Western Cape Government Economic and Fiscal Strategy: Open for business
Western Cape Representative of the South African German
Chamber of Commerce, MS Anja Tambusso – Ferra
The German Consul General, Mr Matthias Hansen
The Acing Consul General of Switzerland, Ms Verena Mathis
The Head of Administration, Consul General of Germany, Mr Roland Seidler
Members of the SA German Chamber of Commerce
Ladies and Gentlemen
Good afternoon, guten Tag
Thank you for the very warm welcome and the opportunity to address you.
Germany is very special to me both personally and professionally.
On a personal level I have had the privilege of studying and travelling across Germany and in the process I have made many friends.
Friends such as the sculptor, Tom Rucker who created a beautiful bust of the late Nelson Mandela spring to mind.
The art project “Nelson Mandela: Pure Mind – Rare Vision – Eternal Spirit” underscored Bavaria’s friendly relations with South Africa.
On a professional level I have had the honour of meeting and working with people such as Horst Seehofer, Minister President of Bavaria, Minister Edmund Struber, Chancellor Angela Merkel, Dr Beate Merk, Dr Horst Keiler, Siegfried Snyder, Babara Stumpf, Dr Paul Fischer, and many others.
Our relationship with the Free State of Bavaria goes back more than twenty-one years.
It continues to be a healthy relationship as evidenced by the recent renewal of the agreement between the Western Cape and Bavaria.
Ladies and gentlemen, on 7 March 2017 I tabled the Western Cape Government’s 2017 Provincial Budget totalling R59 Billion.
When I did so I highlighted the following:
Firstly, that I was tabling a:
- A Budget for Growth;
- A Budget for People; and
- A Budget for Prosperity.
Secondly, that there is consensus in this Western Cape Government that nothing is more important than growing the economy and creating jobs.
Thirdly, this Western Cape Government shares the view that nations prosper when they:
- Show respect for their Constitution and institutions that support constitutional democracy;
- Show respect for individual freedom, individual choices, and accept individual responsibility for their own future;
- Accelerate investment in infrastructure;
- Boost support for small, medium and micro enterprises;
- Create jobs and reduce unemployment;
- Promote smart and inclusive growth; and
- Have access to basic services like water, energy, sanitation and refuse collection.
Fourthly, the Western Cape Government believes that through partnerships and active citizenship, we are indeed better together.
The Western Cape Government’s Economic and Fiscal Strategy is underpinned by the following principles:
- Allocative efficiency: allocation of resources towards priorities of government to programmes that are effective;
- Fiscal consolidation: which generally entails reducing government expenditure and/or increasing revenues;
- Fiscal sustainability: maintaining stability in key government programmes and managing risks; and
- Fiscal discipline: being financially accountable by ensuring that there is no irregular or wasteful spending by any department or entity.
Master of Ceremony, ladies and gentlemen as you are aware our economy is facing risks.
In a letter published on 20 September 2016 in the Business Day I warned that the current political economy is fermenting new financial and economic scenarios for South Africa.
I highlighted then that South Africa faces three potential scenarios which must at all cost be avoided.
- Scenario 1: Downgrading,
- Scenario 2: Recession and
- Scenario 3: Fiscal crisis.
Sadly, six months later two (2) of the above scenarios have been realised.
South Africa has been downgraded and South Africa is in a recession.
South Africa’s economy still faces the very real threat of a nose-dive towards a fiscal cliff.
STRUCTURAL REFORMS NEEDED TO GROW THE ECONOMY
The inherent structural issues facing South African economy include: slow economic growth, low quality of education, labour market rigidity, high unemployment rates, infrastructure backlogs and crime and corruption.
Structural reforms needed to deal with these issues include relaxing labour law inflexibility, privatising State owned enterprises, reducing the government wage bill, stopping corruption, creating policy certainty, increasing the savings rate and becoming export driven.
In a country where unemployment, specifically youth unemployment is high, structural reform aimed at the relaxation of labour law inflexibility and the reduction of youth unemployment should be prioritised.
Labour market rigidities also contribute towards the significant losses of State Owned Enterprises which need to be continually bailed out by the National Government, such as the recent bailout of SAA.
These bailouts divert funds away from spending on socio-economic needs of the citizens and increase the need to borrow money which in turn increases the debt servicing costs of the country.
