Wednesday, October 27, 2010

Medium Term Budget Policy Statement 2010 Speech Pravin Gordhan Minister of Finance 27 October 2010

Medium Term Budget Policy Statement
2010
Speech
Pravin Gordhan
Minister of Finance
South Africa
27 October 2010

http://www.timeslive.co.za/multimedia/archive/01214/GordhanSpeech_1214848a.pdf

Honourable Speaker

Former President Mandela once said: “After climbing a great hill, one only
finds that there are many more hills to climb!”

As a youthful nation, we have had our fair share of hills to climb. Our
successful hosting of the World Cup earlier this year is surely proof that no hill
is too steep. As we move out of the depth of the greatest recession since the
1930s, we find yet another hill facing us – the highest, perhaps, we have yet
had to climb. This is the creation of jobs and the reduction of poverty.
Honourable Members, today is the birthday anniversary of Oliver Tambo, who
dedicated his life to these goals.

In taking this struggle forward, Cabinet has this week released details of a
new growth path that sets out a vision and outlines key areas where jobs can
be created. This is an agenda for collective action by the state, business,
organised labour and civil society – in fact all South Africans have an interest
in energising and activating the growth path.

Members of the House will know that the details of the new growth path have
been under intensive discussion since this time last year. A more inclusive
approach to development and creating jobs has been at the forefront of the
work of Parliament and many of its committees this year, and it was the
central theme of NEDLAC’s Annual Summit last month. Our central goal is
unequivocal: we have to accelerate growth in the South African economy, and
we have to do so in ways that rapidly reduce poverty, unemployment and
inequality.

In February this year, we spoke of our shared humanity, our generosity, our
resilience and our capacity to deal honestly with each other. We said these
attributes were our most precious national asset, an asset that gives us
formidable capacity to fight adversity, to find common ground and to move
forward.

Now is the time to demonstrate it. The challenges before us demand it. We
have done well, but it is not good enough. We know our challenges. It is time
to be impatient with ourselves. The time for talking about our challenges is
over. The challenges that we know so well – poverty, unemployment,
deteriorating infrastructure, delays in services – demand our urgent
responses. Our communities have been very patient. They want this economy
to create jobs; they want faster and better delivery of public services. South
Africans, all South Africans, those who are poor and those who are privileged,
want economic growth. But not just any growth.

We want economic growth that creates opportunities for meaningful participation, not only for ourselves, but for our neighbours, not only for ourselves, but for our sons and daughters.

It is my privilege to introduce the Medium Term Budget Policy Statement on
behalf of the President and the Cabinet, Honourable Speaker, and to
encourage the House and its committees to engage fully with its proposals as
part of the more wide-ranging discussion of the central economic, social,
financial and developmental challenges of our time.

I need to stress, Honourable Members, that the design of a growth strategy is
the first step. Our next challenge is its implementation – aligning our policy
and programmes, managing infrastructure project contracts, supporting
accelerated business investment; actually delivering on the outputs and
activities that are now documented in outcome statements, delivery
agreements and strategic plans for every government department, every
public entity, every state-owned enterprise, every municipality.

All of us, every minister is committed to this.

And we know that we can deliver on a plan, on time and on budget. We know
that we can mobilise all South Africans behind a major project. In the midst of
a global recession, we brought a special brand of South African magic to the
television screens of the whole world. Billions of people around the world
watched South Africa perform at its best, and we hosted 350 000 enthusiastic
visitors. And so we know what it feels like to work together as a nation, to
share a collective pride in saying “Ke Nako! It’s Our Time! We Can Do It!”
Of course, we also know that economic development is not an event, it is a
process which requires sustained effort and continuous engagement,
unfolding over many years.

2010 Medium Term Budget Policy Statement – key themes

Honourable Speaker, the 2010 Medium Term Budget Policy Statement begins
with a reminder that development is not about numbers, it is about people and
improving the quality of their lives.

Our third progress report on the Millennium Development Goals has recently
been published, as a collaborative effort between Statistics South Africa and a
range of civil society organisations. It is a timely reminder that while we can
report steady progress on several fronts, we are lagging well behind the
targets in others. We are likely to achieve the 2015 MDG targets for reducing
extreme poverty, for access to water and sanitation and in providing school
opportunities and achieving gender equity in education. But on critical health
indicators, such as maternal and child mortality, and HIV and TB prevalence,
we are not on track to achieve the targets. The quality of many of our schools
falls short of acceptable standards. On the broader economic indicators, we
still have a very unequal distribution of income, and too few South Africans
have jobs.

So we have to place health care and the creation of national health insurance,
education, employment and the requirements of the growth path at the centre
of our policy framework for the period ahead. This is in part about expenditure
allocations, and it is also about how we manage public service delivery. It is
about taking forward the work of Minister Chabane’s performance monitoring
and evaluation department, and various interdepartmental teams who have
developed the specific outputs and targets that are now embedded in twelve
sets of delivery agreements covering national, provincial and local
government responsibilities.

These commitments and priorities have already influenced departmental
planning and budgeting. Examples of existing spending programmes that
relate to each outcome area are provided in the MTBPS, and will be
elaborated in more detail in February next year. We are making our policy
priorities and service delivery goals more measurable and more exact. We
are strengthening our capacity to root out corruption and waste. We are
making it possible for members of this House and ordinary citizens to see the
links between the activities and projects of government departments and
service delivery in our communities.

Our budget policy framework is also informed by the requirements of a new
growth path, in which six key sectors and activities have been identified for
unlocking employment potential:

 Infrastructure, through the expansion of transport, energy, water,
communications and housing
 Agriculture and the agro-processing sector
 Mining and mineral beneficiation
 The green economy and associated manufacturing and services
 Manufacturing sectors identified in the industrial policy action plan, and
 Tourism and selected services sectors.
Government’s new growth path provides the basis for coordinated policies
and programmes across the state, and reinvigorated dialogue and
cooperation among social partners.

This is what accountability means. Honourable Speaker, South Africa was
recently ranked first amongst 94 countries in the International Budget
Partnership’s Open Budget Survey, which assesses the degree to which
governments provide sufficient budget documentation to allow for public
participation, understanding and oversight in national budget decision-making.
The challenge before this House, and indeed all South Africans, is to
strengthen our capacity to use this information to improve oversight, to
improve accountability, to improve service delivery and thus to improve the
pace and quality of our social and economic progress.

From recession to rebalancing – uncertain global prospects
Before returning to these development challenges, Honourable Speaker, allow
me to comment briefly on developments in the global economy.

