Address by Malusi Gigaba MP, Minister of Public Enterprises, on the occasion of the Black Business Summit at Eskom Megawatt Park in Johannesburg, 6 September 6 2011

I am happy to have been invited to address your important conference this morning.

I feel really honoured and privileged to have been made part of this epoch-making occasion.

In its Preamble, the Constitution of the Republic of South Africa declares that we "Recognise the injustices of our past" and asserts that we "Believe that South Africa belongs to all who live in it, united in our diversity."

In the Bill of Rights, the Constitution proceeds and makes a point about equality that it "includes the full and equal enjoyment of all rights and freedoms. To promote the achievement of equality, legislative and other measures designed to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination may be taken."

Fifteen years after the people of South Africa, through their elected representatives, adopted the Constitution, "legislative measures designed to advance persons disadvantaged by unfair discrimination" have been taken.

Yesterday, President Zuma eloquently addressed himself to some of those. We should challenge ourselves to become the leader in the continent in innovation, not only in construction and the services sector, but also in the industrial labour-intensive sectors.

If we all "Recognise the injustices of our past" we will agree that "legislative measures", on their own, are not sufficient "to advance persons disadvantaged by unfair discrimination." Hence the Constitution suggests that in addition to legislative, "other measures designed to advance persons disadvantaged by unfair discrimination may be taken."

In this context, black business organisations remain important as part of these "other measures designed to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination". Our government has stated its intention to create 5 million jobs by 2020. We know that government cannot possibly achieve this target on its own.

We need business and particularly black business, having suffered the indignity of exclusion, to make its contribution to uplift those who are still economically excluded in the development and sustainability of the local supplier industry for various inputs of products consumed by our government, the State-Owned Companies and the economy in general.

Not that it should be the measure of success, but most black people in the recently published list of richest South Africans are in mining, construction and services sector. We need entrepreneurs in manufacturing, energy and other sectors.

Another truth we must concede is that the privileged will not voluntarily and out of magnanimity share their privileges, let alone surrender them. I am certain that you know that. A lot of effort, akin to a struggle, is required in order to bring about the economic transformation that we seek. For this to happen, black business people need still to organise themselves around their common aspirations and experiences, to articulate a vision that captures these aspirations and galvanises them into a movement for fundamental change.

To say so does not detract from the importance of a united, non-racial national business organisation, but emphasises the vital need for black business to retain their forms of organisation in light of the enormous challenges they still face and the wealth of experience they have accumulated since the unification.

As well as this struggle, to bring about this transformation that we seek will require close cooperation between government and black business together pursuing the same goal of the de-racialisation of property relations. State-Owned Companies have therefore an important role to play not only to develop vital economic infrastructure and manage state assets, but to drive transformation within their customers and suppliers.

Regularly, I am asked the question if I think some or all the SOEs should be privatised. Somehow, there is that old assumption, ideologically informed, that SOEs are inherently inefficient, incompetent and corrupt relative to the private sector and that therefore if they were privatised, they would discard all these bad habits. If we may be allowed to pose the question - is there anything intrinsic in the private sector that makes it more efficient and competent; or posed differently, is there anything in the public sector that makes it intrinsically antithetical to all of this!

Meanwhile, there is an intense debate going on in South Africa around whether the model of private ownership of companies operating in key sectors of the economy is going to deliver on our national economic development objectives. I do not think it would be exaggerating to say that there is a growing underlying legitimacy crisis regarding whether the private enterprise is a "socially responsible" institution, capable of both developing the economy in a sustainable manner and equitably sharing the benefits of economic growth and development. I think it is this legitimacy crisis that underlies calls for nationalisation and such like.

The behaviour of a range of private companies, including some privatised state owned enterprises, is providing plenty of fuel for this debate. The propensity of private companies to cherry pick value chains and exploit market power is a reality, even when a National development finance institution or state pension fund is a significant shareholder. The fact that a company had a history of state ownership has not impeded predatory economic behaviour on its part when it was privatised.

What is clear is that the instinct of many private enterprises in South Africa (and globally) is to turn to the state for help when times are tough but not to come to pass on to the economy any benefits they ultimately realise from this support when times are good. In this context, does it make sense for us to privatise national assets? Does it make sense for us to allow foreign multi-nationals to take control of strategic industrial capabilities?

I think there is little doubt that we will be extremely cautious in the future around who do we trust with the ownership of strategic national assets. Now, at the risk of crude generalisation, let us compare the behaviour of some of these big players in the private sector with our State-Owned Companies (SOC). 

Firstly, every available cent of free cash flow generated by our SOEs is being used to fund investments in plant, skills and technology to support growth. The fiscus has used almost all of its guarantee capacity to under-write this process. This is in strong contrast with the reality that private companies are sitting on cash equivalent to 18% of GDP.

In addition, we have implemented procurement leverage and supplier development programmes to promote investment in the supplier communities to our SOEs and to build new industrial capabilities. We are using SOE training facilities and budgets to train far beyond our immediate needs so as to ensure that the country will have the skills to support growth.

