Economic Development Minister on their Strategic Focus

Economic Development

18 June 2009
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Minister of Economic Development outlined the origins of the new Ministry and Department, including the mandate and its relationship with other entities. The new Ministry was formed as part of a reconfigured Cabinet to achieve better alignment between Government, the electoral mandate and immediate developmental challenges. Its focus was on making economic policy and policy coherence to realise an economic growth path, putting the creation of decent work at its core. It required a clear approach to economic development. Employment was seen the overarching goal of economic policy, not a residual outcome, and decent work referred to both the number of jobs and the quality of jobs. The labour-absorption rate and composition and sustainability of the growth path were as important as the rate of growth.

The Minister said the focus and outcomes of the economic policies of South Africa, as a developmental State, should be directed at equity, the reduction of income inequalities, decent work and achieving balanced, broad-based industrialisation. This meant addressing structural economic imbalances. There was a changed social pact and the Framework Agreement between Government, Business, Labour and Community, adopted in February 2009, was vital. The five priorities of economic development were listed as transforming the economy to create decent work, implementing agrarian reform to ensure food security, providing universal, affordable education, creating a national healthcare system, and a comprehensive strategy to fight crime and corruption, and deliver clean governance. The economic crisis had arisen from a jobs crisis. Interventions to address it included maintaining high public investment levels in infrastructure, supporting job creation and preservation, deploying macroeconomic policies, using industrial and trade policies to rebuild industrial capacity, using public employment and private sector initiatives to limit job losses, and scaling up social interventions. There would be immediate measures to protect the economy and transformative measures to deal with structural economic problems.

The new Department would focus on promoting economic policy development, coordination and coherence, across all spheres of government, through provincial, rural and economic development. This would be done via all State entities involved in economic regulation and development financing, and interaction with business and labour, using an integrated approach. The Department would assume new policy functions as well as take over some from other departments. It was likely to be established as a legal entity in about three months and the budget vote would then be created, and a six-month budget incorporated into the October adjustments. 

Members asked for clarity on agrarian reform, supported a broader definition of “decent work”, and more clarity on what was meant by a development State and how it would bring the unemployed back into the labour market.
They made the points that imbalances between rich and poor must be evened out, that there was a need to look again at cooperatives, to engage with technikons to relate their curricula to the needs of the market place, and to learn from previous initiatives. The suggestion was made that provinces should also be consulted as to what was relevant. Cooperation and coordination was cited as particularly important. Members asked about the progress on the Framework Agreement since its signature and suggested further consultation with business, labour and academics. The mandate, especially in relation to other State Owned Entities, was questioned, as also whether the new Department would address the National Strategy on Sustainable Development and “green jobs”. They urged immediate steps to counter the current crisis, including a more flexible labour market, and welcomed the move away from using growth alone as a measurement, suggested that businesses be asked to review how they ran their business especially to consider re-skilling. They suggested that a change of thinking was necessary now to ensure public investment, whether or not the new Department was formally established, expressed some concerns about the potential for conflict between departments and asked how policies would be identified.

Meeting report

 

Minister of Economic Development’s briefing on the Strategic Focus of the new Ministry
The Chairperson said the Ministry of Economic Development was a new Ministry and a new Portfolio Committee had been formed. She had asked the Minister to brief the Committee on the ambit and functions of the Ministry. As many of the functions of the Economic Development Committee came across from the Trade and Industry Portfolio Committee the two would be working closely together until the Economic Development Department (the new Department) came into being as a legal entity.

Hon Ebrahim Patel, Minister of Economic Development, outlined the origins of the new Department, the mandate and its relationship with others in the Executive. President Zuma established the new Ministry as part of a reconfigured Cabinet to achieve better alignment between the structure, the electoral mandate and immediate developmental challenges. Its focus was on making economic policy and policy coherence; one place where policy was developed and aligned with Government’s electoral mandate to realise an economic growth path, putting the creation of decent work at its core. There was also the need for clarity of approach to economic development. Employment was the overarching goal of economic policy, not a residual outcome, and decent work referred to both the number of jobs and the quality of jobs. To achieve the development outcomes of Government, the labour-absorption rate and composition and sustainability of the growth path were as important as the rate of growth.

The focus and outcomes of the economic policies of South Africa as a developmental State, should be directed at equity, the reduction of income inequalities, decent work and achieving balanced, broad-based industrialisation. This meant addressing structural economic imbalances. There were challenges and opportunities facing the new Ministry and Department. The context in which policy would now be made was different to that which pertained twelve months ago. There was a new mandate from the electorate, the global economic crisis and new economic approaches went beyond old norms, the domestic recession and there was a changed Social Pact on responding to the global crisis through the Framework Agreement between Government, Business, Labour and Community, as adopted in February 2009.

