Chairperson, the Minister of Finance, the Deputy Minister of Finance, the Director-General of National Treasury and the former Minister of Finance, and now Minister in The Presidency, in the words of the President of the country in his state of the nation address, "We are in a recession." As was the case in many historical economic crunches, there has been a potpourri of analysis as to what the cause of the current crisis is. We hold the view that this is a crisis of production and distribution of resources in our economy, and also a crisis of profit maximisation.
We are reminded of the words of Winston Churchill when he said that a particular economist was looking at an economic policy from the wrong side of the municipality's sewerage system. I was reminded of those sentiments when I was listening to hon member George, who was going on and on and basically almost denouncing the free-market economy, as a free-market fundamentalist in the DA, on the one hand, while on the other, urging government to ready itself to move out when we are in the post recession period. Yet, in actual fact, they are not even saying what needs to be done by the very same people who caused this mess that we are in at this particular moments. I think that we should not look at the economic policy from the wrong side of the municipal sewerage system because we know what the consequences will be! [Laughter.]
The Framework for South Africa's Response to the International Economic Crisis, itself a product of all role-players in our economy through the National Economic Development and Labour Council, Nedlac, asserts that this crisis is as a result of -
... gross imbalances and inequities in the global economic system, the impact of the financialisation of our economies, ineffectual regulation in several of the major world economies and poor business practices ...
The framework further asserts that this has resulted in significant asset depreciation, closure of companies, rising unemployment and a sharp slowing down in economic growth, with most highly industrialised countries entering a recession.
The framework goes on to instruct us to use our strength in fiscal space, the financial regulatory framework, and the resourcefulness of our people in order to respond to this crisis. It further identifies a role for development finance institutions, DFIs, as significant instruments to intervene especially in sectors of the economy that are in distress.
It specifically suggests that DFIs will provide financial and technical support for public sector investment projects, taking into account both the immediate and long-term needs of our economy.
The role of DFIs, both nationally and provincially, has been to support economic initiatives that are meant to stimulate the productive capacity of our economy, create jobs, and facilitate domestic and international investments in the local and regional economies. All of these things are part of the collective state-led effort of ensuring that where private finance institutions fail, DFIs are the means by which to fill the gap.
Clearly, a lot has been done by these institutions in supporting the state to provide the necessary finance for sustainable development, employment creation and economic empowerment. These institutions played a significant role in the creation and success of the many black companies and entities which ordinarily would not have had access to financial facilities in order to be active in the economy. They have also contributed heavily to projects that relate to job creation, industrial innovation and attracting foreign direct investment.
This was done through direct partnerships with foreign investors or by supporting local entities as partners. However, there is also the ugly side of many of our DFIs that can be summarised as follows. Some of them have mainly focused on supporting narrow BEE initiatives that did not yield any jobs and merely served as a springboard for quick-buck millionaires. Some of them do not support SMMEs or co-operatives, and have basically passed the buck to the Department of Trade and Industry - and of course they can cite legislation as they do so.
There are gaps in terms of the provision of development finance - and we will talk about this when the Chair says we've got two minutes remaining! [Laughter.] There is also no co-ordination between DFIs at national level, and equally poor co-ordination between DFIs at provincial level and between them and their national counterparts. There have been serious questions about governance, with some DFIs being accused of serious corruption, cronyism and a disregard for the conventional ethics of governance.
In its 2009 election manifesto, the ANC promised the people of South Africa that it would create more jobs, decent work and sustainable livelihoods. In living up to this promise, the government is committed to taking the creation of decent work opportunities and sustainable livelihoods as its primary focus, including the focus of economic policies.
The government is also making maximum use of all the means at its disposal to achieve these twin goals, and one of the areas where this objective should be reflected is in the orientation and programme of our DFIs. We have learnt today that part of the other things we need to do, regrettably Comrade Trevor, is that we are not going to have a cocktail. If we do have a cocktail, I propose it should be at a cash bar. [Laughter.] It should be a cash bar so that we don't really have to forfeit the cocktail component.
