TRENDS IN ECONOMIC OPPORTUNITIES AND IMPLICATIONS … · 2019. 3. 28. · • Private sector investment R12bn over 12 months • More than 600,000 units produced and exported 340,000

TRENDS IN ECONOMIC OPPORTUNITIES AND

IMPLICATIONS FOR EDUCATION

CTICC

Cape Town

Nezaam Joseph

25 March, 2019

© Western Cape Government 2012 |

Economic Achievements: Employment

2

2018 PG MTEC 1 Departmental Engagement

1 800 000

1 900 000

2 000 000

2 100 000

2 200 000

2 300 000

2 400 000

2 500 000

0

100 000 000

200 000 000

300 000 000

400 000 000

500 000 000

600 000 000

700 000 000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Nu

mb

ers

R b

illio

n

Employment& GPR R growth: WC, 2007-2017

real gdp total employment

• PSG1 strategic goals are economic growth

and jobs

• We biased our attention towards jobs

• The only indicator that matters to the millions

living in poverty in SA is the ability to earn a

salary.

• Its all about jobs

• 490,000 jobs created over the past 7 years

• Lowest expanded unemployment rate

• Highest absorption rate


Many provincial positives

• Increase in number of employed & decrease

in unemployment rate

• Achieved through

• Key long term catalytic initiatives

• IDZ, SEZ, CTICC, Health Park

• Saying the right things

• Impact of Red Tape reduction

• Responded to skills shortages

• Placed 5200 learners at firms

• Leveraged R500m in skills

• Supported tourism growth through

• AirAccess

• Regional promotion

• Developed niche markets

• Economic response to the water crisis


634 837639 106

684 171

590 000

600 000

610 000

620 000

630 000

640 000

650 000

660 000

670 000

680 000

690 000

2015 2016 2017

Number of people unemployed: Western

Cape (thousands)

Unemployment

• Unemployment persons increased by 49334 from 2015 – 2017

• SA NEET (15-34) 39%, WC 30%


WC Poverty: Increase of 551 278 people between 2001 & 2017

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

18,0%

20,0%

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

2011 2012 2013 2014 2015 2016 2017

People below the food poverty line (StatsSA defined)

Share below the food poverty line (StatsSA defined)

Source: IHS ReX

Poverty


2013 2014 2015 2016 2017

Western Cape 0,607 0,607 0,608 0,610 0,613

0,602

0,604

0,606

0,608

0,610

0,612

0,614

Western Cape Gini Coefficient

Inequality

Western Cape Wealth Distribution

© Western Cape Government 2012 | 72018 PG MTEC 1 Departmental Engagement

Firm level incentive to employment growth


Contrary to the advice advanced by every “How

to present effectively”,

We will start with the negatives


The Four Industrial Revolutions

Driving Automation and Connectivity

9The Fourth Wave of Industrialisation


Firm level incentive to employment growth

• 82% to 96% of growth is due to productivity (UNCTAD)

• Employment creation incentive

• Labour productivity and wages

• Explaining productivity slowdown

• Productivity lag

• Simpsons paradox

• Technology allows us to play candy crush

• Technology presents more free that is not counted in macro-indicators

• Creates jack of many trades but masters on none

• TFP

• Product and business innovation

• Import replacement and export growth


Western Cape educational outcomes

56%

30%

14%

0%

10%

20%

30%

40%

50%

60%

0

500 000

1 000 000

1 500 000

2 000 000

2 500 000

3 000 000

Below Matric Matric Graduates

Unemployment

rate 31.9%

Unemployment

rate 29,4%

Unemployment

rate 6.4%


Adcorp IT Vacancies



Practical innovations in education



Practical innovations in education


Constraints to investment growth

15

20

30

40

50

60

70

80

90

100

20

07

Q1

20

07

Q3

20

08

Q1

20

08

Q3

20

09

Q1

20

09

Q3

20

10

Q1

20

10

Q3

20

11

Q1

20

11

Q3

20

12

Q1

20

12

Q3

20

13

Q1

20

13

Q3

20

14

Q1

20

14

Q3

20

15

Q1

20

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Q3

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16

Q1

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Q3

20

17

Q1

20

17

Q3

20

18

Q1

20

18

Q2

Constraints to Investment

Insuffient demand Politcal

Cost of Credit Tax Structure

Linear (Insuffient demand) Linear (Politcal)

