Economic Sector & Employment Cluster Media Briefing

Q: On the review of the land tenure systems, what was wrong with land tenure currently?

A. Minister Nkwinti replied that land tenure systems reform was facing a number of challenges. During the first 15 years of democracy, there was a wave of land reform characterised by land restitution through various programmes. All of them were handicapped by the problems of lack of finance and of capacity of those who received the land to produce effectively on the land. The financial challenge had now worsened. One needed 82 million hectares - 30% of this - transferred by 2014. This required R25bn to achieve and that was not achievable. However the land had to be redistributed. One had to look at how best one could reach that balance because on the one hand you had to restitute while on the other hand, one had to redistribute with or without that restitution. Having many South Africans who did not have land while a few South Africans and foreigners owned land was a recipe for chaos and conflict in the country. They thought that this Land Tenure System was right. South Africans had to express themselves on that so that was what they would do.

Q: Did the Ministry of Economic Development have final say on Macro Economic Policy?

A. Minister Patel replied that Cabinet had the final answers on all these matters.

Q: Regarding the Sumbandila satellite, the Minister’s announcement last week that South Africa might be looking at its own rocket launch facilities, was there a fall out from the international arena about this? For developing their own facility which might have fallen into the wrong hands?

A. Minister Pandor replied that there had not been any fall out because every country had the right to devote their facilities to further technological advancement. They already had nuclear competence in this country and it had never been challenged - it was an acknowledged competence. They worked with scientists from countries all over the world. Ithemba Labs made SA a first ranked country. With their nuclear reactor they stood among the most accomplished. Before the advent of democracy, SA was one of the countries that had decided not to have nuclear arms. That decision was taken long ago and the new Government had never gone back on that. In terms of development in the nuclear sector, they had competent scientists and they were examining where they took the science and she had thought they should take it further..

Q: Details were asked about companies taking up conditional IDC funds. How far did the conditionality go in terms of capping the pay of executives. Who had agreed to that and how much funding had been given out? Had the take-up of the Training Lay-off Scheme been as much as Minister Patel had hoped or had there been blockage in the system?

A. Minister Patel commented on the Training Lay-off Scheme progress by referring to July last year after the election when the proposal of the Training Lay-off was tabled. In August they got in principle agreement from business, labour, Government and communities to go that route and they identified where they could get the funds. In September the announcement of the agreement was made. In about late September and most of October they concluded the rules for the fund and in November they open the pilot project. They identified a couple of sectors who would specifically focus on this. By the end of January they had about 2 200 workers from companies whose applications had been approved by the Department of Labour. This figure had gone up a little. They were looking at 2 700 now. Their challenge was to scale that up very significantly beyond the pilot phase. That meant reaching large numbers of workers, because even though they had the first sign of economic recovery, of course, employment recovery always lagged economic recovery. That was where they were with the numbers for Training Lay-off. For the period ahead, it would be to scale up the Training Lay-off intake.

Minister Patel continued that with the IDC, he distinguished two things. As a general arrangement they now agreed with the business community and organised labour as well as community organisations. Government would be introducing conditionalities to support what it offered companies in distress and those conditionalities covered four areas:

- The first was that there had to be some commitment in respect of jobs - these would have to be customised to each individual company. In some cases, it would be to try to save jobs. In other cases, there may be an opportunity to expand the number of jobs.
- Secondly, it was seeking restraint on executive pay.
- Thirdly, it was to improve localisation of the supplier base of the company, trying to encourage the company as far as possible to use local inputs in it production.
- Fourthly, it was to promote partnership between business and labour social dialogue at the work place.

Those were all long term investments to get companies out of crisis. That was the general arrangement they had in place. They would now be looking at each application that come in against the set of criteria. This had been approved and reported to President Zuma in December last year. That was the one area of the conditionality. Second to that, the IDC had already commenced (even before it looked at these programmes to support companies in distress) supporting them through loans and measures that assisted them cover two big issues: the constraints in credit and the loss of market.

Q: Minister Patel was asked about his reference to possibly recapitalising Khula. He was asked for more detail on that. Was he satisfied that those institutions were ready to assist small businesses? Business people had experienced problems and had been quite vocal about it?

