Chairperson, MECs who are present here today, select committee chairperson, members of the select committee, hon members, it is an honour to participate in this debate on the Budget Vote of the Economic Development department today. The work of national government can only be successful if we are able to secure strong co- ordination across the three spheres of government, using the combined public resources in a focused and purposeful way to create jobs directly and to create an environment in which jobs are created on scale within the private sector.
Over the past year, the primary focus of our research and policy development was to finalise the New Growth Path, the NGP, for South Africa. By the end of last year, we publicly released the NGP, which set a target of five million new jobs by 2020. What does the NGP mean for the Department of Economic Development?
As with all departments, it requires a refocusing of efforts towards the priorities and actions of the New Growth Path. The department will help to ensure co-ordination between public agencies, national departments, provinces and local authorities, private investors and our social partners, and co-ordination with efforts to expand our economic links with economic and trading partners. In each of these areas, it must constantly identify employment and economic development opportunities.
I draw specific attention to the goal of economic development. It embraces economic growth but it is not confined simply to improving the gross domestic product, the GDP. Human welfare is not adequately measured only by a rise in the monetary value of the goods and services in an economy. Development requires that growth brings jobs - yes, decent jobs; that the rural poor see an improvement in their livelihoods; that women can contribute as equals and in full in the economy; and that young people are taken from the hopelessness of unemployment to the optimism that having a decent job creates for citizens.
For a national department such as Economic Development, it requires that all our resources be used effectively and with high impact. This means how we utilise the R594,5 million in the department's Vote, the balance sheets and industrial know-how of the Industrial Development Corporation, the IDC; Khula; the SA Micro-Finance Apex Fund, Samaf; and the mandate and regulatory authority of the competition authorities and the trade commission. It is about integrated co-ordinated action across government. The keyword is action.
There are still too many examples of a public bureaucracy that has forgotten why it was created, and indulges in foot dragging and focuses on processes, on meetings and on paperwork. Investment projects are often delayed because decisions are not made, environmental impact assessments are delayed and planning permits are not provided. There is too much cholesterol in the system, and it is affecting the vigour of the economy.
Now that we have our basic jobs framework in place, our big focus for the next 12 months will be on unblocking, facilitating and moving things forward.
Apartheid left South Africa with an extraordinary spatial divergence between the economic centres of the country, linked to the metros, and the densely settled rural areas of the former Bantustans, which have very limited economic resources and investment. Within metros too there are vast disparities and spatial challenges, with townships located far from most employment opportunities.
A core task of the New Growth Path is to break with this legacy through a coherent approach to spatial development, backed by strong investment in infrastructure and the identification of viable and sustainable employment opportunities for historically disadvantaged regions. Rural development, of course, necessarily depends largely on links to the main urban areas, and it's exploiting these synergies that is important.
The New Growth Path therefore has profound implications for spatial economic planning and the work of provinces and local government. This includes co-ordination of policy frameworks, finance for development, regulatory requirements and partnerships in achieving the jobs outcome. Provinces have recognised that economic plans and frameworks need to be aligned with the New Growth Path.
We discussed the basic ideas in the NGP with provinces prior to its adoption by Cabinet. We have taken account of the views of MECs and Salga representatives. I addressed the President's Co-ordinating Council, the PCC, on the NGP, and the Ministry or departmental representatives have attended executive strategy sessions and engaged with officials across the country.
These efforts helped to align provincial plans, and currently the economic frameworks of Gauteng, Mpumalanga, the Eastern Cape, the North West, the Northern Cape, the Free State, Limpopo and KwaZulu-Natal, as well as Ekurhuleni, Johannesburg, Ethekwini and Tshwane metros, have begun to reflect the key messages and priorities of the New Growth Path. Some provinces have begun to submit portfolios of priority projects to the department to assist in facilitating funding or unblocking obstacles to implementation.
Now we need to work with each other to ensure that budgets across government strongly reflect these new priorities. Provinces and local government can also tap into the national funds that we are mobilising. For example, the Industrial Development Corporation has committed to making R102 billion available over the next five years for projects and priorities in the NGP.
The five-year funding allocation will include R22,4 billion for green industries; R22,1 billion for mining and beneficiation; R20,8 billion for manufacturing; R7,7 billion for the agricultural value chain; R14,8 billion for tourism, the creative industries and high-level services; R11,1 billion for logistics, infrastructure and cross-sector projects; R500 million for venture capital; and R2,5 billion for funding for distressed companies. We will allocate and review these based on experience.
