Programme director, Philiswa Mnguni
Acting Chief Executive Officer of Productivity South Africa, Mr Bongani Coka
KwaZulu-Natal regional Manager of Productivity South Africa, Miss Yoliswa Ndima
Chief Executive Officer of Trade and Investment KwaZulu-Natal, Mr Zamo Gwala
The President of Pietermaritzburg Chamber of Business, Mr Tinus Havenga
The Chief Executive Officer of Durban Chamber of Commerce, Ms Gugu Mazibuko Dignitaries
Ladies and gentlemen
All protocol observed.
On behalf of the government of the province of KwaZulu-Natal, we wish to take this opportunity to express our gratitude to Productivity South Africa for inviting us to this auspicious occasion and affording us a platform to address this august gathering. Productivity is a critical focal point for our growth as a country and is a catalyst for accelerating the implementation of our country’s transformation agenda where we would ultimately attain a society characterised by prosperity, equality and justice.
It is within this context that our government, itself tasked with the stewardship of implementing various elements of our transformation agenda, feels proud to be part of this occasion. The Encyclopaedia describes the term productivity as: “A measure of output from a production process, per unit of input. For example, labour productivity is typically measured as a ratio of output per labour hour, an input”.
Simply put, this means that productivity concerns itself with what we get out of a process, considering what it is that we have invested into that particular process. This approach propels those among us who are involved in that particular process to define measures which would inform them whether their efforts were worthwhile and have yielded the desired results or whether the output does not justify the input. This is a highly technical subject and we are convinced that, among us this evening, there are adequately qualified scholars who can expand even better on the concept of productivity
We meet against the backdrop of one of the biggest financial challenges in recent times, the global economic contraction. While we have been largely spared the grim effects of this recession, nonetheless we have not been unscathed. It is for this reason that the provincial government, at the beginning of this month, convened stakeholders and role players from all sectors, including labour and business, to a first of it kind Economic Recovery and Jobs summit.
The main objective of this summit was to craft an all inclusive provincial response to the challenges brought about by the unfavourable economic situation.
One of the objectives of this summit, which does not always get mentioned, was to devise means of how we can turn the current challenging times into opportunities for future growth. A number of resolutions were taken by the delegates to the summit and most of them, in essence, harped on the fact that unless our economy is competitive we will not be able to recover, let alone compete on an equal footing with other countries.
Productivity, therefore, is a necessary foundation for any attempt at economic recovery and putting our economy on a growth trajectory. In the year 1945, the Japanese went through a horrid time when they were on the losing side of the Second World War. Their economy had to be rebuilt from scratch and trade relations had to be re-established with the rest of the world. Indeed, some still see it as a miracle; that about fifty years later after the humiliation of the war, the Japanese economy is in the top five leagues of the largest economies in the world. This they achieved, among other things, through the inculcation of a culture of productivity. Obviously such noble virtues as national pride, patriotism and a will to excel, also contributed to this dramatic turnaround.
They understood that productivity growth is a crucial source of growth in uplifting living standards. Productivity growth means more value is added in production and this means more income is available to be distributed. At the national level, productivity growth raises living standards because more real income improves people's ability to purchase goods and services (whether they are necessities or luxuries), enjoy leisure, improve housing and education and contribute to social and environmental programs. Productivity is not everything, but in the long run it is almost everything. A country s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.
One of the most celebrated economists of our age, Paul Krugman, in his 1992 book titled The Age of Diminished Expectations makes an observation that: “World War two veterans came home to an economy that doubled its productivity over the 25 years; as a result, they found themselves achieving living standards their parents had never imagined”. He also makes an observation that Vietnam veterans came home to an economy that raised its productivity less than 10 percent in 15 years; as a result, they found themselves living no better, and in many cases worse than their parents’.
Nothing contributes more to reduction of poverty, to increases in quality of life, and to the country's ability to finance education, public health, environment and the arts. In the most immediate sense, productivity is determined by:
* the available technology or know how for converting resources into outputs desired in an economy and
* the way in which resources are organised in firms and industries to produce goods and services.
Average productivity can improve as firms move toward the best available technology and as new technologies become available. Firms can change organisational structures (for example; core functions and supplier relationships), management systems and work arrangements to take the best advantage of new technologies and changing market opportunities. A nation’s average productivity level can also be affected by the movement of resources from low productivity to high productivity industries and activities.
National productivity growth stems from a complex interaction of factors. As just outlined, some of the most important immediate factors include technological change, organisational change, industry restructuring and resource reallocation, as well as economies of scale and scope. Over time, other factors such as research and development and innovative effort, the development of human capital through education, and incentives from stronger competition promote the search for productivity improvements and the ability to achieve them. Ultimately, many policy, institutional and cultural factors determine a nation’s success in improving productivity.