International trade and output have started to grow again after the severe
recession brought on by the financial sector crisis in developed countries.
Fiscal and monetary policies remain broadly expansionary, but growth
remains fragile, especially in major developed economies where employment
has yet to recover and debt levels continue to rise. After declining by
0.6 per cent in 2009, the world economy is expected to grow by 4.8 per cent
this year, which is considerably stronger than was expected at the beginning
of the year. China remains the primary engine of world growth as its economy
continues to be driven by rapid industrial expansion, urbanisation, and
modernisation. India and Germany are also contributing significantly to global
growth.

There are signs that this recovery has slowed since mid-year. In the US, the
Federal Reserve Bank has indicated that additional stimulus measures may
be needed to prevent deflation. China has taken steps to tighten policy to
prevent its economy from overheating. Last weekend’s meeting in South
Korea of G20 finance ministers and central bankers drew attention to the risk
of increased protectionism and disjointed actions by countries seeking to gain
trading advantages by weakening their currencies.

At the same time,countries with high fiscal deficits are obliged to reduce their deficits and stabilise debt levels through fiscal consolidation plans, phased in over time frames that are specific to the conditions of each country. The G20 proposes
stronger multilateral cooperation, focused on structural reforms to sustain
global demand, foster job creation and increase growth potential, while
completing financial repair and regulatory reforms without delay.

It is uncertain how these international cooperation efforts will work out, and so
many countries share the same policy challenge – finding the right balance
between measures taken jointly with other nations, and steps aimed at
protecting national interests.

It is clear that the rebalancing of global trade, consumption and investment
patterns, increases in spending in surplus countries and decreases in deficit
economies, in ways that are consistent with current account and fiscal
sustainability norms, will take many years, and indeed rapid rebalancing
would be highly disruptive.

To understand the complexity of this restructuring, Honourable Members, we
need to appreciate that the decreases or increases in consumption or
investment that may be required in specific countries, have implications for
production in other countries, which will in turn impact on investment
elsewhere, leading to further shifts in trade patterns. These inter-connected
changes in economic activity bring real opportunities for growth and a
redistribution of global income and welfare, but they are not correlated in
predictable ways with exchange rate movements. The current global
coordination efforts are therefore focused also on new sources of growth,
longer term trade development and a more stable financial system.

In early November, President Zuma will join other G20 heads of state in
seeking a common framework for re-shaping the global economy, and
addressing the challenge of aligning divergent national interests within a
multilateral cooperative vision and a plan of action. South Africa’s view is that
shared long-term goals and well-sequenced reforms are more likely to
succeed than unilateral or protectionist steps.

Africa’s improving prospects

In this context it is important to note that Sub-Saharan Africa is well positioned
to benefit from the improvement in global demand. Africa has largely escaped
the negative overhang of high household debt and weakened banking
systems that has been felt in many other regions. However, slow growth in
developed countries has reduced the flow of remittances to low-income
countries and rising debt in core markets could impact negatively on
development assistance. Nevertheless, low global interest rates, high
commodity prices and strong Chinese demand for Africa’s exports provide
positive economic boosts, particularly in countries that have undertaken
structural and budgetary reforms.

Growth in Sub-Saharan Africa is expected to accelerate from 2.6 per cent in
2009 to 5 per cent in 2010 and 5.5 per cent in 2011 as commodity prices
remain high, exports recover and domestic demand accelerates. This strong
expansion of regional economic activity is supported by institutional reforms
that provide a positive environment for the expansion of private investment.
These include a greater commitment to democracy, political stability and the
strengthening of institutions of governance; the opening up of African markets
to local and foreign competition through reduced trade and investment
barriers; and increased investment in national infrastructure to reduce costs
and facilitate trade.

The prioritisation of spending on health and education in national budgets will also support rising productivity. It is notable that in 2009, real spending on education and health increased in 20 out of 29 low-income regional economies. However, greater economic integration is necessary to harness the full potential of intra-regional trade, and expansion of regional infrastructure networks is required to facilitate faster movement of goods and service between countries at lower cost.

Domestic economic outlook

Honourable Speaker, we experienced a decline in gross domestic product of
1.8 per cent in 2009, and a loss of employment estimated at close to a million
jobs. This was a severe deterioration, despite a continued expansion in
government infrastructure spending and the countercyclical monetary and
fiscal policy response.

Higher commodity prices have contributed to a somewhat more buoyant
recovery this year than was anticipated at the time of the February budget.
Households have started to spend again as interest rates declined together
with lower inflation.

Economic activity and GDP growth

Trends in the productive sectors of the economy confirm that output has
responded promptly to the recovery in trade and consumer confidence.
In the first six months of 2010, manufacturing value added grew by
5.8 per cent compared with the previous year, driven by increased production
of motor vehicles, petrochemicals, and basic iron and steel. However, the
momentum of growth in manufacturing appears to have slowed in the second
half of the year.

Output in mining increased by 2.2 per cent during the first half of 2010, and
appears to have expanded further in the third quarter. Measures to address
regulatory uncertainty in the mining sector are underway, which will in due
course contribute to improved investment, taking into account the favourable
outlook for commodity prices.

Agricultural output declined by 3.2 per cent in 2009, but quarterly growth
accelerated in the first half of 2010 due to a bumper maize crop.
The construction sector continued to grow during the first six months of 2010,
though at a slower pace than in 2009. Public infrastructure projects in
progress will in due course lead to further private investment, and a more
efficient business environment. The Gautrain project provides a clear example
of this, with new business investment seeking to take advantage of the
opportunities that come with being located alongside a new public transport
system. Similar benefits will flow from road improvements and public transport
projects in all our cities and metropolitan areas. As Minister Ndebele and
Deputy Minister Cronin will confirm, investments that make it easier for people
to get to work are good for both the economy and household living conditions.
Retail sales have recovered well since their substantial decline last year,
though the pace has slowed since the end of the World Cup. We project a
moderate recovery in household consumption expenditure, from 2.6 per cent
growth this year to about 4 per cent a year over the period ahead, which will
lead to some growth and job creation in the retail sector.

At this stage, we expect overall growth of 3 per cent in 2010 rising to
3.5 per cent in 2011 and 4.4 per cent by 2013. Employment and private
investment are expected to rise gradually as growth accelerates. Growth in
real gross fixed capital formation is expected to rise from an estimated
0.8 per cent in 2010 to 5.6 per cent in 2011 and 5.9 per cent by 2013.
Balance of payments and inflation

The slowdown in our economy since 2008 has contributed to a narrowing of
the balance of payments current account deficit from over 7 per cent of GDP
to an estimated 4.2 per cent this year, which has been comfortably financed
by capital inflows.

