THE MICROECONOMIC REFORM STRATEGY
The apartheid legacy
Since coming into power in 1994, the ANC-led government instituted a number of macro and microeconomic reforms to address the domestic socio-economic challenges and reintegrate South Africa into the global economy.
The Reconstruction and Development Programme (RDP) was an extension of the vision contained in the Freedom Charter, which was adopted in 1955. The RDP set out to develop jobs, shelter, safe water, health care, nutrition, relevant education and safety and security for the people of South Africa in a people- centered and people-driven manner. It became apparent in 1996 that, in addition to the developmental objectives set in the RDP, government needed to more swiftly address high inflation, declining GDP growth and the large fiscal deficit. Thus, the Growth, Employment and Redistribution (GEAR) strategy was introduced.
The broad objective of GEAR was to transform South Africa into an outward, competitive economy through higher growth in non- gold exports, expansion in capital accumulation by the private sector, and investment and output that led to job-creation and increased infrastructural development.
Although we were able to create a sound macroeconomic base, by the end of 2000, levels of growth and employment were not adequate to meet the policy goals of the democratic government. Limits to growth persisted at the microeconomic level.
Macro vs micro: What does it mean?
Macroeconomic policy concerns the setting of economy-wide objectives by government. The main instruments to achieve these objectives are fiscal and monetary policy. Microeconomic policy concerns the rest - the efficient allocation of what is produced and how the quantities produced could be increased to stimulate economic growth.
Why microeconomic reform?
Growth and development lies within the microeconomy. The purpose of microeconomic reforms is to deepen the structural changes in the economy and strengthen institutional capacity to deliver services and products that will facilitate social and economic development.
South Africa is said to have two economies, one developed and one underdeveloped. In the developed economy there are obstacles to cost competitiveness such as tariffs charged by certain state-owned enterprises impeding the effectiveness of supply chains. Whilst in the underdeveloped economy there is lack of basic infrastructure, especially roads and communications, the labour market is characterised by a mismatch of demand and supply due to low levels of skills and education among the workforce.
There is also technological under-provision; thus per capita expenditure on information technology is low compared to South Africa's competitors. Investment in research and development is inadequate, public science and technology infrastructure is weak and there is a low level of public science awareness. By implementing the Microeconomic Reform Strategy, government aims to remove these obstacles to economic growth.
What is the Microeconomic Reform Strategy (MERS)?
MERS is a revision of the Integrated Economic Action Plan announced by President Thabo Mbeki in 2001. It seeks to impact positively on three key performance areas, namely growth, employment and equity. The strategy has three elements:
Economic Fundamentals
South Africa's competitiveness requires that a set of fundamentals be in place in the economy and that they include appropriate and efficient economic and social infrastructure, access to finance for productive activities, investment in research and development, innovation and the take-up of new technologies, as well as investment in human capital. Crosscutting issues identified in the Microeconomic Reform Strategy include technology, human resources development, access to finance and infrastructure.
These fundamentals have to be developed in a manner that allows for a more equitable and sustainable geographic spread of economic resources and activity. They should also go hand in hand with an increase in the productive participation of those historically and currently excluded from the mainstream of the economy and should support the development of small and collective enterprises.
Input sectors
Input costs impact on all economic activities across the economy. Government controls the following four input sectors: transport, energy, water and telecommunications, and can therefore ensure that these sectors are cost competitive, efficient and accessible.
Priority sectors
Several sectors in the economy have considerable potential for increased output, value addition, exports and employment creation. Government has identified the following priority sectors as its key areas of attention. They are:
Logic and focus of MERS
Priority growth & labour absorbing sectors
Infrastructure required to serve these sectors
Cross-cutting Interventions to infuse MERS implementation
No single department will be able to implement the Microeconomic Reform Strategy on its own. The MERS sets out to effect greater policy coherence and better coordination in service delivery. It is also important to recognise that MERS is part of a broader set of government strategies to address South Africa's development.
The effective implementation of MERS will contribute to the achievement of government's vision for the economy: By 2014 South Africa will have a restructured and adaptive economy characterised by growth, employment and equity, based on the full potential of all persons, communities and geographic areas.
THE INTERGRATED MANUFACTURING STRATEGY
What is the Intergrated Manufacturing Strategy (IMS)
It is the Department of Trade and Industry's strategy to develop an integrated manufacturing economy in South Africa that will contribute to growth, employment creation and equity.
South Africa already has a diversified manufacturing base that has shown resilience and the potential to compete in the world economy. The IMS, which places manufacturing at the centre of South Africa's growth path, seeks to build on this foundation by taking a holistic view of the manufacturing value chain and the inputs and activities that will support improved competitiveness.
