What we mean by radical economic transformation - Rob Davies

Transcript of speech by Minister of Trade & Industry in SONA debate, June 18 2014

Speech by Minister of Trade and Industry, Rob Davies, in the debate on President Jacob Zuma's State of the Nation Address, Parliament, June 18 2014

The MINISTER OF TRADE AND INDUSTRY: Thank you very much, Deputy Speaker. Mr President, there has been a fair amount of confusion in this debate about the meaning of the main theme that you raised in your speech last night: radical economic transformation. And, I think, there have been a couple of really glaring examples in this debate about what radical economic transformation is definitely not about. I want to give two examples to begin with.

The first is that "radical" is definitely not doing what the hon Maimane did, and that is calling for bold new ideas and then trotting out tired old clichés, because that's what he did. He said that what we need to do is simply repeal some of the legislation that the DA didn't like, and then that was added to by the hon Wilmot James who complained about the components of the New Growth Path, and Ipap and the infrastructure programme as having too much status.

I think we need to ask, if that is the case, why it is that when business process service incentives are deployed to support the roll-out of business process service centres in the Western Cape, or when the state-owned Industrial Development Corporation rolls out incentives to support green industries in the Western Cape, or when tariffs are introduced and rebate schemes are introduced and tax incentives are given to support, for example, the roll-out of television manufacturing in the Western Cape - when all these things happen with the status policies, it is the Western Cape government that is the first to try to claim the credit. Why is that the case? [Interjections.]

I think that we should not take too seriously the claims made that the DA and the Western Cape are all about supporting small business. The hon Minister Zulu made the point: the DA closed down every single red door business-support service in the Western Cape and we had to reopen them as Seda centres. We had to run to stay still, because the DA took us back. That is one example.

What about the claims of red tape? Well, go and ask traders in Mitchells Plain or other parts of the Cape Flats. Are they allowed to trade under the regulations of this city in areas that are economically lucrative, let alone come into the centre of town and trade? No, red tape reduction is actually more of a myth than a reality. [Interjections.]

So, I think that is one example. The other example I think is a bunch of well-known bons vivants and playboys who are known for acquiring their clothing in some of the most upmarket boutiques in this country, then putting on workers' clothes and coming to Parliament as though this were some sort of fancy-dress party. That is not radicalism.

And then we had a lot of drama: this self-styled commander in chief coming in here, giving his first speech, shaking up Parliament. What did he do? He walked in here, proclaimed that he was the champion of the downtrodden, the oppressed, the working class of the country. But what was the first issue he raised? The Parmed medical scheme. [Laughter.] I think the word for this is "anticlimax".

What then is radical economic transformation? I think we can do worse. We can do worse than looking at the Oxford English dictionary definition of radical. It tells us that radical relates to, or affects, the fundamental nature of something. It is about far-reaching and thorough actions, characterised by a departure from tradition; innovative or progressive. That's what radical is about.

Now, I think that radical economic transformation in South Africa must mean radical transformation on a number of levels. It must mean radical transformation of the productive structures of our economy. It must mean radical transformation of production relations; less conflictual, characterised by more equitable benefit-sharing and by less inequality. It must mean placing job creation at the heart of work programmes and promoting a more inclusive job-rich pattern of growth.

I think, Mr President, not only in this House but a number of the commentators have missed the central point that you were making. What you were saying was that only radical economic change that has these characteristics will be capable of pushing back the triple challenges of unemployment, poverty and inequality. Nothing less will make the grade. That's the point the President is making. [Applause.] We want 5% growth. We have to bring about radical change at all of these levels.

Our vision and our broad directive compass is the National Development Plan. But within that, we recognise the New Growth Path, the infrastructure programme and the Industrial Policy Action Plan as key components and drivers of taking us where we want to go.

I want to raise, in my input, just one of those dimensions: changing the productive structure of the economy. What does this mean? Well, the hon Carrim started to make the point. He pointed out that under colonialism, carried through under apartheid, South Africa was incorporated into the world economy as a producer, an exporter of primary products, principally mining commodities.

That's what we were incorporated as. And that political economy resulted in drawing large numbers of low-skilled people into basic pick-and-shovel work in the mining industry. Those people were drawn in not just from South Africa, but also from neighbouring countries.

