Mthembi-Mahanyele: Nafcoc Annual General Meeting

22 Sep 2002 

Address by Housing Minister Sankie Mthembi-Mahanyele at NAFCOC Annual General Meeting, Sun City, North West Province

Programme Director
President Mbeki
Cabinet members
Businessmen and women
Ladies and gentlemen

Firstly I would like to congratulate Mr Patrice Motsepe on his new role as President of NAFCOC and his new executive that includes two women in the senior positions. I have no doubt that he will live up to the challenge that comes with the position he occupies. I also welcome this opportunity to come and share the platform with you in this important occasion.

Black economic empowerment has yet to take off and is one of the most challenging issues of post-apartheid South Africa. Since we achieved our political freedom in 1994, with the countrys first democratic elections, economic participation, especially by the historically marginalised, is steadily gaining momentum. Many historically marginalised South Africans are beginning to enter certain areas of the economy, and the dominance of business by one sector of our society is still to be addressed. 

We therefore need this historically marginalised section of our population organised, focussed, committed and united on the objective of transforming and restructuring our economy. This can happen, and succeed only, and only if this disadvantaged sector co-ordinates and integrates its efforts. NAFCOC is still the main vehicle for black economic empowerment.

We are gathered here hardly two weeks after we have successfully hosted the World Summit on Sustainable Development held in Johannesburg. You will remember that in 1992, the UN identified business and industry as an important partner for growth and environmental promotion. 

The business sector has participated actively in UN deliberations on sustainable development through the International Chamber of Commerce (ICC). During the drafting of Agenda 21, the ICC called for the adoption of the market-oriented approach as the foundation for resource allocation and development. 

The market approach was adopted by the Business Council for Sustainable Development, an affiliate of the WSSD. The mandate of the Business Council for Sustainable Development is to: 

• Provide a business perspective on sustainable development 

• Encourage business to examine its own environmental performance 

• Develop sustainable goals and practices for businesses to pursue, and 

• Stimulate analysis and discussion on public policies that concern business 

Apart from the contribution that business is expected to make in the deliberations, it is important to note that the current political situation in our country has a positive impact on our potential business and the economy. The Summit boosted both the emerging and established businesses and will go a long way in stimulating our countrys economic growth. We are, as you will realise, part of the business world and international institutions that will at some stage require us to table our chart of achievements and progress in this area of activity and development. Some steps have already been taken in ensuring that those left out of the economic stream and marginalised through laws exclusively favouring one sector of the population are brought back on board. It is important for NAFCOC to engage with government in order to realise these opportunities.

The construction sector comprises a wide range of economic activities, which offer lucrative business opportunities for both the emerging and established sector. These activities range from individual house building and repair to major engineering works. That construction, as an activity, is usually divided roughly equally between housing, non-residential buildings and civil engineering projects, is something most of us have often overlooked. Whereas the tendency everywhere in the world has been the focus of attention on new construction, the renovation and maintenance of existing structures has proved to account for equal construction opportunities as the erection of new structures. NAFCOC has a big role to play in housing construction.

Our Urban Renewal Programme introduced in the last term of office provides innovative and creative individuals and companies an opportunity to take over old dilapidated buildings and transform them into habitable quarters suitable for residential settlements. A number of flats have emerged out of this process and the inner-city of Johannesburg now accommodates families that would otherwise have had no shelter at all. And this at affordable rental rates meant for those who earn below R3 500. The rentals are low in these areas because government has subsidised the projects through the social housing subsidy. We need NAFCOC to enter this market by increasing interaction with us. 

Someone is making business in the inner-city and we call this creativity of the social housing institution. The old Newtown area is now host to a number of families from around the area including people who lived in hostels and had no alternative form of accommodation except the barrack shelter created to house the imported labour from the rural areas and the neighbouring areas.

Social housing agents are able to access the institutional subsidy from government, add capital and produce high quality homes for the needy. The National Urban Reconstruction and Housing Agency (NURCHA) has been the nurturing nest for emerging contractors and developers who have been assisted to draw up business plans and access credit from the banks with the support of guarantees from NURCHA. 

