Deputy Director General, SASAC,
Chief Executive Officer, COIFAIR,
Chief Executive Officer, Standard Advisory Limited, China,
Distinguished guests,
Ladies and gentlemen.

Africa’s absolute and relative lack of infrastructure points to the existence of untapped productive potential, which could be unlocked through scaling up investments in the sector.

Infrastructure plays a central role in improving competitiveness, facilitating domestic and international trade, and enhancing the continent’s integration into the global economy.

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

Economic infrastructure typically exists not for its own sake but rather to support various kinds of economic activity. Strategic sectors in the South African economy are completely dependent on the availability of infrastructure capacity for their existence and growth.

For example, a large-scale export orientated iron ore mining organisation, located in the hinterland, cannot exist, let alone compete without a very efficient logistics link with the port.

A foundry or smelter cannot be established without guarantee of supply and competitively priced electricity.

A locomotive manufacturer on the Southern tip of Africa cannot survive if the national rail company is not consistently buying and maintaining locomotives. Consequently, State Owned Companies (SOC) infrastructure acts as a catalyst for additional investment in key sectors of the economy.

In order to ensure that our SOC play this fundamental developmental role, the vision of the Department of Public Enterprises is to drive investment, productivity and transformation in our portfolio of SOC, their customers and suppliers so as to unlock growth, drive industrialisation, create jobs and develop skills.

That is why, we cannot measure the success of our SOC in relation to the health of their balance sheet alone – we need to ensure that they are having a positive impact on the broader economy whilst remaining financially sustainable. In this talk I will describe to you the various initiatives that are being undertaken by the Department and our infrastructure SOC to make this vision a reality.

I wish to stress that the SOC infrastructure program is more than just an enabler of future economic growth – in effect we are building tomorrow today. We are driving programs that will put in place the infrastructure, skills and the industrial and technological capacity to drive our future economy.

I believe in eight years’ time that our economic landscape will have already been significantly transformed.

Based on our existing plans, by 2020:

• An additional 11 719 MW will have been added into the electricity system and 6596 km of transmission network installed to support security of supply;
• Existing logistics corridors will be expanded upon and new corridors will have been established, and 1317 new locomotives and 25 000 new wagons will have been procured, and procured in a manner that puts in place a world-class, export-oriented, rail manufacturing sector;
• 6405 km of rail will have been replaced for the general freight, coal and iron ore lines, increasing the rail network capacity by 149.7 million tons; and
• 13 125 km of fibre optic cable would have been refurbished and strengthened to ensure carrier grade status and our broadband network would have been expanded to include metros and underserviced areas.

The SOC planning framework developed by the DPE is deliberately designed to stretch and at times go beyond the SOC balance sheets so as to support economic growth. In 2012, Transnet, our rail, ports and pipeline SOC, expanded its capital expenditure budget from RMB 55 billion over five years to RMB 150 billion over seven years.

Critical in this strategy is that 55% of the Capex will be investments in new logistics capacity, which goes beyond the predominantly maintenance expenditure typical of previous Capex plans. Over the seven years, excluding electricity and fuel, Transnet will also be procuring an additional RMB 31 billion on operational expenditure.

Transnet is in the process of assessing proposals from suppliers around a locomotive fleet procurement of unprecedented scale in South Africa’s history, amounting to approximately RMB 17.5 billion for 1 064 diesel and electric locomotives. The procurement will lay a platform for a seven-year strategic partnership between Transnet and their suppliers in the locomotive cluster.

We expect to more than double, if not triple, the amount of local content in locomotives as a result of this process. Eskom, the government owned electricity generation and transmission utility, is projected to spend over RMB165 billion in capital expenditure over the next five years in addition, excluding primary energy.

Eskom will be spending over RMB 75 billion in operational expenditure over the same period. Our electricity system is presently temporarily constrained because of inadequate historical investment and some delays in getting our new big coal stations operational.

Eskom has undertaken a number of interventions to ensure security of supply.

We have seen significant progress in the adoption of more energy efficient technologies by the private sector. On the broadband network, Broadband Infraco (BBI) aims to expand its network in accordance with both markets while fulfilling its mandate to provide “broadband for life”:

• Provide backhaul connectivity to all 9 Provinces; districts and municipalities
• Connect all major economic hubs; educational facilities and hospitals
• Extend the network to areas where there is currently no footprint to cover under-services areas
• Create opportunities for small ICT operators such as WIFI/WAXoperators to provide last mile/ access network to the end users.

