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The Executive Governor of the Province of Hubei, Mr Li Xiansheng, our distinguished hosts, honoured guests, fellow South Africans, ladies and gentlemen;
It is a distinct honour for me to have been invited to comment on the events of today - this very important business conference which is being held in conjunction with the government of Hubei.
Earlier this year, I had the pleasure of meeting the Executive Vice Governor of Hubei, Mr Li Xiansheng, in Pretoria. I was struck by the commitment and passion I saw in him, an embodiment of the people of Hubei, and indeed of China as a whole, to enhancing business ties with South Africa.
Indeed it was as a result of that meeting that the events of today have materialized. I am aware that an enormous amount of hard work has gone on behind the scenes by both the Progressive Business Forum and the government of Hubei, to make today happen. Thank you for that selflessness and commitment.
We wish therefore to express our appreciation to our hosts for the invitation to come to China and to be part of the ever expanding opportunities in this extraordinary country. I want to assure the Vice Governor, and indeed our hosts, that the presence of the South African business people here today, is proof positive of our reciprocal commitment to expanding and enhancing our mutual business ties.
To the South African business people here this afternoon, a special word of thanks for showing the commitment that you are known for – being bold and resolute and eager to do business - you are crucial to the engine of our country’s economy.
Each of us here today are aware that our countries face challenges which are real and which need to be addressed. These challenges inform the priorities which Government focus upon:
First however, I want to focus on why it makes sense to invest in South Africa: We are proud of these, it’s why we are here today:
The Economic Environment:
South Africa has a significant economy, with GDP of R2,2 trillion (US$277bn) in 2008 - four times that of its Southern African neighbours, and comprising 30% of the entire GDP of Africa. According to the Global Competitiveness Report 200819, published by the World Economic Forum South Africa ranks 45 out of the 134 countries surveyed. South Africa is one of the highest ranking developing economies and surpasses countries such as Hungary, Italy, Brazil and Thailand. The country leads the continent in industrial output (40% of Africa`s total output) and mineral production (45% of total mineral production) and generates most of Africa`s electricity (over 50%).
South Africa`s GDP grew at 5,2% in 2007 and a lower 3,1 % in 2008 due to the impact of the global economic crisis. South Africa offers a unique combination of highly developed first world economic infrastructure with a vibrant emerging economy. The per capita income of R46 507 per annum (2008) places the country into the middle-income bracket for developing countries. The economy includes a modern financial and industrial sector, and an established and continuously upgraded infrastructure.
Infrastructure
South Africa has one of the best infrastructure and service industries among developing nations, particularly in roads, telecommunication, harbours, banking systems, insurance and shipping. With seven commercial ports, South Africa has the largest and best equipped network of ports in Africa and functions as a hub for commercial traffic emanating from and destined for Europe, Asia, the Americas, as well as the east and west coasts of Africa. The country has the biggest rail service, the largest airline and the most developed road infrastructure in Africa..
Corporate Finance
The commercial divisions of the major banks offer standard lending products to medium-sized companies. There are also corporate finance divisions in the major banks, or specialised corporate finance institutions, which offer tailor made solutions for larger or more complex needs, such as the financing requirements of multinationals or listed companies.
Export Finance and Guarantees
Commercial banks will assist with export credits, guarantees and letters of credit. The Credit Guarantee Insurance Corporation of South Africa administers an export credit insurance scheme on behalf of the Department of Trade and Industry.
State Assistance
The state-owned Industrial Development Corporation (IDC) provides financing to the private sector to facilitate commercially sustainable industrial development and innovation to the benefit of South Africa and Southern Africa. Finance is in the form of equity, quasi equity and medium-term loan finance. Interest rates are competitive, risk related and are based on the prime bank overdraft rate.
South Africa has incentives in place to motivate its foreign investors. I want to highlight five of these:
Incentive Programmes for Investors
1.IDZ Programme
An IDZ is a purpose-built, industrial estate linked to an international airport or port, which contains a controlled Customs Secured Area (CSA). A CSA is exempt from duties, VAT and import duty on machinery and assets. The aim of an IDZ is to provide demand driven infrastructure and to generate sustainable local and foreign investment and improve international competitiveness.
