to Ikamva leSizwe Sethu Youth Initiative Business Luncheon
15 June 2006
ACCELERATING SHARED GROWTH IN SOUTH AFRICA,
Chairperson,
Programme Director;
Thank you for the opportunity to speak at this forum the day before we
commemorate Youth Day. This yearâs Youth Day will be a particularly significant
occasion being the 30th anniversary of the historic Soweto uprising. The 1976
uprising was a pivotal moment in our history, which underscored the way in
which the strategic initiative was passing from the apartheid regime to the
forces of liberation. It also highlighted the way in which youth were at the
forefront of our liberation struggle. The 30th anniversary of those heroic
events offers a unique opportunity to reflect on the position of and challenges
facing youth in our country today.
We all know that youth development is among the most important priority
facing us today. Youth are disproportionately represented among the jobless,
the poor and the marginalised. Youth need more access to jobs, skills
development and opportunities to quality self employment.
Programme Director, you have asked me to share some thoughts on one of the
most important topical questions facing our society, âAccelerating Shared
Growth in South Africaâ. I will try to look at this issue particularly from the
point of view of small business and youth development.
Programme Director, if we look at the performance of the South African
economy in the past few years we can see that there is much to be positive
about. Growth rates in this country are at a higher level now than they have
been at any time in the last 25 to 30 years. The higher levels of economic
growth, which we are now attaining of around four and a half to nearly five
percent, have also been sustained over much longer periods than at any time
over that quarter century.
Our current growth spurt is furthermore being sustained by inflows of
foreign portfolio investment, a tribute to the confidence that foreign
investors are increasingly showing in the performance of the South African
economy and its capacity to maintain and sustain that performance. However, if
we look more closely at the performance of our economy we will see that there
are also areas that we need to work on to improve that performance further
still.
Firstly, although the current growth is being accompanied by some positive
net job creation the rate of economic growth is not yet at a level to make a
significant impact into our goal of halving the number of unemployed by the
year 2014.
Secondly, if we examine the current growth spurt we will see that there are
two main drivers. The first of these is consumption expenditure. We are in the
midst of a consumption boom; a consumption boom that is not just embracing
locally produced goods but is also sucking in an increasing volume of imports.
The one potentially worrying element in our macro economic picture is a
widening deficit of the balance of trade meaning that we are importing more
goods from abroad than we are exporting. Unlike in the past where the apartheid
regime was forced to intervene and choke off any growth spurt, which reached
above three percent because they could not sustain a deficit on the balance of
trade. We in South Africa today are able to do so because of the high level of
confidence that is generating short term inflows of portfolio investment from
abroad. However, the fact that consumption growth is outstripping production
growth is a matter that we need to address.
The second main driver of our current growth spurt is a commodities boom.
The rise of China and India as major economic powers, countries which are
industrialising rapidly, has meant that there is a significant new demand for
mineral products and other primary products coming from these quarters and this
has sustained high prices for mineral products of which we in South Africa are
a major producer.
Thirdly, if we look at the major industrial performers in our country we see
that these are still mostly large scale upstream companies and projects in
different sectors. Deriving from this analysis, government has identified the
need to put in place a series of measures aimed at raising the growth rate to
an average of at least six percent per annum between 2010 and 2014 and equally
important at broadening or sharing more widely in that growth process. The
broadening and sharing, I believe has two integral related components.
Firstly, we are saying that the benefits of economic growth will have to be
shared more broadly among the people of the country as a whole and that the
resources which are created by higher levels of economic growth, will need to
be directed at solving pressing problems of poverty and underdevelopment in our
country. This harks back to the basic philosophy that underlined the
Reconstruction and Development Programme (RDP). We said in the RDP that growth
and increase in the output of goods and services and development and
improvement in the human condition, were not identical concepts and that it is
quite possible to have economic growth without development as the economic
history of our own country in the 1960s showed. However, we also said that in
particular conditions of South Africa today, we cannot have sustained higher
levels of economic growth unless we simultaneously reduce under development and
poverty in our country. This remains very much the case in the thinking, which
underlines the Accelerated and Shared Growth Initiative for South Africa
(AsgiSA).
