Download FEDUSA Presentation-Mr Dennis George

The current state of the economy and what
can be done to improve it
May 2016
We need to re-engineer our economy
We have great strengths to draw on…
 Strong institutions and robust legal framework
 Well developed and deep capital markets
 Share of GDP spending on infrastructure exceeds
that of most other economies
 Good environment for business compared to
many of our peers
 Renewed vigor from government, business and
civil society for economic reforms
▪
… but challenges to address
 Volatile and uncertain global environment limits
external stimulus
 Domestic business confidence and investor
sentiment is low
 Lower commodity prices undermine
performance of the primary sector
 Room for fiscal and monetary stimulus has
narrowed
Our immediate focus
Intensifying implementation
▪ Uniting to preserve our sovereign credit rating
▪ Further deepening collaboration between government, labour
and business
▪ Converting investment ideas into real deals in the short term
▪ Demonstrating benefits to all social partners
from new economic opportunities
Poor employment outcomes in Q1 2016
 Unemployment rate rose to 26.7% in Q1 2016 (Q4 2015: 24.5 %):
• Annual labour force growth outpaced employment growth, resulting in a 3.2% y/y rise in the
number of unemployed
 Typical Q1 season decline in employment after festive season – but in 2016, the decline was larger
than usual (-355,000)
•
Quarterly declines particularly pronounced in manufacturing (-100,000), construction (-77,000)
and trade (-119,000)
Unemployment highest
amongst youth
• 54.5 per cent for 1524 year olds
Unemployment rose the
most for youth in Q1
2016
• 63 000 jobs lost
• 100 000 youth
entered labour force
Source: Stats SA
3
Majority of the unemployed young, less educated,
and jobless for more than a year
 Youth unemployment persistently high:
• Youth
unemployment
rate
deteriorated to 54.5 per cent in
1Q2016, long-term rise following
rapid increase from 45.6 per cent
in 2008 due to the economic crisis
• Ratio of youth to adult
unemployment rates is above 3,
indicating
extreme
youth
unemployment
 High
long-term
unemployment
symptomatic of structural labour
market challenges
 Unemployment dominated by low
levels of education:
• Incomplete secondary education
46% of the unemployed
Source: Stats SA
4
Labour market outcomes hurt the poor
disproportionately

Move away from low skilled jobs hurts the poor
the most

The poor tend to be the most excluded from
better educational outcomes and therefore the
least able to up-skill themselves out of
vulnerability
Education enables employment – but access
to education skewed
Source: QLFS, Stats SA, National Treasury calculations
Van der Berg and van Brockhuizen
(2012) “there is no graduate
employment crisis”
5
Multiple interacting causes of anaemic
employment growth
• Low skills
• Historically black schools
remain at significant
disadvantage. Taylor (2011)
• SETA learnerships limited
impact, smaller firms may
subsidise larger firms. Rankin
(2010)
• Apartheid spatial patterns
raise cost of finding work,
reservation wages
• Global technology and
mechanisation
• Low GDP growth
• SA firms tend to increase jobs
by 0.6% for every1% rise in
growth. Growth of 2% too low
• Escalating cost of skilled
workers
• Lack of skilled workers limits
number of unskilled
workers
• Each skilled job creates 1.7 lessskilled jobs. Behar (2008)
• Difficulty quantifying “good”
candidate
• Longer, more expensive,
more arduous recruitment
• Heavy reliance on social
networks, past work
experience to manage risks
• Inappropriate “CV
bombing”
• Limited use of probation
periods; concerns on hiring
and firing rigidities
• Cost of capital falling
relative to labour.
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• All labour is substituted for
capital. Demand for unskilled
labour falls 0.75 to 1% for every
1% fall in relative price of
capital. Behar (2010)
6
Global discussion on changing world of work

Technology is not making workers obsolete –
but it is forcing changes in what work means –
and who is required to do the work

Strong competition in low-skills, low-wage jobs
– China, India, other Asian economies
(Vietnam, Cambodia)

Skills biased world of work
– Less routine jobs required
– Need more advanced ICT and cognitive
skills

Nature of work changing
– Increased use of short term contracts
– Fewer jobs for life
– More mobility within profession, between
firms and types of careers
Source: Levy and Murnane (2013), Dancing
with Robots: Human Skills for
Computerized Work, Third Way
An already complicated picture is further hampered
by difficult labour relations



