Gordhan’s remarks a storm in a teacup?

Finance Minister Pravin Gordhan’s remarks last week about the need to review labour legislation in South Africa in order to achieve job creation targets have set the cat among the pigeons. Predictably he has been attacked by labour and praised by business, even if his remarks were not entirely new and have previously been echoed by others in the ANC and government.

The reaction to his remarks show that South Africa is a long way  from the critically needed social compact among all the various economic players needed to achieve job creation and economic growth targets in line with government’s New Growth Path (NGP) ­– something to which Gordhan also referred in his speech last week.

Looking at what exactly Gordhan said the reaction looks lake a bit of storm in a teacup.

Gordhan’s reference to labour regulation made up only a very small part of his speech to the Institute of Internal Auditors. Dealing with the factors that gave rise to recent developments on the world economic stage he said that the traditional perception of emerging markets as a risky investment destination was changing.

Emerging markets were expected to contribute 3.2% to total global GDP growth of 4.3% in 2011. He added that the BRICS countries (Brazil, Russia, India, China and South Africa) would make up 25% of global GDP by 2015.

Gordhan said “this places South Africa on the brink of economic opportunity that can be grasped if we put in place the correct partnerships among all players in society,” in direct reference to the social compact called for in the NGP.

He however cautioned that South Africa continued to face fundamental socio-economic challenges for which the NGP creates a framework in which it could be addressed. Creating employment, he said was government’s highest priority.

Gordhan said given the country’s current growth trajectory only 4-million jobs would be created by 2025, far short of the NGP-target. In order to create the desired number of new jobs, the economy had to achieve and sustain annual growth of 7%, twice as fast as the forecast for 2011, he said.

“To make this possible we need to assess where the obstacles to growth exist, what reforms will release these constraints, and how to better translate growth into job creation,” Gordhan said and added: “...we need to energetically reposition, restructure and reform our economy” and that this  “is a formidable task which will require South Africans from all backgrounds to unite around a single vision and develop a common purpose and passion to effect the changes we need”.

He listed among others maintaining macroeconomic stability but doing more; increasing economic growth and labour participation rates; increasing savings and investment; lowering the cost of young, low-skilled workers to stimulate the demand for labour; improving job search efficiency; addressing the skills constraints; removing regulatory constraints for SMMEs; increasing competition; and improving government efficiency.

Gordhan then devoted a considerable part of his speech to the role internal auditors can play in tackling corruption in both the public and private sectors before turning to the emerging global consensus about what needs to be done and possible solutions, some of which he said are also contained in the NGP.

Controversy

The dreaded words hat Gordhan reportedly uttered, that “we may have to change the way we see the labour dispensation in South Africa” in order to achieve the desired job growth, were not part of his prepared speech. According to Business Times Treasury spokesperson Kershia Singh said that Gordhan "did not call for a flexible labour market".

What he had said was: "There is a strong view that we will have to do something in South Africa if, for example, we are to ensure that the tens of thousands of people who are employed in the clothing industry in Newcastle, KwaZulu-Natal, are to retain their jobs, still get reasonably decent wages, but not be in a position where those businesses are closed because those businesses can't pay the same wages that are required by the bargaining council.”

''There is also a strong view that unless we begin to create some dispensation which allows for younger workers to be employed in existing firms on a differential basis, without threatening the jobs of currently employed permanent staff, we will not be able to make the breakthroughs we need to reduce unemployment in South Africa," Gordhan said.

This is not really anything new. Earlier this year African National Congress (ANC) secretary-general Gwede Mantashe also said that the ANC supported the implementation of the youth wage subsidy, and that it was budgeted for. Gordhan had earlier raised it for the first time when delivering his Budget speech in Parliament. In February the Treasury released a discussion paper on youth unemployment and proposals to address it which is still being discussed in the National Economic Development and Labour Council (Nedlac).

Gordhan’s speech triggered a flurry of media reports, Planning Minister Trevor Manuel was reported to have supported Gordhan’s remarks. However, what Manuel  said was that he had studied the text of Gordhan's speech and that the labour regulation remarks were but a tiny snippet. Manuel then said that what Gordhan had said was a “position that I would endorse wholeheartedly” and that “nothing should stand in the way of job creation in this country."

Recently international reports have blamed South Africa’s declining global competiveness among other things on the country’s strict labour regulatory regime. No wonder Business Unity South Africa (Busa) to welcomed what it saw as suggestions by Gordhan and Manuel that labour laws needed to be relaxed.

Others like Pick ‘n Pay chairman Gareth Ackerman quickly added their voices to those welcoming what they saw as a nod by government for a change in labour legislation. Ackerman said South Africa was "crying out" for labour flexibility to help the government in its goal of creating decent jobs.

The Centre for Development and Enterprise weighed in with a more sober assessment, saying the Treasury's wage subsidy proposal is not a comprehensive response to the crisis of unemployment, but that it nonetheless was a step in the right direction and should be introduced.

But perhaps it was the reaction of the general secretary of the National Union of Metalworkers of SA (Numsa), Irvin Jim, that was the most telling. He threatened to call on President Jacob Zuma to fire Finance Minister Pravin Gordhan for his “neo-liberal anti-worker" policies and said workers would meet the minister "in the streets" as they now considered him the "enemy" for going ahead with the implementation of the controversial youth wage subsidy. All of which just goes to show how far off we are from reaching the much needed social compact to get South Africa on a winning trajectory.