Productivity South Africa’s own observation is that the more productive the national economy becomes, the higher the personal income of workers and the lower the rate of inflation in the long run. When the economy increases its productivity levels it becomes more competitive and tends to lower the rate of unemployment.
The more productive an enterprise or organisation, the more income it generates and saves for investment which could lead to job creation. In this case, more jobs can be created. Since productivity results in the efficient use of resources, it contributes positively to sustainable development. Continued acceleration in economic growth and human capital are a driving force in employment creation. All stakeholders, including private and public sector, must take advantage of this positive development to deal with unemployment and improve the comparative advantage of South Africa.
Programme director, in the current global economic climate, productivity has become the key factor for national economic recovery because of its impact on economic and social development. It is important as a source of income and as an integrative objective encompassing improved labour or management cooperation and worker participation. It is the criteria for enterprise competitiveness and a long term strategy for governments, employers and employees to alleviating poverty and promoting human rights and economic democracy.
It is a well known fact that the most productive companies and government productivity oriented policies are closely linked to the promotion of a better quality of working life, participation, market economic principles, individual initiative and creativity, and human oriented management styles and practices. In this regard, productivity objectives, accepted by all parties concerned, become the important instrument of just distribution of wealth, sound industrial relations and democratic workers’ participation. Thus, productivity is a good tool to balance economic, social, technical and environmental objectives.
For us in KwaZulu-Natal, we believe that there is a strong macro-economic and statistical evidence that the more effective (productive and competitive) the national economy, the higher the personal income of workers and the lower the rate of inflation in the long term. It also means more national income for social distribution for those who are young, old, handicapped or unemployed.
Better productivity also provides more profit to invest in promoting economic growth in underdeveloped regions. Therefore high productivity, packaged with effective distributional social policy, is the best available means to alleviate poverty.
Long term international statistical trends show that there is a strong correlation between national productivity and the level of unemployment. The more productive economy, the more competitive it is in the foreign market and the lower the unemployment rate. The more productive an enterprise, the more income it can save for new investments and therefore create new jobs. This therefore gives a lie to the twisted notion that productivity leads to unemployment, particularly in the long term.
Obviously, since we are a constitutional state which boasts adherence to the noblest principles of human rights, we need to harmonise the quest for improved productivity and human rights. In short, this means that you cannot have the other at the expense of the other. However, we believe that the two are not mutually exclusive.
Ladies and gentlemen, productivity is also an important factor at the macro-level. It has become more and more evident that productivity improvement is the result not only of micro measures within the enterprise, but also of macro-level and global efforts and changes in the quality of government policies and strategies, the social and business environment and public administration. A few important trends have been identified in the business environment which, in our view, will lead to dramatic changes in present and future productivity strategies and approaches.
These trends are the following:
* economic globalisation and integration
* the impact of technological developments
* structural adjustment and privatisation
* the growing demand for sustainable development
* emerging new work systems
* the move from traditional personnel practices to human resource management
* changes in leadership styles: from bureaucracy to entrepreneurship.
However, before we discuss some of these trends, let us briefly look at the links between productivity and competitiveness in development strategies.
Competitiveness is a hot issue for many countries and companies. The Organisation for Economic Cooperation and Development (OECD) defines competitiveness as: “The degree to which a country can, under free and fair market conditions, produce goods and services which meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its people over the long term”.
Given the current economic turmoil, we believe that the country requires a comprehensive strategy that focuses on building systemic competitiveness of the domestic economy. The current global crisis also calls for a direct state intervention in business activities and for the state to formulate policies that create a competitive environment for enterprises and on providing macro-economic and social conditions that are predictable and thus minimizing the external risks for economic activities.
It also requires that the state provides a well developed infrastructure support for economic activity. This requires that, as government, we make available natural resources and functional business systems, information technology, transport, communication and education, and an efficient protection of the environment.
As we prepare for recovery, partly driven by the current industrial restructuring, we need a skilled labour force to drive this recovery. This will increase our country's productivity and competitiveness. Education, the technical ability of labour, the quality of management and efficiency, all contribute to competitiveness. All this means that to pursue a competitive strategy; many coordinated changes in human resource development are simultaneously needed rather than a few high profile initiatives in one or two areas.
It should be emphasised here that openness to global markets and the globalisation of economies play an increasing role in productivity and competitiveness enhancement. However, openness, in this instance, does not mean that we do not look after our own interests and adopt strategies that will safeguard us in difficult times. We believe that productivity is an important industrial development factor.
This is another trend indicating that the focus of competitiveness comes increasingly from the sectoral and national levels to competitiveness between the nations. As a result, more countries have joined the battle for competitiveness. Unless countries are able to match the productivity gains of their competitors, the wages of their workers will be eroded.
