Tripartite Alliance Summit
Discussion Document: Accelerating growth and development
6 April, 2002
This document does not represent the position of the Alliance or any of its components. It is merely intended to provide a basis for debate at the forthcoming Alliance Summit. The aim is to set out a suggested Alliance approach to the economy and define areas of consensus as well as provide a solid foundation for further debate at the Summit.
Our approach aims to accelerate growth and development in the context of a longer-term perspective through to 2014. This approach builds on policies implemented up to now, but makes critical adjustments designed to raise the rate of growth, employment creation and development, narrowing inequalities in incomes and wealth as well as geographic social and economic disparities. This requires an integrated action plan that focuses on:
Intense efforts to develop our human resources and technology capacity
Enhancing the quality and accessibility of infrastructure
Strengthening our growth sectors in the context of a stronger knowledge economy
Substantially improving support for SMMEs, especially co-ops
Black Economic Empowerment and addressing inequalities in race, gender and geographic location.
To achieve these aims, we will ensure more integrated and responsive economic policies, backed by improved monitoring and evaluation.
The Reconstruction and Development Programme (RDP) constitutes the foundation of our programmes for the economic and social reform. It has shaped the first phase of the transformation, and will continue to undergird our approach to economic change. In 1996 the government introduced a macroeconomic programme – the Growth, Employment and Redistribution (GEAR) program. This was essentially a macroeconomic stabilisation program. A lack of agreement on the GEAR policy caused significant tensions in the Alliance. These tensions need to be overcome if our strategy to accelerate growth and development is to be successfully implemented.
We propose that our strategy reflect a concrete analysis of the obstacles to growth and employment creation. For this reason, we start with a section on the historic challenges facing the democratic movement in restructuring the economy. We address some of the basic ideas for accelerating growth and development, and then look at some proposals for the Growth and Development Summit. In Appendix 1, we describe the current micro-economic reform programme announced by President Mbeki, and in Appendix 2 we outline the issues that COSATU believes should be discussed in order to reach agreement on our basic economic framework.
OUR EXCEPTIONAL OPPORTUNITY
Our world is one in which the system of capitalism enjoys dominant sway over virtually the entire globe. But it is a world too in which the agenda of the working people and developing nations must find creative expression in pursuit of a humane, just and equitable world order. The world economy is in the midst of a major technological revolution, with information and communications technology (ICT) at the forefront of profound changes in production and distribution processes in all sectors. At the same time, the globalisation of economic relations is narrowing time and space among nations. In this context, the realities of inequality, poverty and under-development become more obvious and demanding of action in favour of justice and equity. The acute challenges of marginalisation and social exclusion associated with globalisation pose particularly severe challenges.
This volatile and globalising world presents South Africa with both opportunities and challenges. The opportunities arise from the possibility of engaging with the global economy in ways that enhance incomes and employment for our people. The challenges arise from the risk of being marginalised.
Within these realities, to ensure that the balance of forces favours our people, we need the maximum unity in action that is represented by our revolutionary Alliance, led by the African National Congress, and including the South African Communist Party and the Congress of South African Trade Unions. This historic Alliance represents the organisational expression of the combination of motive forces in whose common interest sustained transformation is pursued. Ours is a powerful political movement that is capable of liberating the society from its past. This Alliance offers not only organisational strength but is also the key to mobilising a progressive alliance of the most significant class forces in society that can sustain economic and social reform.
It is only the maintenance of the cohesion of those progressive classes and fragments of classes under the leadership of the ANC and the Alliance that will enable us to direct the power of the international capitalist system toward development and equity in our political economy. Any division of these forces will weaken us and throw us onto the tides of globalisation, which can only benefit the economically powerful. In comparison to the majority of developing countries, the progressive forces in South Africa are favourably placed to achieve this historic opportunity and we must not squander it. Furthermore, the Alliance and the strength of the ANC as a popular movement are central to our ability to engage in the struggle for a more equitable global economy. The unity of the Alliance is fundamental to our ability to counter the all to often destructive effects of the markets and the power of unregulated capital.
The democratic breakthrough of 1994 heralded a historic departure from the vicious economic cycle of stagnation inherited from apartheid, and created a bridgehead for the fundamental transformation of the economy in favour of the formerly oppressed. In the recent past, shifting objective conditions and the role that both the democratic state and the democratic movement have played have resulted in circumstances that create the potential for a further shift of the balance of forces in favour of the NDR. At this moment, therefore, the unity in action of the Alliance is of critical importance.
THE CHANGING NATURE OF THE SOUTH AFRICAN ECONOMY
Since the democratic breakthrough in 1994 South Africa has grappled with a complex set of social, economic and political challenges. Historically, capitalism in South Africa was deeply conditioned by the imperatives of colonialism and apartheid, described by Colonialism of a Special Type. We can understand the resulting economic structure in terms of the nature of production, markets, spatial development and classes. Specifically:
Production structure: Dependence on mineral exports and an industrial strategy based on import-substitution industrialisation. This economy relied on cheap unskilled labour, limited the ability of the economy to create jobs, and fostered inequality in incomes and wealth. It meant that value chains were weak, necessitating imports of manufactures, especially capital goods.
Markets: Production of minerals largely for export and manufactures for the domestic high-income group, with little focus on supplying the basic needs of the poor. Low wages for the majority of workers meant a limited domestic market.