Infrastructure spending combined with a recovery in domestic demand will
result in faster growth in imports than exports over the next three years.
Capital inflows and a recovery in corporate profits will also lead to higher
income payments to global bond and equity investors. The current account
deficit is forecast to widen to 5.8 per cent by 2013.

Headline CPI inflation has declined to 3.5 per cent for the year to August this
year, and is expected to remain below 6 per cent over the next three years,
supported by a moderation in food price trends and a relatively buoyant
exchange rate.

This year has seen two further declines in the Reserve Bank’s repurchase
rate to 6 per cent in August – its lowest level since the rate was introduced in
1998. Supply and demand for credit has begun to improve in recent months,
as consumer confidence has improved, and over the period ahead lending to
businesses for investment and inventory restocking is likely to accelerate.

The monetary policy stance will continue to target low and stable inflation to
support a more competitive exchange rate and reduced investment costs
through lower real interest rates. This will be accompanied by measures to
contain inflationary pressures and build competitiveness.

Reinforcing infrastructure investment growth

Public-sector investment remains the cornerstone of government's strategy to
support higher sustainable economic growth, because it reduces bottlenecks
in the economy and draws in private-sector investment. Higher levels of public
and private investment are necessary over the medium term to raise the
economy’s growth potential and create employment, and also contribute
significantly to the countercyclical macroeconomic stance.

Private business investment makes up about 60 per cent of gross fixed capital
formation, and contributed over half of overall investment growth in 2006 and
2007. Since then, investment has been dominated by public corporations,
while private investment and capital spending by government departments
have declined. Investment by state-owned enterprises has risen from 1.9 per
cent of GDP in 2005 to 5.6 per cent of GDP this year. Private sector
companies cut back sharply on expansion plans during the recession,
reducing their capital spending by 7 per cent in 2009 and an estimated
2.5 per cent in 2010. Over the period ahead, a more balanced expansion in
investment is projected, though state-owned enterprises will continue to play a
leading role.

To remove bottlenecks and reduce the cost of doing business, the core
investment plans of state-owned enterprises remain focused on capacity
expansion in electricity, rail, ports and roads with the bulk of spending carried
out by Eskom, Transnet and SANRAL.

In the energy sector, the integrated resource plan under the oversight of
Minister Peters will provide clarity on committed generation projects and the
future direction of power generation technology, such as nuclear and
renewable energy. The planned increase in generation capacity from the
Medupi and Kusile coal-fired stations will be supplemented by independent
power producers, initially through direct sales to Eskom, but ultimately through
an independent buyer of power.

Total infrastructure spending of R811 billion is projected over the MTEF period
ahead, of which 40 per cent will be in energy, 26 per cent in transport and
11 per cent in water supply. State-owned enterprises will add over
R320 billion to public sector debt over the next three years. Reliable
electricity supply, clean water and better transport services have to be paid for
over time, and so we will see further rises in tariffs and user charges over the
period ahead. These are necessary adjustments, though the fiscus will
continue to ensure that basic services are accessible and affordable to all.

Employment and development priorities

South Africa’s present economic growth trajectory cannot meet the country’s
employment needs. Faster growth is required over an extended period of time
to significantly increase labour absorption, reduce high unemployment and
achieve a more equitable distribution of income. To achieve 5 million jobs over
ten years, we need to seek growth of over 6 per cent a year, together with
measures aimed at broadening participation and inclusive development. This
is what government’s new growth path proposes, in order to bring about the
marked reduction in poverty and inequality that we all seek.

To achieve our developmental aims, South Africa needs to promote more
rapid job creation through a broad range of policy initiatives.
 Labour-market institutions must be strengthened, including expanded
further education and training and specific interventions are needed to
increase both public and private sector demand for labour, especially for
young work seekers.

 We want to see greater participation of our development finance
institutions in co-financing infrastructure projects, enterprise development,
housing and farming support.
 Our industrial policy action plan has to be implemented, together with
increased support for small enterprises and local economic development.
 Greater investment and competition are needed in the electricity, transport
and communications sectors.
 We need to see improved economic cooperation between countries in
Southern Africa, including financial and trade institutions, transport,
communications, energy and water networks.
 Finally, and underlying all of the above, we know that improvements in
public service delivery will depend on better financial management, good
governance and disciplined pursuit of agreed service delivery outputs and
targets.
Minister Davies and colleagues in the economic cluster will also be looking at
other measures to support exporters and manufacturers, through our trade
facilitation agencies, investment in technology and industrial development
zones, and institutions such as the Industrial Development Corporation.

Capital flows and the exchange rate

We recognise, furthermore, that the value of the rand is a critical challenge in
our growth strategy. As in many emerging economies, South African
producers are currently under pressure because the strength of the real
exchange rate reduces the competitiveness of manufactured exports and
lowers the cost of imports. We appreciate that sustained exchange rate
overvaluation creates difficulties for many businesses and threatens jobs in
some sectors. It can lead to unbalanced growth, widening of the current
account deficit and increasing vulnerability to economic shocks.

Capital flows to emerging markets have increased steadily over the past
decade, supported by favourable growth dynamics, improved credit ratings,
greater openness and the development of domestic financial markets. Net
private capital flows to emerging economies could reach US$825 billion in
2010, up from US$581 billion in 2009. Fixed income investments will reach a
record of US$70-75 billion in 2010.

Net capital inflows to South Africa have risen strongly over the past two years,
reaching 5.5 per cent of GDP in the first half of 2010 compared with
4.7 per cent in 2009 as a whole.

These flows are both structural and cyclical. They derive in part from a need
for developed economy pension funds to recoup losses by finding sound longterm
and high yielding investments. At the same time, low interest rates in
advanced economies are supporting “carry trades” in which investors borrow
money at low interest rates and invest in assets that pay higher interest rates.
Such short-term investments are inherently volatile. The policy challenge is
how to continue to attract the long-term inflows that we need, while minimising
the risks of volatile capital movements.

The rand has appreciated by 6.6 per cent against the US dollar since
December 2009, and by 5.5 per cent against the currencies of our major
trading partners. Taking into account that South Africa has higher inflation

than its major trading partners, the real effective rand exchange rate, which
reflects losses or gains in competitiveness, is now about 12 per cent above its
average level for the past decade. This appreciation has occurred despite
sustained accumulation of reserves by the Reserve Bank. Since the
beginning of 2010, foreign exchange purchases and swap interventions by the
National Treasury and the Reserve Bank have amounted to R43 billion. The
value of gross foreign exchange reserves stood at US$44.1 billion in
September 2010.

