South Africa: Zuma’s Grand Economic Design

President Jacob Zuma appears to have taken the economic bull by the horns by overseeing several new measures aimed at reviving economic growth and, most critically, creating new jobs.

Staring down the barrel of a sluggish economy, mounting unemployment and political dissonance, the South African government has played a shrewd card that could well bring a measure of harmony to public and private economic interaction, as well as buy-in from trade unions and the financial sector.

The master play was in getting business and labour to support an initiative that seeks to bolster the manufacturing industry by increasing domestic demand for South African-made goods, creating new jobs at the same time.

It is also designed to stimulate the small enterprise sector and bring the government and private sectors together in assembling public-private partnerships to tackle much-needed infrastructure projects.

Centred on new legislation with the recent enactment of the Preferential Procurement bill, the programme sets a target of sourcing 75% of supplies from local companies.

South Africa’s President Jacob Zuma says it’s a powerful move that will help the government meet its job creation targets. It was set in motion with the signing of an accord that commits the government and the private sector to greatly increase the procurement of locally-produced products. The government intends to create 5m jobs by 2020 through investment in infrastructure development, manufacturing and the so-called green economy. It proposes measures to address the rand’s strength and loose monetary policy.

“During this negative economic climate, many retrenched workers will try to start small businesses to survive,” Zuma said. “Many of these start-up businesses will be of the survivalist type and need the support of both big business and government. We urge big business to provide that mentoring support, as it will be helpful to the economy in the long run.”

The government already runs a number of programmes on small business development, skills training and enterprise support services. This is buttressed by additional policies to assist small businesses in financial difficulties. These additional measures will help ensure that “SMMEs in distress are saved before they reach a stage of insolvency and ultimate liquidation,” notes Zuma. “From the government’s side, we are also tackling government departments’ failure to pay suppliers on time, which affects SMMEs negatively.” He wants suppliers to be paid within one month of services or goods being delivered.

Staying on the same page
Specifically the local procurement accord is aimed at helping struggling manufacturing sectors, promoting new ones by encouraging local fabrication of hitherto imported items and making a dent in the ballooning unemployment rate.

Industrial Development Corporation (IDC) chief economist Lumkile Mondi maintains that while the accord marks a rather significant, high-level agreement between the parties, one of the first hurdles is for “the different parties to stay on the same page and work together”.

The final details are still to be hammered out but Mondi wonders if the horse has not been placed behind the cart. “Can you procure 75% locally if you cannot address the basic fundamentals of high input costs such as labour and energy?” he asks. Electricity prices have risen steeply escalating while organised labour has often gone on strikes to raise wage levels.

The new procurement regulations, in effect from 7th December, as well as the big business buy-in, will lead the local procurement drive, initially focused on buses, power pylons, railway rolling stock, pharmaceuticals, set-top boxes for televisions, uniforms and other clothing products, certain food products and office and school furniture.

Specific targets have been avoided, says  Oupa Bodibe, chief director of specialist sectors at the Department of Economic Development. “We don’t just want to protect local producers from imports. We want to give them an opportunity, but they must also become more competitive. We are saying there is a market for your business because the state and big business will procure from you. This does not mean that the government will buy from local manufacturers regardless of quality,” he says.

President Zuma says government realises that the whole puzzle must come together if it is to work, especially in turning out skills in the disciplines needed to fire up the manufacturing and SME sector: “The importance of small business enterprises cannot be overemphasised in boosting the country’s economy and realising government’s ambitious plan of creating five million new jobs by 2020.”

More grist to the employment mill should come from South Africa’s participation in forums such as BRICS – Brazil,Russia,India,China,South Africa – Forum and the G20 in providing platforms for promoting the “African agenda”, and the ways they can help mainstream the continent’s economy.

The balancing act South Africa must master is in keeping the peace between the diplomatic imperative and rescuing the economy. The textile and apparel industry is a prime illustration. It has been virtually decimated by a flood of cheap Chinese-manufactured clothing sold at prices local manufacturers cannot hope to compete with. Some 40,000 jobs have been lost in the wholesale closing down of mills and clothing factories. The South African government must tread warily in keeping the Chinese sweet in light of the mega deals in infrastructure, financing and two-way trade that come out of Beijing; sacrifices abound in the name of the “big picture”.

