Millennium Development Goals: Financial and Fiscal Commission on the economic outlook for the country relating to their attainment: briefing

Economic Development

13 June 2011
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Financial and Fiscal Commission briefed the Committee on South Africas economic development and the Millennium Development Goals.  It noted that a key issue for this Committee was the New Growth Path. The briefing covered the economic outlook for the country, the New Growth Path and modelled results, the status of Millennium Development Goals, modelled Millennium Development Goals results, and concluded with a few recommendations.

South Africa was four years away from the Millennium Development Goals deadline of 2015.  Economic growth was expected to reach 3.4% in 2011 compared to other developing countries which had growth rates of 6.5%. Growth was mainly attributable to the manufacturing and mining sectors which were mainly exporters of goods, for which the exchange rate would therefore be of increased importance. Currently the fiscal deficit stood at -4.8% of Gross Domestic Product and was expected to continue to decrease. The repo rate [the repurchase rate
the rate at which the Reserve Bank lent money to commercial banks]  had dropped to its current 5.5%. A strong rand and lower domestic demand was putting strong downward pressure on the inflation rate while food prices, energy prices and wage increases placed upward pressure on it. The Consumer Price Index had increased from 4.1% in March 2011 to 4.2% in April 2011 which signalled a likely repo rate increase later in the year. The exchange rate was expected to remain at around R7 to the dollar. South Africas savings and investment levels were below those needed for growth. South Africas level was 16% currently and needed to be upwards of 24%. Current savings as a percentage of disposable income stood at -0.3%. Unemployment in the first quarter of 2011 stood at 25%. Structural challenges in the economy were transport and energy infrastructure and public service delivery.

The modelling of the New Growth Path results was a multi-sectoral analysis and was inclusive of taxation options for financing mechanisms and also included an option for increasing public debt. The modelled results comprised two simulations - one on increased public spending and the other on increased investment. The former showed that it would have little impact on Gross Domestic Product while the latter had a greater impact on Gross Domestic Product and stimulated real consumption.

Meeting report

Millennium Development Goals
1. Eradication of extreme poverty. The goal was to halve the $1 per day poverty rate.  It had already attained that goal.

2. Universal Primary Education.  The goal was to have a net enrolment of 100%. It stood at 98% currently.

3 Gender Equality. The goal was to have an education ratio of 100. There was a drop off of the ratio at high school level while the level of women employed in the non-agricultural sector remained static at around 42. Women represented in the national Parliament increased from a quarter to a third.  

4. Reduction in Child Mortality. The target was a reduction by two thirds of the infant mortality rate. Notwithstanding a healthy increase in the immunization rates, the mortality rate of children under five remained in the region of 46 per thousand children. This  target was unlikely to be met until there was progress on the HIV/Aids front.

5. Improved Maternal Health. The target was to reduce 1990 maternal mortality rates by three quarters. Despite the fact that births attended by skilled health staff increased to 94.3% in 2008, maternal health mortalities increased from 230 per 100 000 births in 1990 to 410 per thousand in 2008. This was a major challenge for the health sector.

6. Combating HIV/Aids, Malaria and other diseases. The target was to halve and reverse the prevalence of diseases. The prevalence of HIV/Aids in the age group 15 to 49 and the number of children orphaned by HIV/Aids had in fact increased,  the latter by almost 300%. Contraceptive prevalence rates had dropped from 57% to 12.7%.   There had thus been no impact on HIV/Aids. Tuberculosis cases detected under the Directly Observed Treatment Short Course  (DOTS) protocol remained static at 72%.

7. Environmental Sustainability. The protected environment areas in the country remained 7.58% of the land area. There was a slight improvement on carbon dioxide emissions, access to improved water and access to improved sanitation.

8. Develop a Global Partnership for Development. The youth unemployment rate remained high at around 45%.  Telephone ownership had gone up dramatically as had computer ownership.

