The New Growth Path: Provincial Implications

1. The New Growth Path: Provincial Implications Input to NCOP Select Committee February 15, 2011

2. Overview The New Growth Path: A brief overview The spatial challenge Implications for provinces Implications for municipalities

3. SONA 11 February 2011 “We have declared 2011 a year of job creation through meaningful economic transformation and inclusive growth. “We have introduced a New Growth Path that will guide our work in achieving these goals, working within the premise that the creation of decent work is at the centre of our economic policies.” … “All government departments will align their programmes with the job creation imperative. The provincial and local spheres have been requested to do the same. “The programmes of the State Owned Enterprises and development finance institutions should also be more strongly aligned to the job creation agenda.”

4. The jobs challenge Labour absorption (Percentage of people aged 15-64 who are employed) (ILO) South Africa 41,3% Egypt 43,2% India 55,6% Argentina 56,5% South Korea 58,1% Malaysia 60,5% Brazil 63,9% China 71,0% 4 Confidential

5. New global context The rise of new economic powers China, India, Brazil Scramble for Africa’s resources Economic fragility Imbalances and systemic weakness remain Slow recovery in global North Policy space Climate change – and new massive green industrialisation wave Technological innovation – jobs for the future actual estimated world GDP and national shares calculated using PPP dollars (IMF WEO) 5 Confidential

6. China – an example What we sell: Top 10 Exports Iron ore Ferro-Alloys Chromium ores Manganese ores Platinum Flat-rolled steel Wool (raw) Copper waste and scrap Zirconium and vanadium ores Nickel plates, sheets and foil What we buy: Top 10 Imports Cell-phones and phones Computers Printing machines Plastic and rubber boots Televisions and monitors Kettles, microwave ovens and toasters Dresses and women’s jackets Suitcases and bags Sports shoes Computer and cash register parts and accessories Confidential 6

7. Rail lines in Africa

8. The New Growth Path • Addresses • Deep-seated structural problems that lead to high joblessness and inequality • Specifically have to turn around major job losses in recent crisis • Take advantage of opportunities in regional economy and changing global conditions • The process • Builds on mandate to prioritise employment creation • Approved by Cabinet in October 2010 • Cabinet lekgotla identified priorities for 2011/12, reflected in SoNA • Requires alignment by all spheres and agencies of the state, with regular reporting on what they are doing to support employment creation and growth

9. Employment intensity and growth To achieve jobs target requires growth AND greater employment intensity of growth (employment increase relative to GDP growth) Employment intensity of 0,2% would require a growth rate of over 15%; employment intensity of 0,8 would require a growth rate of 4% Debates about historic intensity of growth: 0.8 from 1996 (Census data) to the second quarter of 2010 (QLFS data); 0.5 from 2001 (LFS data) to the second quarter of 2010 (QLFS data); and .67 from 2002 (LFS data) to the second quarter of 2009 (QLFS data).

10. The approach: Identify what is needed to achieve the jobs and investment Identify key jobs drivers where employment is possible 5 million new jobs by 2020 Key steps by the state: directly and in facilitating broader growth New opportunities in changing regional & global environment Private sector: how to align outcomes with jobs goals 10

11. 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 11

12. Policy drivers Microeconomic policy drivers • Macro-economic strategy: counter-cyclical/support a competitive rand • More relaxed monetary policy • Address inflationary pressures through fiscal policy and targeted micro-economic strategies • Address cost drivers and inflationary pressures across the economy • Active industrial policy based on increasing competitiveness and targeting sectors that can create employment directly and indirectly • Comprehensive rural development • Stronger competition policy • Stepping up education and skills development • Enterprise development • Reform of Broad-Based BEE • Reform labour policies to support productivity and improve protection for vulnerable workers • Technology policies geared to improving innovation in ways that support employment creation and small- and micro-enterprise • Developmental trade policies with a strong orientation to new growth centres • Investment to support African development

13. 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. 13 Confidential

14. 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 14 Confidential

15. Resource drivers • SoNA: • R9 billion in the Jobs Fund over the next 3 years – public employment schemes plus subsidies to private employers • R10 bn from the IDC in next 5 years for job-creating projects • R20 billion in investment subsidies • Comprehensive support for SMEs 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. 15

16. Institutional driversThe developmental state • Agile, responsive, learning • Profound shift in culture – from compliance/process to delivery/outcomes • Alignment around growth path – review budgets, programmes and procurement policies • The DFIs (IDC, DBSA, Land Bank, Khula, SAMAF, NEF) • The GEPF and the PIC, as crucial investment drivers • The SARB, within its Constitutional mandate • The infrastructure SOEs (Transnet and Eskom) • ITAC and Customs & Excise • The Competition Commission/Tribunal and other regulatory, standard-setting and accreditation bodies • The science councils, universities and Mintek 16

