Budget Vote, Minister of Economic Development Ebrahim Patel, 7 May 2013.

Speaker of the National Assembly
Deputy President
Honourable Members
Invited guests

I have the honour to present the 4th budget of the Economic Development Department, known as EDD.

Given our responsibility to integrate efforts on economic development across government, the Department's success lies in its collaboration with other Ministries and spheres of government.

In these opening remarks to the debate, I will draw attention to the substantial progress made in the economy over 19 years of ANC governance.

I will point to the success of this administration in recovering from the recession we inherited in 2009 due to the global economic crisis.

I will share our progress to develop policy coherence in the past year, to improve infrastructure construction and use it to promote skills and local manufacturing, to expand industrial funding, to refocus competition and trade policy on jobs, to facilitate new investment in the economy and steps we are taking to improve small business and youth employment.

In short, I will make the point that we have solid achievements, whilst acknowledging the many challenges we still face.

I will welcome a number of people in the public gallery who represent the human faces behind the economic achievements.

Honourable Members,

In 50 week's time we celebrate 20 years of democracy.

The economy we inherited in 1994 was broken, characterised by low growth and weak job creation. More fundamentally, it was structured to serve the needs of some rather than all; it focused on the needs of corporations rather than people.

In contrast, we have created a more inclusive economy, seeking to address the needs of all South Africans, 51 million people, not merely 4 million.

GDP growth is up: in the 19 years before 1994, annual growth was 1,6% compared to 3,2% annually in the 19 years since. This despite, a global economic recession.

The value of our GDP today is R3,2 trillion, 83% larger than in 1993.

This is stewardship under four ANC administrations.

This is how democracy has outperformed apartheid on the metric of growth.

But growth must create jobs and equitable development.

Prior to 1994, there were between 8 and 9 million employed South Africans.

Today, we have more than 13,6 million employed people. More than four million new jobs were created under democracy.

Under this administration, we developed stronger planning and policy cohesion.

The National Development Plan provides the country vision for overall economic and social development, integrating policies, demographic shifts, governance and state-capacity issues into a coherent framework.

It is complemented by government's economic strategy of the New Growth Path and the detailed plans set out in IPAP and the National Infrastructure Plan.

We are now in action-mode, as President Zuma remarked in January:

"Some of the key programmes of the National Development Plan are already being implemented. These include the New Growth Path framework with its major infrastructure development programme, as well as the state-led industrial policy."

Yesterday, Statistics SA released the latest employment data.

It shows that employment has begun to grow again, with the gain of 44 000 new jobs in the first quarter of 2013. Over the 12 months up to end of March this year, nearly 200 000 new jobs were created, in difficult domestic and global circumstances. The biggest job gains were in agriculture, followed by manufacturing and community services.

These figures show that our transformation policies are having some success despite the headwinds from the global slowdown. But unemployment levels are still stubbornly high. Our task is to consolidate these gains and accelerate job growth, for unemployment constitutes the biggest economic challenge for the country. We must begin to see a decline in the levels of joblessness. That is the task that we have taken on through the New Growth Path.

From October 2010 when the NGP was adopted, 646 000 new jobs were created. Of these, 366 000 new jobs were created for women, 57% of the new jobs.

As South Africans we need to bank these positive trends and commit to do more.

Our GDP recovered from the 2009 recession and is now R750bn higher in current rands, or 9,4% in real terms than at the low-point of the recession. The economic output of no less than 38 other countries - including the UK, Holland, Spain, Italy and Portugal are still lower than before their recession.

I wish to welcome one of our visitors today, Richard Matsomela, a worker at the BMW factory in Rosslyn. He was placed on special training financed through the Training Layoff Fund, one of the new tools created by government in 2009 to respond to the recession. Production recovered, the company expanded and Richard now works again on the assembly line for the new 3-series BMW made in SA.

This is active partnership with the private sector.

The New Growth Path mapped out a labour-absorbing economic trajectory.

Under the infrastructure jobs driver and through the leadership of the President, we developed a National Infrastructure Plan, coordinated by the PICC to which EDD provides technical support.

We made real progress to lay the physical platform for growth and development over the past year, working with Minister Nkwinti and other members of the Management Committee.