It became apparent in modelling the attainment of Millennium Development Goals targets that South Africa would not be able to attain all the  targets by 2015 given the costs involved. Millennium Development Goals 1, 7 and 8 would be met. Millennium Development Goals 2 and 6 were likely to be met and Millennium Development Goals 4 and 5 would not be met. For Millennium Development Goal 2 to be met educational spending would have to increase from 1.2% to 23.5%.  Health spending would have to increase from 3.3% to 17.4% for Millennium Development Goal 6
s target to be reached.

It was apparent that HIV/Aids impacted on child mortality rates and most of the other Millennium Development Goals. The Commission recommended that expenditure regarding equitable shares and conditional grants be reprioritised, that the Government explore alternative ways of financing Millennium Development Goals, that Millennium Development Goal 2 and Millennium Development Goal 6 (universal education and HIV/Aids) be targeted, as they had the greatest positive spill over effect on other Goals. 

Members asked why the prevalence of tuberculosis in the Western Cape was so high, the highest in the world. What impact did HIV/Aids have on productivity? Which developing countries used privatization because public expenditure by parastatals was not efficient? What were the Commission
s views on the high vacancy rate in the public service? Why was there no improvement on the unemployment figures despite the existence of organisations like Samaf and Khula to promote small business development? What were the impediments to job creation? Why were there differing statistics? it introduced doubt in the figures.
What impact did work migration patterns have on growth figures? Was it appropriate to be compared with China? Was the country paying enough attention to small business development and entrepreneurship? What were the impediments to small business? Was the country prioritising HIV/Aids too much at the expense of primary health care?

Financial and Fiscal Commission (FFC). Briefing
Mr Bongani Khumalo, Acting Chairperson and Chief Executive Officer (CEO), Financial and Fiscal Commission (FFC), said that the Commission had been established under Chapter 13 of the Constitution and advised Parliament on the division of revenue and other financial and fiscal matters. He said the FFC normally dealt with macro economic questions while the New Growth Path, which was a key issue for the Economic Development Portfolio Committee, was at a micro economic level.

Dr Ramos Mabugu, Director: Research Programme, who did the briefing, said that the country was four years away from the Millennium Development Goal (MDG) deadline of 2015. The briefing would cover the economic outlook for the country, the New Growth Path and modelled results, the status of the MDGs, modelled MDG results,  and conclusion.

Economic Outlook
Dr Mabugu said that growth had increased from -1.7% in 2009 to 2.8% in 2010. It was expected to reach 3.4% in 2011 which was low when compared to other developing countries which had growth rates of 6.5%. Growth was mainly attributable to the manufacturing and mining sectors. These sectors were also mainly exporters of goods, thus the exchange rate increased in importance. The fiscal deficit had been -7.3% of Gross Domestic Product (GDP) in 2009/10. Currently the deficit stood at -4.8% of GDP and was expected to continue to decrease. The repo rate [repurchase rate – the rate at which the Reserve Bank lent money to commercial banks] had dropped to its current 5.5%. A strong rand and lower domestic demand was putting strong downward pressure on the inflation rate while food prices, energy prices and wage increases placed upward pressure on it. The Consumer Price Index (CPI) had increased from 4.1% in March 2011 to 4.2% in April 2011 which signalled a likely repo rate increase later in the year. The exchange rate was expected to remain at around R7 to the dollar. South Africa
s savings and investment levels were below that needed for growth. For a four percent growth rate one needed 24% savings and investment level while South Africas level currently was 16%. This needed to be compared with China, which had a 40% savings level. Current savings as a percentage of disposable income stood at  -0.3%. Unemployment in the first quarter of 2011 stood at 25%. Structural challenges in the economy were transport and energy infrastructure and public service delivery.

Modelling the NGP results incorporated a multi-sectoral analysis and was inclusive of taxation options for financing mechanisms and also included the option of increasing public debt. The modelled results comprised two simulations one on increased public spending and the other on increased investment. The former showed that it  would have little impact on  GDP while the latter had a greater impact on GDP and stimulated real consumption.

