Sectoral economic analysis

Document Sample
Sectoral economic analysis Powered By Docstoc
					Department of Labour                                             SETA Reestablishment: Draft 1
                                       PAGE 45




SECTION FIVE: Sectoral Economic
Analysis
5.1.      INTRODUCTION

In order to assist the process of determining the expected future growth trends in
different economic sectors, a combination of quantitative historical data and
qualitative current data will be analysed. The historical data analysis has mainly
been confined to the period specified in the Terms of Reference, namely the past
five years (1998 to 2003). In cases that are regarded as relevant or in cases where
detailed data are not available, this period has been appropriately adjusted.

A recurring problem encountered with sectoral economic analysis relates to the
difficulty in comparing different data series, due to the incompatibility of the
methods of classification. However, this does not deter from the ability to arrive at
firm conclusions with regard to trends in major sectors and also, in some instances,
disaggregated sectors of the economy.

The data series employed for the purpose of this study include the following:

!   Imports and exports according to sections of the Harmonized System
!   Imports and exports according to chapters of the Harmonized System
!   Imports and exports according to country and codes of the Harmonized System
!   Final Consumption Expenditure by Households according to key components of
    durable goods, semi-durable goods, non-durable goods and services
!   Gross Value Added by kind of economic activity (Major Sectors)
!   Gross Value Added by kind of economic activity (Two-digit SIC code)
!   Gross Fixed Capital Formation by kind of economic activity
!   Indices of the Physical Volume of Manufacturing Production according to
    Manufacturing Divisions and Major Groups
!   Weighting of the Manufacturing Divisions and Major Groups
!   Indices of the Physical Volume of Mining Production according to major groups
!   Weighting of the consumer price index
!   Relevant Public Finance data




                                      August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                       PAGE 46



5.2.      COMPARATIVE ECONOMIC PERFORMANCE

5.2.1. Gross value added by major sector

Table 5.1 ranks the major sectors of economic activity in terms of the average
annual growth rate in output between 1998 and 2003 (at constant 2003 prices).

Several salient conclusions can be drawn from this data:

Firstly, the sector for financial intermediation, insurance, real estate and business
services (financial and business services, in short), has outperformed all the other
major sectors of economic activity over the past five years.

     Table 5.1 - Gross value added by major sector
                                                  Avg. annual
     (Rb at constant 2003 prices) 1998      2003    growth
     Transport & communication        79.2 110.7      6.9%
     Financial & business services 181.1 227.7        4.7%
     Other services                   28.4  34.3      3.8%
     Gross value added               958.5 1100.9     2.8%
     Trade & catering                127.9 146.7      2.8%
     Construction                    25.6    29      2.5%
     Manufacturing                   184.2 208.3      2.5%
     Agriculture, forestry & fishing 38.3   41.9      1.8%
     Other producers                  29.3  31.9      1.7%
     Electricity, gas & water         23.6  25.5      1.6%
     General government services 168.4 166.4         -0.2%
     Mining & quarrying                80   78.5     -0.4%
    Source: SA Reserve Bank



Secondly, the financial and business services sector has consolidated its position as
the single largest contributor to the country’s GDP. Its contribution in 2003
amounted to more than R227 billion, representing 20.7% of South Africa’s total
output. In 1994, this contribution amounted to 16%. Against the background of an
anticipated future drive to increase the relatively low baking penetration in South
African society, it seems fairly obvious that the financial and business services
sector is destined to continue its strong growth performance, both in absolute terms
and relative to the rest of the economy.

Thirdly, none of the three sectors that most intimately (and directly) involve public
sector activity have recorded positive output growth in per capita terms, with two of
them (construction and electricity, gas & water) recording negative output growth.
This trend is due, in part, to government’s long-standing policy of fiscal restraint,

                                      August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 47



which had been necessary in order to lower the budget deficit/GDP ratio and to re-
establish fundamental fiscal stability in the country. As a result of the progress that
has been made since 1994 in this area, the Minister of Finance has clearly signalled
an end to fiscal austerity. This change in policy stance has been emphasised by the
President in his 2004 state-of-the-nation address, which detailed a significant
number of targets and deadlines for the accelerated delivery of social services and
the creation of employment.

5.2.2. Gross value added by two-digit SIC code

Average annual growth trends in gross value added by a more detailed classification
of economic activity confirms the dominance of the sector for financial and business
services, but also provides confirmation of a number of other high-growth sectors,
as illustrated by table 5.2. Table 5.3 ranks the two-digit sectors in terms of size.

Table 5.2- Gross value added at constant 2003 prices
Economic Sectors                                       1998           2003          Growth
75 Post and telecommunication                         30,662         54,164         12.1%
81 Financial intermediation                           43,444         65,907          8.7%
83 Activities auxiliary to financial intermediation   14,791         21,522          7.8%
38 Transport equipment                                13,326         19,329          7.7%
11 Agriculture and hunting                            30,293         36,454          3.8%
35 Metal products, machinery and h/h appliances       41,269         49,642          3.8%
73 Air transport                                       4,372          5,233          3.7%
63 Sale and repairs of motor vehicles, sale of fuel   14,081         16,667          3.4%
62 Retail trade and repairs of goods                  64,011         74,562          3.1%
33 Fuel, petroleum, chemical and rubber products      35,856         41,733          3.1%
82 Insurance and pension funding                      30,369         35,340          3.1%
42 Collection, purification and distribution of water  2,664          3,072          2.9%
34 Other non-metallic mineral products                 6,603          7,610          2.9%
88 Other business activities                          66,873         76,403          2.7%
87 Research and development                            2,710          3,096          2.7%
85 Renting of machinery and equipment                  1,200          1,371          2.7%
86 Computer and related activities                    13,771         15,734          2.7%
84 Real estate activities                              7,337          8,326          2.6%
39 Furniture and other items NEC and recycling        18,385         20,855          2.6%
13 Fishing, operation of fish farms                     688            780           2.5%
32 Wood and wood products                             17,962         19,952          2.1%
36 Electrical machinery and apparatus                  5,602          6,200          2.1%
50 Construction                                       26,200         28,951          2.0%
41 Electricity, gas, steam and hot water supply       20,470         22,430          1.8%
24 Mining of metal ores                               20,883         22,861          1.8%

                                       August 2004
Department of Labour                                           SETA Reestablishment: Draft 1
                                      PAGE 48




Economic Sectors                                       1998         2003   Growth
61 Wholesale and commission trade                    41,135        45,017    1.8%
74 Supporting transport activities (inc. storage)    11,197       12,224    1.8%
71 Land transport                                    35,787        39,027    1.7%
12 Forestry and logging                                4,435        4,702    1.2%
95 Activities of membership organisations             4,741         5,018    1.1%
99 Other service activities                            8,752        9,236    1.1%
94 Other community and personal service activities     1,298        1,370    1.1%
93 Health and social work                             55,586       58,606    1.1%
91 Public administration and defence activities      58,938       61,885    1.0%
96 Recreational, cultural and sporting activities      9,423        9,867    0.9%
92 Education                                         82,808        86,683    0.9%
64 Hotels and restaurants                             10,106       10,443    0.7%
31 Textiles, clothing and leather goods              10,555       10,762    0.4%
21 Mining of coal and lignite                        17,227        17,468    0.3%
22 Extraction of crude petroleum and natural gas       2,380        2,387    0.1%
30 Food, beverages and tobacco products               29,999       29,912   -0.1%
37 Electronic, medical & other appliances              2,569        2,273   -2.4%
25 Other mining and quarrying                        12,569       10,825    -2.9%
23 Mining of gold and uranium ore                    29,706        24,962   -3.4%
72 Water transport                                      139           70   -12.9%
Total                                                956,529     1,100,931 2.9%


Table 5.3: Gross value added at constant 2003 prices
Economic Sector                                          1998            2003         Growth
92 Education                                            82,808          86,683         0.9%
88 Other business activities                            66,873          76,403         2.7%
62 Retail trade and repairs of goods                    64,011          74,562         3.1%
81 Financial intermediation                             43,444          65,907         8.7%
91 Public administration and defence activities         58,938          61,885         1.0%
93 Health and social work                               55,586          58,606         1.1%
75 Post and telecommunication                           30,662          54,164        12.1%
35 Metal products, machinery and h/h appliances         41,269          49,642         3.8%
61 Wholesale and commission trade                       41,135          45,017         1.8%
33 Fuel, petroleum, chemical and rubber products        35,856          41,733          3.1%
71 Land transport                                       35,787          39,027         1.7%
11 Agriculture and hunting                              30,293          36,454         3.8%
82 Insurance and pension funding                        30,369          35,340         3.1%
30 Food, beverages and tobacco products                 29,999          29,912         -0.1%
50 Construction                                         26,200          28,951         2.0%

                                    August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                       PAGE 49




Economic Sector                                             1998          2003   Growth
23 Mining of gold and uranium ore                         29,706         24,962   -3.4%
24 Mining of metal ores                                   20,883         22,861    1.8%
41 Electricity, gas, steam and hot water supply            20,470        22,430    1.8%
83 Activities auxiliary to financial intermediation       14,791        21,522    7.8%
39 Furniture and other items NEC and recycling             18,385        20,855    2.6%
32 Wood and wood products                                 17,962         19,952    2.1%
38 Transport equipment                                    13,326         19,329    7.7%
21 Mining of coal and lignite                             17,227         17,468    0.3%
63 Sale and repairs of motor vehicles, sale of fuel        14,081        16,667    3.4%
86 Computer and related activities                         13,771        15,734    2.7%
74 Supporting transport activities (inc. storage)         11,197         12,224    1.8%
25 Other mining and quarrying                             12,569        10,825    -2.9%
31 Textiles, clothing and leather goods                   10,555         10,762    0.4%
64 Hotels and restaurants                                  10,106        10,443    0.7%
96 Recreational, cultural and sporting activities           9,423         9,867    0.9%
99 Other service activities                                 8,752         9,236    1.1%
84 Real estate activities                                   7,337         8,326    2.6%
34 Other non-metallic mineral products                      6,603         7,610    2.9%
36 Electrical machinery and apparatus                       5,602         6,200    2.1%
73 Air transport                                            4,372         5,233    3.7%
95 Activities of membership organisations                  4,741          5,018    1.1%
12 Forestry and logging                                     4,435         4,702    1.2%
87 Research and development                                 2,710         3,096    2.7%
42 Collection, purification and distribution of water       2,664         3,072    2.9%
22 Extraction of crude petroleum and natural gas            2,380         2,387    0.1%
37 Electronic, medical & other appliances                   2,569         2,273   -2.4%
85 Renting of machinery and equipment                       1,200         1,371    2.7%
94 Other community and personal service activities          1,298         1,370    1.1%
13 Fishing, operation of fish farms                          688           780     2.5%
72 Water transport                                           139            70   -12.9%
Total                                                     956,529      1,100,931 2.9%


It is encouraging to find that strong growth has occurred in a number of sectors
exhibiting relatively high labour absorption capacity, including agriculture and the
sector for the sale of motor vehicles and fuel & the repair of vehicles. Table 2 also
confirms the high growth in the telecommunications industry as a result of the
establishment of several cellular telephone networks in the country.




                                      August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 50



A further encouraging feature of the trends depicted by table 5.2 is the fact that most
of the high-growth sectors are also significant contributors to the economy’s total
output.

In the event of combining the value added by agriculture, forestry, fishing and food
production, a figure of R78.7 billion is realised, which would place this combined
value-chain sector at the top of table 5.3.

The figures contained in table 5.3 also confirm the dominant position of a number of
sectors that require a significant degree of public sector activity (in terms of
collective goods and services characteristics, the necessary regulatory environment
and the provision of infrastructure). Most of these sectors, however, have
underperformed in terms of their contribution to the country’s total output over the
past five years.


5.3.      COMPOSITION OF HOUSEHOLD DEMAND

The above sub-sections provided a ranking of broad-based sectoral economic
activity from a supply-side perspective. The next step in the analysis entails a view
of the demand-side, which will be conducted through two different data series.
Firstly, the weighting of the items contained in household consumption will be
discussed.

This weighting is determined at five-year intervals and is based on a thorough
assessment of household consumption patterns, both in urban and rural areas and
between different income groups.

Table 5.4 provides these figures for March 2004, as well as an indication of current
price trends (historical annualised rate of change) within each of the different
categories of consumption. The items in table 5.4 have been ranked in terms of the
weighting of urban consumption, due to its dominant position with regard to the
country’s total household consumption.

It is clear from these figures that food, housing, medical care and vehicle expenses
constitute the most important consumption items for urban households. In
combination, these items account for more than 60% of household demand. For
rural households, who are on average poorer than urban households, the
consumption pattern is markedly different, with food especially dominant (43% of
the total), and household fuel & power also playing a more important role.




                                       August 2004
Department of Labour                                     SETA Reestablishment: Draft 1
                                  PAGE 51



Table 5.4 - Weighting of the goods & services upon which the consumer price
index is based
                                  Urban areas               Rural areas
 Item
                           Weighting % change 3/04 Weighting % change 3/04
Housing                    20.7       -10.7         4.52       -7.1
Medical care               6.9        10.2          3.07       10.3
Vehicle running cost       6.56       1.1           4.02       0.5
Meat                       6.23       -0.5          8          -3
Vehicles                   5.11       -0.9          2.59       0.6
Grain products             4.34       -1.8          16.36      -6.5
Personal care              3.92       3.5           5.06       4.8
Fuel & power               3.84       6.9           6.06       4
Other food                 3.74       8.2           4.74       7.6
Education                  3.38       9.1           2.99       8.2
Other                      3.26       -5.6          2.62       -12.6
Domestic workers           3.22       18.6          1.98       26.3
Recreation & entertainment 3.04       -2.8          1.26       -4.6
Communication              2.86       3.3           1.17       1.5
Clothing                   2.27       0.5           3.34       0.6
Vegetables                 2.18       6.9           3.42       10.2
Milk, cheese & eggs        2.1        4.1           2.55       5.1
Public transport           2.05       1.2           2.68       0.5
Alcoholic beverages        1.52       12.1          2.27       10.8
Footwear                   1.37       -5.9          2.06       -4.3
Household consumables      1.34       3.9           3.48       4.7
Tobacco products           1.21       12.8          1.03       10.4
Coffee, tea & cocoa        1.14       0.9           1.55       3
Fruit & nuts               1.13       10.9          1.39       25.8
Non-alcoholic beverages    1.13       4.2           1.72       6.9
Furniture                  1.08       3.2           2.13       5.5
Other household equipment 0.9         -1.2          1.39       -0.9
Fats & oils                0.84       1.6           1.39       3.2
Appliances                 0.84       -0.9          0.94       -1.8
Fish                       0.7        1             1.17       1.4
Sugar                      0.62       4.6           2.44       4.2
Reading matter             0.36       4.5           0.29       3.9
Other household services   0.12       3.4           0.32       4.3
Total CPI                  100        0.8           100        1.6
Total food                 20.99      3.1           43.01      1.2
Source: Statistics SA




                                 August 2004
Department of Labour                                                 SETA Reestablishment: Draft 1
                                         PAGE 52



The major implication of this analysis is that sectors involved in the food chain are
of paramount importance from a macroeconomic demand perspective. To the extent
that domestic production has to be supplemented by imports, the country would face
a balance of payments outflow. Furthermore, an undue and increasing reliance on
such imports would threaten food security.

            Table 5.5 - Consumption expenditure by households
                                                                                     Avg. annual
            (Rb at constant 2003 prices)                     1998        2003          growth
            Food & beverages                                 197.7        230            3.1%
            Transport & communication services               54.3        73.6            6.3%
            Rent                                             57.8        68.1           3.3%
            Miscellaneous services                            65         67.5            0.8%
            Total semi-durable goods                         61.8        65.1            1.0%
            Total durable goods                               45         55.9            4.4%
            Medical services                                 30.9        44.9            7.8%
            Clothing & footwear                              35.1         35            -0.1%
            Recreation, entertainment & education services   21.7          28            5.2%
            Personal transport equipment                      19         27.4            7.6%
            Petroleum products                               20.4        24.9            4.1%
            Household services                               21.4        24.9            3.1%
            Household consumer goods                         20.1        23.1            2.8%
            Household fuel & power                           18.4        22.5            4.1%
            Furniture & household appliances                 13.6        14.9           1.8%
            Medical products                                 10.7        14.4            6.1%
            Household textiles & furnishings                 10.4        11.5           2.0%
            Vehicle parts & accessories                       8.5        10.1            3.5%
            Recreation & entertainment (semi-durable)          7          7.5            1.4%
            Recreation & entertainment (durable)              7.2         7.5            0.8%
            Recreation & entertainment (non-durable)          6.4          7             1.8%
            Other durable goods                               5.2         6.1           3.2%
            Miscellaneous semi-durable goods                  0.8          1             4.6%
            Note: Ranked by 2003 expenditure levels
            Total household expenditure                      631.6       750.1             3.5%
            Total non-durable goods                          273.7       321.9             3.3%
            Total services                                   251.1       307.2             4.1%
            Source: SA Reserve Bank



A more positive observation would be to consider an increased degree of
coordination between primary agriculture, secondary agriculture and food
processing, which form a crucial value chain in the economy. Furthermore,


                                        August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 53



imminent trade reform in the high-income countries could, in future, provide agri-
processing activities with significant incentives to expand exports.