Given the current fiscal constraints, South Africa can’t afford the unproductive allocation of resources, spending should rather be on initiatives such as investing in key infrastructure developments.
The privatisation of SOE’s, and reducing government debt levels can also result in a more efficient and effective allocation of resources in favour of inclusive economic growth.
Corruption, is also one of the largest obstacles to the South African economy.
Corruption leads to inefficient allocation of resources.
It inhibits fair competition, often results in more expensive goods and services and hampers the country’s productivity levels.
Hence, growing the economy requires serious mechanisms to stop corruption.
Another structural issue requiring attention is the low savings rate.
To achieve high, inclusive economic growth and sustained development, it is a necessary condition that the country escapes its low savings trap by bolstering savings and attracting foreign direct investment.
If South Africa wants to achieve economic growth in the order of 5%, as envisaged in the National Development Plan (NDP), it needs much higher levels of saving and investment.
An approach focusing on export-led growth will also add much needed impetus to the economy considering that nations such as the US, nations within the EU, China and the Asian Tiger economies used export-led growth to aid in their industrialisation and economic advancement.
The above inflationary increases and the burgeoning wage bill of government employees is cited by National Treasury as one of the threats to fiscal sustainability place with increasing pressure on the fiscus.
In essence, if government is spending more funds paying its personnel it crowds out spending on goods, services and infrastructure that are also much needed for service delivery.
In the Western Cape this issue is being addressed through careful consideration of which posts should be filled, upper limits on compensation of employees which also aims to increase productivity of staff employed in the public service.
The Western Cape Government continues to remain committed to building a capable state and developing the tools, structures and processes that support and improve Good Financial Governance.
Good governance supports service delivery through ensuring that taxpayers’ money is spent in an effective, efficient and transparent manner.
To further ensure policy certainty, the Western Cape Government remains committed to a fiscal strategy that includes effective and efficient revenue and expenditure practices and accompanied by policies geared towards stimulating inclusive growth and fostering socio-economic development.
The fiscal strategy is informed by the five Provincial Strategic Goals (PSG’s)
PSG 1: Promoting investment and providing support to key economic sectors, artisan and technical skills, ease of doing business, green economy and toward infrastructure – led growth
PSG 2: Improving Language and Mathematics, Matric pass rate, Quality education in poorer communities, e-Learning, Early Childhood Development, Grade R, Youth Development and After School Programme
Inclusive, healthy and safe communities and families and children,
PSG 3: Inclusive, healthy and safe communities and families and children, social development services for the poor and most vulnerable and alcohol harms reduction.
PSG 4: Integrated Human Settlements, Spatial and development planning, sustainable ecological (water and climate change) and agricultural resource-base and Better Living Model and
PSG 5: Enhanced Governance, Integrated Management, Inclusive Society and Broadband
Project Khulisa, as the economic strategy of the Province, focuses on the productive and enabling sectors in the Western Cape economy to support the region’s competitive advantage.
The key priority sectors identified having the potential to grow the economy and drive employment creation are Agri-processing, Tourism and the Oil and Gas services sector.
The Western Cape Government through its Green Economy Strategy Framework aims to achieve the double dividend of optimising green economic opportunities and enhancing our environmental performance.
To enhance “green growth”, the Province needs to catalyse investment and innovation which underpin sustained growth and give rise to new economic opportunities.
Research also shows that labour and capital contribute positively to provincial economic development.
Therefore, the Western Cape economy will benefit from effective delivery on its basic mandates which include Education, Health and infrastructure investment.
Infrastructure investment is also one of the key components underpinning economic growth.
It provides an effective mechanism to support socio-economic transformation and contributes to building a new level of economic resilience in an increasingly challenging fiscal environment.
With our strategy firmly in place are able to say to you that the Western Cape is open for business.
For those who are not aware the following statistics might be insightful:
The Western Cape experienced an annual average export growth of 17.84% and an import growth of 7.67% from 2012-2016.
The Western Cape is the second largest province in terms of total trade flows reaching ZAR313bn. in 2016.
The Western Cape is the second largest importing province in the country, accounting for 17% of imports after Gauteng (65%).
In terms of exports, the Western Cape is the fourth largest exporting province (11%) after Kwa-Zulu Natal (11.6%), North West (12%) and Gauteng (52%).