Millennium Development Goals
MDG 1. Eradication of extreme poverty.
The goal was to halve the $1 per day poverty rate.  In 2000 the percentage of population subsisting on less than  $1 a day  stood at 11.3% and in 2006 the percentage was 5%. The Poverty Gap  in 2000 was 3.2% and in 2006 was 1.1%.  When applying the Gini Co-efficient it had become apparent that the problem was not the absolute income in the country but rather the distribution of the income.

MDG 2. Universal Primary Education. 
The goal was to have a net enrolment of 100%. The net primary school enrolment ratio of males was 90% in 1990 while in 2008 it stood at 98%. For females it was also 90% in 1990 while it increased to 98.8% in 2008. Youth Literacy for the ages 15-24 was 93.9% in 1995 but dropped to 90.3% in 2008.

MDG 3  Gender Equality.
The goal was to have an education ratio of 100. The ratio of girls to boys in primary school was 1: 1.03 in 1995 while in 2009 it stood at 1: 1.04. The ratio of girls to boys in secondary school was 1: 0.88 in 1995  while in 2009 it stood at 1: 0.94.  Women employed in the  non-agricultural sector  stood at 42.6% in 1990 and 42.9% in 2007. Women represented in the national Parliament were 25% in 1995 and 33% in 2007. 

MDG 4. Reduction in Child Mortality
The target was a reduction of the infant mortality rate by two thirds. The mortality rate of children under five  stood at  45 per thousand in 1990 and 48 in 2008. Immunization of children under 12 months stood at 79 per thousand in 1990 and 93.3 in 2008. Thus it could be said that the lack of significant progress in the infant mortality rates despite a healthy increase in the immunization rates, could be ascribed to HIV/Aids. This MDG target was unlikely to be met until there was progress on the Aids front.

MDG 5. Improved Maternal Health
The target was to reduce 1990 maternal mortality rates by three quarters. In 1990 it stood at 230 per 100 000 births while in 2008 it was 410, notwithstanding the fact that births attended by skilled health staff increased from 82% in 1995 to 94.3% in 2008. As could be seen by the figures this was a major challenge for the health sector.

MDG 6. Combating HIV/Aids, Malaria and other diseases
The target was to halve and reverse the prevalence of diseases. The prevalence of HIV in the age group 15 to 49 was 6.2% in 1995 and 8.7% in 2008. Contraceptive prevalence rates in 1990 were 57% while in 2007 it stood at 12.7%.  The number of children orphaned by HIV/Aids was 660 per thousand in 2000 and almost tripled to 1800 per thousand. Tuberculosis (TB) detected under the Directly Observed Treatment Short Course  (DOTS) protocol was 72.8% in 1990 and stood at 72.13 in 2008.

MDG 7. Environmental Sustainability
The protected environment  areas in the country was 7.58% of the land area in 1990 and also now in 2008. The carbon dioxide emissions of the country  stood at  9.47 metric tons per capita in 1990 and now stood at 8.82 in 2007. Access to improved  water  stood at 83 % in 1990 and was now at  92%. Access to improved sanitation moved from 55% of the population to 69.7%.

MDG 8. Develop a Global Partnership for Development
The youth unemployment rate  stood at 44.2% of the 15 to 24 year old labour force in 2000 and stood at 46.9% in 2007.  Telephone ownership had gone up from 94.3 per thousand people in 1990 to 889 per thousand in 2007. Personal computer ownership in 1990 had stood at 7.1 per thousand people  and had increased to 84.6 by 2006.

