New Growth Path & Job Creation Target of 5 Million: briefing by Minister for Economic Development

Economic Development

29 August 2011
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Minister for Economic Development, Mr Ebrahim Patel, and his Department, briefed the Committee on the New Growth Path and employment in the country. The presentation focused on the overall trends in employment and actions taken in the infrastructure sector, the agricultural sector, the manufacturing sector, on mining and beneficiation, on the green economy, tourism, the creative sectors, the knowledge economy, the public sector and the social economy. The presentation also spoke to the Skills Accord that prioritised partnerships between business and individual colleges, and the Basic Education Accord that committed business, labour and community organisations to support dysfunctional schools through partnerships at the local level. The presentation showed that 152 000 new jobs were created since the third quarter of 2010, mostly in the formal sector; however, total employment was still very low. Most jobs were lost by the youth, who made up 30% of employed people but suffered 60% of the job losses. The Minister concluded that Gross Domestic Product recovery was strong but jobs recovery lagged behind. Productive sectors such as mining, agriculture and manufacturing were still under pressure, and investment was low overall. It was vital employment growth should overcome the deficit left by the economic downturn.

The Committee commended the Minister and the Economic Development Department on a comprehensive and honest presentation that showed there was a clear vision for the direction the country wanted to go in, in the future. They asked the Minister what he thought the reason was for the general decline in employment, to what extent the EDD was meeting with the Department of Transport to discuss the National Transport Master Plan (NATMAP) for 2050, what the government was doing about the high steel prices negatively affecting development of infrastructure in the country, the flexibility or inflexibility of South African labour laws, why a big chunk of the funds for public sector infrastructure was given to Gauteng, and what the strategy was for the agricultural sector. Members also wanted to know what the State Owned Mining Company would specialise in and what its brief was, given that the sector had shed so many jobs in the past year.

The presentation indicated that organised labour had committed to accept people as trainees. The Committee thought this was a positive development because it would enhance skills development. One of the reasons people were reluctant to employ trainees was the present labour laws were very rigid. This was why the country experienced jobless growth and not labour-intensive growth. A document from Parliament’s research unit spoke to definitions for unemployment. Members asked the Minister to define what he meant when he spoke of a “job”. The research document showed that the unemployment rate in Limpopo had declined from 26.9% to 19.3% but the unemployment rate in all the other provinces had increased. They asked why the rate decreased in Limpopo. The Committee also asked what principles underpinned the Free Trade Area, how far the Competition Commission was in investigating high bank charges in the banking sector, what progress had been made on filling public sector vacancies, and why the tender process was being reviewed.

Members asked if the government had a skills database for the country that looked at how many people emerged from tertiary institutions, what kind of skills they had on graduation, and if these skills matched the needs of the public and private sectors. The Committee worried that South Africa was always compared to European countries, which put pressure on the country and forced it to become reactive rather than proactive. They noted the decline in job creation in agriculture, mining and manufacturing over the past three years. Members asked if the decline was indicative of the country’s unsustainable responses to problems or if there were other challenges the country was experiencing.


Meeting report

Briefing by the Minister on the New Growth Path and Employment
Minister for Economic Development, Mr Ebrahim Patel, briefed the Committee on the New Growth Path (NGP) and employment in the country. He was accompanied by Prof Richard Levin, Director-General of the Economic Development Department (EDD). The Minister said the NGP set targets for employment growth overall, focussing on expanding the productive sectors of the economy. Cabinet set six priority job drivers for 2011/12 that consisted of infrastructure, agriculture and rural development, the mining value chain, manufacturing sectors in the Industrial Policy Action Plan 2 (IPAP2), tourism and high-level services, and the green economy. The presentation covered up to mid July 2011.

In terms of overall trends in employment, 152 000 new jobs were created since the low point in the third quarter of 2010, mostly in the formal sector. This was 64 000 more jobs than a year ago, but total employment, which included both paid jobs and self-employment, was still substantially below the 2008 levels. Most of the jobs were lost by young people, which made up 30% of employed people but suffered 60% of job losses. Currently, job creation is too sluggish and slow despite GDP recovery. The size of the total labour force grew significantly in the first two quarters of this year. It grew by approximately 200 000 persons each quarter, after dropping in every quarter last year. A sectoral breakdown over the period since the end of September 2010 showed that the formal sector grew by 155 000 persons, the informal sector grew by 41 000 persons, the agricultural sector declined by 42 000 persons, and the number of domestic workers remained constant. The pace of quarterly job growth has slowed down and jobs were lost in manufacturing, mining and agriculture in the second quarter compared to the first three months of the year.

