New Growth Path implementation plan: Departments of Labour and Economic Development

Meeting report

The Chairperson said that Government realised that there was a need to create an economy that was much more inclusive. The New Growth Path (NGP) was a strategy and a programme that aimed to achieve this. The Departments of Economic Development (EDD) and Labour (DoL) would present to the Committee the steps and processes that had to be taken in order to realise this dream. These presentations had to spell out what the contributions of the different roleplayers, the Committee, the EDD and the DoL would have to be in helping the poor in SA. There were many people in SA without jobs, there was an economic crisis in the world and SA was affected by what was happening in the world. There were parties that tried to convince SA that to grow the economy, it had to do amputations, it had to compromise on the constitutional rights of South Africans. How was a better life, a better education going to be achieved without employment? The meeting was called to share ideas and to see whether the programmes of these two government departments linked up, and to see how they needed to be aligned in order to achieve a better lives for South Africans.

New Growth Path briefing by Department of Economic Development
Prof Richard Levin, EDD Director General, said employment was at the centre of the New Growth Path (NGP), but there were challenges. Although South Africa’s economic growth had since 1994, equalled the average for middle-income countries in the world, it remained one of the most inequitable countries in the world. Unemployment was far higher than the norm, and apartheid inequalities in asset ownership and education remained. In terms of Millennium Development Goals, emissions intensity was unacceptably high due to smelting and refining of mining products. Employment and investment had dropped sharply during the economic downturn and had not recovered.

The problem was not slow growth as demonstrated by the facts that before 1994, GDP growth was well below the norm for middle income economies, and between 1994 and 2008, it was at the norm and faster than Brazil.

The problem was structural unemployment. In the mid 1990s the share of working-age people with employment was under 40%. It improved after that, but the gains were largely erased by the 2008 economic downturn. Even at the high point of 2007, the employment ratio was ±45% which lagged far behind the international norm of over 60%.

South Africa was one of the most unequal countries in the world. The richest 10% of households received over 40% of household income and the poorest 20% received less than 2%. The median monthly income was R2800 for all employed workers, R1000 for domestic workers (representing 20% of employed African women) and R1200 for agricultural workers. Low pay and unemployment still aligned with race, gender and location.

The reasons for this were the fact that apartheid patterns of access to assets including land, education and skills, persisted. Apartheid residential patterns left many workers far from employment centres, nationally and within towns. Production structures were not friendly to employment creation. Mining and agriculture had lost jobs for over 30 years, while mining still accounted for more than half of the country’s total exports. The financial sector, while being the fastest growing sector, did not create many jobs. Most new jobs in the 2000s were created in services for households, retail, construction and business services.

A map showing the current population distribution of SA, superimposed over a map of the former Bantustans, showed that, nationally, the population was concentrated in the cities and urban areas and in the former Bantustan areas. A graph showed that in urban formal and informal areas, as well as rural formal areas on average: 50% of working age adults were employed, while in former Bantustan areas 25% of working age adults were employed.

The economic downturn of 2008 wiped out more than one million jobs and returned the unemployment levels to what it had been in the early 2000s. Employment creation returned at the start of 2011. Young adults formed only a third of employed people, but accounted for 60% of job losses.

The target of the NGP was to create five million jobs over the next ten years. The idea was to fine-tune macro and micro economic policies to support more equitable and employment-intensive growth through:
▪ Measures to make the economy more competitive
▪ Encouraging more labour intensive and green activities with greater focus on domestic and regional markets.
▪ Supporting broad-based ownership and more equitable education and skills as basis for long term equity.
▪ Social dialogue and solidarity as central to change.

To achieve the jobs target, required growth and greater employment intensity of growth, which was the increase in employment relative to growth in the GDP. An employment intensity of 0,8 would require a growth rate of 4%. The reality was that very few middle-income economies had grown faster than 5% a year for long periods. China and India were exceptions. The challenge for SA was to return to jobs growth while improving security.

The task for government was to look for employment opportunities in jobs drivers and implement policies to take advantage of them. Jobs drivers were the traditional main economic sectors (such as agriculture and agro-processing, mining and beneficiation, tourism), infrastructure building and maintenance, spatial opportunities (like rural development and African regional development), social capital (for example the social economy and the public sector), and the new knowledge and green economies. Within each of these fields there were innovative programmes that had the potential to create significant numbers of jobs.

