Strategic focus of Ministry of Economic Development

1. Strategic focus of Ministry of Economic Development Presentation to Portfolio Committee of Economic Development 19 June 2009

2. Origins of Economic Development Ministry • New Ministry of Economic Development was established by President Zuma on 10th May 2009, as part of a reconfigured Cabinet. • In motivating the new Cabinet structure, the President stated that “Cabinet… has been reorganised to achieve better alignment between the structure, our electoral mandate… and the developmental challenges that need to receive immediate attention from government” • In line with this, the President announced the Economic Development Department “has been established to focus on economic policy making”.

3. Mission of Economic Development Ministry • In the past, economic policy was made in many different sites within the state, sometimes unevenly, sometimes at cross purposes • The call for policy coherence requires one place where overarching economic policies are developed and co-ordinated, and aligned with the electoral mandate of government • Government is reorganising its economic functions to pursue the mandate of realising an economic growth path which puts the creation of decent work at the centre of economic policy

4. An approach to economic development • Employment is not the residual outcome of other policies but the overarching goal of economic policies • Decent work refers to both the number of jobs as well as the quality of the jobs • To achieve development outcomes, the labour-absorption rate, composition, and sustainability of the growth path are as important as the quantum of growth • A developmental state plays a key role in achieving these outcomes • The focus of economic policies, as well as their outcomes, are therefore directed at equity, the reduction of inequalities, decent work, and the achievement of balanced, and broad-based industrialisation. This requires addressing structural economic imbalances

5. Challenges and Opportunities • The context in which policy is made is very different compared to 12 months ago: • A new political mandate endorsed by the electorate • The global economic crisis and the emergence of new economic approaches internationally that go beyond old orthodoxies • A domestic recession • A ‘social pact’ on responding to the global crisis through the Framework agreement between government, business, labour and community adopted in February 2009 • We confront the reality of serious threats to our economy, but also the opportunity and urgent necessity, of moving onto an employment-generating decent work growth path.

6. Government’s electoral mandate Electoral mandate identifies 5 priorities, all of which have linkages to the challenges of economic development: • Transformation of the economy to create decent work and sustainable livelihoods; • Implementation of a comprehensive rural development strategy, agrarian reform, and measures to ensure food security; • The provision of universal, affordable education, which empowers our people and promotes development; • The creation of a national health care system, which promotes a healthy nation which is able to effectively participate in the developing our society; • A comprehensive strategy to fight crime and corruption, to secure safe and cohesive communities, and make our public sector a powerful vehicle for delivery and clean governance.

7. Global economic Crisis • The challenge is to implement this mandate in the context of a global and domestic economic crisis • Recession in many developed economies and a major downturn in most developing countries • Triggered by gross imbalances and inequities in the global economic system, the impact of the financialisation of economies, ineffectual regulation in several of the major economies and poor business practices (including excessive and inappropriate executive pay schemes) • While the crisis first appeared in the financial sector, it is in fact a deep real economy and jobs crisis, which threatens to severely damage economies in the developed and developing world.

8. Real economy and employment crisis for SA • The crisis threatens South Africa’s industrial base: • Worse quarterly economic performance in 25 years • Manufacturing production fell by 21,6% in April 2009 • Most industrial subsectors experienced output declines, particularly in autos and metals & machinery • Labour-intensive sectors (wood products, leather and clothing & textiles) also declined • Feb’09: manufacturing capacity utilisation dropped from 84,6% to 78,6% • Mining production decreased by 12.8% in March 2009. The decline was driven by Platinum* (-17,1%) and diamonds (-52,2%).

9. Real economy and employment crisis for SA • Increased Insolvencies • Company liquidations in Q1 2009 increased by 46,7% (from 687 to 1008) • Increased job losses • Quarterly Labour Force Survey indicated that a total of 208 000 South Africans lost their jobs between Q1 2008 and Q1 2009 • A total of 483 000 new claims were approved by the UIF due to unemployment in the 12 months ending March09, an increase of 21% year-on-year. • UIF payments increased by R800m, from R2bn to R2,8bn, a rise of 40%. • The Current account (BoP) deficit • Remained unsustainably high at R170bn: 7,4% of GDP in 2008 compared to 1,8% in 1998.

