Minister of Economic Development on Department 2012 Strategic Plan

Meeting report

The Chairperson welcomed the Minister of the Economic Development Department, Mr Ebrahim Patel, and asked that his presentation focus on budget issues, given the time constraints and the approaching budget vote. There would be another meeting with the Department on strategic planning.

Economic Development Department (EDD) 2012 Strategic Plan Presentation
Minister Patel expressed his pleasure in presenting to the Select Committee and noted the important role of the Committee in encouraging the Department to think through the provincial implications of decisions. He said he would briefly outline the strategic plan elements of his presentation but noted it was vital to detail the strategies and priorities attached to the budget.

He said the strategic plan, which also included annual reviews, sought to move the Department from short term work to a long term vision. He briefly outlined the vision and mission of the EDD, its values, its legislative mandate and its political and policy mandate. He emphasised that in addition to the broad mandate of the EDD, there were also specific policy mandates from Cabinet, including the response to the international economic crisis, the new growth path (NGP) framework, and social accords between the business community, labour, government and civil society on a range of issues (see presentation).

He also briefly summarised the history of the development of the Department, noting that it was the newest department in government. He described the phases of its development, including the establishment of the Ministry, the coordination of the responses to the global economic crisis, the establishment of a functioning department, the transfer of six public entities to the EDD, the development of the NGP for South Africa, the alignment of all government work to the NGP based on targeted outcomes set by the President, the facilitation of dialogue on social accords, and finally the strengthening of the implementation of the NGP, including a specific infrastructure plan.

He cited the main areas of focus of the Department as integration, coordination and implementation of the EDD Strategic Plan. On integration, he gave an example where the EDD had facilitated the linkage between a decision to increase renewable energy and supporting actors involved in local production. He referred to South Africa’s underperformance in mining output versus potential and explained that the Department had developed a strategy with other players in the mining sector to integrate mining work and the domestic value addition of minerals through manufacturing.

On coordination, he cited the work with the Department of Trade and Industry (DTI) and the National Treasury to facilitate the implementation of Outcome 4 of the Delivery Agreement, to ensure decent employment through inclusive growth. He described the integrated practice focus as a means to focus the work of existing public entities through coordination in economic clusters. He noted that the Department received an unqualified audit in the past year and the increased spending in the current year indicated growth in the Department.

Referring to challenges, he noted that most of the challenges were those typically associated with a new institution.  There were also challenges in recruiting staff in competition with the private sector. The mandate and work focus of the EDD was evolving in response to current challenges with an emphasis on infrastructure. He briefly outlined the EDD’s goals, but noted that members would already be familiar with them.

He briefly touched on the four programme areas of the Department: administration, economic policy development, economic planning and coordination, and economic development and dialogue. He presented overall budget targets and projected personnel figures for each programme area.

He noted internal risks such as the recruitment and retention of staff, managing the organisational structure and governance documents, adequacy of internal controls, and availability of office accommodation. On external risks, he referred to coordination across government, engagement with social partners, and finally -- and most importantly -- global economic performance, as South Africa’s economy was heavily weighted towards trade.

The Industrial Development Corporation was being restructured to support the NGP more effectively, to integrate small business development funding, and to increase its investment targets. He noted the newly formed Small Enterprise Finance Agency (SEFA) which was under the IDC, would increase the targeting of small businesses, working with existing financial intermediaries and commercial financial institutions.

He presented the budget allocations of previous years, the current year and future years through to  2014/15. He noted that the bulk of the Department’s financing was transferred to various public entities and partners. On expenditure trends, he noted the increase in funds that would largely go to compensation, transfers and subsidies. There was also additional funding over the medium term to improvement in conditions of service, funding for the IDC and the Agro-Processing Competitiveness Fund, the youth employment strategy fund, and the improvement of conditions of service in the International Trade Administration Commission (ITAC).

Selected performance indicators and the objectives and measures for each Programme were briefly covered(see presentation). He added that there was more detail in the Strategic Plan.

Key priorities for 2012/13 were the Infrastructure Plan roll-out, strengthened institutional capacity, monitoring employment, improved small business performance, finalised further support for cooperatives with the DTI, strengthened links with the provinces, and improved value for money in spending.

He concluded by emphasising the EDD has established itself effectively in its brief history, and concluded by thanking the Chairperson for the opportunity to brief the committee.

Discussion
The Chairperson noted his appreciation at having the Minister himself present.

Ms E van Lingen (DA, Eastern Cape) asked for increased information from MINMECs. She noted the closure of a solar water heater factory in East London due to limited demand, while another factory to produce the same products had been built in Gauteng. Why was the established factory not supported instead? She also asked for clear details for implementing and monitoring the jobs fund with an emphasis on targeting youth employment and the second economy.