35

45

55

65

75

85

95

Constraints to Growth

Political environment (SA) Political environment (WC)

Recession type response

Constraints to firm growth

16

25

30

35

40

45

50

55

60

65

70

Constraints to Growth

Constrain to growth: Skilled workers Insuffient demand

Constraints to Growth: A firm perspective

17

-40,00%

-20,00%

0,00%

20,00%

40,00%

60,00%

80,00%

100,00%

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Net Fix Capital Formation

South Africa Western Cape

-30,00%

-20,00%

-10,00%

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

70,00%

80,00%

-

5 000

10 000

15 000

20 000

25 000

30 000

35 000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

NFCF: Western Cape

NFCF (millions) (LHS) 5,258 Annual % Growth (RHS)

Demand vs supply stimulation

18

• Supply side interventions are appropriate when supply side constraints inhibits growth

• Or during growth periods

• Shortage of labour results in wage increases

• Regulation and legislation impacts efficiency and growth

• Systematic wastage in the ecosystem

• In response to poor demand, improving supply capacity is impotent

• If skilled workers are let-go, training workers is not going shift any dial

• Wages are sticky downwards

• Great depression, South East Asian Crisis and the great recession

• Monetary stimulus

• Open market operations (QE), interest rates

• Exchange rate devaluation

• Fiscal stimulation

• Support exports and protect local production from imports

• Demand = 𝒇(𝑪𝒐𝒏𝒔𝒖𝒎𝒑𝒕𝒊𝒐𝒏 + 𝑰𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕 + 𝑮𝒐𝒗𝒆𝒓𝒏𝒎𝒆𝒏𝒕 𝑺𝒑𝒆𝒏𝒅 + (𝑬𝒙𝒑𝒐𝒓𝒕𝒔 − 𝑰𝒎𝒑𝒐𝒓𝒕𝒔)

𝒇(𝑪𝒐𝒏𝒔𝒖𝒎𝒑𝒕𝒊𝒐𝒏 + 𝑰𝒏𝒗𝒆𝒔𝒕𝒎𝒆𝒏𝒕 + 𝑮𝒐𝒗𝒆𝒓𝒏𝒎𝒆𝒏𝒕 𝑺𝒑𝒆𝒏𝒅 + (𝑬𝒙𝒑𝒐𝒓𝒕𝒔 − 𝑰𝒎𝒑𝒐𝒓𝒕𝒔)

19

• Growth and Jobs = 𝑓(𝑪𝒐𝒏𝒔𝒖𝒎𝒑𝒕𝒊𝒐𝒏 + 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 + 𝐺𝑜𝑣𝑒𝑟𝑛𝑚𝑒𝑛𝑡 𝑆𝑝𝑒𝑛𝑑 + (𝐸𝑥𝑝𝑜𝑟𝑡𝑠 − 𝐼𝑚𝑝𝑜𝑟𝑡𝑠)

Disposable Income

Aggregate Employment

Wealth Effect

Consumer Confidence

Interest Rates

• Debt/income 71%

• Administered price increase

• Fuel and Vat taxes

• Growthless jobs• Decline of 51k

skilled technicians

• Discouraged workers increased by 270k

• NEA increase by 470k

• 9 of 12 CT regions showed declining house price rates

• Worst performing markets since 2008

• Declining consumer and business confidence

• Consumers are deleveraging

• Tightening monetary stance

• Of the 20m with credit, 10m credit defaulters

• 1.4m additional defaulters

Cape Town house price and JSE performance

20

Notes on consumption-led growth

21

• Considerations for consumption-led growth

• 60% of the Western Cape economy is final consumption

• Consumption-led growth leads to negative current account flows, which negatively impacts on

aggregate wellbeing

• Consumption =𝑓 𝑙𝑎𝑏𝑜𝑢𝑟, 𝑙𝑜𝑐𝑎𝑙𝑙𝑦 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑 𝑖𝑛𝑝𝑢𝑡𝑠, 𝑓𝑜𝑟𝑒𝑖𝑔𝑛 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑 𝑖𝑛𝑝𝑢𝑡𝑠

• We have evidence that equality leads to aggregate growth but no evidence that informality

leads to increase in aggregate demand

• Household income = consumption + savings

• Savings is critical to investment

• Evidence by consumer debt, growth has been financed by consumption


Notes on Government Spend

22PG MTEC 2 Engagement

• Government spend has been counter cyclical but

evidence suggest that issues are not cyclical in nature

• SA hanging on a Fiscal Cliff:

• R2.5 trillion total debt.

