New Growth Path: Minister of Economic Development progress report; Economic Development BRRR

Meeting report

Opening Remarks

The Chairperson welcomed the Members and submitted the agenda for the day. The first item was a briefing from the Research Unit on the SMART Goals of the Committee. This was, followed by the consideration of the Budgetary Review and Recommendations Report (BRRR), and lastly there would be a presentation of the New Growth Path (NGP) Preliminary mid-term review to be presented by the Minister of Economic Development.

The Chairperson cautioned that the Committee ought to stick to time given that the Minister of Finance was delivering his medium term budget speech later that afternoon.

The Chairperson also highlighted that the NGP Report was going to be an on-going discussion, therefore, the Minister can respond to the Member’s questions either in writing or when he came to account to the Committee again.

The Minister promised to respond in writing, and members were satisfied with that.

Briefing on SMART (Specific, Measurable, Achievable, Relevant and Time-bound) Goals of the Portfolio Committee

Ms Nwabisa Mbelekana, Committee Researcher, briefly took the Members through the presentation focusing on key areas that relate to the framework and annual performance plans, so that the Committee can be able to re-focus its discussions on that as it assesses the Annual Performance Plan (APP) of the Department. It was important to zoom in on what is expected from the Committee as the process of APPs unfolds.

The most important documents that the Department must account on in the Committee include:

• The Five year Strategic Plan
• Annual Performance Plan which must be aligned to the MTEF with annual and quarterly performance targets
• Quarterly reporting; and
• Alignment of reporting between the Strategic Plan, Annual performance plan, budget documents as well as quarterly reporting documents.

In so doing the Department would be able ensure that it identifies a core set of indicators needed to monitor institutional performance so that it can be easier for the Committee and Parliament to track the performance of the Department. The key thing in the documents: they must contain SMART targets, and ensure that the relevant legislative framework is abided by. This means that the Members should be able to see clearly the output and outcomes in terms of the medium term results and the impact, thereof.

The implication for Parliament is the Committee should ensure that the Department fulfils the requirements of these legislative frameworks. When one looked at the documents, they had to be analysed in terms of the SMART principles and importantly to ensure that the outcomes, outputs, set targets and programmes are aligned with the SMART principles.

The Chairperson asked Members to pose any questions they have concerning the role of the Committee when perusing the accountability documents from the Department.

Economic Development Budgetary Review and Recommendations Report (BRRR)

The Chairperson took the Committee through the BRRR page by page for members to submit their comments, questions and contributions.

Dr M Cardo (DA) had a query regarding section 8.1.2, the last paragraph that reads as follows, “The Committee believes that the strict implementation and monitoring of the NGP targets could have softened the impact of economic shocks on unemployment and economic growth, and subsequently inequality and poverty levels.” He did not think this statement was true; those economic shocks were going to occur regardless of how strictly the NGP targets were monitored and implemented.

Mr S Tleane (ANC) said that the spirit of the paragraph centres around the word “softened”, it did not say eradicate. If monitoring was stricter then perhaps the impact of these economic shocks would have been benign.

Dr Cardo said his concern is that we are talking about a global picture of economic shocks and it is unrealistic to think that the Committee just by strictly implementing and monitoring the NGP targets could have made any difference to those shocks. He believes it would not have any effect even if it’s just softening.

Mr P Atkinson (DA) concurred with Dr Cardo, strictly because the economic shocks are beyond the control of the SA economy.

The Chairperson understood that these shocks stemmed from both internal and external factors. However, she asked, what about softening the internal shocks.

Mr Tleane stated that the focus of the sentence is on the NGP targets to be reached, which have the potential to improve the situation and indeed the targets of the NGP are very crucial and cover important aspects of the economy.

Mr Atkinson proposed that in the sentence perhaps the internal and external shocks should then be brought into the sentence.

The Chairperson asked how the sentence should be structured.

Dr Cardo said that the Committee should try move away from the focus of the targets, because no matter how much it insisted that the targets must be reached it will not make a difference if you look at other contributing factors which would allow the Department to reach those targets. For example, if there are certain things that need to be done to improve the infrastructure or help unblock certain things which stunt economic growth those would help us reach the targets. What we are saying here is that, we need to strictly implement the targets; the focus should be more on the kind of enabling factors that would allow us to meet the targets. So he proposed that the sentence be rephrased as follows, “contributing factors that would enable the NGP targets to be met...” it needs to be re-framed in a manner that focuses less on the targets themselves than the kind of actions that we as a Committee should pursue in order to reach the targets.

