STATEMENT OF THE ANC NEC SUBCOMMITTEE ON ECONOMIC TRANSFORMATION ON THE DISCUSSION DOCUMENT TOWARDS THE 4TH NATIONAL POLICY CONFERENCE
09 April 2017
Employment Creation, Economic Growth and Structural Change: Strengthening the program for Radical Economic Transformation
Introduction
At the ANC’s 53rd National Conference in Mangaung in 2012 it was resolved that: “[W]e are boldly entering the second phase of the transition from apartheid colonialism to a national democratic society. This phase will be characterised by decisive action to effect economic transformation and democratic consolidation, critical both to improve the quality of life of all South Africans and to promote nation-building and social cohesion.” The 53rd Conference also resolved “to give effect to the National Development Plan (NDP), and the New Growth Path and the Industrial Policy Action Plan with the aim of stimulating growth, employment and the re-industrialisation of the South African economy”.
The Policy Conference will take stock and reflect on what has been achieved since the 53rd National Conference. Such an assessment will be done against the ANC’s historic and revolutionary mandate to transform South Africa from a society damaged by the injustices of colonialism and apartheid to a truly non-racial and non-sexist society, characterised by social justice and increased opportunity, particularly for black South Africans.
As the ANC we acknowledge that it is through changing the structure of the South African economy that inclusive growth will become possible. Inclusive growth cannot occur if those who are excluded are not given fair access to economic opportunities. This understanding can be traced back to the Freedom Charter, adopted in 1955, which states that all people in South Africa should enjoy “equal rights and opportunities”. Inclusive growth will also not occur if the productive base of the South African economy does not expand across sectors and space.
In order to sharpen the ANC’s model of socio-economic transformation, a package of decisive policy interventions is required. This package of policy interventions must be capable of achieving the following objectives:
Reducing unemployment and youth unemployment
The problem of youth unemployment must be alleviated by massively increasing youth access to vocational training and apprenticeship programmes. A well-designed system of vocational training and apprenticeships, in combination with public service youth brigades, will save many young people from unemployment and better prepare them with skills needed in the work place, including entrepreneurial and small business skills. This is a particularly crucial response to the job-shedding dynamics of what has been termed the Fourth Industrial Revolution, which manifests in skills-biased technological change and which threatens to leave many young people out of employment. Working together business, government and labour must create up to 1 million internships in order to bring more young people into the labour market.
Returning land to our people and supporting land reform
ANC policy commits government to returning land to our people and due to this commitment South Africa’s Constitution mandates that land reform must take place. The Constitution’s commitment to ‘just and equitable’ compensation for the acquisition of land for land reform should be codified and should replace market-based valuations of land. The process must be facilitated and accelerated by the passing of updated expropriation legislation by Parliament.
Government should take heed of the Constitutional Court’s finding that agreement on the quantum of fair compensation is not a pre-condition for land redistribution to take place and should never pay a premium in purchasing land for the purpose of land reform. In general, the success of land redistribution will be improved if there is greater oversight over land, farming equipment and technical skills transfer to the beneficiaries of land reform.
Increasing black ownership and control in the economy
The imperative of ensuring increased black ownership and operational control in the economy must be achieved through a wide range of instruments. Priority must be given to ensuring black ownership in emerging new sectors of the economy, such as, the potential that surrounds the development of new gas sector as a large-scale energy source for South Africa, as well as the potential to take forward new opportunities linked to South Africa’s Ocean economy as revealed through the work of Operation Phakisa. Also crucial is the effective enforcement of the revised BEE codes across a range of sectors. In this regard, notable progress has been made in the construction sector in the recent period, which is to be given greater impetus by government’s programme to ‘Turn South Africa into a Construction Site’.
Activating small businesses and co-operatives
Many black entrepreneurs would be more successful if they had some form of targeted financial support, including tax breaks, and improved market access. A targeted programme should be put in place to assist black entrepreneurs in setting up small businesses and co-operatives. This would fill a gap at a level below assistance currently offered to Black industrialists. Supply chains in the public and private sectors, including in the retail sector, should be opened up to small and medium sized black business. Creating improved visibility of market opportunities should be prioritized using information technology tools.
Raising the level of investment
The NDP envisages that combined investment by the private and public sectors rise from current levels of around 19% of GDP to 30% of GDP. Policy certainty is key for long-term investment. Concerted efforts are required in order to eliminate policy uncertainties and unwarranted regulatory hurdles. Government should conduct an audit of the policy and regulatory constraints to investment and set a clear timeframe for addressing them, linked to Ministers’ performance contracts.
