Transcript Document 7373667

Post Policy Engagement
Nelson Mandela Bay Metro and Sarah Baartman
MEC Mcebisi Jonas
April 18th, 2013
Setting new directions
for the economy
2
2013 promises to be another tough year for the global,
South African and Eastern Cape economies
• The World Bank predicts that the global economy
will grow by just 2,4% this year, a level very similar
to last year
• Eurozone will most likely remain in recession
• US economy expected to grow at under 2%
• Only real good news
– China’s growth is expected to rise (from 7,9% to 8,4%)
– Emerging economies will continue to grow at above 5%.
– There will be continued demand for SA commodities (SA
will continue at approx 3% growth)
Global shift in economic power to emerging
economies
Annual gdp growth: %
10
8
6
4
2
0
-2
Advanced Economies
Emerging Economies
12
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
-4
Trade within Africa remains low in spite of the
massive trade potential
The 10 fastest growing economies in the world, 2011-2015, per
cent
A population of one
billion
Regional GDP will
double over the next 13
years.
Addressing regional
trade and infrastructure
bottlenecks will be
critical
Leveraging South
Africa’s expertise in
mining.
Sub-Sahara Africa will have 7 of the 10 fastest growing economies in the world over the
next five years.
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So what does all of this mean for South Africa?
• Continued Eurozone recession will continue to hit South African
manufacturers where it hurts - Eurozone – South Africa’s largest
trading bloc - imports a relatively higher proportion of manufactured
and semi-processed goods.
• Eurozone crisis will also impact on our auto manufacturers. Demand
for new cars in the Eurozone fell by 11,3% last year.
• Means we have to urgently diversify our trade strategy (to trade
more with BRICS and Africa).
• Will undoubtedly continue to affect our economic performance and
competitiveness.
• Weakened short-term growth prospects, high levels of structural
unemployment, spate of industrial action and social protests: led to
downgrade of South Africa’s credit rating by the three main credit
rating agencies
Not all gloom and doom
• The credit downgrade by the ratings agencies is
more of a warning to Government to get its house
in order.
• SA still has a “stable” outlook as a result of credit
strengths built around its strong banking sector
and manageable debt-to-GDP ratio.
• Continued growth of the Chinese economy means
continued demand for South African minerals,
which will provide the minimum levels of growth
and revenue to sustain Government’s social
welfare programmes over the short-to-medium
term.
Not all gloom and doom
• SA’s economy remains resilient – our nonfinancial corporates have cash balances of R550
billion (mid-2012), enough to finance two years
of private real investment.
• Two recent reported surveys confirm SA’s
ranking as the most attractive place to do
business in Africa (Grant Thornton and Ernst &
Young)
But our current growth trajectory is
unsustainable
• Too locked into minerals-led growth path (historically
built on cheap labour and cheap electricity) with EC on
the margins.
• We are growing at far lower levels than other emerging
economies (SA grew at an average 2,7% PA over the
past 5 years compared to 4,7% for emerging
economies).
• We seem unable to dent unemployment
- EC
gravitates between highest or second highest rate of
unemployment.
• Need new growth path for province
Four Critical Contraints of the
Provincial Economy
1. Our extremely small primary sector (2.4% GDP)
• Lowest primary GVA of all nine provinces
• Explained partly by the absence of significant mining
in EC and partly by our extremely small farming
sector (EC’s agriculture sector is not much larger in
absolute terms than that of urbanised Gauteng)
• Our small primary sector is important because strong
primary sectors boost economic activity in the rest of
the economy
• Its small size is due to the history of our region as a
labour reserve rather than a productive base, and the
spatial geography of the so-called mineral-energy
complex.
