Gauteng MEC for Economic Development, Environment, Agriculture and

Rural Development, Lebogang Mailes Address on the Occasion of the

Department of Economic Developments Budget Vote, Gauteng
Provincial Legislature, Johannesburg, 23 June 2015.

Hon. Speaker
Hon. Premier
Deputy Speaker
Hon. Colleagues in the Executive Council
Chief-Whip of the majority party
Hon. Members of the Provincial Legislature
Distinguished Guests

Hon. Speaker, last year when we tabled the budget for the Department of
Economic Development in this august house, we made the assertion that
radical economic transformation is what is required to move South Africa
away from the debilitating effects of what Nadine Gordimer called the morning
after. We remain convinced that the tale of our freedom will be incomplete for
as long as the poor have no share in the countrys wealth. We find it
necessary to reiterate this assertion, particularly on the eve of the 60th
anniversary of the Freedom Charter, which defined the contours of a South
Africa free of racial domination, class exploitation and gender oppression.
As we table this Budget Vote, Gauteng still occupies a significant position in
South Africa. The province contributes 34.7% to the countrys GDP, which
means that Gauteng has a huge bearing on the recovery and growth of the
South African economy as a whole. Exogenous economic shocks and
structural economic challenges have a significant weight on Gautengs
economic performance. The orientation of our exports in agriculture, mining,
manufacturing and vehicle assembly makes us particularly vulnerable to these
economic shocks. We were rudely awakened to this reality in 2008 when
stagnation of the economies in the Euro Area had a direct impact on jobs and
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growth in this province.

Hon. Speaker, the first few months of 2015 saw the South African economy
showing positive signs of recovery. The South African economy expanded 2.1
%year-on-year in the first three months of 2015. This was an increase from
1.3 % in the previous period and the highest growth rate since the last quarter
of 2013. Nonetheless, the manufacturing sector still faces its share of
challenges with few convincing signs of recovery. The infrastructure
challenges such as secure power supply for industry continues to be a thorn
in the flesh for the economy.
Without radical economic transformation, our efforts to redistribute the wealth
of our country to the majority will be piecemeal and only limited to social
goods over which the state wields direct influence. We are of the firm view
that the strides we have made in making a range of social goods like housing,
quality public education and healthcare accessible to all must correspond with
economic inclusion jobs and increasing the poors share of the national
income.
To achieve this transformation, an overhaul in the patterns of ownership and
control as well as the rapid development of labour intensive sectors of the
economy through inclusive industrialisation, is necessary.
More importantly, our economic policy along with our interaction with
economic actors should be underpinned by a sense of urgency to resolve the
historic process of subjugation, oppression and exploitation visited upon black
people since the beginning of the colonial project.
If we are to realise the intents of the transformation, modernisation and reindustrialisation programme, we must be prepared to take bold political steps
and ensure that the economic pendulum swings in favour of the poor whose
patience has been tested beyond our imagination.

Hon. Speaker, we table this Budget Vote against the backdrop of the annual
commemoration of the National Youth Day, a day marking the heroic struggle
of the youth of South Africa who rose up in June 1976 to give battle to the
barbaric system of apartheid.
In their honour, we should spare no energy to give practical expression to the
dream for total emancipation, freedom, economic justice and equality.
Hon. Speaker, the promise of political freedom was also a promise for
economic emancipation. Our political legitimacy rests on our ability to give
battle to forces that continue to subjugate the black majority and women.
Young people who are reeling under the indignity of unemployment; pressures
of casualisation, labour brokering and super-exploitation are getting impatient
with this promise. They want decent jobs and meaningful economic
participation.
In memory of the youth of 1976 and in dedication to future generations, we
recommit to a South Africa envisaged in the Freedom Charter, whose 60th
anniversary we will be celebrating in a few days time. We believe, Hon.
Speaker, that there is an umbilical cord that connects the battles waged by
our forbearers for a united and independent Africa and battles of the youth of
1976.
Hon. Speaker, the African continent occupies a special place in our
Transformation, Modernisation and Re-Industrialisation programme. Our
destiny and South Africas propensity to overcome the structural challenges
facing our economy is intricately tied to the fate of our sister economies on the
continent.
There is an emerging consensus that increasing the share of trade between
countries on the continent is crucial to Africas political stability, economic
development and prosperity.
We draw confidence from the Economic Report on Africa which states that
although intra-Africa trade is small compared to the continents trade with the