The micro-economic policy priorities for 2011/12 were:
▪ maintain public investment at around 9% of GDP, accelerate job schemes, especially the Community Work Programme (CWP) and Jobs Fund,
▪ accelerate job schemes,
▪ a task-team to address blockages to private projects (like regulatory and infrastructure hindrances),
▪ a more vigorous strategy to moderate prices for key industrial and agricultural inputs and wage goods (fertilizers, electricity and commuter transport),
▪ new regulations for local procurement and enforcement of payment within 30 days by all state agencies,
▪ reform of BEE,
▪ mobilise and target investment in African regional infrastructure.

The NGP required the state to be agile, responsive and ready to adapt to change; to align around core priorities across the state; and to work closely with stakeholders to ensure that policies respected realities and enjoyed broad support.

The NGP prioritised employment-creating growth. It consistently assessed the impact of state policies, programmes and projects on employment, equity, economic growth and emissions. It facilitated social dialogue through improvements in structures and procedures.

Social dialogue was crucial for the NGP. Dialogue had to deepen at sector and workplace levels. Institutions for social dialogue had to be strengthened at all levels with NEDLAC as the most important forum for it. High level representatives of all constituencies met at NEDLAC, where they had to agree to start with the issues that were accessible and easy to reach consensus on, in order to create jobs. These issues were agreements on skills development, local procurement and enterprise development amongst others. There were other forums for social dialogue like the Presidential Business and Labour Summits.

The implications of the NGP on the labour market: to impact positively on the quality of employment for the majority required strong laws, support for the worker’s voice, skills development and higher employment levels. Specific proposals on labour market regulation included greater protection for workers on short-term contracts or in outsourced positions, limiting access to easier dispute settlement procedures for very senior managers who could afford legal support to abuse the system, support for sectoral and workplace based productivity accords that ensured both growth and a fair share in benefits, and support for farm-worker organisation.

The NGP proposed that wages at the top layers had to be improved in moderation, but significantly for the worst off workers such as agricultural workers. Executive pay and bonuses paid to senior executive managers were a concern in South Africa and was debated on many forums.

In SA 42% of youth younger than 30 years of age were unemployed, compared to 17% of older people. In order to address youth unemployment, overall employment figures had to improve. The NGP proposed a number of initiatives which targeted youth unemployment. This included up-scaling of the Community Work Programme (CWP), driving rural development as unemployed youth were concentrated in the former Bantustans, improving education, training and healthcare, especially in poor communities, the expansion of internships and apprenticeships under the Skills Accord.

Inequalities in skills meant that the skilled and higher paid workers could demand even higher wages and the oversupply of lower skilled workers depressed the wages for them. Thus, the gap between the two groups grew. Vocational training systems did not produce artisans in the numbers needed. Very few workers had a university education. The country aimed to have 30 000 engineers and 50 000 artisans by 2014/5.

Inequitable education systems based on race and location were central to an inequality of opportunity. In the late 1990s the government established systems to ensure skills development that supported social mobility, but these systems were not implemented strongly (SETAs, SAQA). The presentation proposed ways in which to make the SETAS more accessible to workers in the sectors as well as learners from disadvantaged schools. It proposed improved SETA governance, accountability and administrative systems with focus on identifying sector skill needs.

The National Skills Accord proposed that SETAs had to refocus on supporting the jobs vision of the NGP. It proposed that employers had to train more than their own companies needed, and that labour recognised the special status of these trainees. It proposed that employers had to spend between 3% and 5% of payroll on training. It proposed that business and government had to make internship places available to students from FET colleges, universities, and universities of technology. It proposed that government set training targets in every state owned enterprise (SOE). These proposals were made and committed to by the relevant parties in the Skills Accord.

The NGP was a comprehensive response to the structural crises of poverty, unemployment and inequality based on solidarity across society. There was no silver bullet, no single solution that would solve all the challenges. Deep-rooted and complex systems had to be transformed. Fragmentation of the state was a major problem, and there were processes underway to consolidate some sectors, like the small business financing sector. All government programmes had to support a more inclusive economy through job creation. Clear priorities had to be set and tough decisions had to be made. Open minds and consistent work was needed in order to make it a reality.