Earlier this year Zuma announced several initiatives to boost job creation, including the setting up of a R9bn ($1.1bn) jobs fund, as he declared 2011 South Africa’s year of job creation. “Our goal is clear,” says Zuma. “We want a country where millions more South Africans have decent employment opportunities, which has a modern infrastructure and a vibrant economy, and where the quality of life is high. We all have a responsibility to work hard to make this a reality.”

At the same time the South African President fleshed out the government’s New Growth Path, which aims to bring down South Africa’s unemployment rate down to 15%. The country’s unemployment rate dropped slightly in the final quarter of 2010, from 25.3% to 24%.

Six priority areas
The government information service, Bua, reports that in line with the New Growth Path six job-creating priority areas are being targeted: infrastructure development, agriculture, mining and beneficiation, manufacturing, the “green” economy and tourism. He cites the private sector as the fulcrum in leveraging more jobs. The R9bn jobs fund is financing job-creation initiatives over a three-year period, complemented by R10bn ($1.2bn) set aside by the IDC between now and 2016 for investment in projects with high job-creation potential.

With one eye on a resilient, though economically pressured, private sector, Zuma also announced R20bn ($2.bn) in tax breaks to promote investment, expansion and upgrades in South Africa’s manufacturing sector.

The programme earmarks R200m ($25m) for new projects, R30m ( $3.7m) for expansion and upgrades in a R900m ($112m) tax-deductible package for new investors and R550m ($68m) for upgrades and expansions. Small businesses get a kick start with a new, streamlined authority that sheds the sector’s red tape, avoids duplication of financial support, cuts administrative costs and beefs up fund grants and loans for small enterprises.

Zuma admitted that a number small businesses fail because they are not paid on time by government departments commissioning their services. This has been rectified in the past year with the facilitation of R210m ($26m) in invoice settlements.

Zuma’s big puzzle has many components and he is determined to drive the process until he makes all the pieces fit. Charges that the government is too soft on corruption and mismanagement in its upper echelon ranks have been countered recently with the firing of two ministers found responsible for unauthorised spending and with the police commissioner being suspended. Virtually every day the government publishes chapter and verse of new transgressions by senior and middle management in the government detected by department watchdogs.

It seems this time the will is there to invigorate the economy and that is half the battle. Staring down the barrel of a sluggish economy, mounting unemployment and political dissonance, the South African government has played a shrewd card that could well bring a measure of harmony to public and private economic interaction, as well as buy-in from trade unions and the financial sector.

The master play was in getting business and labour to support an initiative that seeks to bolster the manufacturing industry by increasing domestic demand for South African-made goods, creating new jobs at the same time.

It is also designed to stimulate the small enterprise sector and bring the government and private sectors together in assembling public-private partnerships to tackle much-needed infrastructure projects.

Centred on new legislation with the recent enactment of the Preferential Procurement bill, the programme sets a target of sourcing 75% of supplies from local companies.

South Africa’s President Jacob Zuma says it’s a powerful move that will help the government meet its job creation targets. It was set in motion with the signing of an accord that commits the government and the private sector to greatly increase the procurement of locally-produced products. The government intends to create 5m jobs by 2020 through investment in infrastructure development, manufacturing and the so-called green economy. It proposes measures to address the rand’s strength and loose monetary policy.

“During this negative economic climate, many retrenched workers will try to start small businesses to survive,” Zuma said. “Many of these start-up businesses will be of the survivalist type and need the support of both big business and government. We urge big business to provide that mentoring support, as it will be helpful to the economy in the long run.”

The government already runs a number of programmes on small business development, skills training and enterprise support services. This is buttressed by additional policies to assist small businesses in financial difficulties. These additional measures will help ensure that “SMMEs in distress are saved before they reach a stage of insolvency and ultimate liquidation,” notes Zuma. “From the government’s side, we are also tackling government departments’ failure to pay suppliers on time, which affects SMMEs negatively.” He wants suppliers to be paid within one month of services or goods being delivered.

Staying on the same page
Specifically the local procurement accord is aimed at helping struggling manufacturing sectors, promoting new ones by encouraging local fabrication of hitherto imported items and making a dent in the ballooning unemployment rate.

Industrial Development Corporation (IDC) chief economist Lumkile Mondi maintains that while the accord marks a rather significant, high-level agreement between the parties, one of the first hurdles is for “the different parties to stay on the same page and work together”.