rest of the world, standing at 11.5%, hopes to industrialise our economies

must be pinned primarily on ourselves.
This observation stems from the fact that trade between and amongst African
countries is significantly more industrialised, meaning that we export and
import more manufactured and finished goods to and from each other than we
do with the rest of the world.
While Africas trade with other regions is primarily in the extractive industries
like minerals, metals and hydrocarbons, the share of manufactured goods
traded within the continent amounted to 40% of total trade in 2011. By
contrast, African exports in manufactured goods to the rest of the world stood
at a measly 13% in the same year. Promoting intra-Africa trade will embolden
our efforts to industrialise and achieve inclusive economic growth.
In view of these reflections and in the quest to give practical expression to
pillar ten of the Transformation, Modernisation and Re-Industrialisation, we
will launch a series of strategies, which together constitute the Economic Plan
for the City Region.
One of these is the Trade and Investment Strategy, which will be unveiled in
July. This strategy is underpinned by the need to strategically steer Gautengs
exports to new markets and destinations and to strengthen Gautengs role in
Africas re-industrialisation process and to open up markets for Gautengs
manufactured products.
As things stand Hon. Members, South Africa is far too reliant on EU, US and
Asian markets. While this is not necessarily a terrible thing, recent events
have shown the extent to which our economy is vulnerable to external dips in
commodity prices as well as recession and economic downturns in EU and
the US.
Our economic calculations tell us that South Africas growth is highly
dependent on the recovery of the EU. A growth rate of 4.5for Gauteng highly
depends on the Euro Area growing at 3%.

Moderate growth in developing countries is likely to affect commodity prices,

trade and investment flows between Africa and the rest of the world. In the
face of these risks, African countries need to continue to implement measures
to boost domestic demand, diversify production and promote rapid expansion
in intra-African trade.
The strategy is geared at repositioning the provinces trade and investment
approach, turning our attention to the SADC region and the continent at large.
We also believe that this thinking requires the re-orientation of our
international engagements. To this end, we will, in the next month launch the
Gauteng International Relations Strategy through which we envisage a bigger
role for economies in the African continent, BRIC countries and other
emerging markets.
In line with the strategy, forty (40) Gauteng companies in manufacturing will
receive support to expand their operations. Of these companies, ten (10) firms
that are looking to expand operations in Africa to supply inputs to mega
infrastructure opportunities identified in the five development corridors will
receive our support.
The attraction of investments in targeted sectors contributes to the
development of the provinces priority sectors. New foreign and domestic
investments to the value of R1 billion will be attracted to the eleven priority
sectors of the economy which will result in creation of 1500 jobs.
Hon. Members, the 2014 Economic Report on Africa makes a common yet
very potent observation about the role of the state in championing Africas
industrialisation agenda. The Report calls for proponents of the free market
who criminalise state intervention to re-acknowledge that state support is vital
to address market failures and spur industrialisation.
We are emboldened by this analysis and it is in the same spirit that we
conducted studies to take a closer look at the finance, ICT, retail, food and
beverage, pharmaceuticals, construction and automotive sectors.

Across all these sectors there are serious issues related to market
concentration and ownership, with virtually all sectors dominated by no more
than eight companies. We also found higher profit rates coinciding with
diminishing workers income; low local content and largely unsatisfactory
levels of infrastructure for industry including electricity, water supply, transport
logistics and skills.
Based on these findings, the department is packaging Industrial Strategies for
each of these sectors in order to address ownership patterns, barriers to
entry, localisation, enterprise development and skills development.
More concretely, we will also package a range of high impact catalytic
industrialisation projects to increase each sectors contribution to employment,
income generation and poverty alleviation. Examples are a clustered food
manufacturing hub located in the Southern Development Corridor to process
locally farmed produce for sale to retail markets, correctional services,
hospitals and schools; the local manufacturing of LED lights and projects to
manufacture fuel from recycled tyres.
These projects will complement plans to create a layer of black industrialists
and minimise reliance on imports as well as promote local manufacturing and
beneficiation. Interconnectivity between the Development Corridors of the
Gauteng City Region as well as edge cities like Rustenburg, Secunda,
Witbank, Sasolburg, which together with Gauteng make up what is South
Africas industrial heartland will also receive impetus through these plans.
Hon. Speaker, although South Africa has experienced considerable
investments in the automotive sector, import penetration in the industry is still
too high. Only 35% of the components and parts used to manufacture
vehicles in South Africa are produced locally while the 65% are imported from
various parts of the world. Gauteng auto companies spend nearly R8 billion
per annum on imports for automotive parts, components and accessories. Our
plans for reindustrialisation will not come to light unless we alter this reality.
In partnership with Nissan, Gauteng launched the countrys second incubation
centre in March this year. Through this facility, eight (8) black owned SMMEs

