Hon Chairperson, during the NEC lekgotla of the ANC in January, the ANC identified five challenges which must be tackled quickly to turn around the economy of the country. One of the questions which had to be answered was: How far did we progress as a country in ensuring that the people share the wealth of the country, noting that the Freedom Charter demands that the mineral wealth beneath the soil, the banks and monopoly industry shall be transferred to the ownership of the people as a whole?
Arising from the demand of the Freedom Charter, the issue of nationalisation of mines had to be debated so as to give meaning to the above-mentioned clause of the Freedom Charter. The NEC also had to acknowledge that the ownership of all mineral deposits has reverted to the state and that private operators pay royalties to the state.
The above challenges, which were raised by the ANC, were necessitated by the fact that the structure of the economy of South Africa has not changed over the past 500 years. This economic structure is characterised by the extraction and export of unprocessed minerals, agricultural products, marine resources and other raw materials. There is minimal or no beneficiation of these raw materials, which leads to hampering the creation of the tertiary goods.
This economic structure was also characterised by a poorly skilled migrant labour. Because of the poor skills in the economy, the economy was unable to reach its maximum development. This is evidenced by the fact that when the economic growth was at its zenith, the unemployment rate continued to be above 23%. During the global economic meltdown, the unemployment rate increased to about 30%. When taking into account the expanded definition of unemployment, it could have easily reached 40% of the population. In these figures, the unemployed youth of the age 18 to 24 is estimated to be about 2,8 million people. No government can sit back and allow such a situation to thrive.
That is why the ANC in its January 8 statement committed itself to building a developmental state which is democratic, people-driven and people- centred. This developmental state will pursue a sustained development based on an inclusive growth path. Since South Africa has very high levels of inequality among all races, the new growth path should factor in the equitable distribution of wealth and job creation in order to move towards an inclusive economic development.
With the above-mentioned high unemployment levels, it shows that we are far away from sharing the country's wealth. Since we know from time immemorial that the market system has proved that it was never geared to redistribute wealth equitably, the state must intervene and correct the market failures. An example of a classical market failure is in the steel industry where a state-owned enterprise, Iron and Steel Industrial Corporation, Iscor, was privatised and the South African economy is still bleeding from high steel prices, although there are plenty of ore and coal reserves in the country.
The example of how the country can be ripped off is in the fight between ArcelorMittal and Kumba. When ArcelorMittal was getting cheap ore from Kumba that benefit was never transferred to the consumers of steel; instead, they were slapped with a high import parity price. These high steel prices led to the lowering of the economic growth. What is worse in the scenario is the continued export of iron ore, even when there is evidence that if iron ore is processed into steel, more jobs can be created. For example, if the selling price of one ton of iron ore is $180, only 0,17% of the people will be employed at a cost of about R8,5 million; whereas when one ton of iron ore is processed into structural steel, structural steel will be sold at $3 000 a ton and create about 30 jobs at an investment cost of about R0,5 million. This shows that when we beneficiate the iron ore the process is labour- intensive as opposed to capital-intensive when the iron ore is unprocessed. The local companies continue to export iron instead of processing it. For example, in 1990 about 17 000 tons of iron was exported, and in 2008 the export of iron ore has almost doubled to 34 000 tons. In 1990 the local consumption of iron ore was 11 000 tons, and in 2008 it was still 11 000 tons. This flat consumption of iron ore proves that, instead of creating jobs, the steel industry has shed the jobs. This situation cannot be allowed to continue when we have about 4,3 million unemployed people.
This demands that a developmental state must create a state-owned mining company which will ensure the reduction of the cost of doing business in the steel industry and related fields. This state-owned enterprise must develop critical skills and the expertise in the field. The creation of this state-owned enterprise must ensure the viability and cost competitiveness of local steel production. This enterprise must also ensure a competitive steel-pricing regime to support the development and deepening of value-added manufactured products in the down stream industry.