The Chairperson said that it can be recorded as proposed. As much as the Committee was concerned about unemployment and poverty rate, what could it have done to unlock some of the challenges that could have led to, especially local economic growth issues, in as far as both micro and macro economic factors are concerned? So we need to look at what is the role of the Committee in assisting some of these challenges to ensure that the performance is better than where it is now, should we have intensified our oversight role and if so, in what manner.

Members also rectified grammatical and spelling errors in the document.

The Chairperson then asked the members to adopt the Report.

Mr M Mbatha (EFF) stated that he did not agree with the Report and would therefore not its adoption.

The DA members also stated that they will reserve their right to not adopt the Report. While they did not reject the Report in its current form, they would engage further with the party caucus on the report.

The rest of the members moved for the adoption of the Report with the proposed amendments.

The report was adopted with amendments.

The Chairperson announced the third item in the agenda – the briefing by the Minister on the NGP preliminary mid-term review.

Briefing by the Minister of Economic Development on the New Growth Path

The Minister stated he will rapidly summarise the important parts of the Report due to time constraints and to allow the Members to have an opportunity to engage with the delegation.

The Minister highlighted that the 2008/9 Global Crisis exposed the structural problems in the SA economy and consequently the new administration at the time was confronted with a recession. To mitigate the recession there were three interventions that came to the fore, the first one was the short-term measures to stabilise the economy (Framework of SA response to the recession). Secondly, the economic strategy NGP was determined as a medium-term measure, and lastly, the NDP was developed, which is a roadmap to 2030 as a long term measure. The Minister highlighted that today he will touch on unemployment and employment that the economy as a whole has been able to generate.

Before adopting the NGP there were 13 638 000 jobs, by 30 June 2016 the statistics showed 15 545 000 jobs that have been created thus far. Therefore, since the adoption of the NGP the net jobs created were 1.9 million. Of the number of new jobs created the private sector created 1 146 000 and government and its utilities created 749 000 jobs. Gauteng had the highest employment rate, followed by Limpopo and the Western Cape, respectively. NGP was developed as a response to promote equitable growth and employment after the global financial crisis in 2008-2009. However, internationally, the recovery since the crisis has remained lackluster and growth has been lower than required to reach the country’s development goals. Growth in infrastructure increased jobs in constructions, which is mainly attributed to the fact that the investment in infrastructure increased by 4.5% per annum from 2010. As a result employment in construction grew to 1.46 million in September 2015, and the private sector should be given credit for stepping up and participating in the job creations in this sector. The Medupi and Kusile infrastructure investment programmes resulted in 200 000 direct jobs in projects monitored by the Presidential Infrastructure Coordinating Commission (PICC). The projects have Strategic Integrated Projects that combines more than 300 projects for better coordination and implementation. The infrastructure spending for these programmes are significantly higher, and the total amount spent to date is R109.1 billion.

With regards to agricultural sector, in March 2015, Cabinet approved the five year Agricultural Policy Action Plan (APAP) in order provide focused interventions to promote labour absorption and broaden market participation, create jobs and contribute to food security. The Policy aims to bring one million hectares of underused land into full production over the next five years. R1.2 bn was invested by DRDLR (Department of Rural Development and Land Reform) last year to recapitalise 414 land reform farms and support 1 357 poor farmers. There was a drought relief provided by government where 53 607 smallholders farmers (R795 million) and 78 863 farmers were supported. Notably, Coca-Cola set up a fund for emerging farmers to procure at least 80% apples, pears and grapes for fruit used to make Appletizer. Over the NGP period the IDC disbursed R3bn to the agriculture and agro-processing sector.

In the Mining sector, there was a 56% increase in investment in mining for six years post the NGP compared to pre GDP (Gross Domestic Product) in real terms. Therefore, the total jobs in mining increased by 118 000 to 329 000. The global commodity growth caused the rate of growth of value added to be slow and decrease, due to rising inputs costs and strained labour relations the steel production fell by 33% between 2008 and 2015. Government intervened to mitigate the loss through local procurement designations, efforts to stabilise labour relations, investment in fuel-cell technologies, etc. and the decline in iron ore prices was unfavourable to the mining sector.

