ADDRESS BY THE DEPUTY MINISTER OF COOPERATIVE GOVERNANCE & TRADITIONAL AFFAIRS, MR OBED BAPELA, AT The CHINA-AFRICA INDUSTRIALISATION COOPERATION SEMINAR,
08 June 2018,
Chinese Ambassador, Lin Songtain,
FOCAC Ambassador, Zhou Yuxiao,
Professor Lieckness Simbayi, Deputy Chief Executive Office, HSRC,
Professor Narnia Bohler-Muller, Executive Director, HSRC,
Ladies and Gentlemen,
Good Morning, Ni Hao,
It is my pleasure to join you today.
Thank you to the Embassy of the Peopleâ€™s Republic of China and the Human Sciences Research Council for organising this seminar. It comes as an opportune time as South Africa readies itself to host the BRICS Summit in July. This, as you know, will be preceded by a number of events strengthening our mutually beneficial relationships, of which this is one. Later this month the Cogta Ministry will also host the BRICS Friendship Cities and Local Government Cooperation Forum and the Meeting of the BRICS Ministers of Disaster Management. We believe this will go a long way to ensuring that we build on the firm foundation we have set over the last few years, and in doing so improve the local government sectors in our respective countries.
The Back to Basics (B2B) programme introduced in 2014 has been the backbone for transformation of our municipalities. The B2B programme is premised on the five pillars of putting people first, delivering quality services, promoting good governance, sound financial management and building institutional capacity.
Following the hosting of the inaugural Local Economic Development conference in November last year, a sixth pillar of Local Economic Development was added to the B2B programme.
The importance of municipalities in driving local economic development has been increasingly recognised. The 7th Forum on Chinaâ€“Africa Co-operation (FOCAC) and Ministerial Conference in Beijing, China, will focus on industrialisation in Africa. We are in accord with the aims of this seminar to ascertain industrial best practice, explore job creation opportunities among the youth, utilise industrialisation as a tool for poverty reduction at local government level and explore the opportunities that exist for the China-Africa regions to cooperate more beneficially.
To this end I would like to examine the issue of Special Economic Zones. Economic development plays a crucial role in creating a prosperous, equitable, stable and democratic society.
After the demise of apartheid, South Africa shifted from a skewed inward industrialisation policy to an outward export led strategy to integrate into the global economy. This was designed to stimulate economic growth, export promotion and reduce unemployment. The new government adopted a special economic zone (industrial development zones) policy framework in 1997 following a cabinet resolution as a catalyst to stimulate economic growth, export promotion and job creation. This was in line with the market orientated macroeconomic policy-Growth, Employment and Redistribution (GEAR) adopted in 1996. This industrial policy reform was adopted drawing from the experience of other countries (particularly in East Asia and Latin America), where industrial enclaves (Special Economic Zones – SEZs) were successfully adopted as catalysts for transition from inward looking industrial strategy to export led growth or as a strategy to switch from traditional to non-traditional exports.
As part of its industrial policy development framework, South Africa has introduced the concept of Special Economic Zones (SEZs), geographically designated areas spread across the country, which are reserved for specifically targeted economic activities and supported through special arrangements, such as legal and regulatory, financial and procedural (processing of permits, etc.) different from non-designated areas. It is important to note that the South African SEZs model is not exclusive from other industrial parks. Its primary aim is to offer world-class infrastructure to level the playing field with other global locations. A world-class industrial infrastructure certainly provides leverage to investors. However, in many cases this may be insignificant as similar infrastructure can be found elsewhere. In addition, problems with public utilities such as water and electricity are tied to the general environment where the zone is located. This has posed a formidable challenge to the zones principle of creating enclaves, which has proved difficult to create and sustain in the South African context, especially given the challenges that exist in some local government spheres.
SEZs promoting Inclusive Growth
Sections 152 (c) and 153 (a) of the South African Constitution, state that local government must “promote social and economic development” and must “structure and manage its administration, and budgeting and planning processes to give priority to the basic needs of the community, and to promote the social and economic development of the community”. Furthermore, in describing the characteristics of a developmental local government, Section B 1.1 of the White Paper on Local Government (1998) states that the powers and functions of local government must be exercised in a way that meets the basic needs of the poor and the growth of the local economy.
