South Africa's ability to confront politically thorny issues, such as labour market reform and the country's dismal mathematics and science proficiency, will be the test that determines whether it becomes a winning nation. This is the view of finance minister Trevor Manuel, expressed in an interview with the FM this week.
When the details of government's eagerly awaited growth initiative emerge in February, don't expect a hard-nosed economic plan. Rather, says Manuel, it will be the soft issues, such as education and skills training, and what government does about them that will decide whether the plan achieves its target of sustained 6% GDP growth by 2010.
For Manuel, a key figure in the task team compiling the Accelerated & Shared Growth Initiative (Asgi), better job creation lies at the heart of SA's drive for a more equal and prosperous society. And the key is a better-educated and capable workforce.
The education system's failure to produce anywhere near the number of skilled individuals the economy needs - from plumbers and tool-makers to engineers and information technology specialists with degrees in maths and science - is the prime reason that economic growth in recent years - modest though it has been - has not raised employment levels.
"Job creation is clearly associated with the spread of equity and is the biggest counter to poverty," says Manuel. "If we put that at the centre of what we need to do, then it's necessary to firstly look at the supply of skills through the chain. In other words, we need to interrogate the quality of the education and training system."
The low rate of schools' maths and science passes and inadequate workplace training are insufficient for a country with SA's development needs, he says.
That's why the economy is plagued by a shortage of artisans, engineers and chartered accountants and lacks the highly skilled labour with which to build a modern, globally competitive country. "We must increase the breadth and scope of the pool of skills in a much more focused way," he urges.
But politics has too often obstructed the remedies. In the past 10 years government has repeatedly traded equity for efficiency - a policy most apparent in its mishandling of education. The focus on improving the matric pass rate in black schools has discouraged students from taking the more difficult, higher-grade maths courses - a tendency noticed five years too late.
Trade unions, too, have, until recently, obstructed government's attempts to pay maths and science teachers more by insisting that all teachers get a 1% pay progression each year. This, Manuel says, has "reinforced mediocrity".
Immigration policy, which could have imported valuable skills, was 10 years in the making while ANC members of parliament did their damndest to impede the easing of immigration laws.
On a recent visit to India, public service & administration minister Geraldine Fraser-Moleketi refrained from trying to recruit maths and science teachers because of pressure from teachers' union Sadtu.
Will the Asgi team be willing to take on these political battles? Because, as Manuel says, these are bigger issues than tinkering with such things as corporate tax rates.
"We have to tackle the big problems," he says. "We can't say in all instances we will do so regardless of the politics, but we have to tackle these issues. These kinds of things are going to be the measure of change, the acid test."
Countries such as China and South Korea have refused to compromise on maths education, and so created entire generations of people who are highly proficient in the subject. South Korea has used its knowledge base to become a world leader in electronics.
"I truly believe there has to be a big push in this regard," says Manuel. "The unions must understand how important it is."
The labour market is another holy cow that the country needs to tackle, he says. Last year deputy finance minister Jabu Moleketi wrote a controversial discussion paper suggesting that firms hiring young, first-time workers be exempt from certain labour laws in order to encourage job creation and youth employment.
The ANC's national general council (NGC) debated the paper in July, and though many delegates, especially the unionists, strongly opposed the notion of a dual labour market, the council ended up referring the matter to a research group. The research group must report before any legislative changes are decided. The group is to pay special attention to small business and the regulatory regime that affects it.
The matter is now part of the Asgi process and deputy president Phumzile Mlambo-Ngcuka, who chairs the ministerial committee overseeing it, has suggested that the International Labour Organisation - historically an ally of Cosatu - conduct the study.
Despite being party to the NGC agreement, Cosatu reacted angrily last week to news of a labour market review. For Manuel, it is imperative that even in the face of trade union resistance, change is implemented. Anecdotal evidence abounds that employers are reluctant to take on employees and seek extra-legal solutions - a sign of a distortion in the labour market.
"They [Cosatu] can duck and dive but if the market isn't clearing, it isn't clearing. If they dig their heels in and say we'll just throw our toys out of the cot, they will fail future generations. We have to overcome resistance from unions. Their refusal to talk about it is a huge problem."
Manuel's desire to cut to the chase mirrors the realisation in government - egged on by President Thabo Mbeki's international advisory panel - that nothing less than 6% annual GDP growth will solve social problems and that bold steps are necessary.
If SA could achieve growth of 5%-7% annually, the economy would double in size in a decade, unemployment could (in theory) be halved, adding muscle to government's efforts to resolve many issues of social transformation.
