31 March 2011
President of the Chamber
Government and business leaders present
I greet you all.
Before I deliver my message tonight, please allow me to convey sincere apologies and well wishes from the Deputy President of the Republic of South Africa, Mr Kgalema Motlanthe, who is on a working visit to the United States.
During the 2009 State of the Nation Address, President Jacob Zuma said (and I quote) "The creation of decent work will be at the centre of our economic policies and will influence our investment attraction and job creation initiatives. In line with our undertakings, we have to forge ahead to promote a more inclusive economy" (and I close quote)
This message was reiterated in this year’s State of the Nation Address when he said (and I quote) “research has indicated that we can create jobs in six priority areas. These are infrastructure development, agriculture, mining and beneficiation, manufacturing, the green economy and tourism. We cannot create these jobs alone. We have to work with business, labour and the community constituencies. Experience shows that we succeed when we work together” (and I close quote). This was our motivation when we gladly accepted the invitation to address this august gathering.
There is growing consensus that creating decent work, reducing inequality and defeating poverty can only happen through a new growth path founded on restructuring of the South African economy to improve its performance in terms of labour absorption as well as the composition and rate of growth. To achieve that milestone, change in growth and transformation of economic conditions requires hard choices and a shared determination by all South Africans.
Government is committed to forging such a consensus and leading the way by identifying areas where employment creation is possible on a large scale, as well as forging a coherent and collaborative relationship with business, labour and civil society at large. As government we have declared war on poverty, the central involvement of civil society, business and labour cannot be overemphasised.
I want to thank the North West African Chamber of Commerce for arranging this Business Leadership Summit because it begins to set in motion dialogue that government has been calling for.
Programme Director, at the January Cabinet Lekgotla the President called for regular reporting on employment creation by government departments in all three spheres and public sector bodies and agencies. This call was repeated in the 2011 State of the Nation Address when he said reporting regularly would help Cabinet monitor the impact of government policies, programmes and projects on employment. Reports would also strengthen the focus of government on employment creation.
To avoid duplication of reporting, the employment reporting process will be closely aligned to the reporting process for the economic outcome and the New Growth Path. The Department of Performance Monitoring and Evaluation has entered into a partnership with the Department of Economic Development to jointly lead this initiative.
Government has led the way towards a sustainable growth path, but we cannot do this alone. We need a national effort from all sectors of society. The direct employment role of government is relatively small in the economy as a whole. Except in the case of special employment programmes, it would be wrong to give government organs the signal that they should prioritise direct internal employment. Impact on external employment environment is much greater in the long run. Government’s main impact on employment creation is through investment in infrastructure for growth, in human capital, in regulatory environment, in investment incentives or subsidies and in procurement that supports the growth of local industries.
Not all government departments are major employers. Some departments have the potential to create long term decent jobs or shorter term job opportunities. Others have a more marginal impact on direct jobs through recruitment, internships etc. Some, such as Trade and Industry, Mineral Resources and Agriculture, Forestry and Fisheries do not employ many people directly, but can facilitate employment through improving the environment for employment creation.
Programme Director, South Africa like the rest of the world is emerging from a devastating economic recession which saw a sizeable number of jobs being shed. Like most developing countries, South Africa was hit by a sharp contraction in trade and investment. But both of these phenomena were relatively short lived. Trade and foreign investment turned upwards from April 2009, yet the South African economy remained sluggish.
As observed over time by the Reserve Bank and Statistics South Africa (StatSA), our country was experiencing the effects of the aftermath of a credit-driven consumer boom. Household debt rose from 51% of disposable income in 2004 to 81% of disposable income in 2008, the highest ever. The number of consumers with impaired records and who were more than three months behind in their credit payments rose by a third to unprecedented levels in an even shorter time.
Combined with an 8% fall in employment, domestic consumption contracted very sharply. South Africa experienced a developed-country-style consumer credit contraction on top of a developing-country-style trade and investment shock. The recession was harsh. The economy shrank by nearly 2% in 2009 and one million jobs were lost which is 8% of the employed labour force.
In 2010 the South African economy grew by less than 3%, less than half the growth rate of leading developing countries and 40% below the average growth rate for sub-Saharan Africa. The total number of those employed failed to rise in real terms. However, the latest statistics from StatSA quarterly labour force survey, formal unemployment reduced slightly from 25.3% to 24%. In the North West Province employment increased by about 26 000 as reported by StatSA.
This is however insignificant compared to those without employment whether formal or informal. Despite all these challenges, there was no banking crisis in South Africa. Financial markets were well regulated and financial institutions were not greatly exposed which is self-evident that the policy environment that government created was sound and prudent.
Government had fiscal space and did provide a strong stimulus, spending on infrastructure that had been planned before the crisis struck. Yet, the crisis was more severe in South Africa than in its peers. As If that weren’t enough, there were structural constraints, especially the highly constrained electricity supply in an energy intensive economy. In addition, the railway system lacked the capacity to meet international demand for South Africa’s bulk mineral products like iron ore and coal. It’s not surprising then, that short-term growth forecasts for South Africa are well below the average for developing countries.
Despite this gloomy outlook, the South African Reserve Bank has revised its growth forecasts slightly upwards, with Growth Domestic Product (GDP) growth now forecast at 3,7% (previously 3,4%) in 2011 and 3,9% (previously 3,6%) in 2012. The Governor stressed during the Monitory Policy Committee (MPC) meeting on 23 March 2010 that the growth rates remain too low to alleviate the high unemployment rate in South Africa.
