DA's Plan for Growth and Jobs - Democratic Alliance

The DA’s Plan for Growth and JobsWORKING FOR CHANGE.WORKING FOR JOBS.28 July 2012

ContentsForeword by Helen Zille, Leader of the Democratic Alliance ........................................................ 3Foreword by Wilmot James, Federal Chairperson of the Democratic Alliance .......................... 5LIST OF ABBREVIATIONS AND ACRONYMS .............................................................................. 7Preamble ............................................................................................................................................... 9EXECUTIVE SUMMARY .................................................................................................................. 11THE DA’S CONCEPTUAL FRAMEWORK .................................................................................... 12A Constitutional Imperative ........................................................................................................... 12The Economy and the State ......................................................................................................... 12Focus on High Growth ................................................................................................................... 13Fiscal and Monetary Policy Priorities .......................................................................................... 14POLICY CHAPTERS OVERVIEW .................................................................................................. 14Opening job opportunities to all ................................................................................................... 14Breaking down barriers to inclusion ............................................................................................ 15Opening the economy to competition.......................................................................................... 16Building the base through trade and investment ....................................................................... 16A sustainable future for all ............................................................................................................ 17INTRODUCTION ................................................................................................................................ 18Breaking down barriers ................................................................................................................. 18The challenge ................................................................................................................................. 18HOW DID WE GET HERE?.............................................................................................................. 20Apartheid’s legacy .......................................................................................................................... 20The promise of 1994 .................................................................................................................. 20Economic challenges post-1994 .................................................................................................. 21New leaders, old problems ....................................................................................................... 23Where we are now ......................................................................................................................... 24THE DA’S CONCEPTUAL FRAMEWORK .................................................................................... 26Constitutional Foundation ............................................................................................................. 26Focus on high growth .................................................................................................................... 26The economy and the state .......................................................................................................... 28Flaws of state capitalism ........................................................................................................... 28A pragmatic view ........................................................................................................................ 29READING THE REMAINDER OF THE DOCUMENT .................................................................. 321 | P a g e

Foreword by Helen Zille, Leader of the Democratic AllianceSouth Africa is at a crossroads. We have one of thehighest rates of unemployment in the world and 39 % ofthe population live below the poverty line – while eachpassing day the costs of living rise.As a nation South Africa has overcome seeminglyinsurmountable obstacles. Now, our biggest problem weface as a nation is that of poverty. Almost every analystagrees with this statement. Poverty robs people ofdignity, keeps them locked out of opportunity, stunts theirdevelopment and prevents them living a life they value.But even the most intractable problem can be overcome by a plan of action that is based onan accurate diagnosis, and implemented effectively.The unemployment and poverty crisis has the potential to rip our nation apart, but if SouthAfricans unite behind a plan to overcome it, that plan could provide the glue that brings ustogether to build one nation, with one future.It is my great pleasure to introduce the DA’s 8% Growth Plan. We believe it is the planbehind which South Africans can unite to achieve a sustained economic growth rate of 8%.We know that no country has ever overcome poverty and unemployment without substantial,sustained economic growth. This must be our central focus.The plan is an inclusive one – it sets out how the right conditions can be created to ensurethat all South Africans may have access to the job market so that no-one is left behind,destitute and without a future.The DA and I have put our faith in this plan – we believe it is the way forward. Where the DAgoverns we are already proving how many jobs a growth-centred economic policy canrealise. This document is our flagship.We present it to South Africans as they ask themselves which party’s plan to support in therun-up to the momentous 2014 general election. We are confident that this vision can leadSouth Africa into a new era in which every person can achieve his or her potential.We urge government to take heed of this plan, which dovetails in large measure with theNational Development Plan. There is a clear basis on which to take the discussions forwardand build the moderate centre of South African politics as a strong, non-racial, party ofgovernment, with policies that enable our country overcome the scourge of poverty.3 | P a g e

I hope that this document also resonates with you and that you come to share my convictionthat it offers the best way to enable all South Africans to use their hard-won freedom and tolive a life they value.Helen ZilleLeader of the Democratic Alliance4 | P a g e

Foreword by Wilmot James, Federal Chairperson of the DemocraticAllianceIt gives me great pleasure to present the DA’s 8% Growth Plan, a document that sets out, inclear terms, what needs to be done to put ourcountry on a high-growth path.International experience has shown thatpursuing high rates of economic growth is theonly successful and sustainable way to addressour country’s biggest challenge: the persistentlyhigh levels of poverty that, nearly two decadesafter the end of apartheid, still continue to robmillions of South Africans of their right to abetter life.This plan is the second of two documents. The first was a diagnosis of the problem thatasked a single question: what is holding back the growth of the South African economy?After many months of research and consultation, our analysis was released in November2011 to a warm reception by analysts, media houses and the public. The focus ongrowth and the ambitious target of 8% have subsequently become the focus of muchattention, with news reports describing the initiative as ‘a massive departure from and ANC’and ‘an ambitious policy agenda’.This second document - the DA’s plan to achieve 8% growth in GDP in South Africa -provides, in five clear and highly structured policy chapters, a strategy to break downbarriers to economic opportunity, create jobs, sharpen our country’s internationalcompetitiveness, enhance trade and investment, and ensure that growth is sustainable in thelong-term.It proposes a bold programme of reforms that makes a clear statement: the DA understandsthe nature of the problem and has a plan to fix it, one that draws on our country’s bestresearch expertise and is inspired by international best practice. It accepts that business asusual will not solve our country’s problems, that tough policy choices will need to be taken,and that these will challenge vested interests and political elites.As was the case with the diagnostic assessment, our approach to developing the 8% GrowthPlan emphasised participation and inclusion. Proposals and comments were sought fromevery level of the party - national provincial and local - while further insights were gatheredthrough a series of consultations with academia, business and civil society.A key difference between the 8% Growth Plan and earlier policy development initiativesundertaken by the party is that, for the first time, the DA has been able to draw on itsexperience in government to ensure that the proposals made here are not only sound intheory; they can, and will, be implemented where we govern.Thanks must go to all MECs, MPLs, Mayors and Councillors who took the time to meet withthe 8% team, and share their knowledge and experience regarding the practicalities involvedin landing a successful policy programme.5 | P a g e