Construction levels are up.

Visitors in the public gallery illustrate what our programme is doing.

Ms Elakanyani Ndlovu, a 30-year old female electrical engineer, is part of a team building one of the world's largest coal-fired power-stations, Kusile, near Witbank in Mpumalanga.

Ms Kedisaletse Maseko is a welder employed on the new locomotive build programme in Koedoespoort.

Mr Thomas Solomon is a contractor who lays tar on roads in the Western Cape.

They are part of more than 150 000 workers currently on PICC monitored construction sites across the country, building roads, power stations and dams, deepening our ports, building schools, laying broadband cable, manufacturing components, changing the spatial patterns of the past.

The project-pipeline for new infrastructure projects has been developed into the 20-year R4 trillion plan, a blueprint for our generation.

Spending levels are up too.

Indeed, during this administration, we would have spent roughly R1 trillion on infrastructure, compared to half that sum in the previous five years, and substantially more than in the last five years of apartheid.

Even when adjusted for inflation, this is a remarkable achievement.

We now monitor every quarter how much is spent, what construction has actually taken place and how many people are employed in construction projects worth nearly R900 billion rands.

Working closely with Minister Gordhan through the PICC, R19bn of new money or reprioritised resources were identified for infrastructure projects over the next three years.

State capacity challenges identified in the NDP articulated by Minister Manuel, are being addressed, including improved environmental processes led by Minister Molewa and the new Infrastructure Development Bill, recently released for public comment.

Honourable Members

We need to bring the cost of the infrastructure build down.

Private sector collusion and price-fixing cost the state many billions of rands in previous infrastructure projects, including the 2010 World Cup stadia . The competition authorities identified 300 cases of irregular and illegal behaviour by the private sector in the construction industry, on projects valued at about R47 billion.

Eighteen construction companies, including the top six firms, have now confessed and are in discussions on settlements with the competition authorities.

We are determined to ensure that we develop an affordable infrastructure build programme and that our tax rands do not improperly find their way into private pockets.

The competition probes extend wider than infrastructure and include input costs across the economy, to improve competitiveness and reduce costs for consumers.

Following discussions with Minister Motsoaledi, I am pleased to announce that the Competition Commission will conduct a market enquiry into the private health-care sector. As ordinary working South Africans will know, private medical care is becoming unaffordable. The enquiry will use new powers under section 6 of the Competition Amendment Act of 2009 and will examine the pricing, costs and the state of competition in the sector. It is expected that the Enquiry will commence before the end of September this year.

The authorities are ensuring that public interest tests in our law are met when companies acquire existing operations.

I welcome Mr Emmanuel Motumi, one of a few hundred workers reinstated by the Competition Appeal Court at Walmart following its purchase of a local retailer. Government's efforts led to the Competition Appeal Court ordering the creation of a fund of up to R240 million for local supplier support by Walmart.

The judgement expanded competition jurisprudence and ensured that the central economic imperative of our time, namely jobs and local industrial capacity, is pivotal to competition policy.

It demonstrates our commitment to policy integration and coherence.

Trade policy is being harnessed to support infrastructure roll-out and to support agro-processing industries who are infrastructure users, ranging from poultry to tomatoes. More will however need to be done to support farming jobs and agro-processing as part of food security strategies.

The Port Regulator introduced a differentiated port tariff that encourages export of manufactured goods rather than raw minerals.

We are using the infrastructure programme to address skills and industrialisation challenges.

We now have a skills model for all major infrastructure projects over the next twenty years, developed through working closely with Ministers Nzimande and Nxesi, the engineering industry, the construction regulator and the private sector.

Honourable Members will be pleased to know that say for the Mzimvubu Dam in the Eastern Cape, we can quantify the number of bricklayers, carpenters and engineers we need per quarter over the five years of construction, to help universities and FET colleges plan their student intake and graduate output.

On industrialisation, EDD has worked with Ministers Davies and Gigaba on measures to provide a major boost to local manufacturers through the infrastructure rollout programme. State owned companies deepened their supplier development plans.

Complementing these efforts, the IDC set up a localisation unit and increased its 5-year plan for industrial funding available to R102 billion.