Table 5.5 provides an alternative view of the key component of aggregate demand in
the economy, namely an analysis of consumption expenditure by households for the
calendar years 1998 and 2003. Also included in the analysis are the average annual
growth rates (at constant 2003 prices) of each of these components.

The significance of a demand-side perspective of sectoral economic growth trends
emanates from the fact that private consumption expenditure by South African
households comprises 62% of total GDP.

It is clear from the trends depicted in table 5.5 that a number of important
consumption groups in terms of size have posted strong output growth levels,
especially medical services, personal transport equipment and transport &
communication services.

A point of concern, however, is the fact that the largest single component of
household expenditure, namely food & beverages, has recorded below average
growth over the past five years.


5.4.      MANUFACTURING PRODUCTION

In 2003, the manufacturing sector contributed almost 19% to the country’s total
GDP, whilst its contribution to employment, foreign exchange earnings and
technological advancement makes manufacturing a strategically important sector.

Table 5.6 contains a ranking of the different manufacturing groups, ranked in terms
of their contribution to total manufacturing output (1996 census of manufacturing
data).

The data in table 5.7, although not strictly comparable, confirms the dominant
position of the traditionally large sectors within manufacturing, but it also indicates
imminent changes to the weighting applied in table 7, particularly with regard to the
manufacturing of motor vehicles and parts & accessories for motor vehicles.

Other key observations from table 5.7 include the following:

A number of sectors exhibiting a relatively high domestic value added content have
been amongst the top growth performers over the past five years, including
jewellery, motor vehicle accessories, chemicals, stationery and wineries.
Several industries that are closely associated with building construction activity
have recorded above average growth since 1998. These include cement, lime &
plaster, wood products and steel pipe & tube mills. This trend suggests that a

                                       August 2004
Department of Labour                                            SETA Reestablishment: Draft 1
                                       PAGE 54



significant degree of unrecorded activity may be taking place in the construction
sector, as the latter has not remotely portrayed the same extent of growth over the
past five years (only 2.5% per annum, on average).

Sectors that have are the focus of special development initiatives by the Department
of Trade and Industry (DTI) have performed exceptionally well, including jewellery
and motor manufacturing.

A number of high performing sectors possess strong direct linkages with agriculture,
including wood, meat, milk and wineries.
Tariff reform seems to have been instrumental in the demise of a number of
industries, including footwear, several sub-sectors related to clothing and several
sub-sectors related to textiles.

Table 5.6 - Weighting of major manufacturing groups – 2003 (% contribution
to total manufacturing output)
Major group                                                     Weights
Basic iron and steel                                              7.6
Other chemical products                                           6.2
Paper and paper products                                          5.3
Beverages                                                         4.6
Other fabricated metal products                                   4.6
Basic chemicals                                                   4.5
Motor vehicles                                                    4.5
Other food products                                               4.4
Coke & refined petroleum                                          4.2
Other non-metallic mineral products                               3.5
Electrical machinery and apparatus                                3.4
Basic precious and non-ferrous metals                             3.2
Plastic products                                                  3.1
Parts & accessories for motor vehicles                            3.0
Wearing apparel                                                   3.0
Special purpose machinery                                         2.9
Meat, fish, fruit, vegetables, oils and fats                      2.8
Printing and recorded media                                       2.6
General purpose office machinery                                  2.5
Other manufacturing industries                                    2.5
Structural metal products                                         2.4
Grain mill products                                               2.1
Textiles                                                          1.7
Furniture                                                         1.6
Publishing                                                        1.5


                                      August 2004
Department of Labour                                       SETA Reestablishment: Draft 1
                                              PAGE 55




Major group                                                          Weights
Dairy products                                                         1.4
Rubber products                                                        1.4
Other textiles                                                         1.2
Wood and wood products                                                 1.2
Glass & glass products                                                 1.0
Other transport equipment                                              1.0
Radio, television and communication equip.                             1.0
Footwear                                                               0.9
Sawmilling and planing of wood                                         0.8
Knitted and crocheted fabrics and articles                             0.6
Bodies for motor vehicles                                              0.5
Professional equipment                                                 0.5
Household appliances                                                   0.4
Leather and leather products                                           0.4
Total Manufacturing                                                   100.0
Note: Based on 1996 census of manufacturing
Source: Statistics SA



Table 5.7 - Manufacturing sales values (Rm @ 2003 prices)
Products                                              1998   2003 Avg. growth
Jewellery and related articles                        2,518 4,753   13.5%
Parts and accessories for motor vehicles and their
engines                                              12,656 22,005  11.7%
Motor vehicles                                       32,866 53,853  10.4%
Motor vehicles, bodies, parts and accessories        47,790 78,244  10.4%
Electricity distribution and control apparatus        2,400 3,856    9.9%
Petroleum refinery products and nuclear fuel         22,846 35,584   9.3%
Basic iron and steel products                        32,064 48,542   8.6%
Cement, lime and plaster                              3,149 4,664    8.2%
Basic chemicals                                       8,465 12,525   8.2%
Other wood products, e.g. builders' carpentry, cork,
straw                                                 4,959 7,260    7.9%
Coke oven products                                    1,138 1,611    7.2%
Slaughtering, preparing and preserving of meat        6,955 9,707    6.9%
Products of wood                                      7,150 9,654    6.2%
Processing of fresh milk (pasteurising)               2,713 3,647    6.1%
Cutlery, hand-tools, general hardware                 2,273 3,046    6.0%
Soap, perfumes, cosmetics and toilet preparations     8,888 11,733   5.7%
Steel pipe and tube mills                             2,886 3,807    5.7%
Medical, precision and optical instruments, watches 1,624 2,111      5.4%

                                         August 2004
Department of Labour                                            SETA Reestablishment: Draft 1
                                      PAGE 56




Products                                              1998     2003      Avg. growth
and clocks
Metal containers, e.g. cans and tins                  4,657     6,047          5.4%
Metal fasteners                                        868      1,115          5.1%
Stationery and other paper products                  4,318     5,513           5.0%
Tyres, tubes and rethreading of tyres                 4,096     5,213          4.9%
Distilleries and wineries                            7,735     9,627           4.5%
Plastic products                                    12,913    15,979           4.4%
Flour and grain mill products                       12,857     15,726          4.1%
Manufacturing sales: Total                          505,699   613,630          3.9%
Grain mill products, starches and prepared animal
feeds                                               19,358    23,473           3.9%
Meat, fish, fruit, vegetables, oils and fats        22,216    26,899           3.9%
Sawmilling and planing of wood                       3,218    3,879            3.8%
Pulp, paper and paper board                         12,045    14,511           3.8%
Plastics in primary form and of synthetic rubber     8,352    10,060           3.8%
Special purpose machinery                           11,409    13,729           3.8%
Basic precious and non-ferrous metals               15,783    18,982           3.8%
Prepared animal feeds                                 6,500    7,746           3.6%
Soft drinks and mineral waters                       7,547    8,896            3.3%
Other food products, n.e.c.                          5,602    6,600            3.3%
Canned, preserved and processed fish                  2,303    2,697           3.2%
Other transport equipment                            3,326    3,871            3.1%
Compound cooking fats, margarine and edible oils 7,096        8,222            3.0%
Other fabricated metal products                       5,539    6,398           2.9%
Glass and glass products                             2,947    3,389            2.8%
Beverages                                           26,179    30,006           2.8%
Other chemical products and man-made fibres           9,031   10,311           2.7%
Paint, varnishing, printing ink                      4,605    5,242            2.6%
Corrugated paper and paper board and containers
thereof                                              8,482    9,626            2.6%
Other chemical products and man-made fibres          32,183   36,429           2.5%
Machinery and equipment                             25,314    28,624           2.5%
Tents, tarpaulins, canvas goods, automotive textile
goods                                                  842     949             2.4%
Food and food products                              74,378    83,231           2.3%
Other non-metallic mineral products                  5,880    6,521            2.1%
Electrical machinery and apparatus                   15,702   17,329           2.0%
Household appliances                                 2,519    2,753            1.8%
Other electrical equipment                           4,129    4,511            1.8%
Ice cream and other edible ice                         661     721             1.8%


                                     August 2004
Department of Labour                                                SETA Reestablishment: Draft 1
                                          PAGE 57




Products                                                   1998    2003      Avg. growth
 Veneer sheets, plywood, etc.                              2,205   2,398        1.7%
Pesticides and other agro-chemical products A]             1,707   1,850        1.6%
Forging, pressing, etc. of metals, coating of metals       3,744   4,028        1.5%
Refractory ceramic products                                3,276   3,518        1.4%
Canned, preserved, processed fruit and vegetables          5,859   6,271        1.4%
Cables, wire products and springs                          3,616   3,869        1.4%
Electric lamps                                             1,134   1,211        1.3%
General purpose machinery, office, accounting and
computing                                                  11,393 12,150           1.3%
Electric motors, generators and transformers                2,304 2,453            1.3%
Fabricated metal products                                  33,319 35,249           1.1%
Breweries, sorghum beer breweries, malt                    10,897 11,482           1.1%
Carpets, rugs and mats                                       893   941             1.0%
Bodies for motor vehicles and trailers and semi-
trailers                                                    2,266 2,381            1.0%
Other rubber products                                       1,447 1,519           1.0%
Leather and leather products                                2,944 3,063            0.8%
Dairy products                                              9,414 9,792            0.8%
Other manufacturing industries                             12,616 13,010           0.6%
Other textiles                                              4,412 4,540            0.6%
Publishing                                                 5,696  5,846           0.5%
Bakery products                                             5,711 5,778            0.2%
Printing and reproduction of recorded media                 9,397 9,359           -0.1%
Other food products                                        23,388 23,066          -0.3%
Accumulators, primary cells and primary batteries           1,536 1,501           -0.5%
Milk powder, condensed milk and other edible milk
products                                                   3,991   3,829          -0.8%
Fertilisers, nitrogen compounds                            7,203   6,858          -1.0%
Furniture                                                  7,918   7,433          -1.3%
Other textile articles, e.g., furnishing articles, bags,
sacks                                                      1,271 1,181            -1.5%
Men's and boys' clothing                                   5,569 5,153            -1.5%
Pharmaceuticals, medicinal and botanical products           7,950 7,281           -1.7%
Knitted and crocheted fabrics and articles                  2,461 2,237           -1.9%
Insulated wire and cable                                    4,190 3,787           -2.0%
Radio, television and communication apparatus              5,783 5,198            -2.1%
Wearing apparel, including articles of fur                 14,416 12,950          -2.1%
Textiles                                                   8,806 7,892            -2.2%
Cocoa, chocolate, sugar confectionery, including
nut foods                                                  3,953   3,535          -2.2%
Coffee, coffee substitutes, tea                            1,907   1,689          -2.4%
Women's, girls' and infants' clothing                      6,048   5,354          -2.4%

                                         August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                       PAGE 58




Products                                           1998        2003       Avg. growth
Sugar, including golden syrup                      6,211       5,461        -2.5%
Non-structural non-refractory ceramic ware          410         355         -2.8%
Other structural metal products, e.g. metal doors,
tanks                                              8,153       6,991           -3.0%
Metal structures and parts thereof                 4,467       3,751           -3.4%
Butter and cheese                                  2,047       1,594           -4.9%
Footwear                                           3,272       2,130           -8.2%


5.5.      CAPITAL FORMATION

Gross fixed capital formation trends are highly relevant to any study concerned with
an assessment of future labour market trends. The reason is simply that current
capital formation trends are directly correlated to a country’s future GVA. Table 5.8
provides an indication of the capital formation growth trends between 1998 and
2003.

        Table 5.8 - Capital formation by major sector (Rb at constant 2003 prices)
        Economic Sector                   1998 2003 Avg. annual growth
        Mining & quarrying                15.8 22.6           7.5%
        Trade & catering                   9.5 12.5           5.6%
        Construction                       1.5   1.8          3.3%
        Gross value added                169.7 190.2          2.3%
        Manufacturing                     35.6 39.8           2.3%
        General government services       24.4 26.8            1.9%
        Financial & business services     40.5 44.3            1.8%
        Agriculture, forestry & fishing    6.5   6.8          0.7%
        Transport & communication         31.5 27.3           -2.8%
        Electricity, gas & water           9.8   8.4          -3.1%


Key conclusions drawn from this analysis include the following:

! The category that includes tourism related activity has experienced significant
  growth in recent years.
! Total fixed capital formation has been sluggish over this period, particularly as a
  result of the persistent application of strict monetary policy by the S A Reserve
  Bank (very high interest rates forced real capital formation growth into negative
  territory in 1999).
! The mining industry has performed well since 1998. The reason is related to
  relatively high international commodity prices, combined with the historical
  effect of the sharp depreciation of the rand (prior to 2003).


                                      August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                       PAGE 59



! Tertiary sectors have also performed well, particularly as a result of the
  sustained growth in retail sector activity, as well as strong tourism growth.
! Capital formation in manufacturing has recorded satisfactory growth trends
  when viewed against the large base from which it is growing.


5.6.      EXPORTS

A further indicator of sectoral economic activity is export performance by section of
the harmonised customs and excise code. South Africa’s export performance over
the past five years has been nothing short of spectacular, with the average annual
growth rate of 5.8% outstripping the GDP growth performance over this period by
more than 100%.

These results are summarised in table 5.9, which has been ranked according to the
average annual growth rate in exports between 1998 and 2003. The country is
sustaining its long-term trend towards increasing the level of exports of
manufactured goods and high-technology products. In 1998, the categories for
transport equipment (including vehicles), machinery & equipment and chemicals
accounted for 19.2% of total exports. In 2003, this figure had increased to 24.2%.

One of the results of this trend has been manifested in a sharp increase in the
country’s Trade/GDP ratio. South Africa currently enjoys a higher international
ranking for this indicator than countries such as the UK, France, Greece, Poland,
Mexico, Spain, South Korea, India and Argentina.

Table 5.9 - Exports by section (Rm at    constant   2003 prices)
No        Section                          1998       2003    Avg. annual growth
17        Transport equipment             10,861     24,916         18.1%
16        Machinery & equipment           13,903     24,248         11.8%
9         Wood                             1,919     3,345          11.7%
14        Precious metals & minerals      47,559     74,624          9.4%
1         Animal products                  2,638     3,797           7.6%
18        Professional equipment           1,122     1,597           7.3%
15        Base metals                     30,705     43,373          7.2%
12        Footwear                          194        271           7.0%
11        Textiles & clothing              4,360     6,100           6.9%
4         Food                             8,027     10,953          6.4%
13        Articles of stone & cement       1,257      1,670          5.8%
5         Minerals                        25,751     33,784          5.6%
20        Art & antiques                    126        164           5.4%
2         Vegetable products               7,569     9,719           5.1%
6         Chemicals                       12,563     15,724          4.6%

                                      August 2004
Department of Labour                                       SETA Reestablishment: Draft 1
                                     PAGE 60




No             Section                   1998   2003     Avg. annual growth
19             Other products           3,679   4,562            4.4%
7              Plastics & rubber        4,146   5,091            4.2%
10             Paper                    5,615   6,748            3.7%
22             Special provisions         32      30            -1.6%
8              Leather products         1,576   1,426           -2.0%
3              Fats & oils                374    298            -4.4%
21             Unclassified             16,349  2,198          -33.1%
Total                                  200,325 274,638          6.5%


Table 5.10 - Exports by country (R million at constant 2003 prices)
 Country             1994        2003       Avg. annual      Ranking           Ranking
                                               growth          1994             2003
Nigeria               117       2,513          40.6%            37               21
Ghana                 148       1,113          25.1%            36               36
China                1,071      6,686          22.6%            22                8
Angola                570       3,363          21.8%            29               18
Tanzania              335       1,872           21.0%           35               25
UA Emirates           467       2,230          19.0%            31               22
Australia            1,223      5,605          18.4%            19               12
USA                  8,026     28,890          15.3%             2                1
India                 895       2,862          13.8%            24               20
Ireland               339       1,072          13.6%            34               37
Japan                7,619     23,671          13.4%             3                3
Netherlands          3,870     11,345          12.7%             7                5
Saudi Arabia          394       1,151          12.6%            33               34
France               1,824      5,312          12.6%            17               13
Spain                2,207      6,246          12.3%            13               10
Malaysia              627       1,702          11.7%            28               27
Germany              6,794     18,353          11.7%             4                4
Turkey                425       1,143          11.6%            32               35
Indonesia             515       1,235          10.2%            30               32
UK                  10,888     24,046           9.2%             1                2
Mozambique           2,578      5,607           9.0%            12               11
Italy                3,234      6,868           8.7%             9                7
Mauritius             992       2,041           8.3%            23               24
Singapore             841       1,718           8.3%            26               26
Israel               1,954      3,824           7.7%            16               17
DRC                   640       1,230           7.5%            27               33
Zambia               2,123      4,038           7.4%            14               16


                                    August 2004
Department of Labour                                                  SETA Reestablishment: Draft 1
                                           PAGE 61




Country                  1994         2003              Avg. annual   Ranking             Ranking
                                                          growth       1994                2003
Canada                   882          1,591                 6.8%        25                  30
Kenya                   1,217         2,164                 6.6%        20                  23
Belgium                 4,776         7,410                5.0%          5                   6
Taiwan                  3,331         4,976                 4.6%         8                  14
Malawi                  1,140         1,685                4.4%         21                  28
Zimbabwe                4,508         6,457                 4.1%         6                   9
Korea                   3,199         4,363                 3.5%        10                  15
Hong Kong               2,743         3,182                 1.7%        11                  19
Brazil                  1,474         1,329                -1.1%        18                  31
Thailand                2,046         1,631                -2.5%        15                  29
Total                  165,601       274,638               5.8%         n/a                 n/a
Note: Minimum 2003 export value of R1billion



The analysis of export growth since 1998 reveals interesting trends with regard to
the composition of South Africa’s trading partners. Between 1998 and 2003, a
significant number of countries that have traditionally not featured strongly as
export destinations, moved up the ranks due to very high export growth (see table
10). In this process, the following countries have witnessed healthy improvements
in their ranking (in terms of total value of exports):

!    China (from no 22 to no 8)
!    Nigeria (from no 37 to no 21)
!    Angola (from no 29 to no 18)
!    Tanzania (from no 35 to no 25)
!    France (from no 17 to no 13)
!    Spain (from no 13 to no 10)


5.7.      FORECAST KEY DRIVERS OF SECTORAL ACTIVITY

This section will discuss a number of factors that are regarded as key future drivers
within all sectors of economic activity. These drivers impact on either the demand-
side or the supply-side of the macroeconomic equation and may either emanate from
private sector activity or policy initiatives by government, whilst global economic
trends also have an impact.