An important sounding board for successive drafts of the 8% Growth Plan has been theparty’s Core Policy Group - a diverse corps of DA public representatives from both theopposition and government, who all work on the economy - whose attendance at regularquarterly meetings is greatly appreciated.Tim Harris, in particular, has played a key role in shaping the direction of the analysisunderlying the 8% Growth Plan, and I would like to express my appreciation for the manyhours he has contributed to refining some of its core proposals.Thanks must also go to Alan Winde, Ian Neilson, Gavin Lewis, Mmusi Maimane, KobusMarais, Lance Greyling, Ryan Coetzee, David Ross, Lindiwe Mazibuko, Haniff Hoosen,Conrad Sidego, Dion George, Brett Herron and Ian Davidson for their contribution to thepolicy development process.There a number of outside experts, from South Africa and around the world, who have beengenerous with their ideas and time, as well as their willingness to assist with honing ourconceptual framework. Your contribution is duly acknowledged.Specifically, I would like to thank Brian Kantor, Greg Mills, Loane Sharp, Yvonne Muthien,Mamphela Ramphele, Ruth Richardson, and Sven Littorin for their insights.Assistance from the Democratic Alliance administrative staff is hereby acknowledged. Inparticular I would like to thank Rene Vaughan for her assistance with logistics on manyoccasions, and Marilyn Quarrie at Parliament, who played an essential role arranging mypersonal schedule while also coordinating the numerous events, meetings and consultationsessions that made this project possible.Ludre Stevens, Jessica Shelver and the rest of the volunteers from the DA Abroad alsodeserve a special mention for the many hours they put into preparing a programme ofconsultations and speaking engagements in London to raise the international profile of the8% Growth Plan.Finally, I would like to express my sincere and grateful thanks to William Attwell, the SeniorPolicy Researcher for the DA, and an emerging authority on matters of economic policy inSouth Africa, who was primarily responsible for researching and drafting this document.William is playing a key role shaping the policy agenda as we move forward to 2014, and isan intellectual asset to the party.The South African economy has what it takes to grow at 8%. This document outlines theDA’s plan to get us there.Dr Wilmot James MPFederal Chairperson of the Democratic Alliance6 | P a g e

LIST OF ABBREVIATIONS AND ACRONYMSBEEBRICSBVSPCOSATUEBPEEEMFEPWPFESFTAGDPGEARIDGSIPAPIDZICTJSELHWPNDPNEDLACNGPNPCNWRMPNWRIAOECDOSBPPPPBlack Economic EmpowermentBrazil, Russia, India, China and South AfricaBusiness Voucher Support ProgrammeCongress of South African Trade UnionsEvidence-based policy makingEmployment EquityEnvironmental Management FrameworkExpanded Public Works ProgrammeFarm Equity SchemeFree Trade AgreementGross Domestic ProductGrowth, Employment and RedistributionIndustrial Development and Growth StrategyIndustrial Policy Action PlanIndustrial Development ZoneInformation and Communication TechnologyJohannesburg Stock ExchangeLesotho Highlands Water ProjectNational Development PlanNational Economic Development and Labour CouncilNew Growth PathNational Planning CommissionNational Water Resources Management PlanNational Water Resource Infrastructure AgencyOrganisation for Economic Co-operation and DevelopmentOne-Stop Border PostPublic-Private Partnership7 | P a g e

RDPSACUSADCSAIDASANPCSAPSSARSSMMESOEVATV-TAPReconstruction and Development ProgrammeSouthern African Customs UnionSouthern African Development CommunitySouth African International Development AgencySouth African National Peace CorpsSouth African Police ServiceSouth African Revenue ServiceSmall, Medium and Micro EnterpriseState-owned EnterpriseValue Added TaxVocational Training and Apprenticeship Programme8 | P a g e

PreambleThe 8% Growth Project is the Democratic Alliance’s policy agenda for economic change thatwill open job opportunities to millions of South Africans. It sets out how we will work tochange our economy from one that grows at 3% per year, to one that grows at 8%.Economies like Peru, Singapore, and Vietnam have all recently achieved annual growthrates of 8%, and their average growth rates have exceeded 6% over the past decade. Thishas allowed them to achieve extraordinary results in tackling social ills like poverty,unemployment and inequality.South Africa, on the other hand, has averaged only 3.6% growth in GDP over the pastdecade, reaching a high of 5.6% in the boom years of 2006 and 2007. This has not beensufficient to significantly roll back unemployment, or provide opportunities for people to liftthemselves out of poverty.Economic growth is the essential ingredient. No country has created jobs without growth.There are many constraints to growth in our country, but underpinning them all is the factthat too many South Africans are left out of the economy and are unable to make acontribution to driving growth because they can’t find work; they can’t attain skills; they can’tstart businesses; and they lack access to capital assets.In short, too few people in South Africa actively participate in the country’s economy.You can see this from South Africa’s labour market where our unemployment rate hasaveraged 27% (using the narrow definition of unemployment) over the past decade. This isby far the highest of any developed country or emerging market in the world and three timeshigher than unemployment rates in Brazil, Turkey and Ghana.And you can see it in the state of entrepreneurship in South Africa where only 9.1% of theeligible population is engaged in entrepreneurial activity. This is less than half the proportionin comparable middle-income developing countries such as Argentina, Thailand or Chile.The apartheid government denied millions of South Africans access to economicopportunities and built an economy of insiders and outsiders, principally dominated by largestate and private companies.Eighteen years after the end of apartheid, this basic structure has not changed, and SouthAfrica remains a country of insiders and outsiders with Big Government, Big Unions andsome anti-competitive Big Businesses on one side, and millions of ordinary of South Africanson the other.The DA’s solution is to make markets work for the many, not just the few. The state has aresponsibility to intervene when markets fail, but also when powerful public and privatesector players abuse their market power at the expense of others.This is central to the DA’s vision of a state that provides an enabling environment foreconomic growth by ensuring access to markets, credit and skills; limiting negativeexternalities; attracting trade and investment, and ensuring the economy has theinfrastructure it needs in order to grow.The policies here take us a step closer to fulfilling this vision at national level.9 | P a g e

They will change the status quo and help our country achieve higher growth by increasingparticipation in the economy. They will make it easier for South Africans to start and growtheir own businesses. They will give more people the education they need to get a job.They will promote investment by companies so they can create more jobs by incentivisingthem to hire and train more people. And they will help them to trade with other countries,especially in Africa, stimulate growth, and create yet more jobs.If we break down the barriers that maintain the insider/outsider economy, the barriers thatprevent people from getting a job; from having a real stake in the economy; from enjoying abetter standard of living, and instead build a dynamic, stakeholder-led economy that opensand expands economic opportunities to all, we believe South Africa has what it takes to growat 8%.This document presents the DA’s plan to get us there.10 | P a g e

