National Development Plan Lecture by the National Planning Commission Deputy Chairperson Cyril Ramaphosa at the Wits University
10 September 2013
Programme Director, Mr Songezo Zibi
Vice Chancellor of Wits University, Professor Adam Habib
Deputy Vice-Chancellor, Professor Rob Moore
Leaders of all sectors of our society,
Members of the Diplomatic Corps,
Members of the National Planning Commission,
Members of the Media,
Fellow South Africans,
Ladies and Gentlemen,
Thank you for inviting me to speak tonight on the National Development Plan, with particular focus on the economic aspects of the plan.
When President Zuma appointed the National Planning Commission in May 2010, he asked the Commission to take a `critical, cross-cutting and long term perspective` on the challenges confronting South Africa. He invited the commission to develop a plan for the country that would serve as a vision and coherent programme to overcome the key challenges confronting us - poverty and inequality.
If we are to overcome poverty and inequality, then solving our economic challenges is at the heart of our objectives. We seek an economy that serves the interests of all South Africans, one that is able to absorb people seeking work, one that is competitive, with a rising share of income going towards investment. We seek an economy where the incomes of the poor are rising faster.
Our vision is of an economy that is more diverse, both in terms of what we produce and in terms of who owns, manages and works in that economy. We seek firms that are profitable and that play a constructive role in supporting development and social cohesion. We seek an effective state able to support business expansion, protect the rights of workers and drive the transformation of the economy.
Despite significant progress in transforming the economy and in achieving a degree of stability since 1994, our economy does not yet serve the interests of all South Africans. The economy creates too few jobs to absorb new entrants into the labour market; the structures of both ownership and pricing are monopolistic; skills levels are poor; government regulations clutter the system and complicate the environment with red tape; inequality dogs society; and productivity is too low. Consequently, we are falling behind on a series of competitiveness tables.
These are the ills we seek to tackle. The National Development Plan provides a coherent, comprehensive and pragmatic plan to transform our economy. The NDP is a plan for both faster economic growth and growth that is more inclusive.
Given our history of exclusion and the skewed distribution of wealth and income, it is only natural for economic policy to be among the most contested terrains of discourse. While much of the media and editorial commentary has focused on areas of disagreement, there is much more in the plan that enjoys widespread support, including from trade unions. There is broad consensus on the analysis.
Positive changes in the economy since 1994 include more stable growth, fewer booms and busts than in the past, lower inflation, closer integration into the world economy, higher levels of employment and a growing share of the economy owned by historically disadvantaged South Africans.
Whereas in 1994, five families owned almost half the Johannesburg Stock Exchange, no such concentration exists today. Much of the JSE is now owned by pension funds, both local and foreign. The number of black people in what is called the middle class has more than doubled to about 4.7 million today. About three million more people are in employment today than in 1994; workers` wages have risen by about 50 percent in real terms in the past decade and workers enjoy far more protection than they ever did. These changes have translated into material benefits for the majority of citizens. Millions more have access to schooling, housing, water, sanitation, health care, social security and communications.
A team of academics at the University of Cape Town - Arden Finn, Murray Leibbrandt and Ingrid Woolard - recently released a paper that painted a picture of how multidimensional poverty has declined since 1994. This multidimensional poverty index incorporates indicators relating to living standards, income, health, nutrition, education and household assets. Using this index, the number of people living in poverty has declined from about 14.5 million in 1993 to about 4 million in 2010. The decline in this poverty index is further evidence of significant progress made in reducing poverty in all its dimensions.
Yet, despite this progress, as we have mentioned repeatedly, our economy still does not serve all the people of our country. The starkest reflection of this reality is that we have an official unemployment rate above 25 percent, only 41 out of every 100 adults are working, and youth unemployment is in excess of 50 percent. While these indicators have worsened as a result of the global financial crisis, these features are not simply a cyclical blip; but rather a reflection of deep structural weaknesses that require a coherent and long-term plan to remedy.
