reason that we have launched a targeted black industrialist programme. When the President mentioned this in the state of the nation address the other day, I heard mumbles from members on this side to the effect that this was more looting by politically connected cronies. Absolutely not! The definition of who is eligible to be on the programme is tight. You will have to be in a company that is actually involved in manufacturing. That company will have to be majority owned or controlled by black people. Those black people will have to be directly involved themselves and taking risk.

The black industrialist funding forum that will be created will be attended exclusively by officials responsible for funding decisions from participating development finance institutions that will also be responsible for the final decisions on funding. They will also provide nonfinancial support as well as identify potential access to public and private procurement opportunities. I am happy to indicate that we already have pledges of over R30 billion from institutions like the Land Bank, the Industrial Development Corporation, the Small Enterprise Finance Agency, the Development Bank of Southern Africa and some provincial organisations like the KZN Growth Fund. We have already received applications and I am pleased to be able to say that the funding forum will hold its first meeting next month.

On mineral beneficiation we have moved from saying that we have to do this to actual action. We are working in a number of priority areas. They include platinum group metals, titanium, iron and steel where there are very significant challenges, polymers and mining equipment. On platinum group metals, South Africa participates already in jewelry manufacturing and auto catalyst. However, the frontier industry in this sector is in fuel sales. If you find that your existing customers are demanding less for your product and paying you less, it is prudent since we have 77% of the world's platinum to find new uses for this. As a consequence government has already spent more than R600 million of the development of platinum industries, the largest part through the creation of the company called Hydrogen South Africa supported by the Department of Science and Technology.

The Department of Trade and Industry is also involved. Last week I participated in the announcement by Isando Precious Metals of a support programme which will enable the manufacturing of equipment to take place in South Africa. Some operations will start in the industrial development zone around O R Tambo International Airport, revitalising that long declared but moribund special economic zone. We also said that before the end of this year we will proclaim a dedicated platinum value special economic zone in the North West province. Also this year we anticipate that a metallurgical and training special economic zone will be established in Musina, Limpopo.

On investment, we have sought to improve our investment facilitation. We have established Invest South Africa as a one stop shop. This is a one stop shop which will include under it an intergovernmental cleared house of all the various agencies that are involved in taking regulatory decisions that could affect investment. This will be overseen by an interministerial committee which is chaired by the President.

Mr President, hon members, clearly we need to do more and we need to do it better. This will be achieved by engaging stakeholders, business, labour and our communities and engaging in a better and more effective way than we have done up to now. As we do this, we will seek to unite our people around the more positive narrative on this economy which actually, as I quoted out earlier, many people outside this country have already to a greater extent than some of us have in this country. This will be a narrative that recognises that we have challenges, that recognises and frontally admits that we have those challenges. But also recognise, celebrates and showcases our successes and our capabilities. This is a path that successful economies have followed and it is that part that this ANC government is committing to traveling with our people as we confront the challenges that lie ahead. [Interjections.]

Speaker, I have less than a minute to go so I think that everybody can wake up. We can throw stones at each other and no doubt many will be thrown in this debate. Where criticism is warranted we need to respond to it and do better but we can't be distracted by grandstanding and histrionics as we too often see in this Chamber. The economic issues are just too important to the people of this country to allow them to be used as political footballs in agendas of people that really do not have any answers to the substantive challenges faced by our people. We have serious work to do and this ANC government is committed to do it.

I thank you.

     
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