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Address by President Thabo Mbeki at
the SA-USA Business and Finance Forum, Roosevelt Hotel,
New York, 23 September 1999
Chairperson,
Mr Al Gore, US Vice President,
Mr Jim Wolfensohn, President of the World Bank,
Ministers here Present,
Excellencies Ambassadors,
Business Leaders,
Distinguished Guests,
Ladies and Gentlemen.
A little over three months ago our people once again
reaffirmed their commitment to democracy by turning
out in their millions to cast their votes. They voted
for the continuation of the reconstruction and development
of our society by returning the African National Congress
to power, with a substantially increased majority.
The continuing stability of our political democracy
affirms the fundamental correctness of our approach
to the development of democracy, peace and prosperity.
Our approach is based, as you know, on a sound and progressive
constitution with its attended institutions, from an
independent judiciary, rule of law, a system of proportional
representation, non-racial and non-sexiest principles
to the entrenchment of human rights.
It is our view that a democratic state needs to be
predicated on the rule of law and the protection of
the fundamental and inalienable human and other rights
of the citizenry. The promotion and protection of fundamental
rights is an essential condition for providing a stable
democratic system for the advancement of the development
aspirations of the people. The virtues of transparency
and accountability, intrinsic to democracy, lie in enhancing
the participation of the citizenry in governance, in
maintaining vigilance against the abuse of power and
the scourge of corruption, and as owners of the development
process.
Accordingly, over the past five years we have sought
to entrench democratic, non-racial and non-sexist norms
throughout our society.
Perhaps the creation of a democratic social order,
the restoration of our people's dignity and the establishment
of a human rights culture remains one of the most significant
gains of our young democracy. And this has given an
added vigilance and energy in our people as they seek
to protect these gains.
Our commitment to democratic governance, peace and
stability stems from our unwavering belief that these
are preconditions for sustainable social development
and economic growth.
South Africa has successfully entered its second term
of democratic governance. Over the last five years we
have put in place an array of policy initiatives, which
have launched us on the road to reconstruction and development.
We believe that we have in place the necessary policies,
which will enable us to begin to deliver a better life
for all our people.
It is in this context that the second democratic government
has committed itself to be a 'a nation at work'. By
this we mean that we are a government that is prepared
to implement with much more determination all the policies
which were developed during the first term of governance.
And as a government we will undertake such implementation
in partnership with all the relevant stakeholders -
business, labour, and communities.
As we implement our policies we seek to build on the
success we have scored over the past five years. Today
millions of our people, especially in the deep rural
areas and in the urban periphery have gained access
to health care, education, clean water, housing, and
electricity. The task of the second democratic government
is to accelerate delivery of these basic services to
our people.
The basic policy framework within which we seek to
deliver development and growth remains the Reconstruction
and Development Programme. Basing ourselves on the RDP
vision, we elaborated a macro-economic strategy, the
Growth, Employment and Redistribution (GEAR) in 1996.
GEAR remains our guiding macro framework.
GEAR sets out a number of macro principles and targets
to which we remain committed. These include: fiscal
discipline, achieved through deficit reduction; continued
liberalisation of exchange controls; accelerated reduction
in tariffs; tax incentives to fund training; accelerated
delivery on the backlog of social infrastructure; maintenance
of a stable and competitive exchange rate; labour market
reform to increase the absorptive capacity of the economy;
and the privatisation and restructuring of state assets.
The rationale behind our macro policy is based on the
simple reason that we believe that macro-economic stability
is a precondition for economic growth and development.
Fiscal discipline and curtailing inflation are necessary
to restore confidence and create the basic environment
within which growth can occur.
As a result of these policies inflation in 1998 was
6,9%, the lowest annual level since 1972. GDP growth
averaged 2,7% from 1994 to 1998, despite the Asian contagion,
and is expected to return to a growth path in excess
of 3% per annum.
We have managed to maintain the macroeconomic targets
we set ourselves in GEAR without sacrificing our commitment
to increase expenditure directed at basic services for
the deprived majority. We have done so through a significant
reprioritisation of the budget. Now over 60% of expenditure
goes to social services and to meeting the needs of
the poor. Expenditure on social services, comprising
education, health and welfare, increased by an average
rate of 12% from 1995 to 1998, way above the average
rate of inflation.
