ADDRESS BY PREMIER T S P MAKWETLA AT THE LAUNCH OF MPUMALANGA ECONOMIC GROWTH AGENCY (MEGA)
13 September 2006, Crocodile Country Inn
Programme Director,
MEC: Economic Development and Planning, Sipho Lubisi,
MEGA Board Chairperson, Mr Phillip Dexter
Members of the Board of MEGA
The Acting Chief Executive, Mr Anton Scheepers
Distinguished guests,
Ladies and Gentlemen
We have come a long way since the decision was made to form MEGA. As we observed at the opening of the legislature early this year, a lot of people played a role in ensuring that we achieve our objective. Today we can proudly say, congratulations and a job well done. It is pleasing that the process was transparent and consultative.
The most obvious question of the moment is, what then is the role of MEGA. I am certain that as an organisation you will or may already have engaged in your own planning processes seeking to answer exactly this question. Allow me to share a few reflections for whatever they are worth. It is almost a cliché that government can only create an enabling environment for economic growth through its policies. Through institutions such as MEGA, a developmental state can play an even more interventionist role. Such intervention would be justified because under-development signals distortions of the market economy. In defining the role of MEGA we must see an active, catalytic facilitator of economic growth.
MEGA was conceived in order to enable the province to have a public institution that has an exclusive focus on economic growth. That clearly indicates the critical importance of economic growth in the policy agenda of government. The task of growing the economy however is being pursued in an environment of widespread poverty in which black people largely remain marginal players in the economy of the country and the province. As the founding Act of the organisation compels us, we must “…develop the business sector in Mpumalanga; provide funding in respect of approved enterprise development focusing primarily on the previously disadvantaged individuals.” We are also called upon to promote trade and investment. Black economic empowerment therefore has to be a central operating tenet of the work of MEGA.
None of us is under any doubt as to the significance of the institution we are here to launch and inaugurate tonight in the context of the mission of our government in this province. Our administration's mission is premised on the goals of the ANC 2006 elections manifesto, that of “creating work in order to fight poverty”, the economic rehabilitation of the overwhelming population of our country, the previously disadvantaged.
It is for this reason that from the very beginning of this administration's term of office, changes were made to the government formation with the creation of the Department of Economic Development and Planning, a department where the parastatal we are launching tonight, is located. In spite of the many challenges which we must still overcome, this department was by design intended to be the focal point of our overarching strategy. With that understanding, you will appreciate that MEGA therefore must constitute the eyeball of our administration.
Let me hasten to add that there is no contradiction between the goal of economic growth and empowerment. In fact economies with the highest levels of inequality have been shown to struggle to achieve reasonably high growth levels. Business thrives where there is buying power for goods and services.
The following are some of the challenges we need to overcome in order to reach our goals:
• Like the development institutions in other provinces and nationally, MEGA must generate surpluses from its own operations that in turn can fund your approved enterprise developments. In other words, MEGA must be an active player in the economy that is run as a sustainable business without losing sight of its developmental focus.
• Given the current limited financial resources at your disposal, the organisation must fulfil its role by finding ways of leveraging resources and partnering with like-minded institutions that complement our strengths.
• It is easy to come up with a whole range of areas where MEGA must intervene in the economy. Such areas of intervention could be in all sectors of the economy, covering all areas of the province. In order to achieve maximum impact we must intervene in areas with the highest concentration of people and in sectors where prospects for growth are highest.
• MEGA's areas of focus must interface with the high impact programs of government and the private sector to ensure that our efforts and resources support each other rather than dissipate in the broader economy. This will require that you are informed about such programs and you have the research and analytical capacity to pursue business plans in those value chains. Examples are the current public and private focus on ‘ biofuels', the FIFA 2010 program, Infrastructure program etc. MEGA must be an active participant in such programs. As it was the case before, MEGA's deportment must be a proactive one. We must actively seek out entrepreneurs in the province who can partner with big enterprise in these areas and in high growth sectors.
• A critical area of intervention by MEGA is the facilitation of BEE in the procurement expenditure of big companies in the province. My office is engaged in a process that in partnership with the private sector will in due course unlock value in the area of procurement spend of big companies in the province.
• MEGA must sharpen and streamline its relationship with SEDA so as to have clear roles and cooperation on financial and non-financial support for entrepreneurs. Duplications and turf wars must be avoided.
