ASSESSING THE NEW GROWTH PATH FOR SA SOME INITIAL BUSA PERSPECTIVES

1. ASSESSING THE NEW GROWTH PATH FOR SA —SOME INITIAL BUSA PERSPECTIVES MEDIA BRIEFING THURSDAY 2 DECEMBER 2010 JOHANNESBURG

2. 1. INTRODUCTION Together with Government and Stakeholders, BUSA has recently been addressing the challenge of a new growth path for SA. Prior to the release of the Government document last week, BUSA had prepared a discussion document — based on widespread research — to assist its members in unpacking key issues around the search for improving SA’s economic performance. The BUSA internal debate has also sought to galvanize the national psyche towards growth and jobs and to focus the role of the private sector. 2

3. INTRODUCTION - continued The BUSA discussion document was eventually based on — Confirming the broad socio-economic challenges faced by SA. The need for a higher growth path as a necessary condition for successful development. Lessons from the experiences of 5 comparable economies 4 Alternative scenarios 11 tough choices 3

4. 2. OVERALL BACKGROUND TO BUSA DISCUSSION DOCUMENT 2.1. The point of departure is to identify high real GDP growth as a necessary condition for meeting SA's socio-economic challenges in a rapidly restructuring global economy. Long term scenario perspectives are required to accommodate diverse ideas about the future and to be able to engage with the future scenarios developed by other stakeholders in the social dialogue process. 2.2. In creating a framework for the discussion document the elements are — The importance of the role of social dialogue. Some government and labour positions. SA compared with five similar countries and the conclusions drawn from there regarding issues such as macro-economic stability, global competitiveness, poverty reduction, the labour market and the development of the small and medium enterprise. The role of the state as a country moves through different stages of development and faces new challenges from the world economy growth.   4

5. 3. POSSIBLE ALTERNATIVE SCENARIOS FOR GROWTH AND EMPLOYMENT BY 2025 3.1. Four possible scenarios Scenario 4: Stalled at the starting gate Scenario 3: The slow lane Scenario 2: The fast lane Scenario 1: Team South Africa 3.2. In order to lay a solid foundation for the inclusive job-rich scenario there are certain top priorities, such as improving the educational system, skills development and public sector delivery. It is recognised that all these activities need to happen in tandem taking account of the capacity of the state. 5

6. 4. EXPLORING THE TOUGH CHOICES FOR AN INCLUSIVE JOB RICH GROWTH PATH Tough Choice # 1: Stick to a disciplined macroeconomic approach instead of giving in to inflationary temporary employment boosting. Tough Choice # 2: Focus effort on actions rather than talk shops in promoting an inclusive job rich growth path. Tough Choice # 3: Prioritise getting the Delivery State in place before embarking too far on the Developmental State. Tough Choice # 4: Put more skills and more support into the education system rather than more money. Tough Choice # 5: Get business to be deeply engaged in skills development rather than leaving it to the SETAs and the education system. 6

7. EXPLORING THE TOUGH CHOICES FOR AN INCLUSIVE JOB RICH GROWTH PATH – (continued) Tough Choice # 6: Use a targeted approach to skills development and job creation for the unemployed rather than broad-based programmes. Tough Choice # 7: Use an incentivised approach to poverty reduction measures rather than unconditional grants. Tough Choice # 8: Use a targeted value-add approach to industrial development and other more job rich sectors rather than generating wish lists. Tough Choice # 9: Boldly re-engineer State-Owned Enterprises with new partnerships to build up regional infrastructure rather than tinkering with them. Tough Choice # 10: Introduce strategic wage setting rather than sticking rigidly to the current labour relations regime. Tough Choice # 11: Take risk and invest in the SMME and Informal Sectors rather than waiting for them to knock at the door. 7

8. 5. KEY PRIORITIES FOR BUSA Key priorities In order to a lay a solid foundation for the inclusive job-rich growth scenario business identified the following top priorities if South Africa is to achieve an inclusive and job rich growth path by 2025. ‘Back to basics’ in education — world class and placement orientated and accessible to all. Skills development — accessible, relevant and widespread. A delivery State — policy and institutions aligned and monitored to deliver. Regional Infrastructure — economic cooperation with economic and social infrastructure. Inclusive wage setting — wages reflecting skills and productivity, with entry wages facilitating access and employment. Other important issues identified included a possible social pact/social dialogue, SMME support and access to capital, growing the informal sector, opening up SADC markets (free trade, common customs union), more competitive business environment — reduce red tape, reduce crime and costs of doing business, minerals beneficiation. This informs the BUSA positions. 8