Spatial development: Vast disparities in economic, political and social terms between “homeland” areas and the “RSA,” and little economic integration within southern Africa.
Class structures: Capital was mainly in the hands of a few large, white-owned mining and financial houses, supported by the state through the repression of black workers, protectionism and high tariffs and parastatals. White-owned commercial agricultural also depended on a huge array of state supports. South Africa enjoyed high levels of foreign investment compared to the rest of Africa, particularly in mining, banking and parts of manufacturing. But it also had one of the most unequal distributions of income and wealth in the world.
This historical growth path began to fall apart from the mid-1980s. On the one hand, gold mining faced stagnant prices and rising costs. On the other, mass opposition by the people led to substantial capital flight. Then, after 1989, the rapid opening of the economy undermined local production in many areas, notably clothing and equipment, although it opened the door to exports for a few sectors. The result was pervasive economic weakness, especially after the debt standstill in 1985 – essentially a response by international banks to the 1984 uprising – led to a sharp drop in parastatal investment.
By 1994 South Africa’s economy was already in an advanced state of decline due to the effects of political and economic isolation and inward-looking economic policies (there is a debate on this particular point) and the legacy of racial exclusion. The weak state of the economy manifested itself in stagnant GDP growth until 1994, declining savings and investment rates, falling formal sector employment, a declining per capita GDP, and external vulnerability due to insufficient capital inflows and an unattractive investment climate.
This economic weakness resulted in declining living standards, high levels of racial, gender and geographical inequality, and high levels of absolute poverty.
In essence, the RDP aimed to address these problems by:
Prioritising government spending on infrastructure and services for the poor, including large-scale social service and public works programmes that can provide a basic income to households. Overall, this strategy would help equalise incomes as well as improve living standards. Higher productivity would result from improved education, health and security, as well as from the opportunities provided for home-based production by municipal infrastructure. At the same time, the strategy would enhance the domestic market for basic necessities, such as housing and food, providing a stimulus to investment.
Establishing an active industrial strategy to restructure production and ownership in order to enhance employment as well as growth and investment. The strategy would have to build on our strength in mining but aim for diversification and stronger domestic value chains. In the process, it would have to shift production to relatively labour-intensive sectors, based on consultation with organised business and labour and supported by well-defined government measures, including the allocation of infrastructure and massive investment in skills development. At the same time, it would grow production of both wage goods and services, in order to raise living standards and cut labour costs, and exports. Sectors that could meet these objectives include tourism, agriculture and food processing as well as other light industry; projects up- and downstream from mining; and public and private services.
Supporting new centres of capital and enhancing the access of the majority to productive assets and skills. Potential new centres of capital include small and micro businesses, the parastatals, which have historically played a leading role in developing industry, as well as producer co-ops. The expansion of labour-intensive sectors is critical to achieve these aims, as is the land reform programme.
Consistently strengthening democracy in both the state and the economy. That means ensuring a more open and responsive bureaucracy and generally more open policy processes, based on the development of appropriate consultative structures. In the absence of these democratic structures, the dominant centres of capital will otherwise block efforts to improve the position of the historically disadvantaged.
Since 1994, government has implemented these policies with varying degrees of success. The institutional and policy frameworks in which the economy operates have been fundamentally transformed. Furthermore, despite institutional bottlenecks, the RDP’s ambitious social and economic infrastructure roll-out programmes were to a large extent implemented, resulting in substantial improvements in access to infrastructure and services, including housing, water, sanitation, electricity and telephony, amongst others.
Certainly the institutional obstacles to the roll out of RDP programmes, especially in public works and the major social services, were underestimated. The shortcomings of government systems were aggravated by the failure of the Alliance generally to mobilise social forces in a creative unity in action with the state, hampering the potential for change. In the words of the ANC’s NGC: “We have made progress in setting up state institutions that can act as instruments of change and we have established policy frameworks that give direction to these instruments. However, we have failed to mobilise the motive forces around these programmes and they have not been empowered to engage with these instruments. This is a major cause for concern, especially since the affluent are well placed to engage with and influence government policy processes.”
Furthermore, the ANC government faced some difficult choices in its first six years and it had to make tough decisions in a challenging environment. This has included meeting the challenges posed by integration with a globalising world, while at the same time building a democratic and accountable state capable of meeting the challenge of reconstruction and development.
In 1994-’96, government cut tariffs in terms of the agreement with the WTO; replaced subsidies aimed at stimulating exports and growth in the “homelands” (the GEIS and RIDP) with supply-side measures designed to raise productivity at enterprise level; introduced a much stronger regime to enforce competition policy and set up new institutions to support small and micro enterprise; began to equalise major social services and infrastructure between communities; and initiated modern labour laws, bringing progressive labour rights to the majority of South African workers for the first time, and rapidly reducing labour conflict. In addition, the reform of agricultural support institutions and legislation was begun, together with a programme of land reform and restitution.
Government implemented a macroeconomic reform programme in an effort to stabilise major macroeconomic aggregates. It led to a reduced fiscal deficit, ended the financial rand and improved competitiveness (although some would debate this view). Inflation and real interest rates declined. Monetary policy shifted towards inflation targeting. Government reduced its debt, which it argued constrained our capacity for socio-economic delivery and increased our vulnerability to volatility in international capital markets. This affected social spending in real terms in the late 1990s. Now with reduced debt, falling inflation and interest rates, real increases in government spending have become possible.
