25 May 2004
Introduction
Madam Speaker, President, Deputy President and Colleagues in the National Assembly
If we are clear in our direction then it is easier to take each step. In our economic policy we are clear in our direction and it is for this reason, Mr. President, it was possible for you to spell out the detail of the steps that we will take in the next few months. These steps will in turn define the path that we walk in the third democratic administration.
The virtue of this clarity is that we do not have to chop and change our policy or respond to the capricious whims of the pundits, including those in the opposition benches. We do have to change emphasis and focus as our policy makes its impact and we do have to ensure that we respond to what is happening in the economy and the society. The program that you set out is such a response to the changes we see.
The Ten Year Review
It was essential to undertake a ten-year review and to define for ourselves the possible scenarios that could unfold if we did not act. This work and the benefit of two comprehensive census results have allowed us to change emphasis and focus to meet new challenges.
Let me summarise the key findings. The structural changes in our economy in response to better macroeconomic management and reduced protection have been positive. The economy has diversified its range of investment and exports. The value addition in the economy is increasing and in particular in exports. We are now a competitive manufacturing economy that is benefiting from major free trade agreements such as that with the EU. Our reform process on the fiscal and trade policy terrains means we are well positioned both in the WTO negotiations and in the world trading system. These are positive developments that we have to further enhance.
Despite major structural change in the economy there have been some 2 million new jobs in the formal and informal sector added between 1996 and 2003. However, we have much more work to do. The number of new jobs is not enough in the light of two important demographic developments. These are the effects of higher population growth rates in earlier periods that now bring new entrants to the labour market and a significantly higher participation rate, by women in particular, in the labour market. This means that we are not as yet reducing the overall level of unemployment and this is a serious problem as it impacts on poverty and income inequality.
The structural change in the economy has another important effect and this is the need for more and new skill sets in the economy. For older workers with low skill levels this is serious as it starts to expel them from the labour market. The same applies to young persons with poor training and inappropriate skills.
Two Economies
Taken together these factors open a fault line in our political economy. There are those located in an economy with rising productivity and an active and successful engagement with the global markets and those located in activities and locations that are moving to the margins. Such a fault line must not be allowed to deepen. To highlight this process from policy and implementation point of view we began to work with notions of a first and second economy. This is not the usual formal-informal divide as there are formal activities that are moving to the margins and as we will examine there are activities that are not recorded but are productive in potential or actuality. The challenge we set ourselves is to begin to reintegrate the two economies and prevent a permanent fault line from developing with its profound socio-economic, humane and political consequences.
To understand the policy adjustments we are now making we need to look more closely at what we mean by the second economy and how we see it changing in the short to medium term. There is more work to be done on the precise geography and sociology of the second economy. However, for the present we are working on the basis that there are three domains within it that we have to address. There are many activities in this second economy that could become more effective incoming earning and generating economic entities. However, they are restricted by the bias toward the first economy when it comes to finance, access to information and infrastructure and by regulation and weak support by the state. This requires us to act in the areas of access to finance, infrastructure and business support services. There will also be a regulatory review. However, such regulatory review will not be designed to reduce worker rights, as some would have us do. Its purpose is to reduce compliance costs and remove redundant provisions. These programmes that have been set out in some detail are designed to vitalise enterprise development where it is now marginalized. The role of services is important in this regard and is now a higher priority.
The second domain is less amenable to generating economic enterprises but where it is possible to increase the prospects of obtaining a sustainable livelihood. A large part of the EPWP and aspects of the services strategy are designed to facilitate this possibility.
Finally there are vulnerable population segments that have to be assisted by an effective welfare net. Clearly our objective is to expand the first two domains mentioned to their limit and thereby manage the welfare component within long run sustainability.
Growth and Development
Within the first economy we have to speed up the MERS and focus on growth areas. As we do this we need to ensure that the processes of this first economy begin to attract, interact and facilitate the 'enterprise domain' of the second economy as opposed to repelling the domain. New approaches and methods are being developed to do realise this objective.
The key transversal aspects of the MERS are energy, logistics, telecommunications, R&D and access to finance. Here the SOEs play a crucial role. Hence the emphasis in the restructuring of state assets will now be on ensuring the required investment to ensure leading edge systems in these areas. As has been the case up to now we will use the options of strategic equity partnerships, joint ventures, concessions, licensing and in certain areas outright sale of assets. The efficiency and financial sustainability of the SOEs is now our prime focus in order to open up higher levels of investment in the economy as a whole leading to higher growth and more development of our basic infrastructure. We have not in the past nor do we now contemplate the sale of strategic assets in the energy system, transport system or defence industry. There is little other than an ideological content to such proposals. However, we will continue to increase the involvement of the private sector in these sectors in order to achieve our objectives.
It is also important to realise that the more stable and effective our SOEs the greater the role they can play in NEPAD in the provision of infrastructure beyond out borders. The importance of this to our economy and to all economies in Africa cannot be stressed enough.
In the restructuring of the public sector a more focussed and structured approach will be taken to BEE in partnership with key state financing agencies such as the NEF, IDC, PIC and Khula. Very significant empowerment opportunities exist and we will move to realise them. To try and depict current BEE activities as merely empowering an elite is a convenient camouflage for resisting the process. In truth enterprises of all sizes are emerging and is it surprising that when no ANC aligned person could sit on any Board of an SOE for many decades that we have to ensure that many such people do so now. Is it suggested that the ANC govern and the DA sit on the Boards. God forbid that we allow such incompetence?
The other components of our work in the first economy have been extensively set out in the Presidents Address and in the briefings that Departments and Ministers are in the process of giving at present. In essence we are working off the base of our past achievements to now reach higher and go further in the objective of providing a better life for all. As we do this we need to ensure a more caring economic environment that brings women, youth and the disabled firmly into the economy at every level of endeavour. This can also only be done if we stress the requirements of Broad-based Black Economic Empowerment.
Conclusion
We are entering a very exciting period with higher levels of investment and many opportunities for the private sector to be part of not only the growth process but in addition the developmental process. There are an abundance of BEE possibilities in this growth process and we can more consciously focus on the locus of poverty in the second economy. The milestones are there so let us build a partnership for the economy and get them behind us on time and in full.
Hard work and diligence have earned us a major event - the Football World Cup - and this will not only provide us with many opportunities but will keep us focussed. As a people and an economy we are coming of age as we demonstrate the benefits of leadership by those with a clear ability to represent the aspirations of our people, as we understand the intricacies of the world we live in.