Over the past two years, the IDC increased actual funding approvals substantially to about R27 billion, 48% higher than the previous two years.

We have success stories out of these interventions.

In the past, we imported buses for the infrastructure rollout of inner city public transport.

Last year, to implement one of the Accords, new policies were introduced that led the cities of Johannesburg and Cape Town to order 240 locally-assembled buses. I welcome Ricardo Truby, a production line worker for the Cape Town buses where the IDC provided bridging finance.

The first locally-assembled bus for Johannesburg will come off the production line in June 2013 from a Germiston factory.

This is real progress with industrialisation.

When this administration came into office, all our minibus taxis were being imported. Today, two taxi assembly plants have been set up, by Toyota and BAW. I wish to recognise Ms Brenda Smith, a supervisor on Toyota's new taxi line who is here in the audience today. Honourable Members, by 2015, two out of every three new minibus taxis will come from local factories.

This is real progress with industrialisation.

The country will expand rail transport very significantly in the next twenty years. The IDC is working with companies in the sector to use the R198 billion procurement to build coaches, locomotives and wagons and create jobs locally. We have already landed one export contract for trains, from Mozambique.

These success stories in transport are replicated in other parts of the build programme, such as the new condenser unit commissioned from a local company for the Kusile power station.

Working with Minister Peters, we plan to improve the localisation impact of wind and solar energy, so that green energy creates local jobs.

The industrialisation drive is at the centre of our work.

Last year the IDC concluded a R3,4bn deal to take majority ownership of Scaw Metals, a large diversified manufacturer of steel products for the infrastructure sector and industry, that employs about 7 000 people.

It is the only producer of locomotive frames in southern Africa. When Anglo American Corporation decided to divest from the asset, we ensured that this critical national asset was placed in local hands rather than asset stripped and closed down.

I am pleased to have Ms Patricia Mashigo, an artisan and production team-leader at a Scaw Metals factory present today, with a Group manager, Mr Paul Zinn.

Scaw Metals operations in South Africa have a crude steel production capacity of about 600 000 tons per year. It has manufacturing operations in Canada, Australia, Italy, Namibia, Zimbabwe and Zambia, which also serve as important distribution channels for its products.

A sophisticated industrial strategy as outlined in the IPAP requires the injection of foreign and local capital, know-how and innovation. I offer a few examples of success.

Asia's largest commodities trading company, Noble Resources, is the main investor in one of two advanced soya crushing plants under construction. In the past 12 months, the company invested about R2,2 bn in the local economy. I acknowledge the presence of Mr Ronald Jettin, the local CEO. Later this week I will host the senior management of the company to consider additional investment in South Africa.

We attracted Turkish investment in manufacturing of stoves in East London, and to restart the Cape Town based steel mill CISCO, by August this year, with a R250m investment which points to a growing appetite by investors to manufacture goods in South Africa. I welcome Mr Turanli, the President of the new shareholding company of CISCO and Turkish Ambassador Kaan Esener who is with us today.

Honourable Members

These efforts are supported by greater beneficiation of our natural resources.

By July this year, the largest Manganese sinter plant in the world, backed by the IDC, will open in the town with the quaint name of Hotazel in the Northern Cape. I welcome the major shareholder, Ms Daphne Nkosi, whose company will produce 2,4m tons of manganese sinter for ferro-manganese smelters.

Honourable Members, following public consultation, I have decided to issue a trade policy directive in terms of section 5 of the International Trade Administration Act to limit the export of scrap metal so that this resource is used in South African foundries and steel factories, saving energy, creating local jobs and promoting infrastructure development.

To strengthen regional integration, manufactured exports to the rest of Africa rose by about R20 billion or 21% in this past year, now accounting for more than 90 000 jobs in South Africa.

Tomorrow, South Africa hosts the World Economic Forum Africa Summit here in Cape Town.

BRICS countries are now the fast-growing part of the global economy. Our membership is the result of successful economic diplomacy and opens up many opportunities if we work at it.

The BRICS Summit hosted by President Zuma six weeks ago announced the establishment of a BRICS-led development bank and we signed a number of partnership agreements with BRICS members and investors, including to set up a new television and fridge factory in South Africa.

