Minister of Economic Development Speech
19 Aug 2009
STATEMENT BY MR EBRAHIM PATEL, MINISTER OF ECONOMIC DEVELOPMENT, TO THE NATIONAL ASSEMBLY ON THE FRAMEWORK FOR
The international economic crisis and the local recession threatens to wipe out our economic gains. If the trends continue, we could soon find ourselves back to where we were five years ago. Our gains are being seriously eroded but we will recover if we take the right steps. We need to use the crisis as an opportunity to mobilise the nation around a programme to defend the economy and to further strengthen it and to defend jobs.
I am addressing the House today to share with Honourable Members the steps that government is taking to address what is the most serious economic challenge since the advent of democracy.
The recession was triggered by the global economic crisis and
We have recently experienced what has been described as the worst quarterly economic performance in 25 years with serious declines in both manufacturing and mining production.
The latest manufacturing data, for June 2009, shows that estimated monthly manufacturing production shrunk by 17,1% and monthly sales dropped by 19,6% compared to a year ago. Second quarter production shrunk by 18,7% and sales dropped by 20,2% compared to a year ago.
Manufacturing output has been declining since about mid-2008. It has now reached levels last seen some five years ago. If these trends persist, it means that four years of modest manufacturing growth since January 2004 has been reversed by the dramatic decline in the physical volume of manufacturing production in the past 12 months.
June statistics (the latest we have) indicate a 7,3% drop in mining compared to the same month a year ago.
Employment data have shown a large increase in unemployment. The QES for the first 3 months of this year recorded 179 000 job losses. The LFS for the second 3 months of this year recorded 267 000 job losses and noted that 302 000 people have become too discouraged to seek employment.
Retail sales have declined, with June 2009 figures showing a 6,6 % drop in sales compared to the same month a year earlier. This is taking us back to mid-2006 levels. As retrenchments and job losses increase, they impact on consumption, leading to lower demand which can result in a renewed round of job losses.
The total output of the nation as measured by the Gross Domestic Product (GDP) declined by 3% for the second quarter of 2009. We have now had three successive quarters of a decline in output. Company capacity utilisation, which measures the extent to which we use the available productive capacity of the nation’s workplaces has declined as has the stock of capital in a number of manufacturing sectors. Capacity utilisation is at levels last seen in 2001 and we are deeply concerned at the prospects of a permanent decline in productive capacity as factories close rather than simply reduce output.
Liquidations and insolvencies show a worrying trend as do increased claims from the Unemployment Insurance Fund.
In these trends,
What started as a financial crisis has rapidly become a crisis in the productive sector of the economy - manufacturing, mining, agriculture and services – and employment has been hit hard Within both developed and developing counties, monetary and fiscal policy has been concentrated on shoring up aggregate demand as the impact of the credit bubble collapse impacted on the real economy. Interest rates have been cut and some central banks have used quantitative easing to further respond to the crisis. Public sector spending has been ramped up and countries now run large and growing budget deficits. The
Global prospects are still uncertain, with evidence that the fragile signs of recovery are largely driven by the effects of the dramatic and coordinated government stimulus packages that has pumped liquidity into the global economy at levels not seen in our generation.
International experience has shown that financial crises leave large employment and social damage in their wake even when economies recover. Employment growth in particular, lags economic recovery, sometimes by considerable periods of time.
In this context, government has stepped up efforts to address the impact of the global crisis on our economy and our people.
Fiscal policy has remained expansionary in spite of falls in tax revenues and the Reserve Bank has cut interest rates repeatedly over the last six months.
Earlier this year, government, organised labour, business and community organisations adopted the Framework for
The Framework, which provides the basis for a wide range of actions needed to mitigate the impact of the crisis on the country and our people, was founded on the following broad principles:
The risk of unfairly placing the burden of the economic downturn on the poor and the vulnerable must be avoided;
Activities aimed at strengthening the capacity of the economy to grow and create decent jobs in the future must be protected and supported as far as possible;
Planned high levels of investment in public sector infrastructure must be maintained and the private sector must be encouraged to maintain and improve, wherever possible, their levels of fixed direct investment and continue with corporate social investment programmes; and
Interventions must be timely, tailored and targeted as is appropriate.