Currently, the Kusile and Medupi construction projects are employing over 20 000 people. The Gautrain expansion to Tshwane has started operations, which will result in more employment opportunities. The Industrial Development Corporation (IDC) announced an R11bn fund for logistics investments that will complement the infrastructure build-programme. Project expenditure on infrastructure is set to be in excess of a quarter trillion Rand a year, with the Medium Term Expenditure Framework (MTEF) currently projecting R807bn in spending over the next three years. Estimates suggested that current plans for large-scale developments will sustain between 50 000 and 100 000 jobs in construction through 2015. The broadband capacity in the country has been significantly expanded and its cost has declined by 80% at the wholesale level in the past two years providing cheaper input costs to businesses, and creating opportunities to expand enterprises that rely on Information and Communications Technologies (ICT).

For actions on agriculture, the Comprehensive Rural Development Programme (CRDP) was being implemented in 65 sites and the rural youth employment programme created 7500 employment opportunities. The national and provincial agriculture departments are supporting over 100 000 smallholders a year. The IDC set up a R7.7bn fund for investments in the agricultural value chain. A number of large agro-processing projects have been announced, including a seed-crushing plant in Mpumalanga that will create up to 4000 job opportunities in agriculture.

For the manufacturing sector, the Department of Trade and Industry (DTI) estimated that its programmes created almost 60 000 jobs through March 2011, with notable progress around auto, clothing and capital goods production, as well as cross-cutting measures like local procurement and industrial financing. The IDC committed to making available R21bn for industrial funding of key manufacturing investments in order to drive industrial development. The new support programme for the motor industry laid the basis for R14bn in new investment plans. Continued implementation of the IPAP fostered expanded investment, production and employment in a number of other manufacturing sectors.

Regarding actions on mining and beneficiation, the new licensing system was in place to provide greater transparency and accountability. Cabinet has adopted the beneficiation strategy that gave the basis for practical steps to increase domestic value added and jobs based on South Africa’s rich mining resources. Cabinet also approved the establishment of the state-owned mining company and government has identified options for moderating iron and steel prices. The IDC set aside R22bn for mining and beneficiation investments. The Department of Mineral Resources (DMR), together with relevant stakeholders, identified key constraints on growth in the sector.

For the green economy, the IDC set aside R22.4bn for green projects in the next five years. The new national electricity plan provided for more than one-third of new energy generation through renewable energy. Eskom, the IDC and their partners managed the subsidised rollout of 140 000 solar water geysers, with a target of reaching a million.

The National Tourism Development Strategy was adopted, which looked at growth in domestic tourism and recognised it as crucial for sustainability and employment creation. The IDC allocated R14.8bn for investment and industrial funding in tourism, the creative industries, and high level services. The Business Process Services (BPS) strategy had continued to generate new employment opportunities. In 2011, R42m new investment commitments were approved linked to 806 jobs. As of early March 2011, 2113 people were in training.

For actions taken on the knowledge economy, the Department of Science and Technology (DST) and the IDC are partnering with private investors to apply new technologies to produce titanium and fuel cells. More than 50 companies participated in technology benchmarking and a total of 26 foundries were identified for targeted technology support.

Public sector employment, which accounts for around 16% of all jobs, continues to provide a stabiliser for employment, as it increased jobs from the end of 2008 despite sharp declines in private employment over most of the period. This was particularly important for women, for whom the public services provide the main source of formal employment. The Expanded Public Works Programme (EPWP) created new employment opportunities for an additional 34 000 people compared to the previous year, providing opportunities and income for a total of 280 000 persons. The Community Work Programme provided some access to income through job opportunities for more than 80 000 people.