The government embarked on a programme of restructuring state assets. It adopted the RDP guidelines that in “restructuring the public sector to carry out national goals, the balance of evidence will guide the decision for or against various economic policy measures. The democratic government must therefore consider:
increasing the public sector in strategic areas through, for example, nationalisation, purchasing a shareholding in companies, establishing new public corporations or joint ventures with the private sector, and
reducing the public sector in certain areas in ways that enhance efficiency, advance affirmative action and empower the historically disadvantaged, while ensuring the protection of both consumers and the rights and employment of workers.” (para 4.2.5)
Debates arose with labour, and in 1996 the NFA was negotiated. It aimed to facilitate negotiations with organised labour where restructuring would affect ownership. Nonetheless, the actual programmes of restructuring have caused debate.
New legislation and an institutional framework for skills development have been implemented, although there appears to be a failure on the part of firms to access funds for training.
In terms of the results, on the positive side, we have seen:
A rapid expansion in exports, with a shift toward higher value added and greater regional diversification. Raw and refined minerals now make up only just over half of total exports.
Labour productivity also rose substantially, and informal employment expanded, although the figures are somewhat debatable. Labour unrest has declined greatly compared to the years before 1994.
The level of skills in the population and the workforce is now considerably higher than it was even ten years ago. Some 72 per cent of people aged 15 to 35 have some secondary school, compared to around 51 per cent for those over 35.
Government debt and debt costs have declined, releasing funds for social and economic programmes.
On the negatives, we have seen:
At best slow employment growth and a shift to informal employment. Given the growth in the labour force, this has brought a steep rise in unemployment, especially amongst the youth – ironically, the most educated segment of the workforce. Moreover, the formal sector has probably lost jobs; and the new jobs in the informal sector have typically paid far less. In 2000, some 60 per cent of informal jobs paid less than R500 a month, compared to 11 per cent of formal jobs.
Inadequate and cyclical economic growth. This was associated with investment at under 20 per cent of the GDP – far too low to bring about rapid growth. Moreover, the investment rate declined in the late 1990s, after an increase in the first five years of democracy. In 2000, investment reached its lowest point since 1993.
Portfolio investment – that is, foreign financial investment in stocks and bonds – has made up the bulk of foreign investment. Still, where foreign companies have invested in production, their holdings have been of a high quality. Concerns have been raised about the listing overseas of some major South African companies.
There is no doubt that the cost of the restructuring has been felt particularly acutely by the poorest of the poor. A particular problem for labour has been the loss of formal jobs, which directly affects workers and, more broadly, virtually all the very poor, who ultimately depend on their wages for a significant share of their income. The ANC government aimed to redirect social services to meet the needs of the poor, but given the backlogs caused by apartheid and the limits on government spending, it has not always been possible to offer even a basic social safety net for all South Africans.
Of course, there has not been agreement within the Alliance on the measures taken. This has been partly due to genuine policy differences, but also to the fact that we have not managed the Alliance as well as we could have.
We can spend a lot of time debating whether the GEAR was necessary or appropriate, and whether the negatives outweigh the positives. We are now eight years into the democratic dispensation and all of us agree that it is imperative that we accelerate fundamental and sustained impact on the structures of the economy that we inherited from apartheid.
TOWARD ACCELERATED GROWTH AND DEVELOPMENT
The following would be the essential elements we would envisage for the structure of the political economy in 2014: South Africa will have an adaptive economy characterized by high levels of growth, rapidly increasing employment and greater social and economic equity and integration, built on improved skills levels, broader ownership of productive assets, appropriate urban and rural development strategies, and improved access to basic services and infrastructure for workers and the self-employed.
The requirements to realise this vision include the following. All these dimensions are capable of more precise definition and measurement as to whether we are getting closer to them as the next years go by:
An increase in overall level of social and productive investment, within an appropriate spatial strategy
Increased social equity and reduced inequality based on
Reduced unemployment and underemployment, with rising skill levels
Improved and expanded social services and infrastructure in poor communities
Black Economic Empowerment
More equitable ownership of agricultural land and productive capital, with an established co-op movement, and a greater diversity of enterprise type and size
An integrated manufacturing economy capable of high degrees of value added
An extensive ICT and logistics system capable of speed and flexibility, and a high degree of knowledge and technology capacity.
Improved public participation in the process of development and governance
An efficient, strong and responsive state structure
People who are skilled, informed and adaptable citizens
Achieving these objectives will take a number of years, and in different phases our policies and actions will have different emphases. Our policies must have real results, and accordingly a critical task is to develop a greater capacity to measure and monitor. Our progress cannot remain abstract. It has to be discernable in the changing structure of the economy and the lives of its people.
Our proposals here accord with the basic structure of the RDP – that is, a people-centred approach; meeting basic needs; developing our human resources; restructuring and rebuilding the economy; democratising the institutions of the political economy and achieving a high degree of coordination in governance within an overall macroeconomic balance.
