Transcript Challenges facing SACTWU - 2006

Global economic crisis – the
Framework and
South Africa’s response
Presentation to Portfolio Committee
and Select Committee
Minister of Economic Development
Draft – check against delivery
1
Background and roots
Causes of the crisis lay in a range of
policies over past 30 years
 Complex and interconnected factors, incl





Gross imbalances and inequities in the
global economic system
Impact of financialisation of economies
Ineffectual regulation in key economies
Poor business practices
2
A number of smaller crises
Financial crises in US – Savings & Loans
 East Asian Financial Crisis
 Latin American Financial crisis
 Russian crisis

3
A big crisis
September 2008 meltdown
 Lehman Bros bankrupt
 AIG teeters on bankruptcy – systemic risk
 Freddie Mac and Fanny Mae
 Wall Street crashes
 American economy goes into recession
 Impact across the world is dramatic and
rapid

4
Market capitalisation: various banks
(Jun 2007 vs Jan 2009) (US$ bn)
5
Consequences
Price of oil and many minerals fall sharply
 Aggregate demand drops substantially
 Factories slow down and many close
 Credit to companies dry up
 Fifty million workers estimated to be made
jobless
 Rural poverty deepens
 Many people lose homes and property

6
12.01.2009
30.12.2008
17.12.2008
04.12.2008
21.11.2008
08.11.2008
26.10.2008
13.10.2008
30.09.2008
17.09.2008
04.09.2008
22.08.2008
09.08.2008
27.07.2008
14.07.2008
01.07.2008
18.06.2008
05.06.2008
23.05.2008
10.05.2008
27.04.2008
14.04.2008
01.04.2008
19.03.2008
06.03.2008
22.02.2008
09.02.2008
27.01.2008
14.01.2008
01.01.2008
Platinum price (US Dollars)
Jan 2008 – Feb 2009
$2,500
$2,300
$2,100
$1,900
$1,700
$1,500
$1,300
$1,100
$900
$700
$500
7
2009/02/05
2009/01/05
2008/12/05
2008/11/05
2008/10/05
2008/09/05
2008/08/05
2008/07/05
2008/06/05
2008/05/05
2008/04/05
2008/03/05
2008/02/05
2008/01/05
2007/12/05
2007/11/05
2007/10/05
2007/09/05
2007/08/05
2007/07/05
2007/06/05
2007/05/05
2007/04/05
2007/03/05
2007/02/05
2007/01/05
Oil price (US Dollar per barrel)
(Jan 2007 – Feb 2009)
$160
$140
$120
$100
$80
$60
$40
$20
8
Reactions by governments
American government intervenes to an
extent that overturns all the ‘rules’
 Bail-out of banks and insurance company
 Part nationalisation of finance sector
 Rescue of auto sector
 Massive stimulus package (fiscal and
monetary) to try to stop the recession
 Global coordination to pump liquidity into
the market
9
China announces stimulus package as its
economy slows down
 European countries follow
 The crisis rapidly spreads in spite of these
efforts
 Initial talk of SA being ‘decoupled’ from
the crisis but evidence from real economy
groups contradict this
 This triggers an SA response

10
Framework Agreement
December 2008 meeting called by then
President Motlanthe
 Task team set up with labour, business
and community orgs
 Proposals formulated in mid-December
 Negotiations from 19 Jan to 19 Feb 2009
 A Framework for SA’s response was
developed and agreed, which set out
principles and broad programmes

11
Framework: principles
Principles





Protect the poor, the vulnerable, the
unemployed and low-income workers
Strengthen capacity to grow decent work in
future
Maintain high levels of investment
Interventions that are timely, tailored and
targeted
Bold stimulus package
12
Framework overview
Six main features






Maintain high levels of investment
Deploy macroeconomic policies
Industrial and trade policies
Employment measures
Social measures
Address global roots of crisis
13
Framework: public investment




Government will spend R787 billion on
improving public infrastructure such as
housing construction, energy generation,
hospitals and health clinics, schools and
training colleges, railways, roads, dams,
running water, in rural and urban areas.
Maintain, and if possible expedite, in
context of economic challenges
Identify additional resources
DFIs to provide finance/technical support
14
Framework: macro-economic measures

Fiscal and monetary policy measures to be





Used counter-cyclically
Used aggressively where required
Used In combination
Aligned to each other
Complemented by trade & industrial policies
15

Business and labour and community
organisations to meet with the Reserve
Bank to discuss



interest rate regime
lowering cost of capital
reduce real interest rate gap
Recognition of the value of a competitive
exchange rate to boost the economy
 Tax relief – reference to Budget of
February 2009