will get an opportunity to supply parts and components for the Nissan Pick Up
truck which is due for production in 2018. An investment of R22 million was
secured from the Jobs Fund for this project. In addition, Nissan will be
investing R200 million for this project which will create 27 000 jobs in the
medium to long term. This initiative is aligned to our plans to increase black
participation in the automotive industry.
Hon. Members, the AIDCs automotive supplier efficiency programme is a vital
component of our plans to ensure the industrys expansion with increased
local manufacturing. Twenty two (22) component suppliers will be enrolled for
training on quality, costing, productivity improvement and supply stability.
SMMEs engaged in the manufacturing of bumpers, foundry consumables,
seatbelts, windscreens, airbags and moulded plastic components will be
targeted for this programme. In order to transfer skills to the youth, ten
engineering students will be placed in the selected companies for the duration
of the programme. To date, twenty companies have participated in this project
with 221 people receiving training.
The Gauteng Automotive Learning Centre, which was

launched in the

previous financial year, will continue to address the skills needs of the
automotive industry. A total of 1 595 people will be trained at the centre during
this financial year.
Hon. Speaker, work on the Industrial Development Zone (IDZ) located at OR
Tambo International Airport, in the Eastern Corridor of the city region is
proceeding well. The land lease for this project along with the funding
agreement with the Department of Trade and Industry (dti) has been
concluded. The IDZ will boost manufacturing capability in targeted, export
driven sectors such as pharmaceuticals and electronics assembly. Our
financial commitment for the IDZ is R8 million while an amount of R200 million
from the dti has been allocated for bulk infrastructure.
A feasibility study on the establishment of an ICT Special Economic Zone
(SEZ) in the Central Corridor is being finalised. This is an important tool for
accelerating

implementation

of

governments

industrial

development

programme as reflected in, amongst others, the IPAP. A critical component of

the ICT IDZ would be to increase access to broadband infrastructure to
underserviced communities, including township enterprises.
In order to pursue re-industrialisation of the city region, the province has
finalised Regional Economic and Industrial Plans for the Western and
Southern Corridors. The City Region has allocated R3 billion to spur the
industrialisation of the Western and Southern Corridors through agroprocessing, green industries and tourism.
Hon. Members, last year this administration took an unprecedented move to
transverse 65 townships consulting businesses and entrepreneurs across
Gauteng. With great enthusiasm, young and old, men and women responded
to our invitation to chart the course for a transformed economy that affords
township people equal opportunities to the spoils of our land.
In a clear demonstration of an unwavering commitment to work with
government and various stakeholders to propel the township economy to new
heights, township-based entrepreneurs attended the roadshows in multitudes
and filled our community halls, churches and sports centres in all the
townships we visited. Through these engagements, we had a unique face-toface interaction with no less than 50 000 entrepreneurs in a period of three
months.
This was an unprecedented programme underpinned by a philosophy of
people-centred and bottom-up consultation. Through these engagements,
which culminated in the first economic summit with township businesses, our
entrepreneurs were afforded an opportunity to voice their concerns and table
solutions to challenges plaguing their businesses. We heard of their difficulties
in securing markets for township goods and services. We drew insight from
township entrepreneurs who bemoan the shortage of industrial land and
space for conducting business as well as restrictive regulation and
compliance framework. We were also made aware of the onerous
requirements that township businesses have to meet in order to qualify for
private sector funding.

