Source: Ministry of Trade and Industry
Title: M Mpahlwa: Parliamentary Media Briefing, May 2004
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ECONOMIC AND EMPLOYMENT CLUSTER: PARLIAMENTARY MEDIA BRIEFING BY MINISTER OF TRADE AND INDUSTRY, MINISTER M MPAHLWA
24 May 2004

Colleagues, members of the media, diplomatic corps, ladies and gentlemen, in the President's State of the Nation Address to the 3rd democratic Parliament on Friday, 21 May 2004, the tasks facing this administration were clearly and concretely set out. This morning, I will build on the President's speech by detailing some of the tasks that were outlined as well as outlining the cluster's work programme for the year.

The President set out the challenge confronting us: encouraging growth and development of the 'first economy', increasing job creation potential, and implementing a programme to address the challenges of the 'second economy'.

The Economic and Employment Cluster has organised its work in response to these challenges into four broad areas:

* Maintaining a stable macroeconomic environment and increasing the level of investment in the economy
* Accelerating the implementation of the microeconomic reform strategy
* Targeting interventions in the second economy
* Implementing a governance strategy to strengthen the institutional capacity for implementation, sequencing and monitoring and evaluation

A STABLE MACROECONOMIC ENVIRONMENT AND INCREASING THE LEVEL OF INVESTMENT

Macroeconomic stabilisation has been achieved. This has allowed government to reprioritise government spending, reduce inflation, budget deficit and achieved average economic growth rates of 2.8% since 1994. As government, we do not foresee any significant changes in respect of macroeconomic management.

Given this stable macroeconomic environment, the shift has been towards microeconomic reforms, because it is at this level that blockages, constraints and opportunities exist to accelerate growth, employment and equity.

In addition, we need to raise the levels of investment in our economy, by increasing both private and public investment levels. Details on investment by government, through parastatals, are set out below. Government will announce plans for the better utilisation of the Isibaya Fund of the Public Investment Commission. In addition, we need to quickly conclude the discussions with our social partners that commenced last year at the Growth and Development Summit on investing up to 5% of funds held by institutional investors in the real economy.

ACCELERATING THE IMPLEMENTATION OF THE MICROECONOMIC REFORM STRATEGY

In 2001, government adopted the microeconomic reform strategy aimed at:

* Minimising input costs across the economy and increasing access to economic infrastructure and services
* Raising investment levels in the platforms of economic development and competitiveness
* Unlocking the potential of selected priority sectors to increase output, jobs, exports, value-addition, and/or equity

Input sectors

In order to minimise inputs costs and improve access, four 'input sectors' were focused on:
* Telecommunications
* Energy
* Water
* Transport

As government we want to be able to improve efficiencies of these input sectors to reduce costs and thus lower the cost structure of our economy enhancing competitiveness and affordability. In addition, we want to be able to expand access to economic infrastructure to economic citizens across the country. Sector-specific infrastructure investment plans and strategies including how the increased capital expenditure is going to be financed will be announced in September 2004. The Department of Public Enterprises will be leading this work. A common regulatory framework for corporate governance and standards for corporate practices in parastatals, and systems for performance management of these enterprises by government will also be put in place this year. Sector regulators will be strengthened.

Government has been looking at administered prices more broadly in order to ensure that prices such as that of telecommunications, water, energy and transport services are affordable and accessible to the poor as well as enhancing the competitiveness of enterprises. An extensive report on this matter by National Treasury will be considered by Cabinet shortly. Government will ensure that we work with social partners in implementing the Growth and Development Summit (GDS) agreements in respect of administered prices and import parity pricing. The agreement brokered recently on steel prices that will unlock opportunities for downstream, and especially labour-intensive, activities in the metals sector is an important step in this regard.

Work already undertaken in the area of developing a comprehensive freight logistics strategy, which is led by the National Department of Transport, will be accelerated. As the President said, we will work with Parliament to expedite the process of restructuring our ports to bring in new investment and submit the National Ports Authority Bill to Parliament.