The final details are still to be hammered out but Mondi wonders if the horse has not been placed behind the cart. “Can you procure 75% locally if you cannot address the basic fundamentals of high input costs such as labour and energy?” he asks. Electricity prices have risen steeply escalating while organised labour has often gone on strikes to raise wage levels.

The new procurement regulations, in effect from 7th December, as well as the big business buy-in, will lead the local procurement drive, initially focused on buses, power pylons, railway rolling stock, pharmaceuticals, set-top boxes for televisions, uniforms and other clothing products, certain food products and office and school furniture.

Specific targets have been avoided, says  Oupa Bodibe, chief director of specialist sectors at the Department of Economic Development. “We don’t just want to protect local producers from imports. We want to give them an opportunity, but they must also become more competitive. We are saying there is a market for your business because the state and big business will procure from you. This does not mean that the government will buy from local manufacturers regardless of quality,” he says.

President Zuma says government realises that the whole puzzle must come together if it is to work, especially in turning out skills in the disciplines needed to fire up the manufacturing and SME sector: “The importance of small business enterprises cannot be overemphasised in boosting the country’s economy and realising government’s ambitious plan of creating five million new jobs by 2020.”

More grist to the employment mill should come from South Africa’s participation in forums such as BRICS – Brazil,Russia,India,China,South Africa – Forum and the G20 in providing platforms for promoting the “African agenda”, and the ways they can help mainstream the continent’s economy.

The balancing act South Africa must master is in keeping the peace between the diplomatic imperative and rescuing the economy. The textile and apparel industry is a prime illustration. It has been virtually decimated by a flood of cheap Chinese-manufactured clothing sold at prices local manufacturers cannot hope to compete with. Some 40,000 jobs have been lost in the wholesale closing down of mills and clothing factories. The South African government must tread warily in keeping the Chinese sweet in light of the mega deals in infrastructure, financing and two-way trade that come out of Beijing; sacrifices abound in the name of the “big picture”.

Earlier this year Zuma announced several initiatives to boost job creation, including the setting up of a R9bn ($1.1bn) jobs fund, as he declared 2011 South Africa’s year of job creation. “Our goal is clear,” says Zuma. “We want a country where millions more South Africans have decent employment opportunities, which has a modern infrastructure and a vibrant economy, and where the quality of life is high. We all have a responsibility to work hard to make this a reality.”

At the same time the South African President fleshed out the government’s New Growth Path, which aims to bring down South Africa’s unemployment rate down to 15%. The country’s unemployment rate dropped slightly in the final quarter of 2010, from 25.3% to 24%.

Six priority areas
The government information service, Bua, reports that in line with the New Growth Path six job-creating priority areas are being targeted: infrastructure development, agriculture, mining and beneficiation, manufacturing, the “green” economy and tourism. He cites the private sector as the fulcrum in leveraging more jobs. The R9bn jobs fund is financing job-creation initiatives over a three-year period, complemented by R10bn ($1.2bn) set aside by the IDC between now and 2016 for investment in projects with high job-creation potential.

With one eye on a resilient, though economically pressured, private sector, Zuma also announced R20bn ($2.bn) in tax breaks to promote investment, expansion and upgrades in South Africa’s manufacturing sector.

The programme earmarks R200m ($25m) for new projects, R30m ( $3.7m) for expansion and upgrades in a R900m ($112m) tax-deductible package for new investors and R550m ($68m) for upgrades and expansions. Small businesses get a kick start with a new, streamlined authority that sheds the sector’s red tape, avoids duplication of financial support, cuts administrative costs and beefs up fund grants and loans for small enterprises. Zuma admitted that a number small businesses fail because they are not paid on time by government departments commissioning their services. This has been rectified in the past year with the facilitation of R210m ($26m) in invoice settlements.

Zuma’s big puzzle has many components and he is determined to drive the process until he makes all the pieces fit. Charges that the government is too soft on corruption and mismanagement in its upper echelon ranks have been countered recently with the firing of two ministers found responsible for unauthorised spending and with the police commissioner being suspended. Virtually every day the government publishes chapter and verse of new transgressions by senior and middle management in the government detected by department watchdogs.

It seems this time the will is there to invigorate the economy and that is half the battle.