Table: Sector structure of GVA by province (% GVA, 2010)
Primary %
Secondary %
Tertiary %
South Africa
12.0
21.2
66.7
Eastern Cape
2.4
20.0
78.2
17.3
17.3
65.5
KZN
6.3
25.9
67.8
NW
39.9
9.1
51.0
3.3
24.9
71.6
Mpumalanga
25.6
26.3
48.1
Limpopo
35.3
8.3
56.4
Western Cape
4.3
22.7
73.0
Northern Cape
41.5
6.8
51.7
Free State
Gauteng
2. The large proportion of our population living in the
former Bantustan areas (at least 2/3 of total population)
• Conditions there for private sector investments are not
(and never have been) conducive and social infrastructure
backlogs persist.
• Former Bantustan areas remain the most deprived in SA.
• Resolving land administration obstacles in
bantustans is key to enticing private investment
former
3. Our two coastal metros are both small and
slow-growing
• Are subject to partial de-industrialisation (due to
import competition).
• While our auto industry directly created 10,000
jobs over the period 1995 to 2010 (assisted by
MIDP), many labour-intensive factories closed
down.
• Our two IDZs have not yet become major
employment zones (although now have significant
investment pipeline).
4. EC has tended to get a low share of
investment by public corporations
• In 2011 total SA Gross Fixed Capital Formation was
R349 billion, of which 15% was contributed by general
government, 23% by public corporations and 62% by
private business enterprises.
• Only major investment by state-owned enterprises in
the EC post-94 has been the new port of Ngqura (at a
cost of R6 billion).
• This situation is now changing with EC having a large
pipeline of major economic infrastructure projects (and
PICCs SE node and corridors).
Our Share of State Owned Investments
• We did an analysis that showed massive under
investment by SOE’s
– Concluded a collaboration agreement with Transnet.
– Results are encouraging, Investments planned over a 7
year period is estimated at R 32 billion.
• Collaboration framework with DPE
– Eskom to invest over R 3.5 billion in the Eastern Cape
up to 2015/16
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The Eastern Cape needs a
much more diversified and
dynamic economy
Export analysis
• We have started an analysis of our exports
• Useful to identify competitive advantage
• We have started analysis at H-2 digit level
(100 product categories)
• H-4 digit level has about 1200 product
categories
• H-6 digit level has about 7600 product
categories.
Table: EC “Top 10” Exports: nominal values 2000 and 2011
Product
Code
Vehicles
Machinery
Wool
Hides and leather
H87
H84
H51
H41
4832
2232
1008
752
12253
10786
2896
831
154
383
187
10
23
25
100
57
Tyres
Furniture
Clothing
Fish and molluscs
H40
H94
H61
H03
595
407
343
176
1028
36
4
340
73
-91
-99
93
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1
1
10
Fruit (processed)
H20
143
233
63
6
Fruit (fresh)
H08
Total Top 10
Total EC
Top 10 as % of total
22
10510
12145
86
855
29262
34234
85
3786
178
182
5
208364
691504
232
SA Total
Exports in 2000
(R million)
Exports in 2011
(R million)
% change 2000
to 2011
EC as % of SA
exports in 2011
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What we can observe from the table above:
• “Machinery” in table above is almost all catalytic converters
• The above average export growth of catalytic converters (H84)
[NB: CPI increased by 87%, 2000-2011 – so here we are looking
at strong real growth].
• The exponential export growth of fresh fruit (mainly citrus).
• The large value of wool exported (most completely unprocessed,
not even washed) [why no value-add?].
• The complete collapse of exports of
manufactured products (furniture and clothing).
• That EC accounts for only 5% of SA exports
non-automotive
There are encouraging signs that a more dynamic
economy is now emerging:
•
A strong automotive sector that is starting to diversify into non-automotive
manufactured products. For example, Lumotech in Uitenhage
(manufacturer of car lights) has diversified into eco-friendly street lights.
•
A rapidly growing green economy (notably catalytic converters and wind
energy).
•
An expanding fruit industry with excellent development potential (in terms
of natural resources and global markets).
•
A growing capital goods sector (wind turbines in Coega).
•
New agro-processing investments in IDZs (biofuel, food etc) which
provide ready markets for primary feedstock).
