Implementation of the Framework Agreement

1. Implementation of the Framework Agreement Presentation to the Select Committee (Check against delivery) 17 August 2010

2. Presentation outline • Background and context • Support to vulnerable sectors and distressed companies • Training layoff scheme • Investigations into collusive practices • Progress in other areas • Concluding remarks 2

3. Background and context • In 2008, the world was plunged into a global economic crisis and SA experienced recession for the first time since the advent of democracy • Between the 4th quarter of 2008 and the 2nd quarter of 2010 SA lost 1,1 million jobs • In the same period 739 000 joined the ranks of discouraged work-seekers 3

4. Background and context • Social dialogue critical at such a time: • Enables the sharing of ideas and experiences and welds them into a common set of ideas • Facilitates inclusive decision-making to forge a joint vision • Enables joint action in that the social partners make commitments to undertake certain tasks to give effect to the shared vision • Government, business, labour and community social partners concluded the Framework for SA’s Response to the International Economic Crisis on 19 February 2009 4

5. Background and context • President JG Zuma, State of the Nation Address, 3 June 2009 “It is more important now than ever that we work in partnership on a common programme to respond to this crisis. We take as our starting point the Framework for South Africa’s Response to the International Economic Crisis, concluded by government, labour and business in February this year. We must act now to minimise the impact of the downturn on those most vulnerable.” 5

6. Background and context • From July 2009 the Economic Development Department led the implementation of the Framework Agreement • Convened 11 Leadership Team consisting of the leadership of the social partners 6

7. Key principles of the Framework • The burden of the economic downturn must not be placed on the poor and vulnerable • Activities supportive of growth and decent work must be protected and supported • High levels of investment in public sector infrastructure must be maintained 7

8. Key action areas • Addressing job losses through layoff arrangements and special measures for companies in distress • Measures to combat customs fraud • Competition Commission investigations into collusive practices • Promotion of local procurement of supplies, services and other requirements • Counter-cyclical fiscal policy • Maintenance of public infrastructure investment 8

9. Phase 1: Setting up job rescue Funds • The establishment of a R6.1bn fund administered by the IDC to support companies affected by the crisis • Distressed Sector Proposals to transform and support distressed sectors including auto, clothing and textile, capital equipment and metal fabrication • The establishment of a R2.9bn fund to finance a Training Layoff Scheme 9

10. Support to vulnerable sectors • “Vulnerable sectors are those sectors with significant employment and labour intensity and where there are currently large planned or actual job losses and company closures as a result of the crisis. Specific sector strategies to address vulnerable sectors, such as clothing, textiles and footwear, mining and the auto and capital equipment sectors, will be set up… parts of the economy with high levels of employment are also affected by the slowdown, such as retail, housing construction and private services… Attention will also be given to those sectors where there are early signs of job losses and distress, such as the electrical and electronics sectors, engineering and the building materials industry.” (Framework 3.2) • “The IDC will – where possible – increase the level of its equity exposure in these sectors where possible and will make increased working capital available to firms in large, labour intensive sectors.” (Framework 3.5) 10

11. Phase 2: Implementation- Distressed Sector Fund • The IDC has approved funding to 50 companies in South Africa saving or creating 14 926 jobs • The fund had operated across a range of sectors including metals, chemicals, mining, clothing and textiles, tourism, catering, agriculture, forestry, sawmilling, automotive and auto parts and accessories • The total approved to date is R1,8b with an average cost per job saved or created of R119 000 • Applications from 14 distressed companies seeking funding of R1.314 billion have been received and are being considered 11

12. Funding by province 12

13. 13

14. Support for sectors in distress Sector interventions • Package has been developed for auto • A sector package is being developed in the capital equipment, transport equipment and metal fabrication sectors • Auto, metals, capital equipment and transport equipment; and clothing and textiles; were included in IPAP2 • Ongoing work on fleet procurement

15. Support for sectors in distress • Study done (capital equipment and transport equipment) and presented to IDC, governmentand industry regarding the nature and extent of financial constraints on companies. It was decided that the IDC would aim at providing concessionary finance and the dti should make an MTEF bid in the next budgeting cycle to ensure that funding is secured for this purpose. • ITAC recommended the inclusion of Dumper trucks into the MIDP on 31 December 2009

16. Support for sectors in distress Clothing and textiles • Package has been developed for clothing & textiles • Clothing and Textiles Competitiveness Programme (CTCP) has been established – managed by the IDC • The programme has 2 components – the Clothing & Textile Competitiveness Improvement Programme (CTCIP) and the Production Incentive Programme (PI) • To date proposals to the value of R61m have been approved to assist 47 companies under the CTCIP • 71 applications to the value of R287 million have been received for the PI. Due diligence is being conducted and a number of applications will be going to the approval panel next week

17. Support for sectors in distress Customs and Fraud • SARS set up dedicated units for vulnerable sectors (starting with the clothing sector) and was allocated an additional R20m to give effect to the Framework • The focus resulted in significant action against illegal imports: 750 tons of clothing items were confiscated in the second half of 2009 • The intervention has held numerous successful raids. For example: • From 16 – 20 February 2010 raids were conducted on 21 warehouses and 30 shops in Gauteng as well as agents.