In terms of the social economy, the Department of Rural Development and Land Reform (DRDLR) reported that over 300 co-operatives were established under the CRDP. The DTI estimated that its co-operative incentive scheme generated 1170 direct permanent jobs through March 2011. The EDD established a partnership with the University of Johannesburg to support social enterprises.

For African development, a Heads of State conference in South Africa in June 2011 launched negotiations for a Free Trade Area (FTA) linking North, East and Southern Africa, which would create a common market of 600 million people with a combined GDP of about R1 trillion. The Development Bank of Southern Africa (DBSA) expected to invest R2.6bn in bulk infrastructure in the region in the year to March 2011, with investments in the following three years expected to reach between R9bn and R12bn and enable over 70 000 jobs.

A skills accord was finalised, committing business and the state to enrol at least 30 000 artisan trainees over the next twelve months in training programmes. Business agreed t o make at least
17 000 internship places available for young persons who need work experience as part of obtaining their formal qualifications. Business will advocate that member-companies increase their spending on training to at least 4% to 6% of payroll and train beyond the needs of their own operations. Organised labour committed to accept that such additional persons be regarded as trainees and not as employees, and thus there would not be an expectation they be employed and covered by collective agreements. Further Education and Training (FET) Colleges will be prioritised with partnerships between business and individual colleges. The restructuring of the Sector Education and Training Authorities (SETAs) had been advanced. The stronger focus is now on improving basic education and achieving more equal access to tertiary education have laid the basis for decisive steps toward addressing skill bottlenecks in the short run while giving all South Africans, no matter how poor their families, access to the education needed to function in the modern economy.

The Basic Education Accord commits business, labour and community organisations to support dysfunctional schools through partnership at local level to get basic teaching and learning restarted, ensure textbooks are delivered and used and help ensure that school governing bodies are functioning, and to change mindsets among teachers, learners and parents at school level.

A new direct lending facility, called Khula Direct, is being piloted with an initial funding allocation of R55 million. This is in addition to existing small and medium business support programmes that make about R2.8 billion available to SMMEs through industrial and small business funding. The merger of the national government’s major credit programmes for small and micro enterprise into a new unit in the IDC lays the basis for a significant expansion and improved links to comprehensive support programmes, with a commitment to expanding incubator programmes in particular. Funding support of R270 million in bridging finance for small and medium enterprises that have obtained public tenders was made available over the past financial year.

The government established the R9-billion Jobs Fund to encourage new initiatives around employment creation both inside and outside of the state. A programme to provide R20 billion in tax incentives for large business was implemented. New regulations under the Preferential Procurement Act, which will come into effect at the end of the year, which will increase government’s commitment to buying local in order to stimulate employment and production and target billions of Rands of state and State Owned Entity spending to local manufacturers. The IDC re-geared its balance sheet to massively increase its projected funding in the next five years to R102 billion, as set out under the different jobs drivers, with a commitment to pro-actively seeking out investments that would diversify and green the economy in ways that promote employment creation. In the past year, IDC funding approvals realised their highest levels ever, with South African projects receiving R8.4 billion. This amount will more than double in future. The IDC improved its impact on job creation with an expected 19 650 full time jobs created and an additional 11 650 jobs saved bringing the total impact on employment to over 30 000. Further, IDC funding will be supporting an estimated 8100 employment opportunities in the informal sector.

The competition authorities’ targeting of monopoly pricing practices around basic necessities and intermediate inputs saw progress toward lower prices or more competitive markets in bread, fertiliser, chemicals and construction services. Bread prices came down (to April 2011) due to the Pioneer competition settlement, during a period when global wheat prices rose. The price of cement dropped by 11% - the first drop in more than a decade – following a competition investigation, with more competitive prices in cement pipes and rebar steel products, all key inputs into construction and industry. Conditions placed on a number of mergers and settlements in price-fixing cases have saved jobs or provided jobs guarantees, including in paint manufacturing and retail.

The Minister concluded that GDP recovery was strong but jobs recovery lagged and was weak. Productive sectors such as manufacturing, agriculture and mining were still under pressure and the turnaround was mostly based on recovery in global commodity prices rather than diversification of the domestic economy. Investment is low overall, and currency remains relatively strong, slowing growth. The country needed employment growth to overcome the deficit left by the downturn. Of the six job drivers, rural development, infrastructure investment and manufacturing need more attention.

