Chairperson, Cabinet colleagues, hon members, Judge President Dennis Davis, officials of development finance institutions and commissions, the Department of Economic Development, social partners, special guests and members of the public, today I have the honour to present to you the third budget of the Department of Economic Development.
About 18 months ago, Cabinet adopted the New Growth Path as the framework for our economic policies. It places employment and decent work opportunities at the centre of our efforts and aims to rebuild the productive sectors of the economy, moving away from a consumption-led, unsustainable growth trajectory.
In the past year we focused on implementation, laying the basis for more inclusive growth and greater social equity, drawing in departments across the state and social partners in business and labour. In January last year, Cabinet set a goal to reverse job shedding in the economy, given the 118 000 job losses in 2010. How well did we fare?
The economy did indeed stem the tide of job losses of the preceding two years. According to Statistics SA's Quarterly Labour Force Survey, the economy created an average of 1 000 net new jobs a day in 2011 and employment grew by 2,8%. The employed labour force stood at 13,49% million by year end, from a low of 12,9% million in September 2010. This is an excellent start, but more needs to be done, particularly to grow jobs in manufacturing and agriculture.
The gross domestic product expanded by 3,1% in 2011, slightly higher than the previous year, driven by strong consumer spending. Manufacturing production grew slower than in 2010, rising by 2,4% last year. Output has not yet recovered to the levels before the global slowdown of 2009.
Mining production increased in some sectors. However, the commodity price boom of the last few years had peaked and prices softened markedly last year. Fixed investment recovered in 2011, growing by 4,4% - its best performance since 2008. The manufacturing investment is still below levels of four years ago. Foreign investment levels grew.
Demand for imports, particularly consumer items and intermediate goods, increased by 9,7% in volume terms, significantly faster than exports. China is our largest export market, principally for raw materials, but the rest of Africa, Europe and the United States remain key markets for manufactured goods.
South Africa is strongly integrated in the global economy. Our trade as a percentage of GDP is about the same as that of China and significantly higher than that of Brazil or the United States. The 2008 global economic downturn therefore had a particularly sharp and negative impact on employment in South Africa. Therefore, global economic prospects matter to us.
The International Monetary Fund's latest World Economic Outlook indicates continued fragile and uncertain global economic performance. China's growth is slowing and most organisations for economic co-operation and development growth forecasts for their countries are low or negative. We must thus reduce our vulnerability by diversifying the economy's sources of growth, rely more on the domestic market, local production and African integration, and ensure greater balance in our external economic relations.
I wish to highlight progress under the New Growth Path themes and conclude with the department's spending proposals for the year. Industrial finance is identified as a critical engine for industrialisation and jobs in the New Growth Path. The Industrial Development Corporation is the country's largest industrial funding agency. Two years ago, we identified the key challenges it faced. Working closely with management, we began a systematic reorientation of the IDC to improve its impact. Significant progress has been made, which we can all be proud of. Last year the IDC increased its investment target to R102 billion over five years - a substantial increase over the preceding period. It introduced a new low-cost lending facility for job-rich projects, at prime less 3%. It refocused investment to the New Growth Path industrial sectors. What has been the impact of that?
Over the past 12 months, IDC approvals of funding grew strongly, from R8,7 billion to R13,5 billion. This is an increase of 55%. At this rate of growth, the IDC is confident that it will reach its new investment and lending targets. The IDC has become faster in processing applications - turnaround times for the approval of projects improved from an average of 82 days when we started to measure it to 50 days. We now monitor developmental targets every quarter, starting with jobs impact.
It is my pleasure to advise you that the IDC has issued a "jobs bond" to the value of R4 billion, taken up by the Unemployment Insurance Fund by R2 billion in 2010 and, based on its exceptional success, a further R2 billion this year, to promote lending with a strong jobs impact.
In November we reconstituted the board of the IDC and brought in fresh talent and new skills, drawn from the engines of the economy, the business sector and trade unions, to reflect the diversity of experience and a strong developmental focus. I thank the previous board members and wish the new board, under chairperson Monhla Hlahla, well.
