Mlambo-Ngcuka
6 February 2006
A catalyst for accelerated and shared growth (ASGISA)
The three spheres of government have been working together for some months
and in consultation with partners to elaborate on the specific interventions
that will elaborate on the Accelerated and Shared Growth Initiative of South
Africa â ASGISA - whose ultimate objective is to halve unemployment and poverty
by 2014. As the President said âASGISA is not intended to cover all elements of
a comprehensive development plan, rather it consists of a limited set of
interventions that are intended to serve as catalysts to Accelerated and Shared
Growth Developmentâ (State of the Nation Address 2006). ASGISA is not a new
policy nor does it replace the Growth Employment and Redistribution (GEAR)
strategy and it is not an industrial policy. Most of the interventions are
built on the micro-economic reforms and agreements reached at Growth and
Development Summit. It takes advantage of a stable macro-economic environment,
an economy that is growing at 4% plus in the past two years. Between 2005 and
2009 we seek an annual growth rate that averages 4,5% or higher. Between 2010
and 2014 we will seek a growth rate of at least 6% of GDP.
Our recent growth although welcome has been unbalanced and based on strong
commodity prices, strong capital inflows and strong domestic consumer demand,
which has increased imports and strengthened the currency way beyond desirable
levels; yet levels of unemployment are still too high and growth has not been
adequately shared. The divide between the First and Second Economy has meant
that those who live in the Second Economy have less benefits.
We seek to take advantage of the growth in order to share the benefits and
base it on a more sustainable basis beyond commodity prices/consumption and
capital in-flows.
The high business confidence offers an opportunity to create a healthy and a
growing private sector in the First Economy, which can address the challenges
of the Second Economy. âYears of freedom have been very good for business and I
believe that should have convinced the investor community by now, that it is to
its own interest and as part of national effort it has to invest in the
expansion of that freedom especially by actively and consciously contributing
towards the achievement of the goal of halving poverty and unemployment by
2014,â the President said in his State of the Nation Address 2006.
Hence our emphasis on partnerships not only with business but also with
labour, civil society and other members of society is important for ASGISA.
Much consultation has taken place and will be on-going so as to build on the
emerging consensus on what should be done to accelerate and share growth and
seek response to some of the issues that have been raised through during the
consultations some which even though legitimate do not fall within the limited
mandate of ASGISA.
ASGISA responds to binding constraints, which are:
* The volatility and level of the currency
* The cost, efficiency and capacity of national logistics system
* Shortage of suitably skilled labour amplified by the cost effects on labour
of apartheid spatial patterns
* Barriers to entry, limits to competition and limited new investment
opportunities
* Regulatory environment and the burden on small and medium businesses
* Deficiencies in state organisation, capacity and leadership.
A modelling and growth accounting exercise has been undertaken by a range of
economists in the private and public sector support the premises and potential
of ASGISA, but only if the interventions are well targeted and efficiently
managed. A team of local and international economists from Harvard, MIT, SOAS
and LSE have been tasked with testing our assumptions and plans in order to
present us with new options if any, which will inform the evolution of ASGISA
over 2006-2007.
The response to binding constraints is a combination of systematic
initiatives, optimising on public expenditure improving an environment to do
business in South Africa and removing bottlenecks in the main within
government. In addition there is a range of projects especially in the Second
Economy which are targeted to urban and rural youth and women as well as
limited policy initiatives, wide ranging policy proposal or comprehensive
economic review will need a different process.
The initiative as indicated is not a sum total of all governmentsâ responses
to issues of poverty and unemployment; it is selected interventions, which are
as follows:
* Infrastructure
* Sector strategies
* Education and skills
* Interventions in the Second Economy
* Public Administration issues
* Macro-economic.
Further consultation with partners will seek to gain their active
involvement in the different aspects and implementation of ASGISA on areas of
strong agreement.
