/ 29 January 2014

Motlanthe: Persistent inequality threatens SA’s peace

Deputy President Kgalema Motlanthe.
Deputy President Kgalema Motlanthe.

Deputy President Kgalema Motlanthe said on Wednesday government was concerned about "persistent inequality" in the workplace, which was threatening the 18 years of relative peace the country has experienced.

Speaking at the Mail & Guardian 20 years of economic transformation summit in Sandton, he said that while poverty declined, inequality did not, with the richest 10% of households still getting over half of the country's national income.

Aware that concerns over labour unrest and the impact it has on investment, he said that "peace was premised on the idea there would be real change towards increased training, career pathing and equality. If we do not address these underlying factors towards workplace conflict, we cannot hope to bring about a more productive economy."

In trying to address both challenges of poverty and equality, government had much success in overhauling apartheid-inherited labour laws and creating greater equality in the work place. But one of its key policies, broad-based black economic empowerment (B-BBEE), proved challenging as it became obvious that there were some unintended consequences.

"Over time, shortcomings with how B-BBEE is implemented emerged," he said. "Among others, emphasis on ownership and senior management has unintended consequences such as fronting, speculation and abuse of the tender system … B-BBEE regulations also fail to adequately incentivise job creation and support for small enterprises and local procurement".

He said revision of code and the passing of the B-BBEE Amendment Act were intended to deal with this.

"Our route towards meaningful transformation is long and hard. We enter into the next 20 years of economic transformation proud that we have done much that has positively impacted own the lives on our people … We have turned around an economy marked by distortions that included large domestic debt, high inflation and interest rates as well as stabilising financial fundamentals."

He said in 1994 growth averaged at 1.5% of over a decade, investment was below 15% of gross domestic product, and less than 40% of the adult population had employment, compared to the global average of 60%. Motlanthe said the only solution was to invest in people.

"Experience has shown that there is no substitute for people driven development."

Motlanthe's opening address

Programme director, Professor Adam Habib,

The executive deputy chair of Mail & Guardian, Mr Trevor Ncube,

The chief executive officer of the Mail & Guardian, Mr Hoosain Karjieker,

Fellow panellists;

Ladies and gentlemen:

Thank you for this opportunity to interact with you as we assess the progress our country has made in terms of economic terms transformation since the onset of democracy in 1994.

Looking back at the twenty-year period of economic transformation in South Africa, the democratic state can truly be proud of its record, while simultaneously recognising failures.

The democratic government inherited an economy that was in crisis; depended heavily on mineral exports; and was characterised by deep inequalities and rising unemployment.

I would first like to focus on key accomplishments, before discussing the challenges we face as well as continued government efforts to address them.

Since 1994, the South African economy has grown at an average rate of over 3% a year. To put this in perspective, in the 15 years before democracy, growth was under 1.5% a year.

Since 1994, employment has grown by around 4.5-million, or about 45%. In contrast, the economy generated almost no new jobs from the late 1970s through 1994. As a result, the share of adults with employment had plummeted from around 60% to under 40%.

Economic growth since then has stabilised this employment ratio, with around 42% of adults employed today – still far too low by global standards, but at least some improvement on the past.

In 1994 the rate of investment was less than 15% of [gross domestic product]. Today, the figure is over 19%, which is a marked improvement that takes us nearer to the 20% threshold.

Especially since 2005, investment has been underpinned by a multi-billion-rand outlay in infrastructure, which is laying the foundations for faster and more inclusive growth in the future.

The share of the labour force with post-secondary education has risen to 17% – almost exactly the norm for middle-income economies, excluding China and India (which was much lower). Some 8% of working-age people have a degree, compared to 5% in 1994.

Finally, we brought down poverty rates substantially over the past 18 years. In 1994, over 25% of households with children said they had gone hungry at some point or another. In 2012, the figure had fallen to 6,5% – still unacceptably high, but a vast improvement nonetheless.

Importantly, in the past 20 years, growth has normalised, despite the global setback of the 2008 recession, while investment has improved and positions of power in the economy are becoming more representative.

In short, we can be proud of our economic record. But we also have to be aware of two remaining challenges, challenges that we need to address to bring about a better life for all going forward.

First, while poverty has declined, inequality has not. As far as we know, inequality increased during the commodity boom of 2000 and subsided with mineral rents. In 2011 the gene coefficient was still around 0.65, which is extraordinarily high by global standards. The richest 10% of households still get over half of our national income.

