Gigaba: The state must lead economic transformation

 Speech by the Minister of Public Enterprises, Mr. Malusi Gigaba MP, on the occasion of the Convention of the Association of Municipal Electricity Utilities in East London on 8 October 2013

 It gives me great pleasure this morning to have to address you on this important occasion of your Convention, assembling as it does during the important period in our country when we have resolved to make the important and yet decisive turn towards more meaningful, radical and faster economic transformation.

Addressing himself to this matter, President Zuma said in 2011:

“We must make the decisive shift to meaningful economic transformation and set in motion a very deliberate programme that will ensure that the benefits of our political liberation are shared amongst all our people. Our people have struggled selflessly for freedom from oppression. We cannot fail them when it comes to the struggle for the elimination of poverty… We have to live the promise of the Freedom Charter, which states amongst others, that all our people will share in the wealth of the country. Political emancipation without economic transformation is meaningless.”

In this regard, President Zuma raised both a moral as well as political imperative to ensure that we address poverty and inequality by spreading the benefits of political liberation to all our people, recognising that they had struggled selflessly for freedom.

The President then made the bold and yet fundamental assertion that – “Political emancipation without economic transformation is meaningless.”

Having struggled, suffered and sacrificed so immensely against colonialism, the peoples of

Africa are yet to live the dream and true meaning of freedom.

We cannot be simplistic in our appraisal of the task ahead if we are to make significant headways, as President Zuma directed us, in the pursuit of this meaningful economic transformation.

Quite clearly, none amongst ourselves gathered here this morning can doubt the fact that together with the people of South Africa, we have achieved a lot in political and socio-economic transformation during the past 20 years.

Today, South Africa is a better country and place for our children than it was in 1994 at the advent of the new democratic dispensation.

Today, as a result of the massive progress we have made, we have reason not only to celebrate what we have achieved, but as a result of this, to be more positive about the future, confident that we have a real possibility to bequeath our children an even better society that is more equal and just, with a thriving and sustainable economy and quality basic services.

This is precisely what the National Development Plan exhorts us to do, building on this confidence that we have accumulated.

The NDP is not merely a set of economic plans or sectarian formulations about what we need to do; it is a comprehensive vision and plan to develop our country comprehensively into the future.

It articulates a vision to pursue full employment, achieve high growth rates on a consistent basis, eliminating income poverty, reduce inequality, ensure quality education, health and social safety for all and build an efficient, capable and corruption-free state.

This has been supported by the overwhelming majority of the peoples of South Africa.

However, some of the critics of the NDP have not outrightly rejected the plan, but highlighted issues which require further engagement and debate, with a view to improving them as we march forward with its implementation.

The Plan itself is not sacrosanct or cast in stone, but is a living document.

However, the NDP recognises that in spite of the significant progress we have made since 1994, massive, deep and brutal poverty remains the daily reality for many South Africans, and we are duty-bound to address this if we must make the decisive turn towards meaningful economic transformation that the President directed us to make.

In effect, we must turn our backs on poverty, inequality and unemployment and strive towards a more socially just and equal society.

In this regard, the New Growth Path recognised infrastructure development as one of the key jobs-drivers necessary to take our economy to a new level.

The fact is that we cannot achieve social justice unless we create jobs for all and, towards this endeavour, infrastructure development will play a decisive role.

The development and modernisation of infrastructure remains critical to South Africa’s future economic competitiveness, facilitating domestic, regional and international trade, and enhancing South Africa’s integration into the regional, as well as the global economy.

South Africa’s infrastructure needs point to the existence of untapped productive capacity potential which will be unlocked through scaling up investments in the sector.

Coupled with better human development outcomes that improved infrastructure promises, the spill over effects and the dynamism that would be generated will support South Africa’s economic growth and poverty eradication efforts.

Similarly, improved infrastructure will help eliminate some of the structural constraints in various markets in the economy.

Some among the critical lessons for infrastructure rollout in Africa include that we must never stop planning for future infrastructure capacity, and having gained the momentum, the infrastructure development programme must not stop; and that we must service and maintain our infrastructure so that we do not neglect it for future generations to have to maintain, service and even replace it at exorbitant cost.

One of sub-Saharan Africa’s top developmental challenges continues to be the shortage of physical infrastructure, which serves as a major impediment to growth and development.

Greater economic activity, enhanced efficiency and increased competitiveness are hampered by inadequate transport, communication, water and power infrastructure.

The world is eager to do business with Africa, but finds it difficult to access African markets, especially in the interior, due to poor infrastructure.

Physical infrastructure facilitates growth through its backward and forward linkages.

Africa’s economic growth and development are intrinsically linked to infrastructure development, but it is the push-pull relationship with commodities that has become the driving force for infrastructure development in the region.

