Manuel, MP, at the Institute of Personnel Management
2 October 2006
Thank you ladies and gentlemen.
Thank you for this award that you have presented to me today. I am humbled
by your support and vote of confidence which is not just for Trevor Manuel or
for the Minister of Finance but is for the work that has been done by this
government in putting the economy on a sound footing and creating an
environment where we, as a nation, can look to the future with such optimism
and aspiration.
In one of the first budget speeches that I made, after becoming the Minister
of Finance, I made the remark that the budget is about people not numbers, not
lines in a telephone directory, not lists of items to be purchased, but about
people. That belief remains the single most important pillar of the management
of public finances of South Africa. Anyone who does a phrase count on budget
speeches and major speeches by our former and present Presidents will see that
the phrase 'people centered society' probably comes up more often than any
other phrase. We do this not to appeal to populism but because the principles
that our democracy is based on puts people at the centre of our belief
system.
Everything we do from tough economic policy decisions to the redesign of our
social security system, from education policy to crime prevention strategies
must benefit the majority of our people it must reflect that we are a caring
society, it must mirror the aspirations of our entire population.
Your profession, personnel management, is one that unambiguously puts people
at the centre of our universe. In that spirit I come to you today with more
questions than answers. I seek to learn from you, to take away from your
perspectives at the coalface of developing people.
Economists have spent much of the last few centuries trying to figure out
what the recipe for higher economic growth and human development is. While
physical infrastructure plays an important role in driving forward social and
economic progress, there is almost total, universal acceptance that the quality
of our people, the standard of education and training, the human capital stock
of a country, the set of institutions and social constructs that we form to
interact with each other, drive social and economic development.
Let me focus on two areas today, the strength of institutions and the
quality of education and training. Institutional economics is a relatively new
branch of economics. This school of thought argues that a key determinant of
the welfare of a country is the quality of its institutions, the strength of
its organisations, social formations and communities.
The institutions that economists talk about range from the trust that people
have in the judiciary, in the central bank, in the stature of universities, the
quality of public services, the integrity of the auditing profession, the
strength of corporate governance, faith in the banking system, the quality of
the media, trust in the information put out in the financial markets and so on.
All of these institutional factors that are said to drive growth can be
narrowed down into trust and how people are organised. In both regards, we have
much to learn from the field of personnel management.
Let me illustrate this point using just one example. The integrity of a tax
system, the trust and faith that citizens have in the revenue authorities and
the competence of the people in the revenue service is a key factor in
influencing whether people comply with the tax system. If people have faith in
the systems and people in the revenue authority, there is less a need for
draconian and distortionary tax measures.
The restructuring of our revenue service since the dawn of democracy has
been a success in institutional change and in managing the interaction between
laws, systems and people.
Ms Shirley Zinn, the IPM President, would be more familiar with the details
of this institutional success story than I am. In fact each one of you would
probably be able to lecture me on the fact that at the centre of every
institutional change is the 'people' issue.
The last 12 to 15 years have been turbulent times for us all especially for
the personnel management environment. Human resource (HR) practitioners have
had to cope with dramatic changes in the legal framework, a much more dynamic
and fast changing economy, new technologies, international competition for
scare skills, employment equity, an inconsistent performance by the education
system, a new skills development framework and new forms of production and
supply chain technology.
In general, the HR practitioners have managed this complex minefield with
enthusiasm and creativity. As an industry there are many successes that you can
be proud of. The fact that the economy is growing so much faster today is
partly due to your success. The increase in the diversity of our workforce has
had positive social and economic repercussions that benefit all South Africans.
On these fronts, a huge 'well done' is in order.
I've been told that Trevor Manuel has a bad habit. One of the risks of
inviting Trevor Manuel to address your conference is that he often asks the
difficult questions, he seems to like to see people squirm in their seats no
matter who the audience is. And yes I do have a couple of questions for
you.
Leaving institutional economics for the moment, the area of what economists
call human capital formation is a key factor in explaining development and
underdevelopment in the world today. The knowledge base of the population, the
technology that workers are able to use, the systems around which production is
organised, the innovation potential of a workforce and the means of
communication between agents in the economy are all key factors that drive long
run economic growth. Looking carefully at these items, are they not the issues
you grapple with on a day-to-day basis?
South Africa faces an unprecedented shortage of skills. While we have about
four million unemployed people, we have about a million vacancies. The reasons
for this shortage include the fact that the economy is growing much faster than
at any point in the past two decades. The world economy is far more skills
intensive today. At the same time, the collapse of the apartheid education
system in the late 1970s and probably more importantly, the poor state of
schooling for all South African children from the 1960s onwards have had
profound consequences on our economy and on our ability to improve living
standards today. Investment in human capital takes decades to pay
dividends.
To give you a sense of the skills shortages from the perspectives of
employers allow me to quote from a few news reports in recent months.
According to Cisco systems in South Africa, by 2009 South Africa would be
unable to fill 113 900 jobs in the information technology (IT) networking field
alone. If we take advanced networking technology (internet protocol telephony,
security and wireless) about 30 percent of posts or 69 700 positions would be
unfilled. Alfie Hamid, the area academic manager at Cisco systems said that
South Africa had 32 Information and Communications Technology (ICT) academies
producing only 3 133 technicians a year, far short of what is required.