EXECUTIVE SUMMARYBreaking down barriersSouth Africa’s economy is divided into insiders and outsiders. On the one side are those whohave jobs, homes, and the prospect of rising incomes and a better future. On the other sideare the millions of poor South Africans who struggle to participate in the economicmainstream. After 18 years of democracy, this is an unacceptable state of affairs.This document sets out the DA’s plan to reduce poverty and create jobs by putting SouthAfrica on a high-growth path. It outlines how the DA will break down the barriers that inhibitopportunity by allowing an open and inclusive economy to develop in which each person hasthe skills, the opportunities, and the resources, to become a productive member of adynamic, integrated and forward-looking society.Building this society requires that we break down the barriers that prevent many people,particularly young, poor and low-skilled South Africans, from finding employment. It seeks tobuild an inclusive society where everyone has a stake; where having a home or starting abusiness is not the preserve of the few, but rather a reality that everyone can look forward to.It will require that we challenge established interests. The monopolies and oligopolies in boththe private and public sectors that keep the cost of living high need to be tackled head-on.Vested interests that seek to monopolise access to opportunity for the privileged few at theexpense of the majority – whether in the form of closed business networks, patronagepolitics, or protected employment for members of labour union COSATU and its affiliates –need to be met with bold and decisive action.The high costs and bureaucratic red tape facing entrepreneurs and small businesses needto be drastically reduced and the scourges of corruption and poor service delivery need to beeliminated so that we can begin to build an effective state that works to improve the lives ofSouth Africans.For this plan to succeed we need a healthy, growing economy.No country that has tackled the interrelated challenges of poverty and unemploymentsuccessfully has done so in the absence of high rates of investment and strong economicgrowth. Both are necessary to create new wealth and opportunities. An economy capable ofdoing this has more to share: enough, for all, forever.Breaking down barriers - to job creation, to asset ownership, to a better standard of living -and building a high-growth, stakeholder economy, will be the centrepiece of DA economicpolicy as we move forward to 2014.The challengeSouth Africa’s insider/outsider economy is no accident. It is a product of our nation’s pastand its troubled present. The system of apartheid, which involved the legislated denial ofopportunity to black South Africans - to assets, jobs, proper education, and above allcitizenship - left an economic legacy of racially determined disenfranchisement,marginalisation, and exclusion, which confined our nation’s talent and wounded our psyche.The transition to democracy in 1994 brought with it the promise of redress, reconciliation,and a better life for all. However, the policies pursued by successive national administrations11 | P a g e

have not fixed the legacy of poverty and inequalities left by apartheid. Instead, they havecreated new barriers and new inequalities that protect established insiders in both the privateand public sectors at the expense of poor South Africans who continue to lack access toeconomic opportunities.According to official statistics, 24% of the economically active population is out of work,rising to approximately 35% using the expanded definition of unemployment (which includesdiscouraged job seekers). Women, young people and low-skilled job seekers have been hitthe hardest. To reach the global average employment rate of 60%, 6 million more SouthAfricans will need to be in formal or informal employment.This high unemployment underpins widespread poverty in our country, which at 48% of thepopulation (over 50% using the headcount poverty rate), is very high for a middle-incomecountry. This is an unacceptable state of affairs, and a betrayal of the promise of a better lifemade to South Africans in 1994. The following indicators paint a tragic picture of what thesestatistics actually mean for millions of South Africans:One in three households in our country report that they run out of money to buy food,while half of all households say they experience hunger.The poorest 20% of the population earns just 2.3% of the national income, while thewealthiest 20% enjoys 70% of the income.Three out of every five households live on R 3500 per month or less, while thepoorest 2% live on R 1500 or less, which is barely enough to survive.The unequal legacy of our country’s past has thus taken on new forms as a consequence ofour country’s insider/ outsider economy. But we no longer have to go down this road.THE DA’S CONCEPTUAL FRAMEWORKA Constitutional ImperativeThe DA believes that building an open and inclusive economy that delivers opportunities forall is not optional. It is an imperative of the founding document of our democracy – theConstitution. In the Bill of Rights chapter, it is made explicitly clear that everyone has theright to a decent education; to have access to healthcare, food, water and social security;and to be able to access adequate housing.The Economy and the StateThe failure of the current national government to realise these rights, and open economicopportunities to the people of South Africa, has led some to suggest that the answer lies inabandoning a market economy (and with it, many of our key constitutional principles, amongthem private property ownership) by instead following a state-dominated developmenttrajectory, an approach also known as ‘state capitalism’.Inherent in this approach are a number of important flaws, which include: regulatory failure,inefficient resource allocation, reduced innovation, reduced competition, poor corporategovernance and heightened corruption (see page 28 to 31). Many of these trends arealready very evident in South Africa’s state-owned enterprises (SOEs), and would likely beexacerbated by increased state dominance in the economy.12 | P a g e

A preferable, more nuanced approach – the one promoted by the DA – views the state ashaving an important role to play in the economy by providing an environment conducive togrowth, including the provision of critical infrastructure; correcting market failures; ensuringfairness by promoting broad-based ownership and participation; and promoting our firms andentrepreneurs on the global stage.Our approach has many similarities with the pragmatic and successful policies pursued bycountries with open, market-oriented economies such as Brazil and Mauritius, rather thanthe solidly statist policies of Russia and China. It understands that there are certain activitiesand functions that are necessary for the state to perform, but that in many areas, thesefunctions can be enhanced via injections of private sector capital and expertise.This approach brings with it a number of benefits, including:Limiting potential abuse of power by the government of the day by enhancing the roleplayed by the private spheresProviding access to additional injections of private-sector capitalBringing in private sector management expertise to improve the competitiveness,governance and efficiency of formerly state-run entitiesFocus on High GrowthInvestment and growth are the essential ingredients for building an open and inclusiveeconomy. Numerous economic studies have shown that, to make a significant impact onpoverty and unemployment, the South African economy would have to grow at a rate of atleast 7% per year.The DA wants to exceed this minimum rate and has set itself the target of achieving at least8% growth. Even the government’s own National Planning Commission’s DiagnosticOverview recognised that growth is essential for fighting poverty and raising per capitaincomes.The report notes that, at current growth rates, it would take South Africa 35 years to reachthe per capita income levels of a developed country like Poland or Portugal. If GDP growthwere to increase to 4% it would take approximately 17 years, while at 8% it would take lessthan a decade. In formulating this policy platform, the DA has drawn on the experiences ofdeveloping countries that have witnessed high rates of economic growth.The socioeconomic impact of high growth in these countries has been astounding. Here arethree examples of what high growth has achieved in selected developing countries:In Brazil, the poverty rate has fallen from 20% of the population to 7% in five years150 million people in China - three times the population of South Africa - now earnincomes of R 6500 or moreBy 2025, the Indian urban middle class will be larger than the entire currentpopulation of the United StatesBy 2030, Indonesia will have the fourth largest middle class in the world consumingR 20 trillion in goods and servicesWith annual growth in GDP of 8% or more, we could begin to see similar trends in SouthAfrica.13 | P a g e