Emerging market currencies of other commodity producers, such as the
Chilean peso, have experienced similar appreciation pressures, while the
Brazilian real is even more overvalued.

We believe that international cooperation is needed to achieve a more stable
international financial environment, as proposed in the recent G20
communiqué. In keeping with this framework, several adjustments to our
financial and foreign exchange regulatory arrangements are proposed, while
recognising that in some instances measures may need to be strengthened or
reversed as circumstances change.

 The National Treasury and the Reserve Bank will continue to purchase
foreign exchange reserves. These will be funded by revenue overruns in
2010/11 and the issuance of government bonds and debentures.
 The Reserve Bank will sterilise inflows associated with foreign direct
investment inflows using foreign exchange swaps.
 Exchange control and offshore investment limits on individuals will be
amended to encourage diversification of portfolios and remove
unnecessary limitations. Restrictions on the “blocked” assets of emigrants
will be lifted.
 To make South Africa attractive as a corporate investment destination and
to encourage investment in the rest of the African continent, qualifying
international headquarter companies will be allowed to raise and deploy
capital offshore without exchange control approval with effect from 1
January 2011.
 Exchange controls on domestic companies will be reformed to remove
barriers to their international expansion from a domestic base.
 The prudential framework for foreign investment by private and public
pension funds, including the Government Employees Pension Fund, will be
reviewed to support portfolio realignment and offshore diversification,
especially within Africa and into other emerging markets. A second draft of
regulation 28 of the Pensions Fund Act will be published shortly and will
take effect next year.

The Reserve Bank will publish details of the proposed exchange control
reforms. These measures form part of ongoing efforts to reform South
Africa’s prudential framework covering offshore investment by domestic
individuals and companies. An increase in foreign assets will reduce South
Africa’s external vulnerability through income inflows and by supporting twoway
demand for the rand. Reserve accumulation serves as protection of the
economy against future shocks, though it cannot directly determine the
exchange value of the rand.

In several countries, tax measures have been introduced to counter currency
appreciation. The effectiveness of these measures is being carefully
monitored. Further steps to moderate the impact of capital flows on the South
African economy will be considered, drawing on both international experience
and assessment of the likely local impact.

Financial regulation

It is important to stress that the above reforms form part of a broader process
to improve and strengthen the financial regulatory system, informed by
international coordination efforts led by the G20 and the multilateral Financial
Stability Board.

Several reforms are required by new international regulatory standards. The
Basel Committee on Banking Supervision recently proposed a new framework
(known as “Basel III”) for banking supervision. Implementation of the new
framework will be led by the Registrar of Banks. Similarly, the Financial
Services Board is in the process of strengthening the prudential regime for
insurers.

Other reforms are drawn from the lessons of the financial crisis, but adapted
to our circumstances. In moving towards a “macro-prudential” approach to
supervision of financial institutions, the focus falls on assessing and
monitoring the strengths and vulnerabilities of the financial system as a whole,
in addition to the supervision of individual institutions.

In order to achieve this, several institutional changes are proposed.

 As announced at the time of the budget, a Council of Financial Regulators
will be formed, comprising all our financial regulators, to promote effective
coordination and information-sharing and to give effect to macro-prudential
supervision.
 The South African Reserve Bank now has a revised mandate that includes
particular responsibility for financial stability.
 Proposals will be tabled to strengthen the regulation of market conduct,
including retail banking and insurance, and aimed at both client protection
and broadening access to financial services to all.
 The scope of financial regulation will be extended to cover private pools of
capital, over-the-counter markets and credit rating agencies.
Detailed proposals on financial sector regulatory reforms are contained in a
discussion document entitled Strengthening the Financial Sector to Better
Serve South Africa, which National Treasury will release shortly.

Fiscal policy and the budget framework

Honourable Speaker, as the world economy recovers from the global crisis,
there is considerable debate about how quickly governments should be
closing their budget deficits. Some argue that the recovery will be held back if
governments cut expenditure too quickly, while others point to the potentially
devastating effects of fiscal default. Many European countries are making
sharp budget cuts to maintain sustainability, sometimes resulting in severe
social unrest.

In South Africa’s circumstances, a careful balance needs to be found between
continued real growth in expenditure, while reducing the future interest cost
burden on the fiscus, so that expenditure growth can be sustained. Where we
have to borrow, we will do so mainly to invest in infrastructure that contributes
to building productive capacity. Improved delivery of services also requires
that we use resources more efficiently, reduce waste and combat corruption.
Our approach is explicitly countercyclical, which means that fiscal
consolidation will be phased in without curtailment of core public services and
in support of sustainable growth. This is what the G20 refers to as “growth
friendly” consolidation. Careful management of the fiscus over the past 16
years has meant that we had room for a budget deficit of 6.7 per cent last year
and 5.3 per cent this year, which has brought forward the economic recovery.

The proposed budget framework anticipates a narrowing of the deficit to
around 3 per cent of GDP by 2013/14, and stabilisation of government debt at
about 40 per cent of GDP in 2015/16. Expenditure will continue to grow,
though moderately, and revenue is expected to recover relative to GDP.
It is nonetheless important to note key lessons from the painful adjustments
that the United States and many European countries are undergoing. Fiscal
over-commitments can lie buried for decades in pension and social insurance
accounts, housing finance arrangements, or unsustainable economic
subsidies. When there is continuous growth, the difficulties are deferred and
all too easily ignored. But when things go wrong, they can do so with
devastating speed. A sound understanding of the long-run trends in revenue,
expenditure and public-sector financing is therefore critical, and careful
planning of future reforms.

The Medium Term Budget Policy Statement notes that real non-interest
government expenditure per person has doubled over the past eight years.

This was made possible by buoyant growth and revenue, and the declining
share of debt service costs in GDP. Government spending on infrastructure
and social assistance continued to expand strongly during the economic
downturn in 2008 and 2009. Expenditure growth will be slower over the
period ahead, averaging real growth of about 3 per cent a year.

However, the overall public-sector borrowing requirement is considerably
larger than the budget deficit. Mainly because Eskom and Transnet need to
borrow to finance large infrastructure expansion plans, overall public sector
borrowing will be about 10 per cent of GDP this year, declining to 6 per cent of
GDP over the next three years.