Honourable Members, the New Growth Path calls for greater economic inclusion, through small business development and youth employment. Policies before 1994 largely excluded young black people and small businesses from the economic mainstream.

Today 1,6 million more young people under 35 are working than in 1995, and school and university enrolment is dramatically higher, as even critics of government concede. As University of Stellenbosch research released a few weeks ago show, in less than a generation we more than doubled the number of graduates in the labour market.

Three weeks ago we signed a Youth Employment Accord at Hector Pieterson Memorial in Soweto, in front of a 2000-strong crowd of young people, bringing together the efforts of the public and private sectors.

The Accord provides for a comprehensive approach, which include incentives, commitments and action to address the problem from its starting point: inadequate skills formation. It provides for work experience through internships and, most importantly, new jobs for young people.

I welcome the delegation of youth leaders - led by Thulani Tshefuta and Yershin Pillay - in Cape Town to attend a workshop on youth entrepreneurship and the Accord.

To support the Accord, the IDC announced a R1 billion Youth Fund to provide concessional lending to youth-owned enterprises that create jobs.

I am pleased to announce today that the new small enterprise funding agency, sefa will make R1,7 billion available over the next five years for youth enterprises, with a target of R220 million in this financial year.

This combined 'fighting fund' of R2,7 billion is mobilised so that young people are mainstreamed in economy.

My Small Business Advisory Panel has noted the substantial resources available to small businesses through various Budget Votes, but delivery is fragmented, costly, with little integration of funding and business support. We are beginning to address this, though our work is by no means done.

In April last year we launched sefa combining three small business programmes, bedded down the institution and expanded the lending rate.

Sefa approved loans worth R435m, up by 106% on what its predecessors did the previous year.

Through sefa we created the machinery to vastly increase access, impact and the level of small business support. By next year, sefa plans to approve annual funding of more than R1 billion to more than 20 000 SMMES.

I welcome Ms Magdalena Paledi, a female entrepreneur contracted by Anglo Platinum to build a school in Serafa Village in Sekhukhune. Her company is a beneficiary of sefa funding.

Over the next five years, sefa plans to provide R2,3bn for women-owned enterprises, with R295 million this year, so that women are more actively represented in the economy but also so that the economy can benefit from the energy and enterprise of women.

We financed a training programme for 100 young people, in partnership with the SA Institute of Chartered Accountants. One of the graduates with us today, Ms Thandeka Nyani, is now working in the sefa Business Hub as an Accounting Clerk supporting small business clients.

I am pleased to announce that a further 170 young people will be enrolled in the programme, to which we are committing R9m.

We will take the small business programmes to our people through 18 large community road-shows over the next ten months, with a special focus on youth and women.

To meet the numerical targets in the Youth Employment Accord, government entities will adjust regulations and tender conditions to bring more young people into infrastructure programmes, the green economy, call centres and other business process services.

Social dialogue has been stepped up.

Last year EDD provided support to the Presidency to conclude the October Social Accord that brought the strike wave in the mining sector to an end. Ministers Chabane, Shabangu and Oliphant are now driving the follow-up.

I have released a report today on progress with the Accords on skills, the green economy, local procurement and basic education.

I welcome learners from Litha Primary School - they are benefitting from one of the Social Accords through the adopt-a-school pledge.

Looking ahead, we need an Accord or social agreement to address industrial relations in infrastructure programmes.

Honourable Members

The budget allocation for this financial year amounts to R772 million, of which R231m goes for small business funding, R193,8m for the competition authorities, R79,8m for trade administration and R108m to the IDC for the agro-processing fund.

The Department's budget for operations and capital spending is R159 million.

The Budget Vote of EDD is a window across programmes in many different departments. I thank my colleagues in the Economic Cluster and the PICC, Deputy Minister Mkhize, the Director General Ms Jenny Schreiner and her predecessor, Saleem Mowzer, the agencies and DFIs and staff of EDD. Our work benefitted from the engagement with social partners: thanks to the shop stewards, managers and workers. Finally I thank my family for their support.

I now table the Economic Development Department Budget for consideration by this august House.

Issued by the Department of Economic Development, May 7 2013

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