Fiscal and Monetary Policy PrioritiesThe DA’s plan to break down barriers and build a high-growth, stakeholder economy will onlywork in a stable and supportive macroeconomic environment. Accordingly, our approach tomacroeconomic policy is to get fiscal and monetary fundamentals right, and to moderate theshort terms fluctuations in growth that drive the business cycle. Our fiscal policy position isupdated each year in the DA’s Alternative Budget.The eight core principles informing the 2012 Alternative Budget are:Policy certaintyFiscal sustainabilityRevenue through growth, not tax increasesTax breaks to drive new investmentTax decentralisationCutting waste and streamlining governmentShifting from consumption to productive investmentIncreasing infrastructure investmentThe DA supports the inflation-targeting framework implemented by a strong, independentReserve Bank operating a flexible exchange rate regime.A DA government would fully dismantle South Africa’s out-dated exchange control regime inorder to eliminate the many restrictions and administrative burdens it imposes. Theseultimately limit the productivity and allocative efficiency of capital flows and add unnecessarytransaction costs, which further undermine our competitiveness as an investmentdestination.The DA also acknowledges the interaction between fiscal and monetary policy, particularlywhere the state wage bill and administered prices are concerned. We would actively manageboth to ensure their effect on inflation is minimised.POLICY CHAPTERS OVERVIEWOpening job opportunities to allThe most fundamental challenge facing South Africa today is that too few people areemployed. Why is this the case? The short answer is that high barriers to entry in the labourmarket exclude millions of South Africans from accessing employment opportunities.These barriers are a direct consequence of two things: Our country’s inflexible labour regimewhich favour economic insiders, and which leads directly to the break-down of therelationship between productivity and pay; and the failure of the education system to equipSouth African job-seekers with marketable skills.Young, unskilled and inexperienced job-seekers are disproportionately affected by thissystem of insiders and outsiders, which favours politically-connected elites and establishedinterest groups such as COSATU. Breaking down barriers to entry in the job market requiresa wide-ranging, multi-faceted programme of reforms.14 | P a g e

The DA’s policy proposals in this area focus on:Creating incentives that encourage businesses to hire more peopleEnsuring the delivery of high-quality education and training so that job-seekers havemarketable skillsMaking it easier for young people to access employment by reducing barriers to entryfaced by first-time job seekersEnsuring a fairer relationship between work and payInjecting greater flexibility into the labour market and allowing people with drive anddetermination to reach their full potential.Specific policy proposals in this chapter include: (i) Rolling-out a national Youth WageSubsidy programme to reduce barriers and encourage job creation; (ii) Introducing acomprehensive Vocational Training and Apprenticeship Programme that will help addresscritical skills shortages and enhance the interface between training and employment; (iii)Reforming NEDLAC so that it is not dominated by economic insiders, but rather works topromote economic growth, job creation and poverty reduction; (iv) Expansion of the NationalStudent Financial Aid Scheme to help more people to access higher education and gainmarketable skills. See pages 39 to 48.Breaking down barriers to inclusionEconomic growth is a prerequisite for overcoming the inequalities inherited from our pastand opening up opportunities for all, but it needs to be inclusive if it is to make a difference topeoples’ lives.Why are poor South Africans excluded from accessing economic opportunities? One of themost important reasons is that current conditions make it difficult for poor South Africans toown assets and access credit. The social security system also needs to play a more activerole in facilitating participation in the mainstream economy.Providing redress by assisting poor South Africans to access capital is a high priority for theDA. Accordingly, half of all policies in this section concern ‘capitalising the poor’. Proposalsaimed at inclusive growth cover the following areas:Financial incentives to enhance Broad-Based BEELegislative changes to make it easier for poor and low-income households to owntheir own homes and other assetsAdditional state assistance to expedite land reform and broaden ownership in theagricultural sectorChanges to the social security system to make it more proactive in helping people tobridge the gap between poverty and opportunity.Changes to the tax code to encourage wealthy South Africans to give moreKey policy proposals aimed at capitalising poor South Africans and encouraging broadbasedeconomic growth include: (i) introducing tax deductions to create strong incentives forthe creation of employee share ownership schemes; (ii) reducing the time limits affecting thesale of state-subsidised housing and abolishing duties on first-time land transfers to make iteasier for poor households to own the homes they live in; (iii) establishing a dedicated FarmEquity Scheme Fund to broaden ownership in the agricultural sector. See pages 49 to 57.15 | P a g e

Opening the economy to competitionCompetition is critical for building an open and inclusive economy in South Africa. It is theessential element that allows people who have been excluded by elite interests to becomeproductive members of a dynamic, integrated and forward-looking society.Competition is what drives down the prices of the basic necessities – such as food, powerand transport – so that we can enjoy a good standard of living. It makes it easier for peoplewith ideas and ambition to start businesses and get ahead, and puts pressure on the state todeliver better services.Breaking down the barriers that keep the cost of living high, and that protect economicinsiders from competition from new and innovative entrepreneurs, will require a range ofpolicy interventions that challenge established interests. It requires that we:Increase budget allocations to the competition authorities and the National ConsumerCommission, and increase their powersSlash red tape so that it is easier for new entrants to start new businesses and growCreate an environment that is conducive to innovation and entrepreneurshipDevelop a much simplified, incentives-driven industrial policyEnsure that we have government support services that are reliable, efficient, highqualityand corruption-free.Policies from this chapter cover both South Africa’s international competitiveness and thestate of competition within the domestic economy.Regarding the latter, highlights include: (i) increasing the budget allocation for, andaugmenting the powers of, the competition authorities and the National ConsumerCommission; (ii) establishing a National Venture Capital Fund to assist start-ups and earlystagebusiness; and (iii) introducing business registration one-stop-shops.Regarding the former, highlights include: (i) a graduate recruitment programme in the publicservice to address skills shortages and make the public sector a ‘career of choice’ fortalented graduates; (ii) the introduction of a new regulatory framework for the ICT sector toimprove broadband connectivity in the country; and (iii) the establishment of a fully-fledgedRegulatory Impact Assessment (RIA) Unit in the Presidency that will assess the costs,benefits and risks of all new legislation and regulations. See pages 58 to 67.Building the base through trade and investmentA healthy, growing economy that opens opportunities to all requires solid foundations. Inhigh-growth countries such as Brazil, Turkey and Indonesia, governments have paid carefulattention to building the base through long-term investments and smart trade policies.South Africa’s trade, however, is hampered by time-consuming import and exportprocedures, complex customs processes and poor regional economic integration. We havemissed a generation of investment in key infrastructure - such as roads, rail links, ports andpower stations - and significant financial resources are wasted through cronyism andcorruption.Breaking down barriers to trade with Africa and the world, and building the foundations forlong-term growth by reorienting fiscal policy to prioritise investment, are two fundamentalcornerstones of the DA’s growth strategy for South Africa. This requires that we:16 | P a g e