Honourable Speaker, our fiscal policy framework is fundamentally about
ensuring that our wellbeing is not unfairly purchased at the expense of future
generations. Where we introduce programmes that raise the level of
government spending, we need to be clear about how the required revenue
will be raised, and at what cost to the productive sectors of our economy. To
assist in our understanding of the underlying principles, I have asked the
National Treasury to prepare a paper on fiscal guidelines for wider discussion
early next year.

Medium-term expenditure framework

Adjustments to the 2009/10 appropriations
Honourable Speaker, I am very mindful that the new legislative arrangements
for money bills has brought additional responsibilities to Parliament’s portfolio
committees, and the Appropriations Committees in particular. We welcome
the first Budget Review and Recommendation Reports, which have been
tabled over the past week.

Several concerns raised by portfolio committees will need to be explored
further – underspending on climate change initiatives, noted by the Committee
on Water and the Environment, for example, and the need to improve
oversight of the expanded public works programme, recommended by the
Public Works Committee. I have taken special note of this Committee’s
observation that the department cannot be expected to budget for state
funerals, as these cannot be accurately predicted. I am sure that Minister
Doidge and I can find a way of dealing with this.

I am pleased to be able to table a comprehensive Adjusted Estimates of
National Expenditure to accompany the Adjustments Appropriation Bill and –
for the first time – a Division of Revenue Amendment Bill, for the
consideration of the House. I cannot deal with all the adjustments in detail,
but let me highlight the main points.

In total, the adjusted expenditure level is R2.5 billion lower than the February
budget estimate, which included an unallocated contingency reserve of
R6 billion. Contributing to this decrease is a lower provision for state debt
costs due to the current strength of the rand and the decrease in interest
rates, and savings declared by departments amounting to almost R2 billion.
The main additional allocations in the Adjustments Appropriation are as
follows:

 R1.8 billion in roll-overs arising from commitments related to unspent
balances in 2009/10;
 R6.2 billion to cover higher remuneration costs;
 R396 million for various self-funding department-specific activities;
 R2.2 billion in unforeseeable and unavoidable expenditure adjustments
recommended by the Treasury Committee this year, including
Medium Term Budget Policy Speech – 2010
21
o R769 million to cover property rates due to municipalities on
behalf of provinces, funded through the devolution of property
rate funds grant,
o R320 million for occupation-specific dispensation salary
adjustments in the Department of Justice and Constitutional
Development, the National Prosecuting Authority and Legal Aid
South Africa,
o R350 million for occupation-specific dispensation salary
adjustments in the health sector, conditional on an agreement
being reached in the bargaining council,
o R363 million is for expenditure associated with natural disasters
and the outbreak of disease,
o R200 million for the South African National Defence Force for
support activities during the 2010 FIFA World Cup, and
o R100 million to scale up HIV and Aids prevention services.

2011 Budget: expenditure priorities

Chapter 4 of the Medium Term Budget Policy Statement summarises the
spending framework for the period ahead, informed by government’s 12
agreed outcomes, with priority given to education, health, infrastructure
development and job creation.

Several areas of reform are proposed to contribute to identifying savings and
opportunities for more effective organisation of public services:

 There are too many departments where administrative capacity is
excessive or inefficient, relative to frontline services. This will come under
rigorous scrutiny in the budget process.
 Effective training programmes need to be strengthened across the public
service.
 A new approach to budgeting and management of capital projects will be
introduced, together with technical assistance to departments and
municipalities in which there is under-spending on infrastructure
maintenance.
 Non-departmental agencies and entities are under review, with special
focus on governance, remuneration and mandates.
 Strengthened capacity is in place to deal with wrongdoing in government
procurement, and improved rules will enhance transparency in the supply
chain process.
 Information technology systems and management of consulting services
will come under specialised scrutiny within the supply chain regulatory
framework.

Preparation of the 2011 Budget is now well underway. Cabinet has agreed to
a preliminary framework for the MTEF period ahead that makes available
R67 billion more than the baseline tabled in February this year, of which
R40 billion goes to provinces, R24 billion to national departments and
R3 billion to municipalities.

A further R22 billion remains unallocated to departments at this stage, and is
set aside for key education, health, infrastructure and job creation
commitments. Proposals for expanding youth employment opportunities will
enjoy special priority.

And in reflecting on opportunities for our youth, let me congratulate the
students of Belgravia High School who are with us in the gallery, and who
were the winners in three consecutive regional quiz competitions. We should
also take this opportunity to wish all matric students well in the examinations
which will shortly begin.

The Medium Term Budget Policy Statement sets out broad policy
considerations underlying the expenditure proposals, including government’s
economic and industrial policy framework, the need to strengthen
infrastructure maintenance, land and agrarian reform goals, pressing needs in
education and health service delivery and the challenges of improving police
services and the administration of justice.

Several critical long-term public expenditure pressures need to be addressed
systematically over the period ahead.

 First, we have to complete the reform of social security arrangements that
has been under discussion for since the 2002 Taylor Committee Report. A
key aim is improved preservation of savings for retirement among working
South Africans. Consolidation of the fragmented existing administrative
arrangements for social security is also a priority.
 Second, we have to implement a National Health Insurance system. The
first phase will involve improved primary health services in rural areas and
under-served communities, and an expanded programme of hospital
construction and revitalisation. An inter-Ministerial committee has met to
consider the fiscal and financial implications of further health financing
reforms, and will develop practical transition proposals.
 Third, we have to improve the maintenance of our transport infrastructure
and networks, and invest in modern public transport systems.
 Fourth, we have to provide for the fiscal contribution to new growth
initiatives, industrial development and job creation.

These are major social and economic reform projects, which will require
substantial fiscal and financial reforms, phased in over many years. If we are
to make rapid progress in these transformation programmes, it is imperative
that equally rapid progress is made in reducing wastage and inefficiency
elsewhere, and in improving financial management and governance.
Revenue estimates and tax measures

Honourable Speaker, our spending programmes have to be paid for.

It is therefore reassuring to be able to note that the improved economic
performance has contributed to a projected increase of R31 billion in tax
revenue for the current year, by comparison with the February budget
estimate.

Total tax revenue is expected to amount to R679 billion in 2010/11, or
25.3 per cent of GDP. A strong increase in VAT proceeds has been recorded,
partly attributable to buoyant consumer demand, but also because of lower
capital investment and the associated reduction in VAT refunds. Customs duty
collections have improved, mainly as a result of higher vehicle and component
imports.