This is an extraordinarily high level of industrial funding that is available by the standards of what we have done in the past. Provinces and local government, together with investors, can help us to identify viable projects that can access this funding. But the opportunities for developing coherence go deeper. We want to streamline our processes to avoid duplication and ensure that investors see co-ordinated government in action. Duplication and proliferation of agencies, for example, does not help a small entrepreneur who wants to know what support is available, and where.
National government is taking the first step with the amalgamation of Khula, Samaf and the IDC small-business lending into one agency. The agency will retain the brand name Khula, and is intended to be a wholly owned subsidiary of the IDC. In this way, it will be able to access funding in capital markets at reasonable rates, and draw on the IDC's infrastructure.
Once we have made sufficient progress, we will talk to provinces and the metros to see how we can further reduce duplication in small-business funding. Hon members, your ideas will be warmly welcomed.
In my budget speech in the National Assembly on 12 April this year, I advised that I had requested the IDC to develop support measures for companies affected by the exchange rate. The IDC has completed its work, and it is my pleasure to inform hon members today of the new facility. The IDC will make available up to R2 billion, through the distress-sector facility, for companies that face challenges as a result of the strong rand. This can take the form of equity or loans for working capital for upgrading machinery and technology, or for developing new export markets.
For companies in this position, where there is also a significant employment gain or employment consequence, the cost of the funding will be at a significant discount. Depending on the specific circumstances and source, IDC funding will cost either prime less 3% or a fixed rate of 6%. Where appropriate, the IDC will look at capital and interest moratoriums for a period to allow the company space to turn around and trade back into profitability.
This facility is significant. It is much lower than rates offered on the commercial market, and the 6% fixed rate will be financed through the job development bond facility that we launched last year.
As we pursue the ambitious goal of five million new jobs, we need to think in new and innovative ways. Joseph Stiglitz, Nobel Laureate and a member of the economic advisory panel that I set up last year, made the observation that governments across the world had decommissioned many public policy instruments over the past 30 years. He called on governments to "re- commission" in the service of development. That is exactly what we are doing across a wide front.
The direction of government is to use state-owned enterprises, development finance institutions, or DFIs, public agencies and regulators to promote the public interest with vigour. We recognise that this will attract some criticism from vested interests and commentators. But, unless we do things differently, we will not have different results.
Economic orthodoxy has its limits. One of the lessons of the global economic crisis is that developmental states that are prepared to do things differently have been able to recover faster and create more employment than those who had a business-as-usual approach.
I would like to take the example of competition policy to illustrate the approach. The Competition Act is an important and carefully crafted piece of legislation. It is not simply a copy of the antitrust legislation found in the United States or Europe. In its preamble, it recognises the need to balance the interests of workers, owners and consumers. The purpose of the Act is to promote and maintain competition in order to achieve six specified outcomes.
One of these is, and I quote: "to promote employment and advance the social and economic welfare of South Africans". Another outcome is to promote ownership among black South Africans in the Competition Act. A third outcome is to provide consumers with competitive prices and product choices. The remaining three outcomes relate to greater efficiency in the economy, the promotion of small businesses and expanding South Africa's participation in global markets while recognising the role of foreign competition.
These outcomes go to the heart of what a modern developmental state, faced with our challenges, would seek to do. It is therefore not a narrow mandate. Competition is a means to an end, not an end in itself. In other words, the test of successful pursuit of competition goals will be in the outcomes, not only in the structure of markets, but also in the level of employment, transformation, industrial development and consumer welfare.
The Act specifically sets out four public-interest considerations that the competition authorities are required to consider. It provides for the Minister of Economic Development to make representations on public interest grounds to the Competition Commission, to the Competition Tribunal and to the Competition Appeal Court.
We believe that the goals of the Competition Act can be achieved in two interrelated ways: first, by improving competition itself, we create the dynamic, flexible and innovative corporate agents that can drive economic growth and performance, so that is important; second, by implying appropriate conditions in proposed transactions where these are necessary, we can ensure not only an appropriate balance between the interests of workers, owners and consumers, but also achieving success with the public interest objectives set out in the Act.
I am pleased that our competition authorities are making great headway in both these areas. I hope that a less strident and more informed public debate can be conducted on how we can deepen this process in a manner consistent with our legal obligations and our developmental goals.
