SA’s resilient economy still attractive for investment
IWELCOME the gross domestic product (GDP) figures released on September 6, by Statstics SA for the second quarter in which the economy grew by 3.3percent quarter on quarter in 2016. This is the fastest economic growth since the last quarter of 2014 and has avoided a technical recession. The growth in GDP in second quarter is significant as the economy contracted by 1.2 percent in the first quarter. The economy is resilient, despite the sluggish global growth, domestic conditions of drought, higher food prices and rising inflation.
The Stats SA figures show positive growth in all three large growth sectors, the primary sector 8.8 percent, secondary sector 5.3 percent and tertiary sector 2 percent. Most notably the growth in manufacturing and mining made the biggest contribution to GDP.
Manufacturing increased by 8.1 percent due to higher production in petroleum, chemical products, automotive and components. Growth in GDP has been underpinned by the manufacturing sector, which has been the diamond in the rough, spurred by growth in exports up to 18.1 percent in the second quarter and investments in the real economy realised.
In the second quarter exports increased to R294 billion and South Africa registered a trade surplus with the rest of the world totalling R23bn. Exports of goods and services increased by 18.1 percent.
Exports of precious metals and transport equipment were largely responsible for the increase. About 33 percent of goods were destined to the following top 5 markets: China R26bn, Germany R23bn, US R22bn, UK R16bn and Botswana R14bn.
The growth of GDP of 3.3 percent in the second quarter against the projected 2.8 percent provides us the platform to build on and instils confidence in our policies and programmes of long-term transformation and industrialisation of the economy. There is an even more pressing need to structurally change the economy. The 8th iteration of Industrial Policy Action Plan (Ipap) and past editions strive to structurally transform the economy, reduce the reliance on commodities to a more diversified base in which increasing manufacturing-based value addition, employment creation and export intensity to define South Africa’s growth path. We need to build on this momentum towards a higher impact Ipap and faster implementa- tion of the government’s Nine-Point Plan.
Our efforts to create an investor-friendly environment are also bearing fruit and we have developed a robust investment pipeline over the past five years. We have converted a number of these projects into committed investments, culminating into launches this year. I would like to indicate a few areas where we are doing very well.
We are adding capacity and enhancing our investment division. InvestSA is able to attract and facilitate large-scale greenfield projects. The newly established investment division will provide a dedicated service in terms of investment promotion, facilitation and aftercare to all investors.
The facilitation and aftercare function will be a dedicated service in unblocking, fast tracking and reducing red tape in government. Investors are encouraged to contact the Department of Trade and Industry to use this service. In addition, we have established an interministerial committee on investment chaired by the President that will focus on investment policy and investment climate to provide clarity and improve the country’s attractiveness as an investment destination. New programmes On August 30, Chinese vehicle manufacturer BAIC announced at the sod turning in Coega Eastern Cape the largest greenfield automotive plant in South Africa in 40 years. This two-phased R11bn investment at full capacity will produce 100 000 vehicles. Construction of the new plant will start in December next year and is expected to be completed in the first quarter of 2018. Both Ford and Toyota launched new programmes this year.
According to the National Association of Automotive Component and Allied Manufacturers of SA (Naacam), investment by South Africa’s major manufacturers amounted to R24bn over the past five years. The vehicle sector produced 616 000 vehicles last year. As we are working closely with the industry and labour to develop a post-2020 Automotives Master Plan we are pleased that the industry and labour signed a new three-year wage agreement on September 9. This will provide great certainty and increased investment in the sector. Original equipment manufacturers are now embracing our black industrialist programme and supplier development.
Following BMW’s R6bn announcement for the X3 platform, BMW announced on September 7 plans to expand its information technology (IT) operations centre at the company’s Rosslyn plant as well as its SAP Shared Services Centre (SSC) in Pretoria East to employ a combined 600 staff by next year. The IT operations centre and the SSC are one of two specialist hubs globally for BMW providing support to operations in the Americas, Europe, Middle East, Africa and Asia Pacific. This is a significant boost for IT in South Africa.
