Address by Malusi Gigaba to the Youth Jobs Summit

Category: Speeches

27 October 2011, Johannesburg

We would like to thank you most profoundly for inviting us to make a few remarks at this important Youth Jobs Summit that started yesterday.

I am most particularly and profoundly honoured that you invited me to address you on this important day during which we commemorate the birthday of the late ANC President and leader of our people and movement, that doyen of our movement, Oliver Reginald Tambo who remained an icon among the youth even long after his physical demise.

I am certain that all the necessary and important statistics have been presented to you to highlight the gravity of the matter you have convened to address, and to underscore the need for urgent action on the part of all of us, particularly if we must address the urgent needs of the youth.

This Summit, taking place as it does just as the Grade 12 exams are underway, and on the eve of this week’s political strike, we must both wish Grade 12 learners the best during the final examinations and congratulate COSAS for its call to students to focus on their final examinations.

This Summit must issue the strongest statement possible both to urge our country to provide the strongest possible support to the youth sitting for their final examinations at all schools and universities.

It is correct that you should therefore focus on this important issue of jobs for the youth given that yet a new pool of unemployed is going to be created to add on the high unemployment rate we already have.

From the outset, we must state what should seem pretty obvious that given the nature of the problem of youth unemployment we are faced with, there cannot be a single solution – ‘one size fits all’ – that solves the entire problem with a single stroke.

The answer to poverty, inequality and unemployment, indeed to lack of adequate economic transformation, accordingly cannot simply be nationalisation as though once certain economic sectors are nationalised then a durable solution would have been found to all our social woes.

After all, in 1992, in its “Ready to Govern” guided by an objective and scientific assessment of the balance of forces, as well as experience spanning eight decades of militant struggle, the ANC adopted an approach to state ownership of the means of production based on weighing the balance of evidence in each particular case, in the conviction that there is nothing inherently bad or inherently good in state ownership of productive capacity in the economy, including especially strategic non-renewable resources.

No one sector can and must arrogate to itself the sole role of national saviour and monopoly of all wisdom, claiming alone and singularly to possess all the answers to our socio-economic problems and to this question of the role of the state in relation to productive capacity in the economy, being intolerant of the views that arise from other sectors of society that too bear the same responsibility to find answers to what is, after all, a common challenge.

It is correct, given that the problem of unemployment faces the youth sector more than it does any other sector in our society that you should be at the forefront of seeking permanent solutions to it. However, it is not the sole responsibility of the youth to provide answers to this problem.

In 1998, in its document, “Investing in the future: Getting Young People Working. An Employment Strategy of the ANCYL”, the ANC Youth League (ANCYL said, and allow to refer to this document elaborately:

“… it is clear that youth unemployment cannot be treated outside the overall unemployment in the economy. It is a component of overall unemployment and measures to address unemployment will have to impact on youth unemployment, as young people constitute the majority of the unemployed.”

I take it that this is a very straightforward statement, the truth of which needs no further elaboration. Furthermore, the ANCYL argued that it is “essential that measures to address youth unemployment are firmly located within the overall employment creation strategies.”

In this regard, it proposed a four-pronged strategy, to which it referred as four key pillars of its strategy; namely, to

  • increase the total number of jobs in the economy;
  • increase the proportion of total available jobs which are channelled to youth.
  • introduce special programmes which serve both to provide temporary employment for youth and to increase their levels of skills and ‘employability’, and
  • promote self-employment and collective employment programmes for young people.
    I am confident that these four pillars still remain largely relevant even to this day. This is because, in large measure, the conditions which have been responsible for creating youth unemployment as well as the bases for their solution have remained unchanged over these 13 years since the adoption of that document.

As you meet here this week, you must keep in sharp focus the clarion call made by the ANC NEC on January 8th that: “We must make the decisive shift to meaningful economic transformation and set in motion a very deliberate programme that will ensure that the benefits of our political liberation are shared amongst all our people… Political emancipation without economic transformation is meaningless.”

As a country, South Africa is facing significant economic challenges, which are to accelerate the growth rate to create wealth that enhances the standard of living for all South Africans, dramatically increase employment creation; develop industrial capabilities to decrease our dependence on commodity exports; and transform the ownership and management profile of the economy to reflect that of the broader South African population.

In addition to this, there is an extremely urgent challenge that is posed to our economy by the private sector that is sitting on piles of cash, estimated to be about 18% of GDP, which it is not investing.

Needless to say, we need to find innovative ways to unlock this cash in order to drive growth in the economy and create jobs.

In contrast we are leveraging our State-Owned Companies (SOCs) in every way we can in order to advance our national development goals.

