Finance Minister tables PERO and MERO
Honourable Speaker and Deputy Speaker
Honourable Premier and Cabinet Colleagues
Honourable Leader of the Opposition
Leaders of other political parties
Honourable members of the Western Cape Legislature Colleagues
Citizens of the Western Cape,
Madam Speaker, I rise today to table the Western Cape economic intelligence for both the provincial and municipal Governments.
Madam Speaker, evidence-based planning and decision-making is a key policy principle of the Western Cape Government (WCG) as it aims to enhance service delivery impact in the Western Cape. The economic and socio-economic context as encapsulated in the 2018 Provincial Economic Review and Outlook (PERO), highlights the dynamic and interrelated environment within which government is operating.
The PERO can therefore be used to understand trends, patterns and developments within the Western Cape and assist in providing more clarity in an uncertain environment. In a complex world, clarity is important as it must provide government with clear direction towards growth and development. It enables evidence-based practices and serves as economic intelligence whichinforms the policy, planning and budgeting processes of departments and municipalities.
Madam Speaker, the socio-economic environment is often described as a Volatile, Uncertain, Complex and Ambiguous (VUCA) world. Within this context, the PERO and MERO enables evidence-based practices and
serves as economic intelligence which informs the policy, planning and budgeting processes of departments and municipalities.
Macroeconomic performance and outlook Madam Speaker, as already indicated, the 2018 PERO focuses on providing a global and national review of economic developments as it affects the Western Cape.
The sad reality Madam Speaker, is that the South African Economy has been mismanaged. Claire Bissekker of the Financial Mail sums it up well when she says that: “after 10 years of economic mismanagement and policy bungling during which SA staggered under the dead weight of state capture – the economy just isn’t competitive enough”.
In short Madam Speaker, Zuma’s chickens have finally come home to roost. Two thirds of municipalities are either dysfunctional or distressed in South Africa. Corruption is deeply rooted in local government and the SA economy is paying the price now. The result of all this is the national economy contracting in both the first and second quarter of 2018 and the South African economy entering into a technical recession.
Madam Speaker, tough economic conditions always result in a sense of uncertainty, uncertainty for households, uncertainty for businesses and uncertainty for individuals. What is clear from all the scientific evidence and economic intelligence before us today, people are asking:
- Will my business survive?
- Will I lose my job?
- Is there a future for my children?
- Will there be cutbacks?
These are real questions and each question affects people.
In response to the news that South Africa has entered a technical recession and the sluggish performance of the economy the State President, Cyril Ramaphosa, announced on 21 September 2018, a stimulus package.
South Africa’s economy is in trouble; it may be a question of too little too late. According to Fitch Ratings, the stimulus package to revive South Africa’s economy is unlikely to deliver a significant boost to economic growth.
As such, the stimulus package and recovery plan announcement did not change Fitch’s GDP growth forecast for South Africa.
The ratings agency stated that several of the measures relate to existing proposals, and others will take time to finalise and to have an impact. However, with regards to the R400 billion infrastructure fund, it is not clear how the fund would operate and whether it will increase contingent liabilities to Government.
Professor Jannie Rossouw of Wits University's School of Economic and Business Sciences has again highlighted the risks that the South African economy faces. These include a fiscal cliff as a result of the growth in civil service wage bill, sharp increases in the interest payment on government debt and a large payment in the
form of social grants.
An additional risk is that South Africa will turn to China to borrow funds for the fiscal stimulus package. Such borrowing comes with conditions and borrowed capital must be repaid.
Lastly, the National Government should not be permitted to use funds in the Government Employees Pension Fund for a stimulus package.
Madam Speaker, the stimulus package does not seem to appreciate that cities are not only the new centres of growth, but also future centres of opportunity. In this regard Cape Town has been named the African City of Opportunity in a recent research report published by PricewaterhouseCoopers. The City’s scored the highest in the following areas:
- Ease of doing business
- Transportation and infrastructure and
- Sustainability and the natural environment
Madam Speaker, the DNA of economic growth is well known but often ignored. The PERO and MERO research points to the structural weaknesses of the economy. This Government, Madam Speaker, reaffirms its commitment to the three pillars of development:
- Building a capable state;
- Leadership at all levels – both in public and private sectors; and
- Active citizenship.
Madam Speaker, at a macro level this government’s policy proposal for structural reform includes:
- Stop state capture and corruption as it robs the poor.