Let me highlight some significant investments. The IDC support for Ford encouraged the company to invest R3,4 billion here and select South Africa as one of only three global production hubs for the Ford Ranger, for export to 148 countries, supporting jobs in Ford and its supplier companies. The IDC financed a project to use discarded plastic bottles as feedstock to produce polyester fibres for domestic use and exports, creating 110 jobs in the Propet factory in Milnerton. With additional funding for the agreement we signed earlier today, 90 new jobs will now be created by July, with an estimated 5 000 jobs in the informal sector for people who collect and recycle the plastic bottles.
The IDC provided support to Bell Equipment during the 2009-10 economic downturn, which sustained the company during a difficult period. I visited the factory in Richards Bay recently and saw the company expanding production of earth-moving equipment. It rehired 1 000 workers in the past 18 months, bringing its employment to 3 500 persons.
The expansion of an existing large shallow open-cast platinum mine and processing plant in the North West, with potential for downstream beneficiation in future, will create about 10 000 jobs in construction and mining. The local community will own 27% of the expanded mine. [Applause.]
The agro-processing fund approved nine projects for a total of R66 million, including a small pasta manufacturer, two dairies and a producer of dried fruit and nuts. All in all, the jobs impact of the IDC's work is encouraging, with net approvals last year expected to create 30 127 new jobs and save a further 11 000 existing jobs. I think you can say that is a job well done. [Applause.]
I am pleased to announce that the IDC will now issue a R5 billion "green bond", to be taken up by the Public Investment Commission with a 14-year tenure, in order to raise the resources to invest actively in the green economy. I wish to thank the IDC management for their efforts to transform the corporation to reflect new shareholder requirements. Furthermore, I wish to address the competition policy, which is given prominence in the New Growth Path. We inherited an economy with high levels of what we may call "lazy capitalism", characterised by monopolies, price- fixing, market segmentation and corporate collusion. A dynamic economy that can create large numbers of decent jobs require strong, competitive enterprises.
Over the past year, the Competition Commission dealt with 472 cases. I wish to highlight the construction industry probe, which found widespread evidence of collusion. The commission identified about 200 different projects where bids were effectively rigged, including Soccer World Cup stadia and some freeways. About 21 construction firms have come forward to admit involvement. These include the top five construction companies.
The Competition Tribunal granted consent orders worth R345 million in the past year and heard 63 merger cases. It imposed conditions in 11 cases, mostly related to competition conditions, with four related to requirements around employment.
Competition is vital, but our legislative framework does not subscribe to what we may call a trickle-down approach, which assumes competition alone will ensure the desired developmental impact. The Act actively mandates the competition authorities to consider public interest criteria, including the impact on employment and linked industries when evaluating proposed mergers and acquisitions.
We emphasise these legally mandated criteria in our engagement with the competition authorities. A stronger public-interest competition regime is emerging. The settlement with Pioneer Foods provided for reparations to consumers through lower prices of bread and flour. An amount of R250 million of the fine imposed was set aside for an IDC-managed agro- processing fund, which will promote new entrants and job creation.
When a Japanese company, Kansai Paint, took over the local paint manufacturer Freeworld Coatings Ltd, it undertook to retain employment and industrial capacity in South Africa and invest in expanded production, research and development. Last week I met with the President of Kansai and he was optimistic about the prospects of the company locally. He is working with us to more than double the company's industrial capacity and jobs. Walmart applied to take over Massmart Holdings Ltd in late 2010. We requested a binding commitment to support and strengthen local suppliers and respect worker rights. When it declined to do so, we argued the case at the Competition Tribunal and the Competition Appeal Court. These efforts have been positive. More than 500 retrenched workers have been reinstated. A supplier development fund has been mandated and its terms are the subject of an expert investigation. The thoughtful judgment of the Competition Appeal Court expanded the jurisprudence and endorsed our view that when considering mergers and acquisitions, public interest criteria in the Act are not cosmetic but fundamental.
We nominated a Nobel Laureate in Economics, Professor Joseph Stiglitz, as the government expert on a committee that will report to the courts on appropriate conditions within the next few months. Of course these interventions have not been without controversy and criticism, but government cannot take the easy road when doing so will damage employment and industrial capacity.