Infrastructure
Overall government expenditure for infrastructure spending totals some R370
billion over the current Medium Term Expenditure Framework (MTEF). This is
unprecedented increased public expenditure which will boost the much needed
fixed investments.
Of this, about 40% will be spent by Public Enterprises, mostly Eskom (R84 bn
covering generation, transmission, distribution and others) and Transnet (R47
bn, of which R40 bn is âcoreâ i.e. harbours, ports, railway and petroleum
pipeline), Airports Company South Africa (ACSA) (R5,2 bn which includes airport
improvement and Dube Trade Port), water infrastructure (R19,7 bn), 2010
infrastructure, which will include building or improving the 10 stadiums to be
used, and investment in the environs and access to the stadiums, information
and communications technology (ICT) infrastructure which includes the strategy
to rapidly grow South Africaâs broadband network; implementation of a plan to
reduce telephony costs more rapidly; the completion of a submarine cable
project that will provide competitive and reliable international access,
especially to Africa and Asia, and the provision of subsidies to encourage the
establishment of call centres and labour intensive business in poor areas.
In addition to the general infrastructure programmes, provinces were asked
to propose special projects that would have a major impact on accelerating and
sharing growth. A set of projects has been selected for finalisation of
implementation plans. These projects are selected for their impact on
employment, poverty eradication and economic growth including sustainability
and possibility to leverage private sector funding. Further work on ASGISA will
incorporate local government initiatives.
One of the intentions of the Infrastructure Investment Programme is to
address the maintenance backlog out of which skills will be needed and
sustainable new jobs could be created for artisans. A framework for
Infrastructure Maintenance Plan is being developed along these lines.
Sector strategies
Sectors that are competitive and able to meet both the growth and sharing
objectives of ASGISA have been identified. This process will further benefit
from the broader industrial strategy that is being finalised. While all are
priority and strategic, the sectors with highest potential for impact within a
short time and where extensive work has been done and therefore implementation
is immediate are Tourism and Business Process Outsourcing (BPO) sectors. Those
priority sectors where work is not as advanced are work in progress.
* BPO and Tourism: these are top priority and immediate. Implementation will
start in first half of 2006.
* Other priority sectors under consideration are: biofuels, chemicals,
metals and metallurgy, agriculture, agro-processing, creative industries, wood
pulp and paper, clothing and textile and durable consumer goods. These will be
announced when more work has been done.
With BPO, South Africa has attracted about 5000 of such jobs from the rest
of the world so far. The sector has the potential for 100 000 additional direct
and indirect jobs by 2009. Challenges that are being addressed to achieve the
above include marketing, skills/training, telecoms costs and regulatory
challenges. A tailor-made incentive environment for BPO is being finalised.
Government and business have a joint project, supported by the Business Trust,
led by the Minister of Trade and Industry and Chair of Standard Bank to remove
obstacles and refine incentives to achieve this goal. The Minister of Trade and
Industry will elaborate more on BPO.
Tourism
The other immediate priority sector is Tourism. This sector has already
grown rapidly in South Africa but is ready for a second phase of growth that
could take its contribution to GDP from about 8% to about 12%, and increase
employment by up to 400 000 people by 2014. Key issues are: marketing, air
access, safety, and skills development. This industry also entails a strong
government/private sector partnership, which was established during the 1st
phase of growth. The Minister of Tourism and Environmental Affairs will
elaborate more on the Tourism sector.
For both BPO and tourism a detailed business plans that both government and
the private sector are contributing to.
There are several cross cutting industrial policy challenges being addressed
too, including: inadequate competition and import parity pricing; capacity for
trade negotiations; a more coordinated Africa development strategy; better
incentives for private research and development (R&D) investment; and
better use of broad-based black economic empowerment (BBBEE) to encourage
industry transformation, beyond the transfer of equity.
Education and skills development
For both the public infrastructure and the private investment programmes,
the single greatest impediment is the shortage of skills â including
professional skills such as engineers and scientists, managers and financial
personnel, project managers; and skilled technical employees such as
information technology (IT) specialists and artisans.