- State owned enterprises pose a serious risk to the fiscus and should be privatised.
The latest bailout to SAA is a major deviation from the announcements made by the Minister of Finance in the last MTBPS tabled in October 2017. The fiscus is bleeding while the state continues to subsidise the rich.
- Visa regulations need to be relaxed to stimulate tourism and investment. While I am pleased to note the recent announcements in this regard much more needs to be done.
- We need to revisit our labour laws to make it easier for business to comply with our regulatory framework. The current labour law framework stifles SMME’s from becoming, like elsewhere in the world, the frontier of job creation and growth and development; and
- Massive investment in infrastructure to boost the construction sector,
In the current MTEF cycle R25.5 billion has been set aside for infrastructure in the Western Cape. I will meet with the various Western Cape Ministers on 12 October 2018 to plan for future infrastructure roll out. I will make further announcements during November 2018 when I table this Government’s response as part of the Western Cape Medium Term Budget Policy Statement 2018 - 2021.
Exciting plans are in the pipeline:
- Reducing the government wage bill and inefficiencies will go a long way in restoring confidence in public finance. Fiscal discipline is one of the pillars of the Western Cape Government’s fiscal strategy. The Western Cape Government has the lowest CoE percentage in South Africa. This allows us to spend public funds on people and service delivery.
- Crime comes at a high cost to the economy and South Africa must find a way to deal with crime in our country. There is general consensus that crime is out of control and that law enforcement agencies are unable to deal with the high levels of crime. The 2017/18 crime statistics released by SAPS indicate that there were increases in 10 categories of crime in the Western Cape. Truck hijacking increased the most (108.6 per cent), followed by murder (12.6 per cent). Nyanga township in the Western Cape had the highest murder rate in the country, with 308 murders recorded in 2017/18, up from 281 murders in 2016/17. It is therefore good news to hear that following months of non-stop agitation from the Western Cape Government and in particular the Western Cape Minister of Community Safety, national government is now bringing back the specialised Gang Unit.
- We need to restore public confidence. South Africa must restore business and investor confidence. The research that we will be presenting here today shows that we must do much more to restore business and investor confidence. We are however, seeing signs of a positive trend towards gross fixed capital formation. The Western Cape Government will partner with the business sector to explore further ways to increase consumer confidence. I am happy to report that the Western Cape Cabinet, led by Premier Zille and the Western Cape Minister for Economic Opportunities, Mr Allan Winde, recently met with the business sector. It was a very positive engagement and the feedback suggests that we are moving in the right direction.
Speaking of the right direction, Honourable Speaker, I am pleased that Cape Town has been ranked the top financial centre in sub-Saharan Africa in the latest Global Finance Index by Z/Y Partners and the China Development Institute. As a new entrant to the ranking, Cape Town has overtaken both Johannesburg and
Mauritius and places Cape Town as the highest ranked city in South Africa and the sub-Saharan Africa region.
This is a major development and we want to thank all the role-players in the financial sector. This major achievement follows the opening of a JSE office in Cape Town. We are pleased that the business and financial sectors have expressed their confidence in Cape Town and the Western Cape in this particular way.
Another major development was the decision by the Japanese company, Panasonic, to move its headquarters from Johannesburg to Cape Town. Madam Speaker, despite the tough economic times we are seeing the net effect of a competent government governing the Western Cape for the past ten years. A capable state and a clean government does matter to investors and does impact positively on business and investor confidence.
Building investor business and consumer confidence is part of this government’s structural reform agenda.
My Cabinet colleague, Minister Alan Winde, has been leading the charge and we are bearing the fruits in the Western Cape.
Instead of announcing empty stimulus packages, this Government gets the basics right. Madam Speaker, as pointed out earlier, an economy can either be stimulated on the demand side or on the supply side.
In both instances the intention is to increase the country’s GDP. Stimulating the economy on the demand side takes the form of increased public sector spending. On the other hand, stimulating the economy on the supply side involves removing the impediments to grow business.
Madam Speaker, I support a supply side stimulus as it comes at little or no cost to the state. I do not support a demand side economic stimulus as it will increase national government expenditure with little to show in the end. We should rather introduce tax reforms for citizens, reduce the size of the national cabinet and close down non-performing SOE’s.
State capture has wiped out SA’s fiscal reserves and the country is heading towards a fiscal cliff.