The key proposals to remedy these structural weaknesses and achieve higher and more inclusive growth are set out in detail in the plan. The main target in respect of the economy is to raise employment by 11 million to 24 million by 2030. There are also targets for reducing poverty and inequality. Achieving these targets will require an extraordinary effort. The plan argues that creating jobs is the main solution to reducing our levels of poverty and inequality. We seek an economy that is able to grow faster, is more labour-absorbing and more diversified; an economy with a strong and robust industrial sector.
The NDP uses the concept of sustainable livelihoods to describe a minimum basket of goods and services that the poor need to live meaningful lives. Some of this can be attained through wage income; but for many, the state will continue to be the major provider of services. More effective state provision of education, health, free basic municipal services, public transport, social security and even food where appropriate can help boost the living standards of the poor, including the working poor.
The key proposals in the plan are consistent with those outlined in the New Growth Path. These are to:
- Lower the cost of living, particularly for the poor;
- Reduce red tape and regulatory obstacles for small businesses;
- Increase infrastructure investment, especially in network industries such as water, energy, public transport and freight logistics, and to use these programmes to build our supplier industries;
- Grow the real sector, with focused attention paid to mining, agriculture, manufacturing, tourism and the green economy;
- Take firm steps to cap executive and senior management remuneration with a view to reduce wage inequality in the economy.
The National Development Plan builds on these proposals. It adds value in arguing for better economic policy coordination within government and by advancing on some of the sectoral strategies outlined in the New Growth Path. The plan suggests clear steps to grow the agro-processing, manufacturing and mining sectors and to promote entrepreneurship through supporting small businesses.
The National Development Plan argues strongly for greater focus on growing exports, mainly because we require more foreign capital to boost our investment rates; and export growth is a more sustainable way of funding these investments than simply relying on foreign portfolio inflows. In addition, our domestic market is not large enough to provide economies of scale for manufacturers.
Various sectors of society, including unions, broadly agree with this. We must however acknowledge areas where there is less agreement or at least areas where there are different interpretations of the proposals.
South Africa faces a difficult set of challenges because of the interplay between who the unemployed are in South Africa and our competitiveness on the global stage. To some extent, South Africa faces the worst of two possible situations. Our economy does not have the skills to compete in skills intensive industries relative to countries such as Germany, South Korea or the US. On the other hand, our cost structure is too high to be competitive in labour intensive sectors which dominate in countries such as China, Vietnam or Indonesia.
This poses a dilemma for policy makers. In an ideal world, we would like to move up the value chain through better skills and higher capital investment. We would like all of our workers to get jobs in globally competitive sectors that pay high wages and provide comprehensive benefits. The reality of course is that many of the unemployed lack the skills to get jobs in these sectors.
While much more needs to be done to improve the performance of our education and training system; even with the best will in the world, we confront the challenge of creating work for the millions of unemployed that we have today. This implies that, in the early phases of the Plan`s implementation, not all jobs will be high paying. Some of the jobs created will be relatively low-skilled and as such low-paying.
Given our high levels of poverty and inequality, and the life experiences of many of our working poor, this is a reality that is difficult to accept. But we have to acknowledge that even those countries that now have sophisticated manufacturing as a predominant attribute, started at the low end. In our situation, where some sectors of the economy already provide decent jobs, we need to combine mass absorption into the labour market with a dogged determination to protect and expand access to these decent jobs.
The strategy outlined in the National Development Plan is threefold. In addition to boosting our educational levels, we have to promote industries that are labour absorbing, such as mining, agriculture, construction, hospitality and small businesses.
Secondly, we also have to grow the more advanced sectors of the economy, such as manufacturing, parts of financial services, telecommunications and businesses services.
Thirdly, more effective provision of a broader social wage should enable even the poorest of people to have a decent standard of living, to build the capabilities to get better jobs, higher incomes and a broader range of benefits.
