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Shopsteward Volume 27: Special Bulletin

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  |  COSATU Speeches

Input By COSATU President Comrade Sidumo Dlamini at the 2nd National SMME Policy Colloquium Held From 27th - 28th October 2016

As COSATU, we are pleased to have been invited to address such an important meeting.

This meeting is about the real issues that speak to developing small business. If properly addressed, this is an aspect of our country's economy upon which our country can address many of its challenges. This colloquium has been convened under the theme "Developing a National SMME Policy Master Plan for Re-Industrialization"

If the intention is "Developing a National SMME Policy Master Plan for Re-Industrialization", it will be important that we clarify what re-industrialization must seek to achieve. If this has been clarified we will then ask a question as to whether the SMME sector can be developed for that purpose particularly under the current economic policy trajectory in the country whose parameters have been set in the National Development Plan Industrialisation must seek to achieve the creation of decent work as the first priority, in order to widen and deepen the domestic income base. It must seek to meet the country's basic needs by lowering the costs of production of basic goods and services and increasing domestic capacity to produce these. It must seek to stabilize the balance of payments by narrowing the adverse price, quality and technological gap between domestically produced products and those manufactured on world markets. It must seek to expand production for the domestic market and the Southern African region. The principles that should inform industrialisation should include linking industrial development and skills development and employment creation, Improving labour standards, anticipating shifts in sector performance in order to minimize structural unemployment, reducing the carbon-intensity of production, promoting environmentally sustainable technologies.

In this context SMME support must be seen as another way through which democratization of the economy and redistribution of resources can be effected. Such support must proceed from an understanding that the majority of South Africans have been marginalized from the mainstream of the economy as entrepreneurs, more so because the economy continues to be dominated by conglomerates.

Under these conditions, SMME's become the main form of economic activity through which entrepreneurs organize their activities. The South African economic policy must open opportunities for SMME's to enter value-chains.

By controlling decisive sectors of the economy and critical stages of the value-chain, the state must open opportunities for SMME's to participate.

Nevertheless, SMME's must also create decent work, whilst the state offers them support through generous financing, access to markets and inputs, and technological improvements through Research and Development. The state's initiative to support SMME's is also one way through which the informal sector can be integrated into the mainstream economy.

But is this dream possible in the context of the National Development Plan which fails to advance a radical economic shift, but instead threatens to reverse certain progressive advances made by the ANC and government over the last few years.

The NDP either contradicts or fails to take forward key progressive policies, including on the need to fundamentally transform the structure of our economy, and promote a new path of growth through redistribution; the need for a massive concerted push to industrialise our economy, and that of the region; the need to place the creation of decent work for all at the centre of economic policy; and to place redistribution and combating economic inequality and poverty as a fundamental pillar of economic development.

The NDP does none of these things.

For an example the NDP's jobs plan is problematic and unsustainable, and is based on creating low quality precarious jobs outside the core productive sectors of the economy.

The NDP's target of 11 million jobs by 2030 relies largely on SMME jobs, and jobs in service sector. The NDP proposes that 90% of the new jobs will be created in SMMEs. It draws from a problematic analysis about SMMEs performance.

The reality is that SMMEs have shown little increase in share of employment over the last decade. Recent study of firm performance between 2005-11 concludes that job destruction was far higher in small firms. Large firms have a higher rate of net job creation.

Where SMMEs create jobs, such jobs will be of low quality. The plan concedes that it is based on the creation, particularly in the first 10 years, of
low-paying jobs, as opposed to decent work.

The SMME-dominated, low wage employment strategy is very different from the decent work policy mandate of the ANC and Alliance, as well as economic policy documents of government.

The NDP fails to pursue the IPAP and NGP vision of reindustrialising the economy, policies which themselves are being undermined by an inappropriate macro- economic policy framework. Central to the NGP vision is the role of radically expanding the manufacturing sector as engine of economy. At the heart of the new growth (which the NDP is undermining) is to move away from a narrow consumption- led, financialised, and service driven economy, predicated on an untransformed minerals sector. The NDP fails to take this vision of industrialization forward, but rather proposes strategies entrenching some of the worst features of the old growth path. The fact of the mattes is that there is no industrial strategy in the NDP.