The mandate identified five priorities challenging economic development. These were: transforming the economy to create decent work, implementing agrarian reform to ensure food security, providing universal, affordable education to empower citizens, creating a national healthcare system promoting a nation able to effectively participate in society, and a comprehensive strategy to fight crime and corruption, to secure communities and to enable the public sector to deliver clean governance.

The economic crisis challenged the new Ministry in the implementation of this mandate. The recession in most economies was triggered by imbalances in the global economic system, the impact of financialisation of economies and poor business practices like excessive executive pay schemes. While the crisis first appeared in the financial sector, it was in fact a jobs crisis threatening economies worldwide, including South Africa’s industrial base. Thus Government and its social partners in the New Economic Development and Labour Council (NEDLAC) agreed on the “Framework for South Africa’s Response to the International Crisis”. Interventions included maintaining high public investment levels in infrastructure, supporting job preservation and creation, deploying macroeconomic policies (monetary and fiscal), using industrial and trade policies to rebuild industrial capacity to limit the erosion of South Africa’s manufacturing base, using public employment and private sector initiatives such as training to limit job losses, and scaling up social interventions to ensure social protection. The political mandate and Framework Agreement constituted Government’s bold economic vision, translated into a programme aimed at transforming South Africa’s economy. These linked immediate measures to protect the economy and transformative measures dealing with structural economic problems.

The Strategic Focus of the new Department would be promoting economic policy development coordination and coherence (alignment of policies with each other and the national mandate). This would occur in Government nationally, through provincial, rural and economic development, through the mandates and work of State entities charged with economic regulation and development financing, in interactions with business and labour to develop consensus on the economic challenges, policies and responses, and in South Africa’s interface with the global economy. Achieving this required integrated rather than “silo-based” Departmental programmes, so as to avoid ad-hoc policy development across Departments. It involved creating a Department that assumed new policy functions, as well as transferring some existing functions from other departments. The new Department would have its own high-level policy and technical capacity, a broad focus across the economy in areas covered by a range of Departments, and have a strong focus on economic development. The new Department’s short-term goals included establishing the new Department itself, elaborating a strategic plan and negotiating the 2009/10 and MTEF budget processes, and implementing a short term work programme linked to the State of the Nation priorities. Attention must be paid to the formal and legal establishment of the new Department by way of Presidential Proclamation, and the creation of a budget vote for the allocation of resources. Organisational establishment required an organogram to be drawn, and the placement of appropriate people. Fulfilling these requirements would lay the basis for effectively implementing the mandate. Complete establishment of the new Department was expected within the next three months. With the assistance of Department of Trade and Industry (dti) and National Treasury, it would happen as a matter of urgency. When the legal requirements were fulfilled a budget vote would be created for the new Department and a six-month budget (October 2009 to March 2010) would be incorporated into the October adjustments. A Strategic Plan and 2010/11 budget, within the scope of the Public Finance Management Act (PFMA), would be finalised and presented to the Committee by the end of September 2009. The new Department’s short-term work programmes included taking forward economic and employment commitments from the State of the Nation address, implementing the Framework Agreement, continued work alignment of functions and mandate with other Departments, and the beginning of a policy engagement to elaborate a national framework on economic development and decent work- the latter being a core function.

Discussion
Mr R Coetzee (DA) referred to food security and asked if the Minister ruled out subsidies. He wanted clarity on agrarian reform and on what was envisioned as the role of new farmers.

Dr P Rabie (DA) said the objective of Government’s economic policy was the provision of decent work, incorporating quality and quantity of jobs. He felt there was a need for a broader definition, to which the Minister had referred, because there was a trade-off between quality and quantity. There was a need to consider also what would be done with South Africa’s large unskilled and unemployed workforce, and whether decent work was even currently an option. What Government meant by a developmental State would probably become clearer when the policies being developed were finalised, but the Committee needed to understand what that State would be like, and why it could be more effective in bringing the unemployed back into the labour market than the private sector could.

