Speech by the Minister of Public Enterprises, Mr. Malusi Gigaba MP, at the NEPAD
Business Foundation (NBF)’s Africa Infrastructure Conference in Sandton, Johannesburg,
on 16 July 2013
I feel a tremendous sense of privilege for having been invited to participate in and address this
very important Conference this morning.
The theme of this Conference is absolutely important to an Africa that is on the rise, whose
economy and people are growing at attractive rates in the midst of a stubborn slowdown in the
global economy.
The global economy is going through a protracted economic recession, with developed regional
economies battling to find a lasting solution and return to sustainable growth levels of pre-2008.
It is unclear how the unsustainable levels of sovereign debt will be resolved, but clearly, this will
have a negative impact on the availability and the cost of capital in emerging economies.
This slowdown in developed economies has already impacted on the demand for exports from
emerging economies.
The revised GDP growth in China of 7% from 10% is signalling that the global economy is not
any close into recovery.
All of this has impacted on business confidence.
As such, it is not surprising, that business both in South Africa and globally take a conservative
outlook towards investment as they seek to manage the risk of a protracted global market down
turn.
In contrast to this gloomy outlook for much of the developed world, there is cause for significant
optimism in relation to African economic prospects.
Almost a decade ago, a good few years ahead of the recession that started in 2008, Africa’s
leaders adopted the New Partnership for Africa’s Development (NEPAD), at the crux of which
was an approach which sought to elaborate a comprehensive socio-economic development plan
for the continent that would place Africa on a growth trajectory that addressed and met the social
and economic development needs and aspirations of her people who had long been suffering
from underdevelopment and poverty.
Critical to the NEPAD approach was the following tenets:
1. that Africa needed a programme of sustainable and comprehensive socio-economic
development in order to defeat the poverty and underdevelopment in which centuries of
colonialism had plunged her people;
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2. that this programme needed to be led by African leaders, “based on a common vision and
a firm and shared conviction, that they have a pressing duty to eradicate poverty and to
place their countries, both individually and collectively, on a path of sustainable growth
and development and, at the same time, to participate actively in the world economy and
body politic” and it was “anchored on the determination of Africans to extricate
themselves and the continent from the malaise of underdevelopment and exclusion in a
globalising world”;
3. that defeating poverty and underdevelopment was not only the responsibility of the
African leadership alone, but was ultimately going to be the result of the collective efforts
of the African peoples themselves, acting as the architects of their own prosperous future;
4. that defeating African poverty and underdevelopment was not only going to be the result
of the Africans acting on their own, but would further be the outcome of “a new global
partnership based on shared responsibility and mutual interest” because an
underdeveloped and poverty-stricken Africa would always be a blight and an indictment
on the conscience of a developed world; and
5. that Africa was not as poor as we had been made to believe during the many centuries of
colonialism, neo-colonialism and imperialism because the continent possessed within
itself very rich human, intellectual and natural resources required to wage a successful
fight for development, only if these, including the immense and indisputable leadership
capabilities of the African people, could be mobilised for the common good of Africa as
well as global humanity as a whole.
In this regard, the NEPAD Framework made the important remarks that:
“The poverty and backwardness of Africa stand in stark contrast to the prosperity of the
developed world. The continued marginalisation of Africa from the globalisation process
and the social exclusion of the vast majority of its peoples constitute a serious threat to
global stability. We are convinced that an historic opportunity presents itself to end the
scourge of underdevelopment that afflicts Africa. The resources, including capital,
technology and human skills, that are required to launch a global war on poverty and
underdevelopment exist in abundance and are within our reach. What is required to
mobilise these resources and to use them properly, is bold and imaginative leadership that
is genuinely committed to a sustained human development effort and the eradication of
poverty, as well as a new global partnership based on shared responsibility and mutual
interest.”
Accordingly, guided by knowledge and conviction that the resources required to launch a global
war on poverty and underdevelopment exist in abundance and are within our reach, the NEPAD
Framework declared – a decade ago – that:
“Across the continent, Africans declare that we will no longer allow ourselves to be
conditioned by circumstance. We will determine our own destiny and call on the rest of
the world to complement our efforts. There are already signs of progress and hope.
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Democratic regimes that are committed to the protection of human rights, people- centred
development and market-oriented economies are on the increase. African peoples have
begun to demonstrate their refusal to accept poor economic and political leadership.
These developments are, however, uneven and inadequate and need to be further
expedited. Africa’s place in the global community is defined by the fact that the continent
is an indispensable resource base that has served all humanity for so many centuries.”
