Sustainable economic growth and development

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Sustainable economic growth and development

• Skills and HR challenges for the public sector

National Treasury September 2005
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A framework for development

• Growth
• Increases income
• Expands opportunities
• Empowerment
• Broadens participation
• Reduces poverty
• and reinforces growth
• Partnership
• Combines the strengths and resources of the
  developmental state and the enterprise economy

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Why target higher growth?

• Present growth outlook 4 av
• Av household income doubles in 25 years
• Unemployment stays 20
• Slow progress in reducing poverty
• Growth acceleration to 6 plus
• Av household income doubles in 15 years
• Unemployment falls economy becomes more
  integrated
• Poverty halved by 2014

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International growth performance varies
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Lessons of international experience

• Two main pillars of a growth and empowerment
  strategy
• Enabling environment for productive investment
  by enterprises
• Investment in skills human capabilities

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• But a diagnostic scan reveals particular
  challenges in our own circumstances
• Overcoming spatial distortions of apartheid
  economy
• Reversing the deterioration of physical
  infrastructure
• Addressing human resource challenges
• Rebuilding formerly fragmented public
  institutions

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• And every society has to confront its own policy
  trade-offs
• Profitability and accumulation
• vs social responsibility protection of
  vulnerable groups
• Quality of infrastructure services
• vs extending access lower costs
• Growth of domestic markets protection
• vs international competitiveness
• Transformation BEE
• vs delivery and risk management

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• Responding to our particular development
  challenges, and managing policy trade-offs
  requires
• Analysis of trends and options,
• Consultation and negotiation between
  stakeholders,
• Realistic objectives,
• Binding agreements between partners.

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Recent trends
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GDP growth has stabilised between 3 and 4 a year
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Household income is rising moderately
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Fiscal position is sound
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Interest rates and inflation are lower
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Domestic confidence surging
15
supporting property boom, and credit growth
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Robust household spending
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But production lags behind expenditure growth
Gap between spending and production reflects
rising imports while export performance remains
sluggish
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Policy challenges
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Foundations in place

• Constitutional framework sound legal system
• Healthy public finances
• Sound financial markets corporate governance
  institutions
• Moderate inflation lower interest rates
• Strong business consumer confidence
• Favourable international perceptions

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Issues to address

• Macroeconomic exchange rate stability
• Infrastructure planning investment
• Housing community environment
• Wages, productivity labour market reform
• Industrial policy
• Strengthening public administration

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Growth impact of key reforms

• NT models indicate main growth increases come
  from
• Lowering costs to business improved
  productivity
• Accelerating infrastructure investment
• Trade reform a stable competitive rand
• And in the longer term
• Education training investment
• Regional integration

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Macroeconomic and exchange rate stability
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Macroeconomic balance has several aspects

• Manage overall expenditure growth relative to GDP
  capacity
• Ensure export growth broadly keeps pace with
  imports
• Fiscal balance and public sector borrowing
  requirement
• Includes balance between current and capital
  spending
• Keep wage and price trends aligned with inflation
  target
• Taking into account productivity trends

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Exchange rate environment difficult to manage

• Exchange rate volatility is feature of global
  environment
• But outlook for period ahead is more favourable
• Build-up of reserves
• Further steps in
• exchange control reform
• Deepening of currency
• markets
• NT-SARB coordination

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Infrastructure Policy

• Increasing the Quantity and Quality of Capital

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Fixed Capital Stock formation lagging
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And public sector investment still lags behind
private sector growth
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Challenges to Infrastructure Investment

• Increase capacity and productivity of ports
• Modernize and expand rail freight
• Road maintenance and rehabilitation
• Improve commuter services and bus network
  management
• Reduce telecommunications costs through improved
  competition and effective regulation
• Expansion of electricity generation capacity
• Restructuring of water infrastructure

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Policy Implications

• Improved research, analysis and network systems
  planning
• Sector-specific policy reforms and institutional
  restructuring
• Telecoms market development
• Transport systems planning recapitalisation
• Electricity industry restructuring
• Establishment of water utility
• Continue to strengthen capacity of regulators
• Engineering and technical student growth
• Improved project management financing
  arrangements

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Urban and regional planning, housing community
development
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Bridging the Two-economy Divide