The rollout of its network implementation will be in 3 phases and it will cost RMB 6.5 billion (USD2.5 billion) for the 24 000 kilometres fibre over 10 years. The SOC in their presentations will dwell in details on the contracting management in South Africa.

I will highlight the government’s policy imperatives no supplier will be consider if there is no commitment to skills development, skills transfer, localisation and local partnership with South Africa business and this is mandatory.

It is a non-negotiable that when we procure equipment and services for our infrastructure programs we are very explicitly procuring a process of industrial development and black economic empowerment. We will not tolerate SOC suppliers that do not engage robustly with our localisation or transformation objectives.

It is a government policy that when a state owned enterprise procures goods from supplier, we expect that 50% to 75% of the product is developed and procured locally so that we can create jobs and build our industrial capability of the South African economy.

Our vision envisages a relationship between our SOCs and their customers that drives investment and enhances our national competitiveness, particularly in sectors identified as important in our industrial policy and the New Growth Path. In pursuit of this, we are establishing project-based forums between SOCs and key customer sectors.

For example, we have established an Automotive Forum that focusses on improving operational efficiencies, reducing costs and providing additional specialised automotive rail and port capacity as well as on ensuring security of electricity supply for the sector. Similar processes are taking place in other prioritised sectors.

The Presidential Infrastructure Coordinating Committee is taking the infrastructure program to a new level. The Committee has prioritised seventeen ambitious infrastructure and development projects. These projects are effective game changers, in the sense that they will immediately enable qualitatively new economic activity on a significant scale.

The successful implementation of these projects will require an extremely high level of coordination between different SOC, Government Departments and agencies and private sector companies. For example, the Waterberg coal projects will require coordination between Eskom, Transnet, the Department of Water Affairs, Municipalities, Sasol and Coal mining companies amongst others.

We recognise that the ability to design and efficiently implement game changing mega-projects is an extremely strategic capability for a South African developmental state. Mega projects create an economic momentum, both through the process of their construction and the on-going economic activity that they spawn.

Coming off a low base in 2004, both Eskom and Transnet have put considerable effort into building their capabilities to manage and leverage the procurement of large capital projects and complex capital equipment to get both value for the enterprise and drive an industrialisation process in their supply chains.

In the interim some profound lessons have been learnt by both Eskom and Transnet and significant new organisational capabilities in the form of methodologies, processes and systems have been, and continue to be, built to manage these programs. Eskom has taken the initiative of codifying these lessons learnt and capabilities into a toolkit, which is presently under production.

I believe Eskom and Transnet are fast becoming leaders in this field and will be able to implement and leverage projects of a scale and complexity that is beyond the capability of any other organisation in South Africa. Africa as a whole is projected to grow at over 5,5% per annum over the next five years.

Investment in infrastructure will be a key driver in enabling this growth. In comparison to other parts of the developing world, Africa lags behind on about every measure of infrastructure coverage.

For example, the World Bank estimated that Africa requires around US$93 billion of infrastructure investment a year to begin to address this backlog. Regional economic integration is an immediate strategic necessity, a core element of not just securing our growth for the future, but managing the turbulence of the present.

Consequently, we are in the process of developing a focused Africa Expansion Strategy, which will seek to leverage our SOC capabilities and competitive advantages. As African we appreciate the Chinese approach to Africa because we believe it is both pragmatic and flexible.

China is on a learning curve as to how best to build sustainable relationships with African states to secure its strategic economic interests. This pragmatism clearly has certain advantages in that it has broken the impasse associated with the Western development model.

We now need to explore how we can develop new models of partnership between Africa and China to ensure that our investment and trade relations have an optimal developmental impact.

For example, I would like to explore how South Africa State Owned Enterprises can play a leading role in building partnerships with key Chinese enterprises who are concerned with building long term trade and investment relationship with African countries.

Can we can envision a public – public partnership between key South African and Chinese SOE to optimise the process of transferring skills and technologies to African countries where infrastructure projects are taking place.

In conclusion, I hope I have successfully communicated to you that we are in the process of building a well-oiled machine to drive infrastructure investment in the South African economy and, in doing so, unlock new opportunities for economic growth and development.

I thank you!