16
Framework: industrial & trade measures
Industries affected by the crisis must be
helped.
 Avoid de-industrialisation and rebuild local
industrial capacity
 Identifies small businesses and list of
vulnerable and distressed sectors as well
as a ‘definition’ of vulnerable sectors


Sectors with high employment and labour
intensity with large planned or actual job
losses and company closures
17
Rescue packages to be developed
 National Jobs Initiative must be launched
 DFI: mandates and support for distressed
sectors
 Promote green jobs
 Promote local procurement
 Combat illegal imports
 Targeted trade measures
 Maintain flow of credit to real economy

18
Framework: employment measures
Private sector
 CEOs to avoid retrenchments of workers
and explore alternatives
 Restraint on excessive executive pay
 Unions and employers to consider training
layoffs as an alternative to retrenchment
 Maintain fair labour standards in
responding to the crisis
19
Public sector
 Improve employment intake in public
sector in key delivery areas
 Review outsourcing by government
 Use expanded public works programmes





Scale up the programme
Increase the duration of contracts
Combine it with training
Bring in community partners
Additional government funding
20
Framework: social measures
Social plans by business and labour at
sector and plant level
 Enhance UIF benefits
 Food prices: competition measures,
special programmes and emergency food
relief
 Increase the child grant progressively to
age 18
 Strengthen coops as a response to the
crisis: employment and services

21
Framework: global coordination
Recognise deep weaknesses in governance
of globalisation
 Develop global responses, with other
countries
 Review global financial and social
architecture
 Support prudent regulation of SA capital
market and retention of capital controls

22

Advocate measures to enhance financial
market stability and penalise predatory
and risky behaviour

Consider measures to discourage short-term,
speculative investment
Address issues of global macro-economic
imbalances
 Propose that development assistance to
developing countries should not be scaleddown

23
G20: proposals and process of shaping
SA’s positions – strong involvement by
social partners
 WTO: promote a developmental agenda
that supports employment, vulnerable
sectors, decent work and policy space for
SA
 IMF and World Bank – review mandates
and governance
 Strengthen ILO

24
Political mandate
President Zuma elected and sets out
vision in State of the Nation Address
 “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.”
 Endorses Framework Agreement as basis
of response

25
Impact on SA







Full impact on SA reflected in economic data from
May
Income from exports of minerals drops
Economic growth slows down dramatically and
manufacturing sector shrinks by 20%
Job losses in one area affects other sectors
(multiplier effect)
Rand crashes against the dollar, then rises
rapidly (volatility)
Credit becomes more difficult to obtain
Current account (BoP) deficit pressures continue
26
Employment
QES records 179 000 job losses in first
three months of the year.
 LFS records 267 000 job losses in second
three months of the year and 302 000
additional people who are discouraged
work-seekers
 Evidence from business and unions show
the same trend

27
24.02.2009
10.02.2009
27.01.2009
13.01.2009
30.12.2008
16.12.2008
02.12.2008
18.11.2008
04.11.2008
21.10.2008
07.10.2008
23.09.2008
09.09.2008
26.08.2008
12.08.2008
29.07.2008
15.07.2008
01.07.2008
17.06.2008
03.06.2008
20.05.2008
06.05.2008
22.04.2008
08.04.2008
25.03.2008
11.03.2008
26.02.2008
12.02.2008
29.01.2008
15.01.2008
01.01.2008
Dollar/Rand Exchange Rate
(Jan 2008 – Feb 2009)
$0.16
$0.15
$0.14
$0.13
$0.12
$0.11
$0.10
$0.09
$0.08
28
Gross Domestic Product
quarterly (seasonally adjusted)
1400000
Personal Sevices
General Government Services
Finance, Real Estate & Business Services
Annualised, Rand millions, constant 2000 prices
1200000
Transport, Storage & Communication
Wholesale & Retail Trade, Hotels & Restaurants
Construction
1000000
Electricity, Gas And Water
Manufacturing
Mining And Quarrying
800000
Agriculture, Forestry And Fishing
600000
400000
200000
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
29
Three quarters of declining GDP (on
seasonally adjusted basis)
 Taking into account sector size, the
biggest losses by far in GDP is in
manufacturing
 Manufacturing activity now back at levels
of 2004
 Major contractions also in other sectors
such as mining