Discussion
The Chairperson thanked the Minister for the detailed presentation. The Committee was aware of the twelve outcomes stemming from the Cabinet lekgotla on job creation and a special meeting would be called to discuss these outcomes.

Mr N Gcwabaza (ANC) noted that the Minister made reference to the general decline in employment in specific sectors such as manufacturing, mining and agriculture. He asked the Minister what he thought the reason was for the general decline in employment. He asked to what extent the EDD was meeting with the Department of Transport (DoT) to discuss the National Transport Master Plan (NATMAP) for 2050 so that infrastructure development for rail and road could become a coordinated, broader exercise. Linked to this, was the problem of high prices for steel in the country, as it negatively affected the domestic steel industry. He asked if any discussions were being held with the steel manufacturing industry to deal with this pricing issue, because it would negatively affect the development of infrastructure needed for the country.

The Minister replied that the decline in employment in the agricultural sector could be distinguished from the decline in employment in the manufacturing sector. Over the last few decades, there has been a steady decline in employment in the agricultural sector. Employment in agriculture has gone from approximately one million persons to just under 600 000 people. The pressure on job losses for agriculture started in the 1960’s with mechanisation of farms. If one looked at comparable countries, it was clear that successful nations were ones that were able to keep people in agriculture while their industrialisation resolution absorbed people as well. If there were a great loss in employment in the agricultural sector without having alternative economic activities to go into, then unemployment would occur. For example, China, India and Brazil’s economies had a greater proportion of their GDPs and employment in agriculture. He said there was short term and long-term reasons for the decline in employment in agriculture. The country experienced an unusual twelve-month period with significant floods, droughts and animal diseases. This could explain short-term movement in the agricultural sector but could not account for the long-term trajectory. The government had to look very carefully at what all the causes were and what could be done in addition to the steps the government has already put in place. He said it would be helpful if a joint session could be held between the Economic Development Committee, the Rural Development Committee and the Agriculture, Forestry and Fisheries Committee. The Committees could discuss, in detail, some of the problems and pressures, as well as some of the steps that were being taken. There were steps being taken currently by the Department of Agriculture, Forestry and Fisheries (DAFF) to ensure the decline in agriculture employment is reversed, and that smallholder farming is supported. Statistics South Africa (Stats SA) data showed that there was a significant number of people involved in subsistence farming. However, this was often coupled with a modest production of agricultural products or fairly minor stock of cattle or sheep. He thought the big employment numbers were more likely to come from moving small subsistence farmers toward small-scale commercial farming. There were a number of ways this could be done. A discussion was needed for this.

The Minister explained that unlike agriculture, the manufacturing sector was a more “mixed” experience. If one looked at manufacturing figures from a year ago compared to current figures, then one would see a growth in manufacturing. If one looked at manufacturing today compared to six months ago, one would see a decline. If one looked at manufacturing compared to its high point before the recession, one would see the country was still significantly low in terms of output and employment. This pressure made the government select the manufacturing sector as an area for special attention in the NGP. The IPAP2 was an attempt to ensure the government avoided the de-industrialisation pressure in the economy. The reason for the manufacturing sector’s weak performance varied from sub-sector to sub-sector. On the macro-front, the strength of the Rand could be blamed. On the micro-front, there were cost pressures and uncompetitive input costs, challenges with logistics and lack of skills, and anti-competitive behaviour. This formed the agenda of what the government wanted to focus on.

The Minister answered that a lot more coordination within the state when it came to rail and road to ensure there were coordinated exercises. The next time the Minister came to Parliament to discuss Cabinet decisions; he would make the point to tell Members how they were trying to integrate rail, centrally, into the government’s thinking, not just as an alternative to road but as a key means of ensuring that they create the capacity to move goods at a significantly cheaper cost, lower carbon emission, and at greater speed. The government also wanted to link excluded areas more systematically through where rail would be placed. He added that the government had under-invested in rail significantly. The last significant investment was made pre-1994. The government could not be in denial about it anymore; as it was an area that needed significant expansion.