Verwoerd famously said: What is the point of teaching a black child mathematics when his horizons are only to be a hewer of wood and a drawer of water? He demonstrated himself to be a racist, an oppressor, but he was not a fool. Because the owners and controllers of the economy at that time - that is all they wanted: low-skilled people to do pick-and-shovel work.

Now the thing is that that political economy had entered into deep structural crisis already in the 1970s with the expulsion of large numbers of people from production. We were partially rescued by the fact that we also are not just producers of precious metals, like gold and precious commodities like diamonds - those are past their peak of the 1970s - but also important industrial minerals like platinum, iron ore and ... [Inaudible.]

Mr G A GARDEE: Hon Deputy Speaker, may I rise to find out from the hon member what he means when he says Verwoerd was not a fool.

The DEPUTY SPEAKER: Okay, you will have that discussion afterwards. Go ahead, hon member. [Interjections.] That is not a point of order.

The MINISTER OF TRADE AND INDUSTRY: No, it is not a point of order, but I think I will explain to the hon member. I said he was an oppressor and a tyrant. He was somebody who acted against the interests of the majority of the population of this country. Clearly, that was the case. But he was not a fool when he didn't spend money on education, because the needs of those who owned and controlled the economy at that time were to have large numbers of unskilled people, drawn into a migrant labour system. [Interjections.] That's what I said.

Now, the point I am making is that even if we take a time when our economy was performing relatively well, just before the onset of the recession in 2009, our consumption-driven sectors were growing twice as fast as our productive sectors - that is mining, agriculture and manufacturing. What does all this say to us? It says to us that our future has got to be that we move up the value chain, that we industrialise and we reindustrialise our country.

That proposition is not just something which is now common cause in South Africa; it is common cause across the African continent. The leaders of the African continent are saying that future growth on the African continent depends on this continent industrialising. Why? There are some very good reasons. I think just to give a couple of examples from a recent publication by KPMG, titled Africa Arisen: The Blue-Sky Continent 2014, KPMG tells us that Africa produces and exports $6 billion worth of coffee. But they go on to say that that coffee is processed, packaged and branded elsewhere and is sold for $100 billion; $94 billion is earned outside of the borders of Africa on the basis of products which are produced in Africa. The value chain is outside of our continent. The value-added part of it is located outside of our continent.

They give another example. Italy earns more income from the production of jewellery that South Africa does from the production and export of gold. We know that in our own agricultural commodities, even things in which there is very little actual real value addition outside, something like 60% of the value chain of table grapes is captured outside of the borders of South Africa. What we need to do is to move up the value chain and industrialise. That is the common destination of the African continent. [Applause.]

Now, in the past, at the beginning of the administration ... Well, let me just pause by saying the following to the hon Hill-Lewis. He is convinced that we are going into a recession, but if you look in today's paper, you will see that most commentators think there is only a 30% chance of us going into a recession.

That means that they think there is a 70% chance that we won't. But we did go into a recession. We went into a recession at the beginning of the first term of President Zuma. That recession was definitely caused by external factors - by the worst global economic crisis at any time since the 1930s and it has continued to reverberate on this economy as an open trading economy. There is no question about that.

However, the President did not deny that the current problems are problems related to home-grown factors. He did not deny that. In fact, he highlighted two of the matters that needed urgent and serious attention on a short-term basis. Those were, firstly, addressing the issues in the mining industry, not just trying to bash heads together, but actually trying to address some of the fundamental underlying issues arising from the migrant labour system, arising from inadequate sharing of the benefits from the resource rents of the platinum sector; addressing things like housing; a better income situation for the workers. That was what the President said. That is part of the implementation of the Mining Accord.

The other thing the President did was to highlight for special, focused attention the production and implementation of an energy plan, because actually one of the biggest impediments to our transforming our economy is the lack of availability of an adequate supply of affordable energy in this country.

Now, that is notwithstanding the fact that we have done some very, very important work. Medupi is the fourth largest power-station project in the world. It is not a small thing. It is not a small thing. And some of the biggest delays have been because the private contractors have not been able to deliver their side of the bargain in terms of the quality of boilers and the like. [Interjections.] Those have been the issues.

The point I want to make was that at the start of the last administration, in the context of the worst economic crisis - in which we lost one million jobs, 200 000 of those in manufacturing - we introduced and implemented a succession of industrial policy action plans. These were rolling plans, covering the financial year in question and the outer two years, introduced every year as action plans, tasks that have to be carried out by different entities within the government.