What set these engagements apart is that we did not as government arrive in
our townships with ready packaged solutions to the challenges facing
township economies. On the contrary, together with our entrepreneurs we
collectively identified the challenges and together, crafted the solutions, which
are now contained in the Township Economic Revitalisation Strategy.
Apart from giving birth to a defined policy on the township economy, the
Township Economy Revitalisation campaign is making great strides in
removing the bottlenecks that prevent township businesses from claiming a
greater share of the national income.
We are proud to declare that the Gauteng City Region has inspired a
countrywide movement to mainstream the interests of township businesses
and place them at the centre of policy discourse and development practice.
We speak with confidence when we say that today the issues and challenges
facing township entrepreneurs are no longer peripheral subjects discussed
only in townships, taxi ranks, trains and popular areas of association.
The township economy revitalisation campaign has galvanised our society
behind the vision to transform townships from labour dormitories to sites of
production with thriving commercial activity. Indeed, the times when townships
were considered poorer relatives of the South African suburbs are fast going
by. The commonly held misconceptions about township businesses the
myth of poor workmanship and unreliable service are being demystified.
The campaign has inspired unmatched confidence in the goods and services
that township businesses offer. Few can contest the reality that Gauteng and
South Africa boasts a wealth of township-based entrepreneurs with the knowhow and entrepreneurial drive to produce goods and services that can be
consumed by the South African and international market.
Today everyone knows that township entrepreneurs are capable players in the
economy capable players whose only bottlenecks is the tragedy of our
history of exclusion and the slow pace of post apartheid transformation.
We are neither chest thumping nor are we claiming easy victories when we
say today the township economy is an integral part of the lexicon and the

topical issues that we discuss in our communities, radio stations, television

programmes and newspaper opinion pages.
Hon. Members, the successful integration of township businesses into the
value chains of white owned big business cannot be achieved without the
cooperation of the private sector. Many people depend on the private sector
for employment and activities that generate income. It is this reality that
informs the partnerships we strike with established business. The partnership
model we are striking with various private sector players is based on
principles

of

radical

economic

transformation,

which

entails

the

democratisation of the ownership and control of the economy.

The banking sector is responding to our call to transform the way it conducts
its business operations. We have also entered into a partnership with the
banking association to explore incubation approaches and innovative
financing models for township enterprises.
The retail industry is heeding the call we made to big business to integrate
township based merchants and producers of goods and services!
As we table this Budget Vote, the department is hard at work to finalise a
partnership that will result in R650 million cash injected into various townships
across Gauteng. This partnership is spearheaded by MassMart and will see
the establishment of 500 retail shops within Gauteng townships. Unlike the
prevailing trends that define expansion of retail businesses in townships,
entrepreneurs operating in our townships will have a significant share in this
development as owners. This project will be piloted across the six townships
of Katlehong, Attridgeville, Sharpville, Randfontein, Alexander and Khutsong.
The project is envisaged to create more than 1000 jobs.
Hon. Members, competition largely explains the tensions between local and
immigrant business people in our townships. They compete for the incomes
and buying power of township residents who are their customers. We have
heard the cries of the spaza shop owners across the province who are battling
to survive in a highly competitive township retail market.

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We are hopeful that the partnership we are striking with the retail giant Pick n
Pay will go a long way in resolving the challenges faced by spaza shop
owners. This partnership will secure spaza shops a foothold to Pick n Pays
distribution channels, giving them access to a variety of stock and
merchandise at competitive pricing. It will allow spaza shop owners to pool
their resources and take full advantage of the benefits of bulk buying while
also giving township entrepreneurs opportunities to participate in the Pick n
Pay franchise model.
While still on the subject of competition, we welcome the Competition
Commissions inquiry into the retail market in townships and encourage
township businesses to participate in this probe. This investigation is a direct
response to the challenges highlighted by township businesses in our
engagements with them. We are particularly interested in the real impact of
the expansion of retail giants into township markets, barriers to entry for small
business such as shopping mall tenancy agreements as well as the
competition dynamics between local and migrant owned grocery retail
businesses.
Hon. Speaker, entrepreneur training and development is vital to the success
of our township businesses. Many small businesses battle with managing
cash flow, records and maintaining good administrative practices. The
partnership between Pick n Pay, UCT and UJ is aimed at addressing these
challenges.
We want to see more of these fruitful partnerships and repeat our call for
private sector to pledge resources and help us to find innovative ways of
supporting township enterprises.
Hon. Members, government has a vital role to play in supporting township
businesses stimulating demand for township produced goods and providing
market access for township businesses. Township businesses deserve a
share in the governments procurement budget.
To fulfil the commitment to allocate 30% of governments procurement spend
to township businesses, we have assisted hundreds of township businesses