                                          August 2004
Department of Labour                                                 SETA Reestablishment: Draft 1
                                          PAGE 62



5.7.1. Agriculture

A. Economic performance

Since 1998, the sector comprising agriculture, hunting, forestry and fishing, has
under-performed relative to the aggregate economy. The sector’s Gross Value
Added (GVA) amounted to R41.9 billion in 2003 (Source: SARB). The average
annual real growth in GVA between 1998 and 2003 amounted to 1.8%, compared to
2.8% for the economy as a whole.

Within the three sub-sectors, the dominant sub-sector for agriculture and hunting
outperformed the other two by a substantial margin (Source: Global Insight).

From the perspective of capital formation, agriculture has not performed well, with
an average annual growth rate of less than one per cent.

B. Strategic considerations

The near-famine conditions that had developed in large parts of South Asia during
the 1960s and that have persisted in parts of Africa for several decades, forced a
gradual shift in thinking about development priorities towards the significance of
the agricultural sector. A number of other compelling reasons also exist that support
the view of agriculture as a sector of strategic importance. These reasons are mostly
associated with the following characteristics of the agricultural sector in most
developing countries:

Dominant share of economically active population. In most of the world’s poor
countries, more than 50% of the economically active population is engaged in
agriculture. In very poor countries, the overwhelming majority of the population
depends on farming for its very livelihood.

Link to the economics of poverty. The fact that most of the world’s poor people are
engaged in agriculture implies that any meaningful policy interventions aimed at
poverty reduction should start with a thorough analysis of the economics of
agriculture and the causalities that are related to poverty indicators. Improvements
in the supply and demand equations for agriculture are an obvious route to the
alleviation of poverty.

The central role of land. Most economic sectors require some land to conduct their
operations, but in agriculture the availability of land that is suitable for cultivation is
the most fundamental factor that shapes the kind of farming technique and output.
Various studies have shown that agricultural productivity is bound to fall when land
reforms do not take cognisance of all the factors that influence productivity,
including access to working capital for equipment, storage facilities, seed, fertilizers
and irrigation. In many case studies, land reforms have also failed due to inadequate

                                         August 2004
Department of Labour                                                                SETA Reestablishment: Draft 1
                                                                 PAGE 63



skills levels amongst beneficiaries of such reforms, which inevitably causes land
ownership to become concentrated again after some time has elapsed.

Food production. For most manufactured products encountered in the world, some
form of substitute can be found, but no substitute for food exists. People can survive
fairly comfortably without most manufactured products, but not without food. The
importance of a resilient agricultural sector for a country that is committed to a
strategy of poverty relief is aptly illustrated by the fact that low income groups in
South Africa’s urban areas spend 50% of their income on basic food products,
whilst this figure climbs to 60% in rural areas (see figure 5.1).



     Figure 5.1: Relative weighting of food
     products in CPI - low income groups

                                                     Bread & flour -14
                       Other -21


                                                              Maize -8.5


          Fats & oils 5.3
                                                                   Red meat -10.8

              Sugar -6.7



              Vegetables -11.1
                                                       Other meat -14
                                   Milk prod. -8.6




Balance of payments stability. As alluded to above, agriculture has an important
role to play in the supply of foreign exchange that is required by developing
countries to finance the imports of machinery and equipment, as well as certain
intermediate goods used in the manufacturing sectors.

Labour. Agriculture’s size implies an important role for this sector in the provision
of factor inputs to other sectors, most notably labour. With between 50% and 70%
of the developing world’s population involved in the agricultural sector, the rural
population is an important source of labour for the urban sector, particularly during
periods of high and sustained output growth in secondary and tertiary sectors of
economic activity.

Source of demand. In many cases the farming populations of developing countries
constitute important markets for the output of the modern and industrialised urban
sector.



                                                               August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 64



The Strategic Plan for South African Agriculture (SPA), adopted by government in
2001, appears to acknowledge the strategic role of agriculture and it is foreseen that
a combination of land reform and small-scale farming initiatives will counter the
structural decline in agricultural employment that results from mechanisation and
technological advancement. The SPA will attempt to address crucial issues in the
political domain, such as land reform, whilst also accommodating the economic
needs of the sector, particularly with regard to a variety of support services and both
supply-side and demand-side interventions aimed at enhancing the industry’s
international competitiveness.

C. High employment levels

Table 5.11 clearly depicts the difficulty in arriving at an accurate employment figure
for agriculture. It is nevertheless clear from this information that agriculture
represent a significant proportion of employment in South Africa, ranging from
illiterate seasonal farm workers to highly qualified people such as state veterinary
surgeons and traders on the agricultural futures exchange markets.

Based on the mean averages of these surveys, the total employment figure for
agriculture amounts to 1,368,000 people, which represents more than 20% of formal
non-agricultural employment in the South African economy.

       Table 5.11 - Estimates of employment in agriculture
       Category and data source            Employ-
                                           ment ('000)
                      Formal Agriculture
       1. 1996 SSA Agricultural Survey         766
       2. 1997 Ntsika Survey                   819
       3. 1999 October Household Survey        906
       4. 1999 DoA Survey                      776
       5. 2001 SSA Labour Force Survey         549
       6. 2001 Census                          960
                     Informal Agriculture
       1. 1997 Ntsika Survey                   178
       2. 1999 October Household Survey        296
       3. 2000 SSA Agricultural Survey         1042
       4. 2001 SSA Labour Force Survey         359
            Secondary Agriculture (manufacturing)
       1. 1996 Manufacturing census             83
       2. 2001 SSA Survey (P0271)               65
                      Pest control & seeds
       SETASA estimate                          29



                                       August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 65



Wide-ranging differences in skills profiles occur within agriculture. Some sub-
sectors are male dominated (eg. livestock – 75%) whilst others are female
dominated (eg. fruit packing and processing – 84%). Another key difference is that
some sub-sectors consist mainly of SMMEs (eg. pest control) whilst others have
very few SMMEs (eg. fruit packing).

The most important general observation is that the sector employs a large
component of elementary workers. According to SETASA, elementary workers
account for between 63% and 81% of all employment and this figure is even higher
in primary agriculture.

This information is highly relevant when considering the possible amalgamation of
agriculture SETAs (based on the value chain principle), as such a move will
undoubtedly cause difficulties in the development and administration of learnerships
that are at polar opposites on the skills scale.

D. Availability of arable land

According to surveys conducted by the Development Bank of Southern Africa, more
than 10% of potentially arable land in South Africa is currently not being cultivated.

          Table 5.12 - Land Utilisation by Province ( '000 ha )
                          Grazing Arable        Arable        %       Arable land as
          Province
                                   (utilized) (unutilized) Unutilized % of total area
          Northern Cape    29089       218        236         52            1.3
          Limpopo           5984      660         510        43.6           14
          Western Cape      9106      2126        329        13.4           19
          Gauteng            390      406          33         7.5          23.4
          Eastern Cape     10172       602         42         6.5           5.4
          Free State        7385      3996        194         4.6          32.9
          North West        4377      2315        94          3.9          29.9
          Kwazulu-Natal     2600       835          5         0.6          15.1
          Mpumalanga        2889      1743          0          0           21.3
          Totals           71992 12901           1443        10.2          13.5

Provincial land utilisation indicators are depicted by table 5.12. In terms of total
area, the unutilised portion of arable land is more than 1.4 million hectares. In July
2004, government announced its intention to speed up the process of transformation
in the agricultural sector. Part of the new plans are to ensure that 30% of arable land
is owned by blacks by 2008.




                                       August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                         PAGE 66



E. New water schemes

In the long-term, the extension of irrigation schemes via the new National Water
Resources Strategy (NWRS) has the potential to increase the area of arable land that
is currently available for grazing, forestry or nature conservation. In this process,
consideration could be given to the substitution of relatively low value-added
secondary agriculture products by relatively high value-added products. The DoA
has acknowledged the fact that significant tracts of agricultural land owned by the
South African government is not being cultivated and policy initiatives to reform
land ownership could lead to a higher future level of land utilisation.

F. Summary: Agriculture

!   Recognition in the Strategic Plan for Agriculture that agriculture holds strategic
    importance with regard to food security, foreign exchange earnings and
    employment creation.
!   Land reform aimed at increasing the utilisation levels of arable land as well as
    BEE considerations are to be stepped up.
!   New water schemes that will also enhance land utilisation levels.
!   Due to the prevalence of primary workers in most agricultural sub-sectors, skills
    development initiatives will prove to be relatively cost-effective.
!   A growing population will lead to an ever-increasing demand for food products.
    The latter constitutes the bulk of household consumption expenditure for lower
    income groups, and the demand for food products is destined to continue
    growing.
!   Security issues are threatening agricultural output. A recent international survey
    has concluded that farming in South Africa is the world’s most dangerous
    occupation.
!   High levels of protection for farmers in Europe continue to act as a deterrent to
    increased agricultural output in developing countries.
!   The lifting of the European Union ban on genetically modified crops (GMCs)
    has provided a window of opportunity for cost-effective exports, as these crops
    usually produce higher yields.

          Implications for employment and skills
          Land reform programmes and the implementation of minimum wages in the
          agricultural sector have reduced employment levels in this sector.

          The availability of surplus labour with rudimentary skills, combined with a
          variety of initiatives (by the public and private sector) to assist emergent
          entrepreneurs in agriculture, will, however, counteract this negative trend.
          Employment will also benefit from new water schemes and the expansion of
          access to electricity. A strong demand will develop for skills related to
          export-orientation.


                                        August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                        PAGE 67



5.7.2. Mining and quarrying

A. Economic performance

The mining sector has been the worst performing key sector of the economy over
the past five years, and has, in fact, contracted in terms of real GVA between 1998
and 2003. Despite this negative trend, the sector seems to be optimistic over future
prospects and has recorded the highest capital formation growth rate in the economy
since 1998.

The South African mining sector experienced a period of significant expansion
during the 1970s and early 1980s, raising its contribution to the country’s total GVA
from 11% in 1952 to more than 20% in 1980. Since then, however, the sector has
consistently shrunk in terms of its relative contribution to the total economy, namely
to a level of only 7.1% in 2003.

These trends do not necessarily equate to an industry in demise, but rather reflect
the substantial degree of economic development that has taken place with regard to
increasing domestic value added in secondary and tertiary sector of economic
activity. Unfortunately, increased international competitiveness and enhanced
output capacity in other mining countries have necessitated a switch in mining
techniques toward more technologically advanced methods, resulting in an
inevitable decline in employment levels. Table 5.13 illustrates trends with regard to
mining production volumes between 1998 and 2003, clearly indicating the existence
of mixed fortunes within the different sub-sectors of mining.

Table 5.13 - Mining Production volumes (Index - 2000 = 100)
                                                                                     Avg. annual
Mining Products                 1998 1999 2000         2001     2002      2003         growth
Platinum group metals            96.7 104.7 100        110.6    115.9     129.0          5.9%
Building materials (mining)      79.2 75.6 100          97.9     99.2     97.5           4.2%
Manganese ore                    79.5  83.4 100         89.3     92.3     93.4           3.3%
Diamonds                        101.2 92.4 100         115.9    100.6     117.9          3.1%
Iron ore                         98.8  87.9 100        103.5    109.2     114.6          3.0%
Chrome                           97.3 102.3 100         82.6     96.6     111.1          2.7%
Nickel                          100.2 98.9 100          99.5    105.3     112.0          2.2%
Coal                             99.8 99.2 100          99.1     99.8     105.9         1.2%
Other non-metallic minerals     106.8 96.2 100          93.9     90.6      85.8         -4.3%
Gold                            108.0 104.8 100         91.7     92.4     86.6          -4.3%
Other metallic minerals         107.0 93.4 100          97.3     99.6     83.8          -4.8%
Copper                          121.0 105.8 100        104.0     94.7     88.3          -6.1%
Total, gold excluded            100.8 99.5 100         104.8    105.6     113.7         2.4%
Total, gold included            103.6 101.5 100        101.4    102.2     106.7         0.6%


                                      August 2004
Department of Labour                                            SETA Reestablishment: Draft 1
                                       PAGE 68




It is clear from these figures that the sub-sectors for platinum group metals,
manganese ore, diamonds, iron ore and chrome have performed well over the past
five years, but that gold and a variety of other mining activities have not grown at
positive real rates.

In its latest overview of the South African economy, the Department of Finance has
warned that the current strength of the rand exchange rate may impact negatively on
mining output in the medium term.

B. Strategic issues

The role of mining in the South African economy should be analysed from a broader
perspective than simply stating its contribution to GDP and employment. For more
than 100 years, this sector has provided the impetus for the development of an
efficient and extensive economic infrastructure, whilst it has also contributed
greatly to the establishment of secondary industries, particularly in manufacturing
activities related to steel end engineering.

In the event of adding the GVA contribution of all the elements of mineral and
metal beneficiation that are included in the manufacturing sector, the comprehensive
role of the mining sector in the economy becomes much larger.

Table 14: Trade balance by section (Rm at constant 2003 prices)
No Section                         1998       2003
14 Precious metals & minerals     44,617     69,167
15 Base metals                    21,795     32,617
4    Food                          3,722      6,075
2    Vegetable products            3,668      5,084
1    Animal products               1,148      1,992
10 Paper                           1,249      1,890
9    Wood                           731       1,740
21 Unclassified                   15,978      1,652
19 Other products                   545       1,108
5    Minerals                      8,249       965
8    Leather products               464        214
20 Art & antiques                    46        100
13 Articles of stone & cement     -1,446     -1,616
3    Fats & oils                  -1,542     -1,678
12 Footwear                       -1,243     -1,956
11 Textiles & clothing            -2,697     -2,064
17 Transport equipment            -1,081     -4,845
7    Plastics & rubber            -3,755     -4,963

                                      August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                        PAGE 69




No Section                             1998           2003
18 Professional equipment             -6,561         -7,503
6    Chemicals                        -8,621        -10,220
22 Special provisions                -12,661        -24,224
16 Machinery & equipment             -56,338        -46,202
 Total trade balance                  6,266         17,333


One of the most crucial contributions that mining makes to the economy is in the
area of foreign exchange earnings. This is aptly illustrated by the table 5.14, which
clearly shows that the absence of mining sector exports would literally destroy
South Africa’s balance of payments.

Between 1998 and 2003, the ratio of the mining industry’s trade balance to total
exports increased from 22.2% to 25.2%, and no other sector of the economy
remotely matches this net contribution to foreign exchange earnings.

The mining of metals and minerals in South Africa represents a well-established and
resourceful sector, which has developed international best practices in the areas of
deep-level mining technology and several downstream activities, most notably the
extraction of oil from coal. The sector possesses a large degree of technical
expertise and also has the capacity to mobilise capital for new developments.

In addition, mining is currently at the forefront with regard to new legislation
designed to broaden the base of meaningful economic participation to previously
disadvantaged persons. The Minerals and Petroleum Resources Development Act
aims, inter alia, to promote equitable access to the country’s mineral resources.

 It is the government’s intention to vest all future mineral rights in the name of the
state. As a direct result of this new legislation, virtually every mining company has
already engaged in some form of arrangement aimed at enhancing black economic
empowerment within the sector.

C. Summary: Mining

! The mining sector has recorded the highest capital formation growth of all sector
  in the economy since 1998.
! In terms of its contribution to foreign exchange earnings, no other sector
  remotely matches the performance of mining.
! Future research & development initiatives supported by the industry, particularly
  at Mintek and the CSIR, are expected to lead to an improvement in beneficiation
  chain within the mining sector.
! Improved economies of scale within SADC, as a result of the democratisation
  initiatives in Angola and DR Congo, will in future also provide impetus for


                                      August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 70



  beneficiation and the realisation of resource potential. The latter has been
  declared a policy imperative of NEPAD.
! The sub-sectors for iron platinum, diamonds, iron ore, and coal are expected to
  record relatively strong growth.
! BEE initiatives within the sector may lead to a slowdown in the rate of
  substitution of labour for capital (a form of technological unemployment).

Implications for employment and skills

The strength of the rand, combined with weak international prices for several
mining product groups, will erode employment in the local mining sector over the
next year, at least.

In the longer term the industry is well poised to take advantage of the strong capital
formation growth that has been recorded between 1998 and 2003. Sub-sectors that
are expected to generate an increased demand for skills are platinum-group metals,
manganese, iron ore and diamonds. Strong growth for beneficiated mining products
is likely to emanate from China and India, which should also benefit mining
employment.