Engage Africa as a strategic economic partner and marketExpedite the regional integration processRadically simplify import, export and customs clearance proceduresIncrease infrastructure investment to 10% of GDP with a focus on core economicneedsEliminate corruption and wasteful expenditure by politicians and public officialsCore proposals in this section that aim to facilitate the expansion of South Africa’sinternational trade and direct our resources towards growth-enhancing investments include:(i) dramatically simplifying and reducing the number of documents and procedures requiredto import and export goods; (ii) establishing one-stop border posts at each of South Africa’sinternational land borders to expedite regional trade; (iii) opening additional consulates inhigh growth developing countries and enhancing our strategic trade diplomacy (iii) increasinginfrastructure investment to 10% of GDP; (iv) moderating government wage bill increases;and (v) beginning a process of rationalising the country’s portfolio of state-owned enterprises(SOEs) according to an extensive assessment of their strategic significance and commercialviability. See pages 68 to 78.A sustainable future for allWe have an ethical responsibility to ensure that our country’s economy creates jobs andopportunities not only for the current generation but for generations to come. This requiresthat we take proactive measures to ensure that economic growth is sustainable in the longterm. Two resources are fundamental for future growth: energy and water.Both are already in short supply. Poor planning and low levels of investment, coupled withan inefficient state monopoly, have led to a situation where electricity supply issimultaneously insecure and expensive. Pollution and dilapidated infrastructure threaten ourvital water supplies.Achieving inclusive, job-creating economic growth that is sustainable in the long-termrequires that we develop smarter ways to manage our natural resources by planning for thefuture and learning to live within our means. The DA proposals include:Adopting a transversal approach to environmental management through integratingpermitting and planningSeparating Eskom’s different functions to encourage competition and maximiseefficiencyInvesting in water storage and distribution infrastructure upgrades and expansionImplementing climate change adaptation programmesIntroducing measures to assist entrepreneurs and communities to participate in, andbenefit from, environmental programmesSpecific proposals aimed at ensuring that economic growth is sustainable in the long terminclude policies that will: (i) coordinate the management of environmental resources throughan integrated permitting system and the increased application of environmental managementframeworks (EMFs); (ii) fix and upgrade existing water infrastructure and prevent pollution;(iii) decentralise power production by separating Eskom’s different functions and expediteprocurement from independent power producers; (iv) establish a climate change adaptationgrant scheme for farmers; and (v) establish a National Building Retrofit Fund, which willfacilitate the adoption of energy-saving measures in large buildings. See pages 79 to 84.17 | P a g e

INTRODUCTIONBreaking down barriersSouth Africa’s economy is divided into insiders and outsiders. On the one side are those whohave jobs, homes, and the prospect of rising incomes and a better future. On the other sideare the millions of poor South Africans who continue to be excluded from the economicmainstream.This document sets out the DA’s plan to break down these barriers and create an open andinclusive economy in which each person has the skills, the opportunities, and the resources,to become a productive member of a dynamic, integrated and forward-looking society.At its core is the belief that the country promised to us in 1994 can only be achieved ifeveryone is included. No-one can be left out in the cold, no-one forgotten or left behind.It is a plan to break down the barriers that prevent many people, particularly young, poor andlow-skilled South Africans, from getting a job. It seeks to build an inclusive society whereeveryone has a stake; where having a home or starting a business is not the preserve of thefew, but rather a reality that everyone can look forward to.It will require that we challenge established interests. The monopolies and oligopolies in boththe private and public sectors that keep the cost of living high need to tackled head-on.Vested interests that seek to monopolise access to opportunity for the privileged few at theexpense of the majority – whether in the form of closed business networks, patronagepolitics, or protected employment for members of labour union COSATU and its affiliates –needs to be met with bold and decisive action.The high costs and bureaucratic red tape facing entrepreneurs and small businesses needsto be drastically reduced and the scourge of corruption and poor service delivery needs to beeliminated so that we can begin to build an effective state that works to improve the lives ofSouth Africans.For this plan to succeed we need a healthy, growing economy.No country that has tackled the interrelated challenges of poverty and unemploymentsuccessfully has done so in the absence of strong economic growth. This is because growthcreates wealth, and with more wealth, there is more to share: enough, for all, forever.Breaking down barriers – to job creation, to asset ownership, to a better standard of living -and building a high-growth, stakeholder economy, will be the centrepiece of DA economicpolicy as we move forward to 2014.The challengeThe most fundamental challenge facing South Africa today is that too few people areemployed. According to official statistics, 24% of the economically active population is out ofwork, rising to approximately 35% using the expanded definition of unemployment (whichincludes discouraged job seekers).This means that we have among the highest unemployment rates in the world. The situationis worse still for youth unemployment which registers at over 50%.18 | P a g e

This high unemployment underpins widespread poverty in our country, which at 48% of thepopulation (over 50% using the headcount poverty rate), is very high for a middle incomecountry like South Africa. While there has been some improvement for the very poorestSouth Africans after the transition to democracy in 1994, this is largely attributable to agreatly expanded system of social grants, rather than a more inclusive economy.Economic inequality continues be a major challenge. South Africa’s Gini coefficient – ameasure of income inequality – registers at 0.67, which is among the highest in the world. Inpractical terms, it means that the poorest 20% of the population earns just 2.3% of thenational income, while the wealthiest 20% enjoys 70% of the income. Inequality is furtherexacerbated by settlement patterns that keep poor South Africans far from centres ofeconomic activity.The ‘triple challenge’ facing South Africa today – of unemployment, poverty and inequality –is the consequence of significant barriers to opportunity. These barriers have a long history,and are rooted in our country’s apartheid past.19 | P a g e

