DEPUTY CEO, BUSINESS UNITY SOUTH AFRICA SUBMISSION TO THE PARLIAMENTARY STANDING AND SELECT COMMITTEES ON FINANCE ON THE 2011 MEDIUM TERM BUDGET POLICY STATEMENT (MTBPS) RAYMOND PARSONS DEPUTY CEO, BUSINESS UNITY SOUTH AFRICA Tuesday, 1 November 2011.

INTRODUCTION - 1 BUSINESS REACTION TO 2011 MTPBS REALISTIC ANALYSIS UNDER DIFFICULT CONDITIONS REALITY OF GLOBAL UNCERTAINTY TRADE-OFFS IN POLICY ADAPTABILITY AND FLEXIBILITY IN CHANGED ECONOMIC CIRCUMSTANCES MINI-BUDGET STRATEGY POSITIVE FOR BUSINESS CONFIDENCE

MTBPS HAS STRUCK GOOD BALANCE BETWEEN – INTRODUCTION - 2 MTBPS HAS STRUCK GOOD BALANCE BETWEEN – EXTERNAL AND INTERNAL ECONOMIC FACTORS PRESENT AND FUTURE THREATS AND OPPORTUNITIES COUNTERCYCLICAL AND STRUCTURAL FACTORS IN DEFINING SA’S FISCAL RESPONSE DISTINGUISH BETWEEN THE FACTORS SA CAN CONTROL AS OPPOSED TO THOSE IT CANNOT INFLUENCE – ‘THINK GLOBAL, ACT LOCAL.’ RECOGNISING THE ROLE OF THE PRIVATE SECTOR IN THE PROMOTION OF GROWTH AND EMPLOYMENT AND THE NEED TO CREATE A FACILITATING ENVIRONMENT

GDP GROWTH GOVERNMENT FORECASTS INTRODUCTION - 3 ECONOMIC FORECASTS DOWNWARD REVISIONS IN GROWTH FORECASTS FOR THE SA ECONOMY BY MTBPS ARE CORRECT. ECONOMY HAS SLOWED IN 2011 CURRENT FORECASTS BY BUSA GDP GROWTH GOVERNMENT FORECASTS 3.1% 3.1% 3.5% 3.4% 2013 4.1% 4.1% 2014 4.2% 4.3% THESE CONVERGING FORECASTS ARE OBVIOUSLY BASED ON CERTAIN ASSESSMENTS ABOUT THE BALANCE OF RISKS IN THE OUTLOOK.

DYNAMICS OF ECONOMIC ANALYSIS INFLUENCED BY- INTRODUCTION - 4 DYNAMICS OF ECONOMIC ANALYSIS INFLUENCED BY- INCREASED RISK THAT THE BEST FORECASTS BY BOTH PUBLIC AND PRIVATE SECTORS COULD TURN OUT TO BE WRONG FISCAL OPTIONS FOR SA WILL CONTRACT OR EXPAND DEPENDING ON GROWTH PERFORMANCE THE MARGIN FOR ERROR IN ECONOMIC FORECASTING HAS INCREASED THE MARGIN FOR ERROR IN POLICY HAS NARROWED ASSESSMENT OF THE BALANCE OF RISKS IN FISCAL POLICY UNWISE TO RAISE TAXES AT THIS STAGE IN THE BUSINESS CYCLE

FISCAL FRAMEWORK COUNTERCYCLICAL POLICY OF EARLIER YEARS HAS PROVED ADVANTAGEOUS STABILISATION OF NET DEBT TO GDP BY 2014/15 NECESSARY IN VIEW OF SLOW ECONOMIC RECOVERY NEED TO CONTROL STATE’S WAGE BILL NEED FOR BETTER BALANCE BETWEEN CONSUMPTION AND INVESTMENT BY STATE TO SUPPORT GROWTH AND EMPLOYMENT

SUPPORT FOR JOB CREATION, LONG TERM DEVELOPMENT AND ECONOMIC GROWTH – 1 PROMOTING JOB CREATION AND JOB CREATION INCLUDES - NEW GROWTH PATH PROCESS (NGP) NEDLAC DISCUSSIONS ON RURAL DEVELOPMENT REFORMS LOCAL PROCUREMENT – DESIGNATION OF LOCALLY MANUFACTURED PRODUCTS – SUPPORT FOR ‘PROUDLY SA’ JOBS FUND ROLE OF YOUTH WAGE SUBSIDY

