Hon Speaker, hon Deputy President, and hon members, the international economic crisis and the local recession threatens to wipe out our economic gains. If the trends continue, we could soon find ourselves back to where we were five years ago.
Our gains are being seriously eroded but we will recover if we take the right steps. We need to use the crisis as an opportunity to mobilise the nation around a programme to defend the economy and to further strengthen it and to defend jobs.
I am addressing the House today to share with hon members the steps that government is taking to address what is the most serious economic challenge since the advent of democracy. The recession was triggered by the global economic crisis and South Africa lagged behind many other economies in the timing of the impact on our production, employment and economic performance. Initial signs were evident from late last year, but the economic data released this year has confirmed the scale of the impact on our economy.
We have recently experienced what has been described as the worst quarterly economic performance in 25 years with serious declines in both manufacturing and mining production. The latest manufacturing data, for June this year, shows that estimated monthly manufacturing production has shrunk by 17,1% and monthly sales have dropped by 19,6% compared to a year ago. Second quarter production shrunk by 18,7% and sales dropped by 20,2% compared to a year ago.
Manufacturing output has been declining since about mid last year. It has now reached levels last seen some five years ago. If these trends persist, it means that four years of modest manufacturing growth since January 2004 has been reversed by the dramatic decline in the physical volume of manufacturing production in the past 12 months. June statistics, the latest that we have, have indicated a 7,3% drop in mining compared to the same month a year ago.
Employment data have shown a large increase in unemployment. The Quarterly Employment Survey of Stats SA for the first three months of this year recorded 179 000 job losses.
The Labour Force Survey for the second three months of this year recorded 267 000 job losses and noted that 302 000 people have become too discouraged to seek employment. Retail sales have declined, with June 2009 figures showing a 6,6 % drop in sales compared to the same month a year ago. This is, therefore, taking us back to mid-2006 levels. As retrenchments and job losses increase, they impact on consumption, leading to lower demand, which could result in a renewed round of job losses.
The total output of the nation, as measured by GDP, declined by 3% for the second quarter of 2009. We have now had three successive quarters of a decline in output. Company capacity utilisation, which measures the extent to which we use the available productive capacity of the nation's workplaces, has declined as has the stock of capital in a number of manufacturing sectors. Capacity utilisation is at levels last seen in 2001 and we are deeply concerned at the prospect of a permanent decline in productive capacity as factories close rather than simply reduce output. Liquidations and insolvencies show a worrying trend, as do increased claims from the Unemployment Insurance Fund, UIF.
In these trends, South Africa is facing the same pressures felt by many other countries with the most serious economic challenge since the Great Depression. What started as a financial crisis has rapidly become a crisis in the productive sector of the economy, and employment has been hit particularly hard. With both developed and developing countries, monetary and fiscal policy has been concentrated on shoring up aggregate demand as the impact of the credit bubble collapse impacted on the real economy. Interest rates have been cut and some central banks have used quantitative easing to further respond to the crisis.
Public sector spending has been ramped up and countries now run large and growing budget deficits. The US and the UK, for example, are now running deficits of 13% and 14% respectively. Global prospects are still uncertain, with evidence that the fragile signs of recovery are largely driven by the effects of the dramatic and co-ordinated government stimulus packages that have pumped liquidity into the global economy at levels not seen in our generation.
International experience has shown that financial crises leave large employment and social damage in their wake even when economies recover. Employment growth in particular lags economic recovery, sometimes by considerable periods of time. It is in this context that government has stepped up efforts to address the impact of the global crisis on our economy and our people.
Fiscal policy has remained expansionary in spite of falls in tax revenues, and the Reserve Bank has cut interest rates repeatedly over the last six months. Earlier this year, government, organised labour, business and community organisations adopted the Framework for South Africa's Response to the International Economic Crisis. That document sets out our collective response to the international economic crisis, which is widely recognised as the deepest and most serious economic crisis in at least the last 80 years.
The framework, which provides the basis for a wide range of actions needed to mitigate the impact of the crisis on the country and our people, was founded on the following broad principles:
The risk of unfairly placing the burden of the economic downturn on the poor and the vulnerable must be avoided; activities aimed at strengthening the capacity of the economy to grow and create decent jobs in the future must be protected and supported as far as possible; planned high levels of investment in the public sector, particularly infrastructure, must be maintained and the private sector must be encouraged to maintain and improve, wherever possible, their levels of fixed direct investment and continue with corporate social investment programmes; and interventions must be timely, tailored and targeted as is appropriate.
The Framework recognises the social partners' collective responsibility to work together to withstand the crisis and ensure that the poor and the most vulnerable are protected as far as possible from the impact of the crisis.