If we are to grow labour-intensive industries into globally competitive export engines, then in the short- to medium-term, these jobs may not be as desirable as we would like, but they are an entry into the labour market. Furthermore, any strategy to promote small business growth would result in a growing number of people who get jobs in small firms which are unable to afford the pay and benefits that bigger firms offer.
Inevitably, this is a difficult position for trade unions to accept and so there has been resistance to some of these proposals. We understand these criticisms and fears. We are however encouraged by a willingness among those criticising the plan to engage around some of these proposals. We all want what is best for our people and the country. The challenge we must rise to is to find more effective ways of achieving it.
Our analysis of youth unemployment is that it is caused by several factors.
Firstly, most young people seeking work do not possess the hard and soft skills to be employed productively in firms. They also lack the training, experience and support to supplement their entrepreneurial zeal to enable success in small businesses. In addition, there are two other reasons relating to our labour market that limit access to new entrants.
Starting salaries are often higher than the relative productivity of new workers, implying that firms incur a `loss` when hiring inexperienced workers.
The second reason for firms being reluctant to hire young and inexperienced workers is that the costs of firing the worker if the worker does not perform are high. This makes hiring inexperienced workers too risky. Again, the net result is that firms are unwilling to take a chance with inexperienced workers. They search for experienced workers because the risk that they underperform is much lower.
These factors, ranging from poor skills to the costs and risks of hiring new workers, biases the economy against new entrants; effectively locking them out. This system denies our children and future generations the opportunity to work, to learn, to gain experience and to become full citizens in their own right. It denies them the opportunity to take on the most basic responsibilities of adulthood. Unless South Africa tackles this vicious cycle, we are likely to continue to be threatened by social instability, crime and the effects of social exclusion.
The National Development Plan does not propose wholesale changes to South Africa`s labour laws. We recognise the hard-won struggles for better working conditions and for improved rights. We do, however, propose several ways to lower the cost and risk for firms to take on new entrants.
These measures to encourage firms to employ new entrants have to be balanced with mechanisms to punish firms if they simply replace older, more experienced workers with new workers; or if they seek to undermine workers` hard-won rights.
We are confident that our existing labour laws and the proposals in the plan would prevent displacement of older workers. But we must go beyond merely punishing those who err. We need to engage on an ongoing basis and convince business that working together to solve youth unemployment is in everyone`s best interest. They must see these proposals to support youth employment as an investment in our youth, without which our future would be far bleaker - for the poor as well as for the rich.
The National Planning Commission and the NDP envisage an economy with a thriving and vibrant manufacturing sector. The manufacturing sector is essential for the economy because it provides stable employment to millions of people. It has the potential to grow high-value exports and it attracts foreign direct investment into technology, skills development, machinery and equipment.
The National Development Plan makes several proposals to grow our manufacturing sector and specific niches within the manufacturing sector. These proposals include further beneficiation of certain minerals, lower tariffs on imported equipment and upstream inputs into manufacturing, using our development finance institutions to support manufacturing, and building linkages between the manufacturing sectors and other sectors such as mining and retail.
South Africa`s manufacturing sector should benefit from increasing infrastructure investment here and elsewhere on the African continent, a rising middle class willing to consume manufactured products, and the growth of our retail footprint on the continent. We also think that agro-processing has significant potential in our country and our region. The nascent renewable energy sector also provides significant opportunities for the manufacturing sector.
The plan does, however, point out that even with a growing and robust manufacturing sector, the bulk of the jobs in the economy going forward are likely to be created in small businesses. This reflects a reality globally. Brazil, for example, has a thriving manufacturing sector, but it has declined from 30 percent of GDP to 15 percent in two decades. Ninety percent of the new jobs created in Brazil since 1997 have been in small businesses. As incomes in the country grow and productivity in manufacturing rises, more jobs will be created in smaller, service-oriented businesses. This will be a sign of a successful diversification strategy, not a failure in industrial policy.