For the period ahead, tax revenue is expected to average about 26 per cent of
GDP – still somewhat below the levels recorded before the recession.
Consolidated government revenue, including social security funds and public
entity revenue, will recover to about 29 per cent of GDP.

I need to remind Members of the House that today marks the start of the final
month of Tax Season 2010 for non-provisional taxpayers whose returns are
due by 26 November. I urge all taxpayers who have not yet filed to do so
within the next 30 days and to join the 2.6 million taxpayers who have to date
submitted their returns. This is an 18 per cent increase in compliance and
early filing compared with last year.

This growth in compliance comes despite the difficult economic conditions in
which all South Africans find themselves and reflects the strong foundation of
tax morality which has been laid and continues to take root and grow within
our country. Let me therefore applaud the many millions of our country’s
taxpayers who respect their side of the social contract which has allowed us to
continue our vital social and infrastructural investment without over-burdening
ourselves and future generations with unmanageable levels of debt.

Our capacity to pursue those who seek to evade tax obligations continues to
be reinforced. Tax authorities the world over are co-operating more than ever
before to throw open the veil of tax manipulation. South Africa has double
taxation agreements with 70 jurisdictions which provide for extensive
exchange of information between tax authorities. In addition, tax information
exchange agreements have been agreed at officials’ level with six financial
centres and a further sixteen agreements are being explored. A joint audit
made possible through these agreements has already yielded R3 billion in
additional revenue. Combined with the growing availability and accuracy of
third party data from financial institutions, employers and other sources, there
are very few places for the non-compliant to hide.

We are, however, offering another opportunity for taxpayers to come clean
and join the ranks of full participation in our democracy. The Voluntary
Disclosure Programme, which allows for the waiving of penalties of up to
200 per cent for those who make a full, honest and voluntarily disclosure of
prior evasion, will begin next month.

Enhanced supply chain management

Clean administration is also the central principle in our approach to supply
chain management and ensuring value for money in government procurement
of goods and services.

The National Treasury has been working closely with other departments and
agencies to combat fraud and corruption, under the leadership of the Inter-
Ministerial Committee on Anti-Corruption chaired by Minister Chabane. This
has already yielded several positive outcomes, but more has to be done.
Procurement and tender fraud to the value of nearly R25 billion is currently
under investigation.

Our approach comprises the following five initiatives, which will include
legislative and regulatory reforms.

 We will be increasing the monitoring capability of government, aimed at
early detection of fraud. Departments and government agencies will be
required to provide specific information to the Treasuries on their
procurement practices. Where necessary, the cash disbursements process
of government agencies will be temporarily assumed by Treasuries thereby
ensuring that only valid contracts are honoured and government is charged
a fair price.
 In line with international best practice, transparent public disclosure will be
required at each stage of the supply process, in all spheres of government,
including reasons for award decisions.
 Government will look holistically at identifying procurement requirements
that could be better managed centrally, such as the use of transversal
contracts for the acquisition of high value and complex goods and services.
 Stiff penalties are proposed, of up to double the contract value, for service
providers who obtain government contracts fraudulently. Public officials
who assist in tender fraud will also be liable for resultant losses incurred by
government. Measures are required to ensure that officials who have
breached the buying rules should not remain under suspension, drawing
full benefits, while investigations drag on for years.
 Tax compliance measures associated with government procurement will
be strengthened. The introduction of a withholding tax on payments made
to businesses in respect of government tenders is under consideration.

Itis also proposed that the procedures for issue of tax clearance certificates
should be revised, to provide for direct checking by SARS of the tax
compliance of winning bidders rather than pre-clearance of all bidders.

Members of the House will have heard through the media about the arrest of
prominent business people, senior government officials including former
heads of departments. Members will also be pleased to know that the
government was awarded preservation orders worth about R200 million which
included a lear jet, a golf course, a holiday home and a hotel. This is the result
of cooperation and coordination of efforts between several investigative
agencies.

As a result of these efforts, Honourable Speaker, we are beginning to see a
change of attitude on the part of service providers. In a recent case, a firm
which was paid R10 million by a department for work that they had not done,
voluntarily returned the money to the fiscus. Honourable Speaker, we will turn
the tide on corruption and fraud: We will ensure that tax funds and
government monies are spent wisely and managed with integrity. We owe
this to our honest citizens and responsible taxpayers.
The time is now

Allow me to conclude, Honourable Speaker, by saying again that the time for
action is now! Now is the time –

 To improve the quality of basic education
 To improve health and life expectancy
 To ensure that all South Africans are protected and feel safe
 To expand employment through inclusive economic growth
 To invest in a skilled and capable workforce
 To accelerate construction of economic infrastructure
 To promote sustainable rural communities and food security for all
 To invest in human settlements and improved quality of household life
 To build a responsive, accountable, effective and efficient local
government system
 To protect our environmental assets and natural resources
 To build a better and safer Africa and a better world, and
 To promote a development-oriented public service and inclusive
citizenship.

In elaborating the policies and programmes needed to give effect to these
outcomes, we have a special opportunity to forge a broad-based social
compact – a shared social and economic vision – aimed at effective
partnerships between government, business, labour, communities and civil
society, in pursuit of common goals. Cabinet has agreed on a growth path
that sets a target of creating five million jobs in the next ten years, through
efforts that require commitment and cooperation between all spheres of
government, business, organised labour and community partners.

To borrow President Barack Obama’s words, let us ‘put good ideas ahead of
the old ideological battles; a sense of common purpose above the same
narrow partisanship; and insist that the first question each of us asks isn’t,
“What’s good for me?” but “What’s good for the country my children will
inherit?”’

Honourable Speaker, allow me to express my appreciation to President Zuma
for his sound leadership, and to Deputy President Motlanthe for valued
guidance. I am grateful for the support of the Ministers Committee on the
Budget, members of the Treasury Committee, Cabinet colleagues, Premiers
and provincial finance MECs, during a year of considerable financial strain,
and a budget process that still has some way to go.

The Auditor-General, Terence Nombembe, and his staff, bring a professional
spotlight to bear on all of our work, and I know that the House will join me in
expressing our admiration and thanks.

I would also like to commend Mr Thaba Mufamadi, Mr Mshiyeni Sogoni, and
Mr Charel de Beer and Mr Teboho Chaane, who chair the standing
committees on finance and appropriations, and the select committee on
finance, who have more onerous duties now that new Parliamentary budget
procedures are being introduced.

The Governor of the South African Reserve Bank, Ms Gill Marcus, has
brought astute leadership in difficult times.

