Building a Demand-Led Skills Development System for Inclusive Economic Growth

1. WHO IS PRODUCTIVITY SA? PRESENTATION TO THE NATIONAL SKILLS CONFERENCE ON THE 14 MARCH 2019. Theme: Building a demand-led skills development system that focuses on inclusive economic growth” and Introduction of the Deputy President TOPIC: Promotion of employment growth and productivity PRESENTED BY: Mothunye Mothiba

2. TABLE OF CONTENTS • Introduction • The South African socio-economic and industry landscape • The strategic role of SMEs in an economy – Employment Growth • The Productivity Value Proposition • Productivity and innovation as a catalyst for competitiveness and sustainable growth • Productivity Improvement Solutions and Tools • Recommended interventions

3. INTRODUCTION • The National Skills conference 2019 comes at the right time as we consolidate our Strategic Partnerships and Alliances and consideration of Strategic Issues towards preparation for the MTSF 2019 – 2014. • The conference will afford us the platform to deliberate and set an agenda for sustainable and inclusive growth driven with skills development strategies aligned with national key priorities, including how we respond as a country to the challenges posed by rapid globalisation and the 4IR, which shape our socio-economic and industry landscape, including the future of work. • I trust that we will share experiences on the centrality of education, training and innovation to South Africa’s long-term development, including an understanding that, life-long learning and work experience improves productivity, enabling a virtuous cycle that grows the economy, as expressed in the National Development Plan, chapter 9: Improving education, training and innovation. • It is through these engagements that we can come up with pathways towards creating economic infrastructure, including world-class centres and programmes as well as systems for knowledge production and application to nurture a skilled and capable workforce to support an inclusive growth path • These initiatives should assist in creating a framework for improving the linkages between institutions responsible for knowledge production and employers as the basis for improving responsiveness and quality in training, Research, Development, and Innovation as well as ensuring that partnerships between government and the private sector are strengthened. • This conference should come up with pathways on creating world-class centres and programmes in the National System of productivity and innovation to improve the competitiveness of our economy.

4. THE SOUTH AFRICAN SOCIO-ECONOMIC AND INDUSTRY LANDSCAPE • Transformation of the South African socio-economic and industry landscape, in particular the labour market, is a difficult task given the stubbornly high levels of unemployment and underemployment, high levels of inequality including income inequality; and poverty including poverty in employment. • Low Gross Domestic Product (GDP) growth. TheGDP has since 2014 slowed down and become more volatile resulting in failure not to qualitatively reduce joblessness, poverty and inequality that emerged before democracy. In 2018, the economy grew by 0.8% and unemployment rate at about 27%. However, growth was recorded at 1.4% in the fourth quarter of 2018. • The impact of rapid globalisation and disruptive technologies, including the 4IR on the socio-economic and Industry landscape. Globalisation and technological advances on the economic competitiveness as well their disruptions to labour markets including the future of work is a reality that cannot be ignored anymore by any economy. South Africa’s productivity growth and overall competitiveness rating is low at an average of 51, way below the global average score of 60 and way below the competitiveness “frontier” of 100 - (the aggregate ideal across all factors of the Competitiveness Index). WEF-GCI Repot and the IMD- CYB, as measured in 2018. . Our competitiveness ranking is also low – according to the WEF Report, we ranked from 47th in 2016 to 67th in 2018 out of 140 countries; and according to the IMD Report from 54 in 2016 to 53 in 2018 out of 63 countries.

5. THE SOUTH AFRICAN SOCIO-ECONOMIC AND INDUSTRY LANDSCAPE • The Competitiveness outlook of South Africa’s SMEs. Across the world SMEs make up 90% of formal businesses, provide employment to over 60% of the labour force and contribute over 35% to the GDP, and are seen as great sources of innovation. However, the opposite holds in South Africa, with the SME contributing less than 30% to employment and very low to GDP. • The majority of South African small businesses generate revenue of less than R200,000 annually and nearly half of SMEs employ between two to five employees, according to the SME Landscape Report, 2018/19. However, according to the report the potential for job creation grows as a small business matures. • These challenges are to a large extent as a consequence of low GDP growth and low employment growth, with unemployment at its lowest at about 27% and the economy growing by 0.8% in 2018. The GDP growth is way below the NDP targets of 6% (best case scenario) or 3.9% (worst case scenario) that we consistently require over the next 10 years towards 2030. • Unless something drastic is done, including taking seriously the issues raised in chapters 3 and 9 of the NDP including productivity growth and competitiveness of the economy, the interventions contained in our industrial Policy, the resolutions in the Presidential Jobs Summit Framework Agreement, as well as the interventions espoused in the SONA, this situation will persist. • If we are to address these challenges, I would argue that Productivity and Innovation should be the drivers of our sustainable and inclusive growth and development as espoused in the National Development Plan, • Our solution lies in the support that we provide to entrepreneurs and SMEs.