Cabinet will more closely monitor progress made in establishing the Second Network Operator (SNO) so as to ensure the introduction of more competition in the telecommunications sector. Institutional arrangements to bring together all water utilities operating across various parts of the country to promote a cohesive and coherent approach to management of water infrastructure will be finalised this year. Ongoing work to introduce competition in the electricity sector was detailed by the President. More details will be provided in the second briefing by the cluster later this week.

Platforms for economic development and growth

Extensive work in the area of Human Resources Development (HRD) and addressing critical skills shortages in the economy will continue. In particular, government is on track to meet its target of 80 000 learnerships as per the GDS agreement. Research has been completed into critical skills shortages and Sector Education and Training Authorities (SETAs) have been redirected to focus on these scarce skills. Government is taking extensive and decisive measures to ensure the SETAs are more effective and more efficient. Bursaries to students studying science and related disciplines' have been increased by R400 million which covers an additional 105 000 students. We are also going to be aggressively marketing learnership opportunities to school leavers and graduates. Also, government will be working closely with enterprises to encourage them to enrol and recruit more learnerships by easing the administrative burden on private sector in this regard.

Significant progress has been made in the area of Research and Development (R&D). The percentage of R& D investment as a total of GDP has increased from 0.69% in 1998 to 0.76% in 2002. A new approach to governance in terms of managing state institutions dealing with R&D was agreed by Cabinet in March this year and is being implemented. The President referred to the development of Southern Africa as a global hub for astronomy, space science and technology indicating the need for more resources to be devoted to science and technology.

In respect of promoting a more equitable geographic spread of productive and sustainable economic activity, we will be building on programmes already in place to address the skew economic participation and access to infrastructure, services and economic opportunities in the country, including the implementation of the Spatial Development Initiatives (SDIs), the designation of the Industrial Development Zones and the logistics corridor strategies. The new deep-water port at Coega is at an advanced stage of construction.

With regard to access to finance, National Treasury and the dti will be launching the micro-finance Apex Fund in the last quarter of 2004. The Apex Fund will provide small loans to micro-enterprises, with a focus on women in rural areas. New consumer credit law which will be introduced into Parliament early next year will also improve access to capital ensuring that historically marginalised individuals can collateralise their assets to enable them to gain access to credit.

Priority Sectors

The microeconomic reform strategy has identified several sectors of the economy that have considerable potential for increased output, value addition, exports and employment creation. These sectors are:

* Agriculture and agro-processing
* Tourism
* ICTs
* Cultural industries including film, music, crafts and design
* Minerals and metals
* Clothing and textiles
* Automobiles and components
* Chemicals

Marketing and branding of priority sectors, including road shows, to potential domestic and foreign investors will be done including informing them of available investment incentives. A new Enterprise Bill, which will be introduced into Parliament this year, is aimed at streamlining financial support to enterprises in both manufacturing and services sectors. More money will be allocated to supporting sector development strategies.

We have added the services sector to this list and an integrated services strategy is being developed. The strategy will look at the potential to create employment through expanding delivery of basic services and services oriented public works programme such as child-care and care for the aged, as well as developing high value added services such as software development, project management and design. And within the services sector, the film, Business Processing Outsourcing and call centres will be receiving incentives to promote investments in this area.

Government will look to its social partners to play an important role in the development and implementation of sector strategies in terms of the agreements concluded at last year's Growth and Development Summit. Government has recognised that there are capacity constraints confronting some of its partners and will take practical steps to build capacity. For example, government has seconded a senior official to a trade union to assist in implementing specific projects that will unlock potential in the clothing and textile sector.

TARGETED INTERVENTIONS AT THE SECOND ECONOMY

South Africa's economy is fractured, and the concept of 'two economies' is a short-hand for a dominant 'first' economy that is competitive, globally integrated with an advanced capacity to export high value-added exports and services, and a marginalised 'second' economy that consists of large numbers of the unemployed and 'unemployable' that is not able to participate productively in the first economy. Targeted interventions are required in the 'second' economy to overcome poverty and unemployment and to create economic opportunities from which all economic citizens can benefit thus building a single economy.