9. 6. SOME PREVIOUS KEY PROGRAMMES/STUDIES OF SA ECONOMY Reconstruction and Development Programme (1994) Growth and Redistribution strategy (1996) Jobs Summit (1998) Growth and Development Summit (2003) Asgisa (2005) ‘Harvard’ Economists Study (2007) The Growth Commission (2008) OECD Annual Country Reports on SA WEF Annual Global Competitiveness Reports Now the ‘New Growth Path’. If talking could be factored into our GDP, SA would be the fastest-growing economy in the world — can we ‘walk the talk’ more successfully this time around? Why have we not done better? 9

10. 7. AGAINST THIS BACKGROUND Now move to a broad preliminary evaluation of the Government’s latest NGP discussion document by assessing — The areas of possible agreement. The areas of possible challenges. 10

11. 8. AREAS OF POSSIBLE AGREEMENT BY BUSA IN THE GOVERNMENT DISCUSSION DOCUMENT ON A NEW GROWTH PATH — 5 MILLION JOBS BY 2020 KEY CHALLENGES — THE GOALS Identifying ‘a more inclusive’ high job rich growth path . A comprehensive drive to enhance both social equity and competitiveness; Systemic changes to mobilise domestic investment around activities that can create sustainable employment; and Strong social dialogue to focus all stakeholders on encouraging growth in employment-creating activities. Adapting to global challenges. 11

12. AREAS OF POSSIBLE AGREEMENT BY BUSA IN THE GOVERNMENT DISCUSSION DOCUMENT ON A NEW GROWTH PATH — 5 MILLION JOBS BY 2020 KEY TRADE -OFFS Between present consumption and future growth, since that requires higher investment and saving in the present; Between the needs of different industries for infrastructure, skills and other interventions; Between policies that promise high benefits but also entail substantial risks, and policies that are less transformative and dynamic but are also less likely to have unintended consequences; Between a competitive currency that supports growth in production, employment and exports and a stronger rand that makes imports of capital and consumer goods cheaper; and Between the present costs and future benefits of a green economy. 12

13. AREAS OF POSSIBLE AGREEMENT BY BUSA IN THE GOVERNMENT DISCUSSION DOCUMENT ON A NEW GROWTH PATH — 5 MILLION JOBS BY 2020 MACRO ECONOMIC PACKAGE Consensus on need for a more stable competitive exchange rate. Additional and larger purchases of foreign currencies flowing into SA — building the reserves — to stabilize the rand. Admission that most jobs will be created in the private sector. Greater restraint in fiscal policy within the context of a counter-cyclical policy. Elimination of corruption and waste. Boost SA domestic savings. Development of infrastructure. Strengthen public delivery. 13

14. AREAS OF POSSIBLE AGREEMENT BY BUSA IN THE GOVERNMENT DISCUSSION DOCUMENT ON A NEW GROWTH PATH — 5 MILLION JOBS BY 2020 MICRO ECONOMIC PACKAGE Pro-active competition policy. Review of administered prices. Support long term competitiveness. Innovation and technology policy. Productivity accords. Education and skills development — importance of workplace training. Enterprise development — small business — ‘one stop’ service from state agencies for small business. The importance of successful BBBEE — Review of BBBEE 14

15. AREAS OF POSSIBLE AGREEMENT BY BUSA IN THE GOVERNMENT DISCUSSION DOCUMENT ON A NEW GROWTH PATH — 5 MILLION JOBS BY 2020 MICRO ECONOMIC PACKAGE (continued) (i)Raising multi factor productivity on the basis of fair rewards. (j)Seeking to promote export and addressing unfair competition against domestic production. (k) Encouraging new economic activities to achieve global competitiveness — inclusion of services as an important and competitive sector that can create employment as well as upgrade SA’s knowledge base. Policies for African Development — focused on infrastructure/regulatory blockages in Southern/central Africa. (m) A development bond. (n) Importance of the ‘green’ economy. 15

16. AREAS OF POSSIBLE AGREEMENT BY BUSA IN THE GOVERNMENT DISCUSSION DOCUMENT ON A NEW GROWTH PATH — 5 MILLION JOBS BY 2020 OVERALL ASSESSMENT (Continued) The framework’s broad emphasis on linking remuneration to productivity, boosting competition, removing red tape, small business promotion, reducing wasteful spending, limiting administered prices, accelerating skills development and improving the efficiency of state agencies is laudable. Tacit acknowledgement of the agricultural sector for job creation, genuine BEE and racial reconciliation is welcome. Commitment to fast track land claims and sort out land reform in the sense of also linking it to production. The government's discussion document is therefore ‘agenda-rich’ in providing a wide range of proposals for debate, controversy, and negotiation. 16

