Speech by Deputy Minister Ebrahim, The San Francisco African American Chamber, 18 June 2012
I am very pleased to have this opportunity to talk to you today about South Africa's value proposition and what it offers investors and entrepreneurs like yourselves.
It is especially gratifying to be able to present the case for investing in South Africa to a community which did so much to help bring us to the point where we could begin to make the case we make today.
This year is the 18th birthday of South Africa's dynamic young democracy. It is doubtful that we would be able to say that but for the tremendous support and solidarity we received from friends like yourselves in the US and around the world.
The new South Africa you helped us launch is part of a bigger story which gives us all cause for pride and excitement. The entire continent of Africa is on the march, economically, socially, and politically. To borrow from the title of last year's groundbreaking study by the McKinsey Global Institute, we lions are on the move.
Africa's collective GDP will reach $2.6 trillion by the end of the decade, McKinsey projects, up from $1.6 trillion in 2008. During the same period, Africa and consumer spending will grow to $1.4 trillion from $860 billion as the number of African households with discretionary incomes rises to 128 million.
To the so-called developed world, Africa is no longer a region of chaos and poverty to be propped up with aid while its mineral resources are extracted and shipped abroad to create wealth elsewhere. With 60% of the world's yet to be cultivated arable land, the perceived basket case promises to become a breadbasket.
In a recent survey of institutional investors, the Economist Intelligence Unit found that two out of three saw African markets offering the best returns between now and 2016, ahead of Asia, Latin America, the Middle East and Central and Eastern Europe.
Peace, democracy, improved governance and sound economic management, combined with the innovative and leapfrogging adoption of new technologies and the unleashing of innate entrepreneurial energies, are laying the foundations of a new Africa.
This new Africa is a region in which hundreds of millions of people, not just a narrow elites, are enjoying rising incomes, creating a surge of new demand for goods, services and infrastructure.
As growth and incomes sputter in the industrialised North, Africa, with 200 to 300 million of its people approaching relative middle-class status, is seen as the next great growth story after China and India.
Particularly exciting is the expansion of intra-regional trade and the concrete steps that are being taken by governments to turn the continent into one or two large and open markets rather than the plethora of small and disconnected ones that were the legacy of the colonial past.
This is the context within which to understand the South African value proposition.
With a GDP climbing towards $400 billion, and sitting atop mineral wealth currently valued at $2.5 trillion, South Africa accounts for around a quarter of the region's output and remains the continent's most diversified economy as well as its most advanced in terms of physical, financial and legal infrastructure.
That, combined with the openness, liquidity and sophistication of its capital markets, makes South Africa an obvious entry point for investors and multinational companies -- Wal-Mart, for example -- looking to participate in the African growth story.
It is projected that between now and 2015, seven of the 10 fastest-growing economies in the world will be African. While South Africa will not be among the seven, South Africans, as Investec, the investment bank, noted in a recent report, have been getting steadily wealthier since the dawn of democracy. As Investec put it, "the poor have benefited from a massive rollout of services under the ANC's tenure ... GDP per capita has risen in real terms to R37 442 from R28 536 in 1994 ... South Africans are enjoying a higher standard of living in general."
As I'm sure most of you know, four of the world's largest emerging markets -- China, India, Brazil and Russia -- recently decided to expand their club, the so-called BRIC grouping, and put an S on the end of the acronym originally coined by Jim O'Neill of Goldman Sachs.
Judged solely in terms of GDP and population size, South Africa is not, by itself, in the same league as the other BRICS nations. The interesting thing, though, is that the BRICS themselves see South Africa as a peer. What we may lack in size, we more than compensate for as a connector with, and dynamo for, the last great investment frontier as Africa is increasingly being called.
Stacked up against our BRICS partners in the World Economic Forum's Global Competitiveness Index, we are rated ahead of all save China.
In areas of critical importance to investors, including financial sophistication, strength of institutions, protection of property rights, quality of infrastructure, strength of investment protection and corporate ethics, we are not only ranked ahead of all the BRICS, but in some categories we are rate the best, or among the best, in the world.
Our capacity for innovation also receives high marks from the World Economic Forum. We outscore our fellow BRICS both on the quality of our scientific institutions and the protection we afford intellectual property. As many of you I hope will have seen, South Africa was recently selected by a multinational consortium to build and host the bulk of the most ambitious astronomic project ever conceived, known as the Square Kilometre Array.
At a more down to earth level, the World Bank says that, overall, it is far easier to launch and run a business in South Africa than it is in any of the other BRICS, or in any African country save Mauritius.
South Africa is fully integrated into the global economy. Based on the Global Competitiveness Index, our transport and communications infrastructure, including airports, rail systems and port facilities, is among the best in the BRICS and the so-called "next 11" major emerging markets. It will get even better as our planned R3 trillion infrastructure rollout picks up steam.
Hungry for raw materials, China is now our largest single trading partner, but the US, along with the EU, remains a critically important customer for our value added exports.
Although this may still sound counterintuitive to some ears, both BMW and Mercedes-Benz believe it makes eminent economic sense to build cars in South Africa for the American market. BMW 3 Series sedans built near Pretoria and Mercedes C Class sedans built in the Eastern Cape accounted for around 20% of US imports -- over $2 billion worth -- from South Africa last year. Catalytic converters and other automotive components comprised another 5%, valued at $446 million.
All told, South Africa's exports to the US in 2011 totaled $9.5 billion. Of that, $3.7 billion, well over a third, was accounted for by goods entering the US duty-free under the African Growth and Opportunity Act, many of them containing components sourced from -- and generating wealth in -- other parts of the region. AGOA is playing an important part in solidifying the African growth story, and we hope that all who seek opportunity in Africa will make themselves heard should there be any attempt to weaken it.
As bright as South Africa's prospects now appear, we cannot ignore the substantial challenges that remain, not least among them unemployment, poverty and inequality. Many of these challenges are structural in nature. Many result from the grim peculiarities of our past. None is likely to fix itself if left unaddressed. Industrial policy is not a phrase that endears itself to market fundamentalists, but in South Africa we take a more Hamiltonian view about the need for active and energetic government. That informs our basic economic strategy, which we call the New Growth Path, and the series of Industrial Policy Action Plans or IPAPs, which our Department of Trade and Industry has taken the lead in designing and implementing.
So, yes, as much as we welcome the desire of companies like the retailing giant Wal-Mart to become part of the African growth story, our government feels it is imperative to ensure that investments comply with our competition rules and complement rather than complicate our social and economic objectives. We are placing a special emphasis on building manufacturing capacity which will enable us to beneficiate and derive greater value from our natural endowments while at the same time expanding the supply of decent jobs.
I will not vex you by listing the specific investment areas, ranging from film-making and software development to renewable energy and aerospace, which have been identified as priorities and the related incentive schemes. Details are to hand on the Internet and from our consulate general in Los Angeles.
As you study them, I hope you will concur with what President Jacob Zuma told the Oxford Business Group in an interview for its new survey of South Africa's investment opportunities. "We have great potential to attract foreign direct investment," the president said. "The government is committed to improving the investment climate as well is the cost of doing business. We welcome foreign investment through our highly regarded stock exchange and welcome direct investors who bring new skills, markets and technologies into our economy."