Con Fauconnier, Chief Executive of diversified miner Kumba Resources, said
that his company was already experiencing a lack of artisanal skills because of
South Africa's growing economy. Fauconnier went on to say that the average age
of artisans in South Africa is 54.
Martin Westcott from PE Corporate Services, a firm well known to most of
you, reported on a survey conducted in the IT industry that in an 860 firm
sample, the number of firms reporting staff shortages averaged about 30 percent
for the past few years. This year this number has shot up to 48 percent. He
also says that the number of companies who claim to pay a premium for
particular skills has risen to 56 percent in 2005 from 26 percent in 1995.
The world's fourth largest gold producer, Gold Fields, has warned that the
sector is in critical need of training as skilled workers are being poached by
new mines amid a commodity boom.
Ricky Douwes, Managing Director of Ability Solutions, says that Southern
Africa is poised for a mini-industrial boom. He says, "we believe that in
mining, power generation and petrochemicals alone there could be a labour
shortage in the region of 15 000 people".
A recent study by JCP International revealed that 88 percent of
participating companies indicated that they face a shortage of technicians.
At a municipal level the problem is even worse. Of the 283 municipalities,
83 have no civil engineers, technologists or technicians, 46 have only one
civil engineering professional and only 44 employ a civil engineering
professional below the age of 35.
I could go on all day with similar reports. South Africa is experiencing its
longest sustained boom in over 40 years. Our ability to broaden the scope of
beneficiaries of this boom is limited by our poor human resource capacity. Many
of our companies cannot take advantage of the present economic environment
because they haven't planned properly. You, this organisation, represent a
large spectrum of our HR managers. While there are many factors that explain
our skills shortage, you must take some of the blame. Companies and the HR
industry in particular have not been proactive enough to develop the human
capacity that companies need in order to increase capacity and profitability.
We are experiencing this skills crisisâ¦on your watch.
There are companies under difficult circumstances who have continued to
renew their human capacity by training, up-skilling and reorganising their
production systems to take advantage of the new environment. However, too many
companies sought short-term solutions. Pay more, train less has been the mantra
in many sectors of the economy. This is a short-sighted approach that is now
coming back to bite. Investing in people in an organisation is hard work. It
requires patience, creativity and effort. And it is not cheap either. But
surely the benefits outweigh the costs. Surely this is a better approach than
paying a fortune for the new kid on the block only to see them leave 18 months
later for even more money somewhere else.
HR managers lament the changing nature of work. They complain about the new
culture where loyalty counts for nothing and where hired guns are the order of
the day. We must ask ourselves, have we not contributed to this culture
ourselves? What is it that we have done to contribute to this culture of
short-terms evident in so many companies?
The World Economic Forum recently released the World Competitiveness Report
for 2006. This report makes for interesting reading. Out of 125 countries we
ranked 45, down from 40th in the last report. When it comes to South Africa,
the report literally reads like a tale of two different countries. On certain
issues we rank in the top 30 way ahead of many advanced countries. The report
praises our corporate governance, accounting standards, judiciary, system of
property rights, air transport infrastructure, macroeconomic performance, local
equity market access and university/industry research collaboration.
However, in other categories we lag behind many of our competitors. In one
or two areas we are as low as 121st out of 125 countries. The areas we score
poorly on include the costs of crime to business, businesses' response to HIV
and AIDS, the quality of maths and science education, hiring and firing
practices, pay and productivity and the availability of scientists and
engineers. The report concludes that while some sectors of our economy are
efficiency driven, very few sectors are innovation driven.
Again, I turn to our HR industry and ask the question, 'what do we have to
do differently to turn things around?' How do we better position our companies
to take advantage of this economic performance? At the heart of the solution
must be to invest more in staff, through training, mentorship, rotation and
greater exposure to diverse sectors of the business. HR managers are at the
heart of the challenges we face both as individual companies and as a country.
We need our companies to produce the type of people that would drive
innovation, productivity and profitability. Our country needs productive,
innovative and successful companies.
I know that many of you would say that you do have learnership programmes,
that you do offer bursaries and that you do train your staff. I'm sure that
many of you would argue that it is because 'other' companies do not train, that
forces the market to think short term. This may all be true. Some of you may
also argue that it is a minority of companies that bid up costs of skilled
labour and that they are forced to respond appropriately. However, as an
industry, we must all recognise that there is more that we can do. There are
innovations in the field of personnel management that we can adopt. We must do
more training and development to support the business plans of our
companies.
For the first time in a generation, the economic prospects look exceedingly
positive. In addition, for the first time in a decade almost every analyst is
convinced that we can sustain this economic acceleration not just for a few
years but for the next two decades. The kind of structural change that we are
seeing today in the economy is characterised by the fact that the economy is
sound, risks, though there are being mitigated the public finances are sound,
the regulatory regime is slowly maturing and the resilience of our economic
institutions is now a striking feature of the environment. We have created the
constitutional and political platform for a stable society. Upon that, we've
built an economic structure that is dynamic yet robust. This present economic
boom is sustainable. Are our companies going to take as much advantage as they
should? Are we going to broaden the scope of beneficiaries of the boom to
ensure its sustainability?
As HR managers your responses are key to answering these questions.
Thank you ladies and gentlemen. And again, thank you for the award that
you've bestowed upon me.
Issued by: National Treasury
2 October 2006
Source: National Treasury (http://www.treasury.gov.za/
