Cabinet statement on the new growth path

26 Oct 2010

President Jacob Zuma yesterday convened a special cabinet meeting to discuss the key economic challenges facing South Africa and endorsed a proposed new growth path for the country that will place employment at the centre of government economic policy. The new growth path is a broad framework that sets out a vision and identifies key areas where jobs can be created. Work will now be completed on a series of implementation plans for consideration and sign-off by cabinet.

The new growth path is intended to address unemployment, inequality and poverty in a strategy that is principally reliant on creating a significant increase in the number of new jobs in the economy, mainly in the private sector.

The new growth path sets a target of creating five million jobs in the next ten years. This target is projected to reduce unemployment from 25% to 15%. Critically, this employment target can only be achieved if the social partners and government work together to address key structural challenges in the economy.

These challenges include:

• bottlenecks and backlogs in logistics, energy infrastructure and skills, which constrains economic growth and raises costs
• low domestic savings and inadequate levels of investment in the productive sectors of the economy
• economic concentration and price collusion in key parts of the economy which raises costs and limits innovation and new enterprise development
• an uncompetitive currency that limits employment growth in manufacturing, mining, agriculture and tourism and
• a persistent balance-of-trade deficit funded with short-term capital inflows attracted largely by high interest rates by international standards.

The commodity price boom in past years did not result in revenue being sufficiently applied to promote economic diversification and skills development.

It also resulted in what has been described as consumption-led growth that was not underpinned with a strong production base.

The global economic crisis of 2008 has posed new challenges for South Africa. The 2008/09 recession led to more than a million jobs lost in the South African economy. But the global economic crisis has also highlighted the emergence of new centres of economic power, with rapid recovery and fast growth in China, India and Brazil, backed by decisive action by their governments. This creates new opportunities for South Africa that the new growth path identifies.

The new growth path will now seek to place the economy on a production-led trajectory with growth targeted in ten ‘jobs drivers'.

As a first step, government will focus on unlocking the employment potential in six key sectors and activities.

These are:

• infrastructure, through the massive expansion of transport, energy, water, communications capacity and housing, underpinned by a strong focus on domestic industry to supply the components for the build-programmes
• the agricultural value chain, with a focus on expanding farm-output and employment and increasing the agro-processing sector
• the mining value chain, with a particular emphasis on mineral beneficiation as well as on increasing the rate of minerals extraction
• the green economy, with programmes in green energy, component manufacture and services
• manufacturing sectors in IPAP2 and
• tourism and certain high-level services.  

In each of these areas clear targets of the jobs potential has been developed and state agencies have now been directed to work on implementation plans.

In the green economy for example, the new growth path projects a jobs potential of 300 000 additional direct jobs by 2020 to green the economy, with 80 000 in manufacturing and the rest in construction, operations and maintenance of new environmentally friendly infrastructure. The potential rises to well over 400 000 by 2030. Additional jobs will be created by expanding the existing public employment schemes to protect the environment, as well as in production of biofuels. The Industrial Development Corporation (IDC) has been assigned responsibility to raise the necessary capital to drive growth of the green industrial economy.

The new growth path commits South Africa to work in partnership with other countries on the continent to build a single African integrated economy embracing one billion consumers, and to focus immediately on expanding economic links with the rest of the continent.

Government will also seek to increase employment from activities in the social economy which embraces cooperatives and other activities in the not-for-profit sector.

South Africa's capacity in science, technology and innovation will be directed more clearly on the challenges of jobs and growth.

Cabinet endorsed a proposal to integrate a set of macroeconomic and microeconomic interventions with clear and concrete stakeholder commitments to move South Africa to faster and more inclusive growth.

The macro-economic approach entails a careful balancing of more active monetary policy interventions to achieve growth and jobs targets, inter alia through a more competitive exchange rate and a lower cost of capital, with a more restrained fiscal stance and repriorisation of public spending to ensure sustainability over time. The Minister of Finance will elaborate on this in the Medium Term Budget Policy Statement tomorrow.

The micro-economic approach involves targeted measures to support jobs and competitiveness, which in turn makes the macro-economic strategy sustainable and viable. It includes reforms in policies on skills development, competition, industry, small business development, the labour market, rural development, African development and trade policy. It calls for a major review of the operation of BEE to ensure that empowerment is integrated with growth and employment imperatives.

The stakeholder commitments require a national consensus on wages, prices and savings in order to ensure a significant increase in the number of jobs in the economy while addressing the concerns of vulnerable workers and reducing income inequality. It calls for shared sacrifice to shift society to the new growth path.

The new growth path takes forward President Jacob Zuma's commitment made in his inaugural State of the Nation Address in June 2009 that, "the key elements of our programme of action" include the "creation of decent work [which] will be at the centre of our economic policies and will influence our investment attraction and job creation initiatives. In line with our undertakings, we have to forge ahead to promote a more inclusive economy."

The new growth path arises out of cabinet's recognition that South Africa cannot achieve social cohesion and sustained economic development unless we work together, as South Africans, to address poverty and inequality. That in turn requires above all that we work together to create an economy that provides opportunities for more South Africans to engage productively.

Government will work with the social partners to define how they can contribute in significant ways to the new growth path. This commitment reflects the fact that the growth path will rely on reinvigorated social dialogue and a renewed sense of shared solidarity.

The leadership of organised business and organised labour, as well as community representatives, will be briefed on the new growth path. Following these briefings, further details will be released.

The new growth path will also provide the basis for coordinated policies and programmes across the state. Departments will now produce a series of implementation plans to cabinet over the next six months, covering critical areas of the growth path.

The Economic Minmec that brings together provincial MECs for economic development and mayors of metros have also endorsed the new growth path framework and committed to revising their strategies to reflect the new unifying vision.

The success of the new growth path will require focus, purpose and decisive action to promote employment. It will require the state to be more effective in implementation.

Cabinet will provide direct and regular oversight of the implementation of the new growth path, and the delivery agreements will be a key instrument to monitor progress.

Statement issued by Themba Maseko, Government Communications (GCIS), October 26 2010

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