18. Support for sectors in distress Trade remedies • Labour and Business from the clothing sub-sector submitted an application to the International Trade Administration Commission (ITAC) on 19 May 2009 to increase tariffs to the bound level on 35 articles of clothing. ITAC dealt with the application expeditiously, approving the increase in tariffs to the bound rate of 45% • ITAC introduced nine fabric duty rebate provisions for home textiles and provided guidelines that companies applying for rebate permits for the home textile industry provide details of the number of jobs they expect to create as a result of the permit and report on their job creation performance on a quarterly basis

19. Support for sectors in distress Trade remedies • Subsequent to the Textile Review, ITAC recommended the creation of 7 rebate provisions, rebating the duty on certain fabrics used in the manufacture of clothing • ITAC revised its time periods for investigations from 12 to 9 months for trade remedies; from 12 to 6 months for normal tariff investigations; and to 4 months in the case of tariff investigations for vulnerable sectors

20. Support for sectors in distress Support for SMMEs • Government committed to ensuring payment to SMMEs within 30 days of invoice • Since the launch of the Public Sector SMME Payment Assistance Hotline on 21 September 2009 it facilitated R182 938 408 worth of SMME payments for the period till 31 July 2010

21. Training layoff scheme • “In addition to other measures to avoid retrenchment, one further option that the parties will consider is training layoffs, financed by the NSF and Sector Education and Training Authorities (SETAs), for workers whose employers would ordinarily retrench them and which can be introduced on terms that would keep them in employment during the economic downturn but re-skill them as an investment for the future economic recovery.” (Framework 4.8) 21

22. Training layoff process • Scheme aimed at companies experiencing a weakening of demand for their products and provides an alternative to retrenchments • Firms are able to suspend wage payments to employees for the period of the layoff except for a basic social package • Employees remain in employment and in addition receive half their salary up to a maximum of R6 239 and receive vocational training • R2.4 billion has been allocated for the training allowances and R500 million has been ring-fenced by the SETAs for training costs 22

23. Implementation of layoff • The training layoff can be accessed through the CCMA or participating SETAs • 200 CCMA commissioners were briefed and 37 were trained to facilitate training layoff applications • In order to increase uptake of the scheme targeted workshops were held with the clothing sector in Cape Town on 12 May; in Johannesburg on 1 June; in Durban on 8 June and with the motor/ automotive components and metals sector in Port Elizabeth on 12 May 2010 • A total of 6,083 workers were placed on training layoffs instead of being retrenched or without work 23

27. Investment in constant rand by type of investor, 2005 to 2010

28. Investigations into collusive practices • The Competition Commission is pursuing investigations into collusive practices in various supply chains given that they contribute to higher prices, exclusionary market practices and reduce economic impact. • The Framework notes that “strengthened enforcement of competition measures will be used to act against food cartels and collusion, which inflate food prices”. (Framework 5.6)

29. Investigations into collusive practices • The Competition Commission is investigating ten parts of the food supply chain. These include staple foods such as bread, mealie meal, wheat flour, dairy, poultry and cooking oil. There are also investigations into key inputs, namely fertilizer, grain silos and tinplate, and into supermarkets. • The investigations have yielded a number of positive results including: • On 20 May 2009 the Competition Tribunal confirmed a settlement in the fertilizer industry in which a company agreed to pay a fine of R250 million • On 3 February 2010 the Competition Tribunal imposed a R195 million fine on a company for its role in the bread cartel

30. Investigations into collusive practices • In March 2010 the Competition Commission referred a number of companies to the Competition Tribunal after its investigation in the wheat milling market • In July 2010, the Tribunal confirmed a settlement that will result in the divestiture (breaking up) of a company in a part of the fertilizer industry • On 4 August 2010 the Competition Commission entered into a consent agreement with a company in settlement of the phosphoric acid excessive pricing complaint. These commitments are expected to lead to lower input costs in the production of field crops such as maize

31. Progress in other areas Promotion of local procurement • Following commitments made in the Framework, IPAP2 has noted the importance of strategic leveraging of procurement across a range of sectors including metal fabrication, capital equipment and transport; busses and other medium and heavy commercial vehicles; pharmaceuticals; and electronics • Work is being undertaken on increasing local content with other departments including: • Aligning BBBEE Codes and local procurement 31

32. Progress in other areas • Government’s continued commitment to infrastructure reflected in the medium-term expenditure framework for this year is R268 billion, including SOEs, which is equal to almost 10% of GDP • The programme entails energy, transport and social infrastructure • It contributed positively to employment and has been a significant stimulus in localities • The Competition Commission is pursuing investigations in parts of the construction supply chain given that collusive practices contribute to high prices in some areas and reduced economic impact 32

33. Progress in other areas • The extensive Competition Commission into collusive behaviour in the construction supply-chain has resulted in a number of admissions by companies and applications for leniency. It is expected that this will positively influence the remaining infrastructure development programme • Continued infrastructure programmes with positive ongoing work in government on procurement and infrastructure, e.g. energy IRP that will set out energy infrastructure programme and fleet procurement concept has been agreed 33

34. Progress in other areas • EPWP • R3 million extra funding was made available to the Social Plan. Activity to date consists of a conference and an evaluation study • Additional resources have been made available to Productivity South Africa to scale up the Workplace Challenge • The extension of the child support grant has been implemented

35. Progress in other areas • Green jobs • Workshop on green jobs • Green economy summit • Government commitment to 1 million solar water geysers • Government is developing a green jobs strategy • A range of green standards and regulations out for pubic comment • Amendment to the Income Tax Act to provide for a Tax Allowance for Energy Efficiency Savings

36. Concluding remarks • The social partners have agreed to continue the dialogue beyond the crisis to consider – • What kind of economy the social partners envisage after the recession and what growth path South Africa will follow • How to ensure that the employment intensity of the economy is increased 36