A big focus of the competition authorities, which have been allocated R141,8 million for the 2011-12 financial year, will be on the construction industry. The commission identified 70 cases of possible price-fixing or collusion, many involving public infrastructure projects. Some R29 billion worth of contracts are under scrutiny. It is an important investigation for government as the New Growth Path relies heavily on cost-effective infrastructure with investment set at over a quarter of a trillion rand a year.
I have spoken at some length about the competition authorities, but our focus is across the economic agency landscape. My colleague Minister Gordhan announced a few days ago the progress with finalising a new set of procurement regulations that will provide for the designation of specific sectors, so that public entities are required to purchase products in these designated sectors only from local manufacturers. In this way, the state will create a demand stream that local entrepreneurs can satisfy. I have asked the development finance institutions to examine how they can create packages of funding support for local entrepreneurs, to take up this opportunity. Over the past year, two of the DFIs together provided R272 million to small and medium-sized enterprises which tendered for state contracts.
Khula is working on additional specific support measures. I have now requested that a policy guideline be developed on sustainability.
One part of the guideline is to focus on areas that are critical to the New Growth Path, so that we can generate local industrial opportunity. Another guideline is to ensure that measures are in place so that local entrepreneurs who start with public contracts can graduate to supplying the private sector, so that we avoid a situation where enterprises are solely reliant on state tenders, and so that we can provide new opportunities for new entrants to the market.
Khula is also involved in expanding its funding base, and is in discussions with public agencies. We plan to announce a new Khula direct funding model by the end of this month, and to publicly launch its direct lending facility by 1 July 2011.
The Department of Economic Development and the agencies accountable to it have worked on projects that cover all nine provinces. In the limited time available, let me illustrate a few. The department assisted in securing R39 million funding from the Employment Creation Fund for feasibility studies, for the phyto-energy biofuels refinery and integrated canola farming in the Eastern Cape.
The department participates in the work of the Solar Park Steering Committee, a Northern Cape project which aims to contribute 5 gigawatts of renewable energy in the medium to long term. It serves on the Square Kilometre Array task team, which has commissioned research on the socioeconomic impact of the programme for the Northern Cape. It has facilitated feasibility studies for the use of sludge from the silicon smelter in Polokwane to manufacture building materials. The project promises to create employment, protect the environment and improve the living conditions of the surrounding communities.
The department has participated in the evaluation of green projects proposed to the Gauteng provincial government which also have significant employment potential. In the Free State, a large new investment was facilitated through industrial funding for a chicken broiler and abattoir, which includes a workers' trust and which will create 900 direct jobs at the facility and provide a reliable demand for maize, of which product South Africa currently has a surplus.
In KwaZulu-Natal the department is working in one of the rural districts to support a rural dairy co-operative so that the local community can convert their cattle assets to sustained cash income.
In Mpumalanga, the department and the province are working with an investor to unblock obstacles to an agro-processing project that involves a large foreign investor and which holds the potential to create large numbers of jobs in the factory but also in the agricultural supply chain.
In the Western Cape, one of the DFIs has helped to fund alternative economic opportunities for a fishing community, displaced by the closure of a processing factory, by financing a new freezing facility for fish and helping a fishing co-operative to buy their own boat.
The department has reviewed the local economic development strategies of municipalities that we have visited under the leadership of the Deputy President in the antipoverty campaign. These include Bitou near Plettenberg Bay, Nthunda village in the Nkomazi Municipality in Mpumalanga, and Manthe in the Taung area in the North West. We have also asked key development finance institutions to deepen their engagements in these impoverished areas and there has been some initial success.
We have worked with the Department of Co-operative Governance and Traditional Affairs on the implications of the New Growth Path for integrated development plans, IDPs.
Clearly, we need to help build greater expertise at local level. With this in mind, in March this year, the department hosted an economic capacity- development programme for provincial economic development departments. Eighty-five officials attended the five-day certificate course, presented by the Graduate School of Public and Development Management at the University of the Witwatersrand. The course dealt with local and regional economic development, and outlined how the New Growth Path supports development of provincial economic competitive advantages and niches.
We are focusing strongly on implementation, on ensuring that what we do now, what our social partners in business and labour do in partnership with us, can help to achieve the five million new jobs by 2020. Thank you. [Applause.]