KEYNOTE ADDRESS
Mr J T Radebe
Minister in the Presidency: Planning, Monitoring and Evaluation and Chairperson of the National Planning Commission
Bloomberg Africa Business and Economic Summit
Cape Town
24 February 2016
Programme Director
Stephanie Mehta, Editor of Bloomberg Live
Peter Grauer, Bloomberg Chairman
Matthew Winkler, Editor-in-chief Emeritus, Bloomberg News
Fellow Speakers
Distinguished Guests
Ladies and Gentlemen
On behalf of the South African Government, allow me to extend our sincere appreciation for the opportunity to participate in this important event. President Zuma was unable to accept the invitation to address you today owing to his punishing schedule and has asked me to convey his sincere apology.
I would like to congratulate Bloomberg Live for organising this first Africa Business and Economic Summit. It takes place at an opportune moment when leaders from a wide spectrum of sectors need to meet regularly to discuss strategies to overcome the collective challenges facing our economies.
All indications are that 2016 will be a challenging year for the global economy. As we are all painfully aware, global economic growth has slowed down. The IMF’s World Economic Outlook has revised its growth forecast for the global economy down by 0.2 per cent in 2016 and 2017 compared with the October 2015 forecast. Financial market turmoil has escalated and emerging markets face heightened financial and economic stress.
For many economies the slowdown in economic output is driven by the continuing fall in commodity prices. We, in South Africa and the rest of the African continent, know the impact of falling commodity prices only too well, given the structure of our economies. The outlook for China is affected by weaker investment growth as the economy continues to rebalance while lower oil prices, geopolitical tensions and domestic strife, continue to weigh on the outlook for the Middle East.
The growth forecast for advanced economies was revised down by 0.1 per cent from 2.2 per cent to 2.1 per cent; while the forecast for emerging markets and developing economies was revised down by 0.2 per cent indicating that they will contribute more to the global slowdown. Put differently, emerging markets and developing economies will bear the largest share of the brunt of the global economic slowdown.
As you are aware, the impact of the global economic slowdown varies from one economy to another depending on the extent of their exposure and the strength of their economic fundamentals. In South Africa, we know that it is of no consequence to complain about factors beyond our control. We are, however, determined to do everything in our power to address all those factors that are within our control and to ensure that we return our economy to a high and more inclusive growth path. There is consensus on the challenges facing us as well as many of the steps needed to address them. As we tackle these challenges, we will be guided by our long-term strategy, the National Development Plan (NDP).
The NDP provides overarching goals around which we can all unite; it builds consensus on the major obstacles to achieving our 2030 goals and outlines the steps that need to be taken to overcome those; it provides a common framework for detailed planning and creates a basis for making choices about the best way to use limited resources.
Avoiding a sovereign downgrade is our top priority
One of the more critical challenges facing the South African economy is the prevention of a sovereign rating downgrade to sub-investment grade. We know that a sovereign downgrade would have ripple effects that will reverberate throughout the economy and will be felt by businesses and households alike.
The ratings agencies have cited factors such as the shortage of electricity which is constraining growth, rising Government debt, weak business confidence, the challenging environment for doing business, and uncertainty caused by proposed policies not conducive to growth. The policies cited include the new visa regulations, “delays to the mineral resource law and prospective plans for land reform and a national minimum wage”.
In addition to the matters raised by ratings agencies, the South African economy is challenged by acrimonious labour relations, low consumer confidence, severe drought, and weak export performance, among others.
As many of these factors are domestic and therefore within our control, I want to assure you that each of them is receiving the full attention of the South African Government.
I think that it is important that I take a moment to highlight some of the actions we are taking.
Managing Government debt
Without pre-empting the Budget Speech by Minister Gordhan later today, I wish to reiterate Government’s commitment to stabilising Government debt. Cabinet has decided that Government will not increase its borrowing limit and will have to make do with the available resources. This calls on all of us to be more efficient with the use of public resources and strive to get optimal value for every Rand spent.
Amongst short-term measures we have agreed to take are the elimination of wastage and the eradication of non-essential spending to ensure that we do not breach our agreed fiscal ceiling. President Zuma announced a reduction in travel, catering, and conference expenditure and, in addition, we will explore ways to curtail the growth of the public sector wage bill which has grown faster than all other items in the budget.
All programmes will be scrutinised to identify savings as well as to determine which of those should be wound up. All the measures aimed at managing our debt outlined above will be undertaken in a responsible manner to ensure that we do not negatively affect critical social spending whilst redirecting expenditure towards areas that will have a direct impact on the economy.
Addressing the energy challenge
Addressing the energy challenge remains a top priority. It is one of the focus areas in the 9 point plan unveiled by President Zuma during the State of the Nation Address in 2015 which he reiterated two weeks ago during his 2016 address. We have a large and internationally recognised Renewable Independent Power Producer Programme (REIPP) which will soon launch its fifth bidding window and has unlocked in excess of R190 billion in private investments in energy. As part of the renewal energy programme, 92 projects have been awarded thus far and will generate a total of 6 327 MW. Of these projects 37 are already operational and are delivering 1 827 MW to the grid.
In the 2015 Climatescope report released by Bloomberg New Energy, SA was ranked fourth for investment in clean energy, after China, Brazil, and having been overtaken by Chile in the past year. South Africa accounts for more than 16 billion US dollars of Sub-Saharan Africa clean energy investment, about four times more than its closest African counterpart. The South African REIPPP won the 2013 Green Infrastructure Project of the Year Award at the 6th Global Infrastructure Leadership Conference. International manufacturers of components have established or declared their intentions to establish a presence in South Africa. It is expected that the fifth bidding window will commence in the second half of 2016.