HOW DID WE GET HERE?Apartheid’s legacyThe legacy of the past is still with us. It shapes who we are; what we value; how we view oneanother; and what we want to achieve as a nation. It explains how we got to where we aretoday, and gives us clues as to what needs to be done to build the kind of society in which allSouth Africans have the skills, the opportunities, and the means to build a better life. Ourhistory reminds us just how far we’ve come as a nation, but also how far we still have to go.The 20 th century saw the consolidation of asset stripping by a powerful white minority fromthe black majority. The 1913 Native Land Act limited land ownership to 9% of South Africasuperficial territory, later expanded to 13% under the 1936 Natives Land and Trust Act, ofblack people defined as ‘natives’ in colonial nomenclature. The 1946 Asiatic Land Tenureand Indian Representation Act and, under apartheid, the 1950 Group Areas Act, herded andconfined Indian and coloured South Africans to their group areas.Job opportunities were similarly organised along quasi-racial lines. By law and socialpractise, apprenticeships were for some, mostly white, and not others. The job colour bar setaside certain categories of employment, the better ones for some, mostly whites, and notothers. The education system became premised, especially when Bantu education wasenacted in law in the 1950s, on the denial of quality education to the majority of the nation’schildren over the generations.The denial of full citizenship to the majority of South Africans through the creation of socalled‘homelands’ deepened the disenfranchisement of black people, and enforced patternsof settlement that were – and still are – far from centres of economic activity. Stateinterference in trade, investment and business enterprise was widespread, buttressed by theunequal provision along racial lines of basic services such as water, electricity andhealthcare.This history of disenfranchisement, marginalisation, and exclusion restricted our nation’stalent and wounded our psyche. It is a history that has consequences that continue to impacton our daily lives: on what we have, on where we live, on how we live, on how we think; onhow we relate to one another; on how we perceive ourselves as individuals andcommunities; and on how we dream about the future.The promise of 1994The epoch-shifting democratic election of 1994 brought with it the promise of a newbeginning. Led by one of the greatest statesman of the 20 th century – Nelson Mandela – theemergence of a ‘new’ South Africa was heralded as a political miracle; an example of thetriumph of democracy over tyranny; reconciliation over bloodshed; hope over despair.Anchoring this promise was a new supreme law for South Africa: the Constitution.Promulgated by President Mandela in 1996, it was, and is, one of the most progressivefounding charters in the world. It enshrines our equality as citizens. It prohibits discriminationby envisioning a non-racial, non-sexist society. It grants all of us the right to dignity, andrequires that the state progressively realise our rights to food, water, healthcare and socialassistance.In the years that followed, substantial progress was made towards laying the foundations fora modern constitutional democracy. The racially segregated provincial administrations,homelands, and self-governing territories were integrated into a more rational system of ‘co-20 | P a g e

operative government’. The separation of powers between the executive, legislative andjudicial arms of government was institutionalised.A collection of independent institutions - including the Public Prospector, Auditor General,and Human Rights, Gender and Electoral commissions – were established in terms ofChapter 9 of the Constitution, to guard against abuses of power and protect the rights ofindividual citizens.Progress was also made toward improving the quality of life for many of the poorest SouthAfricans. Through the Reconstruction and Development Programme (RDP), the governmentrolled out a comprehensive plan to expand access to basic amenities such as housing,water, sanitation, schooling, primary healthcare and electricity to communities that had beendenied these in the past.The programme can claim many success stories.For the first time in our history, South Africa has a comprehensive social security systemwhich serves all citizens in need, regardless of race. It features an extensive array of grantsthat provide assistance to senior citizens, the disabled, children in need, foster parents, andmany others too poor to meet their basic social requirements. Millions of people’s lives havebeen changed for the better as a consequence of free healthcare programmes and freemeals at schools.However, shortly after its initial implementation, the RDP began to encounter problems.Economic challenges post-1994It became very clear very quickly that the government did not have the capacity to fullyimplement the RDP. A severe shortage of professional and project management skills in thepublic sector, coupled with inadequate resources and poor administration, resulted in everincreasingbacklogs. The new provincial administrations, only recently established, were in astate of flux, making them unreliable implementing partners.Promises soon outstripped outcomes, and a new phrase began to enter the public lexicon:service delivery failure.It also became apparent that the state did not have the money to fund the RDP’s manyinitiatives. The new government had hoped that the transition to democracy, and SouthAfrica’s welcome reception into the international community, would bring with it improvedeconomic integration, better international trade ties, much-needed foreign direct investment(FDI), and healthy GDP growth.This did not happen. Economic growth idled at 2.5%, far from the targeted 4-6%. The budgetdeficit stood at 4.3% and government debt rose to 50% of GDP. The then-Deputy PresidentThabo Mbeki, and the Finance Minister at the time, Trevor Manuel, understood that if thissituation was allowed to continue it would curtail the government’s policy options andseverely limit the economy’s capacity to create opportunities for people in the long term.It became apparent that with the RDP programme, which presented a large scale fiscalspending programme aimed at improving the life of South Africa’s poorest citizens, the ANChad neglected to create a productive economic policy that would ensure the affordability andsustainability of RDP expenditure. As a result, whilst some indicators of basic servicesimproved, poverty rates in South Africa remained broadly unchanged.21 | P a g e

Headcount poverty rate in China, India, Brazil and South Africa (%)6050403020ChinaIndiaBrazilSouth Africa1001993 2000 2008Table 1: Expanding economic opportunities as a result of 8% economic growth or more,coupled with rapid job creation, has seen poverty plummet in China, India and Brazil. Smartsocial policies have furthermore reduced inequality and promoted economic inclusion formillions of poor Brazilians. Poverty in South Africa remains very high. Source: OECDTo address this, Mbeki and Manuel embarked on a wide-ranging policy reform programmecalled Growth, Employment and Redistribution (GEAR). At the heart of GEAR was anunderstanding that the promise of 1994 could only be achieved if South Africa’s financeswere on a sure footing, and if the economy was geared toward achieving high rates ofeconomic growth, which would in turn expand employment opportunities and grow therevenue base.Although GEAR made notable progress in areas such as budget reform; deficit reduction; aconsistent monetary policy; and trade promotion, political pressures conspired to prevent theprogramme from being fully implemented. This was particularly evident in the failure to makesignificant gains in areas such as collective bargaining reform; the restructuring of stateassets; tax incentives; skills development; and infrastructure investment.Nevertheless, economic growth was relatively strong during the 2000s, reaching 5.4% in2006 and 5.1% in 2007. The budget deficit also declined, and South Africa recorded asurplus in both 2006 and 2007. But for millions of ordinary South African, theseimprovements in our country’s economic fundamentals remained abstract notions,unconnected to everyday reality.Poverty continued to be widespread, and many communities, especially in rural areas,continued to lack access to basic services like water, electricity, quality healthcare andeducation. It should be noted, though, that it was during the GEAR period that the SouthAfrican economy registered its first - and only - significant decline in unemployment since1994.22 | P a g e

South Africa growth in GDP, 2000 to 2010 (%)65432102000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Table 2: South Africa percentage GDP growth per annum. Solid economic growth during theMbeki presidency experienced a setback as a consequence of the 2008 global financialcrisis and poor policy decisions during Zuma administration. Source: CIANew leaders, old problemsIn 2006, with the economy healthy, and the country’s debt position secure, South Africa wasready for a new phase, and a new goal. President Mbeki identified 6% annual growth in GDPas the minimum required to make a sustained impact on unemployment declared theAccelerated and Shared Growth Initiative (AsgiSA), as the vehicle to get us there.AsgiSA was meant to ‘unlock economic growth’ by addressing six so-called ‘bindingconstraints’. These were: currency volatility; inadequate infrastructure; skills shortages;barriers to entry; limits to competition; high regulatory burdens and inadequate statecapacity. Although the analysis underlying the programme was largely correct, theresponses outlined in the policy were largely insufficient.Rather than forge a new direction for the economy, AsgiSA presented a wish list of projectsand programmes that lacked both clarity and coherence. However, political events wouldsoon make such criticisms redundant. Not long after the first AsgiSA-initiated projects beganto be rolled out, President Mbeki was removed from office by the ANC. The programme,together with its focus on economic growth, was quietly sidelined and South Africa enteredan age of uncertainty.After a brief interlude when Kgalema Motlanthe served as a ‘caretaker president’, PresidentJacob Zuma was ushered into office by the governing party. During his rise to power, Zumaincurred numerous political debts, particularly to the party’s youth league and union allies,who were instrumental in removing Mbeki from office. These debts now had to be repaid; foreconomic policy, the consequences were stagnation and confusion.23 | P a g e

