Address by COSATU General Secretary, Zwelinzima Vavi, on the UNDP's Human Development Report, 5 May - 2004

Dear friends and colleagues,

Thank you for the opportunity to respond to the new Human Development Report for South Africa.

For us, this document is critical, above all, because it re- affirms the central importance of overcoming poverty and unemployment and the need for a sustainable development strategy for South Africa. We are grateful for the work that the UNDP and the many researchers involved have put into the project.

This will contribute immensely to the democratic discourse in the country, in particular now that all of us are focused on finding solutions to the stubborn crisis that continues to afflict our economy ten years after we attained our freedom.

The report provides a wealth of data and insights. For us, the central finding is paradoxical: that since 1994 our government has dramatically improved services and social grants for millions of South Africans, but has barely dented the overall picture of poverty and inequality left by apartheid. Thus, the report finds that the poverty rate has fallen only from 51% to 48%.

We are encouraged by the extent to which the report exposes the inequalities that stubbornly remain part of our social and political life. These include the annual decline of wage share, which happens alongside a rise in unemployment, which increases annually by 2,8%, while annual growth rates for labour productivity and labour force rise at 4.1%.

The main reason for this has been growing un- and underemployment. Unemployment has risen dramatically to 30% using the narrow definition, and over 40% if we consider a much more appropriate definition of unemployment. Incomes from work have tended to stagnate. Meanwhile, conditions have also been worsened by the HIV/AIDS epidemic.

The question, of course, is why. The report’s conclusions align with the experiences of COSATU members.

First, since the late 1980s investment and production have shifted steadily to capital-intensive sectors, which cannot provide jobs on a large scale. Thus, while the economy has grown relatively rapidly in the past decade, it has created relatively few jobs.

Second, apartheid effectively let the majority of our people participate in the formal sector only as cheap labour. It achieved this through the inequitable allocation of infrastructure, the structure of the financial and retail sectors and inequalities in health and education, as well
as the exile of millions to depressed rural areas. A central insight from the report is that the failure to reverse these trends since 1994 arises from the tendency to adopt a “two-track” development strategy.

The democratic government moved decisively to shift spending on services to poor black communities. At the same time, it adopted economic policies aimed primarily at growing exports and holding down inflation, with an enormous belief that this would lead to poverty alleviation and job creation.

Critical elements the government strategy included freeing up markets, commercialising and partially privatising government services, cutting budgets and maintaining high interest rates.

These policies were inherently contradictory. In particular, job losses and cuts in overall government spending negated efforts to improve services for the poor. High interest rates slowed down investment.

We are pleased to note that government seem to have loosened on this strategy in the past three years. We have seen government adopting more expansionary fiscal stance. Interest rates have come down and more emphasis put in the important role government must play to stimulate growth that will lead to more equitable distribution of income and wealth.

We welcome the ANC election manifesto’s commitment to policies which will create jobs and reduce poverty. For COSATU, the critical issue is how we move forward to ensure more equitable, job-creating growth that will indeed benefit the majority of our people. We laid the
basis at the recent Growth and Development Summit, where we agreed with government and organised business on important strategies to enhance job creation.

As a short-run solution, we agreed on expanded public works programmes as an important way to provide income support, while enhancing skills and integrating people better into society, especially the young jobless. The UNDP report adds to this proposal by emphasising the need to expand social grants and eliminate means tests. It shows that a basic income grant would have a stronger impact on poverty.

In the longer run, as we agreed at the GDS, restructuring the economy toward job-creating growth requires sectoral strategies. The UNDP report emphasises this point. To develop sustainable strategies requires the involvement of stakeholders in each sector.

As the report points out, a critical element must be supply-side measures to support growth in light industry, with appropriate backward linkages to the resource sectors. It also emphasises land reform in this context. We also need to think about how provision of
social protection and housing can provide jobs and enhance opportunities for the poor.

Like the UNDP report, the GDS emphasised the need to integrate marginalised people by restructuring the financial sector, ensuring more appropriate and affordable education and better health, housing and services, as well as increased support for co-ops and
other small and micro enterprises.

The UNDP report goes beyond the GDS in its focus on macro- economic policy. As it points out, the micro strategies we adopted at the GDS will only work if the state maintains an expansionary fiscal policy and relaxes monetary policy.

The current policy of inflation targeting leads to an excessively tight monetary policy. It involves very high real interest rates by international standards. That hinders investment and growth, and hammers local production by encouraging overvaluation of the rand.

As the UNDP report emphasises, the restructuring of the economy requires innovative thinking, consistency, the prioritisation of employment creation and equity. Success will require a willingness to review fixed positions and past policies, commitment to open debate, and an understanding of the realities we all face.

COSATU is convinced that the country will not succeed in attaining the objectives of cutting unemployment and poverty by half in 2014 unless this fundamental review of our economic strategies has taken place, as suggested by UNDP report. This report is an important contribution to achieving this aim, and we thank you again.