Chairperson, Deputy Ministers present here, hon members, chairpersons and members of the portfolio committee, ladies and gentlemen, when the Department of Trade and Industry, DTI, presented its Budget Vote last year, the world economy was in the midst of the worst economic crisis since the Great Depression of the 1930s. We advised then that what was commonly referred to as a global financial crisis was fast becoming a deep, real economy and job crisis. Our concern at the time was not misplaced. As hon members know, hundreds of thousands of jobs were lost in our economy during the past year.
One of the major lessons that the global recession taught us was that the South African economy, despite the consistent growth it had experienced before the recession, was not as resilient to exogenous shocks as a number of other key developing countries.
Although we saw signs of recovery during the last two quarters of 2009, with a GDP growth rate of 0,9% in the third quarter and 3,2% in the fourth quarter, the recovery is only just beginning and remains fragile and uneven. Real risks remain for the South African economy in a context where there is still no guarantee against double-dip recession in the world economy.
The main risks to the South African economy can be identified as arising from the structural constraints evident even in the period of growth before the recession, and this is the constraint of unsustainable growth based on credit extension and consumption, without concomitant growth, in production sectors.
In such a context, it is imperative that we redouble efforts to address the structural imbalances that continue to constrain our economy from reaching its undoubted potential. Addressing these structural shortcomings demands from us decisive action to place our economy on a new growth path, a path capable of delivering to our people decent work and sustainable livelihoods on a larger scale than hitherto achieved.
The dti has a clear mandate to create an enabling environment for these structural changes to take place. As a department, we must therefore actively engage in the task of structural reform; a task which is multifaceted in character and requires that we act in concert with the cluster of economic and employment departments in government, and in partnership with both business and organised labour.
Bringing about the structural changes necessary is a complex task. It requires policy cohesion, co-ordination with other economic policies and integration of functions and implementation programmes. The programmes of our department must interface with the range of social and economic development strategies across all spheres of government.
Hon members, the extent of the impact of the global economic crisis and its aftermath on industrial capacity in South Africa, is a cause for concern. The secondary sector declined by 21,8% and 22,1% in the fourth quarter of 2008 and first quarter of 2009, respectively, with the decline in manufacturing being most severe and ranging from 9,4% to 21,8% in the fourth quarter.
More specifically, export-oriented manufacturing industries such as motor vehicles, parts and accessories and durable goods in general, showed the greatest decline, exposing further the structural weaknesses which limit our ability to absorb exogenous shocks.
This crisis also had a massive impact on employment in the primary and secondary sectors, where there was a loss of 870 000 jobs year-on-year. The fact that the wholesale and retail trade and manufacturing industries experienced the greatest declines in employment, registering employment losses of 291 000 and 220 000 jobs, respectively, serves only to underscore the importance of these sectors as a source of work for our people.
As indicated earlier, South Africa's recent growth was driven to too great an extent by unsustainable growth in consumption, fuelled by credit extension. Between 1994 and 2008, consumption-driven sectors grew by an average of 7,7% annually, compared with the production-driven sectors which grew by only 2,9%.
Job creation in the retail sector, underpinned by unsustainable credit extension rather than growth in the production side of the economy, is inherently precarious. Moreover, even when our average annual growth peaked at 5,1% between 2005 and 2007, unemployment did not fall below 22,8% of the economically active population. This highlights the need for us to make structural changes capable of making a sizeable dent in what is, in fact, a structural unemployment crisis that is confronting us.
Chairperson, in the light of the global economic crisis and the danger it presented to the real economy, we were called upon to act decisively and I believe, as a country, we achieved reasonable success through the framework response to the international economic crisis.
The R2,4 billion Training Lay-off Scheme was established as an alternative to retrenchment, to allow workers who would otherwise have been laid off to prepare themselves to take up employment opportunities as the recession ebbed. In addition, the IDC set aside R6,2 billion to assist firms distressed as a consequence of the crisis, in key targeted sectors.
Under the framework response, a number of manufacturing incentives were also fast-tracked, whilst the National Credit Act undoubtedly played and will continue to play a role in defending consumers against the worst excesses of risky lending practices.
However, our fundamental task, as I have been arguing, involves much more than responding to the challenges posed by the cyclical downturn. It requires that we as the dti, as part of government as a whole, impact systematically and significantly in placing us on a new growth path, one which creates decent work on a larger scale than before.
As a country, South Africa has no alternative to the course of action we propose. In this regard, we need to recognise that manufacturing and other production-driven sectors of the economy are the engines of long-term sustainable growth and job creation in developing countries such as our own.