6. THE STRATEGIC ROLE OF SMEs IN AN ECONOMY – contribution to GDP and employment growth • Recent thinking in the economic and policymaking communities is that SMEs are a key source or fountain of employment growth • The small business sector is a critical part of the national economy with the NDP looking to SMEs to be major sources of employment and drivers of growth in our economy. • Entrepreneurs and SMEs are innovators and dream of finding an untapped niche and starting a business that will grow to national stature; these are the entrepreneurs that policymakers have in mind when thinking of the generators of future jobs. • However, the problem with targeting young, small businesses as the focus of job creation is that the outcomes of new businesses are diverse. Some new businesses grow phenomenally, but 20 percent of newly created establishments don’t survive their first year in business, 32 percent don’t survive their first 2 years, and 50 percent don’t survive their first 5 years.

7. THE PRODUCTIVITY VALUE PROPOSITION • Productivity is a measure of the efficiency of a person, machine, factory, system, etc., in converting inputs into useful outputs. • It entails converting resources (inputs)into products and services (outputs) efficiently, effectively and with optimum utilisation of human capital and physical resources for the benefit of business, society, the economy and the environment. • Productivity is a mindset that embraces the value of “doing what I do today better than I did yesterday, and even better tomorrow”. Amind-set that continuously aspires to better ways of accomplishing tasks and conducting business.. • It is widely accepted that continuous productivity growth in entities is a significant determinant of sustained output growth and as a consequence can lead to employment creation, higher labour compensation, improvements in living standards and alleviation of poverty and inequality. • At the heart of productivity is the individual, therefore, an organisation can only become more productive through continuous upgrading of knowledge, skills, discipline, effort and collaboration.

8. THE PRODUCTIVITY VALUE PROPOSITION. THE GOAL - FASTER, BETTER, CHEAPER Low Q Slow Quality / accuracy Delivery High Q Fast Cheap Expensive Cost Poor Below average Above average Winning zone

9. THE PRODUCTIVITY VALUE PROPOSITION • An economy’s level of productivity sets the level of potential prosperity for that economy. • The productivity level also determines the rates of return obtained by investments in an economy, which are essentially the fundamental drivers of growth rates. A more competitive economy is one that is likely to grow faster over time. • Therefore, increasing national productivity can raise living standards because more real income improves people's ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs. Productivity growth also helps businesses to be more profitable

10. PRODUCTIVITY AND INNOVATION AS A CATALYST FOR COMPETITIVENESS AND SUSTAINABLE GROWTH • It is worth noting and appreciating the empirical evidence out of the most competitive economies, including Germany, the Nederland, and those in the Nordic countries (Denmark, Norway, Sweden, Finland and Iceland) and in Asia (Singapore, Hong Kong, Taiwan, Malaysia, Japan, Korea and China) which show that improving the levels of national productivity and innovation are the most efficient ways to realise inclusive and sustainable economic growth. • These countries show strong performance in the overall productivity of both government and the private sector. • These include strong features of a high-income economy, institutional and policy environment which promotes growth and labour market efficiency, enabling infrastructure including education and training system which promotes innovation, entrepreneurship and business sophistication, reduced costs of doing business and consistent application of laws and regulations targeted at SMEs, as well as labour market efficiency worth emulating. • Further empirical evidence suggests that, it is possible for a country to be pro-growth and pro-equity. Depending on how productively a country uses its available resources (human and natural), enhance its ability to embrace and adapt to change with agility by all stakeholders, competitiveness is not only associated with higher incomes, but also better socio-economic outcomes, including full and productive work and decent work for all and better living standards. • The above issues present us as a country with a compelling sense of urgency and the need for collaboration in promoting employment growth, job preservation and a culture of productivity in the workplace and in all we do as a country.

11. PRODUCTIVITY AND INNOVATION AS A CATALYST FOR COMPETITIVENESS AND SUSTAINABLE GROWTH • The country’s SME Support Programmes should support the strategic objectives in scaling up efforts to promote long term industrialisation and transformation of the economy targeting enterprises within the productive sectors of the economy, with a focus on IPAP Priority Sectors. • The Programmes should promote development-oriented policies and agenda that support productive activities, decent job creation, entrepreneurship, creativity and innovation. , • Productivity SA’s Enterprise Support Programmes are designed to promote enterprise competitiveness and sustainability. • The Workplace Challenge (WPC) Programme focus on achieving a productive high-income economy which is globally competitive targeting the productive sectors of the economy which have a potential for labour absorption, prioritising SEZs and Industrial Parks. • The Productivity Organisational Solutions (POS) Programme provides training programmes and solutions, including Business Performance Improvement (BPI), Early Warning Systems (EWS) and Business Start-ups with a focus on enhancing the appropriate capacities of SMEs and Co-operatives to adopt world-class productivity enhancement best practices, focusing on products, processes and people. • The Research and Knowledge Management (RKM) Programme was established to providing value-added information on productivity, competitiveness and best practice productivity and competitiveness systems through research activities and databases

12. PRODUCTIVITY IMPROVEMENT SOLUTIONS AND TOOLS

13. RECOMMENDED INTERVENTIONS

14. RECOMMENDED INTERVENTIONS - STRATEGIC PARTNERSHIPS AND ALLIANCES

15. RECOMMENDED INTERVENTIONS - TARGET INDUSTRIES AND PRIORITY SECTORS

16. THANK YOU