Confidence in the South African economy can be improved by credible programmes of employment creation and radical transformation, which enhance long-run stability. In the immediate term, investor confidence will be boosted if the rising national debt is brought under control, if South Africa maintains its investment-grade credit rating, if good governance of state owned enterprises is achieved, if international norms and standards are maintained with regard to the regulation of the financial sector and other sectors. The multiplier effect of government and public sector infrastructure investments will increase as investor confidence in the economy rises.
Strengthening social justice and improving conditions for the poor and working class
Confidence must also be built among the ANC’s core constituency through the improvement in the quality of public education and health care services. This can be done through reliable and affordable public transport services, through effective regulation of the private sector to avoid unfair competition, price-fixing and unfair labour practices, as well as through putting systems in place to expose corrupt practices and prevent corruption from taking root. In order to better protect working class interests in the face of the threat of informalisation, labour market regulations should be more effectively enforced. In particular, any attempts by unscrupulous employers to use loopholes to abuse the recently promulgated regulations on labour-broking activity should be urgently dealt with.
Improving the employment impact of infrastructure projects
South Africa’s ongoing large-scale investment in electricity, rail, water and transport infrastructure is key to the economy’s transformation. In order to maximize employment multipliers, as well as skills transfer, a greater emphasis must be given to localisation, that is, sourcing inputs locally rather than from abroad. Where appropriate, set-asides should be put in place in order to ensure that contracts are made available for black-owned companies and to promote broad based black economic empowerment.
Leveraging state procurement to support empowerment and transformation
The state needs to be deliberate in using its significant procurement spend to support the goals of transformation, industrialisation and empowerment. Procurement budgets across departments, all spheres of government as well as state institutions, must be directed towards supporting black firms, small businesses and township enterprises.
Reducing inequality and poverty
Increased access to employment will reduce income inequality. As will the implementation of a minimum wage to improve earnings by the low-income workers. Increased access to efficiently-delivered, subsidised basic services as well as social grants also assists in bringing many poor households above the poverty line. South Africa’s system of social grants must be defended and run efficiently and seamlessly because grants provide a key lifeline for poor families.
Dismantling monopoly practices and structures
Strict enforcement of competition legislation aimed at stamping out monopolistic practices is required. Some progress has been made by the competition authorities in this regard and such interventions should be intensified. Price-fixing and other anticompetitive practices should be stamped out through-out the economy. In line with this commitment, the ANC welcomes the investigation by the Competition Commission into alleged price-fixing and market allocation in foreign exchange trading by a number of banks and currency traders. Similarly, the ruling against anti-competitive conduct by state-owned entity SAA is also welcomed as a decisive step against monopoly practices in South Africa.
Furthermore, the ANC should mandate a detailed investigation into the underlying structure of the economy in order to recommend ways to reduce and remove barriers to entry and dismantle monopolistic and oligopolistic structures in certain key sectors. For example, a state-owned Bank, possibly based on a transformed Post Bank, can serve to widen access to banking services for many and can assist in changing the structure of South Africa’s financial sector.
Asserting South Africa’s interests in the global economy
South Africa must improve the way in which the country articulates and asserts its economic interests in the global economy. Globalisation has assisted South Africa to gain access to capital inflows, expanded markets for exports and new technologies. Global trade has made certain imported goods more affordable for consumers. Nonetheless, South Africa must assert its right to change the overall structure of its economy from one based mainly on colonial extraction to one based on production and the expansion of its domestic industrial base and services. The scale and scope of research and development (R&D) must be increased so as to facilitate the development of new products and technologies, such as, the ongoing effort to facilitate an advance in platinum beneficiation, through collaborative R&D around the application of new fuel cell technologies. With regard to international financial flows, effective mechanisms must be put in place to stem illicit capital flows from South Africa and Africa more widely.
Improving integration into the African economy
An overriding priority should be to work to promote African regional integration. South Africa’s economic policy should be more integrated with the African region. Specifically, this means taking steps to enlarge the free trade areas (FTA’s) existing in SADC and other regional economic communities into larger more expansive FTA’s. The aim of this would be to promote more intra-African trade and support industrialisation through the creation of large regional markets.
Stimulating inclusive growth
All of the above interventions will assist South Africa to move on to a more inclusive growth path. Inclusive growth can only be delivered by programmes of a democratic developmental state. The ANC is acutely aware of the fact that economic growth is a necessary, but not a sufficient condition for an effective programme of economic transformation. Growth, on its own, is not always inclusive. To be inclusive, growth must combine growing GDP per capita, with increasing levels of employment, expansion of productive activities and massively increased opportunities particularly for black South Africans. Well-conceived and well-executed transformation programmes are necessary to improve the quality of growth. On the other hand, as has been seen in recent years, the possibility of mass-based economic transformation is severely retarded by low levels of economic growth.
