12 April 2006
Accelerating Shared Growth in South Africa, Implications and Opportunities for Small Business
Chairperson, Programme Director
Thank you for this opportunity to share some thoughts on one of the most important topical questions facing our society, "Accelerating Shared Growth in South Africa". I was asked to look at this issue particularly from the point of view of Small Business, and I will try to do that.
Programme Director, if we look at the performance of the South African economy in the past few years, we can see that there is much to be positive about. Growth rates in this country are at a higher level now than they have been at any time in the last 25 to 30 years, and the levels of growth which we are now attaining of 4 to 4 and a half percent, have been sustained over much longer periods than at any time over that quarter century. Our growth spurt is also being sustained by inflows of foreign portfolio investment, a tribute to the confidence which foreign investors are increasingly showing in the performance of the South African economy and its capacity to maintain and sustain that performance. However, if we look more closely at the performance of our economy, we will see that there are also areas that we need to work on to improve that performance further still.
First, although the current growth is being accompanied by some positive net job creation, the rate of economic growth is not yet at a level to make a significant impact into our goal of halving the number of unemployed by the year 2014. Secondly, if we examine the current growth spurt, we will see that there are two main drivers. The first of these is consumption expenditure. We are in the midst of a consumption boom; a consumption boom which is not just embracing locally produced goods, but is also sucking in an increasing volume of imports. The one potentially worrying element in our Macro-Economic picture, is a widening deficit of the balance of trade. Unlike in the past, where apartheid regime was forced to intervene and choke off any growth spurt which reached above 3 percent because they could not sustain a deficit on the balance of trade, we in South Africa today are able to do so because of the high level of confidence which is generating short term inflows of portfolio investment from abroad. However, the fact that consumption growth is outstripping production growth is a matter which we need to address.
The second main driver of our current growth spurt is a commodities boom. The rise of China and India as major economic powers, countries which are industrializing rapidly, has meant that there is a significant new demand for mineral products and other primary products coming from these quarters. And this has sustained high prices for mineral products of which we in South Africa are a major producer.
Thirdly if we look at the major industrial performers in our country, we see that these are still mostly large-scale upstream companies and projects in different sectors. Deriving from this analysis, government has identified the need to put in place a series of measures aimed at raising the growth rate to an average of at least 6 percent per annum between 2010 and 2014, and equally important at broadening or sharing more widely in that growth process. The broadening and sharing, I believe has two integral related components.
First, we are saying that the benefits of economic growth will have to be shared more broadly among the people of the county as a whole, and that the resources which are created by higher levels of economic growth, will need to be directed at solving pressing problems of poverty and underdevelopment in our country. This harks back to the basic philosophy which underlay the Reconstruction and Development Programme. We said in the Reconstruction and Development Programme, that growth and increase in the output of goods and services and development and improvement in the human condition, were not identical concepts and that it is quite possible to have economic growth without development as the economic history of our own country in the 1960's showed. However, we also said that in the particular conditions of South Africa today, we cannot have sustained higher levels of economic growth, unless we simultaneously reduce under development and poverty in our country. This remains very much the case in the thinking, which underlines ASGISA.
The major constraint to economic growth, the major constraint in the investment climate identified for example in the investment climate survey, is a shortage of skills. Addressing the shortage of skills is both an economic and developmental imperative. By producing more skills, we provide the human resources that the economy needs to grow, but by producing more skills we also equip individuals to raise the quality of their lives and their standard of living. The joint initiative for priority skills acquisition, one of the flag-ship projects of ASGISA, is intended to address precisely this area. Infrastructure development programmes which are also at the heart of ASGISA, with 300 billion Rands of public investment planned over the course of the current medium term expenditure framework period, are likewise directed at both providing facilities that are needed for economic growth, and at making a significant contribution to raising unemployment and providing individuals with the opportunity to earn their living, and to acquire skills training whilst doing so.
But there is also another dimension of the shared growth that I want to concentrate on addressing here today.
As I said earlier on, economists have identified two main drivers of the current growth spurt. A consumer boom, and a boom in minerals products. ASGISA recognizes that this is too narrow a base on which to raise the growth rate to the target level of 6 percent. We need in particular to be addressing the gap I mentioned between growth in consumption expenditure, and growth in output. And we need to be addressing this gap, not by contracting consumption expenditure, but by stimulating an increase in productive activity. ASGISA itself is a series of immediate priority interventions, which seek to build on and shape broader ongoing governmental programmes. These include critically our own department's efforts to promote and implement a more vigorous industrial policy. What we are seeking, is to promote a broadening and acceleration of economic activity across a range of industrial and service sectors. ASGISA itself identifies immediate priority sectors, which includes business process outsourcing, tourism and bio fuels. These are areas where significant preparatory work is already underway, and where there are short-term prospects of a fairly rapid increase in employment.
In addition to that, there are a number of medium term sectors, which are either in the process of or have recently undergone Customized Sector Programme initiatives. These include chemicals, the metal sector, clothing and textiles, agro processing sectors and cultural industries and so on. What we are looking to do, is to engage stakeholders in exercises of self-discovery. Self-discovery we envisage as a participatory exercise in which sector players identify the key action plans that are necessary to take a sector from where it is to where it needs to be.
