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Building a Partnership with Labour Building a Partnership with Labour on the New Growth Pathon the New Growth Path
Presentation by the Deputy Minister of Economic Development
Mr. Enoch Godongwana
To the Fedusa Collective Bargaining Conference
27January 2011
We have four main objectives for this presentation…
• What drives our efforts
• Discuss the key challenges
• Recent Developments
• Share key elements of the New Growth Path
What drives our efforts?What drives our efforts?
Creating Decent Work and Building a Sustainable and Inclusive Economy
Promoting Quality Education and Skills Development
Better Healthcare for All
Stimulating Rural Development and Food Security
Intensify the Fight Against Crime and Corruption
Strengthening the Developmental State and Good Governance
Building Cohesive and Sustainable Communities
Key challenges facing GovernmentKey challenges facing Government
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Lack of Beneficiation Problems with Housing Provision
We are under pressure to deliver services with limited resources, to a growing base of population, with better and faster results
Current Challenges
Income Distribution
Concentration of Economic Power
Apartheid Spatial DevelopmentUnemployment
Poverty
Access to Basic Goods and Services
Education Disparities
Health Disparities
Recent economic Recent economic developmentsdevelopments
• GLOBAL
• Global economic activity has recovered, but the recovery is slow
• Consumer demand and stock rebuilding have been the main drivers of the recovery as they benefitted from tax incentives
• Low interest rates and expansionary fiscal measures adopted in ’08 & ‘09 remain supportive
• The recovery, however, is still uneven
– Emerging economies picking up at a faster pace than the US, Europe and Japan
• Key risks – Fiscal difficulties in some European countries– Rising unemployment rates
• LOCAL
• Economic growth gained momentum in 2010
• Production side benefitted from recovering global demand, particularly for commodities. However, manufacturing & mining have eased in recent months
• The domestic demand side is still in the early stages of a turnaround
• Infrastructure programme helps to ease job losses and stabilise household incomes
• Low interest rates and subdued inflation to be supportive into 2011
• Structural challenges– A challenging job creation environment– A weak industrial base– Lack of entrepreneurial culture
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Public finances have deteriorated Public finances have deteriorated globallyglobally
-15
-10
-5
0
5
10
15
% o
f GD
P
Budget balance in 2007 and 2010 (% of GDP)
2007 2010e
Source: OECD
-32%
South African economy:South African economy:Fixed investmentFixed investment
7
-40
-20
0
20
40
60
80
100
Q1 Q2 2005
Q3 Q4|
Q1 Q2 2006
Q3 Q4|
Q1 Q2 2007
Q3 Q4|
Q1 Q2 2008
Q3 Q4|
Q1 Q2 2009
Q3 Q4|
Q1 Q2 2010
Q3
% C
han
ge
(q-o
-q) *
Gross fixed capital formation
Government Public corporations
Private sector Total investment
Source: SARB
110.1%
•Real fixed investment spending by public corporations continued to be the main driver of overall investment activity.
8
South African Consumer InflationSouth African Consumer Inflation
0
2
4
6
8
10
12
14
16
18
1
|
3 5 7
2005
9 11 1
|
3 5 7
2006
9 11 1
|
3 5 7
2007
9 11 1
|
3 5 7
2008
9 11 1
|
3 5 7
2009
9 11 1
|
3 5 7
2010
9 11
% C
han
ge (
y-o-y
)
Consumer price inflation
CPI : Targeted inflation
Goods
Services
Source: Stats SA
Targeted inflation measure: CPIX until Dec '08, Headline inflation since Jan '09
9
0
2
4
6
8
10
12
14
16
18
20
2003
Q1
2003
Q3
2004
Q1
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
2010
Q3
2011
Q1
2011
Q3
2012
Q1
2012
Q3
2013
Q1
2013
Q3
2014
Q1
2014
Q3
2015
Q1
2015
Q3
Per
cent
The Prime overdraft and the Repo rate
Repo rate
Prime overdraft
Source: SARB, IDC forecast
Forecast
South African economy:South African economy:Interest rates remain on holdInterest rates remain on hold
Emerging economies to be Emerging economies to be key drivers of world growth…key drivers of world growth…
Joining the BRICS becomes KeyJoining the BRICS becomes Key
-4
-2
0
2
4
6
8
10
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Advanced Economies Emerging Economies
Annual gdp growth: %
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Global economy: outlookGlobal economy: outlook
Source: World Bank, GEP – Jan 2011
Economic growth and outlook around the globe
Region / Country 2008 2009 2010e 2011f 2012f
World output 1.5 -2.2 3.9 3.3 3.6
Advanced Economies 0.2 -3.4 2.8 2.4 2.7United States 0.0 -2.6 2.8 2.8 2.9Euro area 0.3 -4.1 1.7 1.4 2.0Japan -1.2 -6.3 4.4 1.8 2.0
Emerging and developing economies 5.7 2.0 7.0 6.0 6.1
Sub-Saharan Africa 5.2 1.7 4.7 5.3 5.5South Africa 3.7 -1.8 2.7 3.5 4.1Nigeria 6.0 5.6 7.6 7.1 6.2
East Asia & Pacific 8.5 7.4 9.3 8.0 7.6China 9.6 9.1 10.0 8.7 8.4
South Asia 4.8 7.0 8.7 7.7 8.1India 5.1 7.7 9.5 8.4 8.7