The Economic, Employment and Investment Cluster will focus on the following issues in respect of the second economy:

* Human resource development with special focus on artisan and entrepreneurial training
* Improving labour and market opportunities intelligence
* The Expanded Public Works Programme (EPWP)
* Acceleration of land and agricultural reforms

Enterprise development support and broad-based black economic empowerment, including accelerating farmer support and tourism enterprise programme to increase participation of black people in these sectors is also a key task. The dti has set aside over R1 billion to support small and medium enterprises this year. New financial support measures are going to be launched by the National Empowerment Fund to promote BEE initiatives. R1bn has been allocated in this financial year for this purpose. There are several charters that are being concluded in specific sectors, which are aimed at enhancing broad-based black economic empowerment. Charters have been completed in the following sectors:

* Maritime
* Mining
* Agriculture
* Tourism
* Financial services
* Petroleum
Charter discussions are underway in the following sectors:
* ICT
* Transport (Aviation, taxi, freight forwarder services)
* Wine

In furthering our objectives of economic transformation, the BEE Bill was passed this year. We will be publishing soon the Codes of Good Practice. At the same time, we will be announcing the members of the newly created BEE Advisory Council, which will advise government in its implementation of the broad-based BEE policy.

Small enterprise development will remain at the forefront of the cluster's work programme. The work already underway to reduce compliance burden on small enterprises will be accelerated and recommendations on any necessary changes to regulations will be forwarded to Cabinet by September 2004. The Development Financing Institutions are being brought together to work more closely with the aim of streamlining services offered to the economic citizen. By the end of this year, we would have integrated Namac and Ntsika to accelerate service delivery to enterprises. Financial and technical support to cooperatives will be made available later this year.

GOVERNANCE STRATEGY TO BUILD CAPACITY

From an analysis of progress made in implementing the Microeconomic Reform Strategy since 2001 several institutional or governance matters were identified that required strengthening in order to speed-up implementation. These included intergovernmental planning, strengthening the role of local government, management of agencies, and the need for monitoring and evaluation.

We will continue to build and strengthen capacity between three spheres of government to ensure that there is integrating planning. The dti and the Department of Provincial and Local Government will take lead in this regard. The alignment of national programmes with the provincial growth and development strategies as well as the Integrated Development Plans is critical, and in this regard a common framework will be established to create that alignment.

Local government is a site for service delivery and is critical in creating an enabling environment for investment, competitiveness and equitable distribution of resources. The cluster will be concentrating also at strengthening the economic content of local government including issues relating to the following:

* Zoning
* Built environment
* Town planning
* Basic service delivery
* Municipal rates and taxes

With regard to partnerships, government will accelerate the implementation of its commitment and continue to work with its social partners. Whilst we recognise the capacity constraints of some social partners, we will look at other mechanisms to assist in building this capacity to implement the GDS agreements.

We have also recognised that the multiplicity of government-created agencies, and we have over 300 agencies; creating confusion for citizens that need to access government services being offered. We are working towards creating a common legal framework, accountability and corporate governance arrangements as well as funding of these agencies to ensure that service delivery is consistent with government's objectives.

CONCLUSION

As I conclude this briefing, let me summaries the key issues. I have said that the Economic, Employment and Investment cluster has four strategies to achieve the overall objectives of increasing growth, employment, reducing inequalities and poverty: (1) A stable macroeconomic environment, (2) Microeconomic Reform, (3) Targeted Interventions in the Second Economy, (4) Enhanced Governance and Institutional Capacity.

Over the next 3-5 years, we will measure progress in respect of the following key strategic objectives:

* Continued macroeconomic stability, lower interest rates and a competitive currency
* Increased levels of public investment in infrastructure
* Efficient, maintained and affordable and accessible economic infrastructure
* Lower cost structures throughout the economy and enhanced levels of competition
* Manufacturing and services sectors that are growing, creating jobs, increasing the value-add, meeting basic needs and competing globally
* More enterprises especially, black and women-owned and managed enterprises
* A labour force with the skills needed by the economy
* Increased spending on R&D activities and the diffusion of new technologies across the economy, and
* More equitable geographic spread of economic activity

I thank you.

Issued by: Ministry of Trade and Industry
24 May 2004