Minister Rob Davies’ response to the State of the Nation Address

Mr President, in your SONA on Thursday evening you drew on attention to the fact that we were meeting against the backdrop of a global economic crisis. This is a crisis not of our own making. It had its origin in the bursting of a financial bubble in the developed work – a bubble caused by a proliferation of speculative activity fuelled by a hands off approach by regulatory authorities mesmerized by narrow free market fundamentalist ideologies. We in SA were largely spared from experiencing the systemic financial sector implosion some other countries went through due to a combination of prudent financial regulation, the national credit act and the maintenance of exchange controls – which limited potential exposure of pension funds or municipal accounts to the kind of unsafe investments in derivatives that a number of their counterparts elsewhere had made with disastrous consequences.

But we were not able to escape the second order, real economy, effects of what soon became a global economic crisis. The current crisis is sometimes referred to by commentators as the “Great Recession”. This term draws attention to the fact that it has seen the biggest crash since the Great Depression of the 1930s and came
perilously close at critical moments to lurching into precisely such a depression. It has also been a crisis in truly global in character. Nowhere, not even China, escaped bring impacted negatively at some time and to some degree.

It is against that background that we have to record, and grapple with the reality of, the loss of around 900 000 jobs. Most of these jobs lost were in mining – where the crises produced an abrupt fall in demand and in prices for many mineral products – and in manufacturing which experienced a 30, 4% fall in physical volume of production , and suffered 202 000 job losses between October 2008 and December 2009. In manufacturing, among the sectors most strongly affected were those most integrated into global value chains and producing consumer durables dependent on credit finance for their purchase. In SA as elsewhere this included the motor industry which drives at least 6 to 7 other sub sectors and the already fragile clothing and textile sector, which nevertheless continues to provide employment to nearly 100,000 people.

We are fortunately now officially out of the recession as is the global economy as a whole. According to latest figures for December manufacturing output was 3.2% higher than in corresponding month 2008 – first annualised rise for 14 months. But there is still great uncertainty about the durability of the recovery with most agreeing
recovery is fragile with the risk of a double dip recession still a possibility.

Mr President you referred to the Framework Response agreed in February last year between government, business, labour and community representatives. This response package was indeed fairly unique, and received much favourable comment for being a product of social dialogue with responsibilities being assumed by all parties. It was that, I believe, that gave it its resilience and demonstrated the meaning of our slogan “working together we can do more”.

Among the main features of the Framework Response was on commitment to push ahead with the then R787bn infrastructure investment programme as on main counter-cyclical response. Your announcement that we will spend R846 billion over the next 3 years on public infrastructure show, that our effort in this regard will not all peter out once the FIFA World Cup investments have been completed, but that we are on course to affect major infrastructure renewal in programmes that will continue for many more years.

Other dimensions of the Framework Package include the training layoff programme and the R6, 1 billion facility made available to distressed companies by the IDC. The IDC’s R6,1 billion facility envisages assisting companies in distress to the tune of R2,9 billion
through 2010, and a further R3,2 billion in 2011. Between April 2009 and January 2010 around R1 bn was approved resulting in 7, 854 jobs being saved.

In addition, we have also developed sector specific response packages involving fast tracking certain facilities, to support the motor clothing and textile and capital equipment and metals fabrications industries.

A feature of many of these programmes is that we have insisted on reciprocity in return for any support made available. Generally, this has covered undertakings on refraining from, or moderating through negotiation, retrenchment of workers and refraining from or
moderating extraordinary bonus on dividend payment to managers and shareholders.

Through these and other crisis response measures, we have I believe been able to save many jobs and industrial capacity that would otherwise have been lost. Besides , some of the measures in place, notably the training lay off will have strengthened the capacity of companies to position themselves ahead of the curve in taking advantage of unproved circumstances. It is notable, for example, that BMW, one of the first motor manufacturers to have announced since the recession an investment (of R2,9bn) in the manufacture in SA of new generation vehicles did not retrench workers but rather sought to use short time to upgrade skills.

Mr Speaker, although our short term response has cushioned us to some degree from the ravages of recession, the recession has also highlighted the need for us to accelerate efforts to bring about structural change that will place our economy on a more labour absorbing growth path. We need to make ourselves less vulnerable to the vagaries of cycles and bubbles originating elsewhere.. We also need to accelerate structural changes to our growth path.

Even before the recession, when our economy grew at the highest level for the longest sustained period, since anytime post world war two, unemployment never fell to below 23% of the economically active population on the strict definition. This emphasises that the unemployment problem we face in South Africa is fundamentally structural rather than cyclical in nature.

