ANC Today --------------------------------------------------------------------- Volume 8, No. 46 • 21—27 November 2008 --------------------------------------------------------------------- THIS WEEK: * Economy: The world economy is in crisis * Education: To a better and quality education that produces skills required for our economy! * Manifesto : MY ANC. MY VISION. MY FUTURE --------------------------------------------------------------------- ECONOMY The world economy is in crisis The global economy is presently living through its deepest crisis since the Great Depression of 1929 First and foremost, this is a crisis of the developed world. Loose credit extension in the years since the dot-com bubble burst in 2001 and large fiscal deficits in the US have increased the debt of households and governments alike These debt levels have become unsustainable. The popping of these bubbles has had and will continue to have a large global impact. Many countries not at the centre of the current turmoil will suffer terribly and tragically. As firms in developed countries strive to repair their balance sheets, they tend to sell everything and repatriate resources back to their home base This has implications for us as it has for many emerging economies, despite the fact that the epicentre of the crisis does not lie on our shores. The depreciation of our currency, the rand, in line with many other emerging market currencies is testimony to these developments. Of particular concern is Africa. Strong rates of growth in recent years are at risk as commodity prices fall and countries are forced to pay back capital. These fears pose the risk that there will be greater demands for protection from fearful populations and, less benignly, cynical adventurers. This is the state of the world, and it cannot be allowed to continue. Over the years, banks purchased vast quantities of loans used for house purchases in the United States. As interest rates were increased in 2006 and 2007 in that country, many of those debtors began to default, putting at risk the value of all the housing loans. This uncertainty has resulted in the share prices of financial and nonfinancial companies falling, affecting lending operations between the banks. Financial institutions involved in property, such as Northern Rock, failed, while other institutions experienced increasingly large losses on their investments in the housing markets. Central banks in advanced economies responded by announcing coordinated action to address short term funding markets, establishing temporary currency swap arrangements, and injecting liquidity into the markets. Interest rates have been cut sharply. These actions did little to stem the tide however The world's equity markets have declined precipitously. Since October 1, 2008, the US Dow Jones Industrial Average has fallen by about 36 percent. Brazil's Bovespa has dropped by 45 percent. Russia's RTS has declined by 71 percent. Our JSE All Share Index has fallen by roughly 30 percent. One of the great sources of ballast in the world economy has been the rapid economic growth of China, which has contributed on average 20 percent of world growth in the last 5 years. With a gigantic population and rapid economic growth, China has been both a great importer of raw materials and commodities from the rest of the world and a great exporter too. China's demand for commodities contributed to the commodity price boom the world experienced over the past 6 years. But growth in China has begun to moderate, resulting in lower imports and putting downward pressure on commodity prices. Falling prices for oil and other commodities and the major outflows of capital from emerging markets in the middle of October signaled that we have entered a new phase of the crisis. Economic conditions have deteriorated worldwide Despite this, the global economy will continue to grow in 2009, with all of the growth deriving from developing economies. Commodity price changes alone have ambiguous effects on South Africa, but we should be under no illusions about the fact that our economy will suffer along with the rest of the world. The financial crisis is giving way to a real economy slowdown Some countries will bear the full brunt of both the financial crisis - lending and borrowing has come to a halt - and the economic crisis - exports and imports will fall. In South Africa we have experienced at least part of the financial shock. Our exchange rate has depreciated sharply and the prices of our equities and bonds have fallen far. Yet our sound and well-regulated banking system is not dependent on foreign lines of credit and our exposure to toxic assets has been nearly non-existent Some firms with extensive international operations have seen losses, but even these have been small. Our public debt levels are low and our level of foreign currency debt is even lower. This helps to lower our vulnerability to financial shocks. Global economic weakness in trade and investment however will have more far reaching effects. Declining commodity prices and lower growth in major trading partners will lower demand for South African exports and reduce the income we derive from them. Only one part of our challenge is to ensure an appropriate short-term response. In the long-term, we need