Latin America 4.0 -2.2 5.7 4.0 4.0Brazil 5.1 -0.2 7.6 4.4 4.3
Europe & Central Asia 3.9 -6.6 4.7 4.0 4.2Russia 5.2 -7.9 3.8 4.2 4.0
Projections2011 2012
Building better infrastructure and getting everyone to work
Building better infrastructure and getting everyone to work
5 million new jobs by 2020
Increase the employment-
intensity of the economy
Reduce the carbon-intensity of
the economy
New opportunities in changing
regional & global environment
Balanced spatial development – rural
areas, poorer provinces
Reduce costs, improve
infrastructure, address
competitiveness
The approach:
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NGP Policy PackageNGP Policy Package
To facilitate employment creation, the NGP proposes a policy package that contains macro and micro economic interventions as follows:
- A comprehensive drive to enhance both social equity and competitiveness.
- Systemic changes to mobilize domestic investment around activities that can create sustainable employment;
- Strong social dialogue to focus all stakeholders on encouraging growth in employment creation activities.
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Look for employment opportunities in “jobs drivers” and implement policies
to take advantage of them
InfrastructureEnergy, transport, communications,
water,housing.
Main economic sectors:
Agriculture & agroprocessing
Mining and beneficiationManufacturing (IPAP2)Tourism/other services
Spatial opportunities:
Rural development
African regional development
Social capital:The social economy
The public sector
New economies:Green economy
Knowledge economy
Jobs drivers
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Policy driver: Development
policy package
Looser monetary policy stance to support a more competitive (and stable)
exchange rate and reduce cost of investment Additional measures
to depreciate and then stabilise the rand, as required
Measures to address inflation
focussing on volatile prices
More restrained fiscal policy reflected in
around 2% real growth in expenditure
Address main cost drivers to
enhance competitiveness
Support higher savings including
through retirement-fund reform and
reduce the cost of industrial finance
Pact with organised labour and business on wages and
prices, protect the social wage and support job creation
Eliminate waste and
ensure rigorous reprioritisation
of budgets
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Policy driver: Equity and efficiency
Industrial policy geared to new
opportunities at home and abroad
Competition policy to challenge cartels
and monopolies
Rural policy – employment, livelihoods & apartheid spatial
Education and skills development as
crucial for economic and social
transformation
Technology: R&D, adaptation and jobs focus
Labour market: address
vulnerability, promote
productivity growth
Broad-based BEE:
major rethink and
integrate with jobs
and industrial
strategy
Promoting small
business and reducing red
tape
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Trade policy geared to new opportunities in global economy
Africa: integration based on
investment, trade
infrastructure
Resource driversActions:• Cut out waste and corruption• Reprioritise spending to priorities
and jobs• Use resources in IDC, DBSA and
other DFIs more actively• Tap into the resources of private
sector through partnerships• Encourage retirement funds to
diversify into development bonds to finance infrastructure and industrial development
Resource drivers:• state budgets (national,
provincial and local)• the resources of SOEs
and DFIs• Universities and science
council resources• retirement funds• the domestic private
sector • international investment• donor funding• community-owned
financial institutions such as stokvels and co-ops.
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Institutional driversInstitutional driversThe developmental stateThe developmental state
• Make the state work effectively
• Profound shift in culture – from compliance/process to delivery/outcomes
• Align around growth path – review budgets, programmes & procurement
• Social dialogue
1. The DFIs (IDC, DBSA, Land Bank, Khula, SAMAF, NEF)
2. The GEPF and the PIC, as crucial investors
3. The SARB, within its Constitutional mandate.
4. The infrastructure SOEs (Transnet and Eskom)
5. ITAC and Customs & Excise
6. The Competition authorities and other regulatory, standard-setting and accreditation bodies
7. The science councils, universities and Mintek
8. Nedlac21
Training at centre of new growth path
Key skills targets Engineers: 30 000Artisans: 50 000 by
2014/15 Broad-based workplace training:
10% of workforce or 1,2m workers on
training
Increase FET college intake to
1 million students
Computer skills at all schools, training for all
public servants
Sufficient resources for
training
Easier recruitment of foreign skills
coupled with skills transfer plans
SOEs to target artisans and technicians
Review of SETA
performance.