On the revenue side the Revenue Service has continued
to improve its collection capacity over the years. Indeed
the Service has exceeded its budgeted collection for
two years in succession. In line with the spirit of
a nation at work, the revenue service will continue
to improve on its delivery, building on the efficiencies
of the last few years.
More importantly the Service will deal more decisively
with tax avoidance and fraud as it continues to widen
the tax base by bringing unregistered businesses and
individuals within the net.
On the industrial and trade side, our policies are
predicated on the twin requirement to achieve sustainable
employment creation and economic activity by improving
the international competitiveness of industrial output.
The imperative is not only to maintain existing manufacturing
and industrial capacity, but also to expand it by consolidating
upstream competitive production, increasing beneficiation
to strengthen export of value-added output. The goal
is to facilitate, support and guide private sector investments
in a manner that deepens profound structural change
in the economy.
Evidence suggests that we are beginning to record positive
gains on the trade side. Our real export growth averaged
8% from 1994 to 1998, rising from 14% to 18% of GDP
over this period. We are convinced that the implementation
of the EU free trade agreement, SADC trade protocols
and the upturn in the commodity cycle will substantially
improve our export performance. The SADC trade ministers
have been instructed by the SADC Summit to finalise
the protocol by January 2000, and we do not believe
that this deadline should be missed.
We also await with anticipation the outcome of the
processes in the US legislatures that seek to improve
trade and investment access by African countries.
As you are aware the structural reform process in the
economic field extends to the restructuring of state-owned
enterprises. The rollout of electricity and telephony
to the poor and marginalised sections of our population
depends largely on these enterprises. We are committed
to continue the restructuring and privatisation process
in order to improve the effectiveness and efficiency
of these enterprises as well as ensuring that they have
access to cutting edge technologies. This we will do,
as in the past, through selling strategic stakes to
international players.
Accordingly, we shall be finalising the privatisation
of the state-owned forestry company, SAFCOL, in the
few weeks. This follows on the successful sale of a
20% stake in South African airways to the SwissAir Group.
Although the positive gains made through the macro
stabilisation program and on the trade and industrial
development side have not translated into massive job
creation, we remain convinced that these have laid a
strong basis for sustainable economic growth and development.
Creating millions of jobs for our people remains therefore
the biggest challenge for our government and people.
At our Job Summit held last year, government, business,
labour as well as the community constituencies entered
into a partnership to jointly tackle the problem of
unemployment.
Of significance is that a number of concrete projects
and programmes were agreed upon by the social partners.
Government committed to fund the Job Creation and Poverty
Relief Fund, trade unions mobilised their members to
contribute to a Job Creation Fund, and the business
sector committed to a Fund to promote investment in
tourism, human resource development and skills training.
On the latter, government has proceeded with the establishment
of the Skills Development Fund through the training
levy.
All these initiatives are being implemented and government
continues to monitor their progress on an ongoing basis.
The challenge of job creation also demands that we
continue to seek partners in the private sector to jointly
exploit the business and investment opportunities that
are abound in our country and region.
In the context of fiscal constraints, the state's ability
to undertake major investments projects geared towards
job creation is severely limited nor is it a desired
option in the current environment.
It is in this context that government decided to reduce
the corporate tax rate from 35% to 30% in this fiscal
year. This reduction will place more investible surplus
in the hands of corporations and businesses and we hope
that these surpluses will be invested to further expand
production, develop markets and thus begin to impact
positively on unemployment.
As we seek ways of dealing with the unemployment problem,
we have begun to increasingly focus on agriculture as
an important sector for both job creation and food security.
The apartheid legacy has left us with a somewhat distorted
agricultural sector. Despite the fact that half our
population is rural, agriculture accounts for less that
5 percent of GDP and a correspondingly small share of
employment. In an attempt to deal with this structural
deficiency, we are finalising an integrated rural development
strategy. The strategy will leverage government delivery
of social infrastructure (health, education) and services
(welfare) and economic infrastructure (roads, electricity,
telephones) to enhance the capacity of the rural economy
to employ more people and to contribute significantly
to our growth prospects.
Although South Africa has a relatively well developed
infrastructure in certain areas, the bulk of our rural
areas and black areas still lack some of the basic infrastructure.
