Joel Netshitenzhe:

Executive Director: MISTRA

May 2012

WRITING A NEW STORYLINE FOR SOUTH AFRICA:

Does business have a role?

MAIN THEMES

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❶ Strategic conjuncture: where are

we as a nation?

❷ A new growth trajectory: the

possible interventions

❸ Leadership: trade-offs and capacity

❹ Managing the policy discourse

❺ Way forward

STRATEGIC CONJUNCTURE

National Strategic Planning – beyond „political

miracle‟, opportunity today together to develop a

national vision and detailed long-term plans about the

South African ideal (Vision 2030):

► requiring identification of objectives, contribution, benefits,

trade-offs and sacrifices – beyond lowest common denominator

► choice for sector leaders (critique from side-lines or pro-actively

contribute ideas on sector and broader economy)

Positives and negatives of high-growth years:

► rates of investment by both public and private sectors;

unemployment reduced 31% (2003) to 23% in 2008

► yet structure of the economy did not change: increased

services; low manufacturing capacity; low savings; low SME

involvement and low labour participation rate

Opportunities and challenges

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STRATEGIC CONJUNCTURE Poverty and inequality

Household with persons below 1995 2005 2008

- R524 a month (IES) 53% 48% 49%

- R388 a month (AMPS) 52% 45% 39%

In large measure it reflects improvements in employment – though

this has been negatively affected by the economic downturn – and

access to social grants (from 2.4m in 1997 to 15.3m in 2011).

Development Indicators, 2010: The Presidency

❶ Income poverty headcount (in 2008 constant Rand):

❷ Depth and severity of poverty:

► the depth of poverty (how far below the poverty line the poorest are) has

declined, reflecting mainly low-paying jobs and social grants

► however, the severity of poverty (square of gap between poverty line and

incomes of poor) has not declined: inequality is not decreasing

► Gini coefficient at about 0.67: poorest 20% earn 2.3% of National Income

and richest 20% about 70%

The „youth deficit‟

► Demographic (youth) bulge and youth unemployment: hittistes (Tunisia),

shabab atileen (Egypt), freeters (Japan), NEETs (UK), mileuristas (Spain):

“…failure …of young people to find a place in society…[and] of society… to

harness the energy, intelligence, and enthusiasm of the next generation” Peter

Coy, Bloomberg Businessweek, 02/02/2011

Global phenomenon of youth marginalisation…

STRATEGIC CONJUNCTURE

► Youth employment ratio for 15 – 24 year olds: 13.2%; compared to

40% in comparator countries (Asia & Latin America): 50% of those looking

for work are jobless (62.5% for 15 – 19, and 48.2% for 20 – 24 compared

to 25.2% for working age population as a whole)

► Education and employment: 86% of these unemployed youths have not

gone beyond Grade 12 and two-thirds have never worked

Aggravated by inequality (not so much poverty): “inequality... is an

equal opportunity disease, something that has direct impact on

everyone” (Guardian Review of Spirit Level, R Wilkinson & K Pickett) 5

Conditions of youth worse in SA…

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IDENTIFYING INTERVENTIONS Hierarchy of impact and sustainability

Social grants are quite effective as a direct transfer; but they

are weak on long-term impact, including fiscal sustainability. It

is precisely those interventions with better longer-term impact

that require participation by other social partners.

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Long-term impact on poverty and exclusion

Full-time employment

Support for micro enterprise

Public employment programmes

Social grants

Free basic services and housing

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Long-term impact on poverty and exclusion

Full-time employment

Support for micro enterprise

Public employment programmes

Social grants

Free basic services and housing

Anti-poverty Strategy: The Presidency

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❶ Multiplier effect of infrastructure programmes:

► Over R800bn has been budgeted as rolling investment every three years:

direct employment; crowd in private sector; advance supplier industries and

there are opportunities in sub-Saharan Africa for a few decades to come

Starting point: growth storyline

❷ Aggregate demand and shared growth:

► Growth (SA and SSA) generates virtuous cycle, with profound opportunities for

manufacturing, including current imports and other IPAP sectors; as well as

measures such as SME facilitation, rural development and skills training

IDENTIFYING INTERVENTIONS

► Balance cost and opportunity: forward and backward linkages and job

opportunities depending on R&D, regulations, procurement and feed-in tariffs

❸ Opportunities in the Green Economy

► Super-cycle anchored in demand from global growth regions; opportunities for

PGM and fuel cell technology – creating possibilities for mature industrial

cluster

❹ Mining as catalyst for new industrialisation drive:

Also need urgent action on e.g. youth

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► Education and skills development: direct correlation with

household income, initiative to start and sustain a small enterprise,

confidence among young women to pursue economic opportunities

► Wage subsidy: critical to address the school-to-work transition and

incentivise employment of youth at least to gain experience

► Learnerships: as part of skills development, and can be multiplied

many-fold if a deliberate campaign is undertaken (57% transition to

employment)