Large commodity finds, like oil and gas in East and South-East Africa, as well as the huge demand – particularly from Asia – for agricultural and natural resources, including minerals such as iron ore, platinum, coal and copper, are driving the need for infrastructure.

In turn, investments in infrastructure needed to extract and move these commodities to global markets, such as the rail and port infrastructure, continue to drive Africa’s economic development.

Infrastructure development is an important pillar for regional integration, trade competitiveness and development.

The magnitude of Africa’s infrastructure needs requires transformational approaches.

Regional integration has potential to lower costs and boost output in all sectors.

Regional power generation projects will increase economies of scale leading to cheaper electricity; whilst the transport and road infrastructure will reduce delays and costs caused by poor road infrastructure and disharmonious border and customs management.

While inadequate infrastructure may be the single biggest threat to Africa’s long-term growth, at the same time it also represents a significant opportunity for investors.

With governments across the continent committing billions of dollars to infrastructure, Africa is at the start of a 20 to 30-year infrastructure development boom.

 

We are aware that there are, however, certain preconditions that private investors typically require before committing themselves to projects with the lengthy payback periods that attach to infrastructure assets.

For example, they want to be involved in projects that are high priority for governments and thus are likely to come to a conclusion.

They do not want to be involved in projects where there are no clear implementation timelines or where the timelines, are repeatedly moved out.

They will also focus on markets where there is a guarantee of long-term policy stability and revenue certainty and where there is institutional capacity within government to make projects happen.

Accordingly, long-term planning that creates a longer horizon as well as the capacity of the state, including coordination and integration at state level, are fundamentals which cannot be overlooked when seeking investments in infrastructure development as investors will most certainly focus on these before they make their decisions to invest.

Through the Presidential Infrastructure Coordinating Commission (PICC), as well as the

Strategic Integrated Projects (SIPS) involving various government agencies – departments, agencies and State-Owned Companies (SOC), the South African government addresses the above and thus seeks to limit execution failures.

The PICC seeks to correct government failures, coordinate the allocation of resources in the economy, improve intergovernmental relations and accelerate the execution of the national infrastructure plan in a coordinated and integrated manner.

Ultimately, the infrastructure programme would amount to a dismal failure if all it did was merely leave behind it a trail of physical infrastructure, which whilst it would make it easy to do business, but would merely and narrowly be about that – making it easier and cheaper for business to conduct its affairs and make profit and wealth.

In this regard, President Zuma stated during the 2012 State of the Nation Address that:

“The massive infrastructure investment in infrastructure must leave more than just power stations, rail-lines, dams and roads. It must industrialise the country, generate skills and boost much needed job creation.”

When our children stand at the end of 2030 and look back to what we achieved when we implemented the current infrastructure programme, they must see a trail of skills, jobs and local industries lying in the wake of the physical infrastructure we erected all along the way!

To achieve this requires political will and capacity on the part of government and buy-in from the private sector investors, particularly the global suppliers and Original Equipment Manufacturers (OEMs).

And, the private sector will often not buy into new visions without being compelled to, as their inherent inclination is to chase the bottom-line and their natural tendency is to make a profit as quickly and as easily as possible.

I know that the focus of this Convention is on energy utilities, but it would be amiss of me not to highlight the areas of infrastructure that are interconnected to energy infrastructure.

In fact, no energy infrastructure will be developed without a road, water and ICT infrastructure.

Reliable supply of electricity is essential to foster regional economic development.

Whilst significant effort has been put to improving capacity on the electricity generation side, the present worrying state of our electricity networks, particularly at distribution level, remains a threat to the security and reliability of electricity supply in the region.

There is therefore a pressing need for enhanced investment and maintenance of distribution and transmission networks to improve the reliability of power supply.

For some municipalities and State-Owned Companies (SOC), poor system reliability and the associated impact on electricity provision are far more serious than for others.

Where municipalities or SOC run operations on a continuous basis, that is, 24 hours per day, seven days per week, there is little room for unplanned shutdowns of the production equipment; any loss of production is often difficult or even impossible to make up.

Where operations are not run on a continuous basis, the recovery can be easier, nevertheless time consuming and expensive, thus reducing revenue generation opportunities.

In the South African context and I suppose the region too, municipalities play a key role in the provision of electricity and hence it is critical that they possess the requisite capability and resources to deliver on this role.

This is in view of the concerns we have noted in relation to some municipalities having challenges with the provision of reliable and quality electricity, a matter that needs to be resolved as a matter of urgency before it becomes a culture.

Some of the contributing factors to this include the high turnover of key municipal staff; poor revenue collection; misalignment of tariffs that Eskom charges to those charged by municipalities; revenue losses through energy theft and meter tampering; misalignment of financial year-ends between Eskom and municipalities; amongst other things.

We are exploring sustainable solutions for the energy industry.

One of our policy priorities to address these challenges is to accelerate investment in infrastructure to correct the structural problems in the economy and lay the basis for higher growth and economic development.