10. Framework for response to crisis • On February 19 2009, government and social partners in Nedlac agreed on a “Framework for SA’s response to the international crisis” • The framework outlines bold, immediate and urgent interventions to ensure that the South African economy and society are buffered against the full impact of the international economic crisis. These include: • Maintaining high levels of public investment in infrastructure to support private and public job preservation and creation • Deploying macroeconomic policies in combination and aggressively, where required, to address the economic crisis

11. Framework for response to crisis • Utilising industrial and trade policies to rebuild local industrial capacity and avoid the erosion of the country's' manufacturing base • Utilising a combination of measures on public employment, private sector initiatives, including training, to avoid massive job loses • Scaling up social interventions to address the jobs challenge and ensure social protection

12. A bold economic vision • The political mandate and the framework agreement together constitute a bold economic vision, which aims to put our economy on a new growth path and to inspire and mobilise society. • This vision is being translated into a concrete programme which combines short term measures with longer term structural interventions to transform our economy. These will link: • Immediate measures aimed to protect our economy and society in the face of the economic crisis. Government, together with our social partners, are making progress in implementation of the framework agreement; with • Transformative measures to deal with structural economic problems. Detailed proposals will be developed to deal with these issues, and ensure that policies reinforce, rather than contradict each other.

13. Strategic Focus of Economic Development Dept (EDD) • Promoting economic policy development, coordination and coherence (alignment) • in government nationally • through provincial, rural and local economic development • through the mandates and work of state entities responsible for economic regulation and financing economic development • in interactions with business and organised labour to develop social consensus on economic and development challenges, policies and responses • in our interface with the global economy

14. To achieve this, requires • Promoting a new approach of integration instead of “silo” based departmental programmes • Avoiding ad-hoc policy development in many different sites within the state – policy coherence the new focus • Building coherence in policy through linking macro, sector and micro policies • Creating a Department which assumes new policy functions, as well as transferring certain existing functions from other Departments • This is achieved in the context of an evolving model of co-operative and effective governance, which ensures both horizontal co-operation and integration of policy across national institutions of government and state, as well as vertical co-operation between different spheres of government, at national provincial and local levels.

15. What type of Department will EDD be? • A lean, effective Department with a high-level policy and technical capacity • A broad cross-cutting focus across the economy, in areas covered not by one, but a range of government Departments. • Strong focus on social dialogue on economic development to achieve national cohesion and tap into resources of key economic players

16. Processes • Moving forward, the Ministry has a number of short-term priorities: • Establishment of the Department • Elaboration of a strategic plan and negotiation of the 2009/10 and MTEF Budget processes • Implementation of a short term work programme linked to SONA priorities

17. Establishment of the Department • Formal and legal establishment of the Economic Development Department by way of Presidential Proclamation; the creation of a Budget Vote for EDD, and allocation of resources. • Organisational establishment of the Department requires the elaboration of an organisational organogram, and the population of the organisational structures with appropriate people. • The fulfilment of these legal and organisation requirements lays the basis for the effective implementation of the Department’s mandate.

18. Establishment of the Department • It is envisaged that the initial phase of preparing for the Department’s establishment will be completed in the next 3 months. This will lay the basis for the allocation of an interim budget and recruitment of sufficient personnel to staff the Department’s structures in the establishment phase • To facilitate this, interim arrangements have been put in place, with the assistance of the DTI and Treasury. We are proceeding with the establishment of the Department as a matter of urgency

19. Budget process & Strategic Plan • Once the legal requirements are fulfilled, a budget vote will be created for EDD. • A 6 month budget covering October 09 to March 2010 will be incorporated into the October adjustments • A Strategic Plan and 2010/11 budget will be finalised by end September. It is recognised that the deadlines which are followed by established Departments must be applied more flexibly for a new Department such as EDD • This Strategic Plan and budget is intended to be presented to the Portfolio Committee in September.

20. Short term work programme • Contribute to taking forward economic and employment commitments in State of the Nation address, and promote a process of social dialogue to mobilise support in society • Facilitate, with other Departments, implementation of measures to take forward the Framework Agreement • Continue process of work of alignment with other Departments, and effective co-ordination of the economic and employment cluster • Begin a policy engagement to elaborate a national framework on economic development and decent work.

21. Conclusion • The new Department is part of a new configuration of government that centres on the four inter-connected areas of policy-development, planning, effective implementation and continuous monitoring and evaluation • Government will be driven by identified priorities and will focus effort and energy on the realisation of the priorities • The purpose of the new structure of government and the identification of priorities are to ensure realisation of the political mandate and delivery of quality governance services to the population