SUPPORT FOR JOB CREATION, LONG TERM DEVELOPMENT AND ECONOMIC GROWTH – 2 COMPETITIVENESS SUPPORT FUND APTLY-NAMED CSF IMPORTANT FOCUS ON ASSISTING SECTORS TO BE COMPETITIVE AND INCREASE EMPLOYMENT POTENTIAL ENTERPRISE DEVELOPMENT, ESPECIALLY FOR SMALL AND EMERGING BUSINESS, NEEDS TO BE AT THE HEART OF POLICY JOINT EFFORT WITH PRIVATE SECTOR

SUPPORT FOR JOB CREATION, LONG TERM DEVELOPMENT AND ECONOMIC GROWTH – 3 EXPANSION OF INFRASTRURAL INVESTMENT INCREASE IN INFRASTRUCTURAL INVESTMENT NEEDED TO IMPROVE PRODUCTIVE CAPACITY OF ECONOMY AND TO CREATE JOBS INFRASTRUCTURE SPENDING NEEDS TO BE EXPEDITED, AS IT IS LAGGING BEHIND BUDGET ALLOCATIONS IMPORTANT ROLE FOR PRESIDENTIAL INFRASTRUCTURE COORDINATING COMMISSION (PERHAPS ASK FOR A PRESENTATION?) NEGATIVE IMPACT OF RAPIDLY ESCALATING ADMINISTERED PRICES ON COSTS OF DOING BUSINESS IN SA

SUPPORT FOR JOB CREATION, LONG TERM DEVELOPMENT AND ECONOMIC GROWTH – 4 PUBLIC PRIVATE SECTOR PARTNERSHIPS (PPPs) PPPs ARE MARGINAL IN EXPEDITING INFRASTRUCTURAL DEVELOPMENT PPPs ONLY ABOUT 3% OF TOTAL INFRASTRUCTURE INVESTMENT IN SA NEED TO USE ALL AVAILABLE MECHANISMS TO EXPEDITE INFRASTRUCTURE SPEND, ESPECIALLY AT LOCAL LEVEL MOBILISE PRIVATE SECTOR TO GET ENHANCED DELIVERY AND OUTCOMES SA IS WELL BELOW COMPARABLE COUNTRIES IN UTILISING PPPs AS A TOOL FOR DEVELOPMENT AND JOB CREATION AS JUST TWO SELECTED GRAPHS SHOW

PPP spend as percentage of GDP between 1990 and 2010 Source: WB PPI database (2011) and IMF (2011) The graph shows that: South Africa spent on average 0.6% of annual GDP on PPPs between 1994 and 2010, while India spent on average 1.1%, Brazil 0.8%, India 1.1% and Thailand 1.1% of GDP over the period 1990 to 2010.

Total PPP spend between 1990 and 2010 as a percentage of 2010 GDP Source: WB PPI database (2011) and IMF (2011) The graph shows that: South Africa lags all the other countries in terms of spend in both narrow and broad categories from 1990 to 2010 as a percentage of 2010 GDP for the selected countries

SUPPORT FOR JOB CREATION, LONG TERM DEVELOPMENT AND ECONOMIC GROWTH – 5 GREEN ECONOMY TANGIBLE RECOGNITION OF MOVING TOWARDS A MORE ENVIRONMENTALLY-FRIENDLY ECONOMY REQUIRES GOVERNMENT SUPPORT NEED FOR BALANCED APPROACH TO DECISIONS ON CLIMATE CHANGE IN SA EMPHASIS ON GLOBAL COOPERATION NEED TO MAKE A SUCCESS OF COP 17 – SA’S LEADERSHIP ‘GREEN ECONOMY ACCORD’ MAY EMERGE FROM NGP PROCESS SOON

3. SUMMARY AND CONCLUSIONS AS WE SEEK MAKE THE SA ECONOMY BIGGER, STRONGER AND BETTER IN THE YEARS AHEAD, WE NEED TO – SUSTAIN THE PRESENT ECONOMIC RECOVERY INCREASE THE ACTUAL AND POTENTIAL REAL ECONOMIC GROWTH RATE MAXIMISE THE NUMBER OF JOBS CREATED AT ANY GIVEN GROWTH RATE, ESPECIALLY AMONG THE YOUTH IMPLEMENT AND DELIVER ON AGREED DECISIONS FOR WHICH FUNDS HAVE BEEN ALLOCATED – ‘WALK THE TALK’ – AND GET OUTCOMES COLLABORATE WITH KEY STAKEHOLDERS, INCLUDING BUSINESS

THANK YOU