Modelling the attainment of MDG targets
It became apparent in modelling the attainment of MDG targets that South Africa would not be able to attain all the MDG targets by 2015 given the costs involved. MDGs 1,7 and 8 would be met. MDGs 2 and 6 were likely to be met and MDGs 4 and 5  would not be met. For MDG 2 to be met, educational spending would have to increase from 1.2% to 23.5% while having a concurrent positive impact on MDGs 4, 5 and 6.  Health spending would have to increase from 3.3% to 17.4% for MDG 6
s target to be reached. This too would have concurrent positive benefits on MDGs 2,4 and 5. In fact those benefits were double the value of benefits  when money was pumped into education. If the attainment of MDG 6 were to be financed through an indirect tax increase then health expenditure would increase from 2.73% to only 14.85%.

It was apparent that HIV/Aids impacted on child mortality rates and most of the other MDGs. The FFC recommended that expenditure regarding equitable shares and conditional grants be reprioritised, that government explore alternative ways of financing MDGs, that MDG 2 and MDG 6 universal education and HIV/Aids be targeted, as it had the greatest positive spill over effect on other MDGs. 

Discussion
Dr P Rabie (DA) asked why the prevalence of tuberculosis in the Western Cape was so high, one of the  highest in the world. What impact did  HIV/Aids have on productivity in the manufacturing sector. Which developing countries used privatization because public expenditure by parastatals was not very productive.

Mr Khumalo replied he could not answer the question on TB in the Western Cape.
 
Dr Mabugu replied  that the World Bank had done a study on the impact of HIV/Aids which indicated huge direct costs such as absenteeism and attrition rates.

Mr Z Ntuli (ANC) asked what the FFC
s views were on the high vacancy rate in the public service was. Why were there no improvement on the unemployment figures despite the existence of  organisations like Samaf, IDC and Khula to promote small business development. What could be done to encourage household savings? Were game reserves regarded as protected land? Why were there differing statistics, it introduced doubt in the figures.

Mr Khumalo replied that budgets had been cut to be used for higher education and this might have an impact on the availability of money for posts. Yes, game reserves were regarded as protected land. He said statistics were about the assumptions one made in talking about the future. The FFC was compelled to use the official statistics produced by Statistics South Africa (Stats SA).

Dr Mabugu replied that household income was the big driver of savings, i.e. the more income you had the more you were able to save. Another factor was interest rates which was very low for savings deposits.

Mr N Gcwabaza (ANC) asked what the impediments were to job creation as he felt that it was not a lack of skills as he had encountered many people who were skilled but could not get a job.
 
Mr Khumalo replied that economic structures changed and labour absorbing sectors of the economy changed and that the educational structure should also change to keep up to date. The biggest mistake had been the neglect of the Further Education and Training (FET) sector which developed technicians and artisans. University graduates were trained in fields the economy did not require. The issue was the matching of skills to what the economy required. There was also the issue of information not being properly disseminated.

Dr Mabugu replied that it was a worrying issue that unlike in other countries, a high premium was placed on experience in South Africa.

Mr X Mabasa (ANC) asked what impact it had on people with disabilities. What criteria were to be used to measure broadening the benefits of the economy to the broader public society.
 
Mr Khumalo replied that the FFC had not done anything regarding people with disabilities as these were issues addressed outside of modelling exercise like this one. He said the Gini co-efficient quoted by Dr Mabugu was about income distribution of which South Africa had one of the worst in the world. If one included social grants into the equation then the South African co-efficient improved. But a more sustainable redistribution  was Government
s decision to spend on education and health.

The Chairperson asked what impact work migration patterns had on growth figures. Was it appropriate to be compared with China? Was the country not paying enough attention to small business development and entrepreneurship. What were the impediments to small business. Was the country prioritising  HIV/Aids too much at the expense of primary health care.

Mr Khumalo replied that these were micro economic level issues to be dealt with by the organisations and the mind set of public officials. The Commission had held discussions with the medical sector on the importance of primary health care vis a vis secondary health care. In South Africa primary health care was more important. The impact of work migration was quite significant especially in the cities. Migrant workers transport costs were very high. China was used as an example of a country which was performing very well.

The meeting was adjourned.


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