In their book, The Spirit Level, Richard Wilkinson and Kate Pickett use evidence from various countries to demonstrate that inequality is bad for everyone. There is criticism that the target for the reduction of inequality in the NDP is too modest and that we will still be left with a highly unequal country, even by 2030. To reduce inequality, we need the confluence of several developments. We need rapidly improving education among the poor; we need faster job creation for all new entrants, irrespective of their skill level; we need rising incomes of workers; and we need productivity growth.
We also need a progressive income tax and fiscal system that taxes those with higher income more and spends the money effectively on goods, services, grants and assets for the poor. Our focus should be on implementing these proposals effectively. We must work tirelessly to ensure that inequality falls faster than the levels projected in the plan.
At the same time, we must resist policies that will result in short-term gains for the poor without those policies being sustainable. For example, we can sharply reduce inequality if we adopt policies that only serve to chase away high-income earners. The net effect may be lower inequality, but we will all be poorer. We can distribute land faster if we simply confiscate land from white landowners. We may get a fairer distribution of land but we will also have skills and capital flight and we may suffer from more food insecurity, which largely affects the poor.
Inequality in South Africa is a product of the apartheid legacy. But it is exacerbated by a global phenomenon where the returns to skilled labour are rising faster than the returns to unskilled labour. We must counter both our legacy and this global trend through improving educational standards for the poor and creating jobs for all the unemployed, irrespective of the level of skill.
The NDP recognises a strong role for the state in intervening decisively to correct the imbalances of the past and to promote inclusive economic growth. There are huge challenges in ensuring that the state is effective and its interventions are successful. An incompetent state that intervenes becomes an albatross on the economy, reducing the welfare of everyone.
Ladies and Gentlemen,
In putting together the National Development Plan we consulted South Africans widely. They shared with us their visions of the future. They also shared with us the actions they believe we need to take to achieve that future. The plan carries the hopes and dreams of our people.
It is therefore critical that we proceed with the implementation of the National Development Plan. A number of government departments have already started implementing aspects of the NDP. Examples were outlined by the Chairperson of the National Planning Commission during the Presidency Budget Vote debate in Parliament earlier this year.
Several aspects of the rural economy chapter are now part of the policy proposals of the departments of Agriculture and Rural Development to fast-track land redistribution and enhance production. Under the leadership of the Presidential Infrastructure Coordinating Commission, efforts are being made to speed up the delivery of key infrastructure to support mining and freight logistics, and water and energy provision.
Government is presently reviewing its long-term energy plans, taking into account issues and recommendations from the plan.
The process currently underway in government to develop a Medium Term Strategic Framework has the NDP as its starting point.
But, as we have said before, the implementation of the NDP is not about compliance. The plan must be dynamic and must evolve through experience.
It is not perfect. Where there are differences, we will continue to engage. Where there are gaps, we will continue to work with others in society to fill these gaps. However, for us to achieve the difficult targets, we must implement the National Development Plan with urgency.
There are already good examples of different social formations partnering to implement aspects of the plan.
Government, business, labour and other stakeholders are working together on several initiatives in education. In particular, I want to single out an initiative aimed at supporting school districts and school management called the National Education Collaboration Trust, of which I am a Patron. The strength of this initiative is that it brings together stakeholders from government, the private sector, unions and civil society organisations to seek collective solutions to a common challenge. We need more of such initiatives, and the National Planning Commission will actively facilitate these in other sectors.
Allow me to turn to the roles and responsibilities of the broader society in implementing the National Development Plan. No single party, not even government, can achieve the objectives set out in the National Development Plan on their own. The successful implementation of the plan requires citizens to become more active in the development of our country. It requires leaders throughout society to put tomorrow ahead of today, to put the national interest ahead of narrow sectoral interests.