Essentially, an integrated manufacturing strategy is one that embraces all processes that transform natural products into manufactured products and also encompasses various related activities and services. Put simply, it will include wide-ranging activities from the extraction of raw materials and procurement of inputs to production of intermediate and final products, packaging, marketing, distribution and retail.
The IMS could be understood as bringing together parts of the production process into a whole with the aim of improving South Africa's competitiveness in the global economy. It includes interventions such as market access, beneficiation and value addition, regional production, equity and economic participation, knowledge intensity and services integration and the development of integrated value matrices. It is through the unification of these aspects, each of which is discussed in more detail in the next sections of this document, that we will achieve our vision of bringing about a more competitive economy that has P wider participation, growth and employment.
Market access
This entails increasing entry of our goods and services to large markets and establishing new trade links. The emphasis is on increasing the export of higher value-added goods and improving our economy' s share of total global trade. Significant strides in this regard have been made through multilateral negotiations facilitated through the World Trade Organisation, regional arrangements such as the South African Customs Union (SACU) and Southern African Development Community, and bilateral negotiations through the European Union and the African Growth and Opportunity Act of the United States. Another relevant issue is domestic market access for black owned enterprises and small businesses.
Regional Production
The South African economy is connected with that of the SADC region as a whole, hence the need to take the region into consideration in the strategy. This approach will enhance the existing pool of resources and synergies to lower relative costs of production and develop productive capacity in the region. This necessitates the alignment of infrastructure, logistics systems and inputs such as water and energy, as well as the co ordination of customs, excise, employment and migration policies.
Beneficiation and value addition
This forms the crux of the strategy of bringing about integrated manufacturing. The South African economy is well endowed with natural resources and raw materials. However, we have previously failed to use our comparative advantage in mineral resources by exporting these in their raw state, with little or no selling prices, thereby generating greater foreign exchange inflows. Beneficiation also involves the establishment of new industries and upgrading of existing ones, in turn supporting job creation.
Equity and economic participation
Increased economic participation by previously disadvantaged individuals (PDIs) is pivotal in building an integrated manufacturing sector. This will be done by improving their access to government services and support structures, increasing their participation in policy processes, institutions and social dialogue, and by establishing co operatives. Government will draw on the expertise of trade unions and community organisations in the development of appropriate offerings to promote co operatives.
Knowledge-intensity and services integration
Knowledge intensity is important as it affects all production processes, from the way in which natural resources are extracted to the means of getting the product or service to the customer. Knowledge intensity refers to the use of knowledge and information in the production and distribution processes through the use of Information and Communication Technologies (ICTs) such as computer-aided design and computer-aided manufacturing processes. Our competitiveness can also be improved through as the use of engineering, project management, marketing, industrial design, financial, freight, and transport and logistics services. Since knowledge-intensive industries are now at the core of growth, it is imperative for South Africa to generate indigenous knowledge and invest in our diverse human capital.
Integrated value matrices
In the past, there was a tendency in South Africa to consider sectors separately or as unrelated, the dti has recognised that the matrix of relationships and interconnectivity of the sectors is important in assessing and establishing competitive capacity. This entails establishing value chains that will foster integration of activities in different sectors. The value chain is a high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers. A critical prerequisite for success in a knowledge-based economy is the implementation of an integrated value chain that extends across and beyond the enterprise.
Implementing the IMS
the dti will implement the IMS through a set of customised programmes that will promote competitiveness in specific sectors and value chains. These programmes are in the process of being developed by the dti and correspond with the priority sectors identified by national government in the Micro Economic Reform Strategy. The sectors that are prioritised are those that demonstrate potential for growth. The strategy will be implemented in conjunction with other role-players in the economy, thereby contributing to the achievement of higher levels of economic growth, employment and equity in South Africa. The dti will seek to ensure that there is a fair, transparent and efficient regulatory business environment, promote investment through the customised sector and value chain strategies, expand access to finance for productive activities through its family of institutions (COTII) and build greater economic policy coherence in government.
Conclusion
The IMS seeks to address the industrial sector's growth path through more efficient and accessible broad-based measures, as well as customised support measures that address constraints at a sectoral and value chain level.
THE ROAD TO UNDERSTAND BROAD BASED BLACK ECONOMIC EMPOWERMENT
Introduction
The apartheid system and various forms of racism that preceded it systematically disempowered the majority of South Africa's citizens by deliberately excluding them from the economic mainstream. The impact of this systematic disempowerment not only resulted in a landless black majority with restricted access to skills development, But also deliberately prohibited black people from generating self-employment and entrepreneurship. South Africans were systematically deprived of viable business opportunities in the following ways:
• Apartheid confined the majority of African people to homeland areas, which were not only the poorest in terms of living conditions, infrastructure and business opportunities, but also lacked a dynamic business infrastructure and environment.
• Racially segregated areas enforced through the Group Areas Act not only uprooted millions from their places of residence, but also led to large capital losses and virtually destroyed the fabric of black small enterprises.