Minister Patel replied that in the labour market, regulatory tools were only one component of decent job creation. A skills strategy was also needed, to give the youth usable skills in a modern economy. A science and technology strategy, taking the resource spend, integrating it with the Industrial Policy, creating smart factories and workplaces with flexible production systems, and using advanced technology to give them a competitive edge was another requirement. Thus a more knowledge-based economy would be built, placed often in sectors having a high labour-absorption capacity. In these ways the Industrial Strategy would further support the Decent Work Programme. However, it would not be a single outcome within a short time period to immediately transform the economy. It would be a process of progressive improvement. The 500 000 jobs announced by the President were not permanent jobs in society’s most advanced industries. They were rather to be seen as a transition and opportunity for employment for the youth and those presently unable to find employment. These jobs would allow them to acquire employment that would provide skills and on-the-job training, and would be provided by the Public Works Programmes. The youth would also be assisted to use the skills acquired at school in a practical work environment. The situation would be created where individuals were better able to obtain decent work.

The Minister said, in relation to the correlation between Government and the market, that the Executive saw the Developmental State as one in which the State and the Market worked in co-operation. The State’s role included employing its standard public servants, Public Works programmes, bridging programmes and channelling of resources into a non-performing economy to lift people out of unemployment. Government, being the largest purchaser of goods and services, could determine if it was getting the best employment returns for its spend, and it could assist private businesses to survive in a recession.

Mr X Mabaso (ANC) asked how the new Department, as a new initiative, could learn from previous ones, at a time when other initiatives had either already succeeded or failed, both nationally and globally. When fleshing out the new policies, he hoped the measures to enhance economic development would be guided by the gap between the rich and poor, to address the imbalance. Co-operatives needed to be looked at more seriously. He asked how the new Department would engage with universities and technikons, so that the curriculum related closely to what companies and labour were facing in the market, to ensure that the gap between theory and practice was bridged.

The Minister said there was a wealth of experience and information at hand but no one solution offered all the answers. One component of Brazil’s Social Protection System, much like South Africa’s Social Grant System, wanted to move from a handout to an empowerment programme, by introducing the requirements of education and immunisation for children. Such a programme gave people who were on the Public Grant System - the poorest members of society - access to Public Works Programmes. Thus the Grant database became a recruitment database for people to be drawn into short-term Public Works Programmes and the State grant was supplemented by a wage. Economic development was thus linked to social grant objectives. Co-operatives were key to Government but they posed difficult technological questions, being a legal form of enterprise. Government, in seeking solutions appropriate for the South Africa economy, must determine in what sectors of the economy people could thrive and what State support they required. If South Africa was to build an economy infused with knowledge, technology and competitiveness, stronger partnership were needed with universities and technikons, so that much of their research would have greater application for Industry.

Mr N Singh (IFP) said it was anomalous to speak of a “new Department” when provincial departments already existed; in fact President Zuma was the first Member of the Executive Committee (MEC) for Economic Development in KwaZulu Natal. In his view there was a need to look at what provinces perceived as relevant to the Economic Development Ministry, and copy some of that in the new National Department. One of the biggest challenges would be cooperation and coordination across the three spheres of Government, as well as between national departments, as the new Department needed to carve its own niche. It would be difficult, especially if another department felt something was within its own portfolio. Provincial and municipal local economic development was not well thought-out, nor matched to budgets, and this was where co-ordination could occur.

Mr Singh asked how many meetings had occurred around the Framework Agreement and what was the progress since signature, especially as there was no recession five months ago. He suggested a brainstorming session with labour, civil society and academics to gain their views on the role of the new Department as part of the basis for its formulation.

The Minister took the point on provinces strongly. He noted that the Framework Agreement sought to increase the number of days of each individual on the Public Works Programmes, to complement that with more active training, then to expand the number of work opportunities. The Unemployment Insurance Fund (UIF) was currently a passive benefit, but this needed to change. Where companies could not provide work for their employees, the employees could attend training programmes partially funded by UIF. In distressed sectors some plans were now finalised between the social partners, and would be presented to Parliament.

Mr L Greyling (ID) welcomed the change in the Ministries. He hoped it would lead to better outcomes. He asked what the difference would be between the new Department and the Planning Commission. He asked if the new Department would take a critical look at the Infrastructure Build Programme. He asked whether, in relation to institutions like Eskom, it would have the mandate to engage over choices around future energy generation capacity, as this had implications for the current account deficit and balance of payments. There was not much in the way of policy, but he also asked if it would look at the National Strategy on Sustainable Development, in light of the President’s reference to so-called “green jobs”, as this would aid in building a low-carbon economy. He also wondered if it would have the mandate to look at poorly performing programmes, like the unsuccessful solar water heater roll out, as this impacted negatively on job creation.