New Growth Path briefing by the Department of Labour
Mr Les Kettledas, DoL Deputy Director General: Labour Policy and Labour Market Programmes, said the NGP listed many interventions and policy instruments necessary to achieve five million jobs over the next decade. “Labour policies” were listed among the Microeconomic package ten programmes necessary to achieve decent work and equity. The NGP intended building on existing legislation passed since the advent of democracy in 1994.

One intervention initiated by the DoL through its entity Productivity SA, was a National Productivity Accord supplemented by sector and workplace productivity agreements. During 2010/11, it established 108 future forums in various workplaces to prevent job losses and thereby saved 15 523 jobs. Future forums were forums consisting of workers and management which discussed and came up with strategies on how to make companies more productive to prevent companies from developing solvency problems and to prevent job losses. 46 Company Turnaround Strategies had been developed. 139 Proactive Future Forums were established. Productivity champions were trained at 105 companies and a number of collective bargaining agreements included productivity provisions. The NGP could build on these initiatives and it could lead to sectoral productivity agreements and eventually a National Productivity Accord.

The NGP had issued a call to amend existing legislation, and in response to this, processes to amend existing legislation had been initiated, which would protect workers in vulnerable jobs such as contract work, subcontracted, labour brokered and outsourced labour situations. Decent work considerations had been introduced in procurement processes as well. These issues were being dealt with in the NEDLAC negotiation process and once ready the Bills would be tabled in Parliament.

Amendments were needed to the Labour Relations Act, which would prevent senior managers, who had the resources to employ private attorneys to stall and delay processes at the CCMA.

To stimulate job creation, the UIF would fund development finance institutions (DFIs) efforts to create jobs and assist the unemployed to find jobs.
▪ The UIF had invested R35 billion out of its R52 billion reserves in commercial socially responsible investment portfolios which supported the creation and sustaining of jobs.
▪ The UIF had invested a R2 billion private placement bond with the Industrial Development Corporation (IDC). The IDC reports indicated that the investment created and retained jobs. R1 billion had been spent on 76 transactions, creating 10 000 jobs and saving more than 7 000.
▪ The UIF funded participants in the Training Lay-off Scheme, a programme run by the CCMA, saved 3 000 employees from being retrenched in sectors such as clothing and textile to car manufacturing. The Training-Lay-off Scheme would continue and the DoL would attempt to build on the contribution the training lay-off scheme was making.

The DoL improved Labour Centres in order to improve access to information and training opportunities. Through 125 labour centres, 73 Thusong centres and 20 mobile truck visiting points, the DoL was able to register 652 611 job seekers, offer career counselling to 65 347, assess 15 009 on the SpEEx system to determine their employability and place 12 700 in jobs and 2 412 in scarce skills employment.
451 950 were referred to UI for benefits, 8 732 to Compensation Fund and 7 217 to the Department for Higher Education and Training for further training.

The DoL had commissioned a study on identifying the obstacles to union organisation on farms so that it could work towards a decent work strategy for the farming sector. It was awaiting the conclusion of the study and the recommendations arising from it.

The DoL had a process underway where it checked on all companies which operated within the borders of SA, for compliance to labour laws. Where companies were found to be non-compliant, they were being served with contravention notices, irrespective of the ownership of the company.

Discussion
The Chairperson said that the government had established pilot programmes in different provinces. He mentioned a specific rural development programme and asked what were the job creation lessons learnt from that experience. The local communities had built their own houses, with government support, which were better and bigger than similar projects elsewhere. They had used some of the money saved on a post office and clinics.

In the DoL there were sheltered employment factories. The DoL gave contracts to these factories which manufactured furniture and uniforms, but the factories could not supply the Department up to its satisfaction, because their production rate was low. The Department could take more people into these sheltered production workshops in order for them to learn skills. Parliament was in the process of discussing the Military Veterans Bill. It was a challenge to employ military veterans from MK, AZANIA and APLA. How could one absorb them into these sheltered employment factories? It would still develop the local economy. The Committee would have to look at the old Reconstruction and Development Program documents, where one of the principles mentioned had been, to ‘build the economy using local materials.’ Perhaps it could be of help on the way forward.