Now these included a domain of actions. They included mobilising financial support from public institutions to support manufacturing; learning the lessons of every other country that is industrialised; that private banking systems - and ours is no different as we showed in the first Ipap - are providing more funding for consumption than they are for investing in the real economy. So we mobilised a set of public institutions, ramped up the work of the IDC, introduced a set of incentives and sought to try to extract more commitments for a higher quantum of the support programmes for manufacturing.

Secondly, we adopted a developmental strategic approach to tariff-setting, where tariff-setting was informed by the needs of industrial development. Thirdly, we introduced localisation. We took the bold decision against the vested interests of many from abroad that we would, in fact, purchase both as government and as parastatals according to formulas introduced by designations from local-manufactured sources.

We introduced these. We are now producing 1 000 railway locomotives in South Africa. Railway wagons and coaches: we are producing 2 500 of these in South Africa. We are now producing electricity transmission lines, oral-solid dosage medicines in the public sector, clothing, work ware in public institutions, foodstuffs and various others.

We have seen that this localisation has actually contributed to the revival of a number of industries, and it is for this reason that we had agreed to the aspirational target, which was discussed with government, business and labour, of 75% local procurement. We are on target to reach that before the end of this term. [Applause.]

The other thing we did was to mobilise the range of other policy tools, including issues of standards, quality assurance, support for firms in terms of export promotion - all sorts of measures of that sort.

What do we think that we achieved at the end of the last term? Well, we were quite modest in our assessment. We said that we believed that what we had demonstrated was that we had shown that industrial policy works, where we are purposeful, where we are well informed, where we work with key players and where we implement effectively. We said also that we certainly averted the serious risk of further deindustrialisation that was staring us in the face as a result of the impact of the global economic crisis.

Thirdly, we have seen not just stabilisation, but actual growth in some industrial subsectors. That is what we said. But we also said what we hadn't done yet, which was that we hadn't sufficiently transformed the character of the productive sectors, and therefore the aim and intention must be in this administration to actually raise the scale and the impact of our industrial policy.

What are the elements of that? Well, first of all, the infrastructure programme, led and co-ordinated by the Presidential Infrastructure Co-ordinating Commission, is a very, very important driver. The PICC has shown through this reorganisation of our infrastructure programme ... Under the PICC, as the President said, we spent R1 trillion on infrastructure - not budgeted for, not hoped for, but actually spent.

That is more than double the previous record, and that was in the previous administration. That was more than double. The President said that in the next three years we would spend more than R800 billion. That means that we are track to deliver a higher quantum of infrastructure spend in this administration.

The infrastructure is about providing the things that we need: the ports, the rail, the energy generation, the social infrastructure. But this is also about using the infrastructure programme as a tool of industrial development. And here comes the localisation, the designations, the support programmes which we have to pursue and continue to pursue.

The second thing is that we need to recognise that what we have to do with the mineral wealth that we have, particularly with the passing of the mineral products super cycle, is bite this bullet of beneficiation. We have to add value in this economy. Actually, we have done quite a bit of work on some of the important value chains. We passed, in the last Parliament, the Special Economic Zones Bill.

But we said, let's not wait for the institutions of the special economic zones legislation to come into effect. Let us actually do some work to establish what potential SEZs are, and there are two SEZs that are based on the beneficiation of platinum. These would do jewellery, catalytic converters and, very excitingly and very importantly, fuel-cell technology around small power stations. [Applause.]

We have identified private-sector players in this country who are interested. We have identified technical support from abroad. We have identified potential foreign investors who are prepared to come here and actually develop fuel-cell technology in this country, based on a platinum SEZ. What do they need? They need reliable, available quantities of platinum at a sufficiently attractive discount price to support that activity. That's where beneficiation comes in.

Secondly, it was already mentioned: we were stuck in the past five years on the issue of iron and steel. We were stuck because there were court cases. Those court cases have run their course, and we are now going to reconvene the task force on iron and steel with the intention of ensuring that a proportion of the iron ore that is produced in South Africa is made available at a discounted price to support steel manufacturers who are prepared to price that steel in the bottom quartile of world prices. [Applause.] That is an important piece of work that we have to do: beneficiation.

