The chairperson's perspective
The future of our vitally important industry depends entirely on the future of this country. We see South Africa, not as a "first world/third world" phenomenon, but as a single society, whose citizens are interdependent, and whose future depends on the efforts of all its peoples.
We are confident about South Africa's future. We have in reach, at this moment, vast opportunities. The country can benefit from them, only if the public sector and the private sector - Government and private enterprise - work together, in the interests of the nation as a whole.
Given the right climate in which to operate, the way ahead is an exciting one. There will be continued advances in technology, and there will be an ongoing need for new investment. This expansion must spur growth and confidence in other fields - provided the proper policy framework is put in place by Government soon.
The South African Petroleum Industry Association represents the biggest - by far - foreign investment in this country . . . its members' assets of about R17.6bn form the largest capital commitment in South Africa from the USA, from Britain, the Netherlands and France, and now from Malaysia. Yet, as our name states, we are South African.
Our refining capacity is a national asset and a key to economic growth. We boast the largest refining capacity on the African continent - remarkably so, because South Africa has not until recently produced crude oil. Yet Sapia members are able to save the country some two billion rands annually in foreign exchange by not importing refined product. They wish to expand yet further the current refining capacity, provided the financial returns can justify it.
Foreign exchange earnings are also generated through export of refined products not only to our neighbours in Southern Africa, but to other foreign markets such as South America and South East Asia.
The new Government's macro economic plans to use economic growth to correct the historical injustices of the past are appropriate. However economic growth depends heavily on stimulation of foreign investment. It is here that the liquid fuel industry should play one of its key roles. It can do so if Government resolves the pressing policy issues regarding energy supplies, and if it allows an equitable return on assets to generate further investment in the oil industry. This would act as a catalyst for further foreign investment. Moreover, by encouraging huge, long-term investment by oil companies representing South Africa's largest foreign investors, it would convey the correct signals of economic stability to other potential foreign investors.
Co-operation requires one vital element which has been missing for many years. The missing factor is trust. Trust between the private sector and Government. For decades our industry has been forced to operate in an atmosphere of hostility, of suspicion, regimentation and secrecy. In the past five years of reform, it was not possible to shed all of these. Until mid-1996, the same structures remained, bringing new suspicions from a transitional government operating an outmoded system.
This is one of the reasons why we welcome a new, democratic government. We welcome a new opportunity, and a new Minister and Deputy Minister of Minerals and Energy. Mr Penuell Mpapa Maduna's appointment to this crucial portfolio at last makes possible a thorough policy review. We trust it will be done in fairness and through a transparent process, and that the result will benefit everybody - the oil companies, liquid fuel consumers and the country.
Future goals can be clearly and transparently set. New policies, priorities and structures can be discussed. National assets can be properly focused. Energy policy can be firmly placed within the framework of the national goal of a better life for all.
Sapia stands ready to assist the process. It is eager to present industry views, statistical data, projections and international experience.
The country's budget as announced in Parliament by the Minister of Finance, Mr. Trevor Manuel was truly an historic occasion for the new South Africa. For the first time South Africa has a budget which reflects the needs and interest of all sectors of the country and more especially of the previously marginalised sections of the population. For the first time the country has a transparent budget where taxpayers are aware of how public funds are to be spent.
As was to be expected and within the framework of fiscal discipline the budget reflected the interests of the vast majority of the population previously marginalised by apartheid. Thus, the new budget reflects the current national priorities as it draws a careful equilibrium between GEAR and the RDP.
The start to the complete relaxation of foreign exchange controls is to be praised as a step in the right direction. Contrary to popular perception of a foreign exchange outflow from the country, industry believes that the relaxation on forex controls would generate foreign investment. The oil industry has consistently stated that it is confident about the economic future of this country. We believe that there is no place in our industry for fly-by-nights. We are here to stay in the long term to contribute positively to economic development.
Industry is pleased that taxes have not been increased as the country has in the past been criticised by multilateral financial agencies for high tax levels. Tax benefits announced would bring needed relief to low income earners. Indirect tax has also remained unchanged which should be of benefit to all sectors of society.
Revenue generated from the oil industry for this budget clearly indicates that the industry is an important source of revenue for the fiscus. While Sapia members share of GDP is about one percent, they collect nearly 20 percent of all South African indirect taxes. In the last five years they paid nearly R2.7 billion in income tax, and collected R54 billion in taxes and levies for the State. The oil industry will continue to be an important source of revenue for the fiscus in the future.
This budget needs to be implemented with a great degree of discipline and efficiency to be able to further reduce the budget deficit in the coming years. Even though the 1997 budget is a fine start, the Government still needs to provide industry with incentive to engage in capital investment which leads to employment opportunities.
The new budget needs to lead the country into balanced economic growth and partnership if our development goals are to be realised.
Our international experience teaches us several things. The first is that, in a disparate society such as ours, it is not enough to rely solely on economic growth to eliminate poverty.