Mr Sam Morotoba, DDG, DoL replied that sheltered employment factories had the potential to absorb up to 2 000 people, but there was a number of challenges impacting on the ability of factories to expand. These factories used to have preferential procurement status. This had been taken away by National Treasury. Currently, they had to compete with all other factories in the open market. It was a challenge to compete with mainstream factories, given the challenges for the disabled workers. Another challenge was that the factories had to buy their raw materials up front. Government departments often paid accounts late, affecting the cash flow of these factories. This also caused huge problems. The DoL had taken this problem to the Portfolio Committee on Labour as well as to Cabinet. There were a number of initiatives the DoL had undertaken to rectify the situation. Productivity SA had been partnered with these factories in Johannesburg and Klerksdorp in order to help them to improve their productivity. There were 20 000 military veterans were over 45 years of age and had to retire, in addition to veterans who were currently unemployed. How did one expand these factories? The Department of Social Development had 300 factories all over the country. It was looking for markets for the products from these factories. They needed to expand in order to employ youths and military veterans. The DoL was working with National Treasury on a business case for some of these factories, to see how they could be assisted using procurement.

Mr F Maserumule (ANC) said that he had worked in many different sectors of industry such as mining, agriculture, fibreglass and the automotive industry. Conditions for workers had not changed much since he had worked in those industries. Despite the many conferences, congresses, meetings, very little changed. There was no cut-off date for implementation of all the resolutions taken at all these events. The environment in the rural areas was deteriorating, animal and bird life was disappearing and rivers became polluted and dried up because of industrialisation. Government structures were set up, using resources that could have been used to service the poor. Also professionalism was mentioned. How committed were professionals to what they were doing?

Prof Levin replied that it was important to recognise the limitations of the words on a page. Hon Maserumule asked when we were going to say enough was enough. It was an accurate observation that government was having discussions in boardrooms while there was a bloodbath going on outside with people losing jobs, and that government held talk shops and agreed on programmes, without implementing them.

Mr Maserumule asked if the presenters could please explain the concepts of under-development, middle-income countries and high-income, developing countries? Where was SA located currently? When could one say “quickly, reach agreement”? When will implementation of these programmes and policies start? He was trying to imagine what was possible and what was not.

The Chairperson said that one of the Millennium Development Goals (MDGs) was to reduce extreme poverty. There were different definitions of extreme poverty, but in SA, what was the measurement for extreme poverty? Living on less than 1 USD a day?

Dr Neva Makgetla, EDD Deputy Director-General of Economic Policy Development, replied that poverty lines could be defined in different ways. She preferred to use Gross Domestic Product (GDP) per capita. In middle income economies people lived on average on 2USD per day per person. With its vast inequalities, SA had very high poverty rates. 40% of the people lived in poverty or on less than 2USD per person. Defining what was acceptable was also socially defined - somebody who would be considered poor in the USA would be considered rich in SA. The more important question to be asked was where these poor people were located in SA. They were disproportionately located in the former Bantustan areas.

Mr Ollis (DA) addressed the EDD briefing which stated that the jobs situation, poverty and income distribution in South Africa was problematic. The presentation highlighted two matters that were important: social changes were necessary and jobs growth. This posed a problem to the Committee because the two goals were quite different. Social change was about feeding school children, apartheid spatial planning, and developing an adequate transport system. These problems needed to be addressed, but they were not directly linked to jobs growth. When the economy grew, no new jobs were created - there was more money going into the director’s pocket, but no new jobs were created.

Mr Ollis said the document was difficult to deal with because it dealt with the two issues as blended. For example on page 14 of the presentation it listed too many objectives as goals of the new NGP? Setting too many objectives would produce no concrete result. The ‘low hanging fruit’ referred to in the presentation, were they focussed on creating jobs? Many statements in the presentation were too general and random. They were not specific. Social dialogue would not produce jobs. Would “greater protection for workers” create jobs? He found this a startling statement. Would “limiting access to dispute settlement procedures for management” produce jobs? The NGP was about more jobs. As a Member of the Portfolio Committee on labour, he could not see how the Committee could use this presentation. What was the goal? He was confused. Was it social engineering, economic growth or jobs growth? Were these processes going to achieve jobs growth? Instead of a silver bullet, to him it looked like several shotguns firing at once. It would achieve lots of chaos, but not a specific goal.