Mr B Mnguni (ANC, Free State) asked whether current macro-economic policy was in line with the recommendations of the Department or whether other policies would support the Department’s goals more effectively. On inflation, he noted increases in costs and their impact on the consumer and asked what could be done to address this. He referred to Professor Joseph Stiglitz, an adviser to the government, who had suggested that South Africa should follow the Chinese model and asked for the Minister’s thoughts on what model would be most effective for South Africa. He expressed the view that South Africa’s labour laws were too strict. He asked if the current plan to regulate labour brokers was a shift to a more flexible policy. He asked how skills can be retained with limited salaries. He noted the gap between the wages of Director Generals and lower level staff. On unions, he commented on the balance between productivity and robust unions. He also noted the limited access to financial services of small, medium and micro enterprises (SMMEs) from government- backed financial institutions and asked what the government could do to address this. He also asked about the high failure rate of cooperatives and SMMEs and what measures were being taken to address this.

Ms B Abrahams (DA, Gauteng) asked about the five million jobs target, how sustainable those positions were and what the breakdown was of jobs being created.

Mr A Nyambi (ANC, Mpumalanga) also asked about the comments from Professor Stiglitz and the Minister’s position on those comments. He asked about the funds for the 142 positions in the Department as the reporting was from over two years which might lead to some complications. He noted the reduction in the unemployment rate by 0.1% from January 2011 to January 2012 to 23.9%. Given the target of 15% unemployment by 2020, he asked what the targeted rate for this financial year was. He asked about the budget for the green economy given its importance. He finally asked what lessons had been learned from the Walmart process.

Mr D Gamede (ANC, KwaZulu-Natal) asked what plans were in place to reduce social dependency. What details could be shared on whether the country wass on target for the goal of five million new jobs. He noted the unqualified audit, but expressed his desire to see a clean audit. He asked whether the Department would be buying or leasing its building and advocated buying in order to save money. He also asked what capacity wais being developed to support the Presidential Infrastructure Coordinating Committe (PICC). He emphasised his desire for integrated infrastructure planning. He asked for specific details on what would be done to address the challenges in the IDC, especially in supporting SMMEs. He commented that previously there had been economic growth that had not created jobs and asked whether future growth would create sustainable jobs.  

Ms M Dikgale (ANC, Limpopo) asked whether the Department could work together with other actors to ensure that people in areas with mines benefited when mines are developed. She noted that there was extensive mining in Limpopo but community members feel they were not benefiting.

Minister Patel said the questions had covered both programme and policy issues. His presentation had focused on future plans from a strategic angle. To share more details, he suggested that in the future the Department could give focused presentations on a few provinces to offer insight on processes. On specific provincial information, he suggested that the Chairperson be invited to MINMECs, as they were the principal forum for engagement with provincial authorities.  He wondered whether it would be possible to have some individual Members attend launches of infrastructure projects. He also commented on the nature of the presentation and emphasised that details could be shared in another forum, as this meeting had focused on strategic plans.

He said the factory in the Eastern Cape was a private factory and it was generally not the government’s position to support private factories unless they were in critical sectors. On the jobs fund, he noted the comments from Ms Van Lingen and would share them with the manager of the jobs fund.

On macroeconomic policy, he pointed out that the Department did not have its own policies as there was only one Government. The Department subscribed to the NGP as adopted by Parliament. The NGP sought a competitive exchange rate and a reduced interest rate differential between South Africa and other similar economies. He noted the IDC was funding programmes with significant employment levels at less than market interest rates to reduce the cost of capital. On inflation, he said that monopolies had historically driven prices higher and government was actively challenging monopolistic tendencies.

South Africa could learn from other countries while it developed its own model. There was a need to consider more than the Washington consensus and there was much to be learned from the successes of other developing countries. He emphasised the need to consider policies based on facts and evidence rather than current trends, as well as the need to establish effective feedback loops where the impact of government policies were measured. Many policies failed, but that did not mean that government should merely withdraw. Some policies would succeed, others would have to be adjusted, and some would fail. He referred to the balance between the massive amount of wealth wiped out in the global crisis and the immense potential of markets to generate new wealth. The South Africa model blended the contributions of Government and the markets with an emphasis on job creation. Jobs were the primary indicator of policy success rather than growth for its own sake.