Currently topping the list of governments development priorities is the provision for infrastructure in underdeveloped areas, designed to bring relief to people living in these areas in the form of jobs, linkages to markets and assets that promote economic development in an integrated and coherent fashion. We have introduced the Integrated Sustainable Rural Development Strategy and the Urban Renewal Programme as frameworks for driving our infrastructural and economic revival in our country. Expanding the business opportunities and the potential for increased investment for small, medium and emerging contractors and individuals are but some of the benefits that begin to flow from this expanded and motivated industry. 

The government has already investment no less than R19, 9 billion into the low-income housing market since the inception of democracy in this country. The bulk of this money has benefited the emerging sector. Since the inception of the governments low-cost housing delivery programme, we have always worked and supported enterprises owned by the historically disadvantaged people. 

Our conviction was and remains the fact that these communities have a wide -range of skilled people who have always played second fiddle to the established contractors. I can proudly say that 84% of the 1,4 million houses that the government has produced since 1994 has been built by the emerging sector. Joint ventures between emerging and established contractors have delivered 15% of the total output of the low-income housing.

According to the National Home Builders Registration Council (NHBRC), the number of contractors currently registered with the Council stands at 5670. However, it has been proved by the NHBRC that a number of developers do not renew their membership annually as required, but continue to work in other areas of construction (other than home building) and as sub-contractors and suppliers. Our general statistics in the overall housing industry shows that the number of contractors is far more than the registered members, with that of the emerging sector alone being estimated at 22 000. 

Most of these contractors and developers have been successful within and outside the governments housing programme. For example, at least 102 emerging contractors on NURCHAs programme alone have successfully handled projects of different size and magnitude to the value of approximately R80 million. NURCHAs mandate is to unlock housing finance and arranging the guarantees for home loans in the low-income housing market. 

This kind of support has helped quite a number of contractors who have remained in the construction industry and successfully completed projects involving huge amounts of money. These include Ahanang Hardware and Construction that has successfully completed two projects with a total value of R10, 4 million and Khentha Construction whose first project was valued at R4, 8 million.

Khentha Construction is also currently involved in three projects worth R14, 2 million while a women-only company, Simunye Women Consortium, is currently engaged in a building contract with a value of R10, 5 Million. One of the individual female contractors also assisted through NURCHA is the award winner, Irene Mahlangu from Mpumalanga who, without formal training, has already handled building projects worth R40 million. These are but few examples that prove beyond doubt that economic empowerment to the historically marginalised is working where there is direct technical and management support, including the individual commitment to work and compete in the industry historically dominated by just a few conventional agencies.

We were also responsive to the call for assistance in ensuring that the banks provide capital for subsidy-linked low-income housing by creating the National Housing Finance Corporation to operate as a finance on-lender. This finance wholesaler has so far made R1, 5bn available to intermediary finance institutions in the housing field, thus enabling an improvement in the quality of lives of over 2 million people. 

The NHFC should be seen as an instrument and tool that is functioning to bridge the gap created by lack of finance for those who are referred to as low-income earners but are also unbankable and high risk. Our intention right now is to sharpen our approach to this market and build in mechanisms that will gradually offer facilities that earnestly address the needs of the lowest earners in this market. 

Construction currently contributes about 35% to gross domestic fixed investment (GDFI) and projections made four years ago indicated that its contribution to GDFI could double within ten years. Interesting enough is the fact that a large and growing percentage of infrastructure development is taking place within disadvantaged communities. Thus, the construction industry offers significant business opportunities to those are ready to explore this aspect of development. Throughout the world one finds that SMMEs are playing a crucial role in absorbing labour, penetrating new markets and generally expanding economies in creative and innovative ways. Mr President, it is really crucial that NAFCOC establish a unit dedicated to the development of construction SMMEs. 

The building industry is, therefore, largely driven by private sector investment, economic growth and investor confidence. Experts project the real growth rate in residential investment alone to be in the region of 3.8% this year - an indication that this sector continues to offer business opportunities for further growth.