Development finance institutions like the Industrial Development Corporation must fund such an enterprise. This enterprise must contribute to both direct and indirect job creation. This must be done as of yesterday because the steel industry continues to be a strategic industry for the growth of our economy. The national objectives of promoting government policies such as employment equity and broad-based black economic empowerment must be at the centre of the corporate direction of this enterprise.
The third challenge identified by the ANC was how to create 4 million decent and sustainable jobs by 2014. The government infrastructure budget of about R800 billion in the next Medium-Term Expenditure Framework, MTEF, period must be used wisely to stimulate the economy and fund the new growth path. This can be done by using state-owned enterprises like Eskom and Transnet.
In their procurement of goods and services in their infrastructure expansion, the Industrial Policy Action Plan demands that enterprises like Transnet and Eskom must do fleet procurement when sourcing their goods. For example, when Transnet is sourcing their locomotives, instead of buying two or three locomotives at a time, it must source more than 30 so that the components which will go to those locomotives are manufactured locally. This must also be matched with the creation of skills like artisans, engineers, procurement managers and other related skills which must provide support and maintenance of the fleet.
The other challenge we face in growing the economy is the sourcing finance for development. This demands that the developmental state must adequately resource development finance institutions. The Industrial Development Corporation was last capitalised in the 1950s; the IDC is expected to source funding from the markets where it is going to pay a premium in loan repayments. This high premium will be passed to the customers of the IDC, hence this will increase the cost of doing business in South Africa.
The developmental state must try to use the Brazilian model of development finance, where the Development Bank of Brazil uses a wide range of instruments to finance development, for example, direct and indirect operations where half of the finances go through commercial banking systems, project finance, import and export, equity investment and nonrefundable credit lines. Within the same system of the Brazilian Development Bank, there is an investment bank which is capitalised to the tune of $50 billion. Through the equity investments, the bank is represented in all the large corporations of Brazil where they actually play the strategic role of directing these companies to support the economic development of the country.
Although the Brazilian capital market is well-developed in terms of corporate governance, the Brazilian Development Bank ensures that they are open to the minorities and historically disadvantaged individuals. It means that the Brazilian Development Bank is being used to deracialise the financial market of Brazil. This bank derives its strength from the regular recapitalisation from the state. For example, last year the bank disbursed about $69 billion, of which $48 billion went for infrastructure projects which were worth $93 billion, and this led to the creation and maintenance of about 4,5 million jobs during the investment period. This large investment was possible because the Brazilian bank injected $100 billion in the previous two years.
In the South African situation, our IDC must also be regularly recapitalised by the government so that it can also have its footprint in major projects which will drive the Industrial Policy Action Plan. To achieve this objective there must be co-ordination between the Department of Trade and Industry, DTI, Department of Finance and the IDC. The DTI must identify the incentives as per the demands of the Industrial Policy Action Plan, and the IDC must identify the projects which must be funded. Lastly, the department must identify tax incentives and loans which must be given to the IDC to fulfil its tasks.
This co-ordinated approach must direct funding towards the manufacturing sector so that the objectives of the industrial policy plan can be attained. The beneficiation of mineral resources and agricultural products must be at the centre of the new growth path because they tend to be more labour-absorbing. The Department of Trade and Industry must adopt a developmental approach in the tariff setting. For example, those import products which are important to the value chain beneficiation can have their tariffs lowered or eliminated. The tariffs can be increased in order to protect this infant industry until it is able to stand on its feet. The development finance institutions must have the capacity to adapt and be flexible. The strategic objectives of these development finance institutions must be always to serve the public interest. The public interest objective demands that the employees of the IDC must be highly qualified and technically efficient.
During the public hearings of the Industrial Policy Action Plan there was unprecedented unity in the inputs of the labour, organised business and private business sectors. The unity between labour, business and government can lead to the speedy realisation of the new growth path. This new growth path must lead to economic development, which leads to sustainable improvement of the country's living standard, in an equitable manner. As the ANC said in 2009, working together we can do more. Thank you. [Time expired.]