Provincial Economic Review and Outlook 2011 speech by Alan Winde, Western Cape MEC of Finance, Economic Development and Tourism

29 Sep 2011

Honourable Speaker
Premier and Cabinet colleagues
Leader of the Opposition
Members of the provincial parliament
Director-General
Heads of Department
Business leaders
The media
Special guests
Citizens of the Western Cape

Speaker, we stand today at the halfway point in the term of this government. In the short time that we have governed this Province, we have devised and begun to implement a 12 point strategy to deliver an open, opportunity society for all in the Western Cape.

The objectives outlined in our draft strategic plan and upon which we determined our policies were not picked at random. Rather, they were devised after a thorough investigation of the most pressing challenges that we face today, with poverty being the most critical of these.

As we look back on the achievements of the past years, we remain mindful of the challenges that lie before us.

South Africa today is comprised of over 50 million people. Of the total population, just 3,3 million people earn between R50 000 and R500 000 a year, and only 150 000 earn over R500 000 a year. These few earners, and the contributions that they make to tax, are far outweighed by the 4 million unemployed persons and 10 million discouraged job seekers that are not able to contribute to the South Africa that our first democratic president, Nelson Mandela, dreamt of. Instead, a large percentage of our population are dependent on the national economy.

There are two distinct schools of thought on how we should address the deepening poverty in our country. The first, held by the ANC government, talks of nationalisation, expanding our social welfare system, redistributing assets and land, and increasing government's staff base to absorb the unemployed, whether fit for the purpose or not. In this view, South Africa's economic pie is fixed, and all that remains for us to do is divvy it up. The result is poverty displacement short term alleviation for the lucky few who are swept up in the net and remain dependent on it for the rest of their lives. The remainder are abandoned with little or no recourse to help themselves.

While some short term alleviation measures may be required to address poverty in times of economic downturn, the Democratic Alliance's main aim is to create an enabling environment for private enterprise to grow the economy and create jobs.This is a long term view.

Here, the economy is not seen as finite, but holds the possibility of expanding to include all those who want a share in it. It is a place where one's opportunities in life are not fixed by the circumstances of one's birth, but can be changed through personal effort and responsibility. In the open, opportunity society for all, the eradication of poverty is achieved through sound, forward thinking policies.

The Provincial Economic Review and Outlook (PERO), which I will table today, is the key document that guides us in this process.

This document is the problem statement. With this information at hand, we are able to make educated policy choices that will better the lives of residents in this Province.

The 2011 PERO investigates four areas:

• The economic outlook for 2011 and beyond;
• The development of the Western Cape's economic sectors;
• The Province's labour market dynamics; and
• An analysis of the socio-economic factors that affect us.

Economic outlook

Speaker, this year's PERO was once again drafted during a time of global economic uncertainty. The world economy saw a return to growth of 5,1 per cent during 2010, but current forecasts for 2011 are less optimistic. This view is fuelled by the downgrading of United States (US) government debt and increasing unemployment in that economy, as well as sovereign debt and other fiscal concerns in the Eurozone.

On the other hand, growth projections for emerging economies remain well above advanced economies, reaffirming the crucial role that they have begun to play in terms of global economic performance. In Sub-Saharan Africa, growth is expected to increase in 2011 and 2012, fuelled by domestic demand and growth in exports.

Despite the presence of downside risks, South Africa's economy has maintained a positive trajectory. The current forecast suggests growth of 3.8 per cent in 2011, up from 2,8 percent in 2010. This increase is largely attributable to strong consumer demand for durable goods supported by the low interest rate, high wage increases, consumer confidence, and the strong rand exchange rate. Fixed investment recovery has been poor.

The risks to the national economy, and specifically the Western Cape economy, remain largely external. If the US and Europe enter into a double-dip recession, and if Asia's growth moderates sharply, this will have a detrimental impact on our export performance.

The Western Cape economy continues to outperform the national economy, and is expected to grow by 3,9 percent in 2011. In the second quarter, however, businessconfidence declined from 56 to 41 points, suggesting that growth is likely to slow in the latter part of this year.

Western Cape sectors

Speaker, growth in the Western Cape is highly dependent on developments within its prominent sectors.

Over the past decade, there has been a strong shift away from manufacturing toward the broad financial and services industries, particularly wholesale & retail trade, finance & insurance and business services. The province has several comparative advantages in these sectors.