A. Minister Patel replied that the model on which Khula was based did not provide any direct funding to small business. It was really a guarantee scheme that was intended to reduce risks and therefore “increase the appetite” of the commercial banking sector to extend loans to Khula. They did not think they were doing enough and they did not think they had been successful enough in supporting small businesses. So in conversations with Khula, they said they needed a new model - a direct funding model - that allowed them to provide resources directly to companies, based on those companies’ business plans. So those plans were all in the process of being finalised within Government. They hoped to able to make an announcement on those as soon as possible.

Q: Minister Patel was asked to comment on the spat between ArcelorMittal and Kumba and what effect that was going to have on the company. There were reports that Minister Davies was going to meet with the respective companies. When was that meeting going to take place and what was Government going to tell those companies?

 

A. In respect of Mittal and Kumba, Minister Patel said that he would leave that for to Minister Davies to comment. He would say that for Government it was critical in any of these considerations to get competitively priced steel. It was a key input into the economy and a lot depended on being able to achieve that in their industrialisation plans.

Q: Minister Patel was asked about remuneration as one of the conditionalities. How would one determine that? Where was the benchmark when leaders say someone was earning too much or if bonuses were too much, especially if one looked at Government?

A. On remuneration in a market economy, it was hardly possible to set one firm benchmark. One had diversity of companies, diversity of sectors, different levels of complexity of management to run those enterprises. They recognised all of that. There would be a case-by-case examination as applications came in. Currently when an application came in for public support, there was a whole series of questions that were asked: questions around viability of the company’s business plan, the company’s ability to finance from alternative sources, off its own balance sheet, all those things went into consideration.

They were now adding additional considerations. If they could see that there was no relationship between executive remuneration and the underlying performance of a particular company that became a formal topic for discussion between the company and Government. So it was getting into the detail, seeing what were the constraint problems and aligning remuneration against performance. For Government it was a sensitive matter. This was public money, it was taxpayers’ money and it had to be used wisely. They needed to be able to show that it had been used appropriately. Therefore it could not be a source for financing inappropriate executive pay. That was the message they were trying to put out. It was a message that Governments all over the world were grappling with at the moment. It was a range of ideas floating out of the United States and the European Union grappling with this issue.

Q: Minister Nkwinti was asked what was his vision for the Rural Development Programme. How would it work and how many people would it involve?

A. Minister Nkwinti replied that they had a vision of sustainable, vibrant rural communities and they thought that the vision could be achieved through three phases. The first phase was what they were busy with now in terms of the eight pilots: focusing on meeting basic human needs, water, sanitation, shelter and housing. The real test would be the phase that would overlap with this - which was enterprise development. They were working closely with other ministries and departments like DTI.  They were looking at various forms of co-operatives within these areas where they were working. Meeting basic human needs was not going to achieve enterprise development but it could lay a good foundation for that, particularly if they provided the infrastructure such roads and electricity. They could have that kind of facility to kick start the enterprises that would follow. Thirdly they were looking at agro-processing industries in the rural communities themselves, working together with agriculture in particular. That was why they were putting forward this recapitalisation and development of all the farms and also looking at homestead gardens as the President was saying in his State of the Nation Address.

The key question was: what was the framework of this model? They were working with University of Technologies and FET Colleges and the Department of Higher Education and Training on answering that question. The question was: how did you quantify these issues? So they were busy with that and they were hoping by the end of March to have those details in terms of the variables, how many jobs and how much it would cost. They would report to the public on that once it was done.

Q: Minister Nkwinti was asked what was holding up the Green Paper. The Minister had said in an affidavit to the Constitutional Court the previous week that CLARA (Communal Land Rights Act) was no longer part of their vision. What were the implications of that?

Q: On the resuscitation plans for farms, was there any indication on how many farms were involved and how much it would cost? How would they take forward the debate on ‘willing buyer, willing seller’?

Q: Since the 2014 target for land reform was not achievable any more, did they have a new target?