Minister Patel said the old paradigm was that environmental sensitivity was seen as a trade-off with growth. The “green jobs” concept, especially in the United States and Europe, was a major new industry where there were price premiums in the market. However, Africa tended to be stuck in the old paradigm with old technology and was losing out. Creation of commercially viable jobs in a sector must be investigated, to find out whether incentive structures were needed during the infancy phase, or whether there should be joint ventures between Government and private enterprise. The new Department would tackle this.

Mr K Manamela (ANC) said this would be a critical Department, given the global financial crisis and the priority of focus on Public Sector Infrastructure Development. He assumed the new Department would drive economic policy for all departments. This would help greatly in capacity development of individuals. The new Department must focus on immediate steps to counter the crisis, and a flexible labour market must be investigated as another way to create more jobs, irrespective of their quality. Employers must be allowed to hire and fire people as they saw fit, and the similar system now pertaining should be assessed to see if it was helping the economy grow. The economic crisis was due to a crisis of profits. Although production capacity existed across most sectors, people were losing their jobs because profits were shrinking. He asked how would the new Department counter these losses and create more jobs. He was happy that Government was moving away from using growth alone as a measurement, and that now it would also look at the developmental impact of that growth.

The Minister said there was no economic model yet able to determine the number of jobs created by the infrastructure spend of R787 billion. The new Department would be doing this modelling to empower other departments to make smart spend choices.

Ms J Fubbs (ANC) said that, in light of the Government pursuing a developmental State, and in view of the currently slow economic growth, if there was consideration being given to cutting the workforce then certain company executives should rather be urged to return excessive or inappropriate bonuses. Interest rates were being used to manipulate growth and stability in South Africa. Her concern was that investment could be redirected to capital-intensive investment areas rather than labour intensive ones. In South Africa, with its very high unemployment, this was a challenge, because of the contraction of the economy. Alongside inflation targeting there would now also be the employment-generation targeting, a welcome move. She felt that when pursuing a Social Pact to include business, labour and civil society, an appeal should be made to business to review how they ran their businesses. This could mean restructuring and a real, intense focus on re-skilling people in an attempt to save jobs.

Mr M Oriani-Abrosini (IFP) said a huge challenge for the new Department would be to transform South Africa to survive the global restructuring that would follow the current crisis. The new Department was starting without laws to determine its functions. He was concerned, based on the Minister’s presentation, that the focus of the new Department would be more on economic planning than economic development. Another concern was that the new Department could take between one and two years to set up, while economic interventions were needed now. A change in thinking throughout all Government levels must be spearheaded now to ensure there were public investments that were capital intensive at present, but that would become labour intensive.

Mr S Ngonyama (COPE) hoped to avoid “silo” creation between Departments and felt that this extended into the Executive too. He said there was great emphasis on the economic crisis, and wondered if creating a new Department did not add to the crisis. He asked about the new political mandate of Government, especially as the new Department was established in an economy that was relatively stable. He agreed with the notion of South Africa as a developmental State but said this needed to be achieved within the material conditions specific to the country. He expressed concern about the conflict for potential with other Departments in the possible transfer of policy-making power to the new Department and asked how policies would be identified that fell into its scope.

The Minister replied that the developmental State would be defined in the next few years by Government programmes and policies. It would have a longer time scale in economic planning, especially with large projects like infrastructure development, as there were strategic criteria underlying their development actions. Government, in partnership with the private sector, could create conditions in which certain sectors could flourish and need not leave it solely to the market. Yet market signals were also key considerations in programmes that were successful. Infrastructure was a key enabler of economic activity. Joint ventures were important, as well as encouraging South African players, who worked with foreign direct investment, into entering technology transfer agreements with the foreign investors, to then themselves becoming global players. This in some way spoke to finding solutions appropriate to South Africa. Yet in a larger context, the Southern African Development Community (South Africa DC) and the African Union (AU) were important. The world had moved into bigger markets, massive regional economies had become the critical feature of the global economy, and Africa must exploit this more. Partnerships between Business, Labour, Government and intra-Government would be key.

The Chairperson thanked the Minister for his presentation and responses, and said that some questions could not be answered because of time constraints. She hoped the forthcoming meetings would help the Committee better to understand the new Department, which would need more work around its Strategic Planning. This Committee, jointly with the Portfolio Committee on Trade and Industry, needed to look at the budget for 2009/10. The information obtained from the Minister would greatly help this Committee in the budget vote on 30 June. Any further questions or suggestions to the Minister to help build the new Department would be forwarded via the Committee Secretary. She said the Minister’s remark to encourage a dynamic relationship between the Committee and the new Department was positively noted. The task ahead was daunting but the Committee would engage the Minister on the short-term programmes he had set and on the Framework Agreement.

The meeting was adjourned.

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