Address Delivered by the Deputy President Phumzile Mlambo-Ngcuka at the Keidanren Roundtable in Tokyo, 19 April 2006

Mr Marashiro Sakane, Chairman of the Committee of Sub-Saharan Africa of the Nippon Keidanren, President and CEO of Komatsu Ltd,
Mr Hiroshi Kadota, Executive Counsellor of Nippon Keidanren,
Ms Lindiwe Hendricks, Minister of Minerals and Energy,
Mr Aziz Pahad, Deputy Minister of Foreign Affairs,
Ms Rejoice Mabudafhasi, Deputy Minister of Environmental Affairs and Tourism,
Mr Jabu Moleketi, Deputy Minister of Finance,
Dr Rob Davies, Deputy Minister of Trade and Industry,
Mr Katsuhiro Nakagawa, Vice Chairman of the Board of Toyota Motor Corporation and Honorary Consul of South Africa,
Mr Darkey Africa, MEC of Finance and Economic Affairs,
Ms Weziwe Thusi, MEC of Arts, Culture and Tourism
Distinguished business representatives,
Ladies and gentlemen,

Minasama Konnichiwa

Thank you Ambassador for inviting me to visit Japan, this occasion happens to be my first address to such a large gathering of members of Nippon Keidanren in the land of the rising sun. It is a great pleasure and honour to be here today addressing some of the business leaders who have contributed immensely to one of the most successful and powerful economies of the world.

On this day, my first working visit to Japan as Deputy President, I plan to take a break from the official schedule and join the late starters to watch the beautiful Cherry blossom (Hanami) around Tokyo.

Let me express my pleasure in welcoming the newly appointed Honorary Consul of South Africa in Nagoya, Mr Katsuhiro Nakagawa, a businessman who is familiar with both government and private sector practices. I will also like to welcome Mr Mitsutoshi Emoto, who is also the newly appointed Honorary Consul based currently in the city of Kitakyushu. The South African Government is also planning to open a consulate office in Osaka in the near future to increase accessibility and our service delivery in Japan.

Ladies and gentlemen, I am presenting you with an invitation for a future of growth, stability and prosperity based on mutual benefit and unique business opportunities for Japan and South Africa. Broadly speaking, to achieve the faster levels of growth, the South African government is focusing on three areas, namely increasing the rate of trade and investment, improving levels of competitiveness, and broadening economic participation.

27 April 1994 marked a turning point in South African history. Millions of our people were able to cast votes for the first time. We were able, for the first time, to participate in determining our future and we proudly cast our ballots, not forgetting all those that had laid down their lives for our freedom.

Despite some difficulties and weaknesses associated with newly democratic states that we acknowledge, and problems which we share with much of the developing world, like crime, corruption, unemployment and AIDS, South Africa is a country that is truly basking in the Age of Hope, the hopes of the vast majority of our people are becoming a reality.

Oppressive and discriminatory laws have been swept away. Literally millions of people, especially the poorest of the poor, have felt the impact of government programmes to deliver basic services like clean water, decent housing and health care, electricity and telephones.

What has made these changes possible is the unity of our people and the peace which our nation enjoys, as well as co-operation with our neighbours in Southern Africa; the countries of our continent and the whole international community.

Ladies and gentlemen, in a period of less than 50 years, Japanese companies and captains of industry have transformed a ravaged country into the second leading economies in the world today. As such a leader, Japan has played a role in the economic development of other parts of the world, most notably its own backyard of Asia, particularly Southeast Asia.

Japan is also a very significant partner for South Africa, in fact I am happy to see that in 2005, Japan became South Africa's third highest export partner in the world, whilst we remain Japan's number one trading partner in Africa.

Beyond trade, Japan is also a significant partner in Africa through aligning the Tokyo International Conference on Africa's Development (TICAD) programme with the New Partnership for Africa's Development (NEPAD). Because Japan is such an important partner for us, I am here today to share with you our plans for our own economic development.

As good friends of South Africa, you are well aware of some of the successes we have achieved since obtaining our freedom in 1994. The South African economy has been subject to a process of structural transformation to promote domestic competitiveness, growth and employment and increase the outward orientation of the economy.