Noting the country's well-developed and advanced system of social dialogue, a strong institution in the form of Nedlac and a tradition of working together as constituents to address the social challenges, it seeks to draw on these strengths in developing and adjusting South Africa's response to the crisis and implementing its various commitments. In addition, the framework recognises the importance of ensuring that the economy is ready to take advantage of the next upturn and that the benefits of such growth are shared by all our people.
In today's statement, I would like to brief hon members on the progress we have made in implementing the framework thus far. In so doing, I would like to draw attention to the context within which this implementation has taken place and, in particular, to point out that following the appointment of a new Cabinet and the reorganisation of government functions, government has worked closely with social partners to speed up implementation.
President Zuma highlighted the centrality of this work in his state of the nation address on 3 June 2009, when he said, and I quote:
It is important now more than ever that we work in partnership on a common programme to respond to this crisis. We take as our starting point the Framework for South Africa's Response to the International Economic Crisis, concluded by government, labour and business in February this year. We must act now to minimise the impact of this downturn on those most vulnerable.
Following the state of the nation address, the task teams provided for in the framework were reactivated. In early July, we agreed to a set of priority areas and all parties rolled up their sleeves to produce action plans to respond to the crisis.
There was a new energy and focus to the response. In all, hon members may be interested to know that 19 meetings have been held since 1 July by the various committees responsible for forging a united position - this is some three meetings a week. More importantly, the energy produced solid results.
On 5 August, the leadership team met with and briefed President Zuma on the progress we had achieved up to that point. That leadership team will be meeting again tomorrow.
To date, we have prioritised the following 12 areas of work: a training layoff scheme for workers at risk of retrenchment; combating customs fraud; support for distressed sectors; social assistance, including child support grants and old age pensions; stronger competition in the food supply chain; food relief; assistance by the Industrial Development Corporation and refocusing its mandate; availability and flow of credit; Expanded Public Works Programmes; leveraging jobs from public procurement; expanding public sector employment in areas of critical need; and public grant conditionalities to ensure that state support achieves the desired results.
In six of these areas, we concluded agreements that are now being implemented: Firstly, to meet the challenge of companies retrenching workers as a result of loss of orders due to the recession we set up a National Jobs Fund to finance a training lay-off scheme.
The scheme entails enrolling workers in training programmes for a period of up to three months. The principle behind the scheme is to use the period of industrial slack to train and reskill workers.
The scheme will be available to workers earning up to R180 000 a year, and the key design elements of the scheme are that it is available to workers as an alternative to retrenchment. During the period of the scheme the employment relationship with the company is maintained, a training allowance of 50% of basic wages up to R6 239 per month will be paid to workers on the scheme, and participating employers will carry the cost of a basic social package to ensure that death, disability and funeral benefits are not suspended during this period.
Training is left to industries and companies to define, but we provided three guidelines: The training should be of value to the company concerned; it can address generic and adult literacy and numeracy needs; and it is an opportunity to roll out and disseminate information and communication technology skills on the shop floor.
The Minister of Labour's work in mobilising all the resources of his Department and reporting agencies has been invaluable in making it possible to launch the scheme in September this year. An amount of R2,4 billion will be placed in the fund, drawn from resources in the National Skills Fund and the UIF.
In order to ensure its successful implementation, it will rely on the collective efforts of a number of state entities: the NSF and the UIF; the Setas; the CCMA; some government departments such as the Department of Labour, responsible for co-ordinating and finalising the drafting of an implementation guide in collaboration with the CCMA and social partners; the Department of Trade and Industry, responsible for ensuring that our distressed sector support is co-ordinated with the training lay-off scheme; and the Economic Development Department, responsible for assessing the economic and developmental impact of the training lay-off scheme.
Most importantly, it requires partnerships between business and labour at workplace level.
The training lay-off scheme is the first of its kind that government has launched and we have designed its implementation to be as simple as possible. A key implementation agency will be the CCMA. The CCMA will help companies and unions to conclude their training lay-off agreements. The CCMA has now trained about 250 staff members, mainly commissioners, on the training lay- off scheme and its implementation. It has a toll-free number and has published a guide to the training lay-off scheme on its website.
The Setas have been asked to set aside resources for the financing of the training courses themselves and to identify appropriate, short, focused training courses. Special board meetings of Setas are now being convened and a number of Setas have advised they will take part in the training lay- off scheme.
I call on the Seta board members from business and labour to do everything in their power to ensure full and effective participation by Setas so that workers and companies can obtain the benefit of the training lay-off scheme as soon as possible. Indeed, Speaker, here is an opportunity for Setas to show their value-add and to convince even the sceptics that they are a vital part of the training delivery machinery and are flexible enough to respond to new and unusual circumstances.