TOWARD A GROWTH AND DEVELOPMENT SUMMIT
To meet these challenges demands that we mobilise and unite political, social and economic resources behind concrete programmes for growth and development. There is ample international evidence of the comparative advantage that clear agreements between government, business, labour and other civil society formations can afford countries that seek to drive growth and development. The challenge of realising our exceptional possibility for sustained economic and social transformation in a globalising world is essentially the challenge of building unity of purpose, and in action around growth and development
This is the context in which the proposed Growth and Development Summit will take place. The President has announced that there will be a Growth and Development Summit this year. Government, business, labour and other civil society organisations have welcomed this announcement and believe the summit could be an important moment in terms of these agreements, as they could be put in place in the run up to the summit or proceeding from it.
Such a summit should deal with a limited number of key issues rather than attempt to address the broad spectrum of government policy. The following areas are proposed as a basis for further debate within the Alliance. The specific content of any agreements obviously requires much further discussion. The specifics alluded to here are intended for illustrative purposes only.
Government has already committed to large increases in capital expenditure. This could be augmented through agreements on investment. For example, investment locally can be increased by business foregoing the increase in short-term earnings that can be made by investing offshore or in equities alone and investing in infrastructure, skills development and training and in venture capital projects for a longer-term return. An agreement on this would ensure that a proportion of pension and provident fund money is allocated to match government investment in infrastructure and in BEE, for instance. These investments could be co-ordinated around the rural and urban development strategies. We should also consider ways to use bonds to raise money for municipalities. We need also to look at how these proposals relate to the negotiations in the lead up to the Financial Sector Summit.
In addition, the question of mobilisation around infrastructure roll out and maintenance, for example building on the ANC’s Letsema campaign, requires further discussion and elaboration.
Promoting collective economic action
In order to restructure the economy, the Alliance needs to take seriously the promotion of collective economic action. This can focus on different aspects of the economy, such as sectors and value addition chains. We need to develop tripartite processes to establish common strategies and actions to achieve growth, value addition, employment and improved equity. The state must play a leading role in dynamising such processes. The Growth and Development Summit could set a framework for these types of processes, to ensure that taken together they restructure the economy.
In this context, COSATU sees sector summits as particularly useful and important.
Apart from the aspect of creating a climate for investment and other measures to ensure private sector job creation, government could create jobs directly through labour intensive infrastructure and service development programs. To achieve this it will require agreement on the nature of benefits for those involved, including allowances and skills, for instance along the lines of the Working for Water campaign. Projects could include ABET, home care for people with AIDS and other diseases, childcare and safety and security.
The use of labour-based methods should be revisited and reinforced. The approach to rural employment and the role that business and labour can play is a matter that requires analysis. The rapid implementation of the learnership program is a form of employment and income redistribution that could deliver quick results.
Greater social equity
The Growth and Development Summit should help mobilise stakeholders to contribute more to programmes to improve basic social services and infrastructure as well as social security and other strategies that contribute to improved economic and social equity. Social security and basic services should be redesigned to maximise the impact on economic growth and employment as well as improving living standards.
Price Stability / Inflation.
This requires us to address the pricing practices of both the public and private sectors as the structure of our economy changes. The origins of price increases must be examined and dealt with in the context of increased productivity and competitiveness of the economy. In particular the prices of basic consumer commodities and inputs have to be assessed.
Systematic use of supply-side measures, improved efficiency in retail and government programmes to ensure price stability for basic wage goods, above all basic foods, can help hold down labour costs while improving labour standards for the poor. Key programmes include measures to ensure affordable maize, transport, housing and healthcare.
While external pressures – especially the depreciation of the rand – and concentrated markets are now the main factors behind inflationary pressures, the relationship between wage and price increases might be better managed through agreements between government, business and labour. One possibility would be multi-year agreements setting guidelines for collective bargaining on wages and benefits. Any such measure would have to ensure that wages that were artificially depressed by apartheid can be improved, and that the share of labour in the national income does not decline – that is, wage increases in real terms have to maintain labour’s gains from improved productivity.
Improved economic efficiency and productivity.
There have already been significant increases in labour productivity. The reorganisation of work and a commitment to management and work organisation practices that deliver further improvements is one way of approaching this. Increased expenditure on skills development, training and focussed areas of education can also help deliver these objectives but would require a real commitment form business and labour in terms of skills development. Government may have to add additional capacity in this are to ensure that results are achieved faster than at present
Improving efficiency and productivity, could look at the role of workplace improvements and collective agreements in improving this dimension of the economy. The Workplace Challenge program could be extended. The Auto Collective agreement where wages are linked to skills could be considered. A crucial area here would be the uptake and use of the SETA funds.
There are other areas of agreement could create the climate for further agreements and could improve the partnership relationship between government, business, labour and civil society, as well as help to create a more caring, stable and predictable social and economic environment. Some of these are:
Strategies for ensuring accelerated local economic development and mobilisation of popular forces around the existing developmental frameworks (i.e. IDPs)
Joint campaigns with clearly specified roles on specific issues (e.g. crime reduction or HIV/AIDS) with clear roles for business and labour as well as government. These could build on the Letsema Campaign. For instance, COSATU could encourage shop stewards and members to support neighbourhood watch programmes and blow the whistle on corruption in provision of government services and traffic control.
Strengthening policy processes generally to ensure that these processes are more inclusive and more effective
Some challenges and other requirements are there for reaching the needed agreements and developing the growth and development strategy.
