Minister Ebrahim Patel on the New Growth Path: provincial implications - briefing

Meeting report

Opening Statement
The Chairperson informed the Committee that Minister Ebrahim Patel would have to leave the meeting after making the presentation, but that Deputy Minister Enoch Godongwana and Prof Richard Levin, the Director-General, Department of Economic Development (EDD), would be present for the discussion section of the meeting.

The Chairperson noted the presence of both the Economic Development Select Committee and other Members of Parliament.  

Briefing by Minister Patel on the New Growth Path
Minister of Economic Development, Mr Ebrahim Patel, briefed Members on the provincial implications of the New Growth Path (NGP). He said that the State of the Nation Address (SONA) informed the public that 2011 would be a year of job creation through meaningful economic transformation and inclusive growth. The NGP was introduced to guide the Government’s work in achieving these goals. The SONA said that all Government departments would align their programmes with the job creation imperative. Provincial and local spheres were requested to do the same. The programmes of State Owned Enterprises (SOEs) and Development Finance Institutions (DFIs) also had to be aligned with the job creation agenda.

Statistics showed that the country’s Labour Force Growth had grown only by 1.9% from 1980-2009. The labour absorption rate i.e. the percentage of people aged 15-64 who are employed, showed that only 41.3% of 15-64 year olds were absorbed into the workforce. China’s labour absorption rate was 71% while Brazil’s was 63.9%. This saw the rise of new economic powers such as China, Brazil, and India. These countries were scrambling for Africa’s resources. South Africa’s top exports consisted of iron ore, ferro-alloys, chromium ores, manganese ores, platinum, wool, flat-rolled steel, and copper waste. On the other hand, South Africa’s top imports were cell phones, computers, printing machines, plastic and rubber boots, televisions, kettles and microwave ovens, and dresses and women’s jackets. The Government had now worked with the provinces to identify the country’s priorities.

The NGP would address deep-seated structural problems that lead to high unemployment and inequality. The Government wanted to take advantage of opportunities in the regional economy and changing global conditions. This required alignment by all spheres and agencies of the state, with regular reporting on what they were doing to support employment creation and growth.

The Government aimed to create five million jobs by 2020. Achieving this target required growth and greater employment intensity of growth, i.e. employment increase relative to Gross Domestic Product (GDP) growth).  The Government would identify key job drivers where employment was possible, identify what was needed to achieve the jobs, identify key steps in facilitating broader growth, encourage the private sector to align its outcomes with job goals, and create new opportunities in changing regional and global environments. Job drivers would be located in main economic sectors such as agriculture and agro-processing as well as mining and beneficiation. They would also be found in new economies such as the green economy and the knowledge economy as well as other economies like the social economy and public sector.

Training was at the centre of the NGP. The Government wanted to encourage persons with key skills such as engineers and artisans. It wanted computer skills at all schools, a review of Sector Education Training Authority (SETA) performance, easier recruitment of foreign skills coupled with skills transfer plans, sufficient resources for training, and to increase Further Education and Training (FET) college intake to one million students.

The policy drivers behind the targets consisted of a looser monetary policy stance, additional measures to depreciate and stabilise the Rand, a more restrained fiscal policy, a reprioritised budget, a pact with organised labour and business on wages and prices, higher savings through retirement fund reform, addressing cost drivers to enhance competitiveness, and measures to address inflation. The resources driving this goal included the state budget, SOE and DFI resources, universities, retirement funds, the domestic private sector, international investment, donor funding, and community-owned financial institutions.

Gauteng, the Western Cape and KwaZulu-Natal accounted for the over half the population and two thirds of the GDP. These provinces also accounted for two thirds of all formal employment and all private employment, as well as three quarters of manufacturing and financial business services. The labour absorption rate was approximately 64% internationally, but only 41.3% in SA. This rate was much lower in the former Bantustan regions than in the metros and secondary cities. The lowest labour absorption rates were in Limpopo and the Eastern Cape. The differences in economic opportunity translated into huge differences in income. Incomes in the former Bantustans were around a tenth as high as in the metros. Income inequalities meant that average incomes were much higher than medians in all cases. The result also meant that there were huge differences in municipal revenue and capacity.

