I am delighted that you have chosen Johannesburg, eGoli, our "city of gold", as the venue of your first meeting for African financial professionals, and I am particularly pleased that you have chosen a topic and a conference programme that is so apposite for our times.
Africa faces huge challenges.
If we are to meet these challenges - in promoting peace and security, in building democratic institutions, expanding trade and industrial investment, building modern transport and communications networks, deepening our financial systems - we need to learn from international experience, we need to understand international standards, we need to adapt these to our context, we need to have realistic and wellsequenced programmes for implementing change and managing accompanying risks.
Your conference programme focuses on one set of challenges for our continent - how to address the capital adequacy and related standards of Basel II, how to implement critical risk management issues and how to develop appropriate regulatory capacity. This is a profoundly important agenda, one which has exercised some of the finest minds in our finance ministries and central banks for several years, and which we know calls for a step-by-step programme of reform over many years to come. It is reassuring, but also a little alarming, to know that there are still gaps in this fabric even in the leading centres of global finance.
In welcoming you to South Africa, I'd like to share a few thoughts on the wider economic growth and development challenge before us, and before the African continent, and perhaps suggest some dilemmas for managing financial sector reform in our context. You will appreciate that we are interested in the health of our banks, not just out of sympathy for the wellbeing of financial institutions themselves, or even their shareholders, important as these interests might be, but because healthy banks have a part to play in the robustness of the broader economic and development outlook.
South Africa has earned a reputation for sound monetary and fiscal management and a progressive opening up of its financial markets, within a prudent regulatory regime.
A decade ago, it was clear what had to be done macroeconomically.
For the decade ahead, these foundations will remain in place - an open economy, competitive markets, a sustainable deficit, a broadbased tax structure, spending plans informed by transparent social and economic policies. But nobody actually lives in the mythical "fundamentals" of financial analysts and commentators. The habitable structure is what counts, even if the foundations need reinforcement from time to time. The construction project now under way involves design and engineering challenges of considerable complexity, addressing microeconomic reform challenges, enhancing the institutions and culture of government activities, addressing qualitative as much as quantitative dimensions, and yielding returns progressively over many years to come.
Let me give four examples.
First, there is the challenge of reconstructing the urban landscape. As many of you will know, there is a long history of geographic fragmentation and spatial irrationality to overcome in the South African physical landscape. The dynamics of urban conglomeration, how cities evolve over time, are hugely important for both the efficiency and competitiveness of economies and the quality and character of ordinary people's lives.
We have to build transport networks that are safe and convenient and efficient.
Over the past decade we have steadily stepped up the flow of resources to support municipal infrastructure investment and services. Progress in building houses, connecting water pipes, installing electricity and improving roads and sewerage systems has broadly kept ahead of a comparatively rapid growth in household formation, but there is still a long way to go. In South Africa - and elsewhere in Africa - it is imperative that the structure of both public and private investment in the infrastructure of our cities should deepen considerably over the years ahead.
We are steadily addressing a portfolio of some 75 000 land restitution claims, and the 2005 Budget provides for a significant rise in allocations for this programme over the next three years. A new grant to provinces has been introduced to strengthen agricultural support to emerging farmers, so that as the longer term land reform programme gathers momentum it will be complemented by appropriate interventions to maintain farm output and improve productivity. The Land Bank is increasingly active in extending credit to black farmers and supporting a more diverse client base.
What are the financial implications Land redistribution will continue to be a significant budget commitment for many years, but as we move beyond the restitution phase the fiscal contribution will increasingly need to be complemented by self-financing arrangements, while remaining within realistic limits in the inherently risk-prone agricultural debt environment.
Thirdly, a few remarks on financing infrastructure investment and restructuring of state-owned enterprises.
Our expectation is that general government fixed capital formation will grow by about 7 per cent a year in real terms over the next three years, while investment by public corporations, which has expanded by over 10 per cent a year since 2002, will continue to increase strongly. Having spent about R38 billion on freight rail infrastructure, rolling stock and ports over the past decade, Transnet expects to invest more than R40 billion over the next five years. Eskom has begun its recommissioning of mothballed coal-fired power plants, and will continue its expansion and strengthening of transmission networks. Drawing in part on experience gained in financing and managing the international partnership through which the Lesotho Highlands Water Project was completed, several important investments in water resource infrastructure over the next few years will be undertaken as ring-fenced self-financing projects. The first of these, involving a new dam on the Berg River, will bring a muchneeded supplement to the Western Cape water supply system. Design work is near completion for major water projects in the Mpumalanga and Limpopo provinces.
For the next three years, we anticipate a widening of public sector borrowing from under 1 per cent of GDP in 2002 to about 4 per cent over the next three years, and interest on public debt will stabilize at about 4,5 per cent of GDP.
For the public finances, over the next decade, a substantial expansion in capital formation is a requirement for more rapid growth and development, and will in turn require innovative and wellconsidered financing strategies.
Fourthly, we need to reflect on the challenge of deepening social security and income protection.
Reform of the retirement funding environment, improved compensation for work-related injuries or death, reform of the structure of compensation for victims of road accidents, financing unemployment benefits and further evolution of the health insurance environment are separate, but related, elements of our social security reform challenge. Getting these reforms right, and implementing reform initiatives in the right order and within an appropriate and affordable financing framework, are formidable tasks.
The initiative taken by our major banks, in keeping with a core Financial Sector Charter commitment, to make banking affordable and accessible to all South Africans, has quite rightly been prioritized as one of the first steps on the road to broadening and deepening income security to all. By extending basic banking facilities to all, opportunities are broadened and costs are reduced for so many other kinds of income support and social assurance arrangements.
Social progress has to be measured decade by decade, generation by generation. And it is because of its contribution to progress over this time line that we chose, a decade ago, to put our fiscal policy stance and budget framework on a sound and sustainable platform.
For the decade ahead, accelerating the pace of growth of the economy, and in particular the rate of investment in productive capacity, and promoting opportunities for participation of marginalized communities in economic activity, and improving the quality of livelihoods of the poor, are amongst the central challenges against which we will measure progress and the quality of public policy.
The dilemma I would like to leave with you is simply this. The kind of partnership that I have sketched, relies in part on tough, detailed, contractual commitments - the kind of business in which bankers are on comfortable turf. But it also rests on a underlying relations of trust, a shared vision, a common platform of hope. This is not easily quantified and measured, it is not easily itemized on the agenda of a risk management committee.
In framing our capital adequacy requirements, and in building robust risk management institutions and regulatory procedures, there needs to be room also for our shared vision, our common purpose, and a platform of hope on which we agree to work together despite the uncertainties before us.