A. Minister Nkwinti replied that they did not have a new target. They did not have enough information to target scientifically. They balance between recapitalising the ones they had already taken hold of. They had quite a lot of those. They had agreed with the Portfolio Committee that they would target 200, both of them were working on those 200 - which were being visited by both sides. That was the priority. They would deal with all those farms they had acquired since 1994. On the resuscitation number, between October and November 2009 during the expenditure adjustment period and the end of this financial year, they had restructured the budget for land reform by taking 25% of that budget for recapitalisation and development. That amounted to R254 million that they were working on. They were working in partnership with the Minister of Finance, Minister of Agriculture, Fisheries and Forestries, and the Land Bank.

They were working on those farms that were to be auctioned off by Land Bank. They had provided a guarantee for those farms amounting to R207 million so that was why those farms remained with the Land Bank. They had not been auctioned. They were designing a model of really dealing with these farms moving forward including using this model with the recapitalisation they were talking about and development. On ‘willing buyer, willing seller’, they thought that was beyond their reach. They did not have R72bn between now and 2014 and they did not want to target now because they wanted to balance development and acquisition of farms rather than chasing the hectares. They wanted balance between the number of hectares they get and the extent to which they were able to use those hectares to produce food and so on.

On the matter of CLARA, he agreed that they had not challenged the High Court decision declaring some aspects of CLARA as being unconstitutional. CLARA had been an Act for six years now but it had not yet been implemented. This was due to the challenges, in particular, its rejection by traditional leaders. There was the question of a survey of the land which Department was of the view that it was too expensive. Some traditional communities had said they did not want their lands surveyed and then given title deeds. They wanted the land to remain communal land. His department did not want to challenge that because it was too costly and unnecessary. They were going through the Green Paper process and they would put forward some suggestions. These included surveying communal land without giving titles to individuals but surveying communal land for land use management. Thus they would like to focus on that direction rather than talking about titles. If they talked about titles, they might find themselves in a similar situation - not being able to use that law for the past five or six years.

There were two sections of the Green Paper responsible for their not being able to put it forward at this stage. The first very important aspect was the Land Tenure Systems Reform. The second part that was outstanding was the detail around recapitalisation and development because there they had to work on what were the appropriate institutions to support the recapitalisation and development process. They had met with several farmers and associations to look at how they could form partnerships linking up with this kind of institution. Minister Nkwinti said that the deadline they had put on it at the Cabinet Lekgotla was 31 May.

Q: Reference was made to the Land Claims Commission shortfall. It had been looking to get another 16bn but it had only been given 5.2bn. Minister Nkwinti was asked if this problem had been solved or how he was planning to rectify that.
 
Q: The Minister was asked how much of the land redistribution challenge was about land being owned by foreigners. Could he give an idea of how much land was in foreign hands and how he would deal with this problem?

Q: Minister Nkwinti was asked about the beneficiaries who were unable to use their farms. Was the ‘use it or lose it’ policy still in place and how many people were losing their farms?

A. Minister Nkwinti reminded them that the land claims process had been given a period of 10  years to complete the process. Fifteen years on and they were not close to completing the process except in the Western Cape which they could finish in 18 months. It was possible but for the rest of the country, it was not that easy at all. The huge sums of money required particularly for sugarcane plantations and forests took a chunk of the money that was required to buy this land. He had to look at how to the hectares with the rands.

He also had to balance between the people who had money and always tended to take Government to court. These were tension areas that related to restitution. He might have the money but it would not necessarily transfer many hectares of land. Parliament had picked up that imbalance about a year ago. It had said to the Director General that they saw the rands moving but where were the hectares? It was due to this factor; he had to look at how to balance that out as well. So that was part of the big challenge with restitution and also trying to plan the systems to ensure they were more efficient. These were the institutional and financial challenges they were working on to be more effective in using the rands that they have.

The quantities of land in foreign hands they could give at some point. But what they knew was that the rate foreigners were buying land was three times more than Government - whether for restitution or land redistribution. That was partly why they had to look at the system; it was inevitable because at some point they would end up not having land as a country. So they would look at the quantities and at some point they would actually make this information available.

