Africa Programme Transcript

Transforming South Africa: Policy Priorities and Implementing the National Development Plan

Speaker: Hon Jeffrey Radebe

Minister in the Presidency, Republic of South Africa

Speaker: Hon Dr Rob Davies

Minister of Trade and Industry, Republic of South Africa

Speaker: Hon Nhlanhla Nene

Minister of Finance, Republic of South Africa

Chair: Alex Vines OBE

Director, Area Studies and International Law; Head, Africa Programme, Chatham House

28 October 2014

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2 Transforming South Africa: Policy Priorities and Implementing the National Development Plan

Introduction This document is a transcript of the presentations given at a meeting held at Chatham House on 28 October 2014, which examined the South African government’s key economic policy priorities.

South Africa boasts Africa’s most advanced economy, and its second largest, but the 2008 financial crisis took a heavy toll – particularly on its critical mining and manufacturing sectors. In response, the government has recently implemented an expansive National Development Plan (NDP), which aims to coordinate all aspects of government policy for the next two decades. At this meeting, Hon Jeffrey Radebe, Hon Dr Rob Davies and Hon Nhlanhla Nene discussed why the NDP is necessary, how it will be realized, and how it will impact on South Africa’s future.

The meeting was held on the record.

For more information, including recordings, transcripts, summaries, and further resources on this and other related topics, please visit www.chathamhouse.org/research/africa.

Hon Jeffrey Radebe I am grateful for the opportunity to talk to you this afternoon.

In one of his recent speeches, President Zuma referred to the National Development Plan (NDP) as ‘our roadmap for the next 20 years.’ He went on to say that ‘all the work we do in government is now part of the comprehensive National Development Plan, including all operational plans – be they social, economic or political’.

The NDP is our programme for the radical socio-economic transformation for the next 20 years. It builds on the progress we have made in the past 20 years of democracy. Twenty years ago, when President Nelson Mandela was inaugurated, South Africa was a different country to what it is today. It is radically and almost unrecognizably better off today, for all its citizens. On average, the economy has grown at 3.2 per cent a year from 1994 to 2012, despite the global setback of the 2008 recession. In constant 2005 prices, gross national income per capita increased from R28,536 in 1994 to R37,423 in 2013. Employment grew by approximately 5.6 million between 1994 and 2013, or by 60 percent. The 2008 crisis was a setback, with the loss of approximately 1 million jobs between the end of 2008 and the end of 2010.

Another important achievement in the past 20 years has been the modernization of the telecommunications sector, with huge investment in cellular infrastructure and greatly increased access to telephony, television, postal services and, more recently, data communications. The government has prioritized funding for the social sector, which, coupled with pro-poor policies, has resulted in a reduction in poverty and a range of advances towards racially integrated and equitable provision of services. The number of social assistance beneficiaries increased from 2.7 million people in 1994 to more than 16 million people by 2013.

Over 8 million learners are now benefiting from no-fee policies, and this has contributed to an increase in secondary school enrolment from 51 per cent in 1994 to around 80 per cent currently. There are many more achievements we have made, but challenges remain.

South Africa today is a stable democracy with a firmly entrenched human rights culture. Our constitution is recognized as the most progressive in the world and our bill of rights has been embraced by the vast majority of our people, from all races and backgrounds. To guide us over the next 20 years, we have adopted the National Development Plan. The NDP is complemented by a National Infrastructure Plan 3 Transforming South Africa: Policy Priorities and Implementing the National Development Plan with 18 Strategic Integrated Projects. Each of the projects contains specific infrastructure components and programmes, covering social and economic infrastructure across all nine provinces in South Africa.

The NDP aims to unlock the institutional, human and structural impediments to higher growth in the country. The main economic target is to create 11 million more jobs by 2030. It offers a framework for faster growth and socio-economic progress; it promotes enhanced competitiveness, expanded infrastructure, greater spatial efficiency in growing cities and accelerated rural development. It prioritizes measures to build a capable, effective state that delivers services to citizens while encouraging business investment and growth. The document itself has 12 focus areas, each with individual actions, but at its most distilled the plan aims to reduce poverty and inequality.