► Public Works Programme: ensure implementation of Phase II, with

focus on youth and women

► Jobs transition through the state: special dispensation for young

workers in services such as CDW‟s, auxilliary nurses and social

workers

► Entrepreneurship: assist youth and improve SA‟s TEA Index

including better creativity with BBBEE and land reform

IDENTIFYING INTERVENTIONS

LEADERSHIP Some trade-offs and choices

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Experience during global economic crisis (2009)

Germany UK South Africa

% change: GDP -5% -6% -1.8%

% change: employment -4% -2% -6%

Extrapolation from Hilary Joffe, Business Day (20/04/2010)

Contribution and reward in income distribution

Executive packages can be excessive and worsen inequality (trickle-up); while

high wage increases without productivity improvements can be unsustainable

Possible to strike balance: e.g. how do Japan & Sweden sustain lower inequality?

Insiders and outsiders

Companies dominant in a particular sector can use all kinds of mechanisms to block

new entrants

In pursuit of „decent work‟, unions can negotiate small companies out of the market,

e.g., dynamics in textile sector

Long-term rewards and instant gratification

During boom years, government can be tempted to squander all high tax yields

instead of adopting a counter-cyclical fiscal policy

In the private sector, short-termism does express itself in a clamour for

permanently high quarterly returns and distribution of dividends at the expense of

long-term investment

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LEADERSHIP Some trade-offs and choices

MCKINSEY & CO COUNTS THE COST OF GALLEON SCANDAL

“Mr Barton said there was a wider drop in trust in business since the global

financial crisis, which would require capitalism to adopt a longer-term

perspective, freeing executives from running their companies merely to hit

quarterly earnings targets. McKinsey aims to change asset managers‟

incentives and methods of measuring performance to encourage a longer-

term approach from investors.”

FT (11/07/2011) quoting Dominic Barton, McKinsey’s Global Managing Director

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LEADERSHIP

A developmental state plays a critical role in leading economic

development: policy-making, regulation, provision of public

goods, procurement, R&D efforts…

State capability and legitimacy

Ramping up state capacity & legitimacy – supported by all sectors

Introduction of National Strategic Planning and M&E functions and measures to

address „service delivery‟ weaknesses

Requires professionalism and stability in public service; conduct that reinforces

legitimacy of state and offices individuals occupy; capacity and courage to deal with

corruption

Resources for economic growth reside largely in the private sector: yet faced with the

anomaly of history and mutual suspicion

State enjoys legitimacy and is by definition democratic: but all sectors need to have

voice, and themselves assert their rights and views

Formal institutions of dialogue with modicum of participation: however, narrowly

mandate-driven and no platforms for strategic discourse on common interest

Embedded state and popular voice

POLICY DISCOURSE

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Pre-Mangaung (2012) “white noise”

Actual decisions & discourse outliers: few attempt to reinterpret

outcome of Polokwane (2007) & project Mangaung (2012) in their own

image; and temptation to hog limelight through outrageous statements

Concerning but does not portend a crisis:

Conference decisions are the reference point (even if 2007 leadership

had been different); as in mature democracies there will be volatility

during contestation; as such avoid Kremlinology, discount “white noise”

Rupturing coalition: personality focus that drove Polokwane electoral

processes was unsustainable & scoundrels attached to either slate now

outing themselves c/o corruption, poor leadership & management; and

hyperbole in electoral discourse

Self-interest in managing the political storms: majority self-interest

to maintain unity and ensure stability, find balance in managing

discipline (decisiveness, eschew “two wrongs” approach, avoid proxy)

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Asserting rationality POLICY DISCOURSE

Discourse on nationalisation

Evolution of policy over the years results in “balance of evidence” approach: impact

of ownership on poverty, growth and competitiveness; private sector including

monopolies as partners; developmental state focuses on provision of public goods

Yet strategic challenges in mining which need attention, as practical and viable

alternatives to nationalisation: counter-intuitive investment trend; sector strategy

delay; poor backward and forward linkages; skills deficit (engineering and artisan

population); limited domestic cutting edge research; Mining Charter targets

Exaggerated expectations from 2010 NGC and yet rational centre prevails

Protection of Information Bill and MAT: civil society campaign…

Danger not so much fact of contestation, but negativity in campaign that can

destabilise movement & society; paralysis within state deriving from individuals‟

uncertainties. Otherwise, on content issues, rational majority does hold sway – but

not automatic…

Build-up to Mangaung…

Society, including senior members of the ANC are nudging all towards consensus

Foresight and activism WAY FORWARD

Need a change in mindset among all stakeholders (public,

private, workers) to identify joint and varied actions:

►requiring identification of objectives, contribution, benefits, trade-

offs and sacrifices

►with a new paradigm of negotiations and discourse – beyond lowest

common denominator – based on positive approach informed by

strategic objectives

Activism among all social sectors is key, contributing to

common vision and ensuring its implementation: a social

compact for high growth, against poverty and inequality. 14

Broadly, appreciate the historical moment and appeal

of “economic freedom in our lifetime”, and contribute

to defining its content!

END

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