I now turn to small business development, where the New Growth Path identified the need to support entrepreneurship with a more rational and integrated institutional framework for small business public funding. Yesterday I was particularly pleased to launch the Small Enterprise Finance Agency. I would like to welcome the chair of the board, Ms Sizeka Rensburg, and the newly appointed Board members. This new agency consolidates Khula Enterprises, the SA Microfinance Apex Fund and the IDC small business lending book. Sefa will offer loans, initially up to R3 million. By reducing the number of agencies, we estimate annual savings in excess of R20 million through cutting the duplication of costs and services. That money can flow into more lending to small businesses rather than into the bureaucracy, but it is not simply cost-cutting that motivated the amalgamation. We want a better service to small businesses a one-stop shop for funding.
China Development Bank and the IDC signed an agreement today to access US$100 million for small business lending on favourable terms, based on a 10-year tenure. So, about R800 million will be made available by China Development Bank for small business lending in South Africa. This will boost the IDC's capacity to support Sefa. [Applause.]
The availability and cost of funding to small businesses is vital but it is not all that is important. More needs to be done to strengthen technical skills and promote market access. That is the reason we were pleased to sign a co-operation agreement with the SA Institute of Chartered Accountants, where they undertook to train 100 accountants to support small businesses and to set up a business hub to provide technical assistance to small, medium and micro enterprises. Government will make R6 million available to support this important initiative. [Applause.]
Sefa will have resources to fund its lending programmes. An amount of R2 billion will be available over the next three years for lending, through fiscal transfers, reserves and a R921 million shareholder loan from the IDC. Yesterday we launched Sefa and today we signed an agreement with the Institute of Chartered Accounts to provide technical support. We now have the resources available.
I visited Roodepoort with Deputy President Motlanthe recently, as part of the antipoverty campaign. We met Mrs Fikile Zikhali, who is with us today. She runs a shoe-manufacturing corporative called Ujima Bakwena. They face difficulty with the supply of leather and with their technical capacity. Earlier today, Mrs Zikhali concluded an agreement with Mossop Western Leather and United Fram that will save this shoe co-operative at least R200 000 a year. [Applause.] I have chosen this selection of examples to illustrate the kind of work that government is engaged on across a very wide front.
The green economy is shaping the next wave of industrialisation and is a key sector in the New Growth Path. What have we done?
Following the release of the green jobs report, we concluded an accord on the green economy in November last year, which signalled a partnership between social partners to seize green job opportunities for South Africa. It contains clear commitments by each partner, with measurable targets. About 250 000 solar water heaters have now been installed in South Africa, a solid step towards the set target of one million. There has been a partnership between a number of departments and entities to achieve this. We worked with industry in order to manufacture more of the units locally. In January this year, the SA Bureau of Standards approved a new factory in Alrode with the capacity to produce 8 000 units a month. The IDC itself committed about R5 billion in industrial funding for projects in the green energy programme, including supporting the entry of community empowerment groups. The department unblocked projects in green energy that had become stuck in bureaucratic delays, for example, a wind farm in Coega in the Eastern Cape.
South Africa hosted a very successful Cop 17. The Department of Economic Development were part of the technical team and played a role in showcasing green economy opportunities to visitors and investors.
Hon members, I invite you, after the debate today, to accompany me to the green economy exhibition that will take place and where we will be serving snacks. You will see a package consisting of visuals, posters and touch- screen videos that tell the story of the green economy. We will do a provincial road show to bring the green economy message to our people.
My next focus is on infrastructure development, the first driver in the New Growth Path. Last year, Cabinet set up the Presidential Infrastructure Co- ordinating Commission, headed by the President. It produced an infrastructure plan, which integrates the actions of the state and lays the foundation for long-term job creation, growth and social inclusion. Last week, we released details of the plan and its 17 strategic integrated projects at the Economic Development Conference on Infrastructure and Development, where it was widely and very warmly supported by the private sector, trade unions, community groups and academics.
At the request of the President, I chair the secretariat responsible for the day-to-day work of the PICC and draw on the department for planning, costing and evaluation services. It has been a real privilege to work with a committed and talented group of Ministers, Deputy Ministers and a very hardworking technical team of officials on the PICC. Localisation is vital to reverse deindustrialisation pressures and strengthen our capacity to design and make things. We signed a local procurement accord with the business sector. This included 85 of the largest companies, with labour and community partners. We set an aspirational target of 75% local procurement, with concrete commitments. This is the first agreement of its kind in South Africa. Cabinet approved procurement regulations that require all public entities to procure designated goods only from South African manufacturers. The first designated products are bus bodies, power pylons, rolling stock, canned vegetables, clothing, textiles, footwear and leather, set-top boxes and oral solid pharmaceuticals.