The NDP offers us a number of proposals aimed at addressing poverty and inequality. They include: an improved business environment to boost investment and growth – this is the most important factor in reducing unemployment; enhancing service delivery to alleviate the burden of poverty now, as well as to help individuals to escape the poverty trap with effective schooling and reduced pressure from poverty; and a lower cost of living for South Africans, in particular by reducing the effect of apartheid-style spatial planning.

Three broad themes inform the government’s approach to tackling these priorities: partnership between the state and private sector to achieve desired outcomes; planning to improve certainty, facilitate partnership and increase accountability; and strategic sequencing of reforms so that those actions that can unlock implementation in other areas are considered first, as well as those where resources match the ambitions and those where we have the capacity to improve.

The NDP provides a coherent, comprehensive and pragmatic plan to transform our economy. The main distinction of the NDP compared with other plans is that it focuses squarely on implementation rather than on diagnostics. It identifies specific actions that must be taken in each sector. The NDP is being actively integrated into the government’s budgets and programmes. The budget framework also seeks to transform the quality of public expenditure by shifting resources to implement the NDP priorities, improving infrastructure allocations and stepping up efforts to combat waste, inefficiency and corruption. Over the course of last year, government officials worked hard to ensure that the NDP and departmental spending priorities were fully aligned. This is no small task, considering the existing competing pressures, but we have achieved it.

We recently published the Medium Term Strategic Framework (MTSF) for the next five years. The MTSF details explicit actions and departmental responsibilities associated with the NDP. The plans are budgeted for within our existing fiscal framework. The entire MTSF is built around an outcomes-based approach. We invite you all to take an active role in monitoring South Africa’s progress in achieving the NDP. Our open fiscal policy and transparency are to invite debate and foster constructive proposals on how to make things better, and to hold us accountable.

The government is already implementing the NDP. We have a number of infrastructure projects under way aimed at unlocking the infrastructure constraints on growth. Their delivery is overseen by the Presidential Infrastructure Coordination Commission. We have established the National Education Collaboration Trust (NECT) – a collaborative effort which brings together government, business and labour in the education sector into a partnership aimed at improving educational outcomes. The NECT is a platform for the private sector to contribute meaningfully to the implementation of the NDP and integrate the various education efforts by the private sector. It also provides a good setting for trying innovative ideas in education and, once proven to work, these would be taken into the department for further implementation.

We have initiated Operation Phakisa to unlock the economic potential of our ocean. This is an adaptation of the Malaysian Government’s methodology called Big Fast Results. Its strength is to bring different 4 Transforming South Africa: Policy Priorities and Implementing the National Development Plan stakeholders together, jointly to seek a solution to any identified problem in order to deliver results. We believe this new approach will help the government deliver on many of the other goals and priorities of the NDP. The National Treasury has established the Office of the Chief Procurement Officer to address real and perceived corruption in the procurement system as well as ensure that the government receives value for money when it purchases goods and services.

The government is introducing legislation to ban all public servants from doing business with the state. At the beginning of this year, the government introduced the Employment Tax Incentive Act to facilitate entry into the labour market by young people. Various studies have shown how the labour market appears to exclude young people, especially because they lack work experience.

The Ministry of Trade and Industry is implementing our Industrial Policy Action Plan to reindustrialize the economy. It has introduced many instruments and incentives to support this policy. A critical part of this is to use public procurement to promote localization, thereby creating demand for locally manufactured goods. We also have a number of programmes to beneficiate our mineral resources.

This is just to give you a sense of what we are doing already. Every day, we continue to make South Africa a better and different country. With each piece of legislation we pass, and each policy we adopt, we build a qualitatively better country than the one we inherited, one brick at a time. The story of our transformation continues to unfold in every classroom and every courtroom, in every hospital ward and in every municipal ward, in every lane that we add onto our roads and every railway line we build to run our trains, in every rapid public transport project we build, every power station we build and every electricity connection we make, and in every house we build to provide shelter for our people. We restore the dignity of our people each day.

Our story is never ending. As we conquer one set of challenges, a new set emerges, challenging us to work even harder. We know that with your support, we will achieve more than we imagined possible.