Labour relations play an important role in shaping how easy it is for outsiders to access the labour
market
Perceptions can affect the willingness of firms to hire labour – particularly in times of high uncertainty
or low growth
Regulated flexibility NB where trust is low. How it works in practice is critical
SA has a big problem with
perceptions of labour relations:
• Ranked last (144) in 2014 Global
Competitiveness Rating (WEF) for
cooperation in labour relations
• #139 for flexibility of wage
setting
• #136 for link between pay and
productivity
Source: Blanchard et al (2014)
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We can grow beyond 1.5% by implementing NDP, 9
Point Plan
Impact on potential growth
Electricity constraint lowers growth by 1%pt
Path dependency disadvantaged productive & labour
absorbing sectors
Inadequate transport and telecomms infrastructure
raise cost of doing business
• Port charges for containers are 190% higher in SA than the
global average in 2014/15
• Broadband in SA 6x more expensive than Brazil
Perceptions of difficult labour relations contribute to
investor uncertainty, reduce willingness to hire
• SA ranked last (144) in 2014 for cooperation in labour relations
• #136 for link between pay and productivity
Global Competitiveness Rating (WEF)
Challenges in SOC management reduce confidence and
raises infrastructure financing
• Cost of raising finance for Eskom risen by 0.6 percentage points
in last two years; for SAA risen by 2.7 percentage points
• Major source of concern for ratings agencies Fitch and S&P
Inequality and lack of access to high quality education
compounds poverty & unemployment
• Participation rates in higher education (post-school) for African
students averaged 12% between 2004 and 2008, while it
averaged 60% for white students (Taylor 2011).
• SETA learnerships limited impact, smaller firms may subsidise
larger firms. Rankin (2010)
Our reform agenda prioritises jobs and growth
The National Development Plan: the long-term framework
▪ Sets out structural reforms to create an enabling environment for job creation and
▪
▪
inclusive growth
Focused on addressing the triple challenges of poverty, inequality and unemployment
Aligned with many reform programmes being implemented elsewhere, and leverages
South Africa’s comparative advantages
The 9-Point Plan: immediate priorities for jobs and growth
1.
2.
3.
4.
5.
6.
7.
8.
Resolving the energy challenge
Revitalising agriculture and the agro-processing value chain
Advancing beneficiation of SA’s mineral wealth
Implementing a high-impact Industrial Policy Action Plan
Encouraging private sector investment
Moderating workplace conflict
Unlocking the potential of SMMEs, township and rural enterprises
State reform, boosting the role of state-owned companies and strengthening ICT, water,
sanitation and transport infrastructure
9. Operation Phakisa: growing the ocean economy and other sectors
Intensified implementation drive with social
partners
In the first 4 months of 2016, meaningful progress has been made in building a strong social
compact between leaders in government, business and labour for accelerated investment and
joint effort in fostering inclusive growth in South Africa.

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Government, business and labour undertaking joint roadshows to present a united front to
rating agencies and international community
Intense joint effort between government and business, led by the Minister of Finance and
Mr Jabu Mabuza. Focus on sovereign credit rating, SME Fund and accelerated investment.
On Monday 9th May, with President, Labour to now be integrated into processes
Nedlac finalising a framework to reduce economic disruption from protracted strikes; social
partners agreed on principle of national minimum wage
Inter-Ministerial Committee on Investment working to accelerate implementation of private
sector efforts, with inputs from key stakeholders
National Planning Commissioners supporting implementation of the NDP through regular
engagements with society to strengthen the social compact and improve delivery of the Plan
Department of Planning, Monitoring and Evaluation ensuring government departments
implement the NDP and move towards Medium Term Expenditure Framework
Decisive actions to accelerate growth

Restoring confidence and supporting private investment:
o Encouraging private sector involvement in renewable energy and SOCs
o InvestSA to encourage domestic and foreign investment
o Operation Phakisa delivering focused sector-specific strategies

Partnership with business and labour
o SME fund launched – R1bn already committed

Reducing infrastructure constraints and bottle necks:
o R865 billion over MTEF to improve infrastructure
o Reprioritised spending enhances future growth

Improving the ease of doing business:
o Visa regulation amendments
o Targeted small business support with municipalities
o Project in 9 municipalities to improve regulatory processes to best practice

Increasing policy certainty and coordination:
o Socioeconomic Impact Assessments improve engagements on new policies
o Minerals and Petroleum Resources Development Amendment Bill likely finalised
12
Action on employment
Boosting
economic
growth
• 9 SONA priorities,
including
• Getting electricity
sorted
• Improving
infrastructure and
incentivising
investment
• Extensive support
to business
through Incentives
• Improving trade
competitiveness
Skills
Spatial
inequalities
Difficulties in
matching
Direct demand
for labour
Labour
relations
• FET colleges & funding
• SETA
• Learnership & apprenticeship tax allowance
• Urban regeneration
• Expansion of public transport programmes
• Job centres
• Easier immigration for scarce skills
• Employment tax incentive
• Jobs Fund
• EPWP, CWP, Youth Employment Accord
• Probation periods
• CCMA enhanced powers
13
Thank you