THE WAY FORWARD
] The Alliance needs to finalise its approach to the growth and development strategy. It will need to mobilise the membership of the Alliance organisations in support of these agreements to ensure their success.
Given the urgent challenge of ensuring growth, development and job creation that will benefit the overwhelming majority of our people, all three components of the Alliance are agreed that they should work together to develop a series of key agreements for growth and development. Such agreements would be aimed at building unity of purpose among all South Africans around a common programme of development towards a better life for all, based on the principles of the RDP.
The purpose of the Alliance Summit in this regard should be to ensure that we forge a broad consensus on programmes to accelerate growth and development. The Summit could also agree on a limited number of joint actions to support this approach. However, any attempt to agree on every detail of this immense programme will be too exacting and obscure to provide the momentum and confidence that we need at the present time.
It is essential that considerable resources be directed towards narrowing as far as possible the differences within the Alliance on issues of socio-economic strategy. The Alliance Secretariat should establish an appropriate Alliance process to refine proposals for the Growth and Development Summit, possibly convened by the ANC ETC. Furthermore, agreement is required on timeframes and key milestones. The date for the proposed Growth and Development Summit needs to be finalised.
Detailed proposals must be worked out utilising the capacity of government primarily, but drawing in the resources, talent and energy of the social partners in the form of labour, business and other civil society organisations.
Engagement should take place with broader civil society – that is, labour, youth, women, communities of faith, progressive NGOs, the disabled and civics. At the same time, we would mobilise our people around our core campaigns and programmes outlined in a common Alliance programme of action.
APPENDIX ONE: ACCELERATING GROWTH AND DEVELOPMENT
A SUMMARY OF GOVERNMENT’S MICROECONOMIC REFORM PROGRAMME
By the end of 2000 assessments made indicated that macroeconomic reform alone could not stimulate the levels of savings and investment needed to underwrite growth. The limits to growth persisted at the microeconomic level and inform our approach to accelerating growth and development.
These microeconomic constraints to growth exist in both the developed and underdeveloped aspects of the economy. In the developed economy there are impediments to cost competitiveness such as the tariffs charged by certain state-owned enterprises impeding the efficiency of supply chains. In the underdeveloped economy there is a lack of basic infrastructure, especially roads and communications. Impediments to cost competitiveness exist in the labour market as a result of a mismatch of labour demand and supply, the low levels of education and skills of the workforce, and the need for ongoing review of labour market regulation. There is also technological under provision: per capita expenditure on IT is low compared to South Africa’s competitors, investment in research and development is low, public science and technology infrastructure is weak, and there are low levels of public science awareness. Further, there are low levels of integration in the manufacturing process contributing to insufficient value addition, and there is inadequate investment in equipment and machine tools, knowledge and training.
Given that the RDP is basis of policy and having achieved a level of macro-economic stabilisation, we now need to enter a phase of intense microeconomic reform so as to consolidate development, growth and a better life for all by 2014.
In February 2001, President Mbeki announced an integrated action plan to address microeconomic constraints to growth. Approximately two-thirds of the concrete steps contained in the plan were implemented. Important lessons were learnt by the state through this process and consequently additional actions and areas for fine-tuning were identified in January 2002. Some of the lessons learned include:
The need for decisive, coordinated interventions to improve the state’s capacity to spend and deliver services.
The need to strengthen the cluster system in government to promote coordinated implementation
The need to specify the institutional role of the state in achieving our vision for 2014.
The need to identify and communicate short-term strategies to kick-start growth and employment creation.
The need to specifically include a geographical dimension to growth and employment.
Recognising the importance of policy stability and effective regulation for policy certainty and confidence in the economy.
The need to acknowledge and communicate the timing of the impact of policies. We have to recognize that HRD, skills and technology development are medium to long-term strategies.
The diagram on the next page provides and overview of the integrated action plan
The plan identifies six key performance areas, namely, growth, competitiveness, employment, small business development, black economic empowerment, and geographic spread. Specific strategies to address the last four of these are considered below.
BLACK ECONOMIC EMPOWERMENT
A four-pronged approach to black economic empowerment has been adopted. This will be elaborated in a comprehensive policy statement on the matter that will be released in May 2002. In summary, the strategy includes:
The provision of an enhanced environment for Black Economic Empowerment.
The introduction of new products by government to promote Black Economic Empowerment including the proposed integrated financing mechanism (see Access to Finance in point 20 below), further procurement reforms, opportunities created through the restructuring of state-owned enterprises, land reform, support to cooperatives, the development and implementation of sectoral BEE strategies, and business development support.
The introduction of a partnership programme with the private sector
The establishment of a non-statutory BEE advisory council
SMALL BUSINESS DEVELOPMENT
A renewed small business development strategy is currently being finalised for publication in May 2002. The strategy will represent a cross-departmental government approach to small business development. The key components of the strategy are:
Specific sectoral initiatives to promote small business development
The introduction of new products to support small businesses
Greater coordination across government
Amendments to the National Small Business Act
The consolidation of all mentorship support projects
Improved access to finance (see Access to Finance section above)
Increased access to markets through competition policy and export promotion
The promotion of entrepreneurship
The expansion of business support infrastructure and the provision of localised support infrastructure
A government-wide approach to employment is needed. A three-stage approach to addressing the employment question is being followed:
In the long-term, the restructuring of the economy and higher levels of integration in manufacturing resulting from the successful implementation of the our approach to growth and development will result in employment creation in the economy.
