The South African government would introduce a new R25-billion “economic support package” over the coming six years to improve the competitiveness of the country’s underperforming productive sectors, especially manufacturing, and to promote structural changes that could bolster internal demand and growth prospects.

The package was still being fleshed out by the National Treasury in collaboration with the Department of Trade and Industry (DTI) and the Economic Development Department (EDD) and any incentives that might eventually arise were only likely to be outlined in the 2012 Budget. Some of these could be sector specific and could be added to the future budgets of departments such as the DTI, the EDD and the Department of Environmental Affairs.

However, the package could also be coupled with a move to foster wage moderation across the South African economy, which was likely to prove unpopular with the country’s powerful unions and could even be frowned upon by sections of business, which view executive remuneration as a key tool for retaining skills and talent.

In unveiling the plan, Finance Minister Pravin Gordhan told lawmakers on Tuesday that the financing for the package would require “significant additional resources”, which would require government to be more efficient in its spending and to ensure greater alignment between resources and priorities. No specific savings target was outlined, however.

But cash hoardings and “excess financial reserves or assets” held by State-owned enterprises (SoEs) and government agencies could also be targeted, especially where these resources were not associated with public-service delivery.

“Where these resources could more productively be applied to finance future public-policy priorities, this can be effected through a return of surplus funds to the fiscus,” the Medium-Term Budget Policy Statement (MTBPS) outlined.

It was understood that most of these resources resided within the 300-plus government agencies rather than within the SoE’s, many of which had large borrowing programmes to fund substantial capital expenditure initiatives.

Funding for the package over the coming three years would be contained within the “available fiscal envelope” – expenditure of R1.1-trillion was currently projected for 2012/13, rising to nearly R1.3-trillion by 2014/15.

SLOW GROWTH

The package was being pursued in light of that fact that prevailing growth rates were too slow to support the employment gains and poverty reduction that the country required. “This will require structural reforms to set the economy on a different growth trajectory that increases labour absorption, raises competitiveness and ensures that the benefits of growth are shared.

In fact, the MTBPS also highlighted the weak performance in mining, manufacturing and agriculture.

In the year to August 2011, overall mining production declined by 4%, despite the 12% increase in primary commodity prices. Manufacturing’s gross value added grew by 3% year-on-year in the first six months of 2011, but the sector contracted at an annualised rate of 7% in the second quarter and output was likely to remain weak in the third. Agricultural value added increased by 6.6% in the first half of the year compared with the same period in 2010, but had contracted in each of the first two quarters of 2011.

The envisaged package would focus on enhancing the competitiveness of manufacturing, while supporting trade-facilitating regional integration and improving access to new and emerging markets, particularly the so-called ‘Bric’ economies of Brazil, Russia, India and China.

South Africa, the MTBPS argued, remained too reliant on its traditional trading partners, such as Europe, the US and Japan, despite the fact that developing countries now accounted for about 43% of world imports, up from 30 % in 2000.

However, a reorientation and rebalancing of South Africa’s exports would take time. Nevertheless, government was working to diversify export markets by providing an environment conducive for business to expand trade and investment to the Bric countries, as well as within sub-Saharan Africa.

WAGE MODERATION

There was also a need to strengthen labour market institutions to support faster growth, and to expand jobs and skills development, which could require a “moderation in the growth of unit labour costs” to support more rapid job creation and competitiveness.

“Wage moderation throughout government and State-owned entities would support a shift in the composition of State expenditure towards investment,” the MTBPS outlined, while highlighting a recent agreement between the textile industry and the Southern African Clothing and Textile Workers Union, whereby lower wages for new employees was accompanied by a commitment to create new jobs.

Fiscal support for lower-wage employees and new entrants could also be strengthened.

Emphasis would also be given to investments in network infrastructure and identified industrial development zones (IDZs), green-economy sectors and even targeted support for low-wage sectors and enterprises.

Details surrounding the precise nature of components of the package remained sketchy. But Gordhan referred to a range of interventions to “invigorate IDZs, assist enterprise investment and job creation, support the transition to a greener economy, and leverage infrastructure investment and risk-sharing partnerships with the private sector”.

The support package could also include mechanisms to raise productivity and innovation in industries that have demonstrated long-term competitive potential.

Incentives were also under consideration to facilitate public and private investment in economic infrastructure and to attract employment-intensive and export-oriented industry and services into economic zones and IDZs.

Efforts would also be made to reduce the prevailing growth-impinging regulatory burdens and costs on small firms.