But we also have some valuable advice from Mr Koornhof that we need to run our country like a supermarket. I don't know if we really should be doing that, following the guidelines of Pick ? Pay - this is government and not a food chain store.
In order to achieve this goal, the ANC government must ensure that the mandates of DFIs, like the Industrial Development Corporation, IDC, the Development Bank of Southern Africa, DBSA, the National Empowerment Fund, NEF, and the Land Bank, are clear and truly developmental. These institutions and related DFIs, including the various provincial development agencies, have an important role to play in development. It is imperative that their programmes should contribute to decent work outcomes, the achievement of our developmental needs and sustainable livelihoods.
Continuing to fund narrow BEE deals is not contributing to these needs or to our goal of eradicating poverty for national or provincial DFIs. In fact, by giving interest-free loans of R100 million and more to their own directors, DFIs, such as the IDC, bring the entire DFI sector into disrepute. And that is not the only case. There have been reports of some DFIs in Mpumalanga which have given their directors interest-free loans, and we think that we really need to look into this and reverse the situation. Such practices and conduct may have been tolerated or overlooked in the past, but they have no place in our future development agenda.
This raises the question of governance of the more than 50 DFIs funded by the government. The ANC's renewed commitment to clean government and rooting out corruption extends not only to reviewing the mandates of the DFIs, but also to reviewing the composition of their boards of directors and assessing the performance of their managers. In order for the DFIs to carry out the role we expect of them, they cannot be directed or managed by individuals who sit on the boards to promote their own financial interests.
In the framework agreement that I alluded to earlier, and in support of the ANC's election manifesto priority areas, the social partners who are party to this agreement indicate that -
Development finance institutions need to place the promotion of productive employment and decent work opportunities at the centre of their investment mandates and to mobilise their available funds for the retention of employment and the creation of the largest number of jobs per unit of capital invested. DFIs could provide preferential funding to firms under distress to offset short-term funding pressures that are the result of the global economic context, for instance through working- capital solutions. The partners further agree that -
A significant part of the national response to the global economic slowdown should be to rebuild local industrial capacity and avoid deindustrialisation during the period ahead. Critical to such a strategy is the need to improve the competitiveness and the performance of key local industries, particularly vulnerable sectors and small businesses.
The framework goes further to identify which sectors need to be prioritised, and we support that. They have also further agreed that the IDC needs to urgently come up with measures that will increase the level of its equity exposure in this sector and where possible make increased working capital available. We are quite disappointed that we have not yet had the details of how these agreements will be realised, and we hope that in the coming few days we will be hearing those details in order to ensure that we realise progress and also to ensure that we save the many jobs that could potentially be lost in those identified sectors.
The current focus of DFIs needs to be reviewed in order to ensure that their role moves away from supporting shareholder BEE and moves towards supporting the productive capacity of our economy. This situation obviously requires urgent attention also on the part of the Ministry and the Department of Economic Development to ensure that DFIs are brought into line with the national developmental goals as identified by the ANC in its election manifesto.
We also need to indicate that as the IDC and the various DFIs move ahead to provide stimulus packages and intervention to the sectors that are in distress, one of the things that we really need to look into is their capacity to monitor and discipline those particular sectors and companies that would have been provided with that intervention. We think that suggesting to government that it intervenes now and later on withdraws, as hon member George would want us to believe in and do, is like asking a victim of crime to remove the burglar-proofing and alarm system immediately after the insurance company has paid.
The government has an equal responsibility, if it has to intervene, in ensuring that intervention is monitored. And that's the case even in the biggest economies of them all; even in the USA, the government is making interventions with a lot of conditions. We are not going to pour public resources into private entities which will later on become the private profits of certain individuals and then just fold our arms and not say to these companies, "This is how we expect you to conduct yourselves in the future."
In conclusion, we also want to say that the role of the DBSA - and I think as the hon Minister has announced an injection ... [Interjections.]