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A GROWING ECONOMY THAT EXPANDS ECONOMIC OPPORTUNITIES

Theme: Restructuring of the economy

1. Background

1.1 The economy in 1994 was already in an advanced state of decline due to political isolation, inward-looking economic policies and the legacy of racial exclusion.

1.2 The economy's weak state manifested itself in stagnant GDP growth until 1994, declining savings and investment rates, falling formal sector employment and resultant decline in per capita GDP. The economy was also vulnerable to external forces due to insufficient net inflows and an unattractive investment climate.

1.3 In terms of human development the weakness in the economy resulted in declining living standards, high levels of racial, gender and geographical inequality as well as high levels of absolute poverty.

2. Policy Interventions

2.1 The Reconstruction and Development Programme (RDP) provided a policy foundation for the new government to institute economic restructuring.

2.2 The Growth, Employment and Redistribution programme (GEAR) created a macro-economic stability that was critical to meeting the challenge of increasing economic growth and employment.

2.3 The macro-economic reforms resulted in stabilisation of major macro-economic aggregates such as:

• Reduced budget deficit as percentage of GDP
• Inflation and real interest rate decline
• Improved transparency and predictability of monetary and fiscal policies
• Balance of Payments
• Tariff reforms
• Managed trade liberalisation

2.4 The macro-economic stability had given government the basis on which to meet other challenges. This foundation allowed a multi-pronged focus on stabilising the domestic economy (avoided deindustrialisation) as well as creating a sound fiscal and monetary framework to integrate the economy into the global arena.

3 Micro-economic reform

3.1 Limited microeconomic policy interventions were introduced since 1994. These include supply side measures, small business, labour dispensation and competition policy.

3.2 However, by the year 2000 the levels of growth and employment were inadequate to meet policy goals. Two economies persisted in South Africa. One economy was highly developed but suffered from a lack of cost-competitiveness in relation to the global economy. The second economy was characterised by infrastructure backlogs and under-investment in productive and social capital. This second economy represented and still represents majority of South Africans.

3.3 What was needed was an impetus to stimulate higher levels of growth, investment and employment. Growth acceleration was impeded by severe structural constraints, which necessitated government to focus on reforms at the micro-economic level.

3.4 In 2001 President Thabo Mbeki announced government's Integrated Economic Action Plan. This plan was a coherent framework for action by economic departments to accelerate growth, equity and employment. It provided practical actions to exploit opportunities and remove obstacles.

3.5 In 2002 this framework was fine-tuned and the Micro-Economic Reform Strategy (MERS) was released.

3.6 MERS encompassed key elements impacting on economic growth such as:

• Cross-cutting: issues technology, human resource development, access to finance and infrastructure
• Competitive input sectors: transport, telecommunications and energy
• Priority growth sectors: clothing and textiles, mining, metals and minerals, automotives and transport, chemicals, tourism,agriculture, information and communication technology, cultural industries, services and aerospace
• Equity and growth: black economic empowerment (BEE), women empowerment, small business development, employment and geographic spread

3.7 A number of policy variations were developed across government to ensure an integrated and coherent approach to achieving the objectives of MERS.

3.8 The priority sectors were identified for potential to increase outputs, exports and employment creation. These priority sectors were agriculture, tourism, cultural industries, information and communication technologies (ICTs), mining and metals, clothing and textiles, chemicals and biotech and the auto and transport sectors

3.9 Input sectors underpin the competitiveness of industry and they impact on all economic activities. The key input sectors are within the ambit of the state and includes water, telecommunications, energy and transport. The critical challenge as a developmental state is to ensure that greater access to these services is enhanced and to increase efficiencies to improve competitiveness of industry.

3.10 The cross-cutting issues include technology, access to capital, infrastructure development and Research and Development.

4 Implementing MERS

In April 2002 the Integrated Manufacturing Strategy (IMS) was released. The IMS advocated an integrated and advanced manufacturing sector that could be leveraged to generate higher levels of economic growth, employment creation and reduction of economic inequalities throughout the economy.

Today, the manufacturing sector in South Africa has been largely transformed, is more integrated and there is a higher degree of value-added beneficiation in manufactured products.

4.1 Cross-cutting Issues

4.1.1 Human Resource Development Skills

In terms of this aspect of MERS, government departments have aligned their human resource development programmes to the integrated human resources development (HRD) strategy. This has included an analysis of required and critical skills in both private and public sectors. Agreements at the Growth and Development Summit in 2003 have also emphasised the need to strengthen partnerships in order to increase learnerships and improving the functioning of the sector education training authorities (SETAs). Government is currently reviewing legislation that governs SETAs and will strengthen effectiveness of SETAs.

4.1.2 Access to Finance

Improving access to capital still remains a major challenge for government in addressing the objective of a better life for all. Furthermore access to capital is crucial to enhancing black business development and economic empowerment. Great strides have been achieved in addressing this challenge. Some of the interventions include the creation of development finance institutions, improved financial delivery services as well as consumer education.

4.1.3 Infrastructure

The provision of critical soft and hard infrastructure is a cornerstone of MERS. Since 1999 capital spending on roads, hospitals and schools has increased by 30% annually. The focus for government now is to align infrastructure development and consolidate the critical role parastatal delivery plays in unlocking economic potential, crowding in investment and creating job opportunities. Government's commitment of R100 billion over the next 10 years, is testimony to its leadership role in addressing this critical element of economic development.

4.2 Key Input Sectors

Various policies and programmes have been introduced in tourism, agriculture, cultural industries, minerals and metals, chemicals and biotechnology and auto industries. Where appropriate, the policies have focused on improving export performance, ensuring equity and competitiveness.

4.2.1 Transport

An efficient, integrated transport system across all modes (road, rail, sea, air, airports, seaports, pipelines, modal interchange facilities) is paramount to improving our competitiveness and the mobility of people. Various policies have been implemented which have ensured that efficiencies have been improved and major projects such as Coega and developments at Ngqura Port have become a reality.

4.3 Key Performance Areas

Market Access

Strategic bilateral and multilateral trade regimes have augmented South Africa's relatively small domestic market with additional market access for products and services. Negotiations to lock in supplies of capital, technology and finance with developed countries such as United Kingdom, Germany and more recently the United States of America, are ongoing. South Africa has been playing a leading role in establishing an international rules-based trading system that is sensitive to the plight of developing countries. In working towards achieving multilateral trade transformation, government has been consolidating intra-African and South-South trade.

MERS and the more specialised IMS has ensured that South African exports are diversified, that market access possibilities are exploited and that we are able to meet the demands of export trends - from commodity products to high value added goods.

Equity

Far-reaching policy developments have been implemented with regard to black economic empowerment, women empowerment, small business development and geographic spread of economic opportunities and resources. Integrated government programmes have enhanced race, gender and geographic equity.

The Broad-based Black Economic Empowerment strategy has laid foundation for an intensified focus on improving equity for both the private and public sectors. The BEE strategy is a road map for promoting economic transformation so that black people can participate meaningfully in the economy.

Various government agencies and institutions including the Technology for Women in Business, the South African Women Entrepreneurs Network are also geared to bring this strategy to reality.

Furthermore, government has amended its own procurement processes and introduced various incentives to enhance participation of black suppliers and SMMEs. These include the Black Business Supplier Development Programme and support programmes for exporters and small and medium enterprise support.

More recently, government is looking to develop the potential of collective enterprises to address the challenge of unemployment.

Issued by: Ministry of Trade and Industry
12 February 2004