The major constraint to economic growth, repeatedly identified, is a
shortage of skills. Addressing the shortage of skills is both an economic and
developmental imperative. By producing more skills we provide the human
resources that the economy needs to grow but by producing more skills we also
equip individuals to raise the quality of their lives and their standard of
living. The Joint Initiative for Priority Skills Acquisition (JIPSA), one of
the flagship projects of AsgiSA, is intended to address precisely this area.
Infrastructure development programmes that are also at the heart of AsgiSA,
with R300 billion of public investment planned over the course of the current
medium term expenditure framework period, are likewise directed at both
providing facilities that are needed for economic growth and at making a
significant contribution to raising unemployment and providing individuals with
the opportunity to earn their living and to acquire skills training whilst
doing so.
But there is also another dimension of the shared growth that I want to
concentrate on addressing here today.
As I said earlier on, economists have identified two main drivers of the
current growth spurt. A consumer boom and a boom in minerals products. AsgiSA
recognises that this is too narrow a base on which to raise the growth rate to
the target level of six percent. We need in particular to be addressing the gap
I mentioned between growth in consumption expenditure and growth in output. And
we need to be addressing this gap not by contracting consumption expenditure
but by stimulating an increase in productive activity. AsgiSA itself is a
series of immediate priority interventions which seek to build on and shape
broader ongoing governmental programmes. These include critically our own
departmentâs efforts to promote and implement a more vigorous industrial
policy. What we are seeking is to promote a broadening and acceleration of
economic activity across a range of industrial and service sectors. AsgiSA
itself identifies immediate priority sectors which includes business process
outsourcing, tourism and bio fuels. These are areas where significant
preparatory work is already underway and where there are short term prospects
of a fairly rapid increase in employment.
In addition to that, there are a number of medium term sectors that are
either in the process of or have recently undergone Customised Sector Programme
(CSP) initiatives. These include chemicals, the metal sector, clothing and
textiles, agro processing sectors and cultural industries and so on. What we
are looking to do is to engage stakeholders in exercises of self discovery.
Self discovery we envisage as a participatory exercise in which sector players
identify the key action plans that are necessary to take a sector from where it
is to where it needs to be.
Key action plans formulated through the process of self discovery should
lead to an identification of incentives and other measures which will be
necessary for government to deploy to facilitate such processes. A key theme
which is emerging in the industrial policy discussions which we are currently
having is that government should make its incentives and other offerings
available on a much more customised basis, that is to say, we want incentives
and programmes to actually relate much more closely to sector strategies and
plans.
Another key theme is that we would expect these incentives to be deployed
much more conditionally. Government must be prepared to put more resources to
support industrial strategies at a level which can make a difference, but it
must also insist that there should be quid pro quo from those who are
benefiting from the support. In addition to this we envisage important cross
cutting interventions. During the Budget Vote debate in parliament a few weeks
ago, our Minister announced that government intended to pursue a number of
options to deal with the thorny issue of import parity pricing. Basically, this
is an arrangement in which important up stream manufacturers charge domestic
clients a price based not on the cost of production but on the prices down
stream clients would have to pay if they imported and transported those
products from abroad. This is a discriminatory pricing policy which has been
identified in a host of studies as limiting and choking off opportunities for
down stream industrial development. Among the measures mentioned by our
Minister, were reforms of a competition law, the removal of tariff protection
for industries that are engaged in import parity pricing and other possible
measures whilst the Minister also left open the option to continue to
negotiate.
Through our industrial policy measures, through measures such as those
directed at import parity pricing we anticipate that we will be creating many
more opportunities in the South African economy for productive activity across
a range of sectors and industries. This does not of course automatically mean
that youth and small businesses will be the ones who benefit from this. Too
often in the past, deep seated structural problems, many of them emanating from
our own historical past have prevented small business from seizing a rightful
share of new opportunities.