Mr Oupa Magashula and the staff of South African Revenue Service continue
to bring innovation and energy to the collection of taxes on our behalf.
I would like to thank Deputy Minister Nhlanhla Nene for his tireless support
and insight. Director-General Lesetja Kganyago and the National Treasury
team have once again delivered a set of budget statements on time, though
not perhaps within an affordable and efficient word count.

Honourable Speaker, I hereby submit the 2010 Medium Term Budget Policy
Statement, and I table the Adjustments Appropriation Bill, the Division of
Revenue Amendment Bill and the Adjusted Estimates of National
Expenditure, for consideration by Parliament.

End

Sunday, October 24, 2010

Joint Statement on the U.S.-Turkey Framework for Strategic Economic and Commercial Cooperation

United States Trade Representative Ron Kirk, U.S. Commerce Secretary Gary Locke, Turkish Deputy Prime Minister Ali Babacan, and Turkish Minister of State for Foreign Trade Zafer ÇaÄŸlayan are pleased to release the following statement, which outlines the overall results of the October 19, 2010, meeting of the U.S. – Turkey Framework for Strategic Economic and Commercial Cooperation.

“We met today in the first formal session of the Framework for Strategic Economic and Commercial Cooperation (“the Framework”). This new process of ministerial level engagement between the governments of Turkey and the United States was inspired by the commitment of our two Presidents in April of 2009 to seek an enhancement of our bilateral economic relations, the goal of which is to intensify economic and commercial cooperation across a wide range of areas through improved bilateral trade and investment and increased cooperation where possible in global markets. Having announced the formation of the process last December, we are pleased that we have been able to come together today to begin our deliberations in earnest.

“The United States and Turkey each have a strong incentive to pursue an intensified bilateral economic relationship. Turkey is a fast-rising economic actor in its region and in the world and many of its firms would like to explore new opportunities in the U.S. market. American companies in turn see vast commercial potential in a rapidly developing Turkey of 73 million people, with onward connections to markets in Europe, the Middle East, Central Asia and beyond.

“We reiterated the importance of the establishment of the Turkey-U.S. Business Council. The Council would bring together American and Turkish business leaders to jointly identify ways to strengthen bilateral economic ties, and develop joint policy recommendations for the U.S. and Turkish governments.

“Our discussion today was the beginning of a new phase in our economic relations, in which we attempt to forge much closer cooperation in several areas, ranging from trade and investment to energy, and from technology and innovation to closer collaboration between our government institutions. We instructed the Framework component mechanisms, the Trade and Investment Council, the Economic Partnership Commission and the Energy Working Group, to explore new and creative ways to spur new economic cooperation over the coming months, and to report back to us by the time of the next Framework meeting. Our political commitment to strengthen our economic relations will establish a firmer footing on which new business partnerships can be established in the future.

“We also held a frank and open dialogue towards creating a common understanding about and overcoming certain difficulties that our companies have encountered as they try to increase their involvement in each other's market. We stand ready to engage with each other wherever possible to identify solutions to these matters and challenges in our bilateral trade.

“Our common goal is to find ways to foster the ability of our companies to succeed in taking greater advantage of the business opportunities that exist in our markets and globally as we deepen and broaden our strategic partnership.

“We envision holding the next meeting of the Framework at ministerial level in Turkey in 2011, at a date to be determined.”

US EXPORT COUNCIL PROVIDES ASSISTANCE TO US COMPANIES SEEKING ACCESS TO HIGH GROWTH MARKETS OVERSEAS. http://usexportcouncil.com/

Wednesday, October 6, 2010

Tax breaks for jobs on Silicon Valley's agenda

U.S. Commerce Secretary Gary Locke has an agenda when he pays a low-key visit to Silicon Valley on Thursday. So do his hosts.

Locke's stated purpose, according to a department official, is to promote President Obama's National Export Initiative, which intends to double U.S. exports over the next five years while creating millions of U.S. jobs in the bargain.

Tax breaks for corporations that promise to help Obama achieve that goal will be the topic du jour for Silicon Valley CEOs with whom Locke is scheduled to meet behind closed doors.

"We're looking to have a dialogue with the secretary about the economy and jobs, and also making sure corporate tax policy is conducive to American companies being competitive in the global marketplace," said John Noh, a spokesman for San Jose network equipment manufacturer Brocade Communications Systems Inc., which is hosting Locke's visit.

Brocade CEO Mike Klayko invited Locke to visit his company after meetings he and a Silicon Valley Leadership Group delegation had in Washington last week. The delegation's proposal to significantly reduce the 35 percent tax rate on U.S. companies' repatriated foreign earnings, to encourage investment back home, was much discussed with lawmakers and Obama administration officials and, reportedly, quite favorably received.

Obama's kind of company: Klayko was traveling on business and not available for comment, but Carl Guardino, CEO of the Silicon Valley Leadership Group, said, "Brocade is exactly the kind of company Obama has in mind."

By that, Guardino meant a midsize tech company that sells 65 percent of its products overseas, while the majority of its 5,000 employees are U.S.-based, mostly in the Silicon Valley, including 900 hired since 2009.

During his visit, Locke will be squired around the company's new, $325 million headquarters in north San Jose, which houses approximately half of Brocade's workforce, and is the centerpiece of a multiuse development that created an estimated 6,000 jobs in the area, Noh said.

No doubt Locke will be told how much better Brocade could do (rumors of an IBM Corp. takeover bid notwithstanding) - if it had more incentive to bring some of its foreign earnings home.

Caveat emptor: President Obama appeared to open the door to the tax-reducing idea on Monday, during a meeting of his economic recovery advisory board, which numbers UC Berkeley's Haas School of Business Professor Laura Tyson among its members.

"We would be very interested in finding ways to lower the corporate tax rate so that companies that are operating overseas can operate effectively and aren't put at a competitive disadvantage," he said.

Obama insisted that any proposal be revenue neutral. We trust he will also insist the tax savings be used for their intended and promised purpose: job creation. As noted, that didn't work out the last time there was a profit repatriation tax "holiday," and many companies stuffed the savings in their pockets.

What U.S. corporations are currently doing with their existing mountains of cash - $1.6 trillion, according to the New York Times - should send up a big red flag. "Few of them are actually spending the money on new factories, equipment or jobs," the Times notes.

Fabulously wealthy multinational Microsoft Corp., for example, just raised $4.75 billion in a bond offering at an "ultralow" interest rate, much of which is going toward share buybacks and the like.

"Borrowing new money on the debt markets is now cheaper than bringing its own money back from overseas," a Microsoft analyst at Moody's told the Times (sfgate.com/ZKJZ).