• Public-debt-to-GDP ratio - to rise from 55.8% in

2018/19 to 58.5% in 2021/22.

• Contingent liabilities

• SOE debt R700bn

• SOE’s either too-big-too-fail or politically

unacceptable

• State guarantees for all sectors – R500bn

• Eskom R419bn

Notes on investment led growth

23

• Investment unambiguously lead to productivity and competitive gains

• Not all investment are equal

• Foreign investments in non-tradebales leads to capital outflows and

has a negative impact on aggregate economic activity, current

account and BOP

• Investments in data centres

• External borrowing in non-tradeable sectors (capital markets, other debt

instruments) leads to higher domestic consumption and wages

• Leads to further trade deficits

• Foreign Investment in non-tradeables improves efficiency in those sectors

over tradeables, which leads deteriorates the trade account

Notes on investment led growth

24

• Canada: 1973 passed the

FIRA review the takeover

of domestic firms by

foreign capital

• China: FDI is prohibited or

limited in 63 industries

• India: Multi brand retail,

petro-refining, security

companies, banking,

logistics and others

A Import Replacement Use Case

25

A case for import replacement

26

$0,00

$1,00

$2,00

$3,00

$4,00

$5,00

$6,00

China-SA Textile Wages

China Wages ($ - LHS) South Africa Whages ($ - LHS)

45%

650%

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

50 000

55 000

2000 2002 2005 2008 2011 2014 2017

Textiles, clothing and leather goods (millions)

© Western Cape Government 2012 | 27

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field

• Competitiveness is a necessary condition but not

sufficient for growth

• In 2010 Chinese imports: R18bn vs R27bn in 2017 p.a.

• Labour prod is strongly influenced by the quality of

capital

A case for import replacement


Prestige Clothing Caledon 2008-2015



Illusive rural approach: TFG in Caledon

30PG MTEC 1 Departmental Engagement

One of SA’s major retailers, TFG, has rolled out a Quick Response supply chain strategy:

that differentiates local supply from cheap imports on the basis of speed and flexibility

Currently employs 500 employees in Caledon

Globally productive workforce that does not require matric

It shows a 150 % increase in production to 20 million units in 2025

Meeting this demand would require significant upgrading of capabilities at existing and

new suppliers and would likely create in excess of 1000 new jobs.

• CTFL wages significantly cheaper in non-metro areas - difference is about 25%

• Abundance of potential labour

• Cheaper facilities

• Potentially more stable work force


Illusive rural approach: TFG in Caledon


1. Relocating more effective Cape Town management to Caledon,

2. Built a more effective training school and enhanced the standard of skills development

3. Improved recruiting processes and extended the recruitment area to many of the

surrounding towns in the TWK district

4. Focused the HR strategy on wellness and social benefits, as opposed to pure

remuneration

5. Employed the sons and daughters as opposed to the moms and dads

6. Provided free or subsided transport

7. Raised manufacturing efficiencies from 42% to 60% and allowing him to cut his output rate

by 15%

What has worked?

32

• It is about incentivizing investment and stimulating value chains

• Two of the more successful DTI programs are the automotive sector• Largest manufacturing sector at ~38% of manufacturing sector• Sector revenue R500bn• R170bn in exports • Labour and manufacturing costs R190bn• Private sector investment R12bn over 12 months• More than 600,000 units produced and exported 340,000 to 149 countries• Manufacturing • Value of incentives R10bn

• BPO sector has seen provincial growth of 6000 jobs over 12 months• Unskilled matriculants• Incentive is R3500 per month per offshore seat• Produces skills for the local market

• Amazon’s $3bn investment in New York and Virginia


In conclusion



In conclusion



In conclusion


Thank you

Documents

TRENDS IN ECONOMIC OPPORTUNITIES AND IMPLICATIONS … · 2019. 3. 28. · • Private sector investment R12bn over 12 months • More than 600,000 units produced and exported 340,000