Prof Levin replied that Hon Ollis was concerned that the EDD was aiming all over the place and not using a telescope, as a metaphor for the NGP, but government and the country as a whole were confronted with fundamental developmental problems. Development was really about connecting the dots between the social and the economic in particular. The fundamental developmental challenge was job creation. The NGP put job creation at the centre. Obviously poverty and economic exclusion were linked to it. A socio-economic approach connected the dots, brought the issues together. He did not think that the NGP was scattered all over the place. It recognised the problems and their sources. If the country could not connect the dots, if it could not unpack for example the kind of growth that was needed, the country could end up back where it was before: with economic growth without job creation. It needed labour absorbing growth. The country needed particular kinds of interventions with particular kinds of priorities, and a consensus needed to be built in society in order to achieve this. This was why it was not correct of the Member to criticise social dialogue in the way that he did, because it was not just about words, it was about commitments, which the Member had applauded and endorsed. If workers were not protected, there would be no development, because unemployment would increase. There were people in society who were extremely vulnerable and the state had to protect them. If the state did not intervene in the manner in which a developmental state intervened, society would become increasingly polarised. If executives in the private sector, the parastatals, and the public sector were unable to see that if they were not willing to look objectively at their own salaries in relation to the workers out there, society would become increasingly polarised. If 20% of women were domestic workers earning R1000/month or less, while some executives earned R100 000/month, society needed a consensus that began to say, what were executives willing to give in order to ensure that the majority of those who were marginalised were able to pull themselves out of marginalisation. Social dialogue was the big goal. To get there, government and all role players needed to work on the areas of consensus. The Skills Accords was an area of broad consensus, local procurement was absolutely fundamental.

Ms L Makhubele-Mashele (ANC) said that the presentation stated on p9 that: The NGP would monitor the impact of state actions of all kinds on employment as basis for improvement.’ She wanted clarity on this statement. Did it mean that the state had to create employment or did it mean that the state had to create an environment that was conducive to the creation of employment?

Prof Levin replied that the state procured billions on an annual basis. The state had to make sure that it procured locally. It had to insist on a certain percentage of local content. The Department of Trade and Industry (DTI) was working on a framework, through the amendments to the regulations of the Preferential Procurement Policy Framework Act (PPPFA). It would designate certain areas where the state would have to procure goods with a certain percentage of local content, which would be critical for local job creation. It related to the question, but did not cover everything. The EDD recognised that most job creation activity (85%) came from the private sector, but the state had a direct and indirect impact on job creation. Directly, the state had employees and it could create jobs through the Expanded Public Works Programmes etc, but obviously, at a national level in particular, the pursuit of policies by the core economic departments such as the DTI and the Department of Mineral Resources would impact on job creation as well. When monitoring the impact of state action, the EDD was asking departments what its direct and indirect impacts were on job creation.

Using the example of procurement, and there were departments that procured in a major way, if one said that in the Chairperson’s village, how could the skills in construction be harnessed? It could be used to maintain schools. Could the Department of Education procure maintenance services from people at that level or was procurement done at a provincial level and outside service providers used? The EDD was asking departments to think seriously about how to enhance employment creation opportunities through procurement via local communities across the breadth and length of the country.

Mr Ollis said that on p22 the presentation said: ‘In the late 1990s, government established systems to ensure skills development supported social mobility, but this was not implemented strongly (SETAs, SAQA). Was the EDD telling the Committee that the SETAs and SAQA were failing or not delivering? What did they not achieve?

Dr Makgetla said that the objective of the SAQA Framework was that people who were deprived of basic education and training could catch up. Everybody present had to admit that that qualifications framework had never been completely implemented and it did not have the desired effect. Perhaps it was too complicated, but it did fall off the table as a major initiative. The SETAs had a huge impact, but more needed to be done to make sure that ordinary workers had access to qualifications and that those qualifications led to career paths so that it could also produce equity. In a country such as SA, where the economy had been deformed, growth would not solve all the problems. It was simplistic to reason jobs or equity. This was why social dialogue was so important.

It was important to ensure that workers had access to lifelong learning and it had to be put back on the table as a priority. It was important to note that in places where the economy had succeeded, such as the economies in Asia, men specifically could walk into a job at entry level and end up at the highest level in the company. This kind of upward mobility in a company was critical for a dynamic economy. The same had never been true here, and was still not true currently.