Madam Speaker, this Government is clear that any stimulus package funded through loans from China will have dire consequences for South Africa. We are further calling on Public Sector Unions to not allow Government to fund the economic stimulus package through the Government Employees Pension Fund
(GEPF). We are calling on all civil servants to protect their financial future by not giving Government access to their pension fund to bailout an incompetent national Government. To our civil servants we say that the Western Cape Government will be on the side of the 80 000 civil servants and we are prepared to go to court to defend your investment and your financial future. We will not sit back and watch the state capture of your pension fund.
Madam Speaker the Western Cape economy cannot escape the risks facing the national economy. Provincial growth in the Western Cape moderated to 1.3 per cent in 2017. However, due to the drought, a sharp moderation in provincial growth to 0.2 per cent is expected in 2018.
Districts such as Central Karoo and the West Coast are particularly dependent on the economic performance of the agriculture, forestry and fishing sector which has recently been negatively affected by the drought.
A key risk for the Western Cape include the uncertain rainfall outlook for the Province, especially given its reliance on the agricultural sector and agri-processing for GDP and employment growth. Employment growth in the Western Cape has expanded by 3.9 per cent between the first quarter of 2013 and the first quarter of 2018 resulting in estimated employment of 2.5 million individuals. Employment growth at 3.9 per cent over the period exceeded the 2.2. per cent working-age population growth. In the first quarter, the narrow unemployment rate in the Western Cape is estimated at 19.7 per cent which is the lowest in the country. Provincially, the unemployment rate decreased from 23.1 per cent in 2013.
The response to the drought requires a spatial approach that considers the economic and social implications of the drought.
The challenge of attaining sustainable economic growth and development has now been worsened by the technical recession and overcoming this period of volatility, uncertainty, complexity and ambiguity (VUCA).
It requires the Western Cape Government to remain steadfast in its commitment to creating opportunities for growth and jobs. This will be achieved through the acceleration of jobs in key strategic sectors, investment in a skilled workforce, red tape reduction and increased innovation as articulated in in Provincial Strategic Plan (PSP). PSG 1 also commits the Western Cape Government to using infrastructure for growth and optimising the use of land, energy and water resources, expanding delivery of broadband and building an efficient transport system to foster economic growth.
Madam speaker, at this time, it is crucial that the Western Cape Government continues in its relentless pursuit of supporting the Province’s key economic sectors as laid out in Project Khulisa. These sectors are: tourism, agri-processing and oil and gas.
The Department of Economic Development and Tourism under the leadership of Minister Winde will continue to focus its efforts on securing new direct air routes to Cape Town International Airport while also positioning the Western Cape as the Cycling Capital of Africa and maximising culture and heritage tourism.
We anticipate a positive impact on tourism, trade and investment in the Western Cape and South Africa, in the following ways:
- Increasing the number of countries that will be visa exempt, particularly the Middle East, will help unlock new tourism markets for our province and country, helping boost visitor numbers;
- The implementation of 3 to 10 year multiple visas especially for China and India is critical for the growth of our economy. China boasts the 2nd largest economy in the world and the biggest tourism spend globally, and India ranked the 7th largest economy with a rapidly growing tourism spend - ranked 17th according to United Nations World Trade Organization (UNWTO);
- Waiving the requirement for visa applications to be made in person in India and China will significantly increase ease of travel – travelers wishing to visit South Africa currently have to apply in person often having to travel great distances to the very few visa application stations in these large countries;
- Relaxation of documentary requirements for minors travelling with foreign nationals – the strict requirements for parental consent and unabridged birth certificates caused major upsets for bona fide travelers visiting South Africa with children;
- The review of the critical skills list and offer ofpermanent residence for foreign students studying critical skills degrees is an important measure to ensure that South Africa remains a strong contender in the global skills economy, and potentially a big boost for our universities and tertiary education institutions; and
- Steps announced to ease congestion at ports of entry particularly land ports could have a significant impact on South Africa’s trade with the rest of Africa and ease of doing business on the continent; and, implementation of e-visas and e-gates will ease congestion and enhance efficiency at boarders, making South Africa a more attractive destination to visit and do business with.
Madam Speaker, these will help to stabilise the sector and ensure that we can focus on growing the economy and creating more jobs. The Department of Agriculture will continue to pursue various agri-processing
initiatives which include the promotion of South African Halal products to strategically selected markets and the positioning of the Western Cape as a Halal hub.
