INTRODUCTION - 1 BUSINESS REACTION TO 2011 MTPBS REALISTIC ANALYSIS UNDER DIFFICULT CONDITIONS

1. 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.

2. 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

3. 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

4. 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 GROWTHGOVERNMENT 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.

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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.

12. 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

13. 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

14. 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

15. THANK YOU