Mr Ollis said that he liked the EDD statement on page 23 which said that companies had to train more people than they needed and that trainees should have special status. This statement was specific and he could see how this could contribute to skills development and employment. What was the priority?

Mr E Nyekembe (ANC) welcomed the EDD presentation. He was trying toestablish the implications of the NGP versus labour legislation. He referred to page 23 where the Skills Accord recognised that ‘Employers must train more than their company needs and Labour to recognise the special status of trainees’. Did it mean that trainees had to be exempt from the protection of labour legislation? What was the NGP trying to do? He needed clarity in that area.

Dr Makgetla replied that skills development should not create employment by creating trainee positions. It should create employment by enabling workers to take advantage of economic opportunities and increasing the efficiency of productivity of the economy as a whole. The trade-off there was that trainees were not permanent employees. They were effectively contract employees. The company was under no obligation to employ them after their training contract had lapsed. The finer details for this agreement would have to be worked out.

The Chairperson said that there was a young man in his village who had a BSc degree in Chemical Engineering from UCT, but he was a “le-park-shop” – a township term for somebody who whiled away his time at the shop, playing dice, washing taxis and chatting to whomever walked past. The fact that he did not and could not get a job, sent the message to parents that it was not worth educating their children, because they would not find work anyway, and it signalled to young people that studies and degrees was not worth anything. A job, apart from the salary, meant dignity and respect. Unemployment impacted on petty crime in townships and villages. Before certain skills were declared rare and people imported to do them, prospective employers first had to look inside the country for these rare skills.

If all the South African professionals in the British Health System had to be deported, the British Health System would collapse, while there was a shortage of nurses in SA. The country created jobs, and then lost them again. Jobs had to be saved. When money from entities, such as the UIF, was invested, what was it invested in? Was it invested in Bullion or IT companies in Japan? Those investments would not benefit SA. Where did they put the investment monies? Was it invested in job creating schemes?

The rich in South Africa liked to wear Italian suits. Most of those big labels also started in garages in Italy, and were supported by government. Why could SA not take the risk and do the same, in order to create jobs and up-skill some people?

Mr Morotoba replied that the Unemployment Insurance Fund had more than R52 billion and the Compensation Fund more than R27 billion. One of the responsibilities of both funds was to invest reserves, with the assistance of actuaries in commercial and social responsible investment portfolios. This included central government, municipalities, parastatals such as Eskom, SAA, Transnet. This money was invested through the Public Investment Corporation. Most of these investments yielded very low returns. Some yielded 5%, some 0% like the IDC. With commercial investments, the interest rates were the same as normal bank rates and generated some income. These investments balanced each other out so that there was no net loss of money and the liquidity of both funds were protected. Most big projects, such as the building of highways and extension of airports, benefited from investment by the Public Investment Corporation.

It was a challenge for the DoL to hold these companies accountable in terms of clearly stating the number of the jobs they had created from the borrowed investment. The DoL was amending its agreements with the parties involved so that it would in future be in a position to report more accurately on the number of jobs created through these investments.

Mr Ollis asked how support for farm labour organisation would produce growth?

Prof Levin replied that farm workers were highly vulnerable and the agriculture sector was shedding jobs. This had a major developmental impact. It pulled the already poor into deeper poverty. It was important, because when people were organised, they became empowered. When people were organised, they took advantage of the opportunities that the state provided. Thus, the organisation of farm workers was fundamental to livelihood sustainability. That was why it was important for the NGP, because the NGP was trying to address the fundamental challenges of employment and the creation of sustainable livelihoods.

Dr Neva Makgetla added on the topic of farm workers that it was impossible to get these labour market outcomes if people were unable to negotiate properly. This was why government supported unions, because it set up the negotiations framework. It was much less imperfect than when one had individuals trying to negotiate from their conditions of vulnerability and imperfect information. As the EDD was busy setting up minimum wages for farm workers, they had to be organised in order to enforce this for themselves. That was a straight economic argument for why workers had to be organised.

Prof Levin said the team would assist in future interactions with the Committee and in engagement with the DoL.

The Members discussed the arrangements for their Free State oversight visit that would start the next day.

The meeting was adjourned.