17. 9. AREAS OF POSSIBLE CHALLENGES BY BUSA TO THE GOVERNMENT DISCUSSION DOCUMENT ON A NEW GROWTH PATH — 5 MILLION JOBS BY 2020 The continued strong belief in the government’s discussion document in the state’s ability to both make an on-going accurate diagnosis and to offer maximum efficiency in key areas of the economy. Questions around the future size and shape of the state in a ‘mixed’ economy. That the private sector is not really acknowledged as the real driver of the economic process, as opposed to actively deploying it. On the practicalities of being able to negotiate and forge a full-blown ‘social compact’, as contrasted with a series of incremental agreements. On the desirability and practicability in SA of an ‘incomes policy’ on wages, prices and executive bonuses — Implications for investment and productivity. Cost management cannot be promoted through wage and salary ‘caps’ and central determination of incentive structures. 17

18. AREAS OF POSSIBLE CHALLENGES BY BUSA TO THE GOVERNMENT DISCUSSION DOCUMENT ON A NEW GROWTH PATH — 5 MILLION JOBS BY 2020 6. The proposed creation of a state mining corporation and state-owned bank as not representing confidence in the private sector. First fix up ‘old’ parastatals. SA already has a fair number of development finance institutions. 7. On the desirability of putting too much emphasis on Industrial policy to ‘pick some of the winners’ and to generate adequate jobs. 8. The lack of injecting more competition in the so-called ‘network industries’ — electricity, transport, telecommunications — to promote growth and job creation. The pro-competition approach is lopsided. 9.On infrastructure development in at least two countries comparable to SA — Brazil and Australia are countries with the best infrastructure but where the infrastructure is privately owned. 10. Not sufficient weight given to enlarging role of public-private sector partnerships. 18

19. AREAS OF POSSIBLE CHALLENGES BY BUSA TO THE GOVERNMENT DISCUSSION DOCUMENT ON A NEW GROWTH PATH — 5 MILLION JOBS BY 2020 11. Whether it is possible for the ‘green’ economy to generate 300,000 jobs over the next decade. 12. Whether it is feasible to unblock opportunities for 300,000 households through agricultural smallholder schemes. 13. Whether it is realistic to expect to produce 30,000 engineers by 2014. 14. Whether it is desirable to align public sector investment decisions exclusively to development priorities. 19

20. AREAS OF POSSIBLE CHALLENGES BY BUSA TO THE GOVERNMENT DISCUSSION DOCUMENT ON A NEW GROWTH PATH — 5 MILLION JOBS BY 2020 15. Whether the new growth path document will indeed promote coordination and coherence in policy and implementation. 16. A concern here is that multiple state units (National Treasury, the National Planning Commission, the DTI and the Economic Development Department) appear to be developing policy frameworks that do not necessarily align (the MTSF, the Economic Development Strategic Plan and IPAP2) with each other or the Growth Path. Ideally, engaging with the Growth Path should entail a single point of entry for social partners into Government and coherent link with other economic policy making entities and processes. 20

21. AREAS OF POSSIBLE CHALLENGES BY BUSA TO THE GOVERNMENT DISCUSSION DOCUMENT ON A NEW GROWTH PATH — 5 MILLION JOBS BY 2020 17. That many of the proposals and programmes are not ‘new’ but have been previously endorsed in several other fora and initiatives, but for various systemic reasons have not been implemented. 18. Whether the new growth path discussion document succeeds in offering a reduction in the costs of doing business in SA and in particular addressing labour costs. 19. The implication that the Reserve Bank’s autonomy may be compromised by the suggestion that the Government will be guided by a looser monetary policy and a more restrictive fiscal policy. It appears to dictate a mandate to the monetary authorities. 20. Insufficient weight is given to widening and deepening the use of a regulatory impact assessment (RIA) framework to promote efficiency, certainty and productivity in decision-making. 21

22. AREAS OF POSSIBLE CHALLENGES BY BUSA TO THE GOVERNMENT DISCUSSION DOCUMENT ON A NEW GROWTH PATH — 5 MILLION JOBS BY 2020 21. The silence in the document on broad tax policy in the years ahead. 22. When ambitious socio economic programmes are proposed which raise the level of public spending it is essential that: There is clarity as to how the required revenue will be raised and its implications for the taxable capacity of the economy. The cost impact on the productive sectors of the economy is assessed. Major projects be phased according to priorities and affordability. 23. Whether there is sufficient acknowledgment of the need to reduce welfare dependency and enlarge the tax base through real economic growth. 24. No apparent recognition of the lessons to be learned from incentivised poverty reduction in Brazil, Chile, and Malaysia. 22

23. 10. CONCLUSION — THE WAY AHEAD Whatever ambitious higher growth path SA eventually sets for itself, it will not be attainable unless we can better address the gaps identified in our economic performance. It is a collective challenge. Each sector also must take responsibility for its role in our society. The debate which will eventually take place in Nedlac and elsewhere on the government’s proposals for a higher inclusive job rich growth path for SA should be informed by cogent and relevant economic realities. THANK YOU. 23