Cape Town - The new, labour absorbing economic growth path the cabinet has promised to put South Africa on is not simply another plan - it is something that needs to bring about radical transformation of the economy, said Finance Minister Pravin Gordhan.
Speaking to the media ahead of tabling his medium-term budget policy statement in parliament, Gordhan said the new growth path - which aims to cut unemployment from its current 25% to 10% in a decade - has to be a plan that every South Africa contributes to.
"The intent behind this plan is not cosmetic change," said Gordhan, who stressed that South Africa's developmental needs, its poverty levels and skills deficit need significant intervention.
But the mini budget makes it clear that state intervention is not the answer to faster, labour-absorbing growth.
It is the private sector which has the most potential to draw people into work.
"The private sector accounts for 75% of all economic activity and a slightly higher share of employment, and will remain the primary driver for job creation," stated Gordhan in his medium-term budget speech tabled in parliament on Wednesday, in which he elaborated on the new economic growth path announced by cabinet earlier in the week.
Gordhan's statement is clear about the fact that South Africa's present economic growth trajectory cannot meet the country's employment needs.
Higher economic growth is critical.
"To achieve this goal, our policies need to create a favourable environment for investment and productivity growth by removing bottlenecks to trade, reducing red tape, lowering the costs of doing business, delivering quality public services, increasing competition, removing barriers to entry, supporting innovation, expanding exports and encouraging youth employment," stated the mini budget.
Modelling work by the Treasury shows that if South Africa were to sustain 7% growth for 10 years, national income would double and the economy would generate about 5.5 million jobs, leading to what Gordhan calls a "dramatic reduction in poverty and inequality".
Higher growth is dependent on key factors, including prudent and sustainable macroeconomic and fiscal policies that keep inflation low, reduce real interest rates, moderate government debt levels, support financial stability and maintain a competitive real exchange rate.
"Such policies promote investment and job creation, and help to reduce the severity of boom/bust economic cycles," stated the speech which underscored how the Group of Twenty mutual assessment process prioritises prudent economic management.
"This process has identified 'growth-friendly' fiscal consolidation for countries with high or rapidly rising deficits and debt levels as a precondition for a balanced and sustainable international recovery.
"While governments are mindful of the risks of reducing spending too quickly, which could jeopardise
growth, there is a general commitment to halve fiscal deficits by 2013," stated the mini budget as a reminder of the precarious nature of global economic policy, and the need for South Africa's economic policy to remain cautious but focused on reforms that support better productivity.
These include better-quality education, stepped-up skills development, increased retirement savings, reforms to product and labour markets to promote efficiency and boost employment, greater competition, increased openness to international trade and infrastructure investment.
One of the key focus areas of the medium-term budget was competitiveness, and how this is essential to attract more foreign direct investment and for growing export industries.
Gordhan homed in on the recommendations for structural reform in South Africa that were made by the Organisation for Economic Cooperation and Development.
These include:
• Improving the quality of education by improving teacher training; addressing teacher underperformance effectively; improving provision of textbooks and teaching materials; and upgrading school infrastructure.
• Improving competition in network industries by removing legal barriers to entry; ending state-owned enterprises' exemptions from competition laws; moving towards separating generation, transmission and distribution of electricity; and strengthening the independence of the telecommunications regulator.
• Reforming the wage bargaining system to increase labour absorption.
• Strengthening policies to tackle youth unemployment through age differentiation of minimum wages in sectors where these are set by the state; implementing a wage subsidy; and intensifying placement assistance for young workers.
• Reducing barriers to entrepreneurship such as the burden of licences and permits and the complexity of rules and procedures; introducing a systematic regulatory impact assessment for significant new regulations; and reviewing existing legislation to reduce administrative burdens for small businesses.
The mini budget highlights how South Africa's competitiveness has declined over the past few years relative to its emerging market peers.
The Global Competitiveness Report for 2010/11 ranks South Africa 54th out of 139 countries, down from 45th in 2009/10.
South Africa still ranks highly in several areas – the soundness of banks, the availability of financial services, the strength of auditing and reporting standards, and the legal system.
But the bottom line, said Gordhan, was that these positive rankings are offset by poor performance in other areas, including basic education and health (129th), labour market efficiency (97th), technological readiness (76th), higher education and skills (75th) and infrastructure (63rd).
"Competition, along with low costs of capital and other production inputs, is important for inventing new goods or services and for breaking into new markets. For South Africa to produce goods that are competitive internationally, the costs of production need to be in line with (or even lower than) those prevailing in other countries," stated the min budget, which pointed out that South Africa's transport and communication prices are ar present higher than those of its major competitors.
The medium-term budget also stressed that containing inflation and aligning wage costs and productivity were important factors in increasing competitiveness.
- Fin24