While positive for growth, these skills- and technology-intensive industries have not generated additional jobs. While the real economy expanded by 45 per cent between 2001 and 2010, the regional workforce only grew by 16 per cent. This has led to a structural imbalance. Stellar performances by a number of small industries, such as boatbuilding, the upstream oil and gas subsector, the aquaculture industry and call centres, will go some way toward alleviating these imbalances.

The province's primary and secondary industries, including the manufacturing, agricultural and clothing sectors, have shed jobs over the past decade. This phenomenon is mirrored at the national level.

The Western Cape Government believes strongly that job creation should be pursued through export- and infrastructure-led economic growth. While many of the interventions that can be made here are not within the powers of provincial governments, we can significantly increase the local and internationalcompetitiveness of our firms through supply side interventions.

Between 1995 and 2010, Western Cape real export growth, led by the agriculture value chain, averaged 5,7 percent, which is significantly higher than the national figure of 2,5 percent. In the last three years, however, the recession caused a sharp contraction in export volumes, and we are only just beginning to recover.

While exports do expose our region to external market influences, this remains the appropriate route for developing economies to follow.

By encouraging and facilitating investment in human capital and infrastructure, we will create a more conducive environment for export-led economic growth and job creation.

Labour market

Speaker, creating growth and jobs is the number one and key strategic priority of the Western Cape Government.

As a result of the economic downturn, unemployment in the province has risen to 22,2 percent, from 17,8 per cent in the first quarter of 2008. While labour force participation in the Province is relatively high in comparison to the rest of the country, we have significantly more young people who are unable to find jobs despite actively seeking them.

The majority of the unemployed in the Western Cape have not graduated from high school, and cannot enter into a skilled profession. It is imperative that the Province's informal sector, which remains small, is supported to grow so that opportunities for employment are created for this group. Possible interventions include increasing business management skills, assisting entrepreneurs to obtain credit and improving access to basic facilities. With regard to the latter, the Western Cape has made inroads here, and is ahead of all other provinces in terms of providing municipal services. Currently, 83 percent of all households receive water, sanitation, electricity and refuse removal.

Socio-economic factors

Speaker, the DA-led Western Cape Government is driven to ensure better lives for all the residents of this Province. While, on average, our citizens are less poor than those in the rest of the country, there are too many people who reside in poverty.

Speaker, poverty can only be eradicated through economic growth, and the cornerstone of a growing economy is an appropriately skilled, educated and healthy labour force.

The average Western Cape 25 year old has 10 and a half years of education. Despite being on the decline, the drop-out rate between grades 10 and 12 is a key concern. So too, is the quality of education that our learners receive. These factors, if unaddressed, will hamper our economic performance into the future, and a concerted effort is being made to correct them.

The wellness of our citizens is also of particular concern. Life expectancy in our province is low due largely to diseases of affluence and poverty. HIV/AIDS, tuberculosis, homicides and road deaths are key factors in our high mortality rate.Improving our burden of disease cannot be achieved solely by the Department of Health. Indeed, a whole-of-society approach is required, where individuals take responsibility for ensuring their wellbeing. This includes not falling into the trap of preventable social ills like drugs and alcohol abuse, both of which are pervasive in our society.

Speaker, last month our crime statistics were released. They revealed an increase in theft, assault, robbery and property related crimes such as burglary. Research has indicated a strong relationship between alcohol abuse, crime and injury. Approximately 46 percent of reported cases of drug-related crime in South Africa occur in the Western Cape and 25 percent of reported cases of people driving under the influence of alcohol or drugs nationally were reported in the Western Cape. Crime is a major deterrent for economic growth, and addressing it is a key part of our policies going forward.

Speaker, the 2011 PERO presents us with an honest overview of our Province, and an opportunity to address the most pressing economic and social challenges that we are faced with. Some of the interventions it recommends to achieve the environment for economic and employment growth include developing appropriate infrastructure, removing the barriers to the formal and informal economy, making our firms more competitive, and improving our crime prevention,education and health outcomes.

I am pleased to note that the strategic objectives of the Western Cape Government as determined by Cabinet in 2009, are in line with the findings of this year's PERO.

Speaker, the 2011 PERO will form the basis for the 2012 Medium Term Budget Policy Statement and the 2012 Annual Budget. This document must be seen as the reality check, the blue print and problem statement that will advise our departments, our municipalities and our people. We will use it in formulating the answers and interventions that this government will be taking forward.

Speaker, I hereby table it for deliberation by this House.

I thank you.

Issued by Western Cape Finance, Economic Development and Tourism, September 29 2011

Click here to sign up to receive our free daily headline email newsletter