A Erwin: NACTU National Congress

24 April 2006

Leadership of NACTU
Comrades

As a former trade unionist I always welcome the opportunity to critically
engage with workers, particularly around matters of the economy.

Contextualising the debate of shop-floor experiences within the broader
needs of society is an essentiality, which cannot be undermined. An analysis
and understanding of the objective reality within which we operate, and an
appreciation of the domestic and global balance of forces that impact on the
strife to improve conditions for workers and the poor, will harness the
effectiveness of worker actions. My input on the overview of the economy is but
a meagre contribution to this process.

Addressing our historical legacy

Analysis is flawed if it is not located within history, and so we briefly
reflect on the historical conditions that informed the actions of the
progressive government when it came into power in 1994.

The democratic government inherited an inefficient, inward looking,
resource-based economy that was on the verge of collapse. The economy's weak
state manifested itself in an apartheid debt of R254 million, stagnant Gross
Domestic Product (GDP) growth, declining savings and investment rates, falling
formal sector employment and a decline in per capita GDP.

South Africa, which had become ineffective and inefficient in terms of
building infrastructural linkages with the region and international markets,
also had to adapt to the demands of globalisation. The value of commodity
prices was declining. The global economy was undergoing a marked shift away
from primary economic activities towards higher value-add and knowledge
intensive activities and trade liberalisation was increasing. As government, we
therefore did not only have to address the economic injustices of the past, but
we also had to facilitate the beneficial integration of South Africa into the
global economy.

A number of macro and micro economic policy initiatives, including the
Reconstruction and Development Programme and the Growth, Employment and
Redistribution Programme, were introduced to stabilise major macroeconomic
aggregates and address key socio-economic objectives. In addition to
macroeconomic reforms, a new labour relations dispensation negotiated with
social partners normalised labour relations in South Africa.

New legislation and an institutional framework for skills development were
put in place. Significant reforms in the agricultural sector helped lower food
prices on a sustainable basis. A small business institutional framework and
legislation was successful in supporting small and medium enterprises.
Customised, supply-side measures were introduced to support growth in the
manufacturing sector.

Tariffs were selectively reformed. Strategic bilateral and multilateral
trade regimes were negotiated, locking in supplies of capital, technology and
finance with developed countries and strengthening South-South, and
particularly intra Africa trade relations. Efforts to transform the World Trade
Organisation and develop a fairer, rules-based world trade system continued. A
comprehensive export readiness package was introduced to enable local
enterprises to optimally benefit from the newly negotiated exporting
opportunities.

The introduction of the Microeconomic Reform Strategy in 2001 increased the
focus on the microeconomic constraints to growth. This included prioritising
growth and labour absorbing sectors; addressing the efficiency of
infrastructural support to these sectors; and introducing crosscutting
interventions to enhance competitiveness.

Overall, our interventions were successful as we were able to stabilise and
diversify the economy. The reduction in budget deficit from 9,5 percent of GDP
in 1993 to one percent in 2002/03 has allowed for greater social spending.
Access to education and health care has improved. Today more than 70 percent of
households have access to electricity and more than 80 percent have access to
cleaning running water. More than seven million people, the aged, young
children from poor households and people with disabilities benefit from social
grants.

Economic overview

In terms of the economy generally, we enjoyed an average growth rate of
about three percent in the first decade of freedom. Inflation was reduced to
within a three to six percent target range. The net open forward position of
the Reserve Bank fell from $25 billion in 1994 and $22,5 billion in 1998 to
zero in 2003. Commodity price and capital inflows have been strong. There has
been strong growth and broadening of domestic consumption. And in recent years
we are witnessing a reasonably strong employment growth and a trend towards
significant reduction of poverty.

The positive economic performance is continuing into our second decade of
freedom. According to the South African Reserve Bank March 2006 Quarterly
Bulletin; the real growth of the South African economy picked up from 4½
percent in 2004 to virtually five percent in 2005 the highest annual growth
rate since 1984.

CPIX inflation entered its 29th successive month within the target area of
three to six percent in January 2006. Both the goods and the services
components were within the target area. If the price of petrol is excluded from
inflation calculation, administered prices fell close to the midpoint of the
target range. Similarly, production range price inflation remains well
contained.