’Use it or Lose it’ would work now, with the recapitalisation and development. Strategic partnerships would be formed with farmers whether active or retired. Their view was to give them a chance and establish a clear system of managing these farms. Provide necessary support and those who did not want to work the land, take them out. There was not going to be any compromise on that part. The only thing they thought they should strengthen was the support. Now that did not refer to those people who got land through restitution but those who got land through land redistribution. If they did not use that land, the state would take it. One talked about people not using the land, but this involved a lot of money. They had not talked about the revenue which the State had lost because 5.9 million hectares of farms, which were active and acquiring revenue for the State, had been handed over to people and more than 90% of those were not functional. They were not productive and therefore the State lost revenue. So they could not afford to go on like that. Agricultural sector production as a percentage of GDP was going down. Part of the reason was that a lot of land had been given to people that were not using it. No country could afford that.

Q. Minister van Schalkwyk was asked for the latest tourism figures. How badly had SA been hit by the recession and was he hoping that the World Cup in June would offset that?

Q: Tourism was supposed to be the thing that would try to make 2010 work for SA and have long-term benefits. People were going to come and find out what a great country they were and that was how they would get back all the billions spent. However MATCH was already giving back rooms by the truckload. How worried was Minister van Schalkwyk that international, intercontinental tourism was going to be a serious disappointment? Had he got anything planned to boost that between now and the beginning of the Cup?

A. Minister van Schalkwyk replied that the Tourism Industry globally was hit quite hard in 2009. They ended up with negative growth globally - minus 4%. In South Africa still ended up in positive territory but after seeing 4 years of record double digit growth year after year, they ended up with single digit growth in 2009. But they were still out performing their direct competititors and that was even before the World Cup. Now what they expected to do this year was to achieve what many people said 4 to 5 years ago was impossible to achieve. This year they would receive 10 million foreign tourists, and that in their view was a major achievement. They could not rest on their laurels. Historically they had relied on leisure tourism as the backbone of their tourism industry and it was quite clear that they had to diversify if they wanted to continue the kind of growth that they wanted. So business and convention tourism was absolutely vital as it made up 6% of their tourism foreign arrival figures at the moment. They want to increase that considerably to be within a few years one of the top ten long haul convention destinations in the world, and to do that they would have to professionalise their approach. What he was discussing with the industry at the moment was a national bid instrument initiative if not fully at least partly government funded. They also would like to launch, with the help of the private sector, a National Convention Bureau to ensure that they stop Johannesburg, Cape Town, and Durban undermining each other just to get events to host. They should do that in the competitive world outside as a country. Another area was Sport / Mega Event Tourism. It was a giant that they must wake up. At the moment 10% of their foreign arrivals were linked to sporting events. They had build up an enviable reputation but they had this entire infrastructure to use after 2010 and they had to roll out the post 2010 plan. From their side they already had their eye on post 2010. On 12 July that show would leave South Africa and they would have to continue to build this industry.

The World Cup itself was a 100 days from today. The President was in London addressing the media. They had no doubt that it would go well with arrivals for the FIFA World Cup. In terms of people watching the World Cup it was 34 billion people globally, it was a lot of people. In terms of the releasing of the rooms, to bring them back into the market, the industry told him this was normal practice. These people always had the escape clauses in the contracts. But they were keeping a close eye on it. He had no doubt they had enough accommodation so from that point of view they were ready.

On the pricing issue he had announced the previous week that they would in two to three weeks from now present the country with a proper report. Grant Thornton was doing the investigation on the pricing issue. It was very anecdotal - all the rumours that they were hearing. He had not seen a general trend of pricing in the accommodation sector but it was important that they have facts on which to base their discussions. The matter of airline prices was before the Competition Board at the moment but people should also shop around. He had held a meeting with some of the airlines the previous week. They always knew that they were a long haul destination. It would be more expensive from some of the source markets. But people could come here from Europe, via Emirates Air 3500 Euro, that was the whole package and was affordable. One had to be very careful on the pricing issue - not to use anecdotes and present that as a general trend.

Q: (inaudible)

Marthinus van Schalkwyk replied that in any country other than South Africa, that was how it was measured internationally as well.