In order to achieve radical economic transformation and inclusive growth, the Discussion Document on Economic Transformation outlines relevant aspects of the NDP and identifies key interventions which are required over the next five-year period in order to advance the NDP’s vision. For these purposes the focal chapters of the NDP are the chapters on Economy and Employment (Chapter 3), Economic Infrastructure (Chapter 4), Transitioning to a low Carbon Economy (Chapter 5), Inclusive rural economy (Chapter 6), Education and training policy (Chapter 9), and Building a capable state (Chapter 13).
On Credit Rating
The downgrade of South Africa’s credit rating by international rating agencies Fitch and Standard & Poor’s provide a clear signal that the country is going to have to pull together like never before to overcome its economic problems. A credit rating, being a measure of how likely the country will be able to repay its loans in full, is not an unimportant indicator of the state of the economy.
Furthermore a deterioration in South Africa’s credit rating will have a major negative impact on our country’s ability to raise debt funding to fund its development programmes. This is particularly critical given the low levels of domestic savings. Achieving an investment grade status was one of the greatest successes of the ANC government after we took over a fully junk status in 1994. The ANC needs to mobilise collective action by all South Africans; in the private sector, labour and in government to do everything necessary to bring the country back to investment grade.
The essential messages that were conveyed by the rating agencies were that we need to deal with the structural challenges of the South African economy, including dealing with sluggish growth. Secondly, we need to deal with concerns around contingent liabilities from SOEs, these threaten the state balance sheet and by extension the financial stability of the nation. The other message from these agencies is that the most recent reshuffle has sent a signal of political instability and policy uncertainty.
Amongst the various actions that we will take are the following:
a. We need a renewed focus on growth enhancing policies required to reverse South Africa’s economic fortunes. Growth is critical to raising the potential for socio-economic development within the country.
b. An immediate and the key issue is to stabilise the outlook for governance in our state institutions, ensure that SOE’s are financially sustainable and address policy uncertainties.
c. The ANC must work together with all spheres of government as well as the other key role players in the economy, including organised business and labour, to ease operating conditions so that firms can continue to be supported in this period. We will seek solutions to ensure a co-ordinated rehabilitation plan on the economic circumstances that led to the current situation.
d. Convene an economic round table with all key stakeholders to discuss substantial issues affecting the economy, particularly aimed at achieving the objective of lifting investment levels to 30% of GDP. These roundtables will be held at regular intervals.
e. We will do everything possible to ensure that low-income workers, poor households and vulnerable groups are cushioned from any adverse impact that may result from the current situation. This may include supporting firms with limited access to credit finance located in historically under-serviced areas and those that have capacity to employ large sections of unskilled labour to ensure they continue operations during this time. Assist firms to improve access to export markets in the region.
f. Government departments will have to optimise their efficiency programmes in order to effectively support increased economic activity. Government will maintain its commitment to supporting growth and job creation.
g. Improve efforts to reform the governance of state-owned enterprises. In particular, streamline the process of appointing CEOs and boards and clarify accountability lines, while indicating that merit-based appointments and transparent performance pay regimes are non-negotiable.
Conclusion - Mobilising society behind the ANC’s programme
The ANC has made numerous interventions which have improved the lives of millions of South Africans since the dawn of democracy in 1994, but millions of mainly black South Africans continue to live in poverty and destitution. To overcome this legacy, the ANC must now lead society into a second phase of South Africa’s democratic transition and mobilise society around a programme of radical social and economic transformation, built on the following key pillars:
- A reconstructive macroeconomic framework calibrated to drive reconstructive policies in a sustainable manner funded by a well-managed fiscus and well-governed state owned enterprises. This will build confidence and enhance the multiplier effects of ongoing large-scale investments in public infrastructure.
- A strengthened package of radical economic interventions aimed at increasing access to education, employment opportunities and land, as well as, subsidised services for poor households and a minimum wage regime to assist the working poor.
- Strengthened relations with the private sector to encourage employment-creating projects in a range of key sectors, including mining, manufacturing, agriculture, tourism, construction, retail and finance. Such interventions will seek to incentivise private sector behaviour towards inclusive growth and employment creation, but will also entail an increased focus on deterring anti-competitive and monopolistic conduct and will strengthen the capacity of the state for partnering and monitoring private sector activity.
- The reassertion of the ANC’s vision and leadership of society through credible interventions to deracialise the South African economy, create significantly higher levels of employment and encourage inclusive economic growth, which will improve the lives and opportunities for all South Africans.
Statement issued by Enoch Godongwana, Chairperson: ANC NEC SubCommittee on Economic Transformation, 9 April 2017