IBM as part of the broad-based black economic empowerment equity equivalent programme will invest R700 million over a 10-year period. IBM partnered Wits University and on August 25, launched the IBM Research Laboratory at the Wits Tsimologong Campus. IBM and Wits will collaborate in areas of data-driven healthcare, digital ecosystems and astronomy. This is the second such facility in Africa and IBM’s 12th International Research Lab that will be supporting skills development and capacity in research and development.
On September 2, Dormac launched the multimillion-rand composite floating dock’s at its ship-repair facility in the Port of Durban. Dormac Dock 1 is expected to go a long way towards meeting the demand for ship repair. The Dormac Shipyard through this project will be a centre of excellence for the ship-repair industry and serve as a stimulus to the larger South African market attracting additional docking opportunities into the port.
By introducing Dormac Dock 1 at the Port of Durban, Dormac will be well-positioned to take advantage of these market opportunities. This investment provides a significant boost to the ship-repair industry and the oceans economy.
On September 7, Danish Valve manufacturer, AVK Holdings, launched a R200million state-of-the-art valve manufacturing facility in Alberton, Gauteng. AVK have also established a training academy that will provide skills development to 1 500 workers. The valve and actuator sectors are two of the key priority sectors in the Ipap and play a pivotal role in manufacturing because they represent a significantly large operational expenditure and capital expenditure spend state-owned entities, municipalities and water boards.
The increase in government infrastructure projects in the water, waste water and power sectors will contribute to sustaining the valve market and benefit local companies such as AVK.
Ipap calls for a greater enhancement of public procurement as well as compliance by public entities. This investment by AVK ticks all the boxes of our industrial policy and has been made possible through government policy and Ipap tools in leveraging public procurement and the localisation thereof. It is important to contextualise some of the successes we have had towards full-scale industrialisation.
The government continues to roll out infrastructure and on September 5, Eskom Medupi Unit 5 came on stream. The synchronisation of Unit 5 also marked a key milestone towards full-scale commercial operation ahead of its scheduled operation in March 2018. Once completed Medupi will be the fourth-largest power plant and the largest dry-cooled unit in the world. It consists of six units with an installed capacity of 4 800 megawatts.
Japanese Prime Minister, Shinzo Abe, during the Sixth Tokyo International Conference on African Development (Ticad VI) in August, pledged $30bn (R411bn) in public and private-sector investment for infrastructure development, education and healthcare for Africa. This will be done in co-operation with the African Development Bank over three years. Incentives On the margins of Ticad VI we met with Japanese multinationals who have expressed an interest in investing in our infrastructure, particularly energy, oil and gas, advanced manufacturing, technology, agro and aquaculture sectors. We are also implementing incentives and support services for investors through our special economic zones programme and revitalisation of industrial parks. Cabinet has approved in this quarter the designation of Musina as a special economic zone for the development of a Metallurgical Cluster.
South Africa is becoming a frontier for new sectors of foreign direct investment such as the green economy, oil and gas, shipbuilding and the oceans economy among others. As the oceans economy gains momentum, we welcome investments in oil and gas manufacturing and infrastructure. These new investments enhance and support efforts to establish Saldanha Bay Industrial Development Zone as an oil and gas-serving hub for Africa.
We have laid the platform for regional integration and intra-Africa trade and the roll-out of the infrastructure programme will serve as a catalyst for trade and investment. We are mindful of our challenges and goals in the national development plan. We are committed to implement the Nine-Point Plan for South Africa to achieve a higher level of inclusive growth.
We are confident that South Africa continues to provide a reliable and attractive investment destination for multinationals who continue to use South Africa as a manufacturing base for their operations.
Global economic conditions are affecting all countries and in an increasingly inter-connected world, no country is immune from its effects. What I am confident of is that the South African economy remains resilient and continues to be an attractive investment destination that is open for business.
South Africa is also becoming a frontier for new sectors of foreign direct investment such as the green economy, oil and shipbuilding among others.