to ensure that our firms and our people are more productive, more export-oriented, and have higher saving and investment rates. We need to be able to achieve much higher economic growth rates with a sustainable current account. It is becoming clear, however, that at least in the medium-term, our aspirations for more rapid economic growth and our capacity do not match. Our policies have been appropriate to our macroeconomic challenges in recent years. We have set a monetary framework that targets a low and stable rate of inflation over the long-term As a small economy we can expect that inflation will sometimes fall outside the target, and we have experienced such an occurrence this year and last from sharply rising food and oil prices. We are not alone in this - nearly all countries have missed their implicit or explicit inflation targets over this period. What matters is that we have a framework that is flexible enough to ensure that we re-achieve low inflation over time and with due regard for economic growth The economic and social costs of a prolonged period of high inflation or deflation caused by wayward or ill-conceived monetary policies cannot and should not be tolerated by a democratic society. On the fiscal side, we have endeavored since 2005 to raise saving in the economy and create fiscal space. We did this for two reasons. One was to offset the negative effects of rapidly-growing domestic demand on inflation and the competitiveness of the economy. The other was to create financial savings to expand demand should economic growth fall sharply. At this point in time, we can prudently maintain a healthy growth rate in government spending while keeping public borrowing modest and sustaining low long-term interest rates. As growth slows, however, it is likely to become more difficult to maintain a positive government saving rate Continuing to focus spending on capital and public infrastructure helps to keep saving up, and so we have opted to continue to emphasise our public infrastructure commitments - the expansion of our energy production capability and to ensure readiness for the World Cup, among others. Our good track record in financing investment in human capital - in health, education and skills development - will also be maintained. These commitments will help to raise the economy's growth rate in the present as investment spending is maintained, and in the future contribute to rising potential growth of the economy. To close the gap between the 6 percent economic growth rates we aspire to and the realities of slower growth we are now experiencing requires a renewed effort to reform our economy. Reform is needed to propel investment. Purchases of South African bonds and equities by foreigners accounted for almost half of South Africa's financing needs between 2002 and 2007. About US$20 billion per year is needed to finance the current account deficit. Continuing to attract foreign investment implies the need to maintain confidence in our macroeconomic policies and raise the growth rate of the economy. Our dependence on foreign savings can be reduced over the long-term, but the only way to do this sustainably is to export more - to produce goods and services more productively and at lower cost than before and sell them abroad. This is where economic reform needs serious engagement by South Africans to make good long-term decisions. There is no shortage of good and bad ideas. Our task is to find the good ones and move forward with policy articulation and implementation. Raising the cost of economic activity and restricting our ability to trade is not the right path for South Africa We live in a world where our domestic industries, such as the domestic auto or metals industries, are intimately and irrevocably linked to the rest of the world. The indiscriminate dispensing of cash to firms that lobby for help will also not raise incomes and create jobs We have made financing available for industrial policy - it is time that economically sensible plans are articulated for public review and support. Our focus on government's contribution to reducing the costs of economic activity and expanding infrastructure needs to be matched by investment and productivity growth in the private sector There is room for policy adjustment in a range of sectors to facilitate investment in new businesses and growth in employment, particularly in network industries. New power generation, greater responsiveness to environmental needs, expanding our access to advanced telecommunications, the redevelopment of water and transport infrastructure, among others, imply fertile ground for private and public partnership and new economic activity. The global crisis enjoins us to take forward our efforts if we intend to permanently reduce unemployment, increase incomes, and lower poverty. Our macroeconomic policies are sufficiently flexible to address a prolonged economic downturn. We have a good understanding of what the international community is doing to combat economic weakness, and we understand the need to address our local economic challenges. Our domestic efforts to address the global economic crisis need to find external resonance in the reform of the international financial architecture, in the reform of our multilateral institutions, and