Address by Mr Aziz Pahad South African Deputy Minister of Foreign Affairs at a Business Luncheon, Bangkok Monday 4 September 2000

Chairperson,

Distinguished guests,

Ladies and Gentlemen

It gives me great pleasure to be back in Bangkok - a city whose skyline and sheer level of economic activity never fails to amaze me. I am pleased to be able to share with you this afternoon, some thoughts on South Africa’s economy and how we relate to the global economy.

Six years ago in 1994, the US Department of Commerce identified South Africa as one of the world’s top ten Big Emerging Markets. Why South Africa ?

It has the most advanced and productive economy in Africa with a GDP nearly three times that of Egypt, its nearest competitor on the continent;

South Africa accounts for approximately 75% of GDP for the Southern African region and 45% of GDP for the entire African continent;

South Africa is the gateway to the Southern African Region. It has a well-developed transportation and communications infrastructure support and efficient distribution of imported goods to major urban centres throughout the region;

South Africa’s economy is a diversified one, with manufacturing representing the largest sector of the economy, contributing 26% of GDP followed by finance and business services (16%), commerce (13%), mining (11%) and agriculture (4%);

South Africa’s well-developed financial system is unrivalled in any emerging market. The sophisticated legislation governing the financial sector has been further streamlined to meet international norms and provides the platform for the introduction of major foreign financial institutions into the local market.

Repositioning the South African economy

A level of economic liberalisation has accompanied South Africa’s transformation like never before experienced in the history of South Africa. Our trade and industrial policy is in the process of fundamental change and considerable success has been achieved in repositioning the South African economy, transforming it from a highly-protected exporter of unprocessed minerals to a globally-competitive exporter of manufactured and semi-manufactured goods.

This has also been accompanied by a broadening of our export horizons, so that new markets now account for a considerable percentage of our exports (not least Asia.) The G7 and the EU continue to be our major markets but the balance is shifting. African countries are now major trading partners.

A major export strategy is being implemented, and export councils are being developed for all significant sectors. There has been a change of mindset in South Africa, and now instead of thinking of exports as an add-on in good years, South Africa is starting to think of exports first, with the local market being merely part of the overall drive. This drive has received a considerable boost from the South African – European Union trade agreement, which will bring benefits to both sides.

The South African Government has made impressive achievements in opening the domestic economy to international competition. Amongst these measures are :

A significant reduction in tariff barriers ahead of the World Trade Organisation timetable which has resulted in the lowest average rate of protection in the SADC (Southern African Development Community) Region;

A market related and competitive exchange rate;

No restrictions on the type or extent of investments available to foreigners nor is government approval required;

The strengthening of competition and the development of industrial cluster support programmes;

The abolition of exchange control on non-residents and the substantial reduction of control on residents, with further reductions to come;

A pro-active strategy to attract foreign equity partners into the process of restructuring state assets and infrastructure;

The introduction of greater labour market flexibility; and

The availability of attractive investment incentives to enhance international competitiveness, technology transfer and foreign direct investment.

Regional economic integration

As with ASEAN and the creation of an ASEAN Free Trade Area (AFTA), the member countries of SADC have created strong regional institutions which are aimed at making regional trade easier, cheaper and more tariff-free. A key development takes place on 1 September 2000: The implementation of the SADC Trade Protocol, which will free up the SADC region and make doing business in the region much easier. There is much work still to be done in implementing the protocol, but September 1 marks an important stage in the realisation of a region-wide market. Intra-regional trade is still relatively undeveloped, currently standing at 10% of total exports (as compared to 70% for APEC, 55% for the EU, and 52% for NAFTA). Slowly but surely, however, the SADC region is developing into a substantial regional economic entity.

Part of the process of building up the region is being pursued through the Spatial Developments Initiatives, which are creating synergies through whole stretches of the region. Probably the best example is the Maputo Corridor, linking the industrial heartland of South Africa’s Gauteng Province to its nearest port and the capital city of Mozambique, Maputo. There, South Africa and Mozambique have not only upgraded transport links and harbour facilities, but the huge Mozal aluminium smelter will shortly begin exports, making use as it does of South Africa’s incredibly cheap electrical power resources.

Macro-economic stability

The democratic government of South Africa has had considerable success in implementing its policies promoting macro-economic stability: The President’s International Investor Council, which met recently in South Africa, and on which thirteen internationally-renowned businessmen and financiers of some of the most powerful corporations in the world serve, praised South Africa on the soundness of our macro-economic fundamentals: In other words, they could find no fault in the way the economy is being managed.

Our Gross Domestic Product (GDP) in nominal terms in 1999 reached R785 billion, which at the then average dollar exchange rate of R6.11 is in the region of about $128 billion. GDP growth has not been what we would like, but is still positive, with the promise of continued growth in the coming years. GDP growth was only 0,6% in 1998, but rose to 1% in 1999. In fact , there was a surge of growth in the last quarter of 1999, when (annualised) growth was 3,6%. Our inflation rate has long been in single digits, and core inflation was 7,9% for 1999. Our external debt in 1999 was only 2,9% of GDP, which provides considerable protection against global currency fluctuations.

South Africa and SADC as an attractive investment prospect

South Africa continues to attract considerable Foreign Direct Investment, and those who have already invested in South Africa have indicated an intention to invest still more: In fact, most businessmen and investors who have looked beyond recent negative reporting in the media on Africa in general have discovered that South Africa and the SADC region has great potential for a strong return on investment. Foreign investors have still tended to come from the G7 countries and the European Union, but we have been pleased to note considerable diversity in recent years. Malaysia for example is now one of the biggest foreign investors in South Africa.

Incentive programme

A number of incentives which are aimed at accelerating and facilitating the transition to competitive and sustainable manufacturing industries are available to stimulate investment growth. These programmes are embodied in the introduction of supply-side measures and are geared to provide support for human resource development, support for technology development and diffusion, competitive input prices and support for investment in competitive machinery and equipment. The key features of these investment incentives are :

A tax holiday incentive scheme;

Small, medium manufacturing development programme; and

Accelerated depreciation.

Bilateral economic ties

I am please to report that in 1999, Thailand became South Africa largest trading partner in Southeast Asia with bilateral trade amounting to 2,6 billion Rand, making South Africa, Thailand’s 33rd biggest trading partner. South Africa has every intention of building even stronger and more solid trade and economic links between our two countries so as to utilise all available opportunities to strengthen and consolidate our overall relations.

South Africa can serve as a springboard and launching pad into the rest of Southern Africa. We have world-class facilities ranging from well-developed transport and port infrastructure to a highly sophisticated banking and services sector which can support and assist all transactions. South Africa similarly regards Thailand as playing a key role as gateway to the other markets and countries in the greater Indo-China region.

Although our bilateral trade with Thailand is already substantial, you will agree that there is much more than can be done from both sides to further consolidate and strengthen our overall economic and trade relations.