The NGP’s economic strategy was to look at what the Government could do to improve conditions in every region of the country. The Government wanted to drive rural development to create livelihoods in impoverished regions. In terms of governance, the Government would support improved communication and alignment between spheres on economic strategies. The NGP would be tailored to fit the realities of all the different regions.

In the coming year, the Government wanted to improve alignment between settlement patterns and economic activities in the long run. It wanted better planning to support outcomes, to improve connections between economic policy departments in provinces and municipalities, and to address regulatory inefficiencies in economic centres. Job goals were to be developed by each province. The NGP had to drive a spatial vision that would increasingly shape projects from DFIs and SOEs. The Department of Economic Development (EDD) was working with the Industrial Development Corporation (IDC), Khula Enterprise Finance (Khula) and the South African Micro-Finance Apex Fund (SAMAF) to align with the requirements of employment creation and equity in spatial terms. The Government wanted to improve communication between spheres to maximise impact.

Discussion
A Member noted that the presentation made frequent reference to the “rich”. He asked the Deputy Minister to clarify what was meant by the rich and what salary would qualify one as wealthy. He also wanted the Deputy Minister to expand on the concept of wage moderation.

Deputy Minister Godongwana replied that it was not about who the rich were and who the poor were. The rich and poor were all over the country.

He said that the issue of wage moderation had been discussed by many people. This was a difficult question to answer. The message that the Government was trying to put across was that the country was faced with an immediate challenge of income inequality. The Government wanted to ensure that if the economy grew, income inequality would be reduced.

Mr D van Rooyen (ANC) [from the Standing Committee on Finance] asked the Deputy Minister to elaborate on the South African Local Government Association's (SALGA's) role in job creation.

The Deputy Minister replied that the question was whether SALGA and the provinces were properly aligned to contribute to job creation. This had to be discussed. The Minister would be debating this issue this afternoon in Parliament. He would be looking at measures used for job creation.

A Member observed that SOEs and DFIs were doing very little for the country. He asked how this situation could be rectified. How could private sector investment be used to help the country? He also wanted to know how wages and bonuses would be moderated or capped.

Deputy Minister Godongwana answered that private sector investment would be used to help the country, but the concern was how the Government would create the relevant infrastructure to encourage private sector assistance.

Mr A Lees (DA, KwaZulu-Natal) noted that the NGP put emphasis on FET colleges. He said that FET colleges were geared to produce short courses that often did not qualify people for anything in particular. These people were then unemployable and could not contribute to the economy. He asked the Deputy Minister to elaborate on what was meant by retirement funding reform. With regard to compliance and outcomes, was the EDD suggesting that the emphasis should be on outcomes instead of compliance? This left a gap for corruption to take place. He noted that there was a correlation between Bantustans and population density. During the Apartheid struggle, many people fought against the Bantustans. Now, 16 years after democracy, people were still encouraged to stay in places where there was no employment. This was a poverty trap. He thought that the country should have been moving, very slowly and systematically, towards urbanisation. He could not understand the reference made to Bantustans in the presentation.

The Deputy Minister noted that the structure of FET colleges was problematic. There was no practical side to most of the courses that were offered. The Department was working with different industries to correct this.

The Deputy Minister addressed the question on retirement funding reforms. He said that South Africa's problem was that it was not a saving nation. This had to be changed; hence the reform.

Deputy Minister Godongwana clarified that he was not saying that the country should either focus on compliance or on outcomes. This was not an either/or situation. There was a tendency to devote too much attention to compliance. The Government also had to give equal attention to monitoring outcomes. 

Mr K Sinclair (COPE, Northern Cape) noted that the main focus of the NGP was to create five million jobs by 2020. In reality, there were certain issues that the Government had to resolve before this could be achieved. South Africa seemed to be more of a welfare state than a developmental state. He could not find fault with anything that the Minister had said in his presentation; however, he was more worried about the things that the Minister had not said. He noted that the Minister had not said anything about the nationalisation of mining.

Deputy Minister Godongwana answered that he did not know of any part of Government that was dealing with the nationalisation of mining. Nationalisation was not on the Government's agenda.