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with government-procurement readiness training, which entails information

sharing about procurement opportunities, verification of BBBEE status, tax
clearance and registration as suppliers on the provincial database.
This is not the only example of government stepping in to guarantee market
access for township businesses. We can cite the following as laudable
outcomes of the Township Economy Revitalisation campaign:

A total of 287 township businesses in construction and building

maintenance companies are undertaking government construction
projects, maintenance of electricity and lighting, plumbing and the
structural upkeep of government buildings, schools, hospitals and

police stations.
Fifty three township based and black owned clothing and textile
businesses are supplying linen to hospitals across Gauteng, while 40%
of hospitals will procure their fresh produce supplies from black farmers
in 2015/16. This number will be increased to 80% by the next financial

year.
Township bakeries and confectionaies will get a boost as 20% of
hospital bread procurement is earmarked for these businesses in the
current financial year. This number will be increased to 40% in the next
financial year.

These strides would not have been possible without township entrepreneurs
standing up and raising their hands to be counted among the men and women
who will be remembered for their contribution in changing the economic
landscape of the Gauteng City Region. We look forward to more collaborative
efforts

between

government,

township

businesses

and

established

corporates.
These examples must be replicated and multiplied. We want to see township
businesses moving beyond being intermediaries for goods and services
produced elsewhere. We want to see township businesses enter the
productive sectors of the economy.
In recognition of the great work of township businesses, we will host the first
ever Entrepreneurship Awards for township businesses later in the year.
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These awards will showcase township business excellence, a novelty that is

not replicated anywhere else in South Africa. Through these awards, we will
reward hard work and dedication and demonstrate that township business can
stand head and shoulders above the rest.
Hon. Speaker, we all know that many township businesses are precluded
from accessing government and private sector procurement opportunities due
to non-compliance with various aspects of the business regulation landscape.
Perceptions about the high costs and burdensome nature of business
compliance are too common amongst our small businesses. A recent study by
the World Bank Group and the National Treasury titled Doing Business in
South Africa 2015 found that although our business registration process is
relatively cheaper, it is not time efficient and tends to be administratively
tedious.
To change these perceptions and awaken small businesses to the economic
benefits of business formalisation, we will be embarking on a campaign aimed
at increasing the business compliance levels in the small business sector.
Through the Qondis ishishini Lakho (Fix Your Business) campaign we will
once again visit Gauteng townships to offer onsite registration to 10 000
SMMEs.
We are committed to intensifying programmes to support township business
in this financial year.

345 township businesses operating in labour-absorbing sectors of the

economy such as manufacturing, tourism, ICT, retail and infrastructure

businesses will receive financial support from the Community Fund

250 township business will benefit from Township Business Renewal
Programme which offers grants up to R50 000 towards marketing,

equipment and refurbishment of operational premises

We have also piloted an invoice discounting system, which allows
short-term borrowing to small businesses against outstanding sales
invoices. This gives small businesses access to cash flow and working

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capital amidst payment delays. Fifty (50) township-based businesses

are targeted for this initiative.

The department has also piloted a system that enables us to pay
suppliers within 14 days. Our agencies are currently paying all
suppliers within 5 working days.