• The drastic curtailment of property ownership rights of black persons made it possible for them to acquire assets that could serve as collateral for loan financing. It also excluded black persons from the long-run process of capital accrual and growth.
• A vastly inferior education system for black learners was enforced and this had devastating effects on skills, particularly technical and science skills, with the resultant negative impact on the economy and the poor positions that the majority of workers obtained in the labour market. Only a small minority gained access to higher education.
Since the early 1990s, various tentative steps have been undertaken by government to achieve greater equity and diffusion of economic power within the black community and the transformation of the economy in general. On the legislative front, a number of legislative measures were promulgated to effect transformation and equity in South Africa and these laws form a cohesive framework within which Broad-Based Black Economic Empowerment (BBBEE) is located. These legislative measures includes: Reconstruction and Development Programme; The Promotion of Equality and Prevention of Unfair Discrimination Act; Extension of Security of Tenure Act; Restitution of Land Rights Act; Employment Equity Act; National Empowerment Fund Act; Competition Act; Telecommunications Act; Preferential Procurement Policy Framework Act; and, the Minerals and Petroleum Development Act.
In response to the transformation challenges of the county government initiated a process that finally culminated in the adoption of the current BBBEE strategy. The process c formulating BBBEE strategy gained momentum and impetus after 2001 proceeding the BBBEE Commission's release ( its report (i.e. the BEE Commission Report), which contained as recommendations the adoption of an integrated nations BBBEE strategy, designed to co-ordinate measures to achieve meaningful participation by black people in the economy within 10 years.
The South African government has developed a multi-faceted approach to achieve black economic empowerment culminating in the enactment of the BBBEE Act, no. 53 of 2003, which came into effect on 21 April 2004. The Act is now the centerpiece of the government's policies to promote black economic empowerment. In precise terms, it is an enabling Act that creates a framework to guide organs of the state in promoting broad-based black economic empowerment. It does this by:
• Establishing a National Advisory Council to advise government on black economic empowerment;
• Enabling the Minister of Trade and Industry to issue codes of good practice to set bench-marks for implementing broad- based black economic empowerment;
• Facilitating the development of transformation charters for different sectors of the economy;
• Enabling for the provision of support services and funding to effect broad-based economic empowerment
• The Minister may make regulations with regard to any matter that it is necessary to prescribe in order to ensure the proper implementation of this Act.
Prior to the Act coming into effect, the dti issued a Strategy for Broad-Based Black Economic Empowerment. The strategy does the following:
• It set out government policy on broad-based black economic empowerment;
• It proposes a standard balanced scorecard for measuring broad-based black economic empowerment;
• It identifies sector, industry and company empowerment charters as an important means for enhancing black economic empowerment;
• It seeks to standardise definitions relevant to black economic empowerment;
• It proposes a plan for financing black economic empowerment: and
• It also provides a system for planning and reporting on the implementation of black economic empowerment.
The strategy defines broad-based black economic empowerment as an "integrated and coherent socio-economic process that directly contributes to the economic transformation of South Africa and brings about significant increases in the numbers of black people that manage, own and control the country's economy, as well as significant decreases in income inequalities". In other words, BBBEE process includes elements of human resource development, employment equity, enterprise development, preferential procurement, as well as investment, ownership and control of enterprises and economic assets.
The act speaks of broad-based black economic empowerment rather than just black economic empowerment. Its purpose in doing this is to emphasise that empowerment is not intended to benefit a wealthy elite only, but to benefit all black people. It seeks to facilitate ownership and management of enterprises by amongst others, black women, rural communities and cooperatives.
The Act defines "broad-based black economic empowerment" as - " the economic empowerment of all black people including women, workers, youth, people with disabilities and people living in rural areas through diverse but integrated socio-economic strategies that include, but are not limited to:
• Increasing the number of black people that manage, own anc control enterprises and productive assets;
• Facilitating ownership and management of enterprises and productive assets by communities, workers, cooperatives and other collective enterprises;
• Human resources and skills development;
• Achieving equitable representation in all occupational categories and levels in the workforce; • Preferential procurement; and
• Investment in enterprises that are owned or managed by black people".
The intended beneficiaries of BBBEE have been defined with a measure of considerable certainty and consistency in the BBBEE Act and it contemplates "meaningful participation of black people in the economy" The Act defines black people as a generic term which means Africans, coloureds, and Indians.