In addition, the construction sector continues to contribute about 4.6% of employment towards overall employment in South Africa. According to Stats SA, there has been more than 0.5% increase in employment in this sector in the first half of this year. This figure excludes growth in the parallel segments of the industry such as the plant and equipment and material supplies, which are expected to rise even further. The Bureau for Economic Research (BER) Building Cost Index shows that building costs have already increased by 9,3% during the first quarter of 2002, a factor which impacts negatively to the low-cost housing sector especially to the emerging supplier. 

Improved construction technologies are a driving force towards achieving high performance and greater competitiveness in the building and construction industry. As part of our efforts to be among the best in construction, South Africa has embarked on an initiative to identify and implement global best practices and the transfer of best practices to the South African construction industry. This provides exposure to new technology and methods of construction current enough to improve on our approach to building and quality enhancement, including accelerated production.

Capacity building for young construction practitioners is an area that continues to need our attention. The Department spends R10 million each year training officials from local and provincial governments as well as emerging entrepreneurs and members of the public. The skills currently receiving emphasis range from project management and general administration to business establishment and coordination. Quite a number of local higher education institutions are partnering us in this regard, including some external training institutions specialising in areas such as finance. 

Building and construction institutions should begin to focus more attention on the training of efficient professionals. They have to deal with the problems of the disparity between university training, changing professional practices regarding the production and management of the housing problems that we currently have. It has been proven beyond doubt that working together as various segments of the industry and components in society is sure to help us alleviate the problems we have in our midst. 

Our main challenge remains that of assisting the emerging sector to develop further as an effort of dismantling past disparities in the construction sector. The government is making strides towards the development of women and youth and it has been proven that the partnerships that we are forging with the private sector can enhance the abilities of the sector in terms of helping the historically disadvantaged groups. 

The economy of our country needs to grow at a rate that is able to address the past structural economic imbalances and socio-economic challenges. The building of partnerships with private sector partners has proved to be one of the effective strategies of tackling these imbalances and reducing the levels of poverty. The governments close cooperation with a number of companies has effectively yielded direct job opportunities and stimulated growth in housing related industries providing goods and services to housing. At the same time we hope to put the economy on a growth path that is providing sustained improvements in the lives of the majority of South Africans.

Government is inviting the private sector to invest in infrastructure programmes targeted to poor communities benefiting from housing and Public Works Programmes supporting government in its effort to create sustainable communities. 

Opportunities in the housing and construction sector continue to grow. The government is currently intensifying the implementation of the rental-housing programme. The NHFC is also managing the Presidential Pilot Project on Rental Housing, the brain child of the 1998 Job Summit where it was agreed that a minimum of 50 000 and a maximum of 150 000 housing units should be piloted on a joint basis involving the participation and investment by Government, the private sector, the Trade Union and community civic formations. 75% of those units have been earmarked for rental while the remaining 25% will be for direct ownership. Again, I invite NAFCOC to strengthen its participation in this industry that you saw as a major opportunity for black business in the 70s. 

The projects are implemented in three phases, ensuring the delivery of 50 000 units. The first phase, comprising 15 units, was awarded to Gauteng, Mpumalanga and KwaZulu-Natal, each of which will deliver 5000 units. The programme seeks to establish partnerships between all stakeholders interested in construction of our human settlements on a sustainable basis. It is clear that for this venture to succeed, we need active involvement of the private sector. The government has committed no less than R150 million for the job summit projects on rental housing. 

But you will be happy to learn that the Job Summit projects will basically be a continuation of what government has already piloted through the production of more than 35 000 high quality homes across the country. Walk-up flats, medium density structures, single standing homes and the current innovative construction are proceeding in turning the old buildings into flats and family units. This is business as our cities are gradually becoming cosmopolitan, cultural centres introducing a vibrancy that will hopefully extract the potentials, the energy and humanity that lies latent in the veins of the people. 

We are free at last, even to be involved in business and generate profit albeit in a humane way that will contribute to transformation and change our society. 

I thank you!

Issued by Ministry of Housing