In exploring and elaborating these resources, the NEPAD Framework recognised the centrality
of the availability of infrastructure as a facilitator of growth and development, trade and regional
integration, job creation and skills development, industrialisation and the reversal of Africa’s
colonial relations with the world in terms of which our continent was and is the exporter of
primary commodities and importer of manufactured products.
The NEPAD Framework recognised most succinctly the patent constraints imposed on Africa’s
growth and development by the infrastructure capacity bequeathed our generations by the
colonial establishment which has only served to slow our economies down, leading to deindustrialisation, the decline of the manufacturing sectors as well as low levels of intra-African
trade, poor skills and high unemployment.
The NEPAD Framework, consequently, says that:

“Infrastructure is one of the major parameters of economic growth, and solutions should
be found to permit Africa to rise to the level of developed countries in terms of the
accumulation of material and human capital”;

“If Africa had the same basic infrastructure as developed countries, it would be in a more
favourable position to focus on production and on improving productivity for
international competition. The structural gap in infrastructure constitutes a very serious
handicap to economic growth and poverty reduction. Improved infrastructure, including
the cost and reliability of services, would benefit both Africa and the international
community, which would be able to obtain African goods and services more cheaply”;
and

“In many African countries, the colonial powers built the infrastructure to facilitate the
exportation of raw materials from Africa and the importation of industrial goods into
Africa.”
As we commence with this Conference, infrastructure development in Africa has gained a new
impetus and is entering a crucial period.
Following decades spent in the economic shadows, the continent is experiencing an economic
drive and, despite facing a number of daunting challenges, is making great strides in political and
socio-economic development.
Since 2000, economic growth in the region has accelerated, making her the world’s third fastest
growing region.
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During the period 2000 to 2010, Africa’s economic output tripled, increasing from US$587
billion to US$1.7 trillion.
Poverty rates have dropped over the last twenty years from 60% to 38%, whilst access to primary
education and health care has increased.
Africa currently boasts some of the world’s fastest growing population, expected to exceed 2.5
billion by 2050.
At the same time, the rapid levels of urbanisation are staggering, with half of Africa’s population
expected to live in urban areas by 2030, and this to grow beyond 60% by 2050.
This, at the same time as the continent is ideally placed to continue to experience tremendous
levels of economic growth over the next few years.
Africa as a whole is projected to grow at over 6% per annum over the next five years.
Sub-Sahara Africa is projected to grow at an average of 5.4% per annum over the next five years.
Was this to proceed uninterrupted, global humanity is expected to reach unprecedented levels of
development in all spheres by the mid-21st Century, unprecedented not merely because of its
volumes, but as a result of its equitable share.
Ultimately, Africa is to fulfil the dreams of its founders to add to the world, as Dr. Pixley kaIsaka
Seme stated it I 1906, a new civilisation!
However, and despite these impressive figures, Africa still has to contend with significantly
underdeveloped infrastructure.
There are two fundamental drivers relating to the African growth story: one relates to commodity
exports and the other relates to the growth of the African middle class as an important market for
locally based manufacturing and services enterprises.
Extractive resources remain the critical pillar of African economy while the retail sector,
agriculture, manufacturing and transport and telecommunications make up over 40% of the
economy.
It is estimated that the consumer-related sectors will be two-and-a-half times the size of the
resources sector by 2020.
Whilst this constitutes a positive economic projection, it is however not sustainable for African
growth because productive sectors – manufacturing – and infrastructure development should be
the drivers of growth and hence I would like to urge policy makers in the room to refocus
national economic planning and resource allocation towards these areas.
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Increase in intra-regional trade is dependent on the type of productive capacity we develop as
individual countries and how we diversify our economies to reduce our economic dependency on
extractive resources.
Furthermore, African countries must overcome the legacy of the centuries of divisions along
Anglo-phone, Luso-phone and Franco-phone lines and increasingly prefer – for political and
economic reasons - to trade and do business with one another!
Intra-African trade and investments must grow and we must begin to trust in our own capabilities
and by encouraging them and welcoming their investments, we help them to grow in order to
participate in the complex supply chains.
As well as implementing infrastructure roll-out, we need to focus on localisation and the
development local supplier sectors which will ensure that we develop industrial bases, create
jobs and develop the requisite skills.
Africans must be cautious of shifting from over-reliance on Western markets to over-reliance on
Eastern markets in terms of both trade and investments.
This moment, occasioned both by the global economic slowdown, especially in Western
economies, as well as the staggering growth in the African economy itself, must lead to the
diversification of our trade and investment partnerships, most particularly by dramatically
increasing intra-African trade and investments.
