Speech by the Minister of Public Enterprises, Mr. Malusi Gigaba, at the breakfast session with black professionals organised by Durban Invest on Monday, 14th March 2011 at the Hilton Hotel, Durban, March 14 2011

Last year, in 2010, we commemorated the Centenary of the formation of the Union of South Africa, an event which was to have immense consequences for the future of South Africa over the following century.

Commemorating that momentous occasion, we were reminded of the words of Adam Smith in 1776 that the discovery of America, and that of the passage to the East Indies by the Cape of Good Hope, were two greatest events recorded in human history, the full extent of whose consequences at the time, although having been very great, were still impossible to can have been fully comprehended.

However, he said:

"To the natives... both of the East and the West Indies, all the commercial benefits which can have resulted from those events have been sunk and lost in the dreadful misfortunes which they have occasioned".(The Wealth of Nations)

These events not only shaped the modern South African State; they also laid the basis for the subsequent dreadful misfortunes that black people experienced and helped, ironically, to define the nature and content of what became the greatest and most epic national liberation struggle of the 20th Century.

However, more than anything else, it was the discovery of diamond and subsequently gold that was to play a decisive role in the course of political and economic development in South Africa.

It created new social conditions which were, in many ways, different from the general situation of the classical colonial system pertaining throughout the African continent in terms if which the settler communities decided to settle here permanently, which accordingly, created a peculiar situation in which both the colonial ruling class with its white support base and the oppressed majority shared a single country.

In this arrangement, all white classes benefited, albeit unequally and in different ways, from the internal colonial structure and, conversely, all black classes suffered national oppression and economic exploitation, albeit in varying degrees and in different ways. This is what came to be known as "colonialism of a special type".

The discovery of mineral wealth propelled the conditions for an advanced capitalist economy in South Africa, but within the broader system of colonial domination in the imperialist epoch, leading to the eventual unification of the British Colonies and Boer Republics to establish the Union of South Africa in 1910, predicated on the notion that South Africa was white man's country and Africans were cheap and expendable labour - they were not South Africans.

By failing to grant black people political rights, their economic exploitation was entrenched in law and it created a situation in which race, class and gender oppression became enmeshed.

This meant that Africans could neither pursue their political aspirations nor realise their rightful economic stake in the Union.

It was further to ensure that they do not become a political threat to the establishment, which feared that by offering them a franchise they would use their numbers to unseat them, take over the state and transform themselves from the status of right-less producers to that of masters of their own destiny.

Accordingly, the exploitation of their labour, going hand-in-hand with their political oppression, became a vital instrument for the pursuit of economic plunder. The exploitation of the country's resources depended upon cheap and unskilled black labour.

For this reason, the colonial regimes would put in place a battery of laws to control and exploit black labour intended to ensure that no skills would be had by black people, generation after generation, which would explain why South Africa is today faced with such enormous lack of skilled labour and high unemployment particularly among Africans.

The current structure of the South African always been the highest, hovering between 27-30%, at which it remains.economy was created over a century ago, and was pursued with unyielding zeal and unnerving totality during this period that started in 1910.

Clearly, the Union economic structure was so perverse that it negated its own possibility for further development and modernisation, and eventually became a fetter to capitalism itself.

It was for this reason that in the 1969 Strategy and Tactics, the ANC said:

"In our country - more than in any other part of the oppressed world - it is inconceivable for liberation to have meaning without a return of the wealth of the land to the people as a whole. It is therefore a fundamental feature of our strategy that victory must embrace more than formal political democracy. To allow the existing economic forces to retain their interests intact is to feed the root of racial supremacy and does not represent even the shadow of liberation.

Our drive towards national emancipation is therefore in a very real way bound up with economic emancipation. We have suffered more than just national humiliation. Our people are deprived of their due in the country's wealth; their skills have been suppressed and poverty and starvation has been their life experience. The correction of these centuries-old economic injustices lies at the very core of our national aspirations."

We have raised these issues in this manner in order to provide content to the challenges we face today as a people, as a society and an evolving democratic developmental state.

What they explain is that,

• our country was forged on the back and hard toil of black labour, cheap and unskilled;
• our country's economy, including its mineral wealth and land, were appropriated by the white minority for their exclusive use and benefit; and
• because of the complex and often contradictory nature of relations within itself and with the world, the metropolis, and precisely because apartheid was not a modernizing force, the South African economy today suffers from the backwardness into which it was plunged by these centuries of colonialism and decades of apartheid.

In regard to the latter point we have just made, South Africa suffered from the "resource curse" as well as the more complex problem arising out of her relations with the world where she was seen and regarded as a "colonial frontier" and hence those who plundered the national wealth never regarded it as their pre-occupation to develop the industrial and manufacturing capabilities that would support the mining sector.

We all know that developing the industrial and manufacturing capabilities on a sustained basis would require that the skills of the black majority - the beasts of burden - be raised, so that they too become engineers, artisans and apprentices, which would have been totally antithetical to the vision outlined by HF Verwoerd in 1953.