In a nutshell, the accumulation path in South Africa under colonialisation and in the early years of apartheid depended upon drawing large numbers of low paid African people into unskilled work in mining and other primary sector activities. From the mid 1970’s onwards, however, as a result of a combination of the gold mining
industry having passed its prime and increasing mechanization, we witnessed the expulsion and later marginalisation of former unskilled migrant workers from employment. While our economy made important advances during the past 15 years of our democracy, we have not yet succeeded in bringing about structural changes on a
scale sufficient to absorb those marginalised structurally unemployed people into new productive, income earning activities. That is the challenge that now confronts us.

Mr Speaker, I want to suggest that there is sufficient evidence from economic history to support the proposition that there has been no case ever, anywhere (and the examples can stretch from the Principality of Venice in the 16th Century to China today) of an
economy moving onto a growth path characterized by increasing (as opposed to diminishing returns) without identifying appropriate productive activities and then mobilizing support and human energy to bring those productive activities into operation.

Later in the week I will be making a statement about the 2010/11- 2012/13 Industrial Policy Action Plan which we will release thereafter. Next week we will engage the PC on the details after which the Portfolio Committee will hold public hearings. Mr. President in the SONA you indicated that the IPAP would be a mechanism –one among several others-“to build stronger and more labour absorbing industries” as well as provide “a new focus on green jobs” The new IPAP will include a combination of cross-cutting and sector specific actions. It will include proposals, action plans and timeframes, aimed at bringing about a significant overhaul of procurement legislation and practices aimed amongst other things at ensuring that we achieve a greater impetus for local manufacturing and job creation from the infrastructure investment programmes we will be undertaking. There will be proposals and action plans to align
the Competitive Supplier Development Programmes to a revamped National Industrial Participation Programme, to move a range of key purchases for infrastructure programmes to a long term, fleet procurement process and to boost the Proudly South Africa campaign All of this will, we believe, create improved opportunities for local industries to supply a greater proportion of the inputs needed in ways that will boost decent employment.

We will be putting forward new proposals , linked to time bound action plans, to enhance access to concessional funding for industrial development-focusing on the off-budget role of dfi’s and particularly those involving industrial and enterprise funding in particular. We will be signaling a more strategic use of trade policy instruments and standards to support local economic development and decent work.

These proposals will be operational generally across the board but also in particular customized ways in relation to specific sectors. As the President indicated our proposals will be focused on particular high labour absorbing value added sectors, but will also seek to promote more labour absorbing and hence decent work creating
activities in all sectors we work with. The President also mentioned “green jobs” . Moving towards a greener economy is essential both to respond to our own domestic challenges of promoting more energy savings and to the common global challenge to mitigate the threat of catastrophic climate change. In our efforts to create green jobs we
will be responding to a global trend which recognises that there are also opportunities for new economic activity and decent jobs from “going greener” We also must be trying to position ourselves at the front end of the curve. Again our approach will involve a combination of specific quick wins to focus on for immediate attention and promoting pro-active involvement in greener productive activity across the board.

Further details on IPAP as well as our specific job targets will be provided later in the week.

In addition to IPAP, further work from within the economic cluster will identify a broader range of actions we need to take to place us on a growth path capable of meeting the challenge of creating decent work for our people. Within the dti, and additional area of focus will be enterprise development. We will step up our efforts to promote
SMME development. Recognising that young people are disproportionately represented among the unemployed, we have begun a conversation with the NYDA with a view to aligning our efforts with those of this important agency.

In addition to IPAP, further work from within the economic cluster will identify a broader range of actions we need to take to place us on a growth path capable of meeting the challenge of creating decent work for our people. Within the dti, and additional area of focus will be enterprise development. We will step up our efforts to promote
SMME development. Recognising that young people are disproportionately represented among the unemployed, we have begun a conversation with the NYDA with a view to aligning our efforts with those of this important agency.

Mr President, you are a hard taskmaster. The outcomes –based monitoring system your administration is developing is requiring not just delivery on activities but, more importantly, on concrete outcomes. While we have not yet finalised our outcome targets we know that you want us simultaneously to achieve ambitious outcomes
in economic growth , increasing labour absorption and declining inequality. The three have not always gone together in the past. The challenge for us to do so now will be tough against the background of still fragile global conditions, but is not unattainable . Other countries (and notably in recent times Brazil) have made progress on all threefronts simultaneously. That is what our people need and we dare not fail them.


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