In addition, the National Development Plan seeks to develop an economy that will create more jobs in an inclusive manner and in which the fruits of growth are shared equitably and poverty is eradicated.
Municipalities play an important role in promoting inclusive economic development. Municipalities should strive to become â€˜idealâ€™ by fulfilling the Constitutional vision of local government. In this regard, municipalities should promote social and economic development; promote a safe and healthy environment; encourage the involvement of communities in the matters of governance; facilitate a culture of public service and accountability amongst its staff; assign clear responsibilities to the municipal management; and, ensure the coordination of administrative units and mechanisms.
Therefore the SEZs programme become important as tools to foster this inclusive growth, through advancing the spatial transformation agenda of government, which could lead to the creation of new and modern cities. SEZs could also assist to reduce the stubborn levels of unemployment more especially to the youth. Given the scale of the countryâ€™s crisis of unemployment, South Africa views SEZs as a platform for experimenting with reforms that might induce the emergence and growth of industries that employ large numbers of low-skilled workers.
SEZs also provide an opportunity for building functional and capable municipalities with efficient approval systems and processes. However more still needs to be done in order to clearly articulate the role of local government in the SEZâ€™s programme.
Through the SEZâ€™s programme municipalities should position themselves for the following facilitative role:
- Assigning higher preference weightings to local businesses in competitive bidding processes;
- Sole sourcing arrangements with local suppliers;
- Price matching, that is allowing local suppliers to match the price of other suppliers;
- Allotment – breaking large contracts into smaller ones (unbundling) to create opportunities for smaller local suppliers;
- Requiring non-local suppliers to sub-contract locally or to enter joint ventures with local suppliers;
- Providing technical and management training and mentoring;
- Linking local businesses to other service providers and agencies that promote technological innovation and provide access to finance.
- Consortium forming â€“ compile a spec to encourage small businesses to form consortia to be able to compete meaningful with bigger companies
- Demand planning â€“ target commodities for SMEs and Local businesses
- Use of designated products to target local industries
The list is indeed endless and can be modified to suit local conditions and advantages.
SEZs Programme to Revitalize the Distressed Municipalities
Recently the Ministry of COGTA released a list of distressed municipalities across the country. These municipalities face different challenges related to financial management, governance and service delivery challenges, including the inability to spend their infrastructure budgets.
South African cities and towns have been and continue to witness an increasingly rapid inflow of population migrating to these centres, mainly in search of economic opportunities. Not only do the cities attract people from rural areas within the boundaries of the country, but also citizens from neighbouring countries. As it is the case in other countries and regions, migrants from rural areas and neighbouring countries move to South African cities and towns because of the perception that there is a better chance of being employed in urban centres in comparison to rural areas, or their countries of origin.
As you can imagine, the rapid growth in the urban population has placed immense pressure on the infrastructure and systems for delivering basic services such as housing, electricity, water, sanitation and roads. Most urban municipalities are also struggling to meet the needs of growing urban population in terms of health services, education, cemeteries, transport and other amenities. Heath facilities, in particular, have come under enormous pressure because urban population growth far outstrips the increase in budget allocations to fund the necessary expansion of capacity to meet the rising demand for services.
The SEZ programme could be instrumental in contributing to government efforts of building capable municipalities. With the full swing implementation of Special Economic Zones Programme key features of most South African towns will change for instance:
- Maluti-A-Phofung SEZ in Harrismith, Free State, lies at the mid-point of the crucial Durban-Johannesburg logistics route. This newly established SEZ offers exporters a logistics base that facilitates access to the Port of Durban, and intermodal logistics solutions for the transfer of freight between road and rail.
- The Musina/Makhado SEZ comprises two geographical locations that address unique industrial clusters. The site in Musina targets the light industrial and agro-processing clusters, while the Makhado site is a metallurgical/mineral beneficiation complex. A third site has been identified to target the petrochemical industries. The SEZ forms part of the Trans-Limpopo Spatial Development Initiative (SDI) and has been developed as part of greater regional plans to unlock investment and economic growth and address the development of skills and employment.
