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

4

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

6

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

Our ResponseOur ResponseThe New Growth PathThe New Growth Path

Building better infrastructure and getting everyone to work

Building better infrastructure and getting everyone to work

Changing this……

Into that…

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

Dankie,Dankie,Siyabonga, Siyabonga, Thank You,Thank You,

Re a leboga…Re a leboga…