Infrastructure development will significantly contribute towards the economic and social development of our communities within each province.

Delivering on social and economic infrastructure increases access by communities to basic services and will eliminate poverty and unemployment, and thus ensure that they share in the political benefits of our democracy.

The provision of access to basic services such as electricity, sanitation and water is therefore a key infrastructure delivery issue and a fundamental human right.

Over the years, our economy has grown on the back of extractive industries and retail sector.

The government has recognized that this is not sustainable for economic development and the global economic recession has granted developing countries to develop counter-cyclical strategies to stimulate demand in the economy.

Energy utilities are better placed to build domestic industrial capacity and support enterprise development.

Part of this infrastructure drive will contribute towards the objective of universal access to electricity.

Electrification has both economic and social functions in that it stimulates economic activities, creates employment opportunities and provides basic energy services for households.

Over 4.2 million households are now electrified since the inception of the electrification programme, a feat achieved through working together with municipalities.

This means that the ANC-led Government has electrified more households in the last nineteen years than the entire colonial and apartheid regimes did in over three hundred years of their illegal and criminal existence.

However, we note that there are still challenges towards meeting the universal access objective, and I hope that part of your deliberations will consider how we address these challenges.

The provision of electricity to all should improve the quality of life of South Africans, especially the marginalised, and as such, the “unaffordability” of electricity to households with no income should be addressed.

Government intends to counteract the adverse impacts of electricity price increases through the provision of subsidies and the continuous improvement of the effectiveness of the free basic electricity (FBE) programme.

Government is also in the process of investigating ways to improve the free basic electricity programme the further to ensure that every poor household is catered for.

Continued collaboration between the three spheres of Government in ensuring improved service delivery to all South Africans is critical in this regard.

Our role, as the Department entrusted to guide several SOC, is to ensure that initiatives aimed at fostering the developmental objectives of the country and are essential to the country’s overall growth are undertaken judiciously, timely and responsibly.

As you aware, the South African economy is highly energy-intensive, and heavily dominated by the extraction of raw materials and primary processing.

As the demand for energy grows, the energy sector is expected to play a central role in acceleration of the country’s economic growth and development.

Social equity and economic efficiency are crucial in energy production and we have developed appropriate policy instruments to minimise negative impacts of externalities associated with energy production and consumption.

The Eskom capital investment programme will add 17,000 MW of new electricity generating to the national grid.

I am happy to report that all the previously mothballed plants have been returned to service and almost all the units are operational.

Despite the challenges in the construction of the new electricity generation plants, there has been significant progress and we are on course to receive first power by the second half of next year at Medupi unit 6.

The increase in generation capacity is complemented by Eskom’s large investments to expand and upgrade the transmission grid.

Both Eskom and municipalities are investing in distribution infrastructure to replace or upgrade out-dated equipment.

Through improved cooperation and coordination within the various spheres of Government and other key stakeholders, it is possible to arrive at cost-effective, integrated and sustainable solutions to address service delivery challenges in South Africa and the region.

However, the challenge for electricity utilities and other SOC will continue to be how they raise funding their capital investments, particularly during this very constrained global economic environment which is expected to get even tougher as the US persists with the tapering off of its quantitative easing programme.

Raising capital to address both capital and operational expenditure is going to prove more complex and difficult to surmount in the coming period. It is therefore important that, for example, the issues of the payment for services by customers as well as the municipal electricity debts must be addressed in order, as capital investments continue, we do not compromise on the “user-pay” principle.

In our case in South Africa, both debts such as the one by the Soweto customers, which constitutes 90% of the debt owed to Eskom by residential customers, as well as the one by municipalities, which today stands at over R1.5bn for the 10 largest-owing municipalities, must be resolved.

The risk is that a wrong culture of non-payment and defaulting is thus not only encouraged, but sustained, particularly when the 10 largest-owing municipalities have the resources at their disposal to settle their debts.

This creates a serious dilemma for Eskom as they must either make a business decision and switch the lights off for the debtors or a political decision and keep the lights without an end to the payment “boycott” in sight!

This is more important given both the current build programme as well as the electricity constraints as a result.

However, the issue of energy efficiency must move beyond being a stop-gap measure to address electricity shortages into being a culture for our people and corporate customers.

The negligent use of electricity merely because it is available must come to an end; and we must begin to make it our culture to be concerned both about the other person and the future.

A continent without sufficient energy must be concerned about expanding capacity, making electricity available to all and yet conserving enough for future generations.

Negligence is for us not a luxury.

There are big expectations placed on Associations such as yours to be innovative in resolving the service delivery challenges and, as crucial partners and stakeholders, to participate in the programmes to build and sustain the infrastructure.

I wish you all the best in your deliberations.

I thank you.

 news@ujuh.co.za

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