The strategy document lists the following as some of its policy objectives with which the successful implementation of the BBBEE strategy will be evaluated against:
• A substantial increase in the number of black people who have ownership and control of existing and new enterprises,
• A significant increase in the number of new black enterprises, black-empowered enterprises and black- engendered enterprises,
• A significant increase in number of black people in executive and senior management of enterprises,
• An increasing proportion of the ownership and management of economic activities vested in community and broad- based enterprises (such as trade unions, employee trusts, and other collective enterprises) and co-operatives
• Increased ownership of land and other productive assets, improved access to infrastructure, increased acquisition of skills, and increased participation in productive economic activities in under-developed areas including the 13 nodal areas identified in the Urban Renewal Programme and the Integrated Sustainable Rural Development Programme,
• Accelerated and shared economic growth • Increased income levels of black persons and a reduction of income inequalities between and within race groups.
The strategy is underpinned by four key principles:
• Black Economic Empowerment is broad based -
The process of BBBEE seeks to accelerate the deracialisation of the South African economy and fast track the re-entry of historically marginalised communities into the mainstream of the economy.
• Black Economic Empowerment is an inclusive process -
A more equitable economy will benefit all South Africans, individual and enterprises. All enterprises with the country are expected to participate in the process of BBBEE. The strategy will be implemented throughout all the sectors of the economy and is not limited only to those enterprises that derive income from government procurement or those where the sector is regulated by government.
• Black Economic Empowerment is associated with good governance -
BBBEE must be associated with highest standards of corporate governance. Concerted efforts would be made to ensure that the quality of corporate boards and governance is improved.
• Black Economic Empowerment is part of our growth Strategy-
Economic growth, development and BBBEE are complementary and related process. No economy can grow by excluding any part of its people and an economy
Government will utilize a number of policy instruments to achieve its objectives in respect of BBBEE. These include legislation and regulation, preferential procurement, institutional support, financial and other incentive schemes. In addition, government will seek partnerships with the private sector to accelerate the BBBEE process.
Government has also re-oriented many of its incentives an( enterprise support measures to promote broad-based black economic empowerment. Special efforts were made to increase public awareness of available incentives and enterprise support The decentralization of resources was expedited through the active participation of local and provincial government. The bull of the funding is likely to come from the private sector with State funds acting as facilitator. Funding will be done in a manner that does not jeopardize domestic or foreign sources of saving o investment.
Government has made a commitment to set aside finance to support the BBBEE process. In addition to introducing the Black Business Supplier Development Programme, a new mandate has been given to the National Empowerment Fund and the roles of other development finance and support institutions were reviewed, to ensure that these resources are effectively and efficiently employed. Financing mechanisms will be varied and will include guarantees, grants, incentive schemes, loans, State -facilitated lending, Project Financing, Venture Capital, Targeted Investment and equity financing.
Government will establish National Advisory Council to advise on the implementation of the BBBEE Strategy. The Minister of Trade and Industry will establish this council to advise the President on BBBEE and to:
• Review progress in achieving BBBEE,
• Provide advice, in the light of experience, on new programmes and instruments to achieve the agreed objectives of BBBEE,
• Facilitate partnerships between organs of the state and the private sector to enhance the implementation of BBBEE,
• Advise on sector and enterprise charters,
• Advise on codes of practice and guidelines.
• Advice on the development and amendment or replacement of the BBBEE strategy
Such advice can be incorporated in codes of good practice that the Minister of Trade and Industry can issue in terms of the Broad-Based Black Economic Empowerment legislation.
In order to promote the purposes of the Act, the Minister may by notice in the Gazette, issue codes of good practice on BBBEE that may include guidelines for stakeholders in the relevant sectors of the economy to draw up transformation charters for their sector. The Minister must publish in the Gazette for general information and promote a transformation charter for a particular sector of the economy, if the Minister is satisfied that the charter:
• Has been developed by major stakeholders in that sector;
• Advances the objectives of this Act; and
• The charter is in respect of a sector.
In order to ascertain whether a charter advances the objectives of the Act, the Minister would have to compare the objectives of the charter and its scorecard with the objectives of the BBBEE Act. The balanced scorecard seeks to achieve a number of goals central to the government's BBBEE strategy. Firstly, it provides a basis for attaining consistency in measurement of empowerment. This will allow different government departments, state-owned enterprises, and other public agencies to align their own procurement practices and individual BBBEE strategies and create incentives for empowerment. Specifically, it will be applied around the granting of licences such as gambling or mining, concessions to operate an asset on behalf of the state, sale of state asset or state owned enterprises and in entering into public and private partnerships.
The balanced scorecard also facilitates the process of setting measurable targets for BBBEE. The balanced scorecard will be issued as a Code of Good Practice in terms of the BBBEE act and will serve as a generic scorecard for measuring empowerment in sectors in which a sectoral transformation charter containing its own scorecard has not been developed. Secondly, the development of sectoral charters by stakeholders in the different economic sectors will allow for empowerment targets ; to be tailored to the circumstances of different sectors. In this regard, transformation charters that have been formulated are agreements between the parties to seek to achieve the specified ; levels of empowerment.