Reflecting the sound performance of the economy, high international
commodity prices, strong profit growth and upbeat expectation, South African
share price raised by 43 percent from the end of 2004 to the end of 2005 the
seventh highest local currency price performance in the world according to the
World Federation of Exchanges.

Growth in real fixed capital formation in the private sector picked up from
7½ percent in the third quarter of 2005 to eight percent in the fourth quarter.
Real gross capital formation by public corporations picked up momentum from
annualised growth of 12 percent in the third quarter of 2005 to 15½ percent in
the fourth quarter. This can largely be attributed to increased public spending
in the energy and transport sectors.

The most recent Labour Survey (LFS) realised by Statistics South Africa
indicates that in the year to September 2005 overall employment in South Africa
increased by 658 000 or 5,7 percent over the year to around 12,3 million.
Notwithstanding the general improved prospects for employment, the rate of
unemployment remained broadly unchanged at 26,7 percent in September 2005
compared to 26,2 percent in September 2004. The increase over this period in
the number of people officially classified as unemployed could partly be
explained by the fact that about 600 000 discouraged job seekers, who
previously did not actively seek employment, started to engage in active job
searching and accordingly qualified for the inclusion as part of the officially
unemployed.

Wage settlements and increases in nominal remuneration per work moderated
somewhat in 2005, and increases in unit labour costs were fully aligned within
the inflation target. At the same time the number of person-days lost due to
strikes and other work stoppages more than doubled.

The Accelerated and Shared Growth Initiative for South Africa (AsgiSA)

There is recognition that despite the positive economic performance, higher
levels of growth and investment are needed if we are to halve unemployment and
poverty by the year 2014. As government we also note the imbalances in our
current growth profile. The first significant imbalance is the impact of strong
commodity prices and capital inflows on the currency and our trade balance. The
second imbalance being that almost one-third of the population is not directly
benefiting from the stronger growth. The second economy remains largely
excluded except through remittances and social and social grants.

The overwhelming confidence expressed by the voters of South Africa in the
performance of government in the 2004 National Election, directed us to move
faster to address the challenges of poverty, underdevelopment and
marginalisation confronting those caught within the Second Economy. AsgiSA
focuses government's actions more sharply to ensure that we exceed our growth,
development and employment targets.
AsgiSA is primarily based on interventions in six key areas:
* macro-economic issues
* infrastructure programmes
* sector intervention strategies
* education and skills
* second economy and Small Medium Micro Enterprise (SMME) interventions
* public administration issues / delivery

Macro-economic issues
Four areas will receive attention

* We will focus on finding strategies to reduce the volatility of the
currency.
* We will ensure that within an inflation-targeting regime, fiscal and monetary
policy work together to produce sustained and shared growth.
* To improve budgeting in government, particularly at a macro level where we
tend to underestimate revenue and overestimate expenditure.
* To improved expenditure management, particularly in government capital
investment, where several agencies' budgets are considerably under spent and
some run out of funds before the end of the financial year.

Infrastructure programmes

The current infrastructure spends, which resides within the responsibility
of my department, is expected to have a major impact on the economy and to be
the lynchpin for the success of AsgiSA. Our infrastructure programme will
impact upon demand for inputs and the industrial development of important
sectors such as capital goods and transport equipment, thereby crowding in
private investment and contributing to job creation and growth.

There has been a steady increase in public sector spending to above six
percent of GDP in recent years. This rate will increase as government and
public enterprise investment expenditure for next few years is planned to
exceed R370 billion. The bulk of spending will be directed towards the key
input sectors of energy, transport and communication. The general purpose is to
improve the availability and reliability of infrastructure services in response
to rapidly growing demand. As indicated in the Reserve Bank Bulletin, the
economic spin-offs are already impacting positively on the economy.

Sector strategy interventions

In order to expedite sector development, the Department of Trade and
Industry is at an advanced stage of developing sector strategies. Two sectors
were identified for special priority attention, namely business process
outsourcing and tourism, and a third sector that is being developed is
bio-fuels. The sectors were prioritised because they are labour intensive,
growing rapidly world wide, and they provide opportunities for economic equity
and small business development.