It could not have come at a worse time. While champagne bottles were being uncorked atthe Union Buildings following President Zuma’s inauguration, the world was grappling withworst economic downturn since the Great Depression. In South Africa, close to a million jobswere lost between 2008 and 2010 and the deficit to GDP ratio reached levels not seen sincethe end of apartheid. More than ever, our country needed a clear economic vision.We didn’t get one. Instead, President Zuma sought to appease the various factions thatbrought him to power by assigning the formulation of economic policy to four separategovernment ministries: the National Treasury; the Department of Trade and Industry; theDepartment of Economic Development; and the National Planning Commission. Each ofthese produced economic plans and strategies, but these were not consistent and frequentlyworked against each other.The headline policy initiative to emerge from the new Department of EconomicDevelopment, overseen by trade unionist Ebrahim Patel, was the New Growth Path (NGP).The NGP, adopted by the Cabinet in 2009, departs significantly from earlier policy platformsin that it draws heavily on East Asian-style ‘state capitalist’ models, complete with anexpanded role for the state as a player in sectors such as mining and banking, and massiveincreases in government expenditure.The NGP has a number of flaws that militate against it offering a credible economic vision forSouth Africa. It does not, for instance, take into account the very real skills shortages andcapacity constraints in the public sector, nor does it adequately address where the additionalmoney will come from to fund its ambitious state-led projects and programmes. Moreimportantly, it does not fix the fundamental problems facing the South African economy thatinhibit growth and exclude the poor.A second policy platform, the National Development Plan, was put forward by the NationalPlanning Commission headed by Trevor Manual in 2011. This document stood in contrast tothe NGP and provided both a positive contribution to the discussions of South Africaneconomic planning and a Vision for 2030.However, the ANC has not been able to resolve the fundamentally different approaches laidout by the two documents, leaving the country and its citizens in limbo regarding anunderstanding where the South African economy is headed.Where we are nowIn the absence of a clear direction for the economy, growth has stagnated during PresidentZuma’s first term in office. Registering between 2.5 and 2.8% per annum, South Africa’sprojected GDP growth significantly lags Africa as a whole, which stands at approximately5.5%. Lacklustre growth, coupled with policy indecision, has meant our country’sunemployment rate continues rank among the highest in the world.In recent years the promise of 1994 has not opened economic opportunities to all SouthAfricans. Instead, powerful insider elites in the form of Big Business, Big Government andBig Unions, have continued to monopolise opportunities at the expense of the many.The failure of South Africa’s education system, for example, to equip young South Africanswith basic literacy and numeracy skills means their chances in life – whether this involvesfinding a job, or pursuing higher education and training – are cut short even before theyleave school. This failure has seen youth unemployment soar to over 50%.24 | P a g e

The situation is exacerbated by policies pursued by the ANC government that have activelycreated a system of economic ‘insiders’ and ‘outsiders’.For business and political elites with privileged access to employment opportunities, or thosein positions protected by South Africa’s rigid labour regulations, life is relatively comfortable.They have an interest in maintaining the status quo. COSATU’s (at times violent) oppositionto the Youth Wage Subsidy is a case in point.Closed business networks, excessive bonus payments, steady wage increases, andgenerous government spending have enriched this minority.Millions of young school and higher education graduates, on the other hand, cannot accessemployment because of high barriers-to-entry in the labour market. Entrepreneurs with thepotential to inject dynamism into the economy and create jobs are constrained by high costsand considerable red tape.The poorest South Africans remain excluded because capital assets remain out of reach,and patterns of settlement continue to keep poor households far from centres of economicactivity.On top of this, the administration’s preference for economic insiders means it is reluctant orunwilling to challenge the status quo and open up the economy to greater competition. Thishas resulted in an ever-rising cost of living, with particularly steep increases for those itemsthat affect poor households the most: Food, fuel, electricity, and transport.For many South Africans, the lived reality of marginalisation and exclusion continues to thisday. The past is still with us. But we do not have to go any further down this road.25 | P a g e

THE DA’S CONCEPTUAL FRAMEWORKConstitutional FoundationThe DA believes that building an open and inclusive economy that delivers opportunities forall is not optional. It is built into the founding document of our democracy – the Constitution.In the Bill of Rights chapter, it is made explicitly clear that everyone has the right to a decenteducation; to have access to healthcare, food, water and social security; and to be able toaccess adequate housing.The current national administration has failed to deliver these to the people of South Africa.At the same time, it has begun an assault on the very document that enshrines these rightsin the first place - in the name of a so-called ‘second transition’. The idea behind this is thatthe transition to democracy in 1994, led by former President Nelson Mandela, was merely a‘political transition’, and that a more radical ‘economic transition’ is required for the fulfilmentof the National Democratic Revolution.According to this thinking, in order for this ‘second transition’ to take place, the fundamentalbuilding blocks of our democracy need to be re-thought, including the separation of powersbetween the judicial and executive arms of government; the role of the prosecutingauthorities, the role of the Reserve Bank; and the independence of the media. But theConstitution has not failed South Africa, the ANC government has.In South Africa today we live with the most progressive constitution in the world. It protectsour freedoms, and guarantees our political and socioeconomic rights, and has been usedtime and time again to defend those rights. By tampering with the checks and balances thatprotect South Africans against abuses of power, the ANC is undermining our peoples’ mostimportant vehicle for claiming the better life promised to us in 1994.Focus on high growthInvestment and growth are the essential ingredients for building an open and inclusiveeconomy. Numerous economic studies have shown that, to make a significant impact onunemployment, the economy would have to grow at a minimum rate of 7% per year. AsgiSAaimed to grow the economy at 6%, building on the 5% achieved in 2005 – the only timesince the transition to democracy in 1994 when there was a noticeable drop inunemployment.The NPC’s Diagnostic Overview, moreover, found that growth is essential for fighting povertyand raising per capita incomes. The report notes that, at current growth rates, it would takeSouth Africa 35 years to reach the per capita income levels of a developed country likePoland or Portugal. If GDP growth were to increase to 4% it would take approximately 17years, while at 8% it would take less than a decade.The experiences of high growth emerging economies such as Brazil, Indonesia, Malaysiaand Turkey hold valuable lessons for South Africa, and hold clues to what we can achieve ifwe adopt pro-growth policies. Rapid growth in Brazil, for example, coupled with smart socialpolicies, has resulted in poverty declining from 20% of the population to 7% in less than 10years. As a consequence, the country’s income inequality has fallen by 1.2% per year.In Indonesia, incomes are rising so fast that, by 2030, that country will have the 4 th largestmiddle class in the world, consuming US$ 2.5 trillion worth of goods and services. The DA26 | P a g e