It is common knowledge that our capacity to undermine poverty and achieve higher levels of human development is enhanced if we achieve consistently high levels of economic growth. It is therefore important that we appreciate both the global as well as the local economic environment in which we seek to achieve these higher levels of human development.
Over the past two years the global economy has continued on a resilient growth trajectory with the 2005 global growth estimated to be about 4.8%. This growth occurred despite the persistent threat of higher oil prices and natural disasters in various parts of the world. In 2006 and 2007 global growth is projected to be again at an average of 4.8%.
Sub Saharan African GDP growth in 2005 was estimated at about 5.5% and is projected to average 5.75% in the coming two years. Although the US economy continues to be the engine of global economic growth, economic expansion in the world is more broadly based than before, with Japan, the Euro region, China, India and Russia contributing significantly to global growth.
The main threat to the projected growth is oil prices, which remain high and volatile, driven largely by concerns about future supplies rather than demand, which was lower in 2005 than the previous year. Although geopolitical threats to supplies related to the Iran-US standoff and instability in Iraq and Nigeria persisted, they remain short-term in nature. It is the rapid expansion of the Chinese economic behemoth and other rapidly growing economies such as India that are gobbling up global energy supplies, thus presenting a future supply conundrum. This has sharply underlined the global imperative for alternative renewable sources of energy, which is particularly relevant to Mpumalanga as the energy hub of South Africa.
Relative to a forecasted global growth rate of about 4.8% the South African economy is expected to grow somewhere between 4,2%-4.8% in 2006. While private consumption expenditure has been the main driver of growth in recent months and years, the growth in this consumption expenditure is expected to slow down in 2006.
Moving into 2007, a more prominent driver of growth is expected to be government investment expenditure in infrastructure. This fixed capital investment will also serve to catalyse a significant amount of private sector investment, especially in the construction sector. The main threat here is government capacity to drive the infrastructure investments.
Whereas in the short term a greater number of jobs are easier to create in the primary industries (agriculture and mining), these are to a significant extent low value and unsustainable jobs. More long-term value and wealth lies in the secondary and tertiary industries, especially knowledge driven ones like information and communications as well as biotechnology. It is important however that both the primary and secondary sectors continue to grow in order to support the tertiary sector.
The recent provincial and national trends of negative growth (i.e. decline in output) in both agriculture and manufacturing over the past four years is most unwelcome. We can never undermine the importance of manufacturing.
Firstly, the importance of manufacturing goes beyond value added per product. Manufacturing is generally regarded as the engine of growth due to its backward and forward linkages to the other key sectors and due to its internal symbiosis. Whilst primary sector outputs (mining and agriculture) get processed and refined in manufacturing, manufacturing outputs easily become inputs in other sub-sectors of manufacturing and in both primary and tertiary (services) sectors of the economy. This dynamic nature of competitive advantage embodied in manufacturing generates higher value. This is because even in its most basic form manufacturing is characterised by innovation through higher levels of productivity to transform inputs into better outputs.
Continued agricultural decline has dire consequences not only for national food security but also for macroeconomic stability because importing food will simply exacerbate the balance of payments (i.e. we will unnecessarily deplete our precious foreign exchange reserves) and import inflation. Given the size of our agricultural sector and its importance for the national economy, we in Mpumalanga should lead the debate as to whether there is a need to review the level of support given to agriculture given the historical evidence that such support played a major role in driving economic growth.
A critical area of constraint to growth in our province relates to transport infrastructure for collieries linked to power generation. There is ever increasing evidence that even if improvements and maintenance of colliery routes happen, road transportation of coal for power generation may never cope with future demand. Eventually, it may result in higher power generation costs.
The rationale behind the decision to amalgamate investment promotion and enterprise support must still be justified by what MEGA will in time achieve. I am convinced that the future of business in Mpumalanga has never been brighter, with the potential and innovative spirit we all sense in MEGA. It is the hope of all of us, that this novel initiative will breathe new life and give further impetus to the not-so-strong endeavour to realise the strategic goal of ensuring shared growth and the deracialisation of Mpumalanga's economy.
We will not be able to meet all these challenges as MEGA unless we attract and retain the best talent. This will also help reduce reliance on external consulting services the curse of South Africa's public serve today. Internal capacity building becomes a critical area of intervention for a developmental state. Let me conclude by expressing the hope that we will not be a new organisation in name only, but more importantly we must cultivate and nurture a new culture, a culture of believing in cutting edge practices in everything we do to engender hope amongst our people.
We wish you all the best in your endeavours.
Thank you.