Ms A Qikane (ANC, Eastern Cape) referred to slide 4 of the presentation. She noted that there was quite a difference between China's labour absorption rate and South Africa's. China's rate was 71% compared to South Africa's, which was 41.3%. She asked the Deputy Minister to elaborate on this.

Deputy Minister Godongwana explained that China and South Africa's economies were miles apart. It was unfair to compare the two economies, as China had the second biggest economy in the world. There were certain areas or sectors of the economy such as agriculture where South Africa could compete with China, but as a whole, the two economies could not be compared.

A Member noted that there was a big problem with the time it took entities to access money from the Government for development purposes. The issue of lengthy turnaround times had to be looked at. The Member wondered if there was a way to align Eskom and the Government so that Eskom was more in synchronisation with the Government's programmes.

Deputy Minister Godongwana acknowledged a problem when people tried to access funds quickly. This was due to the nature of the banking system and the nature of other institutions developed by the Government. All the processes that one had to go through to access funds affected the entities’ turnaround times.

The Deputy Minister explained that Eskom provided electrification programmes through Government funding. If the Government gave Eskom less money, then Eskom would produce less electricity. It was a challenge to align Eskom with the Government's programmes.

Ms E van Lingen (DA, Eastern Cape) asked if the Deputy Minister could prove, with actuarial facts, that five million jobs would be created by 2020. She noted that the NGP looked at labour policy reform. She wondered if this meant that the Government was thinking of reform in terms of production costs, as labour formed part of production costs. The presentation spoke of training new artisans. She asked if there was a prescribed programme for artisans for the next few years. What type of artisans did the Minister have in mind? She noted that there were certain things that were necessary for agricultural production in some provinces. This included electricity and water. If the Government wanted to encourage or ensure sustainability for small farmers, certain provinces like the Eastern Cape and the Northern Cape needed water. Was there money set aside for disasters? Disasters cost the country a lot of money. It would allow provinces to fix damage that was done during natural disasters. She said that “Organised Agriculture” had a plan for a natural disaster fund, which was an insurance fund. This would cover floods, damages to Reconstruction and Development Programme (RDP) houses, tornadoes, etc. People would be looked after immediately.

Deputy Minister Godongwana replied that the five million jobs were going to come from a number of interventions.

The Deputy Minister replied that the labour reform policy would look at issues of inequality and unemployment.

The Deputy Minister answered that the training of artisans was an issue that was close to his heart. There were very few artisans that were trained in the past. The training was being changed, as training was usually done by large parastatals such as Transnet and Eskom in the past.

Ms B Abrahams (DA, Gauteng) asked who would be subsidising the FET's one million intake increase. She also wanted to know how computer training would take place in schools if most schools did not have computers.

Deputy Minister Godongwana replied that the Government would definitely be subsidising the FET colleges.

A Member noted that small businesses were seen as economic drivers. However, there were monopolies such as supermarkets and banks that made it difficult for small businesses to compete in the economy. She asked how the Government or the EDD was going to assist these small businesses.

A Member addressed the “hired and fired” concept and asked how the Government was going to prevent this situation when five million jobs were created by 2020. He wondered if all provinces, sectors and departments were going to receive instructions from the Government to create employment.

The Deputy Minister addressed the queries on the hiring and firing of workers. The focus was to create five million jobs by 2020. He was not focused on the concept of hiring and firing; he only knew where the country was headed.

The Deputy Minister answered that the fundamental principle was create an environment where departments could create jobs and ask themselves how they could contribute more to the economy .

A Member noted that South Africa had been in Africa's top five continental economies. He asked how this happened and if South Africa was still placed in the top five. Gauteng contributed between 30% and 35% to the country's GDP, and South Africa as a whole contributed 10% to the economy of the continent. He asked if a blanket approach would be used for all the provinces i.e. if all the provinces would be treated equally regardless of the contribution to the country's GDP.

The Deputy Minister acknowledged that South Africa was the biggest economic contributor on the African continent. He said that the issue regarding the provinces was a tricky one as they did not have the same resources. However, he was aware that the Government had to spend more time and resources on certain provinces such as the Eastern Cape.