We have done so with some measure of success and are currently enjoying high levels of macroeconomic stability and business confidence. However, enormous challenges in alleviating poverty and creating employment remain.

The fact that the South African economy is currently experiencing record levels of consumer and business confidence underpinned by low inflation, subdued interest rates, and the lowest budget deficit in decades creates new opportunities for decisive government intervention to half poverty and unemployment in an effort to achieve our millennium goal.

We have set a target of at least 4.5% average economic growth until 2010 and thereafter six percent from 2010 to 2014. Our forecast predicts that within a decade a 50% income rise per person will be achieved. If the elasticity of employment creation relative to Growth Domestic Product (GDP) growth can be increased to 0.8 alongside this growth enhancement, then the rate of unemployment can be halved within the next 10 years.

In order for South Africa to achieve this growth acceleration, gross fixed capital formation (physical investment spending) will have to grow by about 10% a year. This would lead to fixed investment rising from 16% to 25% of the GDP in ten years' time.

My government has proven independent research on its side that the performance of our economy in the past two years indicates that the set targets are achievable.

An economic growth acceleration of this magnitude will require well targeted and efficiently implemented policies and development initiatives. I am honoured to lead the government on a co-ordinated programme that will address these challenges. The programme I lead is known as the Accelerated and Shared Growth Initiative for South Africa (AsgiSA), and its purpose is to accelerate the economic growth rate, massively reduce the unemployment rate, and broaden the impact of economic development so that South Africa can meet its developmental goals.

We have taken stock and we have taken a long hard honest look at ourselves. In so doing, we have identified several constraints that are impeding on our economic development success. The identified impediments are coincidentally similar to those raised during the visit of Minister Mpahlwa, the South African Minister of Trade and Industry, during his courtesy call to some of the members of Keidanren in July 2005. These constraints are:

* The volatility and level of the currency;
* The cost, efficiency and capacity of the national logistics system;
* Barriers to entry, limits to competition and limited new investment opportunities;
* Regulatory environment and the burden on small and medium businesses;
* Deficiencies in state organisation, capacity and leadership; and
* A shortage of suitably skilled labour.

Ladies and gentlemen, allow me to elaborate on one of the major economic growth impediments for those of you who are conducting business in South Africa.

The price of moving goods and conveying services over a distance is higher than global norms, because of backlogs in infrastructural investment, inadequate planning, and in some cases market structures that do not encourage competition. South Africa is a fairly large country, with considerable concentration of production inland, deficiencies in logistics are keenly felt.

The government believes that logistics enhancement will increase the industry competitiveness.

In order for my government to counter these and other constraints, it entails a series of decisive interventions to addressing macro-economic issues, implementing infrastructure programmes, developing industrial strategies, implementing skills development and education initiatives, addressing public administration issues and making interventions in the informal economy or the "Second Economy" of South Africa.

The programme has prioritised labour intensive strategies and sector strategies such as Tourism and Business Process Outsourcing to help reduce the level of unemployment. Promotion of the Bio-fuels Industry will support the programme in both job creation and develop sustainable energy consumption in South Africa.

The third category of priority sectors, are more capital intensive, it is these sectors which we invite Japanese companies to consider participating in:

* Chemicals;
* Metals beneficiation including the capital goods sector;
* Creative industries (Crafts, Film & TV Content and Music);
* Durable consumer goods; and
* Wood, pulp and paper.

Our government has already begun to ramp up public sector investment. In recent years, public sector investment rose from four percent to six percent of GDP. Government and public enterprise investment expenditure for the period April 2005 and March 2008 is planned to rise to around eight percent of GDP, this is about US$62 billion.

Of this about 40% will be spent by public enterprises, mostly electricity producer Eskom (about US$14 billion) and transport and logistics organisation Transnet (about US$8 billion).

Most of these funds will be spent on power generation, power distribution, rail transport, harbours and oil pipeline. The general purpose is to improve the availability and reliability of infrastructure services in response to rapidly growing demand.

Government is responsible for about half of the total public sector capital investment over the period through a range of programmes at national department level. The planned rate of growth of the capital budget of government at between 15% and 20% per year is unprecedented in South African history.

