Building a Partnership with Labour on the New Growth Path

1. Building a Partnership with Labour on the New Growth Path Presentation by the Deputy Minister of Economic Development Mr. Enoch Godongwana To the Fedusa Collective Bargaining Conference 27January 2011

2. 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

3. What drives our efforts? Promoting Quality Education and Skills Development Creating Decent Work and Building a Sustainable and Inclusive Economy 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

4. Key challenges facing Government Income Distribution Concentration of Economic Power Apartheid Spatial Development Unemployment Poverty Access to Basic Goods and Services Education Disparities Health Disparities Current Challenges 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 4

5. 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 Recent economic developments

6. Public finances have deteriorated globally 6

7. South African economy:Fixed investment • Real fixed investment spending by public corporations continued to be the main driver of overall investment activity. 7

8. South African Consumer Inflation 8

9. South African economy:Interest rates remain on hold 9

10. Emerging economies to be key drivers of world growth…Joining the BRICS becomes Key

11. Global economy: outlook Projections 20112012 Source: World Bank, GEP – Jan 2011 11

12. Our ResponseThe New Growth Path

13. Building better infrastructure and getting everyone to work

14. Changing this…… Into that…

15. The approach: Reduce the carbon-intensity of the economy Increase the employment-intensity of the economy 5 million new jobs by 2020 Reduce costs, improve infrastructure, address competitiveness New opportunities in changing regional & global environment Balanced spatial development – rural areas, poorer provinces 15

16. NGP 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. 16

17. Jobs drivers Main economic sectors: Agriculture & agroprocessing Mining and beneficiation Manufacturing (IPAP2) Tourism/other services Infrastructure Energy, transport, communications, water, housing. Look for employment opportunities in “jobs drivers” and implement policies to take advantage of them Spatial opportunities: Rural development African regional development New economies: Green economy Knowledge economy Social capital: The social economy The public sector 17

18. Looser monetary policy stance to support a more competitive (and stable) exchange rate and reduce cost of investment Measures to address inflation focussing on volatile prices Additional measures to depreciate and then stabilise the rand, as required Address main cost drivers to enhance competitiveness Policy driver: Development policy package More restrained fiscal policy reflected in around 2% real growth in expenditure Support higher savings including through retirement-fund reform and reduce the cost of industrial finance Eliminate waste and ensure rigorous reprioritisation of budgets Pact with organised labour and business on wages and prices, protect the social wage and support job creation 18

19. Industrial policy geared to new opportunities at home and abroad Rural policy – employment, livelihoods & apartheid spatial Competition policy to challenge cartels and monopolies Technology: R&D, adaptation and jobs focus Policy driver: Equity and efficiency Education and skills development as crucial for economic and social transformation Africa: integration based on investment, trade infrastructure Trade policy geared to new opportunities in global economy Labour market: address vulnerability, promote productivity growth Promoting small business and reducing red tape Broad-based BEE: major rethink and integrate with jobs and industrial strategy 19

20. Resource drivers Actions: • 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. 20

21. Institutional driversThe 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 • The DFIs (IDC, DBSA, Land Bank, Khula, SAMAF, NEF) • The GEPF and the PIC, as crucial investors • The SARB, within its Constitutional mandate. • The infrastructure SOEs (Transnet and Eskom) • ITAC and Customs & Excise • The Competition authorities and other regulatory, standard-setting and accreditation bodies • The science councils, universities and Mintek • Nedlac 21

22. Key skills targets Engineers: 30 000 Artisans: 50 000 by 2014/15 Increase FET college intake to 1 million students Broad-based workplace training: 10% of workforce or 1,2m workers on training Sufficient resources for training Training at centre of new growth path Computer skills at all schools, training for all public servants Easier recruitment of foreign skills coupled with skills transfer plans Review of SETA performance. SOEs to target artisans and technicians 22

23. Stepping up education and skills 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.

24. Focus on youth employment 1: Training 2: Community service 3: Workplace Internships One million young people for youth brigades on health, literacy, environment, rural development Three-quarters of unemployed are youth Pull in the FET colleges, union capacity, business targets for internships The role of SOEs in youth employment Combine this with measures to improve the absorption of youth into employment 24

25. Build-programme creates jobs and lays the platform for higher growth Transport: shift to rail Energy: driving the green economy Rural and agri-value chain: access and logistics Implications for SOEs – drivers of developmental state Africa: rail, ports, road and energy Localisation: components for build programme, rolling stock Coops and SMEs: contracting and support Technology: R&D, adaptation and jobs focus Tourism infrasructure Training: annual targets for artisans Mining: see key projects Costs across economy: tariffs 25

26. Initial Proposals on Wages, Prices and Executive Bonuses a. On wages To 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 employment i. To cap pay and bonuses for senior managers and executives earning over R550 000 a year, ii. To moderate price increases, especially on inputs and wage goods, and iii. To ensure that wage moderation and measures to support competitiveness lead to a measurable increase in employment creation; 26

27. Executive Pay and Bonuses 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. 27

28. Initial Proposals on Wages,Prices and Executive Bonuses 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. 28

29. Building a Social Compact with Labour on the Policy Package 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. 29

30. In Conclusion: Mobilization of South Africans around a common 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

31. Dankie,Siyabonga, Thank You,Re a leboga…