Mr Lees said that he was delighted with the Deputy Minister's answer concerning compliance and outcomes. Compliance was central no matter what the regulations were. Sadly, he and his party (DA) agreed that the EDD should not exist, as the country was already a “bloated bureaucracy”.  The Government had to encourage productive employment instead of bureaucratic employment.

Deputy Minister Godongwana answered that he was not a fan of large bureaucracies. The Government was in need of skilled personnel, not a larger bureaucracy.

Mr B Mnguni (ANC, Free State) was concerned about water services in the country. There were some people that argued there would be a water crisis in 2025. There were certain sectors such as agriculture and mining that needed large amounts of water. He addressed issues regarding the National Credit Act (NCA). He noted that the NCA was detrimental to a lot people as it hindered access to finance. These people could be economically active if they were held back by the NCA.

The Deputy Minister agreed that the water scarcity problem was a troubling matter and that the Government had to focus its attention on the issue.

The Deputy Minister did not realise that the NCA was causing so much trouble. The intention of the Act was to stop financial institutions from providing people with finance unnecessarily. There was a big problem with financial institutions providing people with unnecessary loans in the developed world. He wondered what would have happened to the public if the NCA had not been in place. He understood that people might have a problem with the NCA on a personal level but if they looked at the global picture, their opinion could change.

Mr Sinclair agreed that it was unfair to compare China’s and South Africa's labour absorption rates. The dilemma that the country was experiencing at present i.e. poverty and unemployment could be blamed on Apartheid to a certain degree. But, many of the problems also stemmed from some strategic choices that were made by the Government post 1994. People said that the Polokwane Conference was a rebellion against Thabo Mbeki and a rebellion against capitalism. Capitalism had a tendency to resolve issues better than a socialist approach would. The NGP, post Polokwane, was more socialist in its approach than capitalist. He felt that South Africa was leaning more towards a welfare society than a developmental society. The Government had wonderful plans; however, it just never saw these plans through. He thought there were too many spheres of Government and that the Cabinet was too large. It was pertinent that the Government streamlined these processes. The Government had to focus on the country’s Spatial Development Framework and had to be willing to invest in certain areas n the country. It was important that rural areas were empowered. The NGP would succeed only if the Government agreed to focus on implementing its plans.

The Deputy Minister replied that the Government had to ask itself what South Africa had that China did not.

Deputy Minister Godongwana added that the NGP looked at existing policies; it did not create new policies. It merely fixed existing Government policies instead of replacing them. He said that he knew of many people who were capitalists; unfortunately, he was not one.

He agreed that if the Government wanted to improve the country, it had to focus on implementing its plans.

Ms Van Lingen addressed the labour absorption rates for China and South Africa. She asked the EDD to give her the poverty ratios showing how many people lived below the poverty line in both countries. When Mr Tokyo Sexwale became the Minister for Human Settlement, he said that the Government would be building new cities. She asked if this was true. She wondered how people would be able to access funds from banks if the NCA blocked people from doing so because they did not have collateral. 

The Deputy Minister answered that he did not have the statistics for the poverty ratios. However, he noted that it was important information to focus on since China had lifted so many of its people out of poverty.

He also did not know about Minister Sexwale's statement that he would be building cities.

A Member noted that to be wealthy, one had to earn R15 000 or more per month. This meant that many teachers, nurses and police workers were all considered wealthy. Then it would also mean that this was the only country where wealthy people went on strike for more money. The Government had to put more emphasis on developing the poor. There was enormous potential for African development.

Mr Van Rooyen noted that one of the challenges for creating jobs was the high cost of doing business in South Africa. The cost of doing business in the country, by international standards, was very high. Even transport costs such as freight costs were a lot more expensive than in other countries. Even banking costs were higher than in most countries.

The Chairperson thanked Minister Patel, Deputy Minister Godongwana and Prof Levin for their presentation and for answering Members questions. He noted that the Members of the Select Committee were there to represent their provinces so it was important that they interacted with the Ministers and the EDD. He suggested that the Committee meet with the Minister and the EDD every three months. He noted that the Committee agreed.

The meeting was adjourned.