Key action plans formulated through the process of self-discovery should lead to an identification of incentives and other measures, which will be necessary for government to deploy to facilitate such processes. A key theme which is emerging in the industrial policy discussions which we are currently having, is that government should make its incentives and other offerings available on a much more customized basis, that is to say, we want incentives and programmes to actually relate much more closely to sector strategies and plans.
Another key theme is that we would expect these incentives to be deployed much more conditionally. Government must be prepared to put more resources to support industrial strategies at a level which can make a difference, but it must also insist that there should be quid pro quo from those who are benefiting from the support. In addition to this, we envisage important cross cutting interventions. During the budget vote debate in Parliament a few weeks ago, our Minister announced that government intended to pursue a number of options to deal with the thorny issue of Import Parity Pricing. Basically, this is an arrangement in which important up stream manufacturers charge domestic clients a price based not on the cost of production, but on the prices down stream clients would have to pay if they imported and transported those products from abroad. This is a discriminatory pricing policy, which has been identified in a host of studies as limiting and choking off opportunities for down stream industrial development. Among the measures mentioned by our Minister, were reforms of a competition law, the removal of tariff protection for industries that are engaged in import parity pricing, and other possible measures whilst the Minister also left open the option to continue to negotiate.
Through our industrial policy measures, through measures such as those directed at import parity pricing, we anticipate that we will be creating many more opportunities in the South African economy for productive activity across a range of sectors and industries. This does not of course automatically mean that small businesses will be the ones who benefit from this. Too often in the past, deep seated structural problems, many of them emanating from our own historical past, have prevented small business from seizing a rightful share of new opportunities that should be its.
Black owned and women owned businesses, have particularly faced difficulties in responding to the opportunities which are created in the broader economy. It is precisely for that reason, that as an integral part of our overall efforts to promote shared growth, government is engaged in a very substantial and significant restructuring of our small business support programme. Promoting small business has of course long been an objective of government policy. Small business has been seen as a potentially dynamic activity in its own right. It has also been seen as offering many opportunities for productive activity by people who would otherwise be condemned to unemployment. Too often however, our small businesses have been conducted by what my colleague Elizabeth Thabethe, has called "entrepreneurs of necessity", marginally self-employed people condemned to exist on the margins of what we call the first economy. We have long realized that if we want to develop the small business sector there needs to be targeted programmes of action. These need to address many of the deep-seated difficulties that small businesses have in South Africa today. They include questions of access to finance, and also questions of non-financial support, as well as creating particular tailor-made opportunities for small businesses. As I am sure you know, the non-financial support services to small businesses have been restructured under a new agency, the Small Enterprise Development Agency. SEDA has now been established in most of the provinces of the country, and is in the process of setting up networks of service providers who will provide a uniform product across the country. SEDA's top priority in the coming year is to roll out its physical infrastructure and it is to be hoped that by the end of this year, we will see a functioning organization in place in many parts of the country. In the area of small business financing, Khula, is in the process of refining its product offering. There is also a significant debate underway as to whether Khula should continue to exist as a wholesale institution, or whether it should go into retail finance provision in some areas as well. The financial sector charter process also has the potential to leverage funds to support small business development. We need to ensure that this and other BEE Charter processes are up to their potential in this regard.
Cooperatives have long been recognized as an important avenue for collective advancement of sustainable livelihoods at community level, and a cooperative strategy has already been presented to NEDLAC and will pass through the parliamentary process soon. The Cooperative Incentive Scheme became operational in January 2006, and is an additional source of funding for cooperative small business ventures.
In addition to this ASGISA targets two particular interventions to to improve the capacity of the government procurement process to contribute to small business development.
Firstly, there is the set asides programme. A task team involving several government departments is currently compiling a list of products and services to be procured for government from small businesses. The products and services, as well as the terms and conditions under which this programme will operate, should be announced shortly.
The second area is ensuring prompt payment by government for goods and services acquired particularly from small business.
Programme Director, I hope that I have been able to give at least a very broad outline of some of the initiatives and efforts that are going on within government that we believe will be of benefit to small business. We believe that the outlook in the South African economy is now overwhelmingly positive, and that developments at sector level, create many opportunities for small businesses to expand and to take their rightful place in the South African economy. At the same time we believe that we are engaged in a series of programmes that we hope will provide assistance and support to small businesses to become more effective in our economy.
Government though is only one partner in the process. We depend on a partnership with important stakeholders in the economy, and indeed on the forging of a peoples contract to promote growth and development in this country. Coincidently we are meeting during this Imbizo week, when government will be going out to listen to the people and hear their concerns about a range of government services. As we unfold our programme, we will also be looking for many more opportunities to hold this Izimbizo with small business organizations and small business entrepreneurs.
Within that spirit let me conclude this address, by offering, if you Programme Director permit, to field a few questions or to listen to some concerns from people who are participating in this activity.
I thank you.