30
Manufacturing
index of physical volume of production
120
Index, 2005=100
110
100
90
80
19
98
19
99
20
00
20
01
20
02
20
20
20
03
04
05
Year beginning January
20
06
20
07
20
08
20
09
31
Large sectors of manufacturing most affected by
recession: metals & machinery and motor vehicles at production
levels last seen in 2000; further contraction of textiles & clothing
140
Textiles, clothing, leather and footwear
130
Basic metals, metal products & machinery
Motor vehicles & other transport equipment
120
Index, 2005=100
110
100
90
80
70
60
50
199
8
199
9
200
0
200
1
200
2
200
200
200
3
4
5
Year beginning January
200
6
200
7
200
8
200
32 9
Response by SA – sequence
February: Framework Agreement
 March: Discussion on implementation
 April: Global discussions in G20 and
elections
 May: new cabinet and Cabinet Lekgotla,
recession is ‘official’
 June: SONA: Framework confirmed by
Pres Zuma as basis of response
 July: a set of priority measures identified
 August: Announcements of six measures

33
Training layoff
Concept: an extended training period as
an alternative to retrenchment
 Funding: National Jobs Fund with R2,4b
allocated to it
 Available: to workers earning up to R180
000 per annum
 Payment: a training allowance of 50% of
basic salary up to R6 239 per month
 Employer: pay basic social package
(funeral, death, disability)

34
Period: 3 months with flexibility on the
structure: either full layoffs or partial
layoffs (short-time)
 Training: left to sector and workplace to
determine, but three guidelines





Company-usable skills
Generic skills and literacy/numeracy
Information and Communication Technology
skills
Trigger: workplace agreement and via
CCMA
35
SETAs: training courses, administration
and funding conduit
 DoL: coordinate and do implementation
guide
 Other partners: business organisations,
unions, EDD and dti.

36
Customs fraud
Illegal imports and customs fraud led to
many thousands of job losses
 SARS has stepped up its actions
 More resources made available
 Action against companies suspected of
smuggling, round-tripping, exportincentive abuse, counterfeits, quota fraud,
rebate item abuse and under-declaration

37
Clothing sector example - investigations
 Smuggling: 4 companies
 Round-tripping: 15 companies
 Export-incentive abuse: 14 companies and
some duties recovered
 Counterfeits: a number of raids
 Quota fraud: 4 companies will be charged
 Rebate abuse: 3 companies
 Under-declaration: 5 will be charged
38
IDC support
IDC has made R6 billion over two years
available to companies in distress due to
recession – credit and working capital
 49 funding applications in pipeline
 Since 1 April, 11 financing applications
totalling R743m approved

39
Distressed sectors
Work done with social partners since
March
 Packages developed for:





automotives,
clothing & textiles,
capital equipment, transport equipment and
metals fabrication (CETEMF)
A number of measures to address
immediate problems
40
Support for auto industry linked to
conditionalities on jobs, affordability,
environment and modest pay and
dividends
 Increased incentives for CETEMF
 Clothing & Textile: a possible different
incentive scheme
 Implementation: the dti and its agencies

41
Food prices and competition action



Goal: reduce food price pressures on consumers
Method; step up action against companies
colluding or partaking in anti-competitive action
Focus on seven parts of food supply-chain







Bread
Milling (maize)
Dairy
Poultry
Fertilisers
Fats & oils
Supermarkets
42
Debt management
Goal: address the pressure on overindebted consumers
 National Debt Mediation Association – a
business venture
 Provide rules, standards and processes to
address debt restructuring

43
Going forward
Implement six measures effectively
 Develop a new set of issues
 Progress policy discussions on the shape
of a new global economic and social
architecture

44
New issues
Working across a wide front of issues: Eg
 Expanded public works programme
 Public infrastructure investment (R787b)
 Local procurement
 Public grant conditionalities
 Green jobs
 Vulnerable groups: women, informal
economy
 Engagement with the banking sector
45
The future
Tentative signs of recovery but based on
stimulus packages – can it sustain itself
 Employment losses will lag economic
recovery
 The crisis has challenged economic
orthodoxies
 Global financial regulation taking shape
 Global imbalances not resolved
 Globally: big budget deficits and very low
interest rates

46
47
Conclusion
New experience for the democracy –
dealing with a deep economic contraction
 Not a short-term problem that will
disappear in six months
 Government has the resolve to act to
protect jobs and the economy, as well as
our people
 Address both immediate and systemic
issues
 Shape of post-crisis world

48
Build partnerships to confront the
challenge
 Important role for parliament as the
representatives of the people





Regular reports to parliament, including
through Statements to the House
Role of PC in ensuring accountability
Popularising the Framework Agreement
Possible public hearings
49