- The Bojanala SEZ in Rustenburg is also known as the Platinum Valley SEZ, which clearly indicates its focus on mineral beneficiation of platinum group metals (PGM), including Platinum (Pt), Palladium (Pd), Rhodium (Rh), Osmium (Os), Ruthenium (Ru) and Iridium (Ir). The SEZ targets PGM beneficiation, mining equipment and machinery, renewable energy products and components and logistics, including the upstream value chain as well as several downstream opportunities.
SEZs Strengthening Municipal Governance
South African cities are also engaging actively on the Business Regulatory Reform matters for City Economic Competitiveness, which is central to the SEZs programme. Business Regulatory Reform is key to creating a friendly, City investment climate & economic competitiveness because of the following reasons:
- Firms drive city economies and create jobs
- So cities must make it easier for firms to do business in their cities
- Its all about firms and jobs â€“ reducing the cost of business for firms makes it easier to create jobs and economic opportunities
- This means that good city administrative performance combined with strong governance underpins city economic performance and competitiveness
Therefore, the Doing Business reforms are a key part of City Investment Promotion focus in South Africa. In 2015 South Africa published a `Sub-National Doing Businessâ€™ assessment report among nine (9) cities that are major economic hubs of the country. The study focused on six Indicators namely:
- Starting a business
- Dealing with construction permits
- Registering property
- Getting electricity
- Enforcing contracts
- Trading across borders
The next leg of the survey started in November 2017 tracking the progress made in implementing the 2015 results. Progress in implementing the 2015 results has mainly been driven by systematic implementation of ongoing City Doing Business Reform Action Plans. It is our view that although typical SEZs are demarcated spatial enclaves, the extent to which they can function effectively and benefit the host economy as a whole depends on wider economic conditions. The more business-friendly the surrounding environment, the more potential an SEZ has to stimulate economic activity both within and outside of the zone.
The main goal of the South African government is to achieve significant economic growth, industrial development and employment creation. SEZs are strategic and effective instruments for industrial and economic development, and if well used and managed the South African economy stands to benefit significantly. Through an effective SEZ progamme, South Africa benefits from increased foreign direct investments (FDI); enhanced industrial capabilities and increased level of exports; sustainable infrastructure development; skills development; integrated logistics systems; technology innovation and increased research and development. These factors will consequently contribute to general economic growth, creation of quality and sustainable jobs as well as balanced regional development. It is important to measure if the SEZ programme will enhance the rapid urbanization, which South Africa is currently experiencing, while being a back-bone of small towns. Our expectations of the SEZ programme in municipalities are to create efficient urban spaces by:
- Aligning land use, transport planning and housing
- Preventing development of housing in marginal areas
- Increasing urban densities and reducing sprawl
- shift jobs and investment towards dense peripheral townships
- improve public transport and the coordination between transport modes
This, therefore, means the SEZs programme should strengthen the implementation of the Integrated Urban Development Framework (IUDF) overall outcome which is to support and guide SA cities and towns to achieve spatial transformation â€“ in other words reversing the inefficient spatial patterns in a way that promotes both social and economic development, while protecting the environment.
The IUDF proposes an urban growth model of compact, connected and coordinated cities and towns. Key to achieving the triple C model is land, transport, housing, and jobs, which are strategic structuring elements critical for the attainment of the outcome. The existing and planned SEZs should therefore assist us to achieve this triple C model.
The SEZ programme is an important government instrument to propel industrialisation, regional development, export promotion, job creation as well as enhance South Africaâ€™s attractiveness as a potential destination for FDI.
As you may know, the month of June is one in which we celebrate the youth of our country. The Quarterly Labour Force Survey release by Stats SA last month, indicates that approximately 3,3 million young people between the ages of 15-24, were not engaged in the labour market, and not in employment, education or training, in the first quarter of 2018. Like the rest of Africa, our youth are a demographic dividend that needs to be unravelled. We should look closely at how SEZs can serve as vehicles for unlocking the potential of our youth.
I wish you well in your deliberations and look forward to the ideas and initiatives that emanate from this gathering.
I thank you.