The Western Cape alone exports 17% of all South African exports to SACU countries.
This is unsurprising due to the proximity of the Western Cape to the SACU markets with good road and rail infrastructure including the Trans-Kalahari corridor.
Mozambique and Zimbabwe, both large African markets belong
to the third largest export sub-region, namely SADC, where the Western Cape holds an 11% share of national exports.
Africa is still the largest opportunity for Western Cape exports worth an estimated ZAR45.13bn (depicted by the size of the bubble) in 2016.
Europe and Asia come in second and third, valued at ZAR36.27bn and ZAR20.69bn respectively.
Local businesses are seeing opportunities for business in Africa and have been harnessing these opportunities.
Africa is the Western Cape’s largest global destination region for outward FDI accounting for 54% of projects in the last decade.
Western Europe was the largest global source region for Western Cape inward FDI by both capex (accounting for 61% valued at ZAR53bn) and projects (accounting for 58%) from 2006 to 2016.
The top countries investing into the Western Cape from Western Europe were the United Kingdom, Germany, France and the Netherlands accounting for a combined 42% of total inward projects between 2006 and 2016.
The top company investing from the United Kingdom into the Western Cape in terms of capex was British Telecom (ZAR1.8bn) in the communications sector, followed by Vodafone.
The top company from Germany investing into the province was Juwi (ZAR1.8bn) invested in the city of Stellenbosch in the alternative/renewable energy sector, followed by Deutsche Telekom.
Between January 2003 and June 2016 a total of 129 FDI projects were recorded from Germany into South Africa.
These projects represent a total capital investment of USD6.43bn.
A total of 23,767 jobs were created for this period.
Between January 2003 and June 2016 a total of 23 FDI projects were recorded from Germany to the Western Cape.
These projects represent a total capital investment of USD616.7m which is an average investment of USD26.8m per project. A total of 2, 445 jobs were created.
Wine was the Western Cape’s largest export to Germany in 2016 accounting for 22.43% of the province’s exports (valued at USD79.66m).
In second position were parts suitable for use in engines valued at USD40.89m accounting for 11.52% of exports in 2016.
Electric generating sets and rotary converters (USD93.21m) was the largest import from Germany in 2016 (accounting for 17.45% of total imports from Germany).
Compression-ignition internal combustion piston engines (USD30.327m), and machinery used in cleaning bottles or other containers, machinery for filling, closing, sealing or labelling etc. (USD21.94m) ranked second and third respectively.
The import of electric generating sets and rotary converters from Germany recorded the largest growth for the period 2012 to 2016.
South Africa received 40 610 tourist arrivals from Germany in Q2 2016.
Germany ranked as the second highest contributor of arrivals to South Africa in Q2 2015 and Q2 2016.
In conclusion ladies and gentlemen, the Western Cape is regarded as an attractive investment destination due to the following reasons:
- Strategic position as a springboard into Africa,
- Highly sophisticated infrastructure,
- 2nd busiest airport (Cape Town International airport) in South Africa and 3rd busiest in Africa,
- Three advanced ports catering for different sectors (Cape Town, Saldanha Bay and Mossel Bay),
- Newly designated Industrial Development Zones (soon to be introduced Special Economic Zones),
- Availability of skilled workforce, and
- A growing ICT and manufacturing hub.
The Western Cape is the gate way to Africa.
An estimated 51% of companies investing into the Western Cape indicated regional and sub-regional motives for investing.
These companies indicated their intention of setting up headquarters in the Western Cape and using the province as a springboard into Africa.
The Western Cape is beginning to become a recognised global hub for companies moving into Africa.
This is evidenced by companies such as Clyde and Co from the United Kingdom, Lleida Networks Serveis Telematics (Lleida.net) from Spain, Hisense from China, GE Capital Aviation Services from the United States, HVS Global Hospitality Services from the United States and Wind Prospect from the United Kingdom that have indicated their intentions to form bases in Cape Town and expand into Africa.
According to FDI Intelligence (2017) the DHL Express South Africa managing director was quoted saying:
“We believe in the economic and trading power of South Africa and still see the Western Cape as a key area of investment.”
The Western Cape is open for business and therefore to our friends in Germany we say: “Wir schaffen dass”.