Key measures to address the skills challenge in the educational sphere will
focus on the a) quality of education, b) adult basic education and training
(ABET), further education and training (FET) and artesenal skills, which the
Minister of Education will elaborate. Scarce and priority skills include high
skills and artisans.
In the context of ASGISA, the focus will be on priority and scarce skills
which including artisans. A new institution that will be established in the
month of March is the Joint Initiative for Priority Skills Acquisition (JIPSA).
This structure is led by a committee of relevant Ministers, business leaders,
trade unionists and education and training providers or experts. Its job will
be to confirm the urgently needed skills and find quick and effective
solutions. Solutions may include special training programmes, bringing retirees
or South Africans who are working outside South Africa, and drawing in new
immigrants when necessary. Programmes for placements of personnel and
unemployed graduates are. JIPSA will have an initial timetable of 18 months
placement of skills for local government is already advanced. Plans for private
sector placement in infrastructure project management are also advanced and
will ensure womenâs involvement.
Second Economy intervention
Inequalities are entrenched in the structure of the South African economy
and a systematic policy intervention will be elaborated outside ASGISA, which
will only consider more urgent interventions.
Without interventions directly addressed at reducing South Africaâs
historical inequalities, growth is unsustainable. The intention is to create
sustainable bridges between First and Second Economy to enable growth and
graduation to a sustainable economy; unlock dead assets/asset poverty in poor
peopleâs hands e.g. livestock, housing, land, etc; promote local economic
development and local content; growth co-operatives with a link to First
Economy markets; and the need to address the âmissing housing stockâ valued
between R50 000 and R150 000.
All priority sectors will have to provide a bridge to the Second Economy.
Tourism, BPO, Creative Arts, Agriculture, Clothing and Textiles are sectors
which are easily responsive to the Second Economy. A link is in the business
plans with the Second Economy are being made. Infrastructure is crucial for
such linkages.
There are several other interventions designed to support small, medium and
micro-enterprises (SMMEs). Nafcocâs commitment to establish 100 000 new SMEs
per year is laudable, and government will support Nafcocâs efforts. A key
challenge is to address the gap in loans between R10 000 and R250 000. One such
effort is a new partnership between Khula and business partners in a R150
million fund for business loans of this size; we will be launching tomorrow,
which has a stronger focus on women. We also plan to accelerate the roll out of
the Apex and Mafisa programmes of loans under R10 000.
For the next stage of business development venture funding is key, and
government is trying to establish new venture funds for SMMEs. The R1 bn
programme recently announced by the IDC and the National Empowerment Fundâs
venture fund will make a considerable impact on the growth of small
businesses.
The other intervention is in the area of Preferential Procurement. For
Public Enterprises, the State Owned Enterprise Procurement Forum is codifying
and spreading best practices for Affirmative Procurement, which will have a
dedicated Supplier Development Programme. For the government, the Department of
Trade and Industry (DTI) is developing a procedure through which 10 products
will be set aside for Procurement through Smaller Black Owned Businesses.
A further key, small business initiative will be to pursue the
recommendations made to Cabinet on the regulatory environment for small
businesses. These recommendations include: that the Minister of Labour will
lead a review of labour lawsâ impact on small businesses; that the reforms in
tax administration affecting small businesses will continue; that the DTI and
the Department of Provincial and Local Government (DPLG) will prepare
recommendations on how to improve the regulatory environment for small
businesses in municipalities; and that sector departments will review the
impact of their laws and regulations on small businesses. In respect of
municipalities, the ASGISA process has also mandated DPLG, in consultation with
the DTI, to improve the capacity of local government to support local economic
development.