The Framework recognises the social partners’ collective responsibility “to work together to withstand the crisis and ensure that the poor and the most vulnerable are protected as far as possible from [the] impact [of the crisis].” Noting the country’s “well-developed and advanced system of social dialogue, a strong institution in the form of Nedlac and a tradition of working together as constituents to address the social challenges”, it seeks to draw on these strengths in developing and adjusting
In addition, the Framework recognises the importance of ensuring “that the economy is ready to take advantage of the next upturn and that the benefits of such growth are shared by all our people.” It therefore notes the crucial imperatives of “[i]ncreasing levels of investment and ensuring that we develop a strong and competitive economy … in addressing the challenge of the global economic crisis … as we prepare for takeoff beyond the economic crisis.” Put simply, the response focuses both on the present and the future.
In today’s statement, I wish to brief Honourable Members on the progress we have made in implementing the Framework thus far. In so doing, I would like to draw attention to the context within which implementation is taking place. As I stated in my speech to this House on 30 June 2009:
Central to [our electoral] mandate is a programme of economic development, aimed at putting our economy onto an employment-led growth trajectory.
This mandate was developed in the context of the global economic crisis and the need to address deep structural problems that preceded the crisis.
The global economic crisis started in the financial sector but has rapidly become a real economy crisis. The loss of jobs is now the biggest cost that societies are paying for serious policy and design flaws in the global economy.
The crisis has resulted in a global and local recession and it now threatens
Following the announcement of a new Cabinet and the reorganisation of government functions, government has worked closely with social partners to speed up implementation of the Framework. President Zuma highlighted the centrality of this work in his State of the Nation Address on 3 June 2009:
It is more important now than ever that we work in partnership on a common programme to respond to this crisis.
We take as our starting point the Framework for
Following the State of the Nation Address, the task teams provided for in the Framework were re-activated. In early July, we agreed to a set of priority areas and all parties rolled up their sleeves to produce action plans to respond to the crisis. There was a new energy and focus to the response. In all, members may be interested to know that 19 meetings have been held since 1 July by the various committees responsible to forge a united position, some 3 meetings a week. More importantly, the energy produced solid results.
On 5 August, the Leadership Team met with and briefed President Zuma on the progress we had achieved by that point. The Leadership Team will be meeting again tomorrow.
To date, we have prioritised the following 12 areas of work:
A training layoff scheme for workers at risk of retrenchment;
Combating customs fraud;
Support for distressed sectors;
Social assistance, including child support grants and old age pensions;
Competition in the food supply chain;
Assistance by the Industrial Development Corporation and refocusing its mandate;
Availability and flow of credit;
Expanded Public Works Programme;
Leveraging jobs from public procurement;
Expanding Public sector employment in areas of critical need; and
Public grant conditionalities to ensure that state support achieves the desired results.
In six of these areas, we concluded agreements that are now being implemented:
To meet the challenge of companies retrenching workers as a result of loss of orders due to the recession, we set up a National Jobs Fund to finance a training layoff scheme.
The scheme entails enrolling workers on training programmes for a period of up to three months. The principle behind the scheme is to use the period of industrial slack to train and reskill workers.
The scheme will be available to workers earning up to R180 000 a year and the key design elements of the scheme are that it is available to workers as an alternative to retrenchment, during the period on the scheme the employment relationship with the company is retained, a training allowance will be paid to workers on the scheme of 50% of basic wages up to R6 239 per month and participating employers will carry the cost of a basic social package to ensure that death, disability and funeral benefits are not suspended during this period.
Training is left to industries and companies to define but we provided three guidelines: the training should be of value to the company concerned, it can address generic and adult literacy and numeracy needs and it is an opportunity to roll-out and disseminate ICT skills on the shopfloor.
The Minister of Labour’s work in mobilising all the resources of his Department and reporting agencies, has been invaluable in making it possible to launch the scheme in September this year. R2.4 billion will be placed in the Fund, drawn from resources in National Skills Fund and the Unemployment Insurance Fund.
