Representatives of Sasol, Phalaborwa Mining Company, Spoornet, the IDC, Standard Bank, Denel, Tower Technologies, entrepreneurs and potential new business partners, distinguished guest, ladies and gentlemen, your participation today is greatly appreciated.
At the opening session of this first Technology Investment Opportunities Meeting convened by the Department of Science and Technology (DST), you learnt that our objective is to facilitate the establishment of a growing number of black-owned businesses. If the objective ended there it would not be the core business of the DST and, therefore, I must emphasise that the new businesses we envisage would have a strong base of engineering and technology processes as their core operations.
There are many strong arguments you are probably aware of on the importance of growing our industry base in 'value-added' products. Sometimes they are referred to as 'knowledge products' because of all the engineering expertise that goes into converting the raw materials into products that have immediate utility value for consumers. The drive to beneficiate the natural resources we so readily export, only to import them back in a finished form, is also reflected in the strategy to grow what we describe as the 'first economy'. But, alongside these growth strategies is also the strategic imperative to dramatically raise the shareholding of black entrepreneurs in the economic base of our country.
The critical considerations for us in responding to these challenges are the questions of opportunity, capability and entry challenges.
The reality is that not only do we not expect to meet our objectives overnight, but we also do not anticipate making a dramatic impact even in the medium term, on the less than one percent statistics of black ownership of the country's industrial base. In spite of this negative prognosis, there are very strong indications that a breakthrough is imminent.
On the question of locating the opportunity spaces for creating new black-owned technology companies, we first need to examine whether the economy is growing sufficiently to create space for new entrepreneurs and to what extent we have perhaps exhausted our stocks of natural resources. For these answers we can look at the way in which government is doing business and even at examples of how some private companies and state-owned enterprises are supporting empowerment.
Government's economic projections presented by National Treasury set just under 3 % growth in GDP for this year and levels of just over 4 % by 2007. Much of this is premised on expectations of higher levels of investment in the domestic economy. There is also commitment of higher government consumption (particularly related to public infrastructure investment) that reflects an expansionary fiscal stance.
Just the budget for public service infrastructure such as hospitals, prisons and transport developments that will draw on civil, construction and materials engineering capabilities runs into billions over the next five years. In addition, infrastructure investment in the parastatal sector is set for R165 billion over the next five years.
In line with this, there are departments that have designed 'black-empowerment' procurement systems to ensure that government's buying power brings black contractors into the economy. There are also other types of opportunities outside of government in the parastatal sector.
Modern economies with high levels of electronically controlled production processes and service delivery platforms in banking and other service areas are particularly vulnerable to energy costs. We are aware that this country has enjoyed a very long term of low-energy-costs in its industrial and service operations. However, South Africa has already been confronted, earlier than expected, with a shortage of power-generating capacity.
Eskom has reported that the latest version of their integrated electricity plans calls for an additional 1 000 MW of capacity to be added every year for the next decade. Just the strategic action of bringing back on line three previously mothballed stations holds a R 12 billion budget. This budget amounts to a third of the cost of a new station. This will only give Eskom an additional 3 800 MW. This picture clearly demonstrates that South Africa has a need for a number of new power stations. On this programme, indications are that Eskom will be spending about R 50 billion over the next ten years. Significantly, this opens the way for the entry into the economy of the Independent Power Producers.
In relation to the issue of our stocks of natural resources and business opportunities, we know that the growth strategies of Mpumalanga, Limpopo, North West, Kwa-Zulu Natal, Northern Cape and Eastern Cape focus over the next five years, on expansion in mining and beneficiation of metals and minerals. Key growth points geared for high growth in beneficiation and components manufacturing are the industrial development zones such as Coega and Richards Bay and the major manufacturing hub in Rosslyn.
Another question we have to respond to hinges on our capabilities. Here we need to first consider whether there is a culture of technological innovation in this country. This is important because we are looking at businesses that make things and have to compete here at home and abroad with companies that are perhaps better at these processes. We are also not looking at starting new businesses in a vacuum. And therefore, new entrants face an existing, empowered force of competition. Secondly we have to look at the challenges that are peculiar to black entrepreneurs in taking up business opportunities based on science and engineering processes.