5.7.3. Manufacturing

A. Economic performance

The manufacturing sector has performed reasonably well over the past five years,
recording average annual GDP growth of 2.5%, in real terms (source: SARB). This
figure is marginally below the growth rate for the economy as a whole between
1998 and 2003.

Although manufacturing has been surpassed by the sector for financial & business
services as the largest contributor to GVA, its role in the economy remains
strategically important by virtue of the multifarious linkages between the primary
and tertiary sectors. Strong backward linkages exist to the agriculture, mining and
energy sectors, with significant forward linkages to the construction, trade, transport
and financial services sectors, and it enjoys the status as the largest non-government
sector employer A particular issue that needs to be considered in any future
evaluation of employment trends within the manufacturing sector is the role that it
expected to play in further primary sector beneficiation initiatives, as well as
exports to Sub-Saharan Africa.




                                       August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 71



B. Strategic issues

Manufacturing is also a significant source of the machinery, equipment and vehicles
that are used – via fixed capital formation spending – to increase the country’s
production capacity, and the sector is becoming an increasingly important earner of
foreign exchange for South Africa.

There are indications that the rationalization process that the South African
manufacturing sector has been engaged in for the past eight years is starting to bear
fruit. While formal manufacturing employment in South Africa is estimated to have
declined by 14% (about 210 000 jobs) between 1996 and 2003, official estimates
indicate that employment levels have been relatively stable over the past two years.

C. Export performance

Although shares of world markets are still comparatively small (very few product
categories enjoying more than 1 percent of world market share, and the
manufacturing sector as a whole averages less than 0,5%), products produced by
South African manufacturing firms have – in recent years - been gaining market
share in more product categories than those in which shares are declining.

Export growth in some product categories has exceeded the growth in world imports
by a considerable margin - and exchange rate considerations aside – export
performance seems set to dominate future prospects for most sectors. SA Trade
Map data indicates that the sector earned around US$21 billion from exports in 2002
– which constitutes about three quarters of non-gold export earnings in that year.

D. Structural change in output

However, its relatively greater exposure to international competition and the
introduction of new technology at a production, as well as a product, level have
resulted in significant structural changes in both output and employment. In recent
years the effects of these structural changes have been exacerbated by extreme
exchange rate volatility, which firstly (through depreciation of the rand) succeeded
in significantly (and somewhat artificially) enhancing global competitiveness, and
which subsequently (because of the rand’s appreciation) caused that “new-found”
competitiveness to be undermined.

Manufacturing production volumes – as estimated by Statistics South Africa -
declined markedly in the wake of the Asian Crisis in 1997/98, but were boosted by
the production of durable goods in particular in 2002. In 2003, production volumes
fell by around 2,3%, but there are indications of a marginal recovery in the first half
of 2004. Capacity utilization in the sector has hovered around 80% for most of the
past decade, in spite of significant new fixed investment in some sectors – most


                                       August 2004
Department of Labour                                               SETA Reestablishment: Draft 1
                                         PAGE 72



notably plastics, machinery and equipment, electrical machinery, and motor
vehicles, parts and accessories.

The impact of new technological developments is becoming more pervasive within
most manufacturing sectors. Product life cycles are becoming shorter, with life
cycles for higher value added manufactured products expected to drop to less than
one year in the near term. Instead of re-tooling a whole factory on a less regular
basis, investment is increasingly geared towards more regular “re-programming” of
production facilities.

E. Skills implications

This means that operator skills have to incorporate computer usage and basic
programming skills. In some sectors, the increasing use of expensive advanced
computer equipment is forcing smaller firms to specialize in specific areas. This
lack of diversification significantly increases the risks to the longer-term survival of
such businesses in an era of rapid technological advancement and shorter product
life cycles, forces a degree of rationalization within the industry sector, and is also
making it easier (and sometimes necessary) for manufacturers to vertically integrate
the market. This latter trend might be in conflict with the trend towards outsourcing.

Against the backdrop of the pervasive importance of technology within many
manufacturing sub-sectors, the pace of change in products and production processes,
and increases in global competition, the skills needs of the sector will continue to
expand. It is estimated that the proportion of “highly skilled” employees in the
manufacturing and engineering sectors increased from 12,2% in 1995 to 13,5% of
total sectoral employment in 2001. The structural and technological changes
outlined above are likely to accelerate this trend in coming years.

A key future requirement of manufacturing workers is likely to be adaptability, and
the ability to be re-trained quickly and efficiently. This will require computer
operator and basic computer programming skills in addition to literacy and
numeracy. In the future, improved voice recognition software could reduce the
disadvantages associated with a lack of computer literacy in many South African
manufacturing operations, as interaction with plant and equipment could become
easier. Tactile sensors comparable to human sensations could be incorporated
within industrial robots within years – which would increase the potential for
mechanization within manufacturing and engineering sectors, and result in further
job redundancy. Biosensors capable of processing information could also start to
have an impact on manufacturing and engineering operations within the next six to
eight years.

The following four tables provide a ranking of manufacturing sub-sectors in terms
of four different norms, namely production volume growth, sales value growth,
sales values in absolute terms and export earnings. In combination, these methods of

                                       August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 73



ranking provide a concise overview of the sectors that are important to the national
economy in terms of their size, their recent growth performance and their
contribution to foreign exchange earnings.

Table 5.15 - Top manufacturing sectors by         volume growth (index, 2000 = 100)
Manufacturing Sectors                              1998 2003 Avg. Growth
Motor vehicle parts & accessories                   78.5 119.2   8.7%
Electricity distribution and control apparatus      88.0 129.7   8.1%
Motor vehicles                                      71.4 101.5   7.3%
Basic iron and steel                                83.5 109.4   5.6%
Professional equipment                              97.8 122.9   4.7%
Products of wood                                    86.7 107.3   4.3%
Other fabricated metal products                     94.7 116.9   4.3%
Basic precious and non-ferrous metals               82.3 100.9   4.1%
Wood and wood products                              90.5 109.2   3.8%
Plastic products                                   101.3 121.4   3.7%
Basic chemicals                                     88.7 105.7   3.6%
Special purpose machinery                          111.1 131.8   3.5%
Meat, fish, fruit, vegetables, oils and fats        97.6 115.5   3.4%
Sawmilling and planing of wood                      96.1 112.2   3.1%
Glass and glass products                           101.3 117.9   3.1%
Household appliances                                91.2 104.2   2.7%
Machinery and equipment                            104.6 118.5   2.5%
Paper and paper products                            89.2 99.1    2.1%
Total Manufacturing                                 96.9 105.7   1.8%


Table 5.16 - Manufacturing sales growth - top performers
Manufacturing Products                         1998   2003         Avg. growth
Jewellery and related articles                 2,518 4,753         13.5%
Parts and accessories for motor vehicles       12,656 22,005       11.7%
Motor vehicles                                 32,866 53,853       10.4%
Electricity distribution and control apparatus 2,400 3,856         9.9%
Petroleum refinery products and nuclear fuel 22,846 35,584         9.3%
Basic iron and steel products                  32,064 48,542       8.6%
Cement, lime and plaster                       3,149 4,664         8.2%
Basic chemicals                                8,465 12,525        8.2%
Other wood products, e.g. builders' carpentry 4,959 7,260          7.9%
Coke oven products                             1,138 1,611         7.2%
Slaughtering, preparing and preserving of meat 6,955 9,707         6.9%
Products of wood                               7,150 9,654         6.2%
Processing of fresh milk (pasteurising)        2,713 3,647         6.1%


                                      August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                      PAGE 74




Manufacturing Products                             1998    2003    Avg. growth
Cutlery, hand tools, general hardware              2,273 3,046 6.0%
Soap, perfumes, cosmetics                          8,888 11,733 5.7%
Steel pipe and tube mills                          2,886 3,807 5.7%
Medical, precision and optical instruments         1,624 2,111 5.4%
Metal containers, e.g. cans and tins               4,657 6,047 5.4%
Metal fasteners                                    868     1,115 5.1%
Stationery and other paper products                4,318 5,513 5.0%
Tyres, tubes and rethreading of tyres              4,096 5,213 4.9%
Distilleries and wineries                          7,735 9,627 4.5%
Plastic products                                   12,913 15,979 4.4%
Flour and grain mill products                      12,857 15,726 4.1%
Manufacturing sales: Total                         505,699 613,630 3.9%


Table 5.17 - Key manufacturing sub-sectors by sales values (Rm at constant
2003 prices)
Manufacturing Sector                          1998 2003 Avg. annual growth
Motor vehicles                               32,866 53,853    10.4%
Basic iron and steel products                32,064 48,542      8.6%
Other chemical products and man-made fibres 32,183 36,429      2.5%
Petroleum refinery products and nuclear fuel 22,846 35,584      9.3%
Fabricated metal products                    33,319 35,249      1.1%
Beverages                                    26,179 30,006      2.8%
Paper and paper products                     24,832 29,650      3.6%
Machinery and equipment                      25,314 28,624      2.5%
Meat, fish, fruit, vegetables, oils and fats 22,216 26,899      3.9%
Grain mill products and starches             19,358 23,473      3.9%
Other food products                          23,388 23,066     -0.3%
Parts and accessories for motor vehicles     12,656 22,005    11.7%
Basic precious and non-ferrous metals        15,783 18,982      3.8%
Electrical machinery and apparatus           15,702 17,329      2.0%
Plastic products                             12,913 15,979      4.4%
Flour and grain mill products                12,857 15,726      4.1%
Printing and publishing                      15,121 15,208      0.1%
Source: Quantec Research




                                     August 2004
Department of Labour                                               SETA Reestablishment: Draft 1
                                         PAGE 75



Table 5.18 - Key manufacturing exports by sub-sector (Rm at constant 2003
prices)
Manufacturing sub-sector             1998 2003 Avg. annual growth
Base metals                         30,705 43,373        7.2%
Transport equipment                 10,861 24,916       18.1%
Machinery & equipment               13,903 24,248       11.8%
Chemicals                           12,563 15,724        4.6%
Food                                 8,027 10,953        6.4%
Paper                                5,615 6,748        3.7%
Textiles & clothing                  4,360 6,100         6.9%
Plastics & rubber                    4,146 5,091        4.2%
Other products                       3,679 4,562        4.4%
Wood products                        1,919 3,345        11.7%
Articles of stone & cement           1,257 1,670         5.8%
Professional equipment               1,122 1,597         7.3%
Leather products                     1,576 1,426        -2.0%
Footwear                              194 271            7.0%
Art & antiques                        126 164            5.4%
Source: SARS Customs & Excise



F. Capital formation

A point of concern within manufacturing is the relatively low levels of capital
formation that have occurred since 1998. The sector’s real annual growth rate for
this indicator has been 2.3%, on average, between 1998 and 2003. One explanation
for this below-average trend is to be found in the abnormal degree of interest rate
and exchange rate volatility that occurred during this period, which added
significantly to the cost of capital.

G. Key sub-sector: motor manufacturing

Over the past decade, the motor vehicle manufacturing industry in South Africa has
established itself as the leading manufacturing sector in the economy. This has been
achieved despite a substantial reduction in tariff protection, mainly through
newfound economies of scale via a combination of increased domestic demand and
strong export growth.

Table 5.19 depicts sales trends for motor vehicles in terms of total units, whilst table
20 depicts sales values by three-digit SIC codes. The latter table confirms the strong
growth experienced by the motor manufacturing industry over the past five years.




                                       August 2004
Department of Labour                                                SETA Reestablishment: Draft 1
                                        PAGE 76



Table 5.19 - Number of motor vehicles sold
Year          Commercial
                                Passenger           Total units    Annual growth
      Light    Medium Heavy
1998 99,078 5,092       6,419 203,821               314,410       n/a
1999 96,169 4,668       5,568 189,370               295,775       -5.9%
2000 105,235 5,162      6,563 224,122               341,082       15.3%
2001 115,146 5,383      7,310 239,060               366,899       7.6%
2002 104,747 5,666      8,039 231,602               350,054       -4.6%
2003 104,884 6,116      10,211 247,259              368,470       5.3%
Source: NAAMSA


Table 5.20 - Value of sales   - transport equipment (Rm at current prices)
Transport Equipment             SIC No. 1998 1999 2000 2001 2002                         2003       Growth
Motor vehicles                  381     24,279 30,465 37,436 45,822 56,136               53,853     10.4%
Bodies (motors & trailers)      382     1,674 1,529 1,670 1,620 2,115                    2,381      1.0%
Parts & accessories             383     9,349 10,724 14,855 17,600 21,884                22,005     11.7%
Other transport equipment       384-387 2,457 2,789 3,247 3,373 4,370                    3,871      3.1%
Total                                   35,303 42,719 53,962 65,043 80,135               82,110     11.4%
Source: Statistics SA


Export growth has been nothing short of spectacular. Between 1997 and 2003,
exports of passenger cars have grown by an average annual rate of more than 50%.
As a result, the motor vehicle industry in South Africa has become a major net
earner of foreign exchange, as illustrated by table 5.21.

A mere five years ago, the industry was still a net user of foreign exchange, but over
the past two years, it has generated a combined trade surplus of R11.7 billion.
Strong export growth is expected to continue, with the figure of 126,000 units for
2003 likely to double over the medium term.

          Table 5.21 - Motor vehicle trade balance trends (Rm)
                                                             Trade
          Year              Imports          Exports        balance
          1998                2,683            1,566         -1,117
          2003               10,934           15,789         4,855


Key drivers of this growth will be Volkswagen’s new export programme to
Australia, and Daimler Chrysler’s decision to start exporting left hand drive Class C
Mercedes Benz cars. The impact of substantial tourism growth on the motor
industry has been reflected in an increase in the number of cars sold to motor rental
services, namely from 8.3% of the total in 1997 to 12.6% in 2002.

                                      August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                       PAGE 77




The Motor Industry Development Programme (MIDP) has been extended to 2012,
which will provide a stable long-term basis for future planning and investment in
the industry. Strong growth is expected for the industry over the medium term,
mainly as a result of:
! The expansion of exports
! Lower interest rates
! Stable prices as a result of a sharp decline in inflation
! Extended payment periods
! New model activity
! Accelerating economic growth

The sector has become strategically important with regard to its contributions to
other economic performance indicators, most notably employment creation and
value added in the economy as a whole via a comprehensive and relatively
sophisticated supply chain.

A survey of employment in the automotive industry was completed in 2003 by the
Fund for Research into Industrial Development, Growth and Equity (FRIDGE). The
results were encouraging, particularly against the background of increased
international competitiveness and the resultant trend for larger firms to continually
downsize the full-time labour component.

The latter is also occurring in South Africa, a practice which is mostly accompanied
by outsourcing and sub-contracting, but often also equates to more automation in
the business processes. Despite these trends, the South African motor industry has
managed to consistently increase its total employment over the past four years, with
employment growth expected to continue into 2003 and beyond. This is illustrated
by tables 5.22 and 5.23.

    Table 5.22 - Employment in the automotive industry
     Automotive sub-sector       1999    2000      2001            2002            2003
    Assembly                     32,000   32,300    32,700          32,370          31,700
    Components                   67,200   69,500    72,100          74,100          75,000
    Tyres                         6,670    6,575     6,300           6,000           6,000
    Motor trade                 175,000 180,000 182,000            185,000         191,000
    Total                       280,870 288,375 293,100            298,070         303,700
    Source: FRIDGE




                                      August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 78



Table 5.23 - Employment - transport equipment
Transport Equipment sectors SIC No. 1997 1998 1999 2000 2001 2002
Motor vehicles                      381 32,487 31,901 32,139 34,146 32,074 31,290
Bodies (motors & trailers)          382 8,195 8,942 7,936 9,031 8,584 8,665
Parts & accessories                 383 32,549 34,649 34,779 33,907 34,296 35,346
Building & repair of boats          384 2,396 2,755 2,798 3,223 2,852 3,050
Railway locomotives & stock         385 3,615 2,822 1,773 2,042 2,409 2,609
Aircraft                            386 5,280 4,057 5,080 3,589 5,960 5,817
Other transport equipment           387 426    1,056 823     678    863    1,098
Total                                   84,948 86,182 85,328 86,616 87,038 87,875
Source: Statistics SA


It is clear from a comparison between these two tables that the SSA data on formal
sector employment in the transport equipment sector (SIC Code 38) is significantly
understated. Between 1999 and 2002, the FRIDGE data suggests employment
growth in the automobile industry of 6.1%. The SSA data suggest growth for the
transport equipment sector of 3.4% over the period 1997 to 2002.

One of the key institutional drivers behind the success of the motor industry is
found in the activities of the Gauteng Automotive Cluster (GAC), the Automotive
Supplier Park (ASP) and the Automotive Industry Development Centre (AIDC).
Together with associated initiatives as well as a range of companies or associations
directly or indirectly associated with the automotive sector, these institutionalised
motor industry initiatives are playing a catalytic role in the development and growth
of the industry.