In order to ensure its successful implementation, it will rely on the collective efforts of the following state entities:
NSF and the UIF – responsible for funding the training allowances;
Commission for Conciliation, Mediation and Arbitration (CCMA) –
Department of Labour (DoL) – responsible for co-ordinating and finalising the drafting of an implementation guide in collaboration with the CCMA and the UIF and all social partners.
Department of Trade and Industry (“the dti”) – responsible for ensuring that distressed sector support is coordinated with the training layoff scheme; and
Economic Development Department (EDD) – responsible for assessing the economic and developmental impact of the training layoff scheme.
Most importantly, it requires partnerships between business and labour at workplace level.
The training layoff scheme is the first of its kind that government has launched and we have designed its implementation to be as simple as possible.
A key implementation agency will be the CCMA. The CCMA will help companies and unions to conclude their training layoff agreements. The CCMA has now trained about 250 staff members, mainly Commissioners, on the training layoff scheme and its implementation. It has a toll-free number and has published a guide to the training layoff scheme on its website.
SETAs have been asked to set aside resources for the financing of the training courses themselves and to identify appropriate, short, focussed training courses. Special Board meetings of SETAS are being convened and a number of SETAs have advised they will take part in the training layoff scheme.
I call on the SETA board members from business and labour to do everything in their power to ensure full and effective participation by SETAs so that workers and companies can obtain the benefit of the training layoff scheme as soon as possible. Indeed, Speaker, here is an opportunity for SETAs to show their value-add and to convinced even the sceptics that they are a vital part of the training-delivery machinery and are flexible enough to respond to new and unusual circumstances.
To address high levels of illegal imports and customs fraud that has led to many thousands of job losses, the capacity of the South African Revenue Service (SARS) to address customs fraud has been strengthened. The Minister of Finance has facilitated a renewed focus by SARS on measures to improve its impact. SARS has now reported significant progress in respect of investigations and the confiscation of goods.
A number of companies are currently under investigation for smuggling, round-tripping, DCC abuse, quota fraud, rebate item abuse and under declaration of value.
In the clothing and textiles sector, some immediate outcomes of the anti-fraud campaign are as follows:
Smuggling: Four companies are being investigated and the intention is to initiate criminal proceedings;
Round-tripping: Fifteen companies are being investigated and the support of the BLNS Customs is required to finalise these investigations:
Export incentive abuse: Fourteen companies are being investigated and some duties have already been recovered;
Counterfeits: During raids a number of goods have been seized;
Quota fraud: Four companies are being investigated and will be criminally charged;
Rebate item abuse: Three companies are under investigation to recover duties; and
Under declaration: Five companies are under investigation and will be criminally charged.
To address the huge job losses in certain sectors of the economy, we have facilitated discussions at sector levels between business and labour, and measures to address their immediate problems have been identified. These include support for distressed companies in the automotive sector, a rescue package for the clothing and textiles industry, increased incentives for the manufacture of capital equipment, transport equipment and fabricated metal products linked to
In the auto sector, business and labour have formulated a commitment that provides that companies receiving crisis-related assistance “must commit to a moratorium on retrenchments for the duration of the assistance period” with a provision for variation to this commitment in cases where it is necessary for a firm’s survival, with requirements fo independent verification of financial and other relevant information
To address the problems of access to credit and working capital, the Industrial Development Corporation has made R6 billion available over the next two years to respond directly to the crisis.
The IDC has 49 funding applications in the pipeline, 23 of which (worth R1.2 billion) are from existing IDC clients while the remaining 26 (worth about R2.1 billion) are from new or potential IDC clients.
From 1 April 2009 to date, eleven financing applications from distressed companies totalling R743 million have been approved.
We will work with the IDC to improve the employment impact of its funding.