The Minister explained that there had been discussions at Cabinet level and with role-players in the steel industry on the high price of steel. He agreed that the high price of steel had an impact on infrastructure costs and regional integration. For the manufacturing sector to be successful, the government had to reduce the structural price of steel. Some of the discussion was focused on ensuring that the benefit of the development pricing imbedded in the Kumba-ArcelorMittal agreement that was in place prior to the current dispute, went to “downstream” users more substantially. This meant that more competition would be introduced in the steel market, ensuring more than one “upstream” steel producer.

Mr S Ngonyama (COPE) commended the Minister on the comprehensive presentation. It was encouraging because it showed there was clarity of vision for the direction the country was going in the future. One thing that did not stand out was the flexibility or inflexibility of the labour laws in the country. He asked what the issues were around this matter. What was the strategy for the challenges that the country was going to face in terms of overpricing of inputs in certain sectors? He said the public sector infrastructure injection was very important for increasing the “economic power” for the country as a whole. However, a big chunk of the injection was in the Gauteng province, where there was infrastructure development happening all over unlike in other provinces in the country. This was going to distort the economy of the country because people were still going to be languishing in poverty in certain provinces. This was a problem. He addressed the matter of agriculture and access to finance. He wanted more information on this. What was the strategy for the agriculture sector? It was a serious issue that was linked to poverty levels and access to food, especially in rural areas. This was a fundamental sector for the country.

The Minister addressed the agricultural sector. He said he already made mention that there should be a joint discussion between the Economic Development, Rural Development and Agriculture committees. This meeting could also address the challenge of funding. He said some funding came from the Land Bank, while other funding came from IDC for agro-processing activities. Better coordination was needed in this value chain if more investment was going to be made.

The Minister answered that the government has asked itself why infrastructure spending was so spatially skewed. It was because there was no strategic coordination of individual infrastructure projects. This was left to provinces and public agencies, like Eskom and Transnet, and it was left to municipalities. The new Presidential Infrastructure Coordination Commission was mandated to address the matter. He assured the Committee that the government was taking the necessary steps to address this issue.

Dr P Rabie (DA) noted that the presentation said that Cabinet approved the establishment of a state-owned mining company. He asked what the mining company would specialise in mining. What would the mine’s brief be as the mining sector has shed quite a few jobs over the past financial year? It was important to note that many of South Africa’s mining companies were diversifying and moving towards West Africa, and due to wage demand it was very difficult for them to breakeven. The presentation said that organised labour committed to accept that additional persons should be regarded as trainees and not as employees. He thought this was a positive development because it would enhance skills development. One of the reasons people were reluctant to employ trainees was because present labour laws were very rigid. This was why the country experienced jobless growth and not labour-intensive growth.

The Minister explained that the state-owned mining company was not going to be confined to mining just one mineral. He wanted to focus on the role of the state-owned mining companies in supporting and promoting beneficiation. The companies were being asked to deal, explicitly, in their business plans, with this issue.

He said the issue of trainees versus employees was being disseminated through the business community and their organisations. This matter was recognised and accepted by the labour movement in their talks.

Mr N Singh (IFP) noted that slide 24 of the presentation really captured the challenges the country was facing. It was nice to know that the EDD and the Minister were not hiding the challenges. He thanked them for their honesty. A document from Parliament’s research unit spoke to definitions for unemployment. He asked the Minister to define what he meant when he spoke of a “job”. The research document also showed that unemployment rate in Limpopo declined from 26.9% to 19.3%. The unemployment rate in all the other provinces increased. He asked why the unemployment rate decreased in Limpopo. The Minister spoke of FTAs. What were the broad principles that had to underpin FTAs? He asked what progress the Competition Commission made on investigating high bank charges in the banking sector.

The Minister answered that he would be happy to look at the data for unemployment in Limpopo. He reminded the Committee that the data for unemployment was calculated on the number of people that were actively looking for work. In the first two quarters of this financial year, there was a significant increase in the number of people entering the labour markets. This affected the employment rate. The more people become discouraged and stop looking for work, the more the unemployment rate would decline. It was a perverse consequence. He would look at the data and try to get a better understanding of what was happening. After looking at the data the Minister concluded that the number of employed persons declined by 11 000 from June 2010 to June 2011. The number of unemployed persons declined by 23 000 over the same period. This showed that the number of discouraged work seekers increased dramatically. This showed that the unemployment problem in Limpopo had not been resolved.