Secondly, to address high levels of illegal imports and customs fraud that has led to many thousands of job losses, the capacity of SARS to address customs fraud has been strengthened. The Minister of Finance has facilitated a renewed focus by SARS on measures to improve its impact. SARS has now reported significant progress in respect of investigations and the confiscation of goods.
A number of companies are currently under investigation for smuggling, round-tripping, abuse of incentive arrangements, quota fraud, rebate item abuse and under-declaration of value.
In the clothing and textiles sector, by way of illustration, some immediate outcomes of the antifraud campaign are as follows: In respect of, smuggling, four companies are being investigated and the intention is to initiate criminal proceedings; round-tripping, 15 companies are being investigated and the support of neighbouring customs is required to finalise these investigations; export incentive abuse, 14 companies are being investigated and some duties have already been recovered; counterfeits, during raids a number of goods have been seized; quota fraud, four companies are being investigated and will be criminally charged; rebate item abuse, three companies are under investigation to recover duties; and in respect of under-declaration, five companies are under investigation and will be criminally charged.
Thirdly, to address huge job losses in certain sectors of the economy, we have facilitated discussions at sector level between business and labour, and measures to address their immediate problems have been identified. These include support for distressed companies in the automotive sector; a rescue package for the clothing and textiles industry; increased incentives for the manufacture of capital equipment; transport equipment and fabricated metal products linked to South Africa's Infrastructure Development Programme; and payments by government to small, medium and micro enterprises and other businesses within 30 days.
In the auto sector, business and labour have formulated a commitment that provides that companies receiving crisis-related assistance must commit to a moratorium on retrenchments for the duration of the assistance period with a provision that variation to this commitment, in cases where it is necessary for a firm's survival, be accompanied by requirements for independent verification of financial and other relevant information. So, our social partners have really been working hard.
Fourthly, to address the problems of access to credit and working capital, the IDC has made R6 billion available over the next two years to respond directly to the crisis. Some applications have already been received and approved.
The IDC has 49 funding applications in the pipeline, 23 of which are from existing IDC clients while the remaining 26 are from new or potential IDC clients.
From 1 April 2009 to date, eleven financing applications from distressed companies totalling R743 million have been approved. We will now work with the IDC to improve the employment impact of its funding.
Fifthly, to address food price pressures on consumers at a time of falling family incomes, the Competition Commission's investigations into and prosecution of firms in the food supply chain alleged to have engaged in various forms of prohibited anticompetitive conduct have been stepped up.
Seven parts of the food supply chain are now the subject of attention by the competition authorities: in respect of bread, the commission is prosecuting two separate cases that have now been consolidated into one case, and is investigating a new case; with the milling of maize, the commission is referring the case to the Competition Tribunal for prosecution; in the dairy sector, a case is before the tribunal; with poultry, one case is before the tribunal, with the wider conduct being investigated by the commission; in fertilizer, settlement has been reached with one company, with others being prosecuted; in fats and oils, there is an investigation by the commission; and with regard to supermarkets, the commission has commenced its investigation. These are firm and clear steps taken by the commission to address food price increases.
Finally, Speaker, to address the growing debt faced by many consumers and households, the National Debt Mediation Association, a business initiative to assist over-indebted consumers, has been established to provide rules, standards and processes to address debt restructuring.
These six measures, hon members, constitute a solid start to our joint endeavours, and I wish to thank the leadership of the social partners and government departments for their hard work to have achieved this.
I wish to advise this august House that we are now simultaneously working on two fronts: to properly implement the measures we have announced, and to identify new areas in the framework that can progress to a conclusion.
We recently briefed MECs of six provinces, KwaZulu-Natal, Gauteng, Western Cape, Eastern Cape, Free State and Limpopo on the package and they have endorsed the approach in the framework. Provinces will now identify ways in which they can align their own responses to the recession with the six areas that have been identified so that these measures can have the biggest possible impact. The province of KwaZulu-Natal has taken the lead in convening an economic recovery and jobs summit.
The ministerial cluster on Economic Sectors and Employment was convened this week to receive a report on implementation, and a number of areas were identified that needed to be addressed in the next phase. They include strengthening the use of co-operatives to address the crisis, fast-tracking work on green jobs, identifying measures to deal with persons in vulnerable situations, including women and rural and informal sector workers.
In particular, we want to find ways of drawing more South Africans, through their community and NGOs structures into the partnership to respond to the recession. [Time expired.] [Applause.]