The first phase (2013- 2018) of the NDP strategy revolves around a low-wage, service led, and SMME focused perspective. There is no attempt to engage with the IPAP or the NGP. The NDP envisages the share of manufacturing in total jobs shrinking from around 12% in 2010, to 9.6% in 2030. But employment in services increases by five million jobs, or up from 30% as a percentage of employment to a whopping 40% in 2030. Of the 11 million new jobs envisaged in the NDP, nearly two thirds will come from services, domestic work and the informal sector. This can hardly be an industrialization or diversification strategy. The NDP on amongst others proposes a series of measures which, through legislation or social coercion, would have the effect of undermining existing worker rights, and promoting a new stratum of ultra-low paid first-time workers, earning even less than low-paid workers are currently earning.

This would be achieved inter alia through legislative measures aimed at making dismissals easier, allowing free reign to labor brokers, reducing worker rights in SMMEs, and broadening the definition of essential services to prevent strikes in large parts of the public sector. This is combined with proposals to drive through agreements, and a social compact, providing for lower wages for first-time entrants to the labor market.

The NDP is premised on undermining worker rights, and it is based on the false assumption that by reducing wages employers will be more prepared to employ workers, particularly first time workers. So there is no way in which the country can develop a successful National SMME Policy Master Plan for Re-Industrialization for as long as the "elephant in the room" , which is the NDP in its current form remains. The NDP in its current form negates the very objectives of industrialization.

As COSATU and the SACP we have called for an overhaul of the Economic and Labor Market chapters of the NDP.

As COSATU we have proposed that as part of a new growth path , there should be industrial policy interventions which must consciously include on amongst others a ban on the export of scrap metal, and encouraging local recycling, Promoting targeted industrial financing at generous terms, promoting state investment in the capacity of the targeted sectors, link state support with local procurement and job creation, the wholesale and retail sector must carry at least 75% local content and developing codes and targets for SMME and co-operative support and procurement that apply throughout the economy, not just the public sector. If there is an intention to address youth unemployment there should be a conscious support for youth SMME's and Co-operatives: Through procurement, financing and marketing the state should target youth entrepreneurs for support.

Effective use and resourcing of the National Youth Development Agency is important so that it offers support services to young people, especially those in rural areas and in working class urban communities. Youth support should be incorporated as one of the areas in the scorecards for firms from which government procures inputs.

If the intention is to address infrastructure backlog and there should be conscious support for SMME's and co-operatives as critical vehicles to deliver certain inputs to the infrastructure development programme. We have also argued that part of the candidate sectors for nationalization should include the banking system which must be forced to co-exist with a state bank. However, the state-bank must clearly provide leadership in financial markets and give effect to the macroeconomic and financial policies of the developmental state.

This task cannot be left to private financial markets, because they are unstable. However, for the state to lead in this sector, it needs to have control and ownership of the balance sheet of the Reserve Bank and primarily use the state bank as a conduit of its policies to the economy as a whole.

The Reserve Bank's accumulation of assets and issuing of liabilities should not be complicated by the fact that, sometime in the future, such accumulations may be appropriated by a few individuals. The democratic state must use all the potential that a state-owned central bank brings in order to address the challenges we face.

There are already established institutions that can also play an important role in financial markets, e.g. the IDC, DBSA, Post Bank, National Empowerment Fund, Land Bank, Khula and Ithala. These institutions need to be transformed so as to finance priority sectors, Co-operatives and SMME's at generous interest rates and terms. Nevertheless, these are not deposit-taking institutions and do not create financial assets. In this sense, their transformative capacity relies heavily on injections from the National Treasury and borrowing from the financial sector. The state-bank on the other hand, will have greater flexibility and wider scope to have greater impact on social and economic development. The state bank can make a significant contribution in financing priority sectors, housing, developmental infrastructure, co-operatives and SMME's.

In our view these are part of the elements which can be considered for Developing a National SMME Policy Master Plan for Re-Industrialization"