The Minister said there was a formal set of principles on the FTAs that he could make available to the Committee that would spell out the official consensus between everybody in the FTA talks. The starting point was to find ways in which tariff and non-tariff barriers that restrict trade between the countries could be eliminated or reduced, and to accept that the country with the greatest economic capacity will give more than those with less capacity. This meant that there may have to be a differentiated tariff reduction schedule in the period leading up to a full FTA. Only 12% of total African trade was intra-regional trade compared with 45% for Asia and 70% for Europe. It was important for South Africa to look into diversifying its economy. However, even if there were no trade barriers, the country would still need to find ways to transport its goods to other countries. These kinds of questions would still have to be discussed.

The Minister addressed the question on what a job was. He said that the government faced two challenges. When government departments reported on success in creating jobs, they did not use the same definition, and there was the issue of double counting. For example, if jobs were created with set-top boxes (STBs) manufacturing, they were reported by the Department of Communications (DoC) as well by the Department of Trade and Industry (DTI). A team was being put together to create a more rigorous definition of what a job is to create more credibility in terms of data. He assumed the Committees research document used Stats SA’s definition for what job was. The Stats SA definition was usually taken from international definitions so there was comparability of data. He did not think it answered the broad question of what a job really was. This was not an academic question; it was a practical policy question. The first phase of the EPWP was based on a system where jobs were defined as short term. The person would then exit the system having had that opportunity. This was being looked at and pilot approaches were being used to see which definition would fit best. Recently, more energy was being focused on community works programmes, which were intended to provide medium tem jobs for people faced with long term unemployment challenges. This meant that young people would be enrolled for an entire a year or longer and given a job where they would work a few days out of the week. The intention was to give them a source of regular income and to encourage them to find permanent employment. The government was moving away from the idea that a one month or two month job was sufficient to support people with long-term unemployment challenges. Some parts of the EPWP provided five days a week work for a whole year, particularly in childcare facilities. A commission would be set up and chaired by the Deputy President that would look at up-scaling some of these programmes. It was also vital that the number of jobs created by the private sector had to be expanded. This could be done in mining, manufacturing, farming, finance and agro-processing. More focus would be given to youth employment and bringing people into reasonable earning opportunities.

The Minister stated that the Competition Commission has completed its banking enquiry and the results have been forwarded to the National Treasury. He would provide more detail on the matter at a future meeting.

Mr Z Ntuli (ANC) said that the President, in his State of the Nation Address, spoke of filling vacancies in the public sector. He asked what progress had been made on this matter. He asked if it was possible for the private sector to set targets for how many jobs they could create. The presentation spoke to reviewing tenders. What was the problem with the current tender process?

The Minister replied that an interesting study was conducted by the Department of Public Service and Administration (DPSA) earlier in the year that looked at all the vacancies in the public sector. They distinguished between funded vacancies and unfunded vacancies. Funded vacancies are vacancies that were incorporated in a department’s budget and unfunded vacancies are included in the department’s organogram but not budgeted for. The DPSA’s study indicated that the level of vacancies for funded posts was very low. The bigger challenge was a misdistribution of posts. Departments were employing lots of managers and “back office” staff and very few “front office” staff. The government was looking at the shape of the public sector to see if it was optimally structured. There were significant gaps in the public sector where key skills were lacking.

In terms of the tender process, the problems were many and varied. The Minister said this included corrupt practices where the timing of the tender was held back to permit the connected individuals to ready themselves to supply the tender. There were also instances were the state overpaid tenders to an unbelievable degree, yet it is a bulk buyer. The logic of bulk buying was that the state had to be able to get massive discounts. However, this was not the case.

Mr X Mabasa (ANC) noted that approximately 300 co-operatives had been established, which meant that there were approximately 30 co-operatives per province. Given the number of jobs, it meant there would be about 150 per province. He asked if this was a terrible situation, as many more jobs had to be created under co-ops. He warned that the government had to be careful, as given the frustration of unemployment; they were “likely to go to an extreme and demand too much flexibility”. Flexibility also had its costs; it meant that there would be very poor working people, which will further burden the social development areas of the country. He noted that there were certain successes that related to certain provinces. Has the government explored areas where success stories have been run across all provinces? The government needed to explore this.