Manufacturing was hit hard by the 2008 financial crisis causing jobs in the sector to decline by 293 000 between 2008 and 2010. The recovery in the sector is linked to the global recovery; consequently value added rose to 7% between 2010 and 2016. However, the pace of increased investment has been slow. Whilst manufacturing output grew in real terms over the NGP period, it was accompanied by decreased manufacturing jobs. Government support for the sector through the Clothing and Textiles Competitiveness Programme was R3.6 bn over the NGP period plus R3.1 bn in loans and equity through the IDC.

In the Green Economy by March 2016 the IDC had invested R18.7 bn in the green-energy sector, broken down as follows:

• Renewable energy R14.9 bn
• Energy efficiency R450 million
• Fuel based energy R2.02 bn
• Bio-fuels R1.4 bn

The IDC also invested R622 million through the Green Energy Efficiency Fund (GEEF) which contributed to energy savings of 813 727 Mwh per annum. This was equivalent to energy use of the City of Cape Town for a month, and emissions of 773 472 tonnes of CO2 were reduced per annum. The investment funding stemming from the private sector amounted to R194 bn, as a result 28 185 full time jobs were created as 30 June 2016.

The Minister noted that government intervention was also evident and favourable towards the creation of employment in the tourism, film-based, knowledge-based sectors. These interventions are mostly eminent in the period post the implementation of the NGP.

Discussion

The Chairperson stated that she was happy with the work that had been done thus far, however, more still needed to be done. She highlighted that due to time constraints and the fact that this was going to be an on-going discussion Members will be limited to the number of questions they can ask so that everyone can get an opportunity to ask a clarity seeking question. She handed over to the Members.

Mr Atkinson asked what can be done by the Department and government to encourage public enterprises to invest in R&D and infrastructure, in fact, in the overall economy as a whole.

Dr Cardo asked whether the 5 million job target by 2020 was realistic given the constraint of growth forecasts, if not, will this medium term review process provide an opportunity to revise that figure? Secondly, he said the means to achieve that target is identified in the presentation in slide five where it stated that ‘change the structure of the economy to have more labour absorbing growth’. What did the Minister regard as the major constraint to labour absorption and in particular, what is the EDD doing to ensure that the labour market is flexible? Is the Department engaged in specific activities to withdraw restrictive labour legislation or to introduce legislation to labour market to make it more flexible? Finally, he asked the Minister if he believes the national minimum wage might serve to hamper employment growth. On youth and education Accords, will the accords be subject to their own medium term reviews and what do you think about what the university sector is currently going through now is going to impact on employment in the next four years of the NGP.

Mr Tleane asked about the Soya crushing plant in Standerton. When the Committee did an oversight visit there a while ago it was just starting and Members were informed at that time that they had to import the beans from Brazil and now that it’s operational for some time, what is the output now in that plant? Secondly, is there progress made regarding Skaw Metals, because the longer it drags the more complicated the situation will be. It is appreciated that the country is exporting 29% to Africa, but what is the situation in countries like Angola where there are minerals? In the films industry the DTI reported 81 000 jobs created in that sector, but what kind of jobs are being reflected there, does the figure include local artist empowerment and growth?

Ms Matsimbi asked about the job drivers in the manufacturing sector - the fact that they are going down but output is going up, is there anything that can be done by the Department to stop the manufacturing heads from making use of the new technology that causes a decrease in job creation or reduce job losses? Secondly, with regards the FeesMustFall crisis, is there anything that can be done to make the companies that are fined for uncompetitive behaviour dedicate 10% of that towards higher learning education in the country?

The Chairperson stated that in the APDP (Automotive Production and Development Programme) programme, the type of investment compared to the jobs that are created is very minuscule. She asked if it corresponds to the level of investment made and whether the Department is happy that foreign companies are being retained in the country and incentivised accordingly just to retain jobs. Is the amount of incentives allowed translates to the number of jobs that these companies create? Another key thing to note is the IDC investment against jobs creation, when you compare R13 bn and only 30 000 jobs created from it, is it really worth it, can’t the money be invested elsewhere in which more jobs can actually be created.

The Minister could not answer the questions due to time constraints.

The Chairperson adjourned the meeting.