Moral of story: Take note. Don't get fooled again.

Blogging at sfgate.com/columns/bottomline. Facebook page: sfg.ly/doACKM. Tweeting: @andrewsross. E-mail: bottomline@sfchronicle.com.

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/10/06/BU3M1FO7SN.DTL

This article appeared on page E - 1 of the San Francisco Chronicle

US EXPORT COUNCIL PROVIDES ASSISTANCE TO US COMPANIES SEEKING ACCESS TO HIGH GROWTH MARKETS OVERSEAS. http://usexportcouncil.com/

Tax breaks for jobs on Silicon Valley's agenda

U.S. Commerce Secretary Gary Locke has an agenda when he pays a low-key visit to Silicon Valley on Thursday. So do his hosts.

Locke's stated purpose, according to a department official, is to promote President Obama's National Export Initiative, which intends to double U.S. exports over the next five years while creating millions of U.S. jobs in the bargain.

Tax breaks for corporations that promise to help Obama achieve that goal will be the topic du jour for Silicon Valley CEOs with whom Locke is scheduled to meet behind closed doors.

"We're looking to have a dialogue with the secretary about the economy and jobs, and also making sure corporate tax policy is conducive to American companies being competitive in the global marketplace," said John Noh, a spokesman for San Jose network equipment manufacturer Brocade Communications Systems Inc., which is hosting Locke's visit.

Brocade CEO Mike Klayko invited Locke to visit his company after meetings he and a Silicon Valley Leadership Group delegation had in Washington last week. The delegation's proposal to significantly reduce the 35 percent tax rate on U.S. companies' repatriated foreign earnings, to encourage investment back home, was much discussed with lawmakers and Obama administration officials and, reportedly, quite favorably received.

Obama's kind of company: Klayko was traveling on business and not available for comment, but Carl Guardino, CEO of the Silicon Valley Leadership Group, said, "Brocade is exactly the kind of company Obama has in mind."

By that, Guardino meant a midsize tech company that sells 65 percent of its products overseas, while the majority of its 5,000 employees are U.S.-based, mostly in the Silicon Valley, including 900 hired since 2009.

During his visit, Locke will be squired around the company's new, $325 million headquarters in north San Jose, which houses approximately half of Brocade's workforce, and is the centerpiece of a multiuse development that created an estimated 6,000 jobs in the area, Noh said.

No doubt Locke will be told how much better Brocade could do (rumors of an IBM Corp. takeover bid notwithstanding) - if it had more incentive to bring some of its foreign earnings home.

Caveat emptor: President Obama appeared to open the door to the tax-reducing idea on Monday, during a meeting of his economic recovery advisory board, which numbers UC Berkeley's Haas School of Business Professor Laura Tyson among its members.

"We would be very interested in finding ways to lower the corporate tax rate so that companies that are operating overseas can operate effectively and aren't put at a competitive disadvantage," he said.

Obama insisted that any proposal be revenue neutral. We trust he will also insist the tax savings be used for their intended and promised purpose: job creation. As noted, that didn't work out the last time there was a profit repatriation tax "holiday," and many companies stuffed the savings in their pockets.

What U.S. corporations are currently doing with their existing mountains of cash - $1.6 trillion, according to the New York Times - should send up a big red flag. "Few of them are actually spending the money on new factories, equipment or jobs," the Times notes.

Fabulously wealthy multinational Microsoft Corp., for example, just raised $4.75 billion in a bond offering at an "ultralow" interest rate, much of which is going toward share buybacks and the like.

"Borrowing new money on the debt markets is now cheaper than bringing its own money back from overseas," a Microsoft analyst at Moody's told the Times (sfgate.com/ZKJZ).

Moral of story: Take note. Don't get fooled again.

Blogging at sfgate.com/columns/bottomline. Facebook page: sfg.ly/doACKM. Tweeting: @andrewsross. E-mail: bottomline@sfchronicle.com.

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/10/06/BU3M1FO7SN.DTL

This article appeared on page E - 1 of the San Francisco Chronicle

US EXPORT COUNCIL PROVIDES ASSISTANCE TO US COMPANIES SEEKING ACCESS TO HIGH GROWTH MARKETS OVERSEAS. http://usexportcouncil.com/

Tuesday, October 5, 2010

UN CHIEF EMPHASIZES USE OF BROADBAND INTERNET TO ACCELERATE DEVELOPMENT

Secretary-General Ban Ki-moon today stressed the need to harness the power of broadband Internet access to accelerate progress towards the achievement of the development goals intended to alleviate poverty and speed up social and economic advancement in poorer countries.

“Experience has shown that greater access to broadband technologies has meant faster progress towards all the <"http://www.un.org/millenniumgoals/">MDGs [Millennium Development Goals],” Mr. Ban said in a <"http://www.un.org/apps/sg/sgstats.asp?nid=4831">message to the Plenipotentiary Conference of the United Nations International Telecommunications Union (<"http://www.itu.int/en/pages/default.aspx">ITU), which got under way today in Guadalajara, Mexico.

“The Internet drives trade, commerce and even education. Telemedicine is improving health care. Earth-monitoring satellites are being used to address climate change issues. And green technologies are promoting cleaner cities.

“Last month the Broadband Commission for Digital Development – a distinguished group of government officials, businesspeople and content developers, brought together under the leadership of ITU and <"http://www.unesco.org/new/en/unesco/">UNESCO [UN Educational Scientific and Cultural Organization] – offered a blueprint, and I look forward to working with all partners in bringing it to life,” the Secretary-General said.

Mr. Ban praised ITU’s central role in the development of the global communications system for 145 years, stressing its invaluable contribution as member of the UN system for the past 60 years.

“From the birth of telegraph to radio, television, satellite communication and the Internet, the ITU has been at the forefront of ‘Connecting the World,’” the Secretary-General said.

He noted that there are currently five billion mobile cellular subscriptions worldwide, and almost two billion people with Internet connection, pointing out that the work of the ITU, its member States, and its “sector members” continues to show how powerful a partnership for development can be when it is based on transparency, openness and cooperation.

“But despite important headway in expanding the benefits of information and communication technology, there is much work ahead. As was emphasized at last month’s Millennium Development Goals Summit in New York, while the digital divide has narrowed, it has far from disappeared,” the Secretary-General said.

“Your work in developing the next generation of communications networks, ensuring cyber-security, and putting the power of ICT [Information and Communication Technologies] networks to good use in disaster relief and mitigation is vitally important to us all,” he added

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