The other high priority industries but less advanced in preparation are

* agriculture and agro-processing field, including bio-fuels, mentioned
before
* chemicals
* metals beneficiation including the capital goods sector
* creative industries (crafts, film and television content and music)
* clothing and textiles
* durable consumer goods
* wood, pulp and paper

Education and skills development

The single greatest impediment to economic development is the shortage of
skills-including professional skills such as engineers and scientists, managers
such as financial, personnel and project managers; and skilled technical
employees such as artisans and Information Technology (IT) technicians. The
shortfall is due to the policies of the apartheid era and the slowness of our
education and skills development institutions to catch up with the current
acceleration of economic growth.

The Joint Initiative on Priority Skills Acquisition (JIPSA) alongside other
educational institutions forms fundamental building blocks for AsgiSA. JIPSA
will primarily focus on developing scarce and critical skills required to
deliver the AsgiSA commitments and targets in a manner that supports current
education and skills development initiatives. Priority areas include developing
Maths, Science and English skills in schools; generating graduates that meet
immediate industry demands; and support for Adult Basic Education and Training
(ABET). It also includes the development of a credible plan with targets and
timeframes to train and supply artisans.

Integrating the second economy

Disparities with regard to the generation and access to wealth remains
stark, with historically marginalised communities experiencing difficulty in
participating meaningfully in the economy. In order for growth to be shared the
need to pay particular attention to broad-based black economic empowerment and
the development of women and the youth is re-emphasised. In general, all
government programmes and activities will be conducted in a manner that
integrates what is referred to as the second economy. Specifically we will
continue with rolling out the Expanded Public Works Programme (EPWP)
strengthening microfinance initiatives especially loans between R10 000 and
R250 000; easing the administrative burden on Small Medium Micro Enterprises
(SMMEs); and ensure the realisation of dead assets.

Success here is already evident. The development of agricultural
co-operatives and rural financial services through the finance scheme,
Micro-Agricultural Finance Institutions of South Africa (MAFISA), has enabled a
majority of rural farmers, particularly women, to have access to finance for
their agricultural enterprises. The scheme has been launched in Limpopo,
Eastern Cape and KwaZulu-Natal. Through this programme it has become clear that
the needs of rural poor farmers and rural entrepreneurs can be best addressed
if state entities, civil society and the private sector work together. It is
for this reason that government has now set up working relationships with the
Small Enterprise Development Agency (SEDA), Independent Development Trust,
Khula, Apex Fund and other clusters to collectively address the various needs
of the small and medium enterprise sector.

To date the EPWP has been surpassing all employment creation targets with
more than 220 000 work opportunities created in the first year, and an
additional 60 000 in the first quarter of the second year. The Vuk'uphile
Learnership Programme has grown from the initial target of 500 learnerships to
1 971, with a total of 3 000 learnerships planned for the next four to five
years. In the process, the learners will execute approximately R3 billion worth
of provincial and municipal EPWP infrastructure projects as their training
projects, creating approximately 150 000 work opportunities.

Governance
Existing institutions are driving the implementation of AsgiSA. The initiative
forms a standing agenda item for monthly Investment and Employment Cabinet
Committee meetings and regular progress reports are tabled. On Local Government
and Service delivery we are focusing on addressing the skills problems
identified in Project Consolidate. One issue of concern has been the relatively
slow progress made on the implementation of some aspects of the Growth and
Development Summit. We believe that the social partners should seek, in the
context of AsgiSA, to make progress towards the realisation of a people's
contract on economic matters-as discussed in the President's Joint Working
Group, and referred to as a social contract.

I have broadly outlined the initiatives of the government since 1994. And I
have outlined more comprehensively the Accelerated and Shared Growth Initiative
for South Africa. While debating the appropriateness of the economic
development path followed by the democratic government is important, the nature
of the debate should not be driven purely by ideology. The debate has to be
located within an analysis of our historical and current material conditions.
The role of workers in progressively driving the transformation of the economy
also has to be assessed constantly as conditions change.

I trust that I have provided sufficient input to guide deliberations here
today. Traditionally members of NACTU have distinguished themselves as
champions of left-wing debate. I have no doubt that this seventh Congress will
be an intellectually stimulating one that will contribute significantly to
advancing the agenda of the organisation and worker unity nationally and
internationally.

I thank you

Issued by: Department of Public Enterprises
24 April 2006
Source: Department of Public Enterprises (http//:www.dpe.gov.za)