There are currently four IDZs in South Africa, all strategically positioned close to an international port or airport, namely Coega and East London IDZs in the Eastern Cape, OR Tambo International Airport (designated) IDZ in Gauteng and Richards Bay IDZ in KwaZulu-Natal.
The IDZs also comprise Industries and Service Areas that are designed to:
- Provide a location for the establishment of strategic investments;
- Promote and develop links between domestic and zone-based industries
to optimise use of existing infrastructure, generate employment and create technology transfers;
- Enable exploitation of resource-intensive industries;
- Allowing for smooth operations of investors plants within the IDZ;
- Attract advanced foreign production and technology methods in order to
gain experience in global manufacturing and production networks; and
- Provide world-class industrial infrastructure.
Each IDZ offers:
Direct links to an international port or airport;
- World-class infrastructure, specially designed to attract tenants; Suitability for export-oriented production;
- Dedicated customs support services to expedite excise inspection and clearing;
- Duty-free importation of production-related raw materials and inputs;
- A zero rate of VAT on supplies procured from South African sources;
- Import status for finished goods, which are sold into South Africa;
- Government incentive schemes;
- Reduced taxation and exemption for some activities/products; and
- Access to the latest information technology for global communications.
2. Critical Infrastructure Program:
The Critical Infrastructure Programme (CIP) provides subsidised support for economic infrastructure required for committed productive investments, including new or expanding existing projects. It also assists companies with a top-up grant, with funding ranging from 10-30% of the qualifying development costs.
Private sector enterprises, private/public partnerships, industrial development project operators, strategic Investment programme applications and investors in strategic economic projects may apply for the scheme.
The following qualifying costs may be claimed for:
- Costs incurred directly in the installation, construction and erection of infrastructure; Remuneration costs incurred by the applicant for payment of employees undertaking project work;
- Costs of materials directly consumed during the installation, construction and erection of the infrastructure; and
- Cost of new capital items, e.g. test equipment.
3. Enterprise Investment Programme:
The Enterprise Investment Programme (EIP) is an incentive grant which comprises the Manufacturing Investment Programme (MIP) and Tourism Support Programme (TSP). The incentive is accessible to both local and foreign owned entities intending to locate their projects in South Africa.
4. Foreign Investment Grant:
The Foreign Investment Grant (FIG) is designed for international companies investing in plant, new machinery and equipment in South Africa. The Grant is to compensate investors for the transportation of new machinery and equipment to South Africa.
5. Support Programme for Industrial Innovation:
- The Support Programme for Industrial Innovation (SPII) is a support programme of the Department of Trade and Industry, managed by the Industrial Development Corporation (IDC). SPII is designed to promote technology development in industry in South Africa through the provision of financial assistance for the development of innovative products and /or processes. SPII specifically focuses on the development phase that begins at the conclusion of basic research and ends at the point when a pre-production prototype has been produced.
The Challenge facing South Africa:
The growth in South Africa’s real gross domestic product (GDP) slowed to 3,1% in 2008,which was lower than the annual growth rates that varied between 4,9% and 5,3% from 2004 to 2007. This was the result of the significant deterioration in global economic conditions and a tighter domestic policy environment.
In November 2009, South Africa emerged from its first recession in 17 years by achieving 0,9% growth in the third quarter, primarily driven by a rebound in the manufacturing sector. The hosting of the 2010 FIFA World Cup in June and July 2010 contributed to the country`s economy.
In May 2009, President Jacob Zuma announced the establishment of the Ministry of Economic Development, which is designed to promote economic policy development, coordination and coherence in alignment with national policy challenges and programmes.
Its focus is to ensure economic policy and policy coherence; to create one place where policy is developed and aligned with Government’s electoral mandate to realise an economic growth path and putting the creation of decent work at its core. Employment is the overarching goal of economic policy, not a residual outcome. To achieve the development outcomes of Government, the labour-absorption rate and composition and sustainability of the growth path are as important as the rate of growth.