The Minister agreed that there were too few co-operatives for the provinces. However the bigger challenge was how the government could make the existing 300 co-operatives successful. He said that co-operatives usually had very short shelf lives. They often had handicaps such as a low level of managerial expertise, lack of access to finance, or disputes over how to share the proceeds from production. The government wanted to create a co-operative strategy that was more successful in the sense that if more cooperatives are established, many more would survive and become successful and viable businesses in the long term. This would be used to “ramp up” numbers.

The Minister addressed the questions on labour laws from Mr Mabasa, Mr Ngonyama and Dr Rabie. There were a lot of emotions regarding the labour market, but there had to be a proper discussion on the matter. When the government spoke of decent employment, it recognised that the country needed more jobs and better jobs. Last year, Stats SA produced a survey on monthly earnings in SA that showed there were approximately a million workers that earned less than R850 per month. Half of all workers in South Africa earned less than R850 a week. When one looked at wages in any economy, one had to look at the level required for people to be able to feed their families. However, if one looked at how to improve the competitiveness of the economy, they had to look at how to produce goods at a price level that could break into markets. Labour markets are unusual in that they are about human beings. The International Labour Organisation (ILO) said that labour was not a commodity because it was a means by which people looked after the needs of their family. He wondered if the government should drive down wages to the level of Parliament’s commitment to the people of South Africa. Practically speaking, he was not sure if this could be done. The more important challenge was that of productivity and finding partnerships between business and labour. The more this public debate on the labour market is polarised and the more everyone digs into their respective trenches, the less likely it is that partnerships would be formed. This would not take the government’s target of five million jobs any further. The country had to move beyond the rhetorical exchange between the two camps on the labour market into one that forged a more active partnership. However, it was not easy to forge partnerships in conditions of high-income inequality. PricewaterhouseCoopers (PwC) released a survey a few months ago that looked at the earnings of executive directors. For large companies on the JSE, the average remuneration package in 2010 was approximately R213 000 a week or R925 000 a month. When forging a common vision in which management and workers cooperate, issues of resentment and injustice were often raised. The NGP was being used to raise these awkward, difficult issues. A consensus between the two had to be forged. The debate on labour market flexibility had to be rooted in what the government wanted to achieve.

The Minister replied that the government wanted to replicate success stories over the country, but was not successful in doing it so far. A facility was created for provinces by the economic MINMEC to highlight success stories that could be replicated by others. One of the ideas was to use KZN’s experience with cooperatives because they invested the most money and had the most immediate success with cooperatives.

The Chairperson noted that it had been said years ago that BPS’s in the tourism industry had the potential to create many jobs. She wanted to know if this opportunity was being used optimally, especially in relation to the youth. She said that Committee visited the VW plant in the Eastern Cape and received an interesting presentation. What captured her mind was the comparative study that was done between different regions in the country. She worried about the way companies compared South Africa, as a stand-alone country, to other international countries. This put a lot of pressure on South Africa. Such comparisons could be done in a way that included other SADC countries as a region, or South Africa could be looked at along with the rest of the continent. This would show if the country was fairing low or high in terms of comparative briefings the Committee usually received. The issue of incentives was being discussed. The benefits of incentives were not really being appreciated. When studies were being done, South Africa was always being compared to European Union countries. This put pressure on the country, which forced us to become reactive instead of proactive. The decline in job creation in agriculture, mining and manufacturing has happened over the past three years. She asked if the decline was indicative of the countries unsustainable responses to problems or if there were other challenges that the country was experiencing.

The Minister replied that the BPS still attracted predominantly young people. It was true that it was a more flexible opportunity that could be located in rural areas, but often the operators of the BPS’s preferred to relocate to urban areas because there was more management talent available in big metros, there was more significant communication infrastructure, and they were able to tap into support networks that they required more easily. If the government was to successfully migrate more of these activities to rural areas, they would have to create incentives for people to relocate.