I wish to contend that there is by now an abundant body of evidence from academic research, and one could cite writers such as Ha-Joon Chang or Erik Reinart to establish the point that there has never been a case anywhere, or at any time in economic history, of an economy setting out on a growth path characterised by increasing, as distinct from diminishing, returns to scale without active policies to nurture and defend nascent infant industries in targeted sectors.
Industrial policy and the Industrial Policy Action Plan 2, Ipap 2, in particular, will therefore be a critical pillar of the government's strategy for economic growth and the creation of decent work.
Hon members, industrial policy is ultimately about government making and implementing policy choices, in the absence of which we will continue on the same path - a path that has failed to sufficiently reduce the systematic unemployment that we face and also to reduce poverty and inequality.
The Ipap 2, as it has become known, builds on the National Industrial Policy Framework and the 2007-08 Ipap 1. It represents a significant step forward in scaling up our efforts to promote long-term industrialisation and industrial diversification. It will contribute to the structural changes needed by expanding production in value-added sectors with high employment and growth multipliers.
The Action Plan accordingly places emphasis on more labour-absorbing production and services sectors, on increased participation of historically disadvantaged people and regions in our economy and aims to facilitate, in the medium term, South Africa's contribution to industrial development in the African region. If we succeed, as we must, we will become a more competitive economy in domestic and export markets.
The Industrial Policy Action Plan is a product of the work of the economic sectors and employment cluster of Ministers. Industrial policy and the Ipap 2 in particular, while a cornerstone of a new growth path, forms part of a larger set of interrelated policies and strategies, which are being integrated through work led by the Department of Economic Development and Minister Ebrahim Patel.
Other elements of our strategy will include the need for mutually reinforcing alignment between macro and micro policies; the implementation of policies to raise levels of production and create decent work in agriculture, mining and construction; the implementation of a ten-year innovation plan towards a knowledge-based economy; a concerted focus on rural development and skills development; and the development of energy and water strategies.
More significantly, the performance agreement I signed with the President on Friday, 30 April, also requires us to work with other Ministers in the cluster to produce a clear, detailed, costed and multi-pronged strategy to reduce youth unemployment. This is a very important priority focus and hon members can take it that we will be devoting considerable attention to it as we move forward.
Our Ipap 2 has been subjected to extensive public hearings by the Portfolio Committee on Trade and Industry, and I want to congratulate the chairperson and members of the committee for creating an opportunity for engagement and comment by most of the relevant stakeholders.
I look forward to engaging with your report in detail in due course, but for now I wish to note that the majority by far have expressed broad support for what we have outlined in Ipap 2. Of course, there have been points of criticism. Mostly these have been constructive. As we have said, Ipap 2 is a living document which we intend to amend each year; and certainly, we intend to incorporate all relevant comments and suggestions as far as possible.
Perhaps the most persistent comment from those who have doubted that we should set out on this journey is the claim that, given the potential complexity of implementation, Ipap 2 is a task beyond the capacity of government and this department. This view misses one critical point: Ipap 2 is a plan generated by the economic cluster of Ministers and not by the dti in isolation.
The Ipap 2 document, in fact, sets out very clearly which department, agency or state-owned enterprise is responsible for carrying forward each action plan and intervention. Moreover, the new monitoring and evaluation system in government will, I believe, provide us with an additional mechanism to hold each other accountable for delivery on what we have agreed to do.
Certainly, building capacity and strengthening co-ordination are necessary to advance our objectives and Ipap 2 in particular. But we need to see these as tasks that will be undertaken as we implement Ipap 2, not as something that miraculously has to exist in advance of any implementation.
In this regard, the DTI is now firmly in implementation mode. The first quarter in the implementation schedule is now well underway and we have already begun holding regular internal implementation meetings. The performance agreement we have signed with the President also holds relevant economic clusters collectively responsible for the implementation of defined output targets.
As hon members know, Ipap 2 has four horizontal or transversal themes around which a number of interventions are built; these are industrial financing, procurement, competition policy and developmental trade policies. It has 13 vertical sector strategies, clustered into sectors whose potential requires new and sustained support.
Ipap is premised on the principle that, like all policies, its true value will be found in the outcomes of practice and therefore is based on the principle of learning by doing. It will be the subject of continuous monitoring and evaluation by government, ongoing oversight and interrogation by the National Assembly and will be taken forward and implemented in strengthened consultation, engagement and implementation by government and its social partners.
Chairperson, trade policy is a key instrument that must be used in a manner that supports our industrial policy objectives. Our new trade policy has been circulated for public comment and the Portfolio Committee on Trade and Industry has held hearings on this important document. The policy document outlines how trade policy and strategy in South Africa can make a contribution to the objectives of upgrading and diversifying our economic base. This policy framework is set out in the context of the development of the overall growth path for South Africa that seeks to accelerate economic growth and create decent jobs. One of the immediate, but also strategic, challenges facing us is to intensify our efforts to deepen developmental regional integration in Southern Africa, as well as extend integration across the African continent.