17. Institutional drivers outside the state BUSINESS • Business and markets vital – jobs, investment, entrepreneurship, technology • Large companies linked to national-base • Developmental state not simply hostage to market forces and vested interests: through careful alliances, clear purpose and leveraging its resource and regulatory capacity, can align market outcomes more clearly with development needs LABOUR • Resources include skills commitments, productivity-agreements, retirement funds, union investment vehicles, wage agreements, public service delivery • Without a common vision and strategic unity, not possible to make real progress and the society will simply exhaust itself on policy polarisation, while the extent of the developmental crisis grows • SOCIAL DIALOGUE • Time-consuming – but crucial • Deepen dialogue at sector and workplace • Strengthen institutions from constituencies to NEDLAC • Mobilise South Africans behind a vision 17

18. In other words… …a comprehensive response to the structural crises of poverty, unemployment and inequality… …based on solidarity across society

19. A dual challenge around geography • Apartheid space was designed to enforce marginalisation and disempowerment • The Bantustans as labour reserves • Townships far from jobs, adding to the cost and difficulty of employment • New administrations at municipal and provincial level • Limited coherence on economic policy with national sphere • Institutions and systems in some areas weak and under-funded • Particularly in former Bantustans where revenues are low and it’s hard to attract skills

20. Settlement patterns Bantustans Provinces

21. Inequalities in economic activity and opportunities • Gauteng, KZN and the Western Cape account for • Just over half the population • Two thirds of the GDP • Two thirds of all formal employment and all private employment although only half of public employment • Three quarters of manufacturing and of financial/business services

22. The employment challenge • The labour absorption rate – the share of the population with employment – is around 64% internationally, but only 41% in South Africa • Much lower in former Bantustan regions than in the metros and secondary cities • Reflected in provincial disparities, with the lowest labour absorption rates in Limpopo and the Eastern Cape

23. Municipal differences • Differences in economic opportunity translate into huge differences in incomes • Incomes in the former Bantustans are around a tenth as high as in the metros and secondary cities • Income inequalities mean that average incomes are much higher than medians in all cases

24. The result: Huge differences in municipal revenue and capacity Municipal revenue by source, 2009 Funding of capex by source, 2009

25. The New Growth Path response • The economic strategy: • Develop a realistic spatial perspective – what can we do to improve conditions in every region? • Ensure support from SOEs and DFIs • Drive rural development to create livelihoods in impoverished regions • Make economic centres (metros and secondary cities) more efficient • Governance: • Support improved communication and alignment between spheres on economic strategies • Tailor implementation of NGP to realities of different regions • Clear and practical annual priorities • Improve understanding of the employment impact of projects, programmes and regulations, with regular reports

26. In the coming year... • Improve alignment between settlement patterns and economic activity in the long run • Better planning to secure outcomes (eg power station with human settlements, water, industry) • Improve connections between economic policy departments in provinces, municipalities and national government, based in • Strengthening the Economic Development MinMEC • Clear prioritisation amongst economic programmes and projects • Address regulatory inefficiencies in economic centres (metros and secondary cities)

27. Provinces – initial areasof joint action 27 Align provincial and national economic plans Integrated green economy plan developed by IDC for all provinces Provincial impact of infrastructure Small business agencies: coordinated, one-stop shop Agro-processing: connect the opportunities in a systematic way Procurement: review of regulations that will provide provinces with new opportunities Jobs goals to be developed by each province.

28. The contribution of SOEs and DFIs

29. Eskom • Major plants located near coal reserves, with localised employment effects • Should create 2000 new jobs in the coming year • Main employment impact from maintaining electricity supply across the country • Also create jobs in all provinces through • Procurement from build programme • Electrification programme • Municipal electricity maintenance

30. Working with the DFIs and SOEs NGP should drive a spatial vision that increasingly shapes projects from DFIs and SOEs EDD is working with the IDC, Khula and SAMAF to align with requirements of employment creation and equity in spatial terms Improve communication flows between spheres to maximise impact

31. MinMEC to align development strategies Alignment of SOE/DFI projects Moving forward together Common vision for spatial development Employment reporting to monitor outcomes

32. Conclusion • 2011 is a year of job creation • Coordination of policy, regulation, planning and implementation across government is critical • Involve communities • The public sector contributes directly and by creating conditions for new private activities that can generate new opportunities on a mass scale • Social partners - business, labour and civil society - have a crucial role to play