When President Zuma initiated the process to develop a long-term plan, one of his key objectives was to get all South Africans to take a longer-term perspective to resolve our challenges. This is true for policy-makers as well as businesses and trade unions. Faster growth requires a stable environment, policy certainty and forward thinking.
To resolve our energy, water, transport and food security constraints, a long term plan is essential. Similarly, to overcome the spatial divides that exclude millions of people from economic activity, we need a sound municipal planning framework that is implemented consistently over a long period of time. The National Development Plan, in the chapter on a Capable and Developmental State, points out that government often chops and changes policy too frequently, without focusing on the implementation failures that limit success. In many areas of policy, we need consistent and effective implementation, not new policies.
We require a business community focused on at least doubling the size of their businesses over the next twenty years. This needs investment that takes a long term perspective on growth and the opportunities that present themselves. There will always be cycles; good years and bad years. Successful businesses build for the long-term. They do not chase returns over just one quarter; they chase consistent returns over a generation. This is not easy when we operate in an economy and a world where shareholders want instant success. By providing a stable and predictable environment, we can contribute towards extending the planning horizon of businesses. But business, too, has the responsibility to respond to these policy signals by investing more and investing faster.
Many people argue that the role of business is simply to make the highest profit possible and to do little else. I believe that most of our business leaders do not subscribe to this narrow view; that they understand the complementarities between social equity and profit growth. But more action is required and closer partnerships are essential to get the country growing. High profits tomorrow require a growing middle class willing and able to consume the products produced. High profits tomorrow require social stability. High profits tomorrow require access to African and global markets. And so businesses have a role to play in training their staff, in supporting local suppliers, and in growing the share of black and women managers.
The plan requires trade unions to become partners in development, taking a long-term perspective on both the welfare of their members and the success of the firms who employ them.
When one looks through the short term gloom, there are myriad opportunities and positives about our longer-term growth prospects. We have favourable demographics. That is, we have a young population with a growing working age cohort. We live in a dynamic and expanding region with abundant business opportunities. We have a growing middle class, willing and able to expand their consumption of all manner of goods and services. We have an urbanising population, again a positive feature for demand for goods and services.
Despite the gloom, the educational standards of our population are improving, with the proportion of people with degrees rising by about 4 percent a year. Our country is one of the fastest growing tourism destinations in the world; and our mineral wealth below the ground is ranked in the top five in the world. All the indicators of long term growth remain solid and will help lay the basis for continued growth and prosperity.
The present economic environment is a challenging one. The global economy is in its sixth year of crisis and even if the situation does not get any worse, most economists predict that global unemployment rates will only return to pre-crisis levels by about 2017, a full decade after the crisis began. Navigating through this difficult global economic environment will not be an easy task. Capital is becoming much harder to access for developing countries such as our own. India, Brazil and Indonesia have all characterised the present situation as a crisis, taking unprecedented steps to shore up confidence in their economies.
At the moment, the economy is caught in a cycle of low investment and low confidence. It is up to all South Africans to break this cycle. Higher investment by businesses and government will boost growth, create jobs, raise incomes and raise confidence; further supporting investment.
Ladies and Gentlemen,
South Africa is a remarkable country that has managed to overcome significant odds to make progress. In our people, our natural beauty, our mineral wealth, our democratic culture, and a committed government we have the ingredients for success. The economic challenges that we confront are certainly the most difficult. There is, however, broad consensus on both the analysis of the problem and the solutions. There is much more that unites us than divides us. We must implement those aspects of the plan on which there is agreement with urgency. On those aspects where there are differences, we welcome a spirit of constructive dialogue with a view to reaching consensus and finding common ground. But these differences must not paralyse us. In some instances, we will have to learn by doing.
The destinies of all South Africans - rich and poor, employed and unemployed, urban and rural - are intertwined. It is in our common interests to put shoulder to the wheel and support a plan that, at the heart of it, will improve the lives of the poorest South Africans.