in the renewal of global commitment to mutual accountability. A coordinated international approach to the financial sector is also needed. The international financial and economic crisis is in large part about the failures of national and cross-border regulatory regimes in assessing and managing the risks building up in financial institutions and systems. We cannot allow a crisis caused by a rise in debt and cheap credit to be followed in 10 years time with another crisis caused by the same thing. To make headway, Ministers of Finance and Central Bank Governors have been asked to look at a range of issues in the financial markets, with deadlines set for next year. Particular attention needs to be placed on sound regulatory policies and the application of standards for accounting, auditing and transparency I will be convening a meeting of all our financial regulators, as well as the SA Reserve Bank and National Treasury, to ensure that as South Africa we give effect to the common principles for reform, and to facilitate our full participation in global standard-setting institutions and the Financial Stability Forum. We have the good fortune of being able to stand on the shoulders of those who preceded us, and so we understand much about what has gone wrong in the world economy and what is required to deal with it. The effects however will be with us for the foreseeable future, and so we need to think carefully about how we reach our own domestic economic goals in this new environment. Our macroeconomic framework is sound and because of the choices we have made in the past, we have the resources and policy space to set an appropriate response to the evolving economic downturn. We need however to address the microeconomic and regulatory constraints to more rapid economic growth. This implies a renewed social dialogue, one part of which will be the development of a national approach to financial markets regulation and reform. But addressing our long-term growth and employment challenges requires a broadening of that dialogue. Much needs to be done to achieve our aspirations of a country without poverty. ** Trevor Manuel is the Minister of Finance and member of the ANC National Executive Committee. This is an edited extract from an address to the National Assembly on 18 November 2008. --------------------------------------------------------------------- EDUCATION To a better and quality education that produces skills required for our economy! Since April 2008, the ANC Health and Education Committee has been involved in a major policy review of education, implementing the resolutions of the ANC's 52nd National Conference, held in December 2007 The conference declared education and health major priorities for social transformation for the next five years This has been a seven-month dynamic and participatory process led by the ANC, involving the Alliance and relevant government departments. The process was further broadened to involve interaction with a range of stakeholders, including teachers and student organisations, policy analysts, academics. Various technical teams were established to work on a number of policy areas The Development Bank of Southern Africa (DBSA) hosted both the education and health policy review processes, which culminated in the release of draft reports on roadmaps for education and health It is against this background that the ANC has publicly release the report on education for purposes of public discussion and debate. This report only covers the Ten-Point Plan for the schooling system - from early childhood to primary and secondary schooling. Further reports on higher education and skills development will be further communicated to the public once they are ready The report on Roadmap for Health is being finalised and it will also released to the public as soon as it is ready The ANC government has recorded significant achievements since 1994 in transforming our schooling system from its apartheid past. Access to primary and secondary schooling has reached near universal enrolment, with the participation of girls the highest in the world Participation rate for children aged 4 and 5 (Grade R) in early child development has now reached 70%. The matriculation pass rate has increased from 58% in 1994 to 65% in 2007. Pupil-to-teacher ratios have improved from 43:1 in 1996 to 32:1 in 2006 Despite these significant achievements, major challenges remain in the quality of education. This is demonstrated by the fact that more than 5-million people cannot read and write and our school system performs poorly in areas like maths and science We have not produced enough skills required for our economy. As a result, skills shortage has become a binding constraint on employment creation and growth This raises serious concerns regarding teaching and learning in our schooling system, and therefore the need to review the experience we have accumulated, including the implementation of Outcome Based Education (OBE). Contrary to press reports, no decision has been taken to scrap OBE The review process of the department of education will guide us on its future The infrastructure backlog has been highlighted. This requires more resources and innovative ways to fund education system The report identifies key interventions - the 10-Point Plan - needed to build on achievements made in the last 15 years, as well as addressing the challenges going forward. The following constitute the proposed core elements of interventions: 1. Teachers to be in-class, on time, teaching. Teachers to also be required to have and use textbooks in class 2. Focus efforts on improving the quality of early childhood education and primary schools, including implementing the Foundations for Learning Campaign, emphasising the promotion of language and numeracy 3. Conduct external tests for all grade 3 and grade 6 learners every year, and provide the results to parents 4. Ensure effective evaluation of all teachers based on the extent to which learner performances improve, with results influencing occupationally specific dispensation pay for teachers 5. Enhance recruitment of quality teachers and strengthen teacher development Support to school. 6. Strengthen management capacity to ensure working districts and schools. This entails bringing in management capacity from the private sector, civil society and elsewhere in the public sector 7. Increase the use of ICT in education, including audiovisual teaching materials in the classroom to supplement teaching and demonstrate quality teaching to learners and educators 8. Improve national-provincial alignment and efficiency of education expenditure, through procuring textbooks nationally and allocating resources to improve district capacity. In this regard, the use of conditional grants is an important tool to ensure alignment 9. Develop a social compact for quality education. This will include a National Consultative Forum dedicated to clarifying the "non-negotiables" and performance targets for key stakeholders, and the monitoring thereof. Mobilisation of communities at all levels should be encouraged to raise awareness and participation in education issues. Examples include graduates assisting their former schools, corporate social investment, party branch campaigns to clean up schools, and supporting food gardens, and encouraging young graduates to enter teaching ("Teach SA") 10. Implement poverty combating measures that improve the environment for learning and teaching, such as a nutrition programme (cross-cutting programme with health), basic infrastructure for schools, and social support for children. The ANC is upbeat and encouraged by the achievements of the education roadmap process and wishes to acknowledge the contribution of the participants. The public is invited to participate in the debate on education as structures of the alliance have already started --------------------------------------------------------------------- MANIFESTO MY ANC. MY VISION. MY FUTURE The African National Congress has launched a popular campaign inviting South Africans to tell us about their vision of the future as part of the broad consultative process currently underway as we develop the 2009 Election Manifesto Members of the public are invited to send their suggestions to the ANC's manifesto team by e-mail, SMS or ordinary post 937 suggestions have been received and the manifesto team will collate these suggestions into a report to be circulated at the ANC's Manifesto Policy Conference, which will be held on 29 November to 1 December 2008 and will be attended by representatives of ANC structures at national, provincial and regional level, Alliance and MDM formations, and ANC cadres deployed in key sectors. The ANC has already been engaged in an extensive process of discussion and consultation. This process has included interaction with our Alliance partners, formations of the mass democratic movement, and sectoral organisations Issues for inclusion in the manifesto have also been canvassed in meetings with communities around the country. This includes meetings held by ANC President Jacob Zuma in his recent visits to eight Provinces We are asking South Africans to tell us about the country they want to build, the goals they want to achieve, and the things that will improve their communities and make their lives better As we have done in the past 15 years, we are calling on the people of South Africa to work as partners in identifying the challenges we face, and deciding how we will work together to address these challenges The ANC is calling on the people of this country to be an active part in building a better future for all South Africans As soon as we reach our target of 1000 mark, a selection of suggestions will be available for view on the ANC's website. The deadline for suggestions is Friday, 12 December. However, the manifesto team will continue to consider suggestions as it finalises the manifesto ahead of its release in January 2009 Submissions may be sent: by post to: ANC Manifesto Team, PO Box 61884 Marshalltown, 2107 by e-mail to: manifesto@anc.org.za by SMS to: 41867 (Note that SMSs are charged at R2.00 each) --------------------------------------------------------------------- This issue of ANC Today is available from the ANC web site at: http://www.anc.org.za/ancdocs/anctoday/2008/at46.htm To receive ANC Today free of charge by e-mail each week go to: http://www.anc.org.za/ancdocs/anctoday/subscribe.html To unsubscribe yourself from the ANC Today mailing list go to: http://www.anc.org.za/show.php?doc=lists/anctoday.htm