Ladies and Gentlemen;
Over the last 10 years, the global community saw a shift in geo-political and economic power
balance which resulted into new trade partnerships with Africa.
To date, China represents Africa’s leading trading partner making up more than a third of
Africa’s trade.
China has already surpassed the United States in the volume of trade.
The bulk of Africa’s emerging partners come from Asia and including Korea, India and Turkey.
Africa’s trade volumes with its emerging partners have doubled in nominal value over the decade
and now amount to 37% of Africa´s total trade.
We applaud this shift as it has become an economic game changer, increasing the political
bargaining power for Africa.
Chinese pragmatism has certainly enabled infrastructure and broader investment in a range of
African countries, in many cases the lack of institutional pre-conditions to such projects has
often resulted in negligible local skills, technology and business development.
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There are examples where armies of Chinese skills and workers have been shipped in to
construct the infrastructure.
Clearly there is a tension between contributing to an African development process and getting
the infrastructure built as rapidly as possible, particularly in countries that are unable to negotiate
national development requirements.
So we need to scrutinise the value of trade, how it is changing the character of our economies
and contributing to our socio-economic development challenges as the continent.
Africa must seek greater benefits from the BRICS forum and yet we must not sell our souls in
order to receive investments from anywhere in the world.
We must recognise the value of united action and focus and that Africa is strong when united and
we can bargain for more than we gain as individual small countries engaged in an ugly contest
for investments against one another.
Enhancing our bargaining power against powerful developed and developing economies as well
as increasing intra-African trade in the region is dependent on our productive capacity and
increased economic co-ordination.
African countries are working on the building of a Tripartite Free Trade Agreement between the
Southern African Development Community (SADC), the East African Community (EAC) and
the Common Market for Eastern and Southern Africa (COMESA) which will establish a larger
regional market that could be the basis for integration into the global economy for the benefit of
all parties to the agreement.
The economic potential of the T-FTA is considerable, as it combines a market of 26 countries
with a combined GDP of US$ 1 trillion and a population of approximately 600 million people.
This larger, integrated and growing regional market will increase the demand for public
infrastructure and should be extremely attractive to foreign investors.
In the same vein, we have also realised that we will not achieve regional integration simply by
removing trade tariffs, as non-trade barriers are even more restrictive to intraregional trade.
Investment in infrastructure will be a key driver in ensuring inter-connectivity between the
different regional economies.
For instance, the North-South Corridor will provide a blueprint for regional integration and
economic transformation, by creating links from the resource-rich hinterland to key ports,
connecting markets with a combined population in excess of 200 million people, developing
power capacity to establish manufacturing and agro-processing capabilities at key nodes of the
network.
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The North-South Corridor Programme includes US$800m upgrading of 600km of rail and a
US$20bn dig out port in Durban.
This is central to South African government Strategic Integrated Projects 17 (SIPs) whose
objective is to build a better connected Africa.
The gap between Africa’s economic needs and available funding continues to widen.
The World Bank has estimated that Africa requires around US$93 billion of infrastructure
investment a year to begin to address this backlog but public infrastructure funding is becoming
increasingly more difficult to acquire.
The aftershocks of the financial crisis are still being felt across the globe, with public budgets
becoming more and more strained.
Furthermore, the traditional channels of aid and investment are also facing increasing pressure as
a result of the European sovereign debt crisis and, consequently, Official Development
Assistance (ODA) is likely to fall in the near future.
The implementation of the Third Basel Accord has also had a detrimental effect on infrastructure
funding globally.
Introduced in 2010, the accord has made it significantly harder for banks to lend.
The stringent lending rules will increase the cost of capital and reduce access, particularly for
low income economies.
The investor community suggests a number of innovative ways and new products in African
project financing which could help attract the necessary funding to the region, as well as
highlighting other efforts currently underway to increase infrastructure delivery in the continent.
These new products will de-risk African infrastructure projects and play a crucial role in
attracting the international private sector investors needed to meet Africa’s infrastructure demand
and support economic growth across the continent.
Chief among those innovations is infrastructure bonds which can be raised from either domestic
or international currency markets, provided that adequate credit enhancements and project
structuring provide an investment grade rating.
These innovations, if properly and comprehensively implemented in African infrastructure
financing, would help bring more projects to bankability.
It is reported that the African Development Bank is also attempting to create a broad
infrastructure facility, which would serve as a financing mechanism and work in conjunction
with the above new measures, smoothing out any potential pitfalls or impediments in the finance
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value-chain while offering advisory services, development equity, and helping to scale up and
complement existing infrastructure financing.
The question that I wish to pose for this forum is what intellectual capital do we need to develop
in Africa to optimise the infrastructure development process!