Firstly, every available cent of free cash flow generated by our SOCs is being used to fund investments in plant, skills and technology to support growth. The fiscus has used almost all of its guarantee capacity to under-write this process.

In addition, we have implemented procurement leverage and supplier development programmes to promote investment in the supplier communities of our SOCs and to build new industrial capabilities.

We are using SOC-training facilities and budgets to train far beyond our immediate needs so as to ensure that the country will have the skills requisite to support growth.

We have gone to great lengths to involve local communities in the build programmes such as in Medupe, in Laphalale, Limpopo, and have dramatically transformed some rural economies as a result.

We are designing new reporting frameworks so that developmental concerns are placed at the heart of management’s agenda.

In this regard, we are not trying to imitate the private sector – we are trying to develop our own paradigm of commercially astute but developmental management.

In developing and emerging markets, SOCs currently make up between 10% and 40% of the economy, which makes them important players in the economies of those countries.

Even the World Bank has swung its approach from ideologically opposing SOEs to acknowledging the important role of the state in investment and development, and the fact that this role transcends beyond merely getting the policy right (Peter Harrold, WB Country Director, Central Europe and the Baltic Countries).

SOCs play a much more complex role than private firms in that, as former UNCTAD DG, Rubens Ricupero says, “in contrast to the maximisation of profits and the creation of value for the shareholders that constitute the overriding purpose of private firms, a public company must be judged by many other considerations in terms of social equity or environmental responsibility.”

Given that government as the shareholder for SOCs always sets a variety of socio-economic developmental goals for the SOCs to meet, extending beyond the narrow corporate interests, to review them, Ricupero further argues, “non-market tools that can provide the sort of a specifically designed model for public review that serves as an equivalent to cost efficiency, profitability and other conclusive performance results used in private firms” must be used.

This does not by any means imply that SOCs must therefore be judged by lesser standards or be regarded as intrinsically inefficient. On the contrary, the DG of the International Centre for Promotion of Enterprises, Stefan Salej, says that “recent stories of state-owned enterprises in emerging market countries clearly illustrate that public sector enterprises can match the performance of their private-owned counterparties and become world class players.”

SOCs need to be well managed, efficient, productive and competitive; they must be innovative and strive to become pathfinders in cutting-edge research and technological development. They must support the South African and African economy and by their contribution to the development of customers and supplier sectors, help develop the capabilities for African countries to trade with each other.

I recognise that some SOCs are not as efficient as they need to be in key areas of operations and further that we are not investing at a rate that we need to in order to make up for the historic infrastructure gap.

I am also not suggesting that the SOCs are transforming fast enough. However, what is indisputable is that as government we have the will and the intent to create businesses supporting our long term economic development agenda for the benefit of the society as a whole.

We are already faced with the challenge of finding creative ways of sourcing additional funds for the infrastructure programs so that we invest at a required to support economic growth.

In developing and emerging markets, because of the failure of the privatisation project the Bretton-Woods Institutions had foisted with brutal determination, often with disastrous consequences, there is today a massive infrastructure backlog and many countries have begun bringing back public enterprises as lead agents in infrastructure roll-out.

The investments promised during the neo-liberal offensive have proven to have been a false alarm.

In our own country, as a result of about twenty five years of under-investment in infrastructure, we are confronted with a significant infrastructure backlog which creates an absolute constraint to investment and growth on key SOC customers.

This under-investment also created significant constraints in the development of supplier industries and hence technologies, skills and jobs requisite to move our economy to a higher trajectory.

Transnet, for example, confronts a serious situation in terms of which demand far exceeds capacity whereas the bulk of its capital expenditure programme is focused on the maintenance of existing infrastructure rather than building new capacity.

At the same time, SAA and SA Express also have outdated fleet and have to increase their fleet if they are to meet the demand we have placed on them to expand their African footprint.

This, of course, is not the fault of the SOCs themselves, but emanates directly from this infrastructure under-investment to which we have earlier alluded which meant that these infrastructure-related SOCs could not afford capacity expansion.

Much of our existing infrastructure capacity is very old and is expensive to maintain, and breaks down quite often and / or causes inefficiencies in the system.

Accordingly, government is planning a massive infrastructure roll-out plan to create new capacity in roads, rail, ports, energy and other network services. Such infrastructure roll-out will go hand-in-hand with a massive fleet procurement programme that, properly implemented, will have major repercussions for our industrialisation, localisation and competitive supplier development programmes.

What is apparent is our present situation of high unemployment and an extremely skewed income distribution is unsustainable.

Some SOCs in South Africa have some of the most sophisticated organisational and delivery capabilities in the state, tasked as they are with undertaking investments and sustaining operations that are unique in scale and are fundamental to the functioning of the economy and the development of complex industrial capabilities.