The overall objective of the GAC is to contribute to the establishment and
sustenance of a viable and competitive local automotive industry. The cluster is
located principally in the industrial areas of Rosslyn and Waltloo, north of Pretoria
but extends to Brits in North West Province, Witbank in Mpumalanga and the City
of Johannesburg and Ekurhuleni metropolitan areas. The cluster is a loose
agglomeration of original equipment manufacturers (OEM’s) such as BMW, Ford
(including Land Rover, Mazda and Volvo), Fiat and Nissan that undertake local auto
assembly and manufacture as well as first and other tier suppliers of components
and accessories and in addition, service providers and industry associations. The
GAC accounts for 45% of all motor vehicles manufactured in South Africa

The supplier park seeks to group different technologies, suppliers and service
providers at a single site in to maximise logistic and other efficiencies for local
motor manufacturers heavily reliant on just-in-time (JIT) and just-in-sequence (JIS)
operations. In addition, the site confers benefits for supplier tenants by linking them
to service providers such as logistics companies and allowing them to leverage the
benefits of shared services and new technologies.


                                       August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                        PAGE 79




The location of the AIDC IN THE Eastern Cape is important. Three assembly
plants, those of Delta/GM/Opel, VW and DaimlerChrysler/Mitsubishi, are located in
the province. The Eastern Cape also has over 150 component manufacturers, various
raw material suppliers and other manufacturers that have links to the industry.

The largest component manufacturers in the region include the Ford Engine plant,
Dorbyl Automotive Group, Shatterprufe, Armstrong Hydraulics, tyre manufacturers
Bridgestone/Firestone, Goodyear and General Tyres, Hella, Lear, Johnson Controls,
Leoni and Kromberg & Schubert. Catalytic converter manufacturers in the Eastern
Cape produce approximately 8% of world production.

H. Summary: Manufacturing

!   Output volumes have increased by 1.5% during the first quarter of 2004 and the
    sector has recovered to some extent from the negative effects of the strong rand
    in 2003.
!   The sector has experienced positive GVA growth over the past five years,
    namely 3.6%
!   Strong export growth has occurred since 1998 in the sectors for transport
    equipment, machinery & equipment, wood products, base metals, professional
    equipment, food, and textiles & clothing. Several of these sectors benefited from
    AGOA.
!   In terms of total sales value, the key sub-sectors are transport equipment, iron
    and steel products, chemicals, petroleum refinery products, beverages, paper,
    machinery & equipment and a variety of food sub-sectors. Several of the largest
    manufacturing sub-sectors possess strong linkages with the primary sectors.
!   Volume growth trends over the past five years reflect a ranking that corresponds
    closely to that for total GVA contribution.
!   The sector represents a key baseline economic structure with a multitude of
    high-technology linkages with all other sectors of economic activity. Several
    sub-sectors possess high value added and employment multipliers.
!   In terms of sales value growth, it is significant that several sectors seem to be
    benefiting from specific incentives introduced by the DTI. These include motor
    vehicles and jewellery.
!   Government’s strategic investment incentive programme has supported capital
    expenditure of more than R27.3 billion over the past decade.
!   Technological advancement and increased international competitiveness will
    continue to change the skills profile in this sector towards higher competency
    levels.




                                      August 2004
Department of Labour                                                SETA Reestablishment: Draft 1
                                         PAGE 80



Implications for employment and skills

Structural and technological changes are expected to continue within most sub-
sectors of manufacturing, which will accelerate the trend towards higher skills
levels. In particular, demand will be strong for skills related to computer operator
and basic computer programming skills. Industries involved with significant export
sales will also require skills related to all aspects of international trading relations,
including a sound knowledge of currency risks, insurance and marketing.

Sub-sectors related to transport equipment, particularly motor vehicles and
components, are expected to continue recording employment growth, due to an
anticipated increase in domestic demand as well as strong export growth. Several
other sub-sectors may experience employment growth as a result of incentives such
as industry clusters and industrial development zones. A recovery of world growth
should enhance the demand for skills in certain industries, particularly those that are
already benefiting from AGOA.



5.7.4. Electricity and water

In terms of SARD data, the sector for electricity, gas & water has recorded below-
average real GVA growth since 1998, namely 1.6% (compared to 2.8% for the
economy as a whole). Capital formation growth in this sector has been negative, in
real terms, since 1998, and this trend is explained by the high levels of capital
intensity in the sector, combined with adequate excess capacity (in 1994) and
government’s decade-long policy of fiscal restraint. Between 1998 and 2003, this
sector has shrunk in terms of its contribution to total GVA, namely from 2.5% to
2.3%.

A. Electricity

Impending capacity constraints faced by Eskom have prompted the announcement
of plans for large-scale capital expenditure on new electricity generating capacity.

Since 1993, the total nominal power capacity of power stations has grown by only
5.7%, whilst the peak demand on Eskom’s integrated system has grown by 36%. As
a result, a number of previously mothballed power stations are expected to be
refurbished and made operational again within the next two to four years.
They are:
! Camden (Ermelo);
! Grootvlei (Balfour); and
! Komati (Middelburg, Mpumalanga).



                                        August 2004
Department of Labour                                                                  SETA Reestablishment: Draft 1
                                                                 PAGE 81



It is envisaged that South Africa would require at least one more power station with
a 3,600 MegaWatt capacity before the end of the decade, and thereafter another one
every three years. According to price estimates conducted by Eskom, the new
capacity will cost eight times as much as the existing capacity.

Government’s declared commitment to supply poor families with 50kW of free
electricity a month will undoubtedly hasten the need to create new electricity
generating capacity. Although plans have been mooted to seek intra-regional
solutions through, inter alia, the restoration of and development of new
hydroelectric generators in the Democratic Republic of Congo, the civil war in this
country, combined with the long-term nature of such programmes, will place
significant pressure on Eskom and the stakeholders in the new institutionalised
electricity supply chain to act quickly.

The implications for skills development are fairly obvious, but a further issue that
requires due consideration is the fact that the average labour remuneration in the
electricity sector enjoys by a substantial margin the highest level of average salaries
and wages in the economy (in absolute terms). This is illustrated by figure 5.2.


     Figure 5.2: Average monthly salaries &
     wages by sector (2003)
       Electricity & water

           Financial inst.

    National & prov. Govt.

      Transport & comm.

       Local government

                   Mining

           Manufacturing

         Trade & catering

            Construction


                             0   2,000   4,000   6,000   8,000 10,000 12,000 14,000
                                                  R




The electricity sector in South Africa relies on a variety of highly skilled
professions, which are in short supply in South Africa, and requires a so-called
“retention premium”. Staff costs constitute a significant portion of the total costs
within the electricity value chain. For the three different key stages, the
contributions to total costs are as follows:
! Generation – 15%
! Transmission – 33%
! Distribution – 38%


                                                               August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                       PAGE 82




The further implication is that, unless adequate skills are available during the
imminent future period of capital formation and expansion, the electricity sector
will exercise undue inflationary pressure on the South African economy.

B. Water

An indicator of growth trends in the water sector is the storage capacity of major
South African dams. According to the Department of Water Affairs and Forestry
(DWAF), total capacity at the beginning of 2001 stood at almost 30 billion cubic
metres with dams, on average, more than 90% full (see table 4). Between 1960 and
1990, South Africa’s ground water resource capacity was expanded from a capacity
of 5 billion cubic metres to almost 28 billion cubic metres.

Between 1990 and 2000, however, the average annual growth in capacity expansion
has been less than one per cent. In the future perspective of water requirements
contained in the National Water Resource Strategy (NWRS), it is acknowledged that
water deficits in the Water Management Area’s (WMAs) are likely to increase and
surpluses are likely to diminish. It is not surprising, therefore, that the DWAF
intends to construct a number of new water schemes, the completion dates of which
are projected to run until 2015.

Water shortages act as major impediments to social and economic development,
particularly in arid regions with increasing populations. In appreciation of the fact
that South Africa is a semi-arid country and that 11 of the 19 WMAs are facing a
water deficit, the South African government has recently completed a thorough
overhaul of legislation pertaining to the country’s water resources.

Other key characteristics of the water sector in South Africa are:
! a high level of dependency on surface water in most of the developed regions;
! ground water plays a major role in rural water supply, but large porous aquifers
   occur only in a few areas;
! the four rivers that collectively drain almost 70% of the land area are shared
   with other countries (Limpopo, Inkomati, Pongola and Orange);
! the natural availability of water across the country is uneven and is compounded
   by a strong seasonality of rainfall;
! a large degree of volatility exists with regard to storage levels in major dams
   (see figure 5.3)

The key issue for labour policy is to be found in the declared commitment by
government to supply 25 litres of water per day free of charge to poor households
(as confirmed by local government department director-general Lindiwe Msengana-
Ndlela in May 2004). This will undoubtedly lead to strong growth in the demand for
water for many years to come, and a severe drought could derail these plans.


                                      August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                           PAGE 83



Fortunately, the NWRS has responded to the urgent need for increased investment
in water provision by identifying a number of major future water schemes.

Those that are mainly related to agricultural use are expected to be completed
between 2007 and 2011 at an estimated cost of R1.8 billion. Schemes that are
primarily designed for domestic, urban, industrial or mining purposes are scheduled
for completion between 2005 and 2015 at an estimated cost of R10.1 billion.


     Figure 5.3: Average annual % change in
     storage levels of dams (5-year intervals)

        2000
        1995
        1990
        1985
        1980

        1975
        1970
        1965
        1960
        1955

      -20       -10    0       10   20      30         40
                           %



Since 1994 the DWAF has recorded a ratio of one new job created for every R11
000 of capital expenditure (Botha: 2002). Although most of the new water
infrastructure projects identified by the NWRS are capital-intensive by nature, their
completion will enable the launch of a multitude of smaller water service projects.
In the event of applying the job creation/capital expenditure ratio existing in 2002 to
the planned new projects, more than one million new jobs may be created in future
in the water sector.

The Trans Caledon Tunnel Authority (TCTA) has already awarded a contract for the
construction of the R550 million Berg River Dam, thereby starting the largest water
infrastructure project currently being undertaken in the country. The TCTA was
mandated in 2002 to implement and fund the R1.8 billion Berg Water Project. The
aim of the dam is to increase the Western Cape’s water reserves by 18 percent. The
project is expected to lead to the creation of 600 jobs.




                                         August 2004
Department of Labour                                                SETA Reestablishment: Draft 1
                                           PAGE 84



          Implications for employment and skills

          The huge discrepancy between low electricity capacity growth and strong
          growth in demand will inevitably lead to a reversal of the negative
          employment trend within the electricity sector. Further transformation of
          government’s regulatory role and the increased involvement of local
          governments in establishing viable taxation bases within relatively poor
          communities, will also lead to an increase in demand for skills in this sector.

          Other key drivers of anticipated employment growth in the electricity sector
          include the sub-contracting policies being implemented by Eskom, which
          will benefit electrical contracting firms, and the need for the sector to
          increase compliance with new environmental regulations. Industry research
          indicates that future skills shortages may arise in a number of highly
          specialised areas, including environmental impact assessment, socio-
          economic impact assessment, nuclear technology, information technology,
          and research & development in the field of renewable energy.

          In the area of water, the commitment by DWAF to spend more than R10
          billion on new water schemes over the next ten years will enhance skills
          demand in all areas of water supply and management of facilities. The switch
          to a new institutionalised system of national water management will also
          benefit employment in the sector.



5.7.5. Construction

A. Economic performance

Construction activity in South Africa was adversely affected by the sharp increase
in interest rates that occurred towards the end of 1998, and no growth occurred over
the period 1998 to 2000. Since then, the sector has started to recover, and the 2003
real rate of increase in GVA amounted to 5%. Average annual growth over the past
five years was 2.5%, marginally below the figure for the economy as a whole.

In terms of its contribution to the country’s total GDP, construction has diminished
marginally from a level of 2.7% in 1998 to 2.6% in 2003.

B. Future growth perspective

Following a decade of fiscal restraint, during which time government managed to
lower the budget deficit/GDP ratio from more than 9% to below 3%, the last two
national budgets have signalled a clear change in policy emphasis towards one of
moderate fiscal expansion.

                                         August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                            PAGE 85




This trend became evident in 2003 through strong growth performances for all of
the capital formation components relating to the public sector, as illustrated by the
table.

                 Table 5.23 - Real increase in selected components of gross fixed
                 capital formation - 2002 to 2003
                  Components                                            %
                 General government (total)                               9.4
                   - economic infrastructure                              5.2
                   - social infrastructure                                8.5
                   - economic services                                   17.9
                 Public corporations                                     17.4
                 Source: SA Reserve Bank



Arguably the most notable catch phrase in the budget speech was Mr Manuel’s
promise to spend R1 trillion on improving services over the next three years. It is
perhaps necessary to point out that South Africa’s broad-based economic
performance since 1993 deserves much of the credit for the fortuitous return to
fiscal stability. Last year marked the 11th successive year of positive real GDP
growth, and for the past decade, the corporate sector has been the only significant
contributor to the country’s net savings effort, whilst its positive stance towards the
new South Africa has been illustrated by significant investments in new productive
capacity.

Government’s promises to speed up expenditure on the provision of infrastructure
should also be seen against the reality of its serious neglect of capital expenditure
over the past decade. In 1995 public sector capex represented 1.6% of GDP, which
is paltry compared to levels of between 3% and 7% for most emerging market
economies (including South Korea, Chile, Egypt and Malaysia).

By 2002, this ratio had dropped to only 1%, with the private sector contributing
almost 90% of the country’s total capital formation. It is abundantly clear, therefore,
that a more expansionary fiscal stance has been long overdue. The accompanying
figure shows that public debt in South Africa no longer represents a growth
constraint. This trend clearly demonstrates the huge opportunity for demand-led
growth as a result of latent fiscal resources.

A ministerial report by the Department of Public Works (DPW) released in June
2004 has indicated the possibility of expenditure of more that R2.3bn on new space
for government departments over and above the R1 billion it was already spending
on leased offices. In addition, the DPW needed to fix or sell dilapidated government



                                           August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 86



buildings while facing a critical staff shortage, whilst it remained under pressure to
speed up transformation in the building and construction industries.

In its strategic plan to 2007, tabled in parliament, it emerged that most buildings in
the property portfolio it managed were in a state of serious disrepair due to
insufficient planned and preventative maintenance over decades. The report cited
staff shortages as being most severe at the professional and managerial levels.

 Four new branches had been created to deal with policy, asset management,
regional operations and the expanded public works programme. All new employees
had been redeployed to these new branches and the department had started filling
800 vacancies. The report acknowledged that an accurate national register of state-
owned properties had still not been completed because such assets were scattered
around the country.

The 2004 status report on the construction industry tabled in parliament in June
2004 by the Construction Industry Development Board (CIDB) provided a fairly
sober assessment of the state of the industry. According to the CIDB, the industry’s
ability to meet key development challenges was currently being constrained by the
following (inter alia):

!   A lack of skills (in general). One specific example is the fact that design
    professionals produced by the education system also didn’t know enough about
    the construction process and often produced designs that were unworkable or too
    costly
!   Under-spending by some government departments
!   In other cases, departments make use of capital budgets to cover deficits on
    operational budgets, which often leads to the cancellation of tenders
!   Declining home occupancy rates, which was increasing the pressure on the
    demand for affordable housing
!   The high cost of construction materials
!   A risk-averse attitude to the construction sector by banks
!   Increased urbanisation
!   An unacceptable high level of liquidations among construction companies
!   A protracted procurement processes for public-private sector partnerships

According to the report, even established companies faced skills shortages, resulting
in the use of more, and usually more expensive, overseas consultants, while
technical colleges and universities were not paying enough attention to producing
enough graduates in construction skills suited to modern-day needs.

Positive trends have surfaced in the office rental market. According to the latest
office vacancy survey released by the SA Property Owners' Association, office
vacancies declined in the central business districts (CBDs) of all four major cities in
the country in the first quarter of 2004. The survey revealed a mixed performance in

                                       August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 87



office nodes in these four cities, with Johannesburg and Durban recording the most
broad-based improvements in occupation rates.

                 Table 5.25 - Office vacancy trends in metro poles (%)
                  Metro pole                           Q4 2003 Q1 2004
                 Johannesburg                          25.7     25.1
                 Pretoria                              9.3      4.8
                 Cape Town                             12.6     12.4
                 Durban                                22.1     16.9


C. Summary: Construction

Medium-term prospects for growth in employment in the construction sector are
exceptionally favourable as a result of the following developments:

!   An expansion of government infrastructure projects, particularly in the area of
    Water Management Areas (WMAs).
!   Increased budgetary support for the Expanded Public Works Programme
    (EPWP).
!   The installation of facilities to support the industrial development zones,
    especially Coega.
!   An imminent upgrading of the facilities at the Durban container terminal and
    Durban Harbour.
!   The announcement by Transnet that it intends spending R14 billion over the next
    decade to upgrade the country’s rail transport facilities.
!   Preparations for the Soccer World Cup in 2010, which will witness the
    upgrading of existing sports stadiums and the building of several new ones
!   The Gautrain project, which is due to commence before the end of 2004.
!   An expansion of public/private partnerships in the area of construction activity,
    which promises to introduce innovating funding ideas to future infrastructure
    projects.
!   A clear indication by various research reports confirming the need for a higher
    output of suitably qualified construction sector workers (at virtually all levels).
    This conclusion is supported by the Construction Industry Development Board
!   Increased budget allocations have been made towards housing infrastructure.
    Since 1994, approximately 500 new houses have been built for poor people every
    working day under the housing subsidy scheme and 22 000 emerging contractors
    have been established. These figures are expected to accelerate over the next five
    years.
!   The total number of 1.6 million houses that have been completed under this
    programme has created an asset base of R50 billion for historically marginalised
    people. Future access to credit via collateral based on intrinsic property values
    will stimulate construction activity through incremental home improvements.