The Minister was not familiar with the comparisons used in the VW presentation. He remarked that when a comparison was done, this usually had to be benchmarked against key competitors. When benchmarking, one should not pick just a few examples where one is shown to be great or terrible; a comparison had to be made across the board. If the comparison was done on size of markets, then the comparison had to play to South Africa’s location on the continent.

Ms D Tsotetsi (ANC) suggested that more data was needed on youth unemployment as there was an outcry in the country from the youth. The first assumption was that it was due to low wages, but more information was needed. The presentation said that estimates suggested that current plans for large-scale developments will sustain between 50 000 and 100 000 jobs in construction through 2015. She asked what back-up plan the government had if workers were retrenched. She noted that the IDC set aside R22bn for mining and beneficiation investments and that the Department of Mineral Resources (DMR) identified key constraints on growth. She asked how the constraints would affect the productivity of the R22bn and what the constraints were.

The Minister replied that data was taken from year on year comparisons. Employment seemed to increase in the last quarter of every year because people are brought into retail for Christmas season. However, in January there was usually a dip in employment. This was called seasonal distortion. The year-on-year data was a reasonable way of measuring how youth employment was doing.

The Minister said that the DMR identified many constraints on growth, such as lack of railway lines to transport coal around the country.

Mr Ngonyama said that he was much more comfortable with the Minister’s pragmatic approach to the labour laws. A debate on this issue was long overdue and had to be opened up, especially in light of the high unemployment rate in the country. A consensus was needed on the matter or a Nedlac Indaba had to be held on the issue so all relevant stakeholders could be consulted. The matters of beneficiation and manufacturing also raised the question of competition. When the Committee visited the VW plant, they were told that 70% of the components used in their cars came from South Africa. He was excited to hear this. However, the price was steel could negatively affect this production. The issue of beneficiation, labour laws, the price of steel, and the cost of energy were factors that had to be monitored closely. In his opinion, South Africa was one of the top countries on the continent when it came to innovation. But, what was South Africa doing to take advantage of this benefit? Linked to this was question of getting access to finance.

The Minister said that the Nedlac indaba was taking place at the moment to discuss the NGP. A few issues had been selected to be discussed and an enterprise development accord was being developed. It was all about sequence and timing, ant the Member had to trust that they would get to the relevant issues in time.

Mr Singh agreed that productivity and competitiveness had to be a debate. He asked how this could be achieved. One way to start was to look at how productive government employees were. There were some departments that took half an hour to answer a call or to tend to people. He thought that employee contracts had to be linked to performance. It was disturbing that the youth were the ones that were suffering. There were various interventions being made but there had to be a collective effort to ensure that the youth remained employed. He asked if the government had a skills database for the country that looked at how many people emerged from tertiary institutions, what kind of skills they had when they graduated, and if these skills matched the needs of the public and private sectors.

The Minister explained that the country did not have a single, coherent database that covered the entire economy. It was an enormous challenge for most countries because data changed daily; therefore very few countries had one. The Department of Labour (DoL) has drafted a new bill that attempts to set up public agencies in each province that would collect this precise information. Small countries such as the Scandinavian countries have managed to succeed in this venture.

Mr Gcwabaza said he appreciated the effort the business sector was making in terms of creating internships with the view of providing the youth with skills. He asked if the government and private sector were in discussions regarding private sector investment in the domestic economy. Was there a strategy in place to mobilise Foreign Direct Investment (FDI)? The government was pumping a lot of money into job creation, but people wanted to see more private sector investment and FDI. A national conversation was needed on labour flexibility or inflexibility, as well as, broadly, on economic development in the country.

The Minister answered that the issue of South Africa’s labour market was more complex than many of the public commentators often recognise when it came the flexibility of labour laws and the matter of wages. Usually comparisons were made without any context, which led to distortions as was the case with Limpopo and the false decline on the unemployment rate.

The Minister stated that he was mindful of the time constraints and that he would not be able to answer all the questions. A written response would be given to the Committee on the unanswered questions.

The Chairperson thanked the Minister and the EDD for the presentation. She noted that a meeting would be held to discuss the twelve outcomes stemming from the Cabinet Lekgotla on job creation.

The meeting was adjourned.



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