•
•
A growing tourism economy since 1994
Linkage with the National Development Plan
• In the light of NDP, we need to build on
these positive growth impulses and achieve
much higher rates of investment and
employment, particularly in export industries.
We must also work harder to keep what we
have (dti starting with incentives for nonauto sectors eg textiles and white goods)
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How to build on these positive Trends:
Industry-government partnerships and sensible instruments to:
– Reduce costs-of-doing- business in the EC (cost
disdavantages).
– Accelerate diversification of manufacturing
– Create new catalytic converter-type industrial successes:
were major success of post-94 industrial policy
(combining beneficiation of SA and imported materials,
making coastal location imperative)
– Capitalize on component supplier opportunities in
Government’s build programme (and Africa’s build
programme)
– Need big focus on agro-processing (with governmentsupported primary production of feedstock)
Key Strategic Project (Gateway Concept)
• Cost and efficiency of logistics serious bottleneck to
investment and growth
• Recently launched a massive economic infrastructure
program (under the auspices of the Presidential
Infrastructure Co-ordinating Commission)
• Must find balance between need to invest in new
infrastructure and end-user costs (eg energy)
• National infrastructure plan has recognized historic
patterns of spatial underdevelopment, and has
packaged a South Eastern Node and Corridor to
connect the Eastern Cape to the national and global
economy.
• Development and Implement a more robust and
targeted Skills Development
Key Strategic Projects (Gateway Concept)
Key projects include:
• Coega trans-shipment hub
• Manganese corridor to N Cape
• EL port expansion
• Mthatha airport upgrade
• N2 Wild Coast Highway (linked to Wild Coast
Corridor)
• Umzimvubu Basin Catchment Development
(need to move beyond dam)
• Renewable Energy
• Agro-processing, Better Govt Support for
Large Scale Agriculture
Build will and capacity of the state
• Will impact on the scale and impact of these new
measures to change our growth path.
• We must be creative to ensure we assemble ringfenced capacity and resources to drive our
economic programmes unimpeded by the broader
politics of institutional restructuring and conflict.
• Needed most in our two metros, which must rise to
the occasion to become engines of growth and
development.
Growing the economy: some big ideas...
• Think big
– The Province can benefit from thousands of
innovating brains. It’s a moment to broaden
horizons, expect much more, and expand every
kind of ambition.
• Transcend the post-apartheid legacy
– Get over our hang-ups about apartheid: we badly
need a wave of new industries, new industrial
capability
• Government support for technical innovation
– Innovation is based on new knowledge, or it is
nothing. Government must and will support
technical innovation
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Growing the economy
• Hard work
– Thomas Edison famously said of genius – that it is one per
cent inspiration and 99 per cent perspiration – remains
largely true of innovation and entrepreneurship. Let’s
recreate an ethos of hard work!
• Take risks
– Risk aversion has become all-pervasive at all levels in
society. On the contrary we need to take real risks to achieve
real change
– Government has shown too little interest in innovation. We
tend to want a future that is more predictable and more
stable. We try to avoid risks. By contrast serious innovators,
whether they like it or not, tend to make things less
predictable and less stable. They tend to take risks and let
events take their course. We should not try to dampen things
down.
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Growing the economy
• Leadership
– Distinct and distinctive leaders are required not
only to get innovation moving, but also to set
aspirations, create goals that people can believe
in, and take responsibility for failures. Innovation
is a human process; because it includes failure
and chance, it must be led by men and women
who can take people from their ‘comfort zones’
into a different place altogether.
– Innovation demands not further empathy, trust
or Key Performance Indicators, but vision,
commitment, brains and, yes, a little personal
heroism too. Join us in this project!
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Concluding issues for business
• Need to participate in charting new growth path
for province;
• Need to work with Government to address costs
of doing business (what is reasonably possible?)
• Need to participate actively in clusters (auto
established
and
setting
up
non-auto
manufacturing and agro-industry)
• Need to work closely with government to explore
new trade and investment strategies (Africa and
BRICS)
• Participation in supplier opportunities in build
program
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THANK YOU