Hon. Members, the Cradle of Humankind World Heritage Site located in the
Western Corridor continues to be a jewel in our crown. Last year we
completed the upgrades to Hominid House, a student facility at Maropeng.
This year we will deliver a new exhibition space to house temporary
exhibitions in the facility. Gauteng is uniquely placed to utilise paleoanthropology as an area of geographic advantage and take the lead on the
African continent.
Gauteng remains a leading provincial destination for foreign visitors. However,
there are clear market forces that demand an urgent strategic rethink with
regards to enhancing our market share. The Gauteng Tourism Authority is
leading the charge in developing a focused Africa Tourism Strategy and this
year, we have set a target of 2.7 million arrivals from the continent with a
value of R21 billion.
The recent reconfiguration of the Gauteng Tourism Agency to focus purely on
destination marketing and promotion will impact positively on these plans. The
targeted performance for the province for the 2015/16 period is 4.4 million
international arrivals and R35 billion in revenue generation.
Working with our municipalities, we have developed an extensive Township
Tourism Experience and Enterprise Development programme. We are
convinced that this intervention will change the tourism landscape to better
reflect the demographics of our country and mainstream township tourism into
a key component of the city regions economy.
We are already implementing this project in Soweto, Sophiatown, Fordsburg,
Fietas, Alexandra, Kagiso, Mamelodi, Atteridgeville, Refilwe, Onverwacht,
Rayton, Katlehong, Thokoza, Vosloorus, Tembisa, Sharpeville and Boipatong.

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At the heart of our tourism strategy is the visitor. One of the ways we will
better serve our visitors, domestic and international, is by taking information to
them. We are pleased to announce that Gauteng now has its first mobile
visitor information centre. Two new visitor centres will be unveiled later this
year to target domestic and African visitors.
This year we have committed R250 million to grow the tourism economy of
the province. Our focus this financial year will be on growing a strong and
vibrant domestic tourism portfolio. Our stay another day campaign is aimed
at capturing business travellers to explore the many different offerings by our
province and supporting this campaign will be our township tourism
experience promotional drive.
Hon. Members, we are pleased to announce that Cabinet has approved the
Bidding, Hosting and Events Strategy for the Gauteng City Region. This
means that our municipalities will now have a common approach and
centralised resources for hosting major events, giving practical meaning to the
motto city regions succeed when they cooperate internally to compete better
externally.
We are deeply concerned about the impact of xenophobia on our tourism
industry and the economy more broadly. Apart from the fact that South African
businesses generate considerable revenue from business operations in the
continent with a number of our JSE listed companies investing in various
markets on the continent, Gauteng also attracts a wide range of businesses
from the region. According to Ernst & Youngs Attractiveness Survey on Africa,
which examines the ranking of regions and countries as investment
destinations, South Africa was the second largest investor in the continent in
2012. Cross border visits from neighbouring SADC countries are anchors for
our retail shopping business.
We will join efforts to encourage peaceful coexistence between locals and
migrants from the continent. We will also work with the Department of
Community Safety to address organised crime and its negative impact on
business tourism.

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Hon. Members, the weight of the informal sector in our economy has
increased significantly in the past few years. The sector is the blood life for
families who have been battered by a hostile labour market, retrenchments
and casualisation. The number of people employed in Gautengs informal
sector amounts to 16% of the labour force. To respond to the challenges
facing the sector, the province has adopted the Informal Business Upliftment
Strategy. The aim of this intervention is to ensure that the informal business
sector is provided with financial and non-financial support for sustainability
including mechanisms for bulk buying.
In the next four weeks we will be launching the Gauteng Business Forum to
improve coordination in the economy, promote investment, enterprise
development, capital allocation and policy advocacy.
Hon Speaker, our agencies are the hands and feet tasked with implementing
the programme for Transformation, Modernisation and Re-Industrialisation. It
is against this background that we have set out to review their capacity to
respond adequately to the imperatives of the TMR programme. We will soon
make announcements about the nature of the changes proposed by the
Advisory Panel on the Review of Agencies.
The department has a total budget of R1,3 billion to undertake all the projects
and initiatives outlined here.
Madam Speaker, Honourable Members
I wish to extend gratitude to the Premier for his leadership and esteemed
colleagues in the cabinet their support. I am grateful to MECs in the Economic
Cluster who are always ready to maximise efforts to ensure that we reindustrialise Gauteng to create decent jobs, fight poverty and reduce
inequality. I also thank the Chairperson of the Portfolio Committee on
Economic Development, Environment, Agriculture and Rural Development
Hon. Errol Magerman, the Head of Department Ms. Phindile Mbanjwa, CEOs
of our agencies, our senior managers and all the public servants for all their
efforts and contributions to realising the objectives of the programme for

16

Transformation, Modernisation and Re-Industrialisation.

I thank you.

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