COSATU welcomes budget speech of Minister of Economic Development, and the focus on decisive implementation
The Congress of South African Trade Unions welcomes the address by Ebrahim Patel, Minister of Economic Development, in the debate on Budget Vote 28: Economic Development, in an Extended Public Committee meeting of the National Assembly, on 12 Apr 2011.
The Federation is impressed by the Minister's commitment, and detailed proposals, to implement his mandate from the President and the electorate to promote sustainable economic growth and decent employment, in particular the vision of the New Growth Path to create five million new jobs by 2020. Indeed it now seems at last that government is putting its money where its mouth is, on the job front.
The Minister stated that time and effort has been spent to map out a new economic growth path. "The focus is now on action, on implementation."
COSATU would like to highlight the following very encouraging items from his speech:
1. A radically new mandate for the IDC, which sees both its strategic focus, and allocation of resources fundamentally realigned to the decent work agenda:
The Minister announced a new focus for the IDC, in particular that it "must play a central role to encourage new economic activities, support new job-creation and promote a greener economy. It must think ahead of the market, taking a longer-term and more developmental view than private investors..."
Government mandated the IDC to review its level and cost of funding, investment focus and turn-around time on applications. Following this review, the IDC will "substantially increase the level of industrial funding and will make available R102 billion[1][1] over the next five years for investment in New Growth Path priorities." This represents a 160% increase over actual approvals in the last five years and revised upward from the R66 billion in its current five-year projections. This is a serious commitment.
Not only will the IDC provide this large-scale investment finance, but it will provide it at low interest rates, in targeted sectors: the IDC will provide R10 billion to local firms at prime less 3% for projects with a high employment impact (the ‘Jobs Fund'). This is an important intervention which will help to counter the impact of tight monetary policy, channel investment into productive activity, by effectively introducing differential interest rates, something COSATU has called for over many years.
Related to this, interest on new IDC loans will be up to 100 basis points lower for high development impact investments, which should reduce the average cost of borrowing by 50 points. The Minister has also asked the IDC to consider a facility to address challenges to companies from the strong rand, possibly through the Distressed Sector Fund, by the end of May. This is a practical proposal, while Treasury and the Reserve Bank continue to dither in the face of the strong Rand.
The Minister announced that the Jobs Development Bond, with a R2 billion capital issue by the IDC, taken up fully by the UIF, has approved deals involving R1,5 billion to create 10 047 jobs and save 7 186 jobs, resulting in an employment impact of 17 233 jobs. The bond provides low-interest loans to private sector projects with above-average employment impact. We now hope that the idea of a development bond will be expanded to create a vehicle in which retirement funds can invest- see below.
IDC investment will have a strong regional dimension: it will invest between R7 billion and R10 billion in the rest of Africa, in "projects with strong forward and backward linkages to our economy." This is a step towards the regional development strategy which COSATU has been calling for.
2. A commitment that Departments will announce their specific targets and actions for supporting employment creation over the next ten weeks when they table their spending plans in Parliament.
3. The Minister outlined concrete interventions to support small and micro enterprise and the social economy, including co-ops. These include merging overlapping agencies and incorporating Khula as a subsidiary of the IDC, "with an expanded focus on micro-finance and support for social economy enterprises". In addition, the Minister announced that EDD has set up an Academy for the Social Economy, together with the University of Johannesburg, to train and mentor cooperatives and other social enterprises.
4. Intensified focus on the Green Economy: The IDC will provide R25 billion over the next five years for green economy projects, from a dedicated Green Economy fund and through green component projects funded separately.
5. Local procurement: new infrastructure will involve localisation plans for components, to maximise employment creation. The Minister announced that "Cabinet recently revised procurement regulations for the whole of government and public entities to mandate localisation in designated sectors". This is a significant new instrument to promote job creation and industrialisation, given that it will apply to large parts of the R800 billion infrastructure procurement.
6. A system for all government departments to report on their jobs impact, and to realign all policies to the goal of decent work. Existing incentives will be refined to ensure greater employment outcomes. Government policy instruments, "ranging from tariffs, score cards, licenses to procurement and quotas, will increasingly contain conditions or reciprocal commitments on employment and investment".
7. Socially responsible investment: The Minister announced that to promote investment in priority sectors, "we will approach key institutional investors, including retirement funds locally and abroad, who seek long term growth projects."
8. Competition policy: the Minister outlined the welcome renewed activism of the Competition Commission, and some innovative developments, such as Pioneer Foods being compelled not only to agree to reduce flour and bread prices, but allocating a share of its fine - some R250 million - to establish an Agro Processing Competitiveness Fund to support new entrants and agricultural research and development; and measures to crackdown on collusion by the construction industry, particularly in public infrastructure projects (some R29 billion worth of contracts are under scrutiny).
He also welcome the focus by the competition tribunal on employment, "appropriate in a country with one of the world's highest rates of unemployment." He stated that government will in "future emphasise public interest considerations more" in engaging with parties to mergers. COSATU hopes that this approach by Competition Authorities of using employment as a major criterion will be reflected in determination of the Walmart matter - preferably to block the merger or at least set strict conditions.
The federation is highly encouraged by the tone and thrust of the address, and will continue to engage with government and business through Nedlac, on how we can work together to assist the Minister to deliver on all these undertakings. We also hope to engage with the President on Tuesday's Presidential Labour Summit, on how to fast-track these important commitments.
Statement issued by Patrick Craven, COSATU national spokesperson, April 18 2011
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