I can outrightly say that our existing companies, predominantly white owned, can compete with the best in the world. At the beginning of this month, I presented the 2004 Technology Top 100 award for 'Outstanding Technological Innovation' to a company that has developed a sophisticated heavy-duty pneumatic rock drill. This is Sulzer Pumps and its hydro-mining division.
They have developed a world first technological capability to drill with water rather than oil as the lubricant. Of special significance is that this achievement addresses a number of health and environmental issues in the mining industry. This innovation has the potential to revolutionise the entire drilling industry, from mining to construction.
Also recognised in this year's Technology Top 100 as the 'Most Outstanding Large Enterprise', was Sasol. The unique technologies that enable Sasol to exploit the low-cost feed stocks of coal and gas to create high-value fuels and chemicals, have been achieved over a number of years through dedicated commitment to research and development and truly impressive strategic vision and leadership.
What is readily evident is that we have world-class role models in this country. Of course this can be seriously intimidating to new entrants, as heavy investments need to be made in R&D, and research investment outcomes are always uncertain. This carries a high degree of risk to the investment financing companies and if you are a relatively new industry entrant, as almost all South African black entrepreneurs are, the risk rating goes up sharply.
This means our ability to deliver on meaningful black economic empowerment in the real engine-room of the economy is extremely difficult. Besides the risk involved in manufacturing operations, there is also the problem this country faces of other, seemingly quicker, roads to riches.
Due to empowerment-related pressures on industry, many new black graduates are attracted by the service industries such as banks, accounting firms and large consulting enterprises, with high salary packages and benefits programmes. The option of getting a high salary job may often be more appealing than suffering the normal woes of entrepreneurship. But it can be done and it is actually working in some industrial settings.
The DST has for some years been directing support to small and medium enterprises through the Tshumisano Trust. Through this support programme, we have placed Technology Stations at nine Universities of Technology or Technikons, as they were previously called.
About a year ago, one of the stations based at Port Elizabeth provided assistance to a small company, XMECO, to develop a new generation welding gun to meet the new EU standards. XMECO was already active on the international market, but faced the competitive challenges that many of our South African companies are not yet ready to come to grips with.
If they did not improve their welding gun to meet the new EU technical standards, they would have lost their competitive space altogether and would have slipped out of the market soon thereafter.
For a time one can rely on forcing incremental 'efficiency gains' to reduce costs in order to compete on the market. But when global industry begins to drive a higher performance standard or technical safety specification, you have to invest in product development or step out of the market. Tshumisano, assisted XMECO on the development of the welding gun, and the result is a 'world first'. The welding gun now not only meets the new EU specifications, but is 2 kg lighter. BMW Germany has rated the gun as the 'lightest in its class'. Another achievement is that the assembly time for this product has been reduced from 5 to 2, 5 hours.
The exacting engineering and other technical standards are changing at a pace that is quite intimidating. Advanced materials that are lighter, and better able to withstand temperature extremes and higher stress levels, are being introduced as the fruits of the R&D efforts.
Many companies are waking up to the fact that their technological capabilities will not carry them for long. They have to constantly upgrade their production capabilities for enhanced product features, faster and more efficient production times.
Safety and environmentally friendly manufacturing process requirements are becoming increasingly tougher, and this brings with it higher demands and a measure of risk that can overwhelm new entrants to an industry.
I would like the black entrepreneurs and potential entrepreneurs to note that the DST has a number of interventions that can readily perform the much needed 'hand holding' that is needed by newly created black-owned businesses. We would like to encourage the black entrepreneurs to grab the opportunities that are now available.
We hope that you will be able to benefit from the information provided on a number of these opportunities. You do not have to go it alone. Here with us today are a number of investment organisations and technology development support agencies waiting to form strategic partnerships with you.
Next time we address you, we hope that that would be a session where we would be celebrating the successes of the businesses that had been created as a result of this forum.
I thank you.