Projects are distributed to provincial and local government through the municipal and provincial infrastructure grant programmes, while provinces and most municipalities have funds collected from their own revenue sources for capital expenditure.

The electronic communications is a key commercial and social infrastructure. Plans to be implemented in this sector include:

1. The implementation of a strategy to rapidly grow South Africa's broadband network;
2. Implementation of a plan to reduce telephony costs more rapidly;
3. The completion of a submarine cable project that will provide competitive and reliable international access, especially to Africa and Asia; and
4. The provision of subsidies to encourage the establishment of telecommunications and labour intensive business in poor areas.

Other strategic interventions in the infrastructure arena include further development of the country's research and development infrastructure, and further improvement in the modalities for public-private-partnerships (PPP) in the development and maintenance of public infrastructure.

Public sector infrastructure spending has considerable potential spin-offs in terms of the generation or regeneration of domestic supply industries, small business development and empowerment. Government is seeking to maximise the positive impact of these spin-offs on the domestic economy.

In addition to the general infrastructure programmes, provinces were asked to propose special projects that would have a major impact on accelerating and sharing growth. A set of 10 projects has been selected for finalisation of implementation plans, of which some are already underway.

Beyond the extraordinary demands of AsgiSA the provision of a predictable, competitive, equitable and socially responsible environment for investment, enterprise and trade remain a key focus of government.

This is one of the reasons why I am here today to address you as champions of business in one largest and most successful economies of the world to indicate to you our sincerity in speeding up economic growth and development in South Africa and to encourage you to form part of this success. Japan has itself achieved phenomenal success through a mixture of responsive government policies and a keen desire by its people and business to succeed. In South Africa too, business will have key role to play in our success, and that includes Japanese businesses.

Perhaps the greatest impediment to economic growth and development is a shortage of suitably skilled labour amplified by the cost effects on labour of apartheid spatial patterns.

In a period of growth it is evident that we lack sufficient skilled professionals, managers and artisans, and that the uneven quality of education remains a contributory factor. Local rates of university exemptions, particularly with mathematics, remain at levels that are far too low to supply the needs of the economy. In addition the price of labour of the poor is pushed up by the fact that many live a great distance from their places of work.

South Africa has also launched an initiative to overcome the skills shortage. One way in which we hope to start addressing this skills crisis is through the Joint Initiative on Priority Skills Acquisition, a joint initiative by government, tertiary education institutions and business to help identify scarce skills and develop programmes through which to obtain these skills. We have to overcome the shortage of suitable skilled labour if our dreams for this economy are to be realised the task ahead is huge.

Japan has really been in the forefront of developing appropriate skills for its economic development. We are here to see how we can apply your experience to our circumstances, and to forge closer collaboration with your country's government, business and tertiary institutions in developing the scarce skills that our economy greatly need.

I would like to reiterate that South Africa is at a crucial and exciting point of its economic development path. I believe that we will succeed in overcoming what are admittedly sizeable challenges in alleviating poverty and creating employment. But we will do so much faster with the help of our experienced partners who believe as we do in our ultimate success.

In conclusion, let me thank the Japanese government, for hosting the World EXPO 2005, in Aichi. Around this time last year, my Embassy opened and led South Africa's eventful participation at this exposition, highlighting many aspects of South Africa and showcasing it as a place to do business, and as a leisure travel destination.

South Africa's best-known products in Japan are its mineral resources, mainly gold and diamonds. I wish to inform you that the tourism industry is regarded as the "new gold" of the South African economy, with its contribution to foreign exchange earnings now being greater than that of gold exports. These enlightening facts have encouraged my government to now focus towards the sustainable growth of the tourism industry into the future.

To that end, our efforts paid dividends when we were awarded, for the first time in Africa, the opportunity to host the Soccer World Cup in 2010. As we prepare to welcome tens of thousands of visitors to our country, I must admit that the key challenge is building the infrastructure for this historical event. This includes building or upgrading the 10 stadiums to be used, and investment in the surrounding environments and access to the stadiums.

Therefore, it is an opportune time for me, to invite every one of you to join the thirty thousand Japanese who visited South Africa last year.

Domo arigato gozaimasu.

Issued by: The Presidency
19 April 2006

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