elieves that, with our rich mineral deposits and sophisticated private sector, we have what ittakes to match these accomplishments.What would South Africa look like at 8% growth? The most obvious outcome would be that,in less than ten years, the economy would double in size. The national budget couldplausibly increase from R 1 trillion to R 2 trillion in today’s money. South Africa would replaceAustralia as the 15 th largest economy in the world. Moreover, the amount we could spend ofeducation, healthcare, housing and social security could potentially double.This is not to say that state involvement in the economy and society would expand alongwith the growing economy. Quite the opposite. As the circle of opportunity grows, and moreand more South Africans are able to earn incomes and invest in themselves and theirfamilies, the primary role of the state will be to correct market failures, make sure thatmarkets work for the many and not just the few, and give people the tools to become agentsof their own destinies.That is why, alongside policies designed to enhance the competitiveness and strategicposition of the South African economy - issues concerned primarily with growth - thisdocument dedicates two chapters exclusively to addressing job creation and building aninclusive economy. The aim of this document is to provide a policy programme to build abetter life for all South Africans with 8% economic growth as the essential ingredient.Potential increase in expenditure by government function (in R billion)4504003503002502008% Scenario2012/2013 Budget150100500EducationSoc.SecurityPoliceHousingTable 3: If the South African economy grew at 8% p.a. it would double in size in ten years.This means that the national budget could grow from R1 trillion to R 2 trillion (in today’smoney) if current tax and revenue collection rates are kept constant. The resources availablefor services such as education, healthcare, social security and policing could likewisedouble. Source: Treasury and Democratic Alliance27 | P a g e

The DA in Government: Western Cape Economic Development PartnershipOn 26 April 2012 the Western Cape Economic Development Partnership was launched. Anindependent, non-partisan, membership-based organisation, the EDP was established tobring economic stakeholders - including small and big business, academia, sector bodiesand civil society - together to drive, lead and coordinate inclusive, job-creating economicgrowth in the Western Cape. The EDP model is based on international best practice, and isinfluenced by new types of intermediary organisations that have emerged in variouscountries in response to the complex social and economic challenges facing regionaleconomies in a rapidly changing global environment. Tasked with formulating a long-termvision and strategy for the Western Cape economy, the EDP, which receives funding fromthe Western Cape Government, City of Cape Town, as well as other sources, provides anexcellent example of how the DA is bringing stakeholders from outside government right intothe centre of the economic development process.The economy and the stateThe rapid growth of many East Asian economies (most notably China) and their success atcreating new wealth and reducing poverty, has prompted some observers to suggest that theanswer lies in abandoning a market economy (and with it, many of our key constitutionalprinciples, among them private property ownership) by instead following a state-dominateddevelopment trajectory, an approach known as ‘state capitalism’.In short, state capitalism places the state at the centre of the economy. Through directgovernment participation in economic activity; majority shareholdings in state-ownedcompanies (SOEs); and investment vehicles such as sovereign wealth funds, the statewould have the power to determine both the direction of economic development, and theallocation of resources.State capitalism can claim some remarkable successes. Some of the world’s largest andmost successful companies are state-owned. Russia’s Gazprom, for example, is the world’slargest natural gas company. China’s Sinopec Group is the fifth largest listed company in theworld by revenue, at $ 273 billion. Saudi Arabia’s Saudi Basic Industries Corporation is oneof the world’s most profitable chemicals companies.Flaws of state capitalismYet despite its growing presence internationally, there are several inherent flaws to the statecapitalist model that militate against it providing(i)(ii)A desirable economic growth trajectory in the long-term; orAn appropriate model of development for South Africa given the severe skillsshortage in our country’s public sector and the scope for abuse illustrated by theneo-patrimonial politics of the ANC.In both instances, the problems boil down to the fusing of commercial and political interestsby introduce commercial criteria into political decisions, and political criteria into commercialones. This can have any number of the following consequences:Regulatory failure: The State cannot properly regulate firms which it runs itself, or inwhich it holds a controlling stake28 | P a g e

Inefficient resource allocation: Resources cannot be allocated to maximiseproductivity and output when incentives favour political preferencesReduced innovation: Innovation requires the freedom to experiment, which is rarein large bureaucratic state-run companiesReduced competition: SOEs typically dominate their respective sectors, whichundermines competition and increases prices for consumersPoor corporate governance: Introducing political considerations into how firms arerun undermines oversight by boardsHeightened corruption: Their proximity to the state means state entities can easilybecome sources of patronage and corruptionThe most significant weakness of the state capitalist model, however, is that it fundamentallyundermines liberty. By turning companies into organs of government, the modelsimultaneously concentrates power and corrupts it. Whereas in a liberal economy, privatelyownedentities act as a check on the power of the state, state capitalism instead channels allpower to the centre. This removes an essential layer of accountability.A pragmatic viewA preferable approach – the one promoted by the DA – views the state as having animportant role to play in the economy by providing an environment conducive to growth,including the provision of critical infrastructure; enabling economic participation for thosefrom disadvantaged backgrounds through education; ensuring transparency andenforcement of ownership rights; creating a stable and predictable regulatory environment;correcting market failures; reducing the transaction costs of participating in the economy;and promoting South African firms and entrepreneurs on the global stage.This approach sees one of the primary causes of South Africa’s economic failure over thepast 18 years not in the overall approach, but much rather in poor governance and failure ofdelivery.Our approach has many similarities with the pragmatic and successful policies pursued bycountries with open, market-oriented economies such as Brazil and Mauritius, rather thanthe solidly statist policies of Russia and China (though the latter is, in fact, liberalising to agreater extent than its fans, including those in the ANC, typically acknowledge). Ourapproach understands that there are certain activities and functions that the state mustnecessarily perform, but that in many areas these functions can be enhanced via injectionsof private sector funds and expertise.Two examples illustrate this particularly well. First, Brazil has pioneered, with great success,the model of ‘the state as minority shareholder’ which essentially replaces direct governmentownership with indirect government ownership and swaps majority for minority holdings byacquiring shares in a broad spectrum of different companies. This approach brings with it anumber of benefits, including:Limiting potential abuse of power