The infrastructure plan has a strong localisation component for the purchase of trains, boilers, earth-moving equipment, turbines and other key inputs. Minister Davies recently released the updated version of the Industrial Policy Action Plan, which is the manufacturing driver of the New Growth Path, to increase the competitiveness of local companies.
South Africans do not always know where to buy locally produced goods and services. To remedy this we have now commissioned Proudly SA to drive more focused marketing and "buy local" campaigns and compile a database of local suppliers. To this end the Department of Economic Development has made available R8 million in funding. We have reached an agreement with a local manufacturer to illustrate what can be done to buy conference files at a lower price than the imported product and make a saving, just to one department, of about R35 000 a year. I will now focus on African development, which is key to achieving the New Growth Path goal of widening and deepening our markets. Ten months ago, President Zuma hosted talks involving 26 African heads of state and government to promote a free-trade area that would include 600 million people across the continent, from Cape to Cairo, and create a large market for our goods and an opportunity to expand continental economic development.
Complementing this, the PICC identified 11 major infrastructure projects on the continent. The IDC actively invests elsewhere on the continent. It has a portfolio in 20 other countries on the continent, with a market value of some R19 billion.
Last year, for the first time, we worked with the Namibian competition authorities on the Walmart matter, deepening policy co-ordination in the region. Economic development rests on skills and infrastructure, hence their importance in the NGP.
In 2009, the Department of Economic Development set up a training lay-off fund, now administered by the Department of Higher Education and Training, which provides support to workers as an alternative to retrenchment. I recently visited the BMW plant in Rosslyn, Pretoria, to launch the new 3- series production facility. The company had used the training lay-off scheme during the recession and has now invested R2,2 billion in upgrading the operation, almost doubling its production of cars to over 90 000 unit, and employing 600 additional workers in well-paid, decent jobs. Government matters! [Applause.]
In July last year, we concluded a National Skills Accord. The department has done a survey of engineers and artisans. We sponsored a course for provincial and local government officials at Wits University.
Finally, the NGP's biggest value-add is its call for integration across government. The best example is the PICC. There were numerous other examples this past year, from inter-ministerial committees and Minmecs to the discussions and negotiations with our partners in business and labour.
I now turn to steps taken to improve the department's internal capacity and budget spending this past year. The Department of Economic Development's staff numbers increased by 26%. We also tapped into additional personnel, without incurring any cost for the department, through the secondment of staff by other public agencies to our work on infrastructure. This is part of building a 21st-century delivery capacity, using networks of talent across the state. The department's projected spending for the past financial year, excluding transfers, is expected to be about R91 million, or 105% higher than the preceding financial year. The capacity to spend has increased.
Looking forward, the key priorities in the year ahead are to implement the strategic plan and strengthen the various areas of work referred to today. They include the roll-out of the infrastructure plan; strengthening institutional capacity in the Department of Economic Development and its agencies; focusing on the employment impact of policies; and improving small business performance, including through the step-by-step roll-out of Sefa across the country.
One of the challenges is to get better development impact of small business spending across the three spheres of government. To that end I have appointed an advisory committee to put proposals to me, consisting of Mr Thami Mazwai, Ms Sizeka Rensburg and Ms Monhla Hlahla. We will finalise with the Department of Trade and Industry further support for co-operative and strengthen links with provinces and local government.
The budget allocation for this financial year amounts to R672 million, most of which will go to agencies. We propose to distribute the budget as follows: R169 million for small business funding to Sefa; R172,8 million for the competition authorities; R73,7 million for trade administration to the International Trade Administration Commission, or Itac; R108 million to the IDC for the agro-processing fund; R60 million for administration, the Ministry and capital expenditure; R29 million for economic policy development; R42 million for economic planning and co-ordination; and R18 million for economic development and dialogue.
South Africa today is vastly different from the country that the founding members of today's ANC lived in when they met in Mangaung in 1912 to resist the planned 1913 natures land Act. I pay tribute to those who fought for a better future for all South Africans. I wish to recognise and welcome three visitors to Parliament today: Ms Ann Kotane, daughter of the late Moses Kotane; Mrs Martha Mahlangu, mother of the late Solomon Mahlangu; and Lethu Ngcobo, a scholar from Durban. [Applause.] [Interjections.]