The result is that South Africa today is still suffering immensely from this lack of skills, from poverty, inequality and joblessness, and from a backward infrastructure unable to support the economy's leap from primary production.

Accordingly, and consistent with this 1969 perspective, President Zuma stated on January 8th that:

"We must make the decisive shift to meaningful economic transformation and set in motion a very deliberate programme that will ensure that the benefits of our political liberation are shared amongst all our people. Our people have struggled selflessly for freedom from oppression. We cannot fail them when it comes to the struggle for the elimination of poverty. To this end the ANC will be in the forefront of engaging with every role player in this economy and marshal our forces towards the goal of achieving an eradication of poverty.

Political emancipation without economic transformation is meaningless."

In so saying, the President was summing up the most pertinent challenges of this epoch of our transformation.

Indeed, to understand the current patterns of poverty, inequality and underdevelopment, to understand the current patterns of economic power and property relations, one must traverse back in history to capture those moments most starkly that gave birth to the present situation.

It is therefore our duty, not only as government, but as the nation to pursue an effective economic transformation agenda and remove race, gender and class as the main determinants of access, inclusion as well as participation in the economy.

The reality is that we have made very modest gains in the economic sphere since the advent of democracy in 1994. I refer here to the totality of what we have achieved in terms of economic ownership, the managerial cadre, skills development, and the creation of jobs.

This we should understand because the transfer of power from the minority regime to the majority would be far easier¸ albeit itself mammoth, than fundamentally to alter the economic patterns of ownership and social relations fostered through centuries of not only plunder and exploitation, but racist property relations.

In this regard, to put it more plain, fewer blacks - Africans, Indians and Coloureds - are at the commanding heights of the economy, occupy managerial positions, have scarce or specialized skills and are employed. All-round, black people remain economically disadvantaged, marginalized and excluded.

There can be no doubt that whilst this is the case, we will not achieve the 7% or more economic growth levels towards which we aspire. We can never achieve the levels of development we seek on the basis of the retention of the patterns of inclusion and exclusion of the colonial era.

To have the youth comprising 70% of those that are unemployed is a reality we must never accept. Yet, it has persisted for over a decade, with little being done more decisively to address this.

To the majority of our people that fought for freedom, who sacrificed for this freedom and yearn for a better life as a result of this freedom achieved, we must not allow for a situation to arise whereby they would begin to think that the total emancipation they sought is either a dream deferred or was a mere flight of the imagination.

Accordingly, the transformation we seek is profound, and the State-Owned Enterprises have a critical role to play.

There was a time when we might have failed properly to understand the critical role the SOEs can play to help us achieve the goals we seek; when we might have focused on a wrong path and engaged in wrong discourses about what they can contribute to help South Africa achieve fundamental economic transformation.

From the outset, we must make the categorical statement that the SOEs alone will not achieve everything we seek to achieve in terms of economic transformation, but they can make a decisive contribution in unlocking growth through driving sustained investment in plant, technology and skills.

Towards this end, the Department of Public Enterprises has a responsibility to drive investment, efficiencies and transformation in its portfolio of SOEs, their customers and suppliers to unlock growth, create jobs and develop skills.

Therefore, we cannot see them in isolation from the impact they have on their customers and suppliers.

Infrastructure-related SOEs in particular, like Transnet and Eskom, are in a powerful position to drive growth in the economy by supporting key sectors of the economy that depend on this infrastructure capacity for their existence and growth.

Further to this, they can and must play a crucial role in the pursuit of jobs, skills, youth employment and advancing the transformation agenda through their procurement policies and by providing energy, rail and port capacity to small and BEE players.

Together with the private sector, they are pivotal in repositioning the economy onto a higher growth path, central to which is the overriding priority of job creation and poverty alleviation.

We need to raise public investment in infrastructure to about 10% of the GDP and beyond. In this regard, we must ensure that the vision and operations of the SOEs do certainly reflect government policies, priorities and strategies.

In increasing the level of investment in infrastructure, we need to understand what will unlock our SOE customers' growth potential and how we can tie SOE investment to new investment by customer sectors in the broader economy.

Historically, we have planned investments around what the SOEs balance sheets could afford and, given their financial constraints, this was restrictive. We need to look beyond the balance sheets, important though they are, to what our economy really needs to meet our growth aspirations, indeed, to yield the best returns for society and our people.

To support this process, we need to develop a planning paradigm that is not restricted to optimising enterprise financial statements but on optimizing the overall impact of the SOEs on the economy and society at large.

We need to be both innovate and pragmatic in involving our customers and other stakeholders in planning and funding infrastructure expansions as well as in supporting operational improvements.

In implementing the investment programmes, we need to entrench procurement leverage in the fabric of our SOEs and plan and execute our procurement to sustain and develop our industrial capabilities. SOEs need to move from short term ad-hoc relationships with suppliers to long term strategic partnerships so that they build Centres of Excellence that will, over time, export to a regional and global market.

We need to work closely with the Department of Trade and Industry to ensure suppliers get adequate support to respond coherently to our demand signals. We need to embed and improve these new approaches to procurement leverage.