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Stepping up education and Stepping up education and skills developmentskills development
• Engineers: Target at least 30 000 additional engineers by 2014, changing subsidy formulae for universities as appropriate.
• Artisans: Target at least 50 000 additional artisans by 2015, with annual targets forstate-owned enterprises.
• Workplace skills: Improve skills in every job and target 1,2 million workers for certified
• on-the-job skills improvement programmes annually from 2013
• Further education and training (FET) colleges have a central role in providing important middle-level skills for young people. An immediate goal is to expand enrolment at FET colleges, targeting a million students in FET colleges by 2014. To be effective, however, their graduation rates must also rise significantly.
• Information and communications technology (ICT) skills: The departments of education should ensure that computer skills are taught in all secondary schools and form part of the standard adult basic education and training (ABET) curriculum by 2015.
• Policy framework: Finalise the National Skills Development Strategy taking into account the needs emerging from the growth path.
Three-quarters of unemployed are youth
One million young people for youth
brigades on health, literacy,
environment, rural development
1: Training2: Community
service3: Workplace Internships
The role of SOEs in youth
employmentCombine this with
measures to improve the
absorption of youth into employment
Pull in the FET colleges, union
capacity, business targets for internships
Focus on youth employment
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Build-programme creates jobs and lays the platform for higher
growth
Energy: driving the green economy
Transport: shift to rail
Localisation: components for build programme, rolling
stock
Rural and agri-value chain: access and
logistics
Coops and SMEs:
contracting and support
Mining: see key projects
Training: annual targets for artisans
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Tourism infrasructure
Technology: R&D,
adaptation and jobs focus
Implications for SOEs – drivers of
developmental state
Costs across
economy: tariffs
Africa: rail, ports, road and energy
Initial Proposals on Wages, Prices and Executive Bonuses
a. On wagesTo moderate wage settlements for workers earning between
R3000 and R20 000 a month, possibly to inflation plus a modest real increase, with inflation-level increases for those earning over R20 000 a month;
b. On bonuses, prices and employmenti. To cap pay and bonuses for senior managers and executivesearning over R550 000 a year,ii. To moderate price increases, especially on inputs and wage
goods, andiii. To ensure that wage moderation and measures to supportcompetitiveness lead to a measurable increase in employmentcreation;
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Executive Pay and Executive Pay and BonusesBonuses• Executive pay capping is not just a South African
challenge but a global one. • The South African challenge is more pronounced
because it occurs in a country with high and persistent inequality, poverty and unemployment.
• The pay gap between executives and ordinary workers is disproportionably high by global standards. These are finding by independent researchers and consulting firms.
• There is emerging consensus by global leaders on this issue.
• The SA government would like to achieve a social compact with local business leaders on executive pay limits, especially in respect of perverse incentives such as bonuses which encourage irresponsible risk taking.
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Initial Proposals on Wages,Initial Proposals on Wages,Prices and Executive Prices and Executive BonusesBonuses
c. As government, (i) to maintain the real value of social grants and
improve the “social wage” in poor communities, including housing, healthcare and education,
(ii) to reduce wage inequalities through efforts to improve pay, conditions and organisation for vulnerable workers (including those earning below the threshold set out above), and
(iii) to ensure any increases in industrial financing creates large-scale employment.
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Building a Social Compact Building a Social Compact with Labour on the Policy with Labour on the Policy PackagePackage
• Labour is critical to shaping economic policy and achievement of the outcomes, through its involvement in policy dialogue, workplace representation and as a social force.
• Strong social dialogue and social formations are central to building a developmental state.
• Effective social dialogue helps to weave contending perspectives on economic policy into a common knot. In its absence, social partners resort to adversarial and unconstructive approaches in the making and shaping of public policy.
• The labour movement through the NGP, has an opportunity once again, to shape this major economic policy document by preparing to engage with it robustly and sensibly.
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In Conclusion: In Conclusion:
Mobilization of South Africans around a Mobilization of South Africans around a common economic visioncommon economic vision
• Part of the overall development package– Must embrace prices, wages, jobs and the social
wage– Commitments by business– On wages, must address income inequalities, income
gap– Social wage: improve for working class communities– Savings: universal retirement funding for all workers