Chairperson, hon members and Cabinet colleagues, social partners, officials of the Department of Economic Development, development finance institutions, DFIs, commissions and the tribunal, members of the public and friends, I am honoured today to present to you the second budget of the Department of Economic Development.
In his speech to the National Assembly, in June 2009, President Zuma set out the mandate of the new department as follows: "The Economic Development portfolio will have a strong domestic focus and will ... address, amongst others, matters of macro- and microeconomic development planning."
Over the past year, we worked with colleagues across government, provinces and municipalities to give effect to that mandate. In the context of South Africa's challenges, this entailed drafting a new growth path that places employment at the centre of government's work and policies.
In October last year, a phase of research, policy development and discussion culminated in Cabinet's adoption of the New growth Path, NGP. The work of the department and its agencies has focused on developing the NGP framework, supporting implementation, partnering with other departments and public entities to align the work across government to the overarching new framework.
The New Growth Path sets out a vision of five million new jobs by 2020. It identifies twin goals: increasing the economy's labour-absorbing capacity and decreasing its carbon emission intensity. These goals are central to our development as a country.
The key to empowering women, black South Africans, workers, the rural population and young people is to provide them with real economic opportunities - in jobs, access to resources and entrepreneurial opportunities in meaningful self-employment and through the social economy. This is not an act of charity, but - fundamental to sustained growth - is about using our talent pool fully and having the social solidarity that any society requires to prosper.
At the same time, these goals cannot remain solely government's concern. The majority of new employment opportunities will come from outside the state. The government can support employment creation by providing infrastructure, skills and an efficient and effective regulatory environment. It must allocate its capacity and resources to encourage new opportunities in the formal sector; amongst small and micro enterprises; in the social economy, which comprises co-operatives and other nonprofit activities; through rural development; and support for economic development across the continent.
To achieve its aim of generating five million new jobs, the New Growth Path prioritises six sectors: infrastructure development; agricultural value chain; mining and metal fabrication; manufacturing expansion; the green economy; and the key services of tourism, creative industries and business services.
The NGP points to big opportunities on the African continent, with its market of one billion consumers and some of the fastest growing economies in the world. It sees a key role for knowledge-based sectors that rely on information, innovation and new technologies. It sets out the jobs and developmental impact of rural development, the social economy and the public sector.
The New Growth Path aligns macro- and microeconomic policies; calls for a competitive exchange rate; and identifies the microeconomic toolbox of skills development; enterprise promotion and competition policy to tackle monopolies and price fixing; labour policies; technology and innovation; rural development; industrial policy; trade and regional integration.
President Zuma, in the February state of the nation address, placed job creation as the priority of government for 2011, and the Minister of Finance gave financial expression to this and to the NGP in the national Budget.
We set a tough target - 5 million new jobs in 10 years. This year we will start with relatively modest gains and ramp them up every year over the next decade. The past 18 months of GDP recovery and, at the end of 2010, the increase in employment point to the realism of our objective. In the last quarter of 2010, the economy generated over 100 000 jobs - still far less than was lost in the downturn, but at least a meaningful pointer to a real turnaround.
Departments will announce their specific targets and actions for supporting employment creation over the next 10 weeks when they table their spending plans in Parliament. At the same time, we will move decisively to lay the basis for long-term growth and new employment generation by addressing the economy's structural constraints.
We spent time and effort to map out the new economic growth path. The focus is now on action, on implementation. The President set the tone in February when he announced the steps to implement the New Growth Path.
The department has two roles in the implementation of the NGP: to bolster the integration of diverse government policies, programmes and projects to support employment creation; and to ensure that the development finance institutions and regulatory agencies for which the Department of Economic Development is responsible become central agents in achieving a more inclusive, equitable and job-rich economy.
In this context, it is my pleasure to advise this House of the budget of the Economic Development department, EDD. I will focus on the agencies that the EDD oversees and that absorb the bulk of our budget. We tabled a detailed plan for our departmental activities with the portfolio committee, by programme and subprogramme, which I will not revisit here.
The Economic Development department's budget allocation this year is R594,5 million, which covers the work of the department and the agencies that report to it. This is 42% higher than last year's allocation. Three quarters of the total, or R464,8 million, will be transferred to the development finance institutions, DFIs, and commissions for which the Economic Development department is responsible.
We propose to distribute the budget as follows: R219,4 million for small business funding, through transfers to Khula and the SA Micro-Finance Apex Fund, Samaf; R141,8 million for the competition authorities; R69,6 million for trade administration to the International Trade Administration Commission of SA, Itac; R34 million for agro-processing promotion to the Industrial Development Corporation, IDC; R23,3 million for policy development within the Economic Development department; R35,1 million for economic planning and co-ordination; R16,3 million for economic development and dialogue; and R55 million for administration, the Ministry and capital expenditure.
In implementing the New Growth Path, the development finance institutions have a central role to play. They provide a crucial mechanism for forging constructive and productive partnerships with stakeholders to develop our economy. They can leverage private investment on a large scale, based primarily on their reserves and balance sheets - a particularly important task given that to date private investment has lagged behind the overall economic recovery.
The IDC in particular must play a central role to encourage new economic activities, support new job creation and promote a greener economy. It must think ahead of the market, taking a longer term and more developmental view than private investors. A summary of our expectations as shareholders has been tabled with the portfolio committee.
Last year, I mandated the IDC to review its level and cost of funding, its investment focus and turnaround time on applications. Following this review, the IDC will now substantially increase the level of industrial funding and will make available R102 billion over the next five years for investment in New Growth Path priorities. This represents a 160% increase over actual approvals in the last five years and revises upwards the R66 billion in its current five-year projections tabled with the portfolio committee.
The five-year funding will be allocated as follows - green industries: R22,4 billion; mining and beneficiation: R22,1 billion; manufacturing: R20,8 billion; the agricultural value chain: R7,7 billion; tourism, the creative industries and high-level services: R14,8 billion; funding to distressed companies: R2,5 billion; strategic high-impact projects: R11,1 billion; and venture capital: R500 million. These allocations will be reviewed annually and adjusted as required.
Within this envelope, the IDC will provide R10 billion to local firms at prime less 3% for projects with a high employment impact - what we call the "Jobs Fund". It will invest between R7 billion and R10 billion in the rest of Africa, in projects with strong forward and backward linkages to our economy.
I have also asked the IDC to consider a facility to address challenges to companies from the strong rand, possibly through the Distressed Sector Fund, and I expect a proposal by the end of May this year.
On the cost of IDC lending, interest on new IDC loans will be up to 100 basis points lower for high-development impact investments, which should reduce the average cost of borrowing by 50 basis points. Based on existing loan profiles, this should save borrowers approximately R500 million over the next five years alone. This is a dramatic improvement in available funding made possible by greater use of the strong balance sheet of the