Black owned and women owned businesses as well as youth have particularly
faced difficulties in responding to the opportunities which are created in the
broader economy. It is precisely for that reason that as an integral part of
our overall efforts to promote shared growth, government is engaged in a very
substantial and significant restructuring of our small business support
programme. Promoting small business has of course long been an objective of
government policy. Small business has been seen as a potentially dynamic
activity in its own right. It has also been seen as offering many opportunities
for productive activity for people who would otherwise be condemned to
unemployment. Too often however, our small businesses have been conducted by
what my colleague Deputy Minister Elizabeth Thabethe, has called âentrepreneurs
of necessity,â marginally self employed people condemned to exist on the
margins of what we call the first economy. We have long realised that if we
want to develop the small business sector there needs to be targeted programmes
of action. These need to address many of the deep seated difficulties that
small businesses have in South Africa today. They include questions of access
to finance and also questions of non-financial support, as well as creating
particular tailor made opportunities for small businesses. As I am sure you
know the non-financial support services to small businesses have been
restructured under a new agency, the Small Enterprise Development Agency
(SEDA). SEDA has now been established in most of the provinces of the country
and is in the process of setting up networks of service providers who will
provide a uniform product across the country. SEDAs top priority in the coming
year is to roll out its physical infrastructure and it is to be hoped that by
the end of this year, we will see a functioning organisation in place in many
parts of the country.
In the area of small business financing, Khula is in the process of refining
its product offering. There is also a significant debate underway as to whether
Khula should continue to exist as a wholesale institution or whether it should
go into retail finance provision in some areas as well. The financial sector
charter process also has the potential to leverage funds to support small
business development. We need to ensure that this and other Black Economic
Enterprise (BEE) Charter processes are up to their potential in this
regard.
Co-operatives have long been recognised as an important avenue for
collective advancement of sustainable livelihoods at community level and a
co-operative strategy has already been presented to National Economic
Development and Labour Council (NEDLAC) and will pass through the parliamentary
process soon. The Co-operative Incentive Scheme (CIS) became operational in
January 2006 and is an additional source of funding for co-operative small
business ventures.
In addition to this, AsgiSA targets two particular interventions to improve
the capacity of the government procurement process to contribute to small
business development.
Firstly, there is the set asides programme. A task team involving several
government departments is currently compiling a list of products and services
to be procured for government from small businesses. The products and services
as well as the terms and conditions under which this programme will operate,
should be announced shortly.
The second area is ensuring prompt payment by government for goods and
services acquired particularly from small business.
As you know, there are also specialist youth development organisations such
as the National Youth Commission (NYC) and the Umsobomvu Youth Development
fund. Aligning our programmes with those of youth agencies and ensuring that
all AsgiSA programmes will have a youth focus will be major challenges. Already
within JIPSA there is a specific focus on training opportunities targeted
specifically at youth.
Programme Director, I hope that I have been able to give at least a very
broad outline of some of the initiatives and efforts that are going on within
government that we believe will be of benefit to small business. We believe
that the outlook in the South African economy is now overwhelmingly positive
and that developments at sector level create many opportunities for small
businesses to expand and to take their rightful place in the South African
economy. At the same time we believe that we are engaged in a series of
programmes that we hope will provide assistance and support to small businesses
to become more effective in our economy.
Government though is only one partner in the process. We depend on a
partnership with important stakeholders in the economy and indeed on the
forging of a peoples contract to promote growth and development in this
country. The briefing notes I received for this event spoke of the challenge of
mobilising the youth in the spirit of 1976 to confront the tasks of
transformation that face us in todayâs reality. That is critical. It has long
been realised that governments cannot bring development to peoples; they can
only work with their people in a collective effort to promote development. As
we unfold our programme, we in government will therefore be looking to work in
partnership with organisations rooted among our people to promote accelerated
and shared growth.
Programme Director, within the spirit of partnership and izimbizo let me
conclude this address by offering, if you permit, to field a few questions or
to listen to some concerns from people who are participating in this
activity.
I thank you!
Issued by: Department of Trade and Industry
15 June 2006
