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Speech delivered by Mr. Malusi Gigaba MP, Minister of Public Enterprises, at the launch of DCD Ring-rollers Plant, in Vereeniging, on 08 November 2012

Media coverage of opening of new plantI wish to thank you most sincerely for the invitation extended to me to attend this joyous and auspicious occasion of the official launch of your plant and particularly to perform this important responsibility of guest speaker at this function.

The single biggest economic challenge our country faces is to diversify away from our reliance of resource extraction towards a value adding, job creating manufacturing orientated economy.

Both economic theory and history suggests that the expansion of manufacturing does not only improve the productivity of the economy as a whole, but it also has very positive welfare impacts as a result of the increased demand for skilled workers.

Industrialisation is the process of growing and deepening the extent of manufacturing capability and output in the national economy.

As reflected in the New Growth Path and our Industrial Policy Action Plan, the South African developmental state is committed to drive a sustained process of industrialisation.

We also have an immediate need to develop our capital goods manufacturing capabilities.

Since the launch of the investment programme of our State-Owned Company, there has been a direct correlation between the expansion of the programme and an increase in equipment imports and a deterioration of our current account.

Since the global financial crisis began in 2008, there is a growing consensus that sustained current account imbalances result in significant and prolonged economic downturns.

South Africa cannot afford such a downturn at this stage of our political transition.

The development of our capital goods manufacturing sector to reduce the imported content of our SOCS' investment programmes as well as increase our exports is an immediate strategic necessity.

The vision of the Department of Public Enterprises is to drive investment, productivity and transformation in our portfolio of State Owned Companies, their customers and their suppliers to unlock growth, drive industrialisation, create jobs and develop skills.

This vision recognises that the demand created by the SOCS in their investment programmes and through their operational spend plays a pivotal role in either promoting or inhibiting investment in their supply chains.

In this context, the supplier development programmes of the State-Owned Companies are not a nice to have, but are a core part of the SOC mandate.

The Competitive Supplier Development Programme was launched in 2008 with the objective of promoting investment in plant, skills and technologies and the development of internationally competitive capabilities in supplier sectors relevant to the SOCS so as to reduce input costs through increasing efficiencies, reduce our dependency on imports and the associated foreign exchange exposure and to develop niche export areas.

There is no text book methodology for leveraging procurement to develop suppliers.

Consequently, the competitive supplier development programme was based on empowering the SOCS to learn by doing.

After an initial period of experimentation, the last year has seen significant progress within Eskom and Transnet in embedding the competitive supplier development programme.

Thus far Eskom has leveraged commitments of over R1.2 billion in investment in manufacturing capacity by suppliers, R644 million of which has been invested.Procurement policies, processes and related systems have been revised to ensure that supplier development concerns are integrated into all significant procurements.

Transnet has entered into contracts valued at R14 billion containing supplier development commitments of R5.4 billion, R2.9 billion of which has been delivered to date.

Early in the new-year, the Department will be hosting a Supplier Development Summit where comprehensive details of Eskom and Transnet's procurement and supplier development plans for the next five years will be systematically shared with industry.

We will also be demonstrating how we are coordinating the programme with a range of government support initiatives involving the DTI, the Department of Science and Technology and the Industrial Development Corporation.

We now have the benefits of four years of learning, policy and process definition, skills development and change management relating to the supplier development programme.

Consequently as the Shareholder, we will no longer accept ad-hoc, short-term procurements to meet a "crisis" requirement within the SOCS.

cutting the opening ribbon

We will no longer accept a situation where supplier development concerns are added onto procurement as an after-thought.

We believe the programme has reached the stage where we can reasonably expect to see a qualitative difference in the way SOCS plan, structure and execute their important procurements and we are monitoring the situation extremely closely.

At this point, we are ready to move towards long-term strategic partnerships with key suppliers, who can become industrial champions focused on building world class capabilities.

Whilst I appreciate that this comes with risk, it is a global trend and has been a core instrument that has been, and continues to be used, by successful developmental states.

In a simple and straight-forward manner, we need to learn how to manage these risks, because it will be extremely difficult to achieve our objectives based on a business-as-usual approach.

As you are aware, Transnet has recently initiated a locomotive fleet-procurement of unprecedented scale in South Africa's history, amounting to approximately R35 billion for 1064 locomotives.

This procurement will lay a platform for a seven year strategic partnership between Transnet and key national and international suppliers in the locomotive cluster.

We are determined to use this process to develop a number of new capabilities in the locomotive supply chain so as to decrease imports, as well as promote a range of new exports.

A sustained relationship between the SOCS and their suppliers will not only lay the foundation for the development of productive capabilities, but it should also enable a comprehensive and sustained empowerment related transformation programme.

We are determined to leverage the fleet-procurement process to achieve our empowerment goals throughout the supply chain.

It is of strategic importance to us that we see a new class of hands-on black industrialists emerge out of the fleet-procurement process.

In addition, we want to enable the development of empowered small businesses and will look to our industrial champions to support this process.

Transnet has developed the instrument of "Further Recognition Criteria" to assess suppliers against both their existing empowerment profile and the commitments that they will make to further our empowerment agenda over the course of the procurement.

DCD is an iconic South African engineering company.

It has deep and unique heavy engineering skills and its high level of exports testify to the globally competitive nature of the company.

It is one of the few surviving heavy engineering firms that played a key role in the infrastructure development programme in the sixties and seventies.

DCD's historic accumulation of knowledge around how to manufacture heavy engineered products is of incalculable value to our build programme.

We welcome DCD's proactive investment in a range of capabilities in response to our infrastructure development programme, which investment in wind tower, blade and turbine manufacturing capability as well as this new facility to produce rail related components, not just for Transnet and PRASA, but also for the global market.

I would also like to acknowledge DCD's commitment to developing skills for the broader heavy engineering industry through the investment of R35 million into a Public Benefit Organisation that provided over 500 scholarships in 2011.

DCD's export of Vehicle Mounted Mine Detector systems to NATO demonstrates South Africa's ability, not just to manufacture to world class standards, but also to produce globally leading innovative designs.

Government recognises that we needs to forge partnerships with industry around the development of our intermediate and advanced capital goods manufacturing capabilities.

We need to understand what support industry needs from us to make a quantum jump in our ability to reduce imports and increase exports.

We need industry's input as to how effectively our existing programmes are working and how they may be improved.

We need to develop an ambitious joint vision for our capital goods sector based on our projected SOC spend.

I would invite DCD actively to participate in this process and share their knowledge and experience of over one hundred years of manufacturing capital goods in South Africa.

Once again, I would like to congratulate DCD on the opening of this new facility.

I am in no doubt that you will find that the risk you have taken in showing confidence in the coherent and sustained implementation of Transnet's investment plan will bear you rich dividends.

Thank you.

Posted in: DCD Rail
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