In the coming decade, the most vulnerable groups are likely to be unskilled workers in middle income and rich countries. Lack of competitiveness could lead to reducing sales, promotion, under utilisation of capacities and low productivity, mounting public debt and massive deficits in social protection schemes. As a result, more and more citizens have become worried about negative social consequences of the crusade for competitiveness. The question is how much change does a country or a company need to take to survive in this new cut throat world of global competitiveness. The answer depends very much upon the ability of a country to develop what could be called a competitive society.
A competitive society is a society which has found a dynamic and health equilibrium between wealth creation on one side and social cohesion on the other. It does not necessarily mean economic efficiency at all costs in all areas. Actually, it may even imply a conscious decision on the part of people to expect to make certain sacrifices for the greater good of the society. A competitive society is one which identifies and actively manages all the facets of its competitiveness, from infrastructure to education.
The global economy is characterized by exploiting comparative advantages of nations and integrating them into a global management of the value chain. It is also characterised by a relentless drive for performance competitiveness among countries and companies and even among units inside the company. Cost efficient and value added productivity is the objective. The factors of production in this economy are very flexible and can be shifted easily from one place to another. It is a strategy that seeks to combine power and agility.
The World Trade Organization (WTO) agreements and regional treaties, for example, forced domestic markets to open up (telecommunications, transport). Many activities, besides the many traditional domestic sectors such as hospitals and food retailing, are increasingly falling into globalisation through private international companies and supermarket chains which are changing the life of local stores.
To protect the social orientation of the economy of proximity, citizens in many countries have to make the political choice themselves. This choice very much depends upon the amount of economic resources that can be redirected, partly from the economy of globalisation or from willingness and or ability of people to pay for this choice through their taxes or other resources. Developing a competitive society, therefore, is a more sophisticated undertaking than just maximising business efficiency. Each country's competitiveness depends upon its ability to balance the economy of globalisation which may generate revenues, and technology and the economy of proximity, which mainly generates employment and social cohesion. As a result of the development of this new competitiveness paradigm during the last two decades we are witnessing a change in competitiveness focus:
* from product competitiveness to process competitiveness and
* from process competitiveness to structure/society competitiveness.
The major constraints to competitiveness are to be found not so much in enterprises but in the capacity of a country to develop its own model of a competitive society. To cope with these constraints and to promote competitiveness, we need to follow ten golden rules for a competitive society, namely:
* Create a stable and predictable legislative environment
* Develop a flexible and resilient economic structure
* Invest in traditional and technological infrastructure
* Promote private savings and domestic investment
* Develop aggressiveness on international markets (exports, etc.) as well as attractiveness for foreign value added industries
* Focus on quality and speed during restructuring and reforms
* Maintain a relationship between wage levels, productivity and taxation
* Preserve the social fabric by reducing wage disparity and strengthening the middle class
* Invest massively in education, especially at secondary level, and in the life-long training and improvement of the workforce and
* Balance the economy of globalisation and the economy of proximity to ensure wealth creation, maintain social cohesion and preserve the value system citizens’ desire.
Productivity improvement creates the wealth that can be used to meet present needs and for investments to better meet the needs of the future. Improved national wealth and higher levels of income brought about by productivity improvement enable the society to invest more on environment protection and rehabilitation measures.
Productivity improvement is the elimination of waste in all forms. In order to cope with the current economic crisis, we call upon companies and firms to adopt agile manufacturing practices and become more attuned to the changing and diverse needs of their customers; be able to reorganize rapidly their systems of suppliers, distributors, workers and managers and make use of high speed telecommunications and transport networks to collect and disseminate information and to obtain inputs and distribute products.
The story of Japan, particularly its recovery to become one of the world’s leading economies resonates with the story of our own province and our own country. It is a mere 15 years ago that the name South Africa was almost a swear word in international community circles. As we rebuild our country from the ashes of apartheid, we need to draw examples from the Japanese and the Germans who were able to rebuild their economies into world beaters.
What is often not mentioned when the great stories of recovery are told is that, at times, it takes innovative individuals to buck the trend and apply themselves in excelling in their chosen fields. We believe that these Productivity Awards contribute meaningfully to inculcating a culture of productivity and competitiveness in our society. By recognising productivity, Productivity South Africa is actually adding impetus to our collective drive to ensure that our province is both productive and competitive.
We wish to congratulate those who will win in various categories of the KwaZulu-Natal regional Productivity Awards. Your contribution will be remembered as a catalyst for economic growth and development many years after you have gone. We trust that your efforts and the recognition you receive this evening will prompt other individuals and entities to take the issues of productivity seriously, understanding that their efforts contribute to nation building.
Congratulations to all those who have been nominated and those who will actually win the awards. May you represent us with humility and pride at the national awards ceremony!
I thank you.
Issued by: Department of Economic Development, KwaZulu-Natal Provincial Government
27 August 2009
Source: Department of Economic Development, KwaZulu-Natal Provincial Government (http://www.kznded.gov.za/)