• Mobilisation of Financial Sector Charter
  transformation resources requires
• Urban and rural development plans
• Translation of plans into projects ready for
  tender
• Clear demarcation between public and private
  sector financing responsibilities
• Effective coordination between national,
  provincial and local authorities
• Effective small enterprise support programmes
  need to draw on private sector and NGO delivery
  networks

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Coordination challenges

• Increased spending on housing is needed
• But urban plans must also provide for economic
  social infrastructure
• More rapid land redistribution can be financed
• Support for emerging farmers needs to be
  strengthened
• Hospital, clinics and schools can be rebuilt
• But they need to be better governed and
  administered

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Small business development understanding the
regulatory burden
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Wages, productivity labour market reform

• Improving productivity and lowering the costs of
  job creation

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SA economic growth skills demand

• Skilled employment has grown about 2 a year
  faster than economic growth since the 1980s
• Leading to increased earnings inequality
• And rising skills shortages
• Supply-side response needs to be strengthened
  (FET colleges, coordination with skills strategy)
• Wage determination needs better coordination
  between public private sectors

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Types of skills matter for growth

• Science and technology higher education enrolment
  lags behind commerce administrationFurther
  education college system has been restructured,
  emphasis needs to shift to enrolment growth and
  quality improvementImmigration policy alignment
  with skills requirements needed

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Labour market issues

• Improved linkages between training and job market
  needed
• Bias in tax incentives against labour intensive
  industries to be avoided
• Too many businesses are liquidated rather than
  restructured
• First economy labour standards can serve as
  barriers to business growth and formalisation
  (taverns, small farms, informal retail trade,
  etc)
• Coordination between social insurance policy,
  wage-setting and costs of employment needs to be
  reviewed

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Industrial policy

• Discovering growth opportunities, RD, Innovation
  and Technology,
• Sector policies

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Industrial sector strategies

• Coordination between Government and Business
  needs effective institutional vehicles
• Industry council roles include
• Monitoring analysis
• Consultation on policy options
• Consideration of trade measures
• Greater impetus needed in IDZs
• Including coordination with provinces cities

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Research and Development

• Science technology policy can contribute to
  industrial growth
• Needs to be well targeted
• Investment mistakes can be costly
• Risk of favouring capital intensive sectors
• Expert advisory forum for coordination with
  private sector might be helpful

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Competition and Regulatory Issues

• Improved regulatory oversight and rigorous
  attention to costs can improve investment
  environment
• Benefits need to filter down to end users
• Monopolies in telecommunications, electricity
  must be managed not to hinder growth prospects
• Regulatory intervention needed to prevent abuse
  of pricing power by dominant industry suppliers

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Public Service Delivery
Accountability, monitoring performance, improving
project management
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Is public service delivery related to economic
growth?

• More rapid economic growth will stall over time
  in the absence of public service delivery
  improvements
• Better quality and mix of education and training
• Efficient and effective health services
• Infrastructure that keeps pace with rising demand
• Transport systems that reduce congestion costs
• Well-planned and managed cities and urban
  networks
• Progress in public safety and reducing crime
• Reduced regulatory burden on business
• Containment of administered prices and the cost
  of public services

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Public service reform challenges

• Governance and accountability
• Streamlined monitoring reporting systems
• Strengthening of decentralised management in
  major services (education, health, police,
  services to citizens)
• Municipal management capacity building
• Contractual partnerships w business NGOs
• Need to be well managed
• Subject to monitoring and review
• Improve planning and project management
• Right people in the right place
• Appropriate incentives and performance mngmnt

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Growth and empowerment critical HR reform
challenges

• 6 growth means 60 increase in HR functions
• Economic expansion brings greater competition for
  skills
• Scarce skills require supply side responses
• Delegations and functional devolution are key to
  breaking bureaucratic gridlock
• Critical balance needed
• stable HR framework
• adaptation for institutional and occupations
  needs
• HR priorities need to be clear limited

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Issues for discussion

• Central policy framework vs institutional
  strategies
• Recruitment
• Training
• Remuneration career progression
• Stress and disability management
• Decentralisation coordination challenges
• Delegations and clarity of responsibilities
• Monitoring reporting
• Piloting, learning and institution-building