South Africa: The Context and Growth

Strategies
Ebrahim Patel
Minister of Economic Development
Republic of South Africa
October 2014
Bali, Indonesia

Background to SA
South Africa - a country of 52 million
people, culturally diverse
More than 300 years of colonialism
and 20 years of democracy
Dutch occupation from 1652 to set
up a half-way station for ships to
Batavia
Colonialism interrupted economic
development of pre-colonial
societies
Racial oppression defined the
labour market and the pattern of
industrialisation
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Challenges inherited with end of apartheid

Unusually high levels of poverty, inequality and unemployment that coexisted
with big concentration of wealth
Economic concentration resulted in abuse of market dominance by
monopolies and existence of cartels
Exports were driven by focus on raw materials with limited value addition
locally
Markets were mainly Europe and the United States, with virtually no trade
with the rest of the continent
Weak human capital base and strategies resulted in serious racial skewing of
skills
Low domestic savings base
Limited investment opportunities for black South Africans curtailed
indigenous small business development
3

Need for new policies

Strong growth in the economy after democracy, but largely from a consumer boom,
fuelled by rising commodity prices for exported commodities and rising domestic
debt
Financialisation of the economy
Limits in that growth model was cruelly exposed during the 2008/9 Great Recession,
when demand for commodities fell, prices dropped and output slowed down, one
million jobs lost
Need to shift from exporter of raw materials to an industrialisation strategy
leveraging off opportunities:
raw material proximity,
location near fast-growing African markets and
new infrastructure spending.

New Growth Path adopted

The country adopted a New Growth Path in late 2010 to begin to reverse
these pressures
Developed a series of steps required to implement the new vision:
Jobs drivers
Policy drivers
Resource drivers
Jobs as a specific target of policy not a residual outcome of growth
Green growth as an opportunity
Social partnership between labour, capital and the state

The 6 Is
Infrastructure needs to address complementary national goals so that the
very significant spending leaves not only a legacy of ports and power
stations. We identified five i's:
Industrialisation - component and rolling stock manufacturing
Investment - in enterprises which need energy, good logistics systems,
broadband access
Inclusive growth - covering jobs, youth enterprise, rural development
Innovation - using infrastructure to stimulate new R&D investment
Integration - of the African continent through active focus on projects that
promote trade and investment in the continent

The National Infrastructure Plan

The National Infrastructure Plan (2012) has become the key instrument to implement
the New Growth Path
economic infrastructure such as transport and logistics, energy generation,
transmission and distribution, water supply, broadband rollout
Social infrastructure such as health, education and sanitation as well as basic
services to household and rural level
Industrial infrastructure including agro-logistics
Presidency-led, with a Presidential Infrastructure Coordinating Commission (PICC),
bringing together half of Cabinet, all provincial governors and mayors of major cities
Adopted 18 Strategic Integrated Projects that pulled together 100s of separate
construction sites into a coherent Plan

Result: Higher infrastructure investment

470
377

363

360

1998-2003

279

2008-2013

2003-2008

1983-1988

1978-1983

1973-1978

as the highest spent

in the last 40 years
and three times
higher than the
spend in 1994

634

621

440

1968-1973

1.7 times as high

604

1963-1968

In real terms the

spend to date is

1,029

1993-1998

1,100
1,000
900
800
700
600
500
400
300
200
100
-

1988-1993

Billions of rand in 2013 terms

Government infrastructure investment over five-year intervals,

1963 to 2013, in billions of rand at 2013 values

Role of the Presidential Commission

The Presidential Infrastructure Coordinating Commissions role is to:
Unblock regulatory and other obstacles
Set timeframes for all authorisations to be completed
Monitor spending at all three spheres of government
Address critical enabling factors such as skills development
Connect infrastructure and industrialization

Example of energy generation

Worlds 4th largest coal-fired power station under

construction
10

Energy: moving beyond growth only

The largest Green Energy programme in Africa, with 15 000 MW of green
energy planned over the next 10 years
Transformation of energy at household level in the last 15 years:
1890 to 1996: 5,2 million houses connected
1996 to 2013: 7,2 million houses connected

Localisation of component production: major condenser unit made locally;

boiler production has localization components

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Example of transport

Building an African train-manufacturing capability

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Transport
A major construction programme to integrate
urban centres to reduce commuting times
and cost and improves safety.
333 new buses were assembled locally for
the new integrated transport systems for two
cities.
9880 new train coaches or wagons and 319
locomotives were locally assembled, helping
to create jobs and expand industrial
capacity.
25 000 mini-bus taxis were assembled
locally in two new factories. In contrast,
before 2012 all taxis in South Africa were
fully imported.
New rail-car to transport new automobiles
across the country
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Results
Largest infrastructure spending for last 50 years, with investment in physical
platforms for growth and jobs
1,4 million new jobs created over past 3,5 years, bringing total employment to
15 million people
GDP at end 2013 about US dollars (PPP) $662 billion
Growth rate since democracy roughly 3.2% a year on average, up from 1.2%
in the preceding 20 years
SA now a member of BRICS and a growing part of manufactured exports is
to neighbouring countries

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Results
Competition: tenfold increase in fines and penalties, with first steps now in
ordering breakup of monopolies and steps to regulate prices for private
monopolies
State procurement outcomes: compulsory local public procurement in
selected products where we have the potential to develop
Industrial funding up by more than 100% over past five years, with public
investment agency approving industrial support loans of $6 billion and
attracting double that from private co-investor partners
Trade reoriented to the rest of Africa: example of the Ford Ranger pickup
vehicle
Extensive social security system, covering retirement and child grants, to
complement employment strategy, in order to address poverty and inequality
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Challenges we now face

Growth still too dependent on commodity prices: growth rate has softened
significantly
Infrastructure costs may increase as we expand the programme unless we
can expand the number of contractors and suppliers
International loan conditionalities may constrain localization provisions in
contracts
Human resource policies to manage industrial tensions are critical
Funding issues need attention to avoid distorting local capital markets
State capacity limitations: as regulator, negotiator of contracts, and manager
of private sector contractors in public projects

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Conclusions and areas to consider

Dedicated policies, not trickle down

Long-term planning for skills development
Address global supply-chains
Regional integration critical for market size
State capacity needs to be built in design and delivery
Maintenance of infrastructure can drive repeat orders
Private sector partnerships crowds in investment. However, the state should
protect the public interest.

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Terimah Kasih!

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Annexures

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Key jobs drivers of the New Growth Path

Infrastructure development
Mining and local processing of
key minerals
Agriculture and agro-processing
Manufacturing, including through
reversing deindustrialisation
pressures
Green economy
Tourism and key business
services
Knowledge-based sectors
Social economy and public sector
African regional development

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Key policy drivers of the New Growth Path

Industrial policy as a central driver

Fiscal and monetary policies and exchange rate policies
Skills development to enhance skills base
Technology policies to promote innovation
Competition policy to combat monopolies and cartels
Trade policy to expand access to markets
Regional integration policies
Indigenisation policies
Private entrepreneurship through addressing regulatory challenges and red
tape and promoting small business

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Key resource drivers of the New Growth Path

Budgetary support for industrial and infrastructure development, including
well-designed incentives
Public procurement policies that direct state purchases
State industrial funding and lower interest rates by public corporations
Retirement funds able to back long-term investment horizon
Tapping into private capital markets for public infrastructure and for the bulk
of industrial investments required

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