Consumption expenditure is expected to be constrained by the continued high levels of household indebtedness, which declined marginally to 77,6% of disposable income in the fourth quarter of 2010 and the further increased in the number of consumers with impaired credit records since the implementation of the National Credit Act.
The above projected economic growth will not be enough to bring about much needed jobs for the majority of unemployed South Africans. Growing the small and medium business enterprises is therefore central if we are to make a dent in reducing unemployment. Organisations like the NWCC have a critical role to play creating business opportunities and therefore jobs.
Recently, Japan suffered a natural disaster of unimaginable and unprecedented proportions. It is estimated that over 20 000 people have been killed as a result of the earthquake and resulting tsunami, with thousands left homeless. The reported fear of the nuclear catastrophe has further aggravating the situation. The trade and investment between our country and Japan will be deeply affected by the recent developments.
The political unrest in North Africa and elsewhere in the Middle East has sent tremors through the world oil market and triggered fears of long-lasting economic damage if the crisis deepens. We have experienced a steady rise in the price of fuel over the past few months although the rand strength has somewhat tempered it off. These and other factors point to the gloomy economic outlook.
Like most economies, South Africa had a severe crisis and it is experiencing a painfully slow recovery. The biggest challenge facing us is the deep inequalities left by scars of apartheid, joblessness, disease, poverty, poor educational outcomes and crime.
As Minister Patel said at the launch of the New Economic Growth Path, (and I quote) “the Shift to a new growth path challenges every South African to contribute in building our nation over the coming twenty years. It demands collective efforts, creativity and solidarity across South African society. It will require leadership and strong governance. It takes account of the new opportunities that are available to us, the strengths we have and the constraints we face” (and I close quote).
The New Growth Path provides bold, imaginative and effective strategies to create the millions of new jobs South Africa needs. It also lay out a dynamic vision for how we can collectively achieve a more developed, democratic, cohesive and equitable economy and society over the medium term, in the context of sustained growth.
The strategy sets out critical markers for employment creation and growth and identifies where viable changes in the structure and character of production can generate a more inclusive and greener economy over the medium to long run. To that end, it combines macroeconomic and microeconomic interventions. The shift to a new growth path will require the creative and collective efforts of all sections of South African society. It will require strong leadership from all of us. It takes account of the new opportunities that are available to us, the strengths we have and the constraints we face.
We will have to embark on joint action to change the character of the South African economy and ensure that the benefits are shared more equitably by all our people, particularly the poor.
As a first step, we will prioritise efforts to support employment creation in the following key sectors:
- the agricultural value chain
- the mining value chain
- the green economy
- manufacturing sectors, and
- tourism and certain high-level services.
These opportunities will take advantage of the potential of new approaches in the other job drivers, notably regional integration in Africa and the knowledge and social economies. In each of these areas, we will have to make a special effort to generate opportunities for young people, who face the highest unemployment rate as the statistics have shown by the quarterly labour bulletin of StatSA.
Achieving the New Growth Path requires that we address key tradeoffs. Amongst other decisions, government must prioritise its own efforts and resources more rigorously to support employment creation and equity. Business must take on the challenge of investing in new areas. Business and labour together must work with government to address inefficiencies and constraints across the economy and partner to create new sustainable work opportunities.
The President committed in the 2009 State of the Nation speech that, (and I quote)”we will utilise state levers such as procurement, licensing and financial support to assist small medium enterprises as well as to promote the implementation of Broad-Based Black Economic Empowerment and affirmative action policies” (and I close quote). To respond to this call, Government through the Forum of the South African Directors General (FOSAD) has undertaken to improve efficiencies in its operations in the following areas;
- In compliance with the Public Finance and Management Act requirement for all government departments to pay suppliers within 30 days of receipt of a legitimate invoice;
- Reduction in the turnaround time for permits;
- Improvement in the turnaround times for mining licences;
- Development of a new regulatory framework for government procurement which promotes procurement from competitive local suppliers;
- Improvement in the turnaround times for loans for small businesses by government agencies
Collectively, these actions should assist to create space for business to operate and help create much needed jobs. The goal of growing employment by 5 million new jobs over the coming decade is achievable but it cannot be achieved with only a single policy instrument. It needs a package of interventions that addresses a range of challenges in the economy and that balances competing policy concerns while mitigating unintended consequences.
Finally, we will seek to support infrastructure and productive investments across Africa, especially to build logistics infrastructure linking southern and central Africa
In conclusion, the measures in the New Growth Path, taken together, constitute key means to address the income inequalities in our society. They place decent work at the centre of the fight against inequality but also include measures such as skills enhancement, small enterprise development, wage and productivity gain-sharing policies, addressing the excessive pay gap between top and bottom, progressive taxation and support for the social wage, meaning public services targeted primarily at low-income households.
In short, the economy has not created sufficient employment opportunities for many of our people over the past three decades.
Creating more and better jobs must lie at the heart of any strategy to fight poverty, reduce inequalities and address rural underdevelopment. Your initiative is therefore commendable. It charts the way forward for business opportunities to create employment for the growing army of the unemployed youth.
Let us all work together to take our country to a higher trajectory of development and create much needed jobs.
I thank you.