To address food price pressures on consumers at a time of falling family-incomes, the Competition Commission’s investigations into and prosecution of firms in the food supply chain alleged to have engaged in various forms of prohibited anti-competitive conduct have been stepped up. Seven parts of the food-supply chain are now the subject of attention by the competition authorities
The Competition Commission is currently engaged in the following food and food-related investigations and prosecutions:
Bread: The Commission is prosecuting two separate cases that has now been consolidated into one case and is investigating a new case;
Milling (Maize): Commission is referring the case to the Competition Tribunal for prosecution;
Dairy: case is already before the Tribunal;
Poultry: one case is before the Tribunal, with the wider conduct being investigated by the Commission;
Fertilizer: settlement with Sasol, with others being prosecuted.
Fats and oils: already under investigation by the Commission and;
Supermarkets: Commission’s investigation is beginning; and
To address the growing debt faced by many consumers and households, the National Debt Mediation Association, a business initiative to assist indebted consumers, has been established to provide rules, standards and processes to address debt restructuring.
These six measures constitute a solid start to our joint endeavours and I wish to thank the leadership of the social partners and government departments for their hard work to have achieved this.
I wish to advise Honourable Members that are now simultaneously working on two fronts: to properly implement the measures we have announced and to identify new areas in the Framework that can be progressed to conclusion.
We have recently briefed MECs of six provinces, KZN,
The Ministerial Cluster on Economic Sectors and Employment was convened this week to receive a report on implementation and a number of areas were identified that need to be addressed in the next phase of the Framework implementation. They include strengthening the use of cooperatives to address the crisis, fast-tracking work on green jobs, identifying measures to deal with persons in vulnerable situations, including women and rural and informal sector workers.
In particular, we want to find ways of drawing more South Africans, through their community structures and NGOs into the partnership to respond to the recession.
In a press release issued on 5 August, the Presidency noted that the “Framework has been commended internationally for bringing together social partners in forging a common response, and has been held up as an example of how countries can respond in a sustainable manner to the current financial crisis.” However, whilst acknowledging the significance of the Framework, it nevertheless “emphasised that the central challenge was to ensure the timely implementation of the measures agreed to by the social partners”.
From our side as government, we have developed a “a new integrated approach to the implementation of the [F]ramework”: the Department of Labour has led efforts to develop and finalise the training layoff scheme; the National Treasury and SARS have coordinated the customs and excise programme; the Department of Trade and Industry has led the work on distressed sectors; and the Economic Development Department, working with the Presidency, has chaired the Leadership Team of social partners and sought to coordinate efforts across and between departments.
Equally important, however, is the manner in which government is working together with its social partners. As President Zuma noted on 5 August:
The important thing to remember is that work is being undertaken by all social partners in consultation. Not only are these partners part of developing our response to this crisis. They are also each responsible for implementing it.
A ‘national jobs pact’ is starting to emerge from these various actions by social partners.
To sum up, Honourable Speaker, we have used the last seven weeks to restart the discussions on the Framework and to pick up the pace of work. After five weeks of work, we made progress on a number of areas and announced six programmes. We used the last two weeks to progress implementation details, brief provinces on the details and convened a Ministerial Cluster meeting on the Framework.
We hope we can now start on a second phase of discussions to identify and progress more areas.
They include ensuring that the R787 billion infrastructure programme remain on track.
They constitute not only a commitment by government but also a crucial anti-recession measure that we rely on to cushion the economy from falling private sector demand.
Yet it is not only the amount of money we spend that will determine our success – it is also the quality of the spending to ensure that we minimise leakages and improve the labour-absorbing impact of the infrastructure programme. This is a big challenge and we will commence work on this.
We are in conversation with the big four commercial banks on the flow of credit to the real economy.
I trust that we will also be able significantly to advance our discussions on other areas of focus, including social assistance, the Community Work Programmes of the Expanded Public Works Programme and public procurement.
We have committed ourselves to presenting a comprehensive report to the President within the next month, we have no choice but to redouble our efforts in doing all that is reasonably possible to ensure that the commitments we have made in the Framework are realised. Our people demand – and deserve – no less.
I commit to, from time to time, brief this House on progress made regarding the implementation of the Framework.
I thank you.
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