Government has also issued a Request for Proposals (RFP) for the commissioning of 3 126 MW of power from natural gas, with initial power expected to be available by 2020.
We are also exploring various options of expanding energy generation from various sources, including nuclear. President Zuma emphasised during the State of the Nation Address in 2016 that given the challenging economic environment, we will procure nuclear “on a scale and pace that our country can afford”.
Building confidence and improving the business environment
In addition to the short-term measures necessary to address the immediate challenges, we are making progress on a number of medium- to long-term solutions. As part of this, on the 9th of February, President Zuma met with more 100 chief executive officers (CEOs) to discuss challenges facing the South African economy as well as to seek shared solutions.
Government and the private sector agreed on a number of points, including:
· Working together to implement the National Development Plan;
· The importance of fiscal consolidation;
· Addressing the management and governance of state-owned enterprises;
· Collaborating to develop the much-needed infrastructure through public-private partnerships;
· Reviewing certain regulations and laws that impede investment in the economy and which make doing business in South Africa expensive.
Joint teams were established to lead the implementation of these measures and are expected to report back periodically. There is an unwavering commitment on the part of Government and the private sector to ensure that we return the economy to a healthy position and that we do it as soon as possible.
The importance of creating an enabling environment for doing business has been raised several times and Government has taken a number of significant decisions to resolve the situation. I want to point out one of these: last year Government, after considerable deliberation, decided that with effect from 1 September 2015 all future legislation and regulations will be subject to a socio-economic impact assessment before being passed. This process is designed to promote greater policy co-ordination across Government structures. The proposed socio-economic assessment of legislative initiatives will also enhance the policy consistency and policy coherence necessary for creating an attractive business environment.
Attracting foreign investment
Attracting sufficient foreign investment remains a challenge. The Global Trends Monitor recently reported a 36 per cent global increase in Foreign Direct Investment (FDI) to 1.7 trillion US dollars. The concern, though, is that FDI inflows to Africa fell by 31 per cent in 2015 to 38 billion US dollars, mainly due to reduced FDI inflow to Sub-Saharan Africa with the largest declines in Central and Southern Africa.
Notwithstanding this trend, South Africa has received significant investments in the automotive sector. Examples include R400 million by the Metair Group; the R670 million investment by Goodyear; the R3.6 billion investment by Ford; the R4.5 billion investment by Volkswagen; and the R11 billion investment in a vehicle manufacturing plant by the Beijing Automobile International Corporation (BAIC). Despite this show of confidence by existing as well as new investors in the automotive sector, we have not been spared the FDI decline referred to above.
While the external environment played a significant role in the decrease of FDI inflows, we take the message to improve the environment for investment seriously. In this regard, President Zuma during his State of the Nation Address announced that Government is establishing a One Stop Shop to serve as a clearing house for all investment. This will deal with the challenge facing many investors who have to deal with numerous departments and comply with multiple regulations which can be very confusing and time-consuming. This initiative is intended to signal that South Africa is truly open for business.
National Development Plan
I want to reiterate the statement I made in my introductory remarks with regard to the National Development Plan by quoting President Zuma who said:
The NDP remains the foremost blueprint to take forward the fight against the triple challenge of poverty, inequality and unemployment which still persist.
---President Jacob Zuma, Response to the State of the Nation Debate 18 February 2016---
As we are all aware, the NDP sets bold objectives that we must strive to achieve by 2030. Some of the key NDP objectives include growing the economy at a much faster pace, creating many more jobs, improving the education system, and a sustained focus on building the capacity and the developmental commitment of the state. Taken collectively, the proposals across the 15 chapters of the NDP provide an ambitious long-term approach for transforming our economy, our society and our country.
The NDP is not just a vision for the country we want by 2030, it also sets out the steps we need to take to achieve that vision. As Government, we are committed to implementing the Plan and have taken a number of initiatives to advance it. The Medium-Term Strategic Framework (MTSF) that was adopted by Government in 2014 as its five-year programme serves to realise the goals of the NDP. It requires a degree of policy consistency, so that we identify and implement the most appropriate interventions.
As part of giving effect to the NDP, we continue our infrastructure build programme beyond the expansion of the energy generation capacity that I spoke about earlier. We are also committed to ensuring that the State-Owned Companies are properly managed and are able to perform the developmental role for which they were established. Our focus is on turning the Plan into reality, making it work, and focusing on the quality of implementation in the public sector.
The National Development Plan reminds us, however, that it is important to involve private firms in the regional co-operation endeavours that our continent is pursuing.
It may be states that secure international trade or financial relations, but it is, ultimately, private companies that do business across borders. This reality places a high burden of expectations on South African companies to act ethically and responsibly in the region, on the continent and in the world.
Together with our counterparts on the continent, we are working hard to create favourable market conditions. We know that when investors do well in our continent we also succeed in reaching our developmental goals.
South Africa is fortunate to be part of a fast-growing region of Sub-Saharan Africa, which is expected to grow at 4 per cent and 4.7 per cent in 2016 and 2017 respectively. This provides opportunities for local companies to take advantage of this economic buoyancy while South Africa provides a market for the goods produced by our neighbours.
It is important that we bear in mind that achieving transformation that translates into real, meaningful and sustained improvements in people’s lives requires a focused and concerted effort from all sections of society. For the private sector, civil society and other stakeholders, this means identifying how they can contribute optimally to the implementation of the NDP. The key imperative of the National Development Plan is that its success does not only depend on Government, it is equally dependent on strong leadership throughout society and an active citizenry.
In conclusion, I would like to invite you to take advantage of the investment opportunities in our country and the continent, and partner with us in the successful implementation of the National Development Plan. A strong foundation has been laid and we must build on it.
I wish you successful deliberations for the rest of the summit.
Thank you.