 

 

 

Economic Sectors and Employment Cluster

Presented By:

Minister Nkwinti and Minister Pandor,

Chair and Co-Chair of the Cluster

02 March 2010

Introduction

 

The President has declared this year, The Year of Action. The mandate of the cluster is very clear, grow the economy and create jobs. We recognize that there are structural constraints which have skewed the development trajectory of the country. These include:

 

·        Persistent high levels of unemployment, inequality and poverty

·        Insufficient finance for investment in productive sectors and job creation

·        Low investment in R&D and limited contribution of technology-based or knowledge sectors

·        Uncompetitive and volatile exchange rate

·        Low savings rate

·        Long-term decline in agricultural and mining employment

·        Lack of economic diversification, by sector and by location

·        Limited progress in broadening participation

·        Abuse of dominance and uncompetitive behaviour in key input industries

·        Bottlenecks in logistics and energy infrastructure with often high and rising costs

·        Skills shortages to support growth

 

We are ready to attend to these structural constraints and have determined that there are areas where we can stimulate real growth to ensure job creation. Our response forms the basis of what we call a new growth path which we are still working to further refine.  We have, as a beginning, identified areas where we believe there is real potential. These were considered by the January 2010 Cabinet Lekgotla to constitute a new growth path.  They are the following:

 

1. Implementation of Phase II of the Framework Response to the International Economic crisis targeted at accelerating the recovery of jobs and of economic growth. As the President said in the State of the Nation Address, government will continue its support this year. The following priority steps are being taken:

§         Government (in collaboration with the social partners) will accelerate the implementation of the Training Lay-off Scheme; the scheme is intended to minimise job losses and facilitate re-training of workers to improve their skills and employability.

§         Funds will be disbursed annually through the IDC to companies in distress as loans or working capital. Stronger conditionalities will be put in place for companies accessing this support (which include limits on executive or management remuneration, payment of dividends and job losses).

§         Also, we will intensify the campaign to clamp down on illegal imports in order to protect our industries and consumers and address under-invoicing.

 

2. Industrial policy that puts manufacturing, services and other productive sectors as the engine of sustainable growth. Minister Davies has adequately outlined the IPAP2 which reflects scaled-up interventions to support industrialisation and deliver on the decent work outcome. We are ready to implement.

 

3.   Science and innovation are critical for South Africa’s long-term competitiveness in a knowledge-intensive global economy. South Africa needs to build on its historical strength in scientific research, to exploit new technologies, and to discover new knowledge. South Africa’s investment in the SKA and SumbandilaSat reflect our commitment to large-scale projects that promise social and economic rewards well into the future. In the 2010 MTEF, we will intensify our emphasis on innovation in our five identified areas of research. This means that we will accelerate long term R&D led industrial development opportunities in biotechnology, ICT and electronics, bio composite materials, renewable energy, titanium beneficiation, high-value chemicals, advanced batteries, agro-processing, and high-value agricultural products.

 

·        It means: Improved exploitation of large-scale science-based initiatives to support local manufacturing and skills development. This week the DST launched its Technology Assistance Packages to manufacturing companies successfully benchmarked in the foundry industry for participation in the Competitive Supplier Development Programmes of both Eskom and Transnet.

·        A bio-economy strategy will be on the outcomes of the research and development in the biotechnology. The aim will be to develop bio-pharmaceuticals, recombinant vaccines, new plant varieties and industrial enzymes. This will require ever closer links with the relevant industry sectors, other ‘line function’ departments, and the promotion of South African capabilities abroad.

 

The Cluster will also continue to implement initiatives to reduce the cost of retail communication services by 30% to enhance ICT application in business development and domestic use. Both the Electronics Communications and ICASA Act will be amended to support this objective. In addition the local manufacture of set top boxes will be promoted.

 

4.   Increasing concerns in relation to carbon emissions and climate change will have a profound impact on the number of green jobs in a South African “green economy”. Green jobs will grow both directly and indirectly in the transport, energy, building, manufacturing, agriculture and forestry sectors. Directly, there will be jobs in producing specific greener goods and services. There will be employment in the manufacture, installation and operation of clean energy for people like wind turbine engineers, insulation installers, recycling sorters and photovoltaic cell salespeople. Indirectly, there will be jobs in the greener-goods supply chain – from solar cell manufacturers to green building materials retailers to wind farm maintenance firms to recycling haulers to energy auditors. And most importantly there will be battery manufacturers with distribution centres at home and on the road.