There are also several medium-term strategies that are in place to generate jobs including increased public sector capital expenditure, improved labour market information, small business development and black economic empowerment, and human resource development.
However, it is recognised that immediate short-term actions need to be taken to create jobs. Such actions will include specific programmes in rural areas, urban nodes, and specific sectors of the economy, as well as programmes for new labour market entrants.
A legacy of the policies of the apartheid regime is the uneven economic development of South Africa’s regions. In order to achieve greater geographic equity a specific focus on the geographic spread of economic activities and investment has been adopted. A range of policies is already in place in this regard, such as the Integrated Sustainable Rural Development Strategy, the Urban Renewal Strategy, Industrial Development Zones, Spatial Development Initiatives, and Integrated Development Plans. The challenge to the state is to improve the coherence of these strategies and ensure more coordinated implementation. In this regard, productive investments have to be linked to areas of high poverty and unemployment and more geo-technical data and analysis required.
ROLE OF THE STATE
Government’s institutional role
The role of the state in ensuring the successful implementation of the microeconomic reform strategy in order to attain Vision 2014 includes the following priority actions:
Promoting coherent policy across government, i.e., policies that promote growth and employment.
Ensuring the all legislation and regulations promote growth and employment.
Narrowing the gap between financial and operational planning with spending and identification of priorities.
Restructuring government budgets to better reflect and measure this new coordinated approach.
Managing the mandates of parastatals and public entities in promoting growth and employment.
Improved knowledge management and information sharing.
More effective management of intergovernmental relations.
Improved communications, branding and marketing to build policy certainty and confidence.
Increasing the capacity of government to spend effectively.
More effective engagement and dialogue with the social partners and the rest of civil society
A critical component of the role of the state is to ensure that the various products and services, the policy instruments that it designs and offers to citizens and economic actors are relevant, effective and easily accessible. To achieve this, government will:
Compile a products register in each department.
Review all existing products for relevance, efficacy and accessibility.
Replace inadequate offerings that do not contribute to government’s objectives.
Introduce new, more relevant offerings.
Review and introduce new delivery systems to improve access, reach and volume of offerings delivered to targeted groups in particular, and citizens in general.
Targets, monitoring and evaluation
Government will increase the resources available for measuring performance against its objectives and will develop uniform and integrated measurement systems across government. Performance will be more frequently communicated to stakeholders. The impact of projects, programmes and policies will be a focus.
There have been considerable achievements in terms of macroeconomic balance as outlined above. There is still need for fine-tuning of macroeconomic policy in order to address the consequences of a volatile and undervalued exchange rate for inflation and for food and input price. Attention also needs to be paid to government’s weak investment performance for while funds available on budget for capital expenditure have increased, investment performance has not improved.
A country’s current and future competitiveness requires that a set of ‘fundamentals’ be in place in the economy. These ‘fundamentals’ include appropriate and efficient economic and social infrastructure, access to finance for productive activities, investment in research and development, innovation and the take-up of new technologies, as well as investment in human capital and an adaptive, flexible workforce. The state has a critical and active role to play in developing appropriate policies and initiating programmes to ensure that these competitiveness fundamentals are in place in the economy.
However, the state can play a greater role in raising levels of investment in R&D, human resource development, and infrastructure, as well as in making capital available for new productive activities. This should be a major part of the Growth and development Strategy.
With respect to technology issues, it is apparent that progress has been made in a number of areas including a new biotechnology strategy. Unfortunately, investment in research and development (R&D) remains low.
A new technology, innovation and R&D strategy proposes a number of measures that government will take to raise investment in R&D, including:
An increase in funding for strategic areas such as biotechnology.
Strengthening research in the private sector.
Addressing issues of intellectual property and indigenous knowledge systems.
Coordinating the currently fragmented management of state-led science and technology activities.
Improvements in the rate of technology take-up by enterprises through technology incubators, and venture and seed capital funds.
Establishing strong centres of excellence in tertiary institutions and science councils.
Strengthening and extending regional innovation initiatives.
The integrated human resource development strategy is being implemented, however, further work will be undertaken to extend the visibility and impact of the strategy to the continent, social partners, and all spheres of government. Further, individual departments will align their departmental priorities with the HRD strategy. Additional capacity and financial resources will be allocated to the implementation of the strategy on a sustainable basis.
ACCESS TO FINANCE
Access to finance for small business development and black economic empowerment will be enhanced through the coordination and subsequent integration of existing financing vehicles such as Khula and the National Empowerment Fund. Such an integrated financing mechanism will include incentives (currently offered by the dti), guarantees (currently offered by Khula), grant facilities, risk capital, debt and equity financing, and specialist funds for targeted beneficiaries, e.g., youth and women. It is anticipated that this mechanism will address the current uncoordinated approach of government to access to finance.
Government will also promote and support alternative financial institutions, second-tier institutions, and community-based saving schemes. Legislation providing for disclosure and community reinvestment in the financial sector will be enacted. The role of the Post Bank in providing affordable services to the largely unbanked rural communities will be strengthened.