We should not underestimate the impact of inequality on our society. Social stratification, which cuts across the colour line today, sharpens sense of economic injustice among some sections of the South African population.

Second, the economy has not diversified sufficiently and manufacturing in particular has grown only slowly. The fastest growing industries have been telecommunications and the financial sector. In contrast, manufacturing has fallen from 20% of the GDP to 10% in the past 18 years. To ensure sustained growth going forward, we will need to reverse this trend.

Programme director, for 20 years now, we have struggled with the dual tasks of dynamising the economy as well as making it more equitable.

Any analysis of our successes and failures since 1994 has to take into account the unique institutions, the pattern of investment and infrastructure, workplace relations, and the structures of education, skills and ownership set up through centuries of colonial and apartheid rule.

We all know the key elements of the apartheid economy, although the attendant difficulties to its transformation are not always obvious.

Africans faced the pass laws, which meant many, especially women, could not live legally in economic centres. Black people, and especially Africans, were denied the right to own land or have businesses in city centres.

They could not go to the best schools or train as artisans. Most could not get credit – a restriction that hit hardest at African women.

The state did not provide basic infrastructure such as energy, roads, telecommunications and portable water in many black communities. That led not only to worse living standards but also to reduced economic opportunities.

Ultimately, all of these inhibitions ensured a population that was largely impoverished, without assets or land, adequate qualifications, or entrepreneurial experience.

As I pointed out earlier, at the time of the democratic elections, growth had averaged under 1.5% for over a decade, investment was below 15% of the GDP, and less than 40% of the adult population had employment, compared to a global average of 60%.

Since the inception of democracy, the main economic objectives of government have been job creation, the elimination of poverty and the reduction of inequality, while simultaneously maintaining investment and growth.

In essence, the country adopted fiscal and monetary policies geared to maintaining economic stability, while seeking to bring about economic transformation and increasing productivity.

In this context, government adopted a variety of strategies to bring about a more equitable and resilient economy. They centred on:

  • redirecting government investment in social services and infrastructure towards historically disadvantaged communities;
  • the introduction of labour rights and a new skills system;
  • programmes to broaden economic power by supporting emerging enterprise, land reform and incentives for increased representivity in management and ownership;
  • industrial and trade policy measures to diversify the economy and support employment creation; and
  • work with stakeholders both to ensure evidence-based and effective policies and to mobilise our forces as a country in support of economic development.

South African economic policies do not operate in a vacuum. The democratic government had to respond to global trends and events that had a critical influence on the domestic economy.

Firstly, the economy was opened to global trade and investment, which increased competitive pressure on domestic manufacturing in particular but also supported the growth of the financial sector.

Secondly, the economy was positively influenced by the commodity boom from the year 2000 through 2008, which fuelled economic and employment growth in South Africa. It was also affected by the global recession in 2008/9, which was followed by a faltering recovery up to 2013/14.

Any review of the past 20 years has meaning only if it helps us improve our strategies going forward. So what have we learned?

Firstly, it is not enough just to strife for growth if that is not in the context of an equitable economy. The countries that have seen rapid expansion were all characterised not only by high levels of employment, but also by strong career mobility, access to education and training, and relatively equitable earned incomes.

The persistence of inequalities in the workplace has become a core challenge. The potential for workplace conflict engendered by these inequalities has to some extent been mitigated by our new labour laws, which have brought about 18 years of relative industrial peace.

But that peace was premised on the idea that there would be real change toward increased training, career pathing and equality. If we do not address these underlying factors behind workplace conflict, we cannot hope to bring about a more productive economy. 

Secondly, we need to do more to promote growth in agriculture, mining, manufacturing and value adding services. That means improving infrastructure, reducing unnecessary regulatory burdens, and addressing the shortcomings and inequalities, especially in our basic education system.

The national infrastructure plan was initiated to stimulate growth through addressing backlogs in rail and the ports; ensuring energy security at an affordable price whilst reducing emissions; driving rural development through the extension of the logistics network; and improving the infrastructure of our basic education and post-secondary systems.

Additional initiatives in this regard include increased local procurement by the state and large private enterprises and higher industrial financing.

Thirdly, we have to do more about regional development as South Africa cannot be an island of prosperity in a regional sea of under-development and integration. Among others regional development can be spurred on through the improving of infrastructure links across the region and the continent.  

Ladies and gentlemen, partheid systematically denied Africans opportunities to develop their own businesses. The result was, on the one hand, inadequate market institutions and infrastructure to support emerging producers, and on the other, a widespread lack of experience in starting and running enterprises.