                                       August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 88



!   Increased occupancy levels for office space suggest that the medium-term
    prospects for the construction of commercial office parks are improving.

Implications for employment and skills

Following a disappointing growth performance over the past five years, the
construction sector is poised to benefit substantially from a number of new
developments. These include the successful Soccer World Cup 2010 bid, which will
exert a positive impact on a wide range of construction activities, the Expanded
Public Works Programme, the Gautrain Project, the development of the Coega
industrial zone and extensive civil engineering activity associated with dam
building.

The huge asset base that has been established through the completion of more than
1.6 million low-cost houses over the past decade will inevitably provide the banking
sector (which is in the process of transformation) with a significant collateral base
to extend mortgage loans to previously unbanked households, thereby assisting the
process of incremental home improvement and upward mobility within the property
market. This is expected to stimulate the establishment of emergent entrepreneurs in
the building construction sector.

Industry research indicates that future employment growth will be concentrated in
the areas of relatively high skills, including project management, logistics control,
architectural design, civil engineering and cost control.

In addition, housing delivery is set to accelerate as more fiscal resources become
available. The prospects of relatively low interest rates over the next five years will
stimulate home ownership across all income brackets, and current indicators of
residential construction activity point to a sustained period of expansion, which will
enhance the demand for skills at occupational levels in the industry.



5.7.6. Wholesale & Retail Trade, Catering & Accommodation

A. Economic performance

The sector comprising wholesale & retail trade and activities relating to hotel and
restaurants has maintained its 13.3% contribution to the country’s total GVA over
the 1998 to 2003 period. Average annual real GDV growth over the past five years
has been identical to the figure for the economy as a whole, namely 2.8%.

In terms of capital formation, however, the sector has performed exceptionally well,
recording average annual real growth of 5.6%, which is more than double the figure
for the economy as a whole.

                                       August 2004
Department of Labour                                                                   SETA Reestablishment: Draft 1
                                                           PAGE 89




B. Wholesale & retail trade

Figure 5.4 illustrates the sound performance of both retail and wholesale sales over
the past decade, with retail sales activity gaining considerable momentum over the
past four years. The sector’s relatively solid growth performance is also reflected in
consistent double-digit annual increases in the turnover figures for virtually all the
listed companies in the sector.


     Fig. 5.4: Retail & wholesale sales
     trends
           Index (2000 = 100)
     120

                                                                  Retail
     110


                                                                           Wholesale
     100



      90



      80
            93    94     95     96   97   98   99   '00     '01      '02      '03




C. Tourism

The second key component of sector comprising trade, catering and accommodation
is closely related to tourism activities. South Africa is in the process of
consolidating its new status as one of the world’s preferred international tourism
destinations. Official statistics indicate that overseas tourist arrivals in South Africa
increased at an average annual rate of 5.8% between 1996 and 2003, which is
virtually double the real growth rate for the economy as a whole. In 2002 the rate of
growth of overseas holiday visitors was 12.8% - a year in which world tourism
activity declined marginally.

The events of September 11, 2001 started a slowdown in global tourism. Since then,
matters have not improved, mainly as a result of the war on Iraq, a deepening of the
Middle East crisis, a continuation of anti-American terrorism, the outbreak of the
Serious Acute Respiratory Syndrome disease, and sluggish world economic growth.

The result has been manifested in the first decline in the global tourism industry in
more than two decades. Quoted in a recent international survey of tourism trends, a
spokesperson for the World Tourism Organisation has referred to the current climate
as “the worst in living memory”.

                                                          August 2004
Department of Labour                                                 SETA Reestablishment: Draft 1
                                             PAGE 90




Until 2001, international tourism had enjoyed a 20-year period of uninterrupted
growth, averaging more than 4% per annum. The last two years, however, had
witnessed negative growth and the World Travel and Tourism Council is predicting
a paltry 1% growth for 2003.

Speaking at the recent local tourism Indaba in Durban, President Thabo Mbeki
highlighted South Africa’s new-found ability to buck the international tourism trend
and alluded to a more pro-active government role in designing policies aimed at
complementing the tourism industry. A feature of recent tourism trends is the
growing importance of Cape Town airport, which for almost 30% of all overseas
arrivals.

The United Kingdom remains South Africa’s foremost source of overseas tourist
arrivals, accounting for almost one quarter of total arrivals. The accompanying
tables list South Africa’s top twelve sources of overseas tourist arrivals (in terms of
the total for 2003), as well as the total number of foreign travellers arriving in South
Africa for holiday purposes over the past seven years.

                       Table 5.26 - Arrivals of foreign visitors (holiday)
                        Year                              No ('000)     Growth
                       1996                               3,938         n/a
                       1997                               4,002         1.6%
                       1998                               4,731         18.2%
                       1999                               4,991         5.5%
                       2000                               4,989         0.0%
                       2001                               4,962         -0.5%
                       2002                               5,596         12.8%
                       2003                               5,853         4.6%
                       Average annual growth = 5.8%


                       Table 27: Foreign arrivals by country of residence - 2003
                       Country of residence                           Arrivals
                       Country                                       no ('000)
                       UK                                            463
                       Germany                                       261
                       US                                            193
                       France                                        130
                       Netherlands                                   123
                       Australia                                     73
                       Italy                                         50
                       Belgium                                       44

                                            August 2004
Department of Labour                                               SETA Reestablishment: Draft 1
                                                PAGE 91




                       India                                       43
                       Switzerland                                 36
                       Canada                                      36
                       China                                       33
                       Note: Excludes Africa



It is heartening to note that several decision-makers in the local tourism industry
have indicated the importance of guarding against complacency. Competing tourism
destinations in the Southern Hemisphere would have taken note of South Africa’s
sterling growth performance over the past eighteen months.
As international tourism continues to consolidate itself, it has become crucially
important for all the local role players in the industry to co-ordinate their marketing
efforts, particularly through the pooling of resources and the maximum use of
branding opportunities.

Government has embarked on several initiatives in this regard, and it is anticipated
that the Soccer World Cup will provide significant further impetus to growth in the
tourism industry.

D. Summary: Trade, catering & accommodation

!   Sustained economic growth and the development of many new retail complexes
    since 1994 have assisted the growth performance of the wholesale & retail
    trading sectors.
!   Exceptionally high capital formation growth rates over the past five years is
    likely to provide further momentum to the sector’s future growth performance.
!   Further diversification of motor vehicle brands in South Africa will boost
    employment growth within this sub-sector.
!   International tourism arrivals are set to continue growing as a result of socio-
    political stability in South Africa, the high retention rates applicable to foreign
    tourists, and the Soccer World Cup 2010. Fact-finding and preparatory missions
    from the soccer fraternity of countries that expect to qualify for 2010 may start
    arriving several years in advance of the event itself.
!   The heightening since September 11, 2001 of international terrorism has
    benefited the South African tourism industry through an international perception
    of the country’s relatively safe geographical location, as well as the neutrality of
    South Africa’s foreign policy stance.
!   Total employment in the hospitality industry is estimated at more than 1.1
    million, and the ratio of hospitality industry employment to aggregate
    employment in the economy has increased from 19% in 1997 to 24% in 2003.
!   Continued tax relief for low- and middle-income earners has contributed to a
    lowering of the personal tax/gross salary ratio for the economy as a whole. This
    trend is expected to continue for several years to come and will provide further
    impetus to retail sales growth.

                                               August 2004
Department of Labour                                               SETA Reestablishment: Draft 1
                                         PAGE 92




Implications for employment and skills

Employment growth of more than 9% has been recorded in the motor trade sector
over the past five years, boosting the total number of employees to 191,000. With
the prospect of stable and relatively low interest rates, combined with a stable
domestic currency, it is anticipated that strong employment growth will occur in this
sub-sector over the next five years, at least. The pending introduction of various
new motor vehicle models into the South African market will further stimulate this
growth.

 Due to the increased levels of competition amongst motor vehicle dealers, skills
requirements will tend to become more focussed on client relationships, which
inevitably also entails some degree of technical knowledge regarding vehicle
attributes. The industry is under pressure to continue changing the demographic
profile of its workforce and significant opportunities exist for broad-based BEE
within this sub-sector.

Wholesale and retail trade activity in South Africa is strongly correlated to trends in
personal disposable income. The consistent decline in the ratio of income & wealth
taxes to gross salaries & wages in the economy (from 23.4% in 1999 to 19.8% in
2003) has not yet been reflected in the same degree of increase in household
consumption expenditure, indicating an increase in the country’s savings propensity.
The latter trend has been confirmed during the first half of 2004, in terms of a
reduction in banking sector assets.

 In economic terminology, these trends indicate that a so-called “wealth effect” is
manifesting itself in the economy, which will eventually result in a structural
increase in demand. In this scenario, strong retail sector growth may be expected.
Several retail groups have indicated their intention to establish more outlets in urban
townships and the future demand for skills will be concentrated at all levels of retail
management, especially in the areas of merchandising, marketing and IT
applications.

Strong employment growth is forecast for the hospitality industry component of the
sector. Since 2001, South Africa’s tourism sector has outperformed most other key
tourist destinations, partly as a result of being perceived as a country that is
relatively isolated from the occurrence of acts of international terrorism, and partly
because of the successful marketing of the country’s well-established and
sophisticated tourism facilities.

Industry research has indicated employment growth in the tourism sector of almost
14% between 1997 and 2003. En route to the hosting of the 2010 Soccer World Cup,
it is anticipated that this growth trend will continue. Significant training needs exist
within the broadly defined tourism sector, due to the very high proportion of

                                       August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                        PAGE 93



unskilled workers (48% of full-time employees), as well as the very high level of
part-time employees (42% of total employment). Only 4.5% of employees are
classified as managers.

It is generally accepted that, in order to become truly competitive, the South African
tourism industry needs to focus on multi-disciplinary skills development.


5.7.7. Transport, storage & communication

A. Economic performance

The sector comprising activities related to transport and communication has been
the best performer in the economy, recording average annual GVA growth of 6.9%
between 1998 and 2003. Although the sector has experienced negative capital
formation growth since 1998, this trend should be seen against the background of
the substantial capital outlays prior to 1998, during which time SA Airways
expanded its fleet of passenger jets and cellular phone operators were establishing
networks.

As a result of the sustained strong growth of the past five years, the sector has
increased its contribution to the country’s total GVA from 8.3% to 10.1%.

B. Transport

During the 2004 budget vote of the Department of Transport (DoT), a firm
indication was provided of a new commitment towards investment in transport
infrastructure. In his address to Parliament, Minister Jeff Radebe said that current
and projected economic and social demands on the transport sector were greater
than the outputs that the sector and its components could adequately manage. As a
result, the transport sector and its components, particularly its public sector
constituents, need to be overhauled, transformed and re-energised to meet growing
and expanding challenges.

The background to the DoT’s current attempts to revitalise the transport sector is
related to South Africa's dwindling capacity to deal with an ever-increasing trade
environment. A cursory analysis of the DoT’s budget vote, as well as its strategic
plan and the 2004 National Travel Survey, provides the following background to the
urgency with which transport infrastructure needs to be addressed:
! An unreliable rail system. Approximately 76% of commuters have no access to
    trains, whilst security concerns also counter-acts capacity utilisation.
! An uncompetitive cost environment for freight transport. Research indicates that
    it costs exactly ten times as much to ship a container from Durban to Mbabane
    than it costs to ship the same container from the US to Durban.
! Out-dated managerial and operational systems within the public transport sector.

                                      August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                        PAGE 94



! The prevalence of pedestrians along roads result in the need for improved safety
  measures. Approximately 26% of South Africans walk to work and the vast
  majority of children walk to school, which results in an unduly high rate of
  pedestrian deaths in the country.
! A road freight system that is under enormous pressure as a result of inadequate
  infrastructure spending since 1994, as well as capacity and operational
  constraints at Transnet. The ratio of road cargo to rail cargo has increased
  steadily over the past decade to a level of more than 3.6.

Research commissioned by the interim advisory board on container terminals
confirms that substantial investment in the upgrading of ports was needed for
permanent solutions that would make the South African supply chain internationally
competitive. Although short-term solutions were being found to remove the
bottlenecks at ports that had caused delays to import and export trade, infrastructure
plans had to be made three years in advance. Due to relentless growth in trade,
investment would have to be sufficient to prepare for future growth.

In response to the above challenges, the DoT has announced a number of initiatives,
including its intention to develop a comprehensive logistics strategy and investment
plan by November 2004. The Department is already committed to favouring labour-
intensive methods of investment and it is clear that infrastructure investment in all
the modes of transport will be accelerated in future.

Transnet has recently announced that it might sell bonds to fund part of a R14.5
billion upgrade of the country’s railway system. Inefficiency at Transnet’s railway
unit, Spoornet, has limited exports of a variety of products, including coal and steel
from companies such as Xstrata and Iscor. Transnet plans to revamp existing
railway lines, build new ones and buy new trains. It is also considering expenditure
of R1.3 billion to improve the Durban container terminal

C. Communication

Over the past five years, the sub-sector for posts & telecommunications posted the
largest average annual growth rate of all the two-digit SIC sub-sectors in the
economy, namely 12.1%. Air transport growth was also above-average (3.7%, but
storage and land transport activities have been more subdued, with growth rates
below the national average.

The South African government fully recognises the cardinal importance of a
thriving communications sector within a world economy that is systematically
shifting the composition of GVA towards tertiary economic activity. It has provided
the institutional statutory environment for the development of cellular telephone
operators, whilst Telkom’s monopoly over fixed line operations is set to end in
2004.


                                      August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                        PAGE 95



An estimated 3.3 million South Africans enjoyed access to the internet by the end of
2003, and this figure is set to grow strongly in future. The Department of
Communications in the process of establishing Public Internet Terminals (PITs)
throughout the country and 300 of these terminals were in operation by the end of
2003. The total number of fixed phone lines in South Africa is estimated at 5
million, and the number of cellular telephone users is estimated at 13 million.

D. Summary: Transport, storage and communication

!   The establishment of two cellular telephone networks in South Africa has
    resulted in the sector for transport, storage and communication outperforming all
    other sectors over the past five years. Its real average annual GVA growth has
    been more than double the figure for the economy as a whole between 1998 and
    2003.
!   Capital formation in the sector has declined in real terms since 1998, but this
    partly due to the completion of the capital expenditure programmes associated
    with the cellular telephone networks.
!   The rates of GVA growth within the different components of the sector differ
    substantially, with the sub-sector for posts and telecommunications recording
    average annual real growth of 12.1% between 1998 and 2003. This is more than
    four times higher than the growth rate for the economy as a whole. Air transport
    managed above average growth of 3.7%, but the key sub-sectors of land
    transport and storage only recorded growth of 1.7% and 1.8%, respectively.
!   Capacity constraints within rail transport have become an impediment to
    economic growth, and Transnet has announced its intention to spend more than
    R14 billion as part of an upgrading programme.
!   In the telecommunications sector, strong growth is expected to continue as the
    third cellular network operator expands its base of activities. The existing
    operators will continue to experience an increase in subscribers and are also
    expanding their networks into several African countries.
!   Telecommunications sector growth will be boosted by the introduction of a
    second fixed line operator.

Implications for employment and skills

Since 1998, high rates of GVA growth within the transport and telecommunications
sector have not been matched by corresponding levels of employment growth.
Industry research indicates that formal sector employment within
telecommunications has decreased between 1998 and 2003, mainly as a result of the
maturing stage of the telecommunications industry.

These negative trends are likely to be reversed in the near future, as substantial
amounts of capital expenditure are spent on building new capacity. A key driver of
future GVA and employment growth within the transport sector will be Transnet’s
R14 billion capital formation programme. The sector will also benefit from

                                      August 2004
Department of Labour                                               SETA Reestablishment: Draft 1
                                         PAGE 96



government’s commitment to create jobs via labour-intensive road infrastructure
projects.

Future growth in the telecommunications sector will be buoyed by the deregulation
of fixed-line telephony, as well as the regional expansion into Africa by two cellular
telephone operators.

Industry research indicates that the greatest increase in demand for future skills will
be in the categories of engineering technicians, administration and management.


5.7.8. Finance, insurance and business services

A. Economic performance

In 1999, the sector comprising financial intermediation, insurance, real estate and
business services, overtook manufacturing as the largest private sector contributor
to GVA. Between 1998 and 2003, this sector recorded the second highest real GVA
growth rate in the economy, namely 4.7% (annual average).

A measure of the growing importance of financial and business services as a
generator of value added and employment in the economy is the fact that in 1994, its
contribution to GDP stood at 16% and it represented 75% of the GVA of the
government and other services sector. By 2003, these ratios had increased to 21%
and 98%, respectively.

Capital formation growth in the sector has been sluggish since 1998, with an
average annual real growth rate of only 1.8%. One explanation for this trend has
been the consolidation that has taken place in the industry, which has resulted in a
degree of excess capacity.

It was indicated in sub-section 2 (tables 2 and 3) that the finance, insurance, real
estate and business services enjoyed impressive rankings with regard to GVA (SIC
two-digit classification), both in terms of vale and average annual growth between
1998 and 2003. For the growth indicator, all eight of the two-digit codes were
ranked in the country’s top-20 performers, whilst two sub-sectors (Other business
activities and financial intermediation) are in the country’s top-five with regard to
GVA.

A further indication of the increasing significance of this sector is illustrated by the
systematic increase in the ratio of total bank assets to the country’s GDP, which
reached a new record high of 114% at the end of 2003. This trend is depicted by
table 5.28.



