Hon Chairperson, and hon members, on 10 May this year President Zuma announced his new Cabinet and established the Ministry of Economic Development. I am honoured to take up the position as Minister.
I wish to address briefly the context and rationale that gave rise to the need for the new Ministry and its mandate before turning to some immediate challenges and the work plan to get it and the department fully established.
Hon members will recall that the electorate resoundingly endorsed the ANC's election manifesto, giving this government a clear mandate for the next five years. Central to this mandate is a programme of economic development, aimed at putting our economy onto an employment-led growth trajectory. This mandate was developed in the context of the global economic crisis and the need to address deep structural problems that preceded the crisis.
The global economic crisis started in the financial sector but has rapidly become a real economic crisis. The loss of jobs is now the biggest cost that societies are paying for serious policy and design flaws in the global economy.
The crisis has resulted in a global and local recession and it now threatens South Africa's industrial base. We have experienced the worst quarterly economic performance in 25 years, with a 21,6% drop in manufacturing production in April and a 12,8% drop in mining production in March. Company insolvencies have increased and employment has been severely affected. Unemployment Insurance Fund claims are up by 21% and unemployment is growing.
About 179 000 jobs were lost in the formal sector during the first quarter of 2009. Employment is a lagging indicator; the recession will cause further damage to job numbers and we have not seen the bottom of the employment losses. To counter these serious economic challenges, we have negotiated an important framework agreement on responses to this crisis.
Despite a record period of economic growth preceding the economic downturn, we continue to face long-term employment and social deficits. Our challenges thus go beyond the immediate effects of the global economic crisis.
There are a number of structural problems we need to address. The economy has grown in recent years, but its employment performance is well below the levels required, and remains excessively dependent on imports of capital goods and finished products, and the export of commodities. Our unemployment rate is one of the highest in the industrial world and much of the employment we do have is precarious and low-paid, or what we might call "sub prime jobs". These are closely linked to high levels of inequality and weak industrial performance with evidence of deindustrialisation in the local economy. The composition of trade has contributed to a persistent problem with the current account deficit of our balance of payments, which has remained unsustainably high.
These, as many hon members have indicated, are indeed formidable economic and employment challenges. The structure and composition of Cabinet is designed to address these. To clarify the Ministry's focus and mandate, I shall draw on three policy statements made by the President. In motivating the new Cabinet structure, President Zuma stated on 10 May that -
Cabinet has been reorganised to achieve better alignment between the structure, our electoral mandate and the developmental challenges that need to receive immediate attention from government.
In line with this, the President announced that a new Department of Economic Development had been established to focus on economic policy- making. In his state of the nation address on 3 June, President Zuma stated, and I quote:
The creation of decent work will be at the centre of our economic policies and will influence our investment attraction and job-creation initiatives.
In line with our undertakings, we have to forge ahead to promote a more inclusive economy.
During the Presidency Vote on 24 June, the President stated:
Some people are wondering why we have both the Department of Trade and Industry and that of Economic Development. Trade matters will require a strong focus to have a direct impact on industrial organisation and output.
The Economic Development portfolio will have a strong domestic focus and will address, amongst others, matters of macro and microeconomic development planning.
The new department is thus part of a new configuration of government that centres on the four interconnected areas of policy development, planning, effective implementation and continuous monitoring and evaluation. The mandate is clear: The department will be responsible for developing economic policy with a broad, cross-cutting focus so that macro and microeconomic policy will reinforce each other and will both be aligned to the election mandate.
The department will also be responsible for economic development planning and will work collegially within Cabinet to ensure co-ordination around a programme that places decent work at the centre of our economic policies in order to secure better employment outcomes. Decent work, of course, embraces both the number of jobs and the quality of the jobs.
The fundamental departure point of this mandate is that employment should not be the residual outcome of other policies, but the overarching goal of economic policies. Rising employment and living standards also have positive economic outcomes and are a vital source of growth in domestic demand. To achieve government's decent work outcomes, the labour absorption rate, the composition of economic activities and the sustainability of the growth path are as important as the quantum of growth. In other words, we are talking about an employment-led and developmental growth path.
This growth path will be promoted through carefully considered policy initiatives as well as better implementation of economic programmes. It requires a strong, effective, responsive and democratic developmental state that works closely with both business and organised labour, drawing the resources and talents of our people into a national consensus. The entrepreneurial energy of the business community is a vital component of our vision and a key source of jobs in our economy.
Government too has a critical role to play. Government will make maximum use of all the means at its disposal and will ensure that the objective of decent work is reflected in the orientation and programme of development finance institutions and regulatory bodies; through government procurement and public incentive rules; and in industrial, trade, competition, labour market, macroeconomic and other policies.
This commitment derives from our electoral mandate and is a common goal of the executive. We will work closely with Ministers Gordhan and Davies in their departments in giving effect to this mandate.
What then is the role of the Department of Economic Development? The activities of this department will promote economic policy development, co- ordination and coherence. Firstly, regarding national policy challenges and programmes, we will work together with relevant departments and clusters to achieve this. We will also begin a policy engagement process to elaborate a national framework on economic development and decent work.