An integrated system for planning and implementation of infrastructure is critical. This system will include national departments, parastatals, provincial and local governments. Further, more work is required to integrate social and economic infrastructure projects.
Critical infrastructure projects currently underway include:
Coega Port and Industrial Development Zone
Industrial Development Zones in Richards Bay and East London
Regional spatial development initiatives, eg, Lubombo SDI
Tourism and heritage infrastructure projects
Construction of a link road in Richards Bay
Steel and aluminium hubs
Logistics projects linking the Gauteng auto cluster and Durban port
Municipal and Metropolitan investment projects, for example, Blue IQ in Gauteng
Development of gas fields on the West Coast and the Pande gas fields
Input costs drive competitiveness for they impact on all economic activities across the economy. Three critical input sectors, namely, transport, energy and telecommunications, are firmly within the ambit of the state’s control as these sectors are dominated by parastatals. Two issues confront the state with respect to these sectors: ensuring greater access to these services by all South Africans, and ensuring the cost competitiveness and efficiency of these services. The mandates of parastatals will be reviewed to ensure that the emphasis is placed on delivering an efficient service rather than profit seeking for its own sake.
A process of managed liberalization is underway in the three input sectors in order to introduce competition, increase efficiencies and lower costs. Further, infrastructure projects are underway in each sector to expand access to services and upgrade service delivery.
In addition, to the three input sectors identified in the 2001 integrated action plan, it should be noted that issues around water and water resource management are increasingly important.
Government will focus on the following transport issues in 2002:
Ports policy and improving the overall competitiveness of freight and wharfage charges
Increasing airline frequencies
Upgrading rural roads
Finalising appropriate restructuring models for Spoornet’s coal link general freight business
Prioritisation of the taxi recapitalisation project
Integration of SADC transport systems
Government will focus on the following key issues in 2002:
Increasing the competitiveness of local fixed line operations, cellular telephone networks, and international telecommunications through legislative and regulatory reforms
Creation of black economic empowerment and small business investment opportunities through the managed liberalization of the sector
Utilising new technologies to lower telecommunications costs for underdeveloped regions
Improving government coordination on telecommunications issues
Strengthening the capacity and role of Icasa
Government is prioritising the following issues in the energy sector in 2002:
Implementation of an integrated energy plan
Continued implementation of the national electrification programme
Introduction and encouragement of greater utilization of renewable energy sources
Implementation of energy efficiency programmes
Development of a twenty-year gas master framework
Institutionalisation of the liquid fuels charter
Five sectors of the economy that have considerable potential for increased outputs, exports, and employment creation will receive focused attention from the state. These sectors are export sectors, agriculture, tourism, ICTs, and cultural industries. In each sector, programmes will include a specific focus on employment generation, value addition, export growth, small business development and black economic empowerment.
The state is addressing the key drivers of export performance, namely:
Taking advantage of and expanding market access
Improved supply chain management and logistics
Supporting product design and innovation
Addressing issues of standards and non-tariff barriers to trade
Strengthening and expanding export councils and other sectoral partnerships
Branding and marketing sectors and clusters
Increased government coordination in the development of sector strategies
Integration of geographic, BEE and small business objectives in sector strategies
The following export sectors have been targeted for priority attention in 2002/03:
Clothing and textiles
Auto, auto components and transport
Mining, metals and minerals beneficiation
Chemicals and biotech
Information and communication technology
These sectors have been selected for their employment potential in wider value chains, integration into global production systems, potential for beneficiation, and the strengthening of existing competitive advantages.
In 2002/03, government is prioritising the following activities:
Projects to maximize the benefits arising from a depreciated exchange rate for both increased international visitors and domestic tourism
Joint marketing strategies to six major tourism markets
Focus on new non-traditional tourism markets in Africa, China and the Middle East
Reviewing the role and strategy of SAA with a view to increasing the number of flights to SA
Strengthening human resource development in the sector
Promotion of BEE and small business development in the sector
New, expanded and restructured national and transfrontier parks
Consolidation of investment in and the further development of the Lubombo and Wild Coast spatial development initiatives
Improvements in the standards and quality of tourism products and services
A strategic plan for agriculture has been jointly developed and agreed upon by government and the organized agricultural sector, including both established and emerging farmers. This landmark agreement will now be implemented, including the following:
Fast-tracking of the land redistribution and agricultural development programme
Support programme for black farmers
Implementation of a risk management strategy
Expanding and developing organized agriculture
Developing of domestic and global markets for agricultural products
Introduction of PPPs in new farmer settlements
Focusing on high value-added and export-orientated sectors
Promoting competitive supply chains
Increasing investment in innovation and research and development
Development of rural financing mechanisms
Introduction of an agricultural database and information management
South Africa is developing a competitive advantage in several areas of ICT including project solutions, wireless technology, systems integration, encryption and security, and offshore desktop publishing. Government has already coordinated the establishment of an ICT Development Council with the private sector and other role players. An ICT sector summit is currently being planned under the auspices of Nedlac.