Instead, over the past decade, government has allowed the levels of savings and investment in the economy to dwindle to 13,2% and 16,8% of GDP - far below the benchmark 25% for both seen as essential to sustain a fast-growing economy.
At the same time, it has made crucial mistakes in the areas of skills development, immigration and labour markets. The outcome is that economic progress has been well below what it could have been; and has failed those 4,4m people - 26% of the working population - who, according to the narrow definition, remain unemployed.
Manuel and his team, along with the policy unit in the p residency, had been working on a 6% growth strategy since early this year. But after the cabinet lekgotla in July, Mbeki appointed Mlambo-Ngcuka head of a broader group of politicians to lead the project.
All involved acknowledge that it isn't sufficient just to raise the growth rate; the issue is how to transform the growth into jobs and skills creation.
Manuel says Asgi's starting point has been to identify the constraints to growth. It has identified six:
- Infrastructural bottlenecks;
- The regulatory burden on business;
To this list of impediments Manuel adds SA's narrow base of economic activity and vast social inequalities.
In addition to "soft issues" such as skills development and labour market reform, Asgi is also focusing on material needs. One is government's R320bn infrastructure drive, which has been unfolding for two years. The aim is to boost economic growth and public-sector investment in order to clear infrastructural bottlenecks that are damaging exports.
A less-emphasised component of Asgi is to revamp industrial strategy. This is being developed by the department of trade & industry (DTI).
Manuel is full of praise for the motor industry development programme (MIDP) for developing a highly skilled workforce in that sector . He believes that similar examples in other sectors need to be found.
"Though we have a highly skilled labour force in the automotive sector, we shy away from examining whether we might be able to develop something similar, for example, in consumer electronics, because of constraints on the supply of labour," he says. "We limit the industrial sector because we don't look at these issues."
But the kind of industrial policy that the Asgi team and the DTI have in mind is not the old-fashioned approach of "picking winners", Manuel says - "nor is it about embarking on a race to the bottom through offering business a myriad incentives".
Rather, it is about "self-discovery" - a term coined by Harvard economist Dani Rodrik - which implies a collaboration between the private sector and government with the aim of uncovering where the most significant obstacles to restructuring an economy lie and what type of intervention is most likely to remove them.
Government's new industrial policy will still focus on particular sectors - among them beneficiation, advanced manufacturing, services such as business process outsourcing, and job-creating sectors such as child care.
Government will be looking especially for the causes of market failure and obstacles that it can remove to help sectors grow. For instance, it has been trying to negotiate a "developmental price" for electricity from Eskom as a sweetener to attract an aluminium smelter to the Coega port project.
Such an approach will require a sea-change in the DTI, which has always insisted - again due to political imperatives - that it cannot collaborate too closely with the private sector as it needs to balance business interests with those of labour and broader society.
Once again, it shows the political difficulties Asgi will face.
Manuel, meanwhile, has shown willingness to tackle a thorny issue. He intends to meet the Life Offices Association and representatives of the big life insurance companies next week in the hope of resolving the acrimonious relationship that has developed between the industry and pension funds adjudicator Vuyani Ngalwana. The delegations had not been finalised when the FM went to press this week, but it was believed that senior executives from Old Mutual, Sanlam, Liberty and Momentum would be there . Ngalwana was also expected to attend.
To achieve 6% growth, government is also going to have to stimulate private-sector investment by reducing the cost of doing business. This has been on government's agenda for five years. It has commissioned several reviews and studies - on regulatory impact assessment, red tape and import parity pricing - but has never disclosed the findings.
Mbeki undertook in his state of the nation address in February to ease regulations on small business by the end of this year. This included a review of how labour law applied to small business .
The Asgi process may have actually delayed this by subsuming all other initiatives into a new framework that requires a fresh round of consultation and buy-in from business and labour.
The FM has argued consistently for a cut in the corporate tax rate to stimulate investment and business activity. Given the record revenue overrun of R30bn that the national treasury can expect this fiscal year, could such a reduction in corporate tax be on the cards?
Manuel, as ever, is firmly against tax incentives. Though he does not exclude the possibility of a tax cut in the February budget, it is by no means a certainty.
There are also unlikely to be further substantial reductions in foreign exchange controls.
"If you live in Gauteng, do you dump your brolly in winter?" asks Manuel, pointing out that once exchange controls are gone it would be difficult to reactivate them. He intimates that the R750 000 offshore allowance for individuals will be raised or eliminated once the foreign exchange amnesty process has been wound up, possibly by the next budget.
He also urges any corporates that are having problems obtaining Reserve Bank approval to take funds offshore to contact the treasury, and promises to take such cases up with the Bank.