Sapia members appreciate that policies operating in fully developed countries in Europe and America may not necessarily suit an emerging nation such as South Africa. We believe that the old slogans, about free enterprise and profit being the engine of growth, are not enough. What is required is an understanding on the part of the business community of the new government's top priority - to combat poverty. Economic growth is essential, but we also need to ensure that our business practices contribute to reducing poverty and the unequal opportunity gap. It requires, not charity from Government nor philanthropy from business, but common sense from both sectors.
It requires, from our side, a three-pronged attack.
The international oil companies operating in South Africa long ago pioneered most of these concepts - despite opposition from a hostile government.
The RDP concept, with its accent on community-based building and upliftment, echoes and endorses an approach taken by the oil companies for more than a generation.
Some individual members of Sapia have social investment programmes going back 40 years. Oil companies, as early as the 1960s, were among the first to encourage black entrepreneurship in the retail sector. They were also among the first signatories of the Sullivan Principles in the 1970s, and oil companies adopted affirmative action programmes long before they became fashionable, even when such measures were officially opposed.
. . . an understanding on the part of the business community of the new government's top priority - to combat poverty.
Black empowerment is a concept which Sapia members embraced a long time ago. To survive in the rough and tumble of the oil industry, however,black empowerment initiatives must be real, have strong economic viability and be backed by experience and skills.
Sapia is delighted, therefore, to have a black-owned oil company of this calibre among its members. It came about in July 1997, when Worldwide African Investment Holdings (Pty) Limited took control of Zenex Oil (Pty) Limited. This development was assisted by members within Sapia and welcomed by all of them. The acquisition is a major step forward in black empowerment
Sapia is also negotiating with a second black-owned group, Naledi Petroleum (Pty) Limited, and hopes that this company will become the seventh, and first new member ever, this year.
The Association is thus seeking to become representative of South African society as a whole, and to be a more effective body in its efforts to represent the common interests of the industry.
Sapia calls on other black controlled oil companies to consider becoming members of the Association. We are reviewing our constitution to make it easier for smaller companies to afford membership and we believe that there are real advantages to be gained from membership.
Because our philosophies and actions worked towards reconstruction and development long before the RDP was initiated, and because of our international experience and skills in this regard, we believe that Sapia and Government will find much mutual ground when working out a new system of partnership to benefit our society.
This year has to be marked by substantial delivery on the part of Government, business and labour. All sections of our society are demanding improvement and Government has recognised the year as "the year of delivery". Our industry has been waiting for three years for a policy framework to restructure the industry from the apartheid past into the post apartheid future. Currently industry is in limbo and uncertain about its future. This year the impasse must end, and the industry be allowed to plan with certainty its future development within the nation's socio-political structure.
Oil companies, whether Sapia members or potential new entrants, need long term certainty about the future as this ensures progression and development. If there is no certainty or long term predictability it is impossible to justify large capital investments - and in our industry any investment, by definition means long term investment. Attracting foreign investment into the country is the key to further economic development.
I do not want to leave the impression that Sapia members are not investing in South Africa. Appendix One shows investment during both 1995 and 1996 of R1,4 billion. It is future multi-billion Rand refining investments which are at stake due to the current uncertainty.
The White Paper should provide the necessary blueprint for policy in our industry. Industry has committed itself to the success of this process. If there is any failure regarding the framing of appropriate policy the consequences would affect the development of the industry and therefore the economic growth of the country. It would cause the country a nett loss in foreign exchange through imports.
Fuel and energy are the lifeblood of any economy. Their efficient use, their abundance and their quality help determine the wealth of a nation. It is in these areas that our industry can contribute significantly.
For instance, why not hold a comprehensive review of the patterns of fuel and energy consumption, and have a reappraisal of the policy on taxes on fuel? Should the current tax differentials between petrol and diesel be changed to meet more efficient standards? Perhaps a government-led macro-economic study should be done to decide on the ideal 'mix' of fuels, and on a tax system to encourage this. The oil industry stands ready to co-operate in any such study.
Currently there is a tax differential in favour of diesel. Yet the use of petrol-engines is growing at a faster rate. In the 1970s, the oil companies sold more diesel than petrol into the South African market. Two decades later, however, the latest Sapia figures show a complete reversal. In 1996 Sapia members sold 5 759 million litres of diesel and 10 566 million litres of petrol.
In contrast, the use of diesel-engines in Europe is growing rapidly.
I mention the study of the balance between diesel and petrol as just one example of an area in which private enterprise can use its knowledge and its skills for the general good. Much can be done if - as I said at the outset - there can be trust and co-operation between government and private enterprise.
The year 1997 may prove a decisive period for the Association, the oil companies, and the economy. After three years of processing its new policy proposals, involving a wide range of role players, the Government is about to release its proposals for the restructuring of the liquid fuels industry. Decisions at that point become critical, for they will affect public confidence, foreign investment, and the stability of several industries and the economy.
Sapia looks forward to working with government and other concerned parties in reaching consensus in order to ensure the success of a national policy. I believe that this consensus can easily be reached if energy policy is directed at economic development in the interests of the country as a whole.
The country's future is bright, but success should not be left to chance.