                                       August 2004
Department of Labour                                               SETA Reestablishment: Draft 1
                                         PAGE 97



         Table 5.28 - Total assets of banks and GDP at current prices
          Year                           Bank assets GDP Bank assets/
                                             Rb       Rb     GDP ratio
         1993                                     295 382              77%
         1994                                     344 431              80%
         1995                                     399 485              82%
         1996                                     471 618              76%
         1997                                     550 686              80%
         1998                                     654 739              88%
         1999                                     726 801              91%
         2000                                     821 888              92%
         2001                                   1050 983              107%
         2002                                   1103 1121              98%
         2003                                   1381 1209             114%


A relatively low interest rate environment continues to bolster the earnings of local
banks, and results announced by the big four (ABSA, Standard Bank, First Rand and
Nedbank) continued to be supported by strong growth in retail lending.

B. Expansion of banking services

Government’s declared responsibility to create a supportive environment for the
banking sector to extend its services to low-income earners is fast becoming a
reality. In a clear attempt aimed at challenging the dominance of the big four banks,
the Ministry of Finance has announced its intention to formulate new laws to boost
competition in banking by.

The new laws would make it easier for small lenders to do business by giving
restricted banking licenses to retail and telecommunications companies which
provide loans of under R10 000. The announcement was made in parliament in June.

Features of the new entrants will include:

!    Lower entry requirements in terms of capital
!    A narrower scope of operations
!    Permissible investments will be restricted to liquid assets

The new banking laws are intended to legalise customer-owned co-operative banks
and bring the industry into the regulatory framework to afford its depositors the
same safety and stability enjoyed by formal commercial banks’ depositors. These
proposed statutory initiatives are expected to dovetail with the new Enterprise
Development Bill.


                                        August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                        PAGE 98




ABSA Group, one of the four largest banks in South Africa, announced in June
2004 that it plans to increase the number of ATMs and branches in black townships
as part of an expansion programme, which is also intended to provide support for a
government-backed plan aimed at broadening banking access.

The consumer banking division of ABSA has said that it would open 400 new
ATMs and outlets providing basic banking services in the next year, with 75 percent
of them in townships.

The banking group intends to spend R100 million on four full-service branches in
townships - two in Soweto, Johannesburg, one in Khayelitsha outside Cape Town
and another in Mamelodi outside Pretoria during the current fiscal year. ABSA
provides almost one-third of the nation's home loans and issues a quarter of its
credit cards, and the group currently has 670 branches and 4 300 ATMs in South
Africa.

Financial services companies agreed last year to offer banking to the 17 million
people without accounts. According to government’s initial banking reform targets,
registered lenders must provide 80 percent of the population with access to banking
services within 20km of their homes by 2008. Government’s vision is to reach the
previously unbanked but bankable section of the population

C. National Empowerment Fund

The Department of Trade and Industry announced in June that the National
Empowerment Fund (NEF) had been revamped and that it was now geared to spend
a total of R2 billion. In future, the NEF would assume greater risk than traditional
sources of finance. Government has signalled its intention to forgo typical
commercial returns on capital in favour of an empowerment dividend, in terms of
which the socio-economic impact of the investment is more important than the
narrow financial return.

Business proposals submitted to the NEF would nevertheless be subjected to the
same rigorous screening as applied by the private sector, with the difference that the
NEF was willing to assume greater financial risk in the interests of driving
transformation and black economic empowerment (BEE) across the country.

The NEF would acquire minority shareholdings in qualifying enterprises and would
use these shareholdings to drive the government’s transformation objectives.

D. Insurance

The weighting of insurance-related expenditures in the measurement of the CPI is
extremely low (0.47% for Long Term Insurance and 0.53% for Short Term

                                      August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 99



Insurance). It is only the component for medical insurance (1.18%) that has any
significance amongst insurance sub-categories.

A feature of this composition is the large variance between different income groups,
as illustrated by table 5.29. For insurance on the contents of a dwelling, the
propensity to insure is more than seven times higher amongst very high income
groups than middle income groups. For LTI, this ratio is only 2.75%, clearly
illustrating the importance of LTI amongst all income groups.

The conclusions to be drawn from these indicators are, firstly, that significant
overall scope exists for future increases in the relative shares of insurance-related
expenditures by households, particularly against the background of a relatively high
prevalence of poverty-related diseases and the high crime rate.

Table 5.29 - Relative weighting of insurance-related sub-categories of the CPI
Insurance sub-              % for income group
category             Low     Middle High Very high Total
Building insurance 0.01      0.02     0.07   0.15       0.12
Medical aid          0.25    0.41     1.2    1.31        1.18
Vehicles             0       0.02     0.08   0.25        0.19
Long Term            0.1     0.16    0.27    0.44       0.37
Insurance
Contents of dwelling 0.01    0.03    0.07    0.22       0.17


Secondly, in the event of the country being able to boost its economic growth
performance to sustained higher levels, the expansion of the number of middle-
income earners should lead to an acceleration in the demand for insurance-related
services via the significantly higher propensity for insurance that exists amongst
higher income earners.

E. Summary: Finance, insurance and business services

!   This sector constitutes the largest single sector of economic activity in South
    Africa. Its strong growth has been reflected in an increasing ratio of bank assets
    to GDP, which is currently at a level of 14% above parity.
!   Several sub-sectors are ranked amongst the top GVA sectors (two-digit
    classification).
!   Average annual growth between 1998 and 2003 has been second only to the
    sector for transport and communication, namely 4.7%.
!   The broad-based nature of GVA in this sector is illustrated by the fact that none
    of the sub-sectors feature prominently in the weighting of goods and services
    upon which the CPI is based.
!   Consolidation in the banking and insurance sub-sectors has resulted in net
    employment losses over the past five years.

                                       August 2004
Department of Labour                                            SETA Reestablishment: Draft 1
                                       PAGE 100



! Government has proposed new banking legislation that aims to significantly
  expand the range of financial services available to low-income earners.
! Sustained growth in the number of middle-income earners over the next five
  years is likely to stimulate the demand for insurance services.
! A sustained increase in the number of home owners in South Africa has resulted
  in a significant increase in household assets. Access to collateral finance is
  destined to be expanded into the area of low-income property ownership during
  the next decade.

Implications for employment and skills

New government initiatives aimed at expanding the reach of financial services to
previously disadvantaged communities will, in future, change the legislative
environment within which financial intermediation operates. As a result, the era of
consolidation within the banking sector seems to be over, with several new, smaller
banks likely to be established over the next decade. This extension of banking
services to non-traditional areas will create a strong demand for skills throughout
the financial services industry.

A second key driver of future skills demand will be in the area of regulatory
compliance. Continued revisions will be made to codes of conduct relating to all
kinds of formal sector economic activity, and non-adherence to specified minimum
standards of corporate governance is likely to become liable for stiff penalties.
Against this background, the accounting and auditing profession is likely to
continue developing a specialised niche function relating to the design and
monitoring of corporate governance.

Thirdly, skills demand will be stimulated by the prospects of a relatively low
interest rate environment, which has lowered the cost of working capital for typical
SMMEs by more than 30% over the past year. Combined with anticipated stronger
economic growth and a host of government initiatives aimed at the promotion of
emergent entrepreneurs (including the Enterprise Development Bill), new business
formation will inevitably increase over the next five years, at least. A strong
positive correlation exists between new business formation and all of the activities
comprising the sector for financial intermediation.

Fourthly, insurance activity related to both short term insurance and long term
insurance is being enhanced by the strong growth in property and other asset
ownership, particularly amongst an expanding middle-income class in South Africa.

A fifth driver of future skills requirements in the sector is the increasing trend
towards fee-based income, which necessitates more advanced management and
consulting skills.

Industry research indicates that 93% of occupations in the sector are related to

                                      August 2004
Department of Labour                                                            SETA Reestablishment: Draft 1
                                                             PAGE 101



relatively high skills, of which 36% are in the managerial and professional
occupations. Sector representatives canvassed for the purposes of the SETA
demarcation perception analysis have indicated that the following functional areas
will continue to exercise a demand for appropriate skills for the foreseeable future:
management of multidimensional investment portfolios; taxation services,
accounting services; and the management of development-orientated institutions.

For the insurance sub-sector, the key skills priorities identified by employers are in
the areas of management, customer care, IT applications, marketing, product
knowledge, and finance.

5.7.9. Government, community and social services

A. Economic performance

Public sector expenditure dominates the sector for government, community, social
and other services. Due to the long-standing policy of fiscal restraint, which was
necessitated by a high deficit/GDP ratio, government expenditure trends have been
lagging for most of the post-democracy era. In this process, government’s
contribution to total GVA has shrunk, as illustrated by figure 5.5.


     Fig 5.5: Government expenditure/GDP
     ratio and capital formation/GDP ratio
          %


     20
                                               Govt/GDP




     17

                                                Capital/GDP



     14
          '93   '94    '95   '96   '97   '98   '99   ''00     '01   '02   '03




Average annual growth in GVA for this sector amounted to only 0.6% between 1998
and 2003, and its contribution to GVA dropped from 23.6% to 21.1% over this
period.

As indicated in sub-section 2 (table 5.2), growth in activities included in this sector
has been well below average in every sub-sector, despite the fact that three of these
sub-sectors are ranked in the country’s top-six in terms of their contribution to GVA


                                                            August 2004
Department of Labour                                                               SETA Reestablishment: Draft 1
                                                                  PAGE 102



(education, public administration & defence and health & social work). Figure 5.6
confirms that a reduction in the relative share of capital expenditure proved to be
one of the negative side-effects of strict fiscal policy.


     Fig 5.6: Central & provincial
     government capex/GDP ratios
      %

          1.6



          1.4



          1.2



           1



          0.8
                '92    '93   '94   '95   '96   '97   '98   '99   '00   '01   '02




As a result of having lowered the budget deficit/GDP ratio to fundamentally sound
levels over the past five years, government has indicated a change in its policy
stance towards a more expansionary role.

B. Infrastructure

The first indication of government’s commitment to increasing public expenditure
on infrastructure and service delivery was provided in the National Budget for the
fiscal year 2004/2005. In the section dealing with policy priorities for the decade
ahead, the National Treasury has identified the following four key areas:

! A rising share of investment and saving out of national income, in order to
  provide the infrastructure and industrial capital formation required for sustained
  output growth.
! Improvements in the quality of education and promotion of training
  opportunities, to ensure that skills development and productivity enhancement
  contribute to expanding participation in social and economic development.
! A poverty reduction strategy that includes promotion of work opportunities,
  creating sustainable communities and safe neighbourhoods and consolidation of
  the social security system.
! Development of markets, support for emerging entrepreneurs, better governance
  and regulation of private and public sector institutions and rigorous monitoring
  and measurement of public service delivery.




                                                                 August 2004
Department of Labour                                               SETA Reestablishment: Draft 1
                                        PAGE 103



Since the tabling of the budget in Parliament in February 2004 and, in particular,
since the completion of the country’s third round of democratic elections in April
2004, more specific details have been made public on the type of programmes that
government intends to implement in pursuance of the infrastructure drive.

On 21 May 2004, President Thabo Mbeki unveiled a fair degree of detail about
these programmes during his first keynote address to the new Parliament. In his
address, he distinguished between two different sets of policy measures, namely
those that would serve to encourage growth, development and job creation in South
Africa’s formal economy and a programme to address the challenges of the informal
economy - representing the poor (or South Africa’s “second economy”, as referred
to by the President). One of the key components of the latter programme would be
the building of a social security net to alleviate poverty, whilst several cross cutting
measures were also announced to deal with the high crime rate. These include an
increase, by 2006, of police officers on active duty to 152,000 and the establishment
of Special Joint Teams with the immediate objective of apprehending the top 200
criminals in the country.

Specific programmes of action were announced to grow the formal economy. They
include the following:

! Raise the rate of investment.
! Work to reduce the cost of doing business in the country.
! Particular attention to SMMEs.
! Speed up the process of skills development, focusing on the shortfalls that had
  already been identified.
! Enhance the country’s export performance, focusing on services and
  manufactured goods.
! Increase spending on scientific research and development.

Key programmes of action to grow the informal economy are:

!   Launching of the Expanded Public Works Programme in all provinces before the
    end of 2004.
!   Finalise a Financing Protocol by mid-2004 relating to the Urban Renewal and
    Rural Development Programmes.
!   The Apex Fund (dedicated to the extension of micro credit) to be operational
    before the end of 2004.
!   The Department of Agriculture to increase its support to agricultural activities in
    the communal land areas as well as other small-scale agriculture.
!   During the 2005 financial year, finalise the strategy for the development and
    extension of financial and non-financial support to cooperative enterprises.
!   The Department of Education would expand the reach of the Adult Basic
    Education and Training programme.


                                       August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                       PAGE 104



! Work with provincial and local governments to ensure that Community
  Development Workers are deployed by the end of 2004 in the 21 identified urban
  and rural nodes.
! Ensure that modern information and communications technologies were
  introduced in the development nodes as quickly as possible to assist in all their
  developmental and governance efforts.

The significance of the new infrastructure acceleration strategy in terms of both the
fiscal expenditure commitment and its anticipated impact on job creation warrants
closer scrutiny of the key components of the programme.

5.7.9.1. Health

A. Future growth perspective

Healthcare as a topic has been at the forefront of public opinion ever since the 1994
elections, with a high prevalence of HIV and tuberculosis having been singled out as
the two most urgent areas that require policy intervention. Despite the high media
and public profile afforded to the HIV situation, many difficulties have been
experienced in providing effective treatment. These difficulties relate to the
sensitivity surrounding the disease, as well as costs (within the ambit of budget
constraints).

No other area of acknowledged public sector intervention has remotely witnessed as
much activism in the democratic era than health and some of the demonstrations
have been reminiscent to the political upheavals of the 1980s.

It is no surprise therefore, that government has approved a dramatic increase in the
budget allocation to the Strategic Health Programme (SHP), namely from R510
million in (FY) 2001 to more than R1.6 billion in FY 2005. The increase in the 2005
fiscal year alone is more than 37%. The sub-programme for HIV/Aids and
Tuberculosis will receive three-quarters of the amount budgeted for in FY 2005. The
objectives of the SHP are:

! Continuously strengthen policies and programmes for: HIV and Aids prevention,
  treatment and care, sexually transmitted diseases; tuberculosis; child health;
  reproductive and women’s health; occupational and environmental health; and
  nutrition.
! Ensure that all medicines used are safe and affordable, and that essential
  medicines are available at all times in the public health sector.
! Monitor and evaluate health trends, through relevant research and
  epidemiological surveillance, to ensure that national health policies and
  programmatic interventions are having their desired impact.
! Support the development of the district health system as the vehicle for
  delivering primary health care services.

                                      August 2004
Department of Labour                                            SETA Reestablishment: Draft 1
                                       PAGE 105




Table 5.30 - Expenditure on the Strategic Health Programme
                                                    Expenditure (Rm)
Sub-Programme
                                           2001 2002 2003 2004                 2005
District Health Systems                    3.6    2.5   2.5    3.2             2.8
International Health Liaison               20.5 35.8 31.4 46.8                 41.7
SADC                                       1.8    2     2.4    ~               ~
Health Monitoring and Evaluation           121.5 145.4 161.8 183.6             176
Maternal, Child and Women's Health         142.2 103.7 103.2 132.3             135.7
Medicines Regulatory Affairs               15.1 15.8 21.3 23                   23.5
Mental Health & Substance Abuse            4.6    6     5      6.2             7
HIV/Aids and Tuberculosis                  181.1 265.8 460     766.3           1,212
Pharmaceutical Policy and Planning         11     49.2 17.3 23.9               27.7
Medical Schemes                            8.8    2.6   ~      2.7             2.8
Total                                      510.2 628.8 804.9 1188              1629.2
Source: Department of Finance



Other indications of the higher budget priority that has been afforded to health,
include the following:

! During 2003, the SA Government approved the Operational Plan for
  Comprehensive HIV and Aids Care, Management and Treatment for South
  Africa, which will be translated into significant national expenditure increases
  for HIV/Aids related programmes. The total HIV/Aids related budget over the
  next three fiscal years has been estimated at R12,3 billion.
! Health grants to South Africa’s nine provinces have received a higher fiscal
  priority. In the most recent National Budget, the amount allocated to conditional
  health sector grants is set to increase by 37% over the next three fiscal years
  (FYs), namely from R6.7 billion in FY 2004 to R9.2 billion in FY 2007.
! DoH expenditure on transfers and subsidies, which entail some degree of
  consulting work, is also being increased at a rapid rate, namely from R209
  million in FY 2001 to more than R1 billion in FY 2005.

The following table provides a concise overview of expenditure trends relating to
transfers and subsidies funded by the DoH. It is clear from these trends that the SA
Government regards such expenditures as high priority status, with the total figure
increasing by an annual average of more than 50% between fiscal years 2001 and
2005.

The bulk of these transfers will go to the Provincial Governments, but the increase
in transfers to NGOs that are involved in the area of HIV/Aids is also significant
(from R5 million in 2001 to more than R40 million in 2005).