Specific focus areas of government in this sector in 2002 are:
Implementation of e-commerce legislation
Development of opportunities in online processing and call centres
Maximising the benefits of the President’s international ICT council
Increasing the number of graduates with IT skills
Increasing ICT learnership programmes
Introduction of a small business ICT strategy
Market South Africa as a source of high quality IT products, services and training
Software development for export
Increase research and development investment in the ICT sector
Development of ICT clusters in Gauteng and Western Cape
South Africa’s cultural industries include music, film and television, audio-visual services, publishing, and crafts. The sector is growing and government will be taking various actions in 2002 to further promote the sector including:
Marketing to increase exports
Establishment of an export council
Improved access to finance for small businesses
Improved training in cultural industries
Promotion of South African arts festivals
Use of technology to improve competitiveness of the sector
Establishment of a craft emporium
Strategy on South African audio-visual services
APPENDIX TWO: ACCELERATING GROWTH AND DEVELOPMENT
SOME KEY ISSUES FOR DEBATE AROUND GROWTH AND DEVELOPMENT RAISED BY COSATU
A critical task for the Alliance is to define together the factors behind slow growth and rising unemployment. Debates centre on whether the key causes are:
The structure of the economy, especially the role of the dominant centres of local and foreign capital in terms of the impact on production structure and capital flows combined with persistent underdevelopment in the former homeland areas and townships.
Overall inefficiency and excessive dependence on mineral exports as a result of the history of protection for manufacturing, inefficient provision of infrastructure by the big parastatals, labour market inefficiencies (poor skills and other rigidities) and, in this context, inadequate use of the information and communication technologies (ICT) which is critical for engagement in the modern global economy.
These two analyses are not necessarily contradictory, but they lead to divergent approaches to microeconomic reform.
The structural approach suggests the need for strong and coherent strategies to direct resources into labour-intensive sectors, production of wage goods as well as exports, and gradually to restructure capital by supporting SMMEs, co-ops and state-owned enterprise. In other words, this analysis suggests the need for an industrial strategy geared to transforming the nature of production and capital.
The competitiveness analysis would focus our efforts, instead, on broad measures to enhance efficiency, in large part by ensuring market pricing systems where possible, without favouring particular sectors or restructuring capital systematically. This type of “competitiveness strategy” would accept general support for SMMEs and competition policy, but would not target measures to achieve a particular economic structure.
In this context, key areas of debate within the Alliance include the following.
In terms of microeconomic reforms,
Whether government should use exports alone as the indicator of success, or should also concentrate on improving production of wage goods and services. A greater emphasis on production of basic necessities would require closer co-ordination of social programmes with economic policy, and in particular a review of housing and infrastructure strategies as well as the main social services to ensure they bring the greatest possible benefits in terms of growth and employment creation. In addition, the relative importance of food security in shaping agricultural policy has come to the fore with the recent rapid rise in food prices.
How to deal with the main centres of capital – that is, in particular, the mining and finance houses and foreign investors in manufacturing – to redirect investment to bolster local production, especially in ways that can create employment. A structural approach requires that big capital be compelled to invest in new ways, using a combination of carrots and sticks. It also requires much more rigorous redirection of resources to new types of enterprise. In contrast, a competitiveness strategy aims generally to improve the conditions for efficiency, and leaves the structure of investment and ownership largely up to the workings of the market in that context.
A related question is how rigorously to support a redirection of resources out of the traditional centre of economic power around minerals production, and the potential in this context for strengthening agriculture and food processing; higher value-added in industries related to mining and energy; and other services and manufacturing. These changes can be conceptualised as a process of completing domestic value chains in order to enhance diversity, local value added, employment creation and resilience to changes in international markets. Since restructuring the economy away from mining and basic refining requires a substantial change in approach for capital, this is not an easy policy to develop or enforce.
Debates also arise on how to handle tariff reductions. An industrial strategy approach generally sees tariffs as an important way to nurture potentially competitive industries, in some cases for decades. Changes in the trade regime should be carefully linked to sectoral strategies. A competitiveness strategy, in contrast, generally calls for overall reductions in tariffs in order to ensure a generally more competitive economy.
Finally, how important are sector job summits? COSATU sees these as the most important way to develop a meaningful industrial strategy that is both based on stakeholder support, buy in and information and responsive to the needs of the majority. Critics argue that the results to date have not been convincing, and that this approach requires too much institutional change and resourcing from government departments.
On fiscal and monetary policy, the debates centre on whether a more expansionary approach is possible.
COSATU argues that we need to spend more both to redistribute income, which should stimulate domestic demand, and to improve infrastructure. It sees a basic income grant as a critical element in this strategy. COSATU also contends that where external shocks, like the recent depreciation, raise inflation, government should not permit interest rate hikes. Instead, to restrain price hikes, it should look to measures to raise productivity and enhance the efficiency of markets in key wage-good sectors.
Government has argued that thanks to the fiscal restrictions of the late 1990s, it can now increase spending significantly in real terms in any case, without relaxing fiscal targets. Moreover, vigorous measures are needed to combat inflation. Although interest rate increases may dampen growth and employment in the short run, high inflation would have a worse impact. In any case, a substantial shift in fiscal or monetary targets would hamper foreign investment, which is necessary to counter low domestic savings.
- To focus our debates during the Summit, we propose that the commissions engage with the government’s microeconomic reform strategy and the following proposals for the Growth and Development Strategy. In this process, we can develop a common strategy that we can take forward together to a more inclusive Growth and Development Summit