These aims will be achieved, secondly, through spatial economic development that embraces local, provincial, rural and national economic development dimensions; thirdly, through the mandates and work of public entities responsible for economic regulation and financing of economic development; fourthly, in interactions with business and organised labour to develop social consensus on economic and development challenges, including strengthening Nedlac's work on economic development; and fifthly, in the interface of the domestic economy with the global economy.
The power of this approach to economic development can be illustrated with two examples, one domestic and one international. The building of a 21st century infrastructure as the backbone of growth and social delivery gives us an opportunity to stimulate both manufacturing and service jobs, to secure technology transfers and to take economic development to the rural hinterlands of the nation. But these outcomes do not flow automatically from the mere spending of R787 billion. They result from careful policy design that reflects government priorities, proper implementation and thorough monitoring.
The same approach applies to international trade. As we engage with the powerful economies of China, India, Brazil, the EU and the US, we need to leverage more jobs from these economic relationships and ensure trade and investment is structured to maximise the local jobs dividend. These again do not automatically flow from the normal market transactions that make up our trade relations, but require the same careful thought and execution.
Our African agenda, some details of which I spoke to during the debate on The Presidency Vote last week, provides opportunities to grow the South African and regional economies and their employment.
There are many valuable sources of policy ideas and information that we can draw on. We are going to work in close co-operation across government and with the private sector and organised labour; we will tap into the rich sources of information in the development finance institutions, government departments, the provinces and local government and they will be key internal partners, and we will also draw on local and international expertise outside government.
We will work with Cabinet colleagues to promote integration, and so give effect to the common commitment in government to avoid a silo-based approach. The department will have economic development planning functions, whose outcomes will be fed into the long-range and overall planning that will be co-ordinated by the National Planning Commission.
Coherence will thus be promoted, not only through the policy work of the department, but through the vital and complementary work of both the planning Ministry and the Ministry responsible for monitoring and evaluation. I thus look forward to close co-operation with Ministers Manuel and Chabane.
Coherence will be enhanced through linking macro and microeconomic policies within a coherent, pro-employment framework. The department will assume both new policy and co-ordination functions, as well as receive certain existing functions from other departments as part of the reorganisation of the state. This is achieved in the context of an evolving model of co- operative and effective governance, which ensures both horizontal co- operation and integration of policy across the national institutions of government and the state, as well as vertical co-operation between different spheres of government at national, provincial and local levels.
We look to build a lean, effective department with a high-level policy and technical capacity, with a critical mass of analytical skills and the capacity to synthesise data, ideas and experiences locally and internationally into effective policies and programmes that go into the policy-making machinery of the state. In addition, we will secure the necessary co-ordination and economic development planning skills in the department to implement programmes derived from the mandate.
The agreements in the framework for South Africa's response to the global economic crisis will guide some immediate actions. In this context, we call for a national jobs pact that places employment at the centre of the actions by business, labour and government. Such a national jobs pact would use the key agreements in the framework and translate it into sector agreements, workplace pacts and further national consensus on ways of saving jobs during the recession. This will lay the basis for further social pacts on our country's major challenges.
One of South Africa's comparative advantages is our tradition of social dialogue. We will strengthen it on matters of economic development to achieve national cohesion and bring together the resources of key economic players, and mobilise the energies of society.
As a new Ministry in a reconfigured Cabinet, the Department of Economic Development has not inherited an existing infrastructure. Many of its core functions are new and not previously performed within the state. Nevertheless, with the support of our Cabinet colleagues and the President, we are striving to shorten the normal timeframes required to set up such a department, so we can get down to work with the urgency these tasks require.
The steps to bring Economic Development to full strength require the formal and legal establishment of the Department of Economic Development by way of Presidential proclamation due shortly. It is agreed that the deadlines that apply to established departments must be applied more flexibly in the case of a new department like Economic Development. To facilitate this, interim arrangements have been put in place with the assistance of the Department of Trade and Industry and Treasury.
The establishment team for the department is now working on an organisational organogram and a budget in three parts: one, an interim budget from 10 May until 30 September this year which provides for establishment costs and some capacity to commence policy work. This will be accommodated via a ring-fenced item in the Department of Trade and Industry's budget until the Adjustments Appropriation in October.
Secondly, there will be a six-month transition budget from 1 October this year to 31 March 2010, which will provide for a more substantial work programme, for which a Budget Vote will be created in October's Adjustments Appropriation Adjustments Bill. Thirdly, a strategic plan and budget will be in effect from 1 April 2010 that will provide the full work plan for the Department and incorporate same into the Medium-Term Expenditure Framework.
This will be finalised and presented to the portfolio committee in September. The fulfilment of these legal and organisational requirements lays the basis for the effective implementation of the department's mandate.
In conclusion, I am looking forward to working with Deputy Minister Gwen Mahlangu-Nkabinde to give effect to this, and I am certainly looking forward to a rich and very deep relationship with Parliament in giving effect to our mandate. I thank you. [Applause.]