Thirdly, the President mentioned the African continent. He said that we have a significant increase in investment by South African companies on the African continent. He pointed also to the fact that our exports to the African continent were increasing and those exports have a disproportionate quantum of value-added priorities. The African continent is important to us. But, as I have said already, the African continent is also industrialising. They are not just going to be our market; they are also going to be industrialising. So this is a very important piece of work.

How do we locate ourselves and relocate ourselves in the African continent? I think there are a number of pointers. Nigeria is starting a motor sector. If you read the press, you might have thought that the motor industry was about to relocate from South Africa to Nigeria. Not a better bet. But they are going to start a motor industry. They have been learning from us about our motor programme. The quid pro quo we are seeking from them is that the components that will go into the semi-knockdown kits that they will assemble in Nigeria will be manufactured in South Africa. That is what we are looking at. [Applause.]

Another example: I went with the President to Ghana and participated in the opening of a factory, which is supported by South African investors. It is producing grinding media for the West African mining industry. At the moment, that is imported from South Africa. Now, it will be manufactured in Ghana. But the inputs into that will come from South Africa. We need to move up the value chain. There are many, many examples of that, and we need to find our place on the African continent.

Then, I think, what we need to do is what we said in the Ipap: a deep dive, granular knowledge development around leading companies that can take our industrial policy further forward. We want to deliver a higher quantum of support to leading companies that can take us a bigger leap forward, and against that higher quantum we want a greater return in terms of at least three things. The first is building industrial capacity; the second is jobs; and the third is co-operating to create black industrialists so that the industrial sector actually starts to reflect the demographics of our country. [Applause.]

Those are the things that we are wanting to do in terms of industrial policy. But there is also ... I think that sometimes when people say that the President didn't say that, they don't understand what this is about. Minister Radebe explained it. We have produced and we are in the process of adopting a medium-term strategic framework for the life of this government. That is something that covers everything that everybody has mentioned that the President didn't say. The President, in a short speech, can only highlight a few points of it. It's not that they are not there; it's just that he didn't mention them in the time he had available. [Applause.]

That medium-term strategic framework will include us improving our work on co-ordination of activities within the productive sectors. We need to go back to mining and back to agriculture, and to integrate them into a framework that is also feeding into the Industrial Policy Action Plan. The President mentioned agriculture - a million jobs that we can create in agriculture.

Through the land reform programme that has been set out by the Minister of Rural Development and Land Reform - not the one, I think, that is dependent on the offer from our friends across from there - we can achieve land reform and create and establish small-scale farmers in this country. We can create employment and also add to food security.

One of the other things is that the relationship between agriculture and agro-processing is something that can drive the agricultural sector further forward. There are many agro-processing investments in South Africa in which the percentage of local agricultural inputs is less than 50%. We need to raise that to much higher levels. I think that there is work that is going on in that regard.

The other thing is that we have launched and rolled out small-scale mills, which are available to be established. They could be run by co-operatives, for that matter, in small towns. They would provide a facility much closer to where small farmers are located and provide a product that is available at a cheaper price in local communities.

The mineral beneficiation action plan has been identified as a distinct piece of work; a mineral beneficiation action plan to be eventually integrated into the Ipap. That will take us into the definition of the different mineral-value chains, the work that needs to be done and the toolbox instruments that we need to apply. Now, I think that we are on a journey. We are on a journey where these radical transformations are absolutely critical and essential.

The DEPUTY SPEAKER: Hon member, wrap up.

The MINISTER OF TRADE AND INDUSTRY: Wrap up - thank you very much. Well, I was simply going to say that I read a piece about the hon Maimane describing me as a hollow man. [Interjections.] I think he is not the only hollow man today; I think there have been many hollow men. We don't have to listen and bang the empty drums. We have a piece of work we have to do. We know where we are going. I think we need to get on and implement it. Thank you very much. [Applause.]

The DEPUTY SPEAKER: Hon members, I just want to draw your attention to the fact that some of the members who spoke here did not use all their time, and they have been negotiating with the table to add their time to that of other members. So don't chair when there is a chair here. I just want to alert you to that. The hon Hill-Lewis had one more minute, because he benefited from one of his party's members who didn't use all of their time. This is why we gave the hon Davies the seconds that he had to conclude his speech. Don't chair when you are not in the chair yet. Your time is coming. [Applause.]

Source: Unrevised transcript, Hansard.

Click here to sign up to receive our free daily headline email newsletter