The focus and outcomes of the economic policies of South Africa as a developmental State, should be directed at equity, the reduction of income inequalities, decent work and achieving balanced, broad-based industrialisation. There is a new mandate from the electorate, and this stems from the the global economic challenge . A Framework Agreement between Government, Business, Labour and Community, was adopted in February 2009 and identified five priorities challenging economic development. These were: transforming the economy to create decent work, implementing agrarian reform to ensure food security, providing universal, affordable education to empower citizens, creating a national healthcare system promoting a nation able to effectively participate in society, and a comprehensive strategy to fight crime and corruption, to secure communities and to enable the public sector to deliver clean governance.
Programs to address our challenges:
I want to highlight three initiatives of our Government aimed at improving the lives of our fellow South Africans :
1. Accelerated and Shared Growth Initiative for South Africa (AsgiSA)
The Accelerated and Shared Growth Initiative for South Africa (AsgiSA), which was launched responds to certain constraints, such as the:
- volatility of the currency
- low levels of investment infrastructure and infrastructure services
- shortage of suitably skilled graduates, technicians and artisans
- insufficiently competitive industrial and services sectors and
- weak sector strategies
- inequality and marginalisation, resulting in many economically
- marginalised people being unable to contribute to and/or share in the benefits of growth and development (the “Second Economy”).
AsgiSA has also identified particular sectors of the economy for accelerated growth, such as:
- chemicals
- metals beneficiation, including the capital-goods sector
- creative industries (crafts, film, content and music).
- clothing and textiles
- durable consumer goods
- wood, pulp and paper.
Programmes put in place to eliminate these constraints include:
- infrastructure investment
- second-economy initiatives
- skills and education
- industrial policies and sector strategies
- macroeconomic policy
- governance interventions.
Infrastructure, which is one of AsgiSA`s six priorities for intervention, has produced encouraging results, with meaningful growth in gross fixed capital formation, driven particularly by the public sector. According to the AsgiSA 2008 Annual Report, a R787-billion infrastructure development programme was in place.
2. Joint Initiative for Priority Skills Acquisition (Jipsa)
The Joint Initiative for Priority Skills Acquisition (Jipsa) is the skills empowerment arm of AsgiSA.
AsgiSA has identified six factors that constrain economic growth. One of these is the shortage of skilled labour.
On the basis of AsgiSA`s priorities, Jipsa`s work areas are:
- high-level world-class engineering and planning skills for the network, transport, communications and energy industries
- city, urban and regional planning and engineering skills
- artisan and technical skills
- management and planning skills in education, health and in municipalities
- teacher training in Mathematics, Science, information and communications technology (ICT) and language competence
- specific skills needed by priority AsgiSA sectors, starting with tourism- and business-process outsourcing and cross-cutting skills needed by all sectors, especially financial and project managers
- skills relevant to the local economic development needs of municipalities, especially developmental economists.
Successes of this initiative include the placement of 1 500 graduates in private companies and government departments, placement offers for 20 000 graduates, international placement of more than 700 mainly female graduates and the announcement by ICT companies to establish ICT training centres to support black-owned companies.
3.Expanded Public Works Programme (EPWP)
The Expanded Public Works Programme (EPWP) is a government-wide intervention to create both short and ongoing work opportunities. By the end of December 2009, government had created more than 480 000 public works job opportunities, which was 97% of the set target. The jobs are in areas like construction, home-and community-based care, and environmental projects.
Conclusion:
Finally, ladies and gentlemen, I wanted to conclude by saying, that in the first half of 2009, China was South Africa`s number one export destination, with annual growth of 53,9%. In the last three years, Africa`s trade with China has doubled, reaching US$106,7 billion in 2008. China is Africa`s second-largest single trading partner and reconfirmed commitments made at the 2006 China-Africa Summit in Beijing to double aid to Africa and reduce barriers to its imports.
Everyone here today is determined to make that trade grow - whether your business is small or large, our mandate, indeed our desire, is to make it happen. The South African Government aims to boost small enterprises, they are the engine room of our economy. The South African Government aims to equalise income and wealth and create long-term jobs. These are our priorities and they are our guiding light.
With your enthusiasm and determination, we will live our slogan – “Together, we can do More.
South Africa and China can do More together!
Thank you.