We have gone to great lengths to involve local communities in the build programmes and have dramatically transformed some rural economies as a result. We are designing new reporting frameworks so that developmental concerns are placed at the heart of management's agenda.

I am proud to say that we are not trying to imitate the private sector - we are trying to develop our own paradigm of commercially astute but developmental management. I do recognise that some SOEs are not as efficient as they need to be in key areas of operations. I also recognise that we are not investing at a rate that we need to in order to make up for the historic infrastructure gap, and that we still have a long way to go to reduce the cost of doing business in South Africa.

I am also not suggesting that the SOEs are transforming fast enough or we can rest on our laurels in any way. However, what is indisputable is that as government we have the will and the intent to create businesses that are supporting our long term economic development agenda for the benefit of society as a whole. We also have the will and capability to turn our SOEs into global Centres of Excellence characterised by efficiency and competency.

It should also be noted that historically state ownership has not been limited to any particular sector. Through time and geography, different states have owned enterprises across a myriad of sectors for a range of strategic and, at times, contingent reasons. There are no in principle no-go areas for state ownership.

Whilst it may be tempting to some to argue therefore that public ownership is the answer to all our problems, however, historical experience from around the world suggests that in differing circumstances private and public companies have both performed well and badly in achieving key national developmental goals.

There have been extremely patriotic, efficient, private companies that have made long term investments to achieve national objectives. There have also been extremely corrupt, inefficient and rent-seeking state owned companies that have been captured to serve narrow interests and have undermined economic development.

In other words, ownership is one of a number of determinants of the developmental character of an enterprise. After all, ANC has for a few decades since "The Ready to Govern" document favoured a mixed economy approach where both the public and private sectors have a vital role to play in support of economic growth, job creation as well as poverty eradication and the creation of equality.

This means that a range of factors need to be considered to determine whether state ownership is an appropriate development instrument to achieve our strategic objectives. This is what we referred to in "The Ready to Govern" document as weighing the balance of evidence in each case.

These factors can broadly be segmented into economic, political-economic and institutional considerations, and they can vary considerably from country to country and in different epochs within a country. But the fundamental issue in determining whether the state needs to make a direct investment in a commercial enterprise is whether the private sector can be trusted to behave responsibly in developing a sector, particularly if government regulatory capacity is weak. 

Another consideration is whether the private sector can be trusted to have the intrinsic interest of transformation at heart such as in our case, where racism still prevails particularly in business and you have a few established companies monopolising the infrastructure. In "The Ready to Govern" document, the ANC was building on the foundations of the Freedom Charter whilst not treating the Charter as a document containing immutable truths that can be implemented under any and all circumstances.

What is apparent is that our present situation of high unemployment and an extremely skewed income distribution is unsustainable. Many private sector business leaders know there is a problem -that business cannot flourish in a politically and socially unstable context.  They recognise that unless business contributes to employment creation and economic development in a more concerted manner, there will be no future for their enterprises.

The question is how can government and business find one another and forge a meaningful compact to invest aggressively in all the right areas to grow our productive capabilities and increase employment! These problems of equitable and balanced economic development present some of the core challenges facing our developmental state. Indeed, we will only truly be able to call ourselves a developmental state if we are able to effectively overcome these challenges. Let me give a summary of the key questions:

How can public and private investment be aligned in a manner that supports a long term growth and development vision, rather than just a short term profit optimisation?

How can we build large businesses that are able to be competitive in the global economy, that support the development of national industry, rather than abuse their market power?

How can we ensure that big business invests in developing the national industrial capacity of its suppliers?

How do we protect South African industry from imports without opening ourselves up to exploitation by uncompetitive national suppliers?

We are hoping to use our SOEs to build a common understanding and compact.

Our infrastructure SOEs make mining and industrial activity possible and, in this regard, we will be engaging with our customers to expand capacity to support their growth plans on the back of compacts that ensure that this growth is meaningfully shared and results in more balanced economic development. 

We also need to view the debate around black economic empowerment in this context. Our empowerment policies need to be aligned with our industrial development and economic equity objectives - indeed our empowerment policies should be driving these objectives.

We cannot be giving advantage to empowered importers over manufacturing companies that are providing sustainable employment in South Africa. Clearly we are not talking about an either / or situation - we need to build a class of committed black industrialists who will be driving the development of our manufacturing capabilities and creating employment in the process.

As government, it is recognised that we need to build a class of black business leaders. In the SOEs we are going to great lengths to foster black business development both through providing capacity to emerging companies as well as ensuring that our procurement processes give advantage to companies that are transforming.

However, in return, we need black business people to show true leadership in partnering with government to achieve our national objectives. Black business leaders need to be the thin edge of the wedge, driving the development and transformation of our economy. We need black business leaders to use their influence and standing to take a leadership role in helping us engage with the key challenges confronting the development state.

I think at the end of the day, it is going to be this element of leadership that determines the division of labour between the state and the market and between public and private enterprises.

What is clear is that private enterprise in South Africa is in desperate need of fresh leadership, and this is what government expects of you, the black business leaders of South Africa, to provide.

Thank you.

Issued by the Department of Public Enterprises, September 6 2011

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