Another key, Second Economy intervention is the Expanded Public Works
Programme (EPWP). This programme will be expanded beyond its original targets
in terms of ASGISA. The relevance of training provided will be given greater
attention. EPWP mandate has been extended to a larger number of roads and some
larger road projects. This will entail about R4,5 bn additional funds over the
coming MTEF period, about 63 000 more people maintaining roads, and about 100
000 additional people in jobs averaging six months in roads building. In
addition, 1000 more small black contractors will be developed. New access roads
will have a significant impact on conditions and opportunities in some poor and
rural areas.
We are convinced that to achieve ASGISAâs goal of halving unemployment and
poverty by 2014, we will have to work more closely with women and the youth. On
women the focus will be on human resource training: ensuring they have access
to finance across the board; fast tracking them out of the 2nd economy; ensure
their significant participation beyond SMMEs and to improve their access to
basic services; increase their participation in expanded public works
programme.
On the youth front, one of the interventions is to target unemployed
graduates for jobs or learnerships, which will also be part of the Second
Economy outside ASGISA. We support the Umsobomvu Youth Fund initiative to
register unemployment graduates on their database. In this regard we wish to
thank many companies that last December pledged to employ some of these
graduates. As President Mbeki, said in his State of the Nation Address: we
shall ensure that the focus on youth development is intensified in all spheres
of government. Among other things during the next financial year, we will set
100 new Youth Advisory Centres, enrol at least 10 000 young people in the
National Youth Service, we will enrol 5 000 volunteers to act as mentors to
vulnerable children. 70% of our population is below 35% years.
We will also expand the reach of our business support system to young people
and intensify the Youth Co-operative Programme. We will closely monitor the
impact of our programmes on youth skills training and business empowerment as
an integral part of our National Effort.
In relation to the Second Economy you will notice that much focus is on
women and youth in the rural and urban areas and on programme interventions
that can be up-scaled to achieve mass impact. Cooperatives, land reform and
productive use of land, and housing stock problems of the range between R50 000
and R150 000 will receive special attention.
Follow-up on already agreed initiatives which are meant to benefit the
Second Economy will be prioritised. BEE charters, GDS, offset agreements will
be followed up by relevant departments.
Macro-economy issues
ASGISA responses to macro environment are limited as it is focused on micro
initiatives. The National Treasury, the South African Reserve Bank (SARB) will
engage on issues identified in the binding constraints.
A key challenge is to improve budgeting in government, particularly at a
macro level where we tend to underestimate revenue and over estimate
expenditure, which results in the budget appearing more expansionary than it is
which in turn sends misleading signals to other players in the economic arena.
A further area where macro economic policies or implementation will be improved
is in expenditure management, particularly in government capital investment,
where several agenciesâ budgets are considerably under-spent and some run out
of funds before the end of the financial year. One of the key activities will
be the review of the functioning of the Development Finance Institutions to
ensure that they are effectively employed in our developmental efforts. One
innovation to be introduced in 2006 is a development of a new capital
expenditure management information system by the National Treasury.
Governing and institutional interventions
ASGISA will push for government to implement and respond better to the
public. A key role of ASGISA is better management and response by government as
against thorough going policy reforms.
All spheres of government, State Owned Entities and social partners will be
engaged.
On Local Government and Service Delivery we are focusing on addressing the
skills problems identified in Project Consolidate.
The skills interventions include the urgent deployment of experienced
professionals and managers to local governments to improve project development
implementation and maintenance capabilities. The project managed by the
Development Bank of Southern Africa will deploy an estimated total of 150
expert staff, with the first 90 to be deployed in May 2006. The project will
also include skills transfer to new graduates. The Development Bank of South
Africa (DBSA) is compiling as database of âretired expertsâ for this and
further deployments.
For ASGISA implementation, it has been decided in Cabinet that the Cabinet
Committee for Investment and Employment would now have ASGISA as a standing
item for regular reports and problem solving at its monthly meetings.
The ASGISA task team includes Ministers, Premiers and SALGA representatives
and is chaired by the Deputy President.
Issued by: The Presidency
6 February 2006