We have recently returned from the commemoration of the centenary of the Southern African Customs Union, Sacu, in Windhoek, where the heads of state and government of the five member countries committed themselves to meet at another summit before the end of July. We, as South Africa, have long argued that Sacu is at a crossroads; it can move to collectively transform itself from an organisation held together by a common external tariff and revenue- sharing formula into a vehicle for deeper regional integration.
This will require reaching at least some common understanding of the trajectory of regional industrial development and the direction and content of trade negotiations. If we cannot move forward in this direction - we have argued - Sacu will find itself driven by circumstances into a looser arrangement, which is more like a free trade area than a customs union.
The vision and mission statements signed by the heads of state in Windhoek last month indicate that all members agree on pursuing the first option. But much more concrete work needs to be done if we are to successfully translate these broad declaratory positions into concrete programmes. This is an issue which I would suggest hon members may want to monitor closely as we proceed.
As far as SADC, the Southern African Development Community, is concerned, we need to acknowledge that the Region Indicative Strategic Development Programme, RISDP, target of achieving a customs union by 2010 has been missed. Our view is that we need for the moment to focus on the many complex tasks to consolidate the free trade area, which we launched in 2008, and to complement this work with advances in the real economy and infrastructure development programmes.
Another priority for us is to broaden African integration through advancing the agreed process to negotiate a Trilateral SADC-EAC-COMESA "grand" free trade area. Once established, this would bring into existence a free trade area literally from the Cape to Cairo with 700 million people.
In addition to pursuing these objectives, we will maintain the momentum of our strong bilateral co-operation with Africa. This means that we will embark on initiatives aimed at supporting infrastructure development, trade and investment projects where requested. A particular focus of our work will be the special development programme, which we are significantly jacking up.
Parliament has been requested to ratify the bilateral investment treaty we have concluded with Zimbabwe. By providing enhanced legal protection for South African investors, this treaty will encourage new South African investment in Zimbabwe to underpin the latter's economic reform and development programme. At the same time, it will ensure that South African investors benefit from economic opportunities which are now emerging in Zimbabwe.
Hon members, the government's trade strategy has long recognised the importance of the emerging economies of the South. The resilience of these economies, both during the recession and the current tentative return to growth, has brought into stark relief an important structural change taking place in the world economy. What has been confirmed during this crisis is the general continued strengthening and importance of newly emerging economies of what is now called "the Global South".
Strengthening our trade and investment relations with these new poles of economic growth is imperative. What we seek, though, from countries with whom we enjoy excellent relations, is the new economic relationships that will differ in major respects from traditional relationships of the past.
These new relationships, we hope, will be built on principles of partnership, complementarities, mutual benefit and co-operation. Our intention, simply put, is to ensure that the building of such new trading relations enables and allows us to diversify value-added production in our economy and to create decent work. We, therefore, want to identify complementarities in trade and investment relations with key countries, Brazil, India and China among them, to support national industrial development.
Strategies are meaningless if not accompanied by an implementation plan. In this regard, our implementation efforts are beginning to bear fruit. Sacu signed a trade agreement with Mercosur last year; the first with another developing region. We hope that Parliament will soon ratify this agreement.
The Sacu and India Preferential Trade Agreement negotiations are continuing and we are confident that these will advance in the near future. Since the dawn of democracy, China has become our fastest growing trading partner. This is indicative of the strong and constructive relationship we have enjoyed since democracy.
We are therefore optimistic that our engagement to develop a partnership for growth and development to promote value-added South African exports to China, and also to increase inward investment in projects such as mineral beneficiation, will all bear fruit.
On the multilateral front, the prospects in the near future for an outcome of the World Trade Organisation, WTO, Doha negotiations that meets the developmental mandate outlined in 2001, appears increasingly remote. Given that elections are taking place in many of the key countries this year, we see little chance that the Doha Round will be concluded in 2010.
In the meantime, we will continue to work to strengthen the developing country alliances that have effectively changed the negotiating dynamic in the WTO. This dynamic has placed developing countries, for the first time in the history of the global trade system, at the centre of the negotiations. We will also, in the course of this year, pay greater attention to the trade aspects of the ongoing negotiations on climate change.
Hon members, exports and foreign direct investment are an important contributor to manufacturing and job creation in South Africa. We noted earlier the overall impact of the global economic crisis on manufacturing in South Africa. Our response to the crisis is not only directed at current challenges, but also seeks out what's best for long-term growth in sustainable manufacturing and exports. Exports must support our industrial policy approach in several ways.