Other agri-processing initiatives that will assist in lessening the impact of slowing economic growth include continuing efforts to promote South African agri-processing products in new markets.
Honourable Speaker, I will soon lead a Wesgro delegation to Indonesia and Japan to strengthen existing ties and promote trade, investment and tourism. Digitising the economy of the Western Cape will play a crucial role in surviving the economic downturn as technology such as broadband is key to business survival to
improve competitiveness and fostering long-term sustainable economic growth. In addition, Green economy initiatives must continue to take priority, with the aim of stimulating investment into green industries and to improve the resource efficiency of businesses.
Skills development interventions will play an important role in ensuring a steady supply of suitably skilled labour; which will be crucial to ensuring sufficient availability of key skills required by the oil and gas, agri-processing, tourism, ICT and energy sectors. The creation of opportunities for growth and jobs will be accelerated as the Western Cape Government will place the development of economic infrastructure at the
centre of its growth plan. This includes the provision and maintenance of public works and roads infrastructure, the facilitation of integrated land transport services and a safe, reliable and sustainable public transport system.
Furthermore, economic infrastructure such as the Atlantis SEZ and the Saldanha Bay IDZ will create job opportunities and economic growth, thus being better able to absorb the effects of prolonged negative economic growth.
Lastly, the importance of creating and maintaining a provincial administration that inspires investor confidence can never be emphasised enough. Even in the face of the various macroeconomic and fiscal challenges, the Western Cape Government will maintain its commitment towards creating public value through budgets that are responsive to the socio-economic environment and are underpinned by the principles of good financial governance.
Madam Speaker, the 2018 PERO and MERO identified key economic trends and opportunities which should be considered as part of the policy and planning context. These research findings and related implications assists in giving effect to the evidence-based approach to decision-making.
The Western Cape Government has however not been resting on its laurels. Key operational activities haven been undertaken to date to support investment. These include:
- More than 40 new investment projects recruited into the pipeline to date
- More than 40 international business delegations hosted
- More than 370 meetings held with investors/service providers/ local business while the following strategic events were supported:
- Visit of British Prime Minister Theresa May (+ business delegation)
- Visit of French Prime Minister Edouard Philippe (+ business delegation)
- Africa Halal Week
- President’s Investment Summit (South Africa)
- More than 25 meetings held with District and Local Municipalities to enhance support and capacity to attract investment beyond Cape Town .
- The launch of Matzikama Municipality Aquaculture Strategic Support Initiative; and
- The launch of the George Municipality Investment Promotion Support Initiative
In conclusion, Agbare Speaker, aan die hart van die ekonomiese realiteite lê die oplossing:
- In die voortgesette vaardigheid en opleidingsprogramme van ons Regering
- Ons moet ons bevolking gereed maak vir die 4de industriële rewolusie
- Die fokus sal dan wees op werkskepping en innovasie
- Infrastruktuur geleide groei; en
- Ons regering sal besteding hersien en waar nodig prioritiseer.
Considering the complexity associated with governing in a VUCA world, the PERO and the MERO provides credible economic intelligence to navigate policy and strategic decision-makers.
The Western Cape Government remains steadfast in its commitment to unlocking and driving growth opportunities and jobs through implementing economic initiatives pursuing a coordinated infrastructure-led growth path and equipping the province’s labour-force with the necessary skills to fully participate in key sectors.
All these efforts will be done in an environment which supports the Western Cape Government’s commitment to the principles of good financial governance as this is the only way to inspire confidence in both the investor community and the citizens of the Western Cape.
Madam Speaker, over the next few months our staff supported by Wesgro will engage with Mayors and Municipalities in the Western Cape to assist them in developing local economic development plans. Minister Winde and Wesgro will continue to empower municipalities to use their local competitive business assets to drive local growth and development.
The MERO that is tabled today outlines the economic strengths of each of the regions and municipalities. This data will also be made available to Stats SA, the South African Reserve Bank, the National Treasury, the Financial and Fiscal Commission, Universities, Business Chambers and policy and decision-makers outside government.
Honourable Speaker, I want to express my sincere thanks and appreciation to my staff, the researchers, economists, policymakers and senior managers for shaping the research problem and participating in the actual research process. I would also like to thank all departments and members of this Cabinet for their support during the research.
Madam Speaker, it is my pleasure to table the 2018 Provincial Economic Review and Outlook and the 2018 Municipal Economic Review and Outlook for consideration in this House.
I thank you.