 

Already government is supporting clean energy research at a number of universities, has invested in an electric car, and is soon to launch the prototype of an e-bike. Last December, Pierre Terblanche, the world famous South African-born designer of leading motorbikes, began to design a South African hybrid electric bike. The Systems Integration Centre of Competence from the DST’s Hydrogen Programme is currently - together with the Tshwane University of Technology-based Institute for Advanced Tooling - working on the power system for the bike.

By July 2010 the Cluster will finalise a ‘green economy’ plan to be presented to Cabinet.

 

5.   Rural development including agriculture and agro-processing that is integrated and supports mainstream economic activities. The successes in the pilot programme show us that we are on the right track to transform rural economies and livelihoods. We will scale up the Comprehensive Rural Development programme to include over 150 wards across the country.

A “Job Creation Model” has been developed to ensure that one person per participating household is trained and placed on two year employment contract. As part of the contract, each person employed will contribute at least 50% of the income to the household. Key to this will be creating an enabling environment through construction and rehabilitation of economic infrastructure like agriparks, road networks and access to ICT;  organising communities into cooperatives and establishment of small enterprises.

 

In addition, resuscitation plans will be developed for farms under distress, which government acquired through land distribution and restitution since 1994.  The plans will include on-off farm infrastructure, mechanisation, skills training and extension support and other much needed operational inputs, through various strategies such as mentoring, co-management and share equity. This investment is vital in ensuring that these farms produce much needed food and incomes for land reform beneficiaries, their families and society as a whole.

 

Support will also be provided to black farmers who are indebted to the Land Bank and face the prospect of losing their farms, thereby rolling back the limited gains we have made in land redistribution.   A review of the Land Tenure Systems Reform, to bring about a more effective system of land tenure will be undertaken.

 

6.   Leverage public sector for employment and creation of employment opportunities. The Cluster will continue implementing the public sector employment programmes (i.e. EPWP II). This is targeted to provide employment and income generation opportunities for those who are unemployed. It is estimated that 2 million jobs opportunities will be created through this programme by 2014. Government will also increase the number of people with disabilities in Sheltered Employment Factories.

 

7.   Enterprise development, SMMEs play a critical role in the creation of jobs and innovation and support for their development will continue to be a focus of the Cluster. Funds will be set aside for lending by Khula to small enterprises. Further work will be undertaken to redirect a series of financial and non-financial support, to improve income generation and quality of production of enterprises in the informal economy. Recapitalisation of Khula and Samaf will be considered. A new cooperatives model will be developed to strengthen support given to cooperatives both financial and non-financial. This will include the establishment of the Cooperatives Development Agency.

 

8.                  Tourism sector

The tourism sector is an essential contributor to GDP growth, creation of decent work and job opportunities. The World Cup is a test of our organizing ability and tourism infrastructure. The intention is to increase the number of domestic and international tourist. The diversification of the sector is expected to realize new rural based products by 2014 /15 as well as new niche products.

 

The cluster will coordinate work in other areas in order to deliver decent jobs and inclusive and diversified economic growth. Particularly regarding

•         Provision of efficient and cost effective infrastructure

•         Implementation of measures to support the development of skills for sustainable economic growth

•         Regional Integration

 

Conclusion

The budget tabled by Minister Gordhan indicates a strong commitment to government’s priorities which we have outlined above. The current economic context and growth trajectory necessitate that we expand our interventions to deal with the structural constraints which have inhibited the economy from producing the employment and poverty reduction outcomes that we expect. The key priority for the Cluster is therefore to restructure the economy and set it on an employment and growth generating path.

 

We are going to examine other opportunities which we believe are in the economic sectors for positive employment outcomes these includes, mining, mineral beneficiation support for agriculture. The Cluster intends to finalise all elements of this Growth Path for consideration by Cabinet during its mid-year Cabinet Lekgotla.