Indeed one of the major structural impediments to the
development of an integrated economy is the underdeveloped
and weakly integrated rural and township infrastructure.
The challenge now is to provide an integrated, multi-modal
transport networks, rollout electricity and telephony
to the majority as well as connecting businesses and
homes to the information superhighway thus enhancing
peoples productive capacity with leading-edge communications
technology systems.
In the past it could be argued that the provision of
infrastructure is the classical role of the state. Private
investors are generally reluctant to invest in infrastructure
since the rate of return is usually low and the associated
risk considerably higher. Yet, in conditions of fiscal
constraints, the state is limited in this role as it
risks the deterioration of its debt exposure and contingent
liabilities in the short-to-medium term if to were to
finance major provision of infrastructure from its coffers.
Recognising these limitations, South Africa has sought
to link infrastructure provision directly to related
economic activity to increase the rate of return and
to provide for a much broader economic base for the
effective and efficient use of the infrastructure so
provided. This has enabled us to leverage in private
sector investments in the development of our much-needed
infrastructure.
Thus Public-Private sector partnerships have emerged
as one of the most efficient form of financial engineering
to facilitate the provision of infrastructure. The key
to these partnerships lies in the sharing of risks and
rewards and the generation of density of investment
projects and their rapid delivery, thereby increasing
both their profitability and the desired social impact.
In this context we have several Spatial Development
Initiatives (SDI), which you will hear about during
the course of the conference, which rely on these partnerships.
The most advanced of these is the Maputo Development
Corridor.
The early success of the initial investments in the
Corridor have improved considerably the investment prospects
for Mozambique in particular, and opened significant
economic opportunities within South Africa. The linkage
of the multi-billion aluminium smelter project to the
rehabilitation of the port and the concessioning of
the rail and road transport routes has created an agglomeration
of investments that has further leveraged investments
along the corridor, impacting on the development of
communities that were hitherto marginalised.
What is more important is that the increased economic
activity along the corridor has had a positive impact
on the development of small and medium businesses. We
will continue to use developments such as these to strengthen
and develop the SMME sector, which is critical in absorbing
the army of the unemployed into formal employment.
Building on these early successes we have since initiated
similar cross-border projects with Mozambique and Swaziland,
the so-called Lubombo SDI and the Beira Development
Corridor with Mozambique and Zimbabwe.
The Lubombo SDI has an array of eco-tourism projects
that will deepen economic activity in the region and
will greatly benefit local communities.
In line with our strategy to use public funding to
determine the viability of projects, government has
injected R30m into the Lubombo SDI. We have now established
that the a number of projects ranging from beach resorts,
up-market bush lodges and hotels, middle-income safari
camps to a private game park are viable. I'm sure the
Minister of Tourism will say more about other tourism-related
projects.
We are also working with both Mozambique and Namibia
on the development of both the Pande and Kudu gas-fields.
We believe there will substantial investment opportunities
arising out of the development of these fields.
These cross-border or regional initiatives have affirmed
the correctness of our approach to development, an approach
that is regional in perspective.
South Africa's development and success depends on the
simultaneous development of the SADC region.
Our sustained development initiatives in the SADC region
continue to be threatened by the instability in parts
of the region. We are determined as a region to ensure
that stability returns to both the Democratic Republic
of the Congo and to Angola.
Our efforts of the last few months with regard to DRC
are guided by
our resolve and determination to ensure that peace,
stability and democracy returns to the Congo. We will
continue to engage with the Congo situation to ensure
that progress made so far is not reversed.
I have tried to sketch out some of the key challenges
we face as well as the strategies we have employed to
deal with them. Some of our ministers are amongst you
today and will no doubt give you more
details on the various aspects of our economic programme.
You will also hear from both South African and international
investors about the multitude of business opportunities
in South Africa and the region of Southern Africa. I
hope that you will be in a position to
explore ways of strengthening the flow of private direct
investments into our economies. Lets build a partnership
that will engender a more vibrant and developed Southern
Africa. We have rolled our sleeves and we mean business.
I Thank You
Issued by Nazeem Mahatey
Director Research and Speechwriting
Communications Unit
The Presidency
Pretoria
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