                                      August 2004
Department of Labour                                               SETA Reestablishment: Draft 1
                                        PAGE 106




Table 5.31 - Expenditure on Health Transfer          Payments and Subsidies
Beneficiary                                            Expenditure (Rm)
                                      2001            2002 2003 2004 2005
Provinces
Integrated Nutrition Programme       69.9            69.9   71.1 97     112.2
HIV/Aids Conditional Grant           16.8            54.4   210.2 333.6 781.6
Research
Medical Research Council             108.7           127.2 145.5 156.7 154.4
Medical Scheme Council               8.8             2.6   2.7   2.7   2.8
Non-Profit Institutions
HIV/Aids - NGOs                      5               5     31.3 53.8 40.3
Tuberculosis - NGOs                  ~               ~     2.5   2.6   3
Total                                209.2           259.1 463.3 646.4 1094.1
Source: Department of Finance



In the area of health sector skills, serious concerns have been raised over the ability
of the health authorities to meet the demand-side commitments embodied in the
latest National Health Budget.

The latest annual health survey conducted by the Health Systems Trust (HST) has
found that 31.1% of all professional health posts in the public sector were vacant at
the end of 2003. In the Free State, this figure is as high as 40.7%. Apparently, 45%
of professional health sector workers have indicated their intention to work abroad
once their community service term has expired.

A further negative trend is the fact that the number of South Africans belonging to a
medical aid scheme has declined from 17% in 1997 to 15.2% in 2002.
The huge responsibility that awaits government in the area of health is also evident
from the increase since 1994 in the infant mortality rate, combined with a decrease
in the life expectancy rate amongst South Africans.

5.7.9.2. Education

A. Future growth perspective

The consolidated education budgets of the nine provinces showed an increase of
8.4% for the 2005 fiscal year. This strong growth is the result of a renewed
commitment by government to sustain the delivery of inputs such as learner support
materials and school infrastructure.

The grant for the school nutrition programme has been transferred to the education
department, and the budget allocation is set to rise to more than R1 billion over the

                                       August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                         PAGE 107



next three fiscal years. It is generally recognised that the South African education
system requires substantial policy intervention in the following key areas:

!    Teacher shortages in certain disciplines, particularly in science and mathematics
!    A relatively low pass rate for matriculants
!    High levels of adult illiteracy
!    Inadequate facilities at many schools, particularly in the rural areas

In addition to these direct issues, the South African education authorities are also
aware of the need to focus on quality education as a result of the pressures
emanating from globalisation and the ever-increasing level of international
competitiveness, as well as the continuous introduction of new technologies in the
workplace.

Testimony to the challenges that lie ahead for the South African education sector
(directly and indirectly) may also be found in the following rankings of South
Africa’s international competitiveness by the Institute for Management
Development (IMD):

Table 5.32 - Rankings of South Africa's international competitiveness (out of 60
countries) in areas related to education and training
Indicator                                       Rank
Unemployment rate                               60
Pupil/teacher ratio (secondary education)       57
Pupil/teacher ratio (primary education)         57
Illiteracy                                      57
Secondary school enrolment                      55
Availability of qualified engineers             55
Availability of competent managers              54
Internet users                                  48
Source: IMD World Competitiveness Yearbook 2004



Progress has nevertheless been achieved in the field of education since democracy,
as witnessed in the following indicators:
! Sustained improvements in pass rates (from below 50% in 1996 to above 60% in
   2003)
! A decline in the pupil/classroom ration from 43 in 1996 to 30 in 2003
! An increase in access to water (for schools) from 60% to 70% between 1996 and
   2003
! An increase in access to a fixed telephone line from 41% to 69% between 1996
   and 2003
! In 2001, a total of R248 million was spent on adult education. This figure is set
   to rise to R1.2 billion in 2004


                                        August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                         PAGE 108




5.7.9.3. Security

A. Public Security

One of the most striking paradoxes found in South Africa is the co-existence of the
world’s most sophisticated and humanitarian constitution with the world’s highest
level of violent crimes. The latter is clearly illustrated by table 5.33.

Research on the issue of crime in South Africa clearly reveals the inability, to date,
of the country’s new constitution to override the damaging effects of the variety of
laws that had historically become manifested in society – from traditional laws to
Roman-Dutch law and from statutory discrimination to mob justice and gangster
rule. According to research by John Matshikiza, South Africa continues to be
divided in many aspects, but appears to be united in a culture of lawlessness and
criminality.

                 Table 5.33 - International ranking of serious crime (number of
                 incidents per 100,000 people)
                 Country                                      Number
                 South Africa                                 1,181
                 Australia                                    861
                 Sweden                                       766
                 Belgium                                      568
                 Israel                                       499
                 New Zealand                                  483
                 USA                                          472
                 Argentina                                    453
                 France                                       427
                 Netherlands                                  387
                 Estonia                                      365
                 Spain                                        279
                 Brazil                                       276
                 Canada                                       241
                 Colombia                                     220
                 Chile                                        219
                 Germany                                      218
                 United Kingdom                               214
                 Poland                                       214


The extent of criminal activity has been well researched and, to the credit of the
various institutional agencies involved with the combating of crime, accurate and

                                        August 2004
Department of Labour                                                        SETA Reestablishment: Draft 1
                                                               PAGE 109



transparent data is readily available. A comprehensive survey amongst victims of
crime was conducted in Greater Pretoria in 2000 by the Institute for Security Studies
(ISS). According to the survey, 55 per cent of people living in the Pretoria
metropolitan area were the victims of at least one crime between 1993 and April
1998. This represents a higher overall victimisation rate than that recorded in the
Cape Town city survey (49 per cent) but lower than rates in Durban (59 per cent)
and Johannesburg (62 per cent).

The most striking feature of South Africa’s crime problem remains the extremely
high propensity for the use of violence. Victim surveys in urban areas of countries
that also have to grapple with high levels of crime usually reveal far lower levels of
violent crime than is the case in South African cities. This view has been stressed by
Bernie Fanaroff, who was one of the early architects of government’s National
Crime Prevention Strategy (NCPS). Commenting on the broad-based nature of the
NCPS, (Idasa, 1999) he said that South Africa’s problem was not crime, but
violence. It is no surprise, therefore, that the four pillars of the NCPS extend well
beyond the boundaries of a traditional criminal justice system. They are:

!    Re-engineering the criminal justice system
!    Re-shaping community values
!    Re-engineering environmental design
!    The policing of international borders

The Pretoria victim survey conducted by the ISS revealed a particularly high level
of murders, burglaries and robberies, as illustrated by figure 5.7.


     Fig 5.7: Composition of violent crime
     in Pretoria – 2000 ISS Victim Survey
                                    Assault - 12



                                                        Car theft - 19
         Burglaries - 27




                                                          Murder - 11

                                                        Sexual assault -
                   Sexual
                                                               2
               harassment - 6
                                               Robberies &
                    Hijacking - 5              muggings -18




The complexity and pervasiveness of the country’s crime problem is also evident in
wide-ranging occurrence of corruption. Hardly a day goes by without an official
report on some incident of corruption, with many cases occurring within the public

                                                              August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 110



sector. One of the most startling reports on the extent of public sector corruption
was recently tabled by the National Intelligence Agency, which revealed “massive
corruption and inefficiency, as well as dismal and unnecessary bureaucratic
procedures" in the Department of Home Affairs (DHA). The report identified the
DHA as a prime target of organised crime syndicates and other criminals because it
provided an ideal way for them to obtain “enabling documentation."
At present the department has to deal with both syndicated and convenience
corruption. The latter refers to a situation where a member of the public finds it
easier to pay a bribe than wade through time-wasting bureaucracy. The report has
prompted a drafting of a counter-corruption strategy. The chairman of the
Parliamentary Home Affairs Committee, Mr Patrick Chauke, is on record for stating
that the DHA has had its computers stolen on five different occasions.

Further proof of the pervasive extent of public sector corruption is evident in the
following:

!   The increasing number of relatives of senior politicians who are being awarded
    government contracts, both at national and provincial government levels. A
    report by KPMG has revealed that between January 2000 and 2004, more than
    R30 million had been paid to "entities in which councillors/officials hold
    direct/indirect interests."
!   The minister tasked with delivering President Mbeki’s promise of an
    acceleration of social grant delivery, Social Development Minister Zola
    Skweyiya, sees corruption as the main obstacle to be overcome if this goal is to
    be achieved. At stake is the huge amount of R166-billion that has been allocated
    over three years for social security. Minister Skweyiya has pledged to be forceful
    in eradicating corruption, which is especially rife in his department, in order to
    effectively deliver social security services during his second term of office.
!   The Department of Public Service and Administration (DPSA) has announced its
    intention to embark on a tough crack-down on corruption in the civil service
    during 2004. The Minister of the DPSA, Geraldine Fraser-Moleketi, has also
    announced that her department would be looking more closely at issues affecting
    corporate governance, ethics, accountability and integrity in its decision making
    process.
!   The Minister of the Department of Correctional Services (DCS) recently told the
    national council of provinces in parliament that the DCS needed major
    restructuring to dispel its image of being riddled with corruption and
    maladministration.
!   New national Housing Minister Lindiwe Sisulu has announced that a special in-
    house investigative unit is being considered for introduction, to tackle corruption
    in the Housing Department
!   Various Provincial Government leaders have recently stated their intention to act
    against widespread corruption. In the case of Premier Sello Moloto's plan to
    tackle corruption in the Limpopo province, it has received the full support from
    the province's business community.

                                       August 2004
Department of Labour                                               SETA Reestablishment: Draft 1
                                        PAGE 111



!   The Chief Executive of the Chris Hani-Baragwanath Hospital, Dr Emma
    Bondareko, has disclosed that a number of the hospital's staff members -
    including nurses, clerks and security personnel - have been suspended over
    various allegations of graft, theft, corruption and negligence.

The dangers of allowing so-called “white-collar crime” to persist have been
succinctly paraphrased by Judge Arthur Chaskalson with the following statement:
“Corruption and misadministration are inconsistent with the rule of law and the
fundamental values of our Constitution. They undermine the constitutional
commitment to human dignity, the achievement of equality and the advancement of
human rights and freedoms. They are the antithesis of the open, accountable,
democratic government required by the Constitution. If allowed to go unchecked
and unpunished they will pose a serious threat to our democratic state".

B. Private security

The private security industry in South Africa, like in many parts of the world, has
experienced strong growth over the last decade. An industry that, at the beginning
of the century, was small and unregulated has grown into one of the major role
players in the economic life of the country. Sources from the industry itself estimate
that the industry is worth over R14 billion in terms of annual turnover.

The industry currently comprises of 4,200 registered businesses and 260,000 active
registered officers with 515,000 registered inactive security officers. Given that
there are security officers who are not registered with the Private Security Industry
(the number is difficult to estimate), the figure of 775,000 (both active and inactive
security officers) remains a conservative indication of the size of the industry in
terms of personnel.

Even with the number of registered security officers alone, it is significant that such
a conservative number already shows that there are roughly five registered security
officers for each one member of the South African Police Service. In 2003 the total
staff complement of SAPS stood at 129 700 (27 300 of whom were civilians). The
situation even becomes more alarming when one considers that the Private Security
Industry Regulatory Authority (PSIRA) is said to receive as many as between 9 000
and 11 000 applications for registration per month.

Research by the Institute of Security Studies has confirmed the need for security
officer training in the operational functions of the industry, as well as in the area of
management skills.

It is abundantly clear that the prevention of crime in all of its spectres requires
urgent and continued attention, within both public sector and private sector security
establishments. As such, the value added by the security-related industry in South
Africa is forecast to grow at above-average rates over the next decade.

                                       August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 112




5.7.9.4. Other services

A new call centre in which British insurance company Budget intends to invest
R100 million over three years started up in Cape Town in June 2004. The centre
contained 200 seats and aimed eventually to employ 600 people. This is the latest in
a series of developments in an industry already employing thousands of South
Africans answering telephone calls from all over the world on behalf of local and
foreign companies. According to the Western Cape development agency (Wesgro),
about 9 000 jobs had so far been provided in 100 call centres throughout Cape
Town.

Although the majority of call centre activity was in-house, including companies like
Old Mutual and Sanlam, a growing number related to the fast-growing international
outsourcing and offshore segment. Substantial amounts of foreign direct investment
have flowed into Cape Town and growth of 30% per quarter was being experienced
in the international segment of the industry.

5.7.9.5. Summary: Government, community & social services

!   An urgent need existed immediately after South Africa’s first democratic
    elections to re-establish fiscal stability, as the government deficit/GDP ratio had
    moved to 9%, which entailed the unenviable prospect of a fiscal debt trap. As a
    result of almost a decade of fiscal restraint, average annual growth in GVA for
    this sector (which is dominated by public services) amounted to only 0.6%
    between 1998 and 2003. In the process, its contribution to GVA dropped from
    23.6% to 21.1% over this period.
!   In terms of its contribution to the country’s economy, this sector remains crucial,
    with three sub-sectors that are ranked in the country’s top-six in terms of their
    contribution to GVA (education, public administration & defence and health &
    social work). In combination, these three sub-sectors accounted for almost one-
    fifth of South Africa’s total GVA in 2003 and education is the single largest two-
    digit SIC sector in the economy (GVA of more than R86 billion in 2003).
!   Lower budget commitments towards infrastructure proved one of the means
    through which fiscal stability was restored. A change to government’s policy
    stance in this regard was announce by both the Minister of Finance and the State
    President earlier in 2004, and the new infrastructure acceleration programme will
    stimulate employment growth within both the public and the private sectors.
!   Capacity constraints with regard to skilled labour in the public sector will
    necessitate significant training interventions. In the short to medium term, these
    capacity constraints may be overcome through public/private partnerships, which
    will facilitate skills transfer and training initiatives within a practical
    environment.
!   Exceptionally high levels of public sector funds will be allocated to health
    programmes over the next five years and beyond.

                                       August 2004
Department of Labour                                              SETA Reestablishment: Draft 1
                                        PAGE 113



!   Education’s importance for the future development of the country as well as the
    advancement of individuals is being recognised by government in the new policy
    environment of fiscal expansion (post-2002), and is being translated in
    significantly higher budget allocations than for total government expenditure.
!   Research by Dr Jane Hofmeyr of the Independent Schools Association of
    Southern Africa indicates that the sector consists of a total of 12 million pupils,
    28 000 schools and 350 000 educators. Demographic and economic indicators
    suggest that all of these figures will experience strong growth over the next five
    years.
!   Government has re-committed itself to the National Crime Prevention Strategy,
    and President Mbeki has made a personal promise to increase substantially the
    number of active police officers.
!   The country’s high crime rate is an embarrassment to its humanitarian
    constitution and stellar achievements in the area of constitutional and economic
    reform, and government will undoubtedly do everything in its power to lower the
    level of criminality in society.
!   The private security industry has become a major generator of employment and
    the prospects for further wealth creation and higher levels of economic growth
    will allow a growing number of citizens to afford the luxury of increase
    expenditure on private security systems.

Implications for employment and skills

The decade-long declining trend in GVA growth within the sector for government,
community and other services seems destined to be reversed from 2004 onwards. A
number of clear indications exist that point to an increased future demand for skills
pertaining to public sector activity.

First and foremost, government has announced an infrastructure acceleration
programme that will favour contractors that utilise relatively labour-intensive
techniques. Part of the new drive by government to increase access to basic services
will be an expanded public works programme, whilst the extension of a variety of
welfare services will also require substantial management and monitoring tasks.

A serious lack of physical facilities in many schools, as well as a shortage of
educators in the disciplines of mathematics and science, will necessitate significant
increases in future education sector budget outlays, and will stimulate employment
creation over a broad spectrum of skills.

In the area of health, exceptionally high levels of public sector funds will be
allocated to a variety of health programmes over the next five years and beyond.
Concern over the shortage of medical professionals (due, inter alia, to high levels of
emigration) has prompted the Ministry of Health to request the National Treasury’s
assistance in drafting proposals for an incentive package aimed at retaining health
professionals. Against the background of South Africa’s high prevalence of a

                                       August 2004
Department of Labour                                             SETA Reestablishment: Draft 1
                                       PAGE 114



number of serious diseases, combined with the health challenges arising from
widespread poverty, it is apparent that the training and retention of health
professionals should be regarded as a national priority.

A large degree of consensus exists amongst economists in both the private and
public sectors that most of the requirements necessary to increase the country’s
growth rate have been met. Herein lies a danger for further progress with the
development of a more professional and efficient public service, namely the
increased likelihood, in future, of public sector staff losses resulting from the
demand for skilled labour emanating from buoyant and expanding private sector
activity. The parallel existence of employment equity policies will tend to aggravate
this problem, and there can be no doubt that the recruitment, training and retention
of skilled public sector employees will remain a priority for many years to come.

An estimated 50% of all public servants are under the age of 30, which clearly
indicates the existence of training needs. Industry research has indicated that the
highest prevalence of vacancies in the public sector are found in the following areas:
All levels of management, engineers, industrial technicians, state accountants,
administrative officers, architects, network controllers, IT control personnel, IT
programmers and economists. A feature of official survey results into the skills
needs of the public service is their wide-ranging, ranging from language skills
(ranked very highly) to the areas of finance, leadership, information technology and
communication.

A summary of the functional areas identified by the medium-term expenditure
programmes of government services, including the major functional areas of
provincial administrations, indicates the existence of a strong demand for both a
larger variety and a higher level of quality of skills, particularly in the following
broad areas: project management, finance and economics, spatial planning,
intergovernmental relations, education and training and health.

Within security-related services, government has committed itself to an increase in
the number of active police officers, whilst higher levels of economic growth and
asset holdings will allow a growing number of citizens to increase their expenditure
levels on private security systems.

In the niche area of call centre services, very strong employment growth is expected
to continue.




                                      August 2004

				
DOCUMENT INFO