Dealing with labour market policies, he said Germany protected labour rights and its economy continued to grow. In other nations there was no labour protection and the economy did not develop. The difference was whether human capacity was developed effectively with an emphasis on skills and innovation. On labour brokers, he disputed the idea that government’s policy on labour brokers sought more flexibility, emphasising that it would seek to address the massive abuse of the current system.  Government’s goal was to develop a policy that addressed this abuse and was compatible with economic goals. He said the robust public debate from the unions and business was similar to previous debates around labour legislation. What was most important was that the abuse of workers by unscrupulous brokers was stopped.

On the challenge of productivity, unions continued to protect workers but also were partners in long term economic development. Unions recognised that as productivity increased without consumption increases, this would lead to job losses. Productivity increases had to be coupled with increased consumption. He quoted the example of Japan, where labour and business had worked together to increase productivity with rising wages and no retrenchment after World War Two, through exporting. This way, Japan had increased productivity and created jobs, which was currently a significant challenge for South Africa.

To retain skilled labour while addressing the wage gap, a tentative proposal was to limit wage increases at the top, and allow increases in accordance with inflation around the middle, and income increases above inflation at the bottom, to gradually reduce the gap. The question was how to retain skills in the public sector at higher levels. The Minister said that wages were not the only factor in retaining workers and that Government could work to improve the work environment and ensure workers felt they were making a positive impact.

On small business development, the Department was seeking to make the finance system work more efficiently. Currently, too much was spent on bureaucracy, but the Department wais working to consolidate small funding agencies to save money and streamline the application process. Subsidies were also a challenge as co-operatives or small businesses became dependent upon them, rather than developing viable enterprises. In Spain, a co-operative currently employed more than 100,000 workers without any subsidies. He noted that co-operatives used to be more prominent in South Africa, but many had become companies during the transition to democracy. The Department was now working closely with DTI to support and develop co-operatives more effectively. He recognised the challenges the IDC had faced in supporting co-operatives and small businesses, but stressed it would be more efficient to improve the IDC in the small business area rather than building that capacity within EDD. The basic business skills of co-operatives needed to be built up so they did not become dependent upon the state.

Referring to the strategy to create five million jobs by 2010, the Minister said when jobs were created for one project they tended to end, but when a major construction industry was created with a long term infrastructure plan, skills were developed and those jobs became more sustainable. The NGP had documented the industries in which jobs were located.  Last year the economy had over achieved its target of 250,000 new jobs by over 100,000, but that had been influenced by China’s economic growth.  Many processes which impacted on job creation were out of government control. Therefore the Government needed to constantly plan and adjust to prevailing conditions. When iron ore exports to the European Union had slowed significantly, research had indicated that China’s demand was increasing, which had helped to prevent massive job losses.

On Professor Stiglitz’s comments, he noted the Professor’s eminence but expressed that his view was only one in government’s overall policy making.

The department was attempting to ensure it hired the highest quality candidates, but if these positions could not be filled adequately, the Department would not make hires just to meet targets.

He said the unemployment rate was not an effective indicator of jobs growth, as the decrease of people seeking work was as significant as new jobs created. The Department tracked the number of jobs in the economy as a whole. The overall number of jobs in the economy had increased from 12.9 million in the month before the NGP was adopted, to it current level of 13.4 million.

He noted that the green economy was important to discuss and there would be space to do that in the future.

On the Walmart decision, he felt that when the process was finalised would be the appropriate time to review lessons learned,  but noted that the Government was doing what was required by the law whether it was popular or not.

Referring to social dependency, the Minister said jobs were the most successful means of combating poverty. Social grants still had a role, but they could not be the principal strategy in addressing poverty.

The EDD would continue to sublet its building from the DTI as it would enable the Department to focus on the major challenges it faced. It would consider buying in the future.

Infrastructure projects were being integrated actively and the Minister expressed a desire to present the infrastructure plan to a joint committee sitting.

Much had been done to address the challenges facing the IDC.  It used to take an average of 84 days for responses to applications, but that timeframe had now been reduced to 50 days.

On local communities benefiting from mining, the Minister noted there was a broader review of the mining sector, including input from political parties.

The Minister thanked the members of the Committee and said he was looking forward to the budget debate.

Other Matters
The Chairperson explained that while the Committee had planned on a monitoring visit to the Northern Cape from 11 to 15 June, the Energy Department had informed him there were serious issues in Kwa-Zulu Natal. The Energy Department had requested an oversight visit to consider these challenges. The Chairperson was considering splitting the committee to send half to KZN and half to the Northern Cape. 

He also noted an invitation from the Portfolio Committee on Economic Development to hear from the infrastructure task team. He proposed that the invitation be declined as the Committee would be meeting with the Industrial Development Corporation (IDC) at the same time. He asked the secretary to acknowledge receipt of the invitation but to inform the Portfolio Committee that the Select Committee could not attend.

The meeting was adjourned.