'Intervene in poverty, joblessness'

from Business I Africa

While the South African economy — the 27th largest in the world — is generally doing well, concerted intervention is necessary to reduce poverty and unemployment, the National Assembly's finance committee heard on Tuesday.

Industrial Development Corporation research and information head Jorge Maia told the committee during hearings on the Budget that the improvement of overall economic activity in South Africa since 1994 had yet to be translated into a generalised improvement in human development.

A vicious cycle of poverty was evident in concentrated segments of the population, typically reinforced by low education levels, location, access to healthcare, and lack of access to economic opportunities.

Wealth creation "This presents major challenges which require concerted intervention aimed primarily at wealth creation and redistribution and access to basic services, etc," he said.

Skills shortages were developing in a variety of sectors, due to a mismatch between supply and demand, posing a major constraint on development and growth potential.

"The importance of efforts to resolve the problem cannot be over-emphasised."

The extent and nature of criminal activity was also a major concern, with the impact felt among households and businesses alike.

"It is affecting confidence levels and raising costs to society at large. The allocation of additional resources to combating crime is highly welcomed," Maia said.

Resolving the unemployment crisis was key to alleviating many of South Africa's ills.

Despite a reasonably good overall economic performance since 1994, the labour absorption capacity of the economy had not lived up to expectations.

Challenging labour market

While global competitive forces had played a role in this regard, domestic factors should not be downplayed.

These included the capital-intensive bias of the South African economy and further capital deepening over time in response to challenging labour market conditions, such as productivity versus labour costs, skills, and industrial relations.

Maia said it was essential that opportunities arising from the state-owned enterprises capital expenditure programmes, such as Eskom and Transnet's R178-billion spending plans over the next five years, and the 2010 Soccer World Cup, be secured by South Africa at large, to maximise and sustain economic benefits.

The SOEs themselves had an intrinsic interest in local supplier development, the benefits of which included improved supplier responsiveness due to proximity, improved competitiveness of the supply base, and lower foreign exchange risks.

An SOE supplier development process should be adopted timeously with appropriate support mechanisms, and without compromising the SOE procurement capability, or the roll-out of the capex programmes.

'Big bang'

The focus of the strategy should be on long-term local supplier industry development and upgrading, thus requiring continuity of procurement.

Hence the approach to infrastructure upgrading, maintenance, and construction should be continuous and sustained, rather than a "big-bang" once-off intervention, he said.

This would promote investment in internationally competitive capabilities in supplier sectors, leading to reduced costs through increased efficiencies, reduced dependence on imports and forex exposure, and developing niche export competencies.

Maia said the country was currently enjoying the longest period of economic growth since World War Two, with the upswing in the business cycle already in its seventh year.

General economic stability and sound macro-economic management and fundamentals were widely acknowledged, as reflected in the sovereign ratings.

Inflation was under control and at levels last seen in the 1960s, and business and consumer confidence levels were at all-time highs.

However, the increasingly competitive environment due to globalisation called for productivity growth, lower production costs, and technological innovation.