The State-Owned Companies in our Portfolio,

  • Have a total asset value of R522 884bn, with Eskom and Transnet between them alone accounting for R495 215bn (94.71%) of this,
  • Have a total revenue of R158 476bn in 2010 / 2011, and
  • Have 114, 849 total employees.
    Given this strategic position, the existence, growth and profitability of their key customers and suppliers is extremely dependent on the quality of their relationships with the SOC and on the SOC capacity to deliver.

In this regard, our Department seeks to leverage this intrinsic interdependency in its vision statement which is to drive investment, efficiencies and transformation in its portfolio of SOCs, their customers and their suppliers to unlock growth, drive industrial development, create jobs and develop skills.

By virtue of their strategic position and capabilities, through the leadership of the Department, the SOCs are in a unique position to convene “coalitions of stakeholders” and to drive implementation processes in a way that is protected from the “dilutionary pressures” associated with accessing resources and driving implementation through the broader state.

The building of these issue focused “developmental coalitions” through leveraging SOCs will be the key mechanism of achieving alignment across key stakeholder groups.

This alignment will involve agreements around the definition of interventions, raising the required resources for such intervention and driving and monitoring implementation.

Most importantly, we will be guiding the private sector’s investment plans and business practices towards those areas that will have a significant impact on our developmental objectives, particularly around building the productive and employment absorbing sectors of the economy.

There are a range of strategic and tactical developmental interventions around which these stakeholder coalitions can be formed. These include:

  • increasing infrastructure capacity, efficiency and access,
  • developing scarce and critical skills,
  • the expansion of our industrial and technological capacity and capabilities, particularly in the supply chains that are core to the delivery of infrastructure, mining and resource processing activities, and
  • regional infrastructure and economic integration
    In the same vein, we are working hard, together with fellow Departments, to develop the concept of “public-public partnerships” in order to exploit the balance sheets of fellow state-owned companies, the development finance institutions, to support and expand state-led and state-driven infrastructure investments.

I think we should be able to make radical and very exciting announcements soon.

Such infrastructure expansion must and will also take into consideration the interests of young people in terms of training, jobs and even business opportunities. We have already been taking drastic measures in this regard, and are establishing a youth unit and programme in the Department that will be aligned with the SOCs to address the specific and urgent issues of young people.

Our SOCs were early this year asked to stretch their training targets and, in this regard, they have all responded very positively. Eskom doubled their recruitment targets from 5, 000 to 10, 000; Transnet increased it from 500 to 2, 000 and all others have also made credible attempts.

We are, towards this end, working very closely with the Department of Higher Education and Training to access additional funding for SOCs to stretch their targets as we have asked them.

At the same time, given the challenge of infrastructure backlog in Africa that we earlier spoke about, we have directed the SOCs to expand their African footprints, guided by the strength of their balance sheets.

The challenge in Africa is not so much or only that we do not have the infrastructure means on the back of which to conduct trade with one another and grow our economies, it is that that African countries have no products to trade with each other on – we are all commodity producers and exporters.

The colonial economic structure which condemned African countries into commodity production, which required less skills and only super-exploited labour, has not been reversed on the continent and hence our relations with the developed markets, our hitherto colonial masters, have remained exactly as they were during colonial times.

Consequently, much network services on the continent underscore our role as commodity exporters and there is not much connection between African countries in terms of roads, rail and even air infrastructure.

This explains both why intra-African trade is so low and why much of Africa’s trade is with Asia, the United States and European Union, which need our natural resources to produce value-added products.

In this regard, to review and consolidation of the SOCs being undertaken by the Presidential Review Committee (PRC) established by the President is critical to ensure that we have a full sense of all SOCs, including the DFIs, and the value they are adding in the economy, to drive jobs and contribute to growth and development.

This will give us a sense of the total asset value and investments of the SOCs, especially as we roll out infrastructure development led by the Presidential Infrastructure Coordinating Commission (PICC) established after the July Lekgotla to drive the government’s long-term infrastructure roll-out programme.

The PICC will ensure long-term planning and coordination of government efforts to implement infrastructure programmes critical especially during this period of the economic squeeze.

As Comrade Pravin Gordhan, the Minister of Finance said during the Medium-Term Budget Policy Statement, we are duty-bound at this critical moment to stimulate economic growth by strengthening infrastructure investment to stimulate the economy and increase job creation.

Accordingly, over the next medium-term expenditure framework period, SOCs are going to invest over R800bn and this is an important lever we must neither abuse nor lose sight of.

I wish your Summit all the best in its deliberations and look forward to your resolutions.

I thank you.