Consequently, we have a vision that recognizes the intrinsic link between the investment of SOEs and the growth of the SOE customers and suppliers.

Further to this, we will drive our SOEs to focus on the implementation of the transformation policies and legislation, including effecting transformation in procurement. 

Given our historical legacy, it is important to understand the importance of transformation in enabling the infrastructure investment program and economic growth.

The following gives a sense of the employment and skills impacts of the construction of the two coal power stations and the pumped hydro storage scheme:

• 160, 000 people are directly or indirectly employed in construction process;
• the building of the plants consumes 43% of relevant university graduates, such as engineers and project managers; and
• 48% of the yearly output of artisans are employed;

The challenge of producing adequate skills for these projects is compounded by the reality that 30% of Eskom's artisans, technicians and engineers are approaching retirement.

In order to ensure an adequate supply of skills for these programs, Eskom has implemented a number of special initiatives:

• Eskom invested over R780 million in training over the last financial year;
• They established 24 training centres while there are 244 on the job training sites;
• Presently 5225 learners are registered, of which 3780 are in engineering and technical fields;
• 4075 engineering trainees are under training;
• In a recent survey Eskom was rated the number one company to work for amongst engineering graduates;
• Eskom has also leveraged the training of 6130 people by suppliers as part of their contractual obligations in the building of the power stations - a number of whom are getting on the job experience over-seas;
• With additional funding, 5000 more young people could be put into training; and
• Eskom's suppliers are also adopting Further Education and Training colleges to enhance teacher competence, provide bursaries for local students and ensure that they are producing artisans with relevant and rigorous qualifications for the realities of the build program.

Transnet has also significantly enhanced its skills development programs to support its investment programs with the establishment of special "schools of excellence" for each Transnet business unit. 

There are presently 20 campuses covering curricula relating to ports, rail, pipelines and engineering.

Transnet needs to increase the number of engineers employed by 200% and the number of technicians employed by 40% as soon as possible.

Yet, the scale of the investment programs needs progressively to grow if we are to unlock the country's true growth potential. This increased scale will create additional significant skills challenges.  

For example, our modelling of a more aggressive energy build program that involves a nuclear build suggests that Eskom and its suppliers will require an additional 3000 scientists and engineers and 24000 artisans over a five year period from the commencement of the program.

This excludes highly specialized skills that would be required with technology transfers associated with nuclear design and manufacturing.

Closing this gap will require a concerted collaborative effort between Eskom and its key local and international suppliers, including special programs with international original equipment manufacturers.

These would aim to enhance output from existing facilities, establish new, specialized facilities in South Africa and arrange special on-the-job training abroad.

These calculations exclude the additional skills that would be required by the private sector to manage the investment that would be unlocked through providing additional electricity for the economy.

If we add the impact of an accelerated rail and port investment program, the short-fall becomes significantly more challenging.

Having all of the above, we will pay serious attention to matters of transformation.

Many a company has paid lip-service to the transformation legislation, implementing it in a half-hearted manner, or selectively or, at worst, choosing to ignore it altogether.

The point I want to emphasise is that there is simply no way that the existing racially skewed cadre of owners, managers, professionals, technicians and artisans would be able to support a growth program that does justice to this country's economic potential. 

Companies that are resisting investing in transformation are not just performing a social injustice, but are hindering the development of the economy as a whole. 

We expect the State Owned Companies to set an example in this regard. If SOEs themselves do not both comply with the transformation legislation and embrace the spirit of government's objectives embodied in this legislation, it will not inspire the private sector to transform.

It is expected of SOEs to conduct a review of their procurement policies, procedures and practices to ensure that they are informed by true and meaningful transformation, and that they deliver on their intended objectives.

The Boards and management must demonstrate clear leadership in this regard, and we will certainly hold them to account for their actions, including procuring services such as engineering, legal and accounting and auditing from black professional companies.

We must again make the very emphatic point that transformation is not an option that can be implemented at will, or evaded at the whim of a company for some nefarious reason or another.

Further to this, the SOEs must conduct audits of their suppliers to ensure that they comply with all transformation requirements, to leverage on their investments and flex their muscle in favour of the transformation objectives.

We have to continue to raise the efficiencies of our SOEs so that they function optimally and make the requisite contribution to the growth and development of our economy, to reverse the colonial structure of our economy.

The challenge to undo this legacy of previous centuries will be mammoth, to ensure that we invest in the infrastructure aligned, not with where we are, but where we are going as a country.

Accordingly, the President's words that we must turn our attention to economic transformation are alive, not because he expressed today's wish, but because in so saying he articulated the aspirations of the generations of the future which should guide us and hold us accountable for what we do today.

The economic transformation we seek is not child's play or the size of a little boy's toy-room, but a mammoth exercise.

We know that these efforts are not yet the totality of the change we seek, but that if we set ourselves a bold vision and keep our gaze firmly focused on the task at hand, step-by-step, we will arrive at the pinnacle of our ideal of total emancipation, and make true the Freedom Charter clause that - "All shall share in the country's wealth".

Thank you.

Issued by the Department of Public Enterprises, March 14 2011

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