Firstly, we need to learn to procure infrastructure based on a life-cycle cost perspective, rather
than just procuring a product.
This means that we need to ensure that the procurement includes operational training as well as
the establishment of relevant maintenance infrastructure as well as the localisation of
maintenance technologies and skills.
This is the bare minimum that is required to ensure that the operations of the infrastructure will
be sustainable.
Both Eskom and Transnet have developed tailor made courses in partnership with the Chartered
Institute of Procurement and Supply to entrench these skills throughout relevant people in their
respective organisations.
Secondly, we need to localise the ability to manage large complex infrastructure construction
projects and optimise the participation of local people in the build process.
The ability to manage mega-projects is an extremely strategic capability for a developmental
state and we cannot continue to be dependent on the multi-national Engineering, Procurement
and Construction Management Companies.
At minimum, we need to learn to become extremely intelligent customers that are able to guide
the building process so as to overcome the many challenges that are invariably emerging and
ensuring that what is built genuinely meets our requirements.
I continue to impress upon Eskom and Transnet to put a great deal of effort into building their
project management capability.
Thirdly, we need to learn how to leverage the procurement of infrastructure equipment to
promote investment in Africa in plant, technologies and skills related to the manufacture of this
equipment.
This requires a step-by-step process of understanding existing national manufacturing
capabilities and how these can be built upon, given the scale of a procurement and the
complexity of the equipment that is being procured.
In particular, it is important to ensure that the manufacture of fast moving parts is localised as the
on-going infrastructure operations will create a sustained national market for these capabilities.
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The Department hosted a Supplier Development Summit in March where Eskom and Transnet
provided details of their Competitive Supplier Development Plans to all interested stakeholders.
We will also be exploring how our State-Owned Companies (SOC) can collaborate with other
big customers for capital equipment (such as the mining industry) to create a large market as
possible for South African manufacturers.
Fourthly, international relations are based on power and interest. It would be fool-hardy and
naïve to suggest that China or any other Asian country has the intention of being Africa’s
saviour.
We now need to explore how we can develop new models of partnership between Africa, China
and other BRICS countries to ensure that our investment and trade relations have an optimal
developmental impact.
For example, I would like to explore how South Africa’s SOC can play a leading role in building
partnerships with key BRICS enterprises interested in building long-term trade and investment
relationship with African countries.
Can we can envision public – public partnerships between key South African and BRICS SOC to
optimise the process of transferring skills and technologies to African countries where
infrastructure projects are taking place.
We need to learn how to structure developmental partnerships between national organisations.
Furthermore, we need explore co-investment opportunities with International SOC and
specifically BRICS partners to leverage a wide range of financial resources.
South African mega projects may offer opportunities for foreign equity investments.
Competition in continent could also be positively embraced through co-investments rather than
fixed equity positions that may exclude SA participation
It is also important that we master the complexities and the investment promotion opportunities
associated with the way that we price infrastructure services.
The fundamental point is that there is no “true” infrastructure delivery price based on a straightforward set of operational and capital costs; rather, the price that is set for the delivery of
infrastructure services is ultimately a strategic national decision.
For example, the electricity “price” has to balance the need to financially sustain the
organisations generating, transmitting and distributing the electricity, with the needs to sustain
our existing economic base, our objective to build a more industrialised economy involving
higher levels of beneficiation, manufacture and employment creation and, finally, our national
objectives relating to the climate change challenge.
The same questions can be asked of our logistics system.
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To what extend should road transport be forced to pay the full cost of the negative externalities,
such as safety, congestion and road damage associated with moving freight.
To what extent should we be providing discounted rail and port services to high priority export
orientated manufacturing sectors, given the benefits that the economy receives through the
growth of these sectors?
In the USA and Europe there are a number of subsidies for ports and rail transport.
There is no single correct pricing for infrastructure services – we need to learn how to set tariffs
in a manner that enable sustainable investment in infrastructure and that limit negative
externalities whilst promoting investment in priority areas of the economy.
This requires an informed national debate and dialogue between all relevant stakeholders.
While we clearly need to optimise what can be learnt from knowledge institutions, I do not
believe there are any simple text-book solutions that will provide answers to a number of the
issues that I have raised above.
The development of the required knowledge will require a concerted learning-by-doing process
of discovering what works within Africa’s specific conditions.
We need to have the confidence to part with conventional wisdom and develop pragmatic
approaches that work for us.
This will require a continuous effort by African countries, and while we cannot be overly
impatient, we cannot be in any way complacent.
We need to have the vision, self-belief and the will to embark on this journey and stick to it.
I thank you.
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