Overcoming these historic obstacles has proven difficult. Since 1994 the democratic government has adopted various approaches to support SMMEs. These include:

  • measures to reduce the tax compliance burden for small enterprises;
  • providing dedicated credit facilities;
  • establishing support, extension agencies and incubators; and
  • diversifying procurement toward emerging enterprises where possible.

Despite these measures, the 2009 Global Entrepreneurship Monitor Report ranked South Africa 15th out of 37 countries for start-up activity and 29th in new firm activity.

This placed South Africa in the lowest quartile of all the countries involved in the study in two key measures: opportunity entrepreneurship and new firm activity.

Total early-stage entrepreneurial activity is particularly low – about half of that in other developing countries. Going forward, there will need to for continued focus on improving mentoring, and other support programmes as we as reducing regulatory burden for small businesses.

Ladies and gentlemen, government adopted various policies and programmes to ensure that historically disadvantaged South Africans are empowered to participate meaningfully in the economy.

These included efforts to promote access to the constitutional right to equality, promoting higher growth rates and increasing employment and more equitable income distribution,

Further to give effect to these objectives government conceived of Broad Based Black Economic Empowerment Act (2003), which was followed by the B-BBEE codes of good practice.

Be that as it may, with time shortcomings in how B-BBEE is implemented emerged. Among others, emphasis on ownership and senior management has had unintended consequences such as fronting, speculation and abuse of the tender system.

B-BBEE regulations also fail to adequately incentivise job creation and support for small enterprises and local procurement.

To ensure a more broad-based approach, government contended that there should be a stronger focus on the broad-based elements of the B-BBEE regulations, support for small enterprises and co-operatives and procurement from local producers.

With a view to addressing some of these concerns, government has recently made efforts that include a substantial revision of the B-BBEE codes, which make a commitment to implement B-BBEE consistently in all sectors. Part of these efforts is continuously monitoring and evaluating the impact of B-BBEE compliance.

The most important recent innovation is an increase in incentives for larger companies to support emerging and smaller enterprises. This may be in the commercial interests of larger companies wishing to increase the competitiveness of smaller enterprises in their supply chains.

Ladies and gentlemen, government has made notable strides in terms of the labour market. In 1994 the labour market was characterised by deep segmentation and oppressive workplace relations.

The labour laws contributed to this situation through a long history of promoting negotiations between white workers and employers while largely excluding black workers. As reflected in the RDP, the transition to democracy required a profound shift in the labour-market regime.

From 1994 the democratic government sought to ensure improved workplace relations. Labour laws were deracialised and extended equally to all workers.

The Labour Relations Act of 1995 introduced organisational rights for workers, set a framework for bargaining structures and provided for alternative dispute settlement mechanisms.

Ladies and gentlemen, working our way out of current challenges means investing in innovation through research and development, which will be a shot in the arm for our efforts to diversify the economy.

Innovation is the impulse that propels modernisation and consistently empowers societies that are largely successful today. Therefore going forward we need to invest in local capacity that enables us to research new ways of value addition to our mineral resources.

Among areas that innovation can prove of great value to us are: agro processing; the maritime industry; green economy; and hydrogen fuel cells or clean energy, all of which could create decent jobs, grow the economy and energise ongoing process of reconstruction and development of our country.

Finally let me reiterate that the democratic state needs to increase efforts to correct its past shortcomings so that with time it is fully capacious to effect social change as the basis for attaining our strategic vision of building unity, democracy, non-racialism, non-sexism and prosperity for our people.

More attention must be directed at the fight against the cancer of corruption, nepotism, tribalism, inefficiency and mediocrity in society generally and within the institutions of the state in particular, especially public systems.

Our route towards meaningful economic transformation is long and hard. We enter into the next twenty years of economic transformation proud that we have done much that has positively impacted on the lives of our people.

We have turned around an economy marked by distortions that included large domestic debt, high inflation and interest rates as well as stabilised the financial fundamentals.

Equally, it is true that the struggle to bring about dignity to the lives of all our people through material comfort still rages on and will continue to do so for some time.

Winning such a struggle in the cut and thrust of modern global economic conditions can only mean investing in the productive capacity of our people.

Historical experience broadly shows that there is no substitute for people driven development.   

We believe as the democratic state that our nation has the ability to work together to take our country forward through eliminating the triple challenges of poverty, unemployment and inequality and making irreversible difference to the lives of the poor, the working class, the peasants and all segments of South Africa..

I thank you for your attention.