Hon Nhlanhla Nene

Let me prefix this speech by quoting what we said at the African National Congress (ANC) conference when we adopted the National Development Plan in December 2012. In our statement we said: ‘we engaged in vigorous debate on the persistence of the legacy of apartheid colonialism, reflective in the triple challenges of poverty, inequality and unemployment. Responding to these challenges, we are boldly entering the second phase of the transition from apartheid colonialism to a democratic society. This phase will be characterized by decisive action to effect economic transformation and democratic consolidation, critical both to improve the quality of life of all South Africans and to promote nation-building and social cohesion. Consequently, in pursuance of these objectives we embraced Vision 2030 and the National Development Plan as a platform for united action by all South Africans to eradicate poverty, create full employment and reduce inequality as critical building blocks towards a truly united non-racial, non-sexist democratic and prosperous society.’

I refer to this because there is a debate about whether the ANC embraces the National Development Plan. Mr Radebe indicated that we started with a diagnostic on the Plan which identified nine key areas. There are too few jobs in the economy. Infrastructure is crumbling and non-existent in some areas. We have a resource-intensive economy which needs to be transformed. We need exclusive planning. We identified poor education as a challenge, high disease burden as a challenge, public service that is uneven as a challenge, corruption as a challenge, divided communities as a challenge. All these add up to poverty and inequality. 5 Transforming South Africa: Policy Priorities and Implementing the National Development Plan

We then put together this document, with these focus areas: economy and employment, economic structure, environmental sustainability and resilience, an inclusive regional economy, South Africa’s role in the Union and the world, transforming human settlements, improving education, training and innovation, health care for all, social protection, building safer communities, building a capable state, fighting corruption, and nation-building and social cohesion.

Our priorities are raising employment through faster economic growth, improving the quality of education, skills development and innovation, and building the capability of the state. Turning to our process of budgeting, we now have put in place the Medium Term Strategic Framework, which is a five- year plan for implementing the National Development Plan. It has 14 outcomes as focus areas. I will touch on where we find these and how these relate to the NDP.

The challenges that we confront today find expression also in our Medium Term Expenditure Policy Statement (MTEPS). The MTEPS says that in order for us to address the challenges we are confronted with, we are going to have to put together a fiscal package. This package is our credible response to the challenges that we have, and says while we are going to be disciplined, we are going to continue to protect what the NDP calls on us to do. We are going to protect the poor and vulnerable, and the programmes that contribute towards building the productive capacity of the state, that is infrastructure in the main.

The first of the 14 outcomes is the quality of basic education. That is found in chapter 9 of the NDP. The second outcome is health, and would be found in chapter 10. Outcome 3 is for all people in South Africa to be and feel safe – this is found in chapters 12 and 13, and the relevant departments to this outcome are defence, state security and police services. Chapters 3 and 5 talk to outcome 4, which is decent employment through economic growth, and outcome 10, which is protecting and enhancing our environmental assets and natural resources. In chapter 4 you will find outcome 6, which is an efficient, competitive and responsive economic infrastructure network. Outcome 8 is sustainable human settlements; and improved quality of household life will be found in chapter 8 of the NDP. Outcome 9, which is responsive, effective and efficient local government, is found in chapter 13. Outcome 7, which is vibrant, equitable and sustainable rural communities contributing towards food security for all, is in chapter 6. Nation-building and social cohesion is in chapter 15. Outcome 12, which is an efficient, effective and development-oriented public service, is found in chapter 13. Outcome 11 is creating a better South Africa, a better Africa and a better world, and is covered in chapter 7.

We now have a blueprint and a plan that will outlive this administration and last to 2030, and transform the future of South Africa. Thank you.

Hon Rob Davies

In 2009 we lost 1 million jobs; 200,000 or 20 per cent of those was in manufacturing, which is 12 per cent of the gross domestic product (GDP). We faced a very serious threat of deindustrialization, but there are many reasons why industry and manufacturing are still important. If we continue to occupy a place in the global division of labour as producers and exporters of primary products and importers of finished goods, then we are not at a position where much of the value is created. An example from PriceWaterhouseCoopers’ recent presentation at the World Economic Forum relating to agro-industries illustrates this point – Africa produces and exports $6 billion of coffee, but that is turned into products outside the continent’s borders that are worth $100 billion. The common objective of the African continent, particularly in the period after the peak of the commodity supercycle passed in 2012, has been defined as diversifying our economies and moving up the value chain. 6 Transforming South Africa: Policy Priorities and Implementing the National Development Plan

Our Industrial Policy Action Plan has been focused on implementation, and we have introduced it every year since 2009. It is a series of actions, and we have monitored these and try to have a series of regular engagements where we look at the problems and blockages that are undermining the implementation of the programme. If we look back over what we achieved in the period between 2009 and 2012, we can say that we saw successes in the motoring sector, where we had our highest ever level of investment at R25 billion. We also managed to turn around the clothing sector, principally by introducing an incentive based on productivity and competitiveness, which we have now generalized to support agro-processing industries, metal fabrication industries and those in new sectors such as green industries.

The impact that we’ve had, although positive, is not yet strong enough for us to be able to say that we’ve laid a new structural basis for high-impact growth. We are trying to get to that point with an ambitious infrastructure programme. In the last five years, we have spent more than R1 trillion on infrastructure, which is more than double the amount we have spent in any other administration. That has gone to energy, road and rail, ports, broadband and social infrastructure projects. In the next three years we envisage spending more than $800 billion, which would even top that spent during the last administration. This programme is driving quite a lot of industrial development, and involving a number of supply industries that are involved in the creation of infrastructure.

We also need to add more value to our mineral products. We have identified four mineral value chains that we need to work on: iron and steel; titanium; the platinum metal group; and inputs into the mining industry. I will give one example of how we can do this, in the platinum metal group. The platinum sector, as you know, has been embroiled in industrial conflict and recently experienced a five-month long strike. The price of platinum is now much reduced to what it was, due to the substitution of platinum in a number of industrial uses. But we think we could help by developing industries that use platinum close to where it is mined. We are in the process of developing a special economic zone where there will be tax incentives and incentives for investment. We are also doing technical work to support jewellery manufacturers, and using new hydrogen fuel cell technology to create small power stations that could be used in rural areas. We have received a lot of support from other countries and undertaken a huge amount of research to be able to bring these plans to fruition. That is just one example of the direction in which we are moving.

If we look at emerging economies that are successfully industrializing after the recession, there has been a sea change. It is no longer possible to count on flooding the developed world with manufactured goods. Our trade with Europe has not yet recovered to what was reached in 2008, as the European economy is still relatively flat. The United States is reindustrializing based on shale gas, and has stopped opening up its market to receive goods from emerging economies. The most successful emerging economies have therefore turned to their domestic markets, which are especially sizeable in China, India and Brazil. In Africa, even the biggest countries have populations that are too small to sustain industrialization based on the domestic market alone. However, the accumulated continental market certainly is enough to support diversification. Intra-African trade only constitutes about 12 per cent of total trade. That compares with about 79 per cent in the European Union. We need to find a way of creating large regional markets that can support diversification and industrialization.

This leads me to the SADC-COMESA-EAC Tripartite Free Trade Area negotiations, through which we are trying to move beyond integration within our existing regional communities into large parts of the continent. Eventually we want to enter into a continental free trade area that would embrace a population of over a billion people and exploit a combined GDP of $2.2 trillion. The approach to regional integration must be different to that which has been seen in the European Union, where there is a context of pre- industrialization and highly similar economies. The regional integration programme has to include a 7 Transforming South Africa: Policy Priorities and Implementing the National Development Plan

trade integration component and must be complemented by the promotion of regional infrastructure. Part of the reason that intra-African trade is so low is because we are not well connected. We therefore have a number of flagship projects to begin to rectify this, such as the North-South corridor programme and the Continental Infrastructure Development Programme. Infrastructure funding still represents a huge challenge to Africa, and some estimates suggest that the infrastructure deficit is costing the continent the equivalent of 2 per cent growth.

We need to cooperate to promote industrial development and diversification. We have resolved that we are ready to launch the COMESA-EAC-SADC Tripartite Free Trade Area at the end of the year at a summit in Egypt. That will be followed by a movement towards a continental Free Trade Agreement. This will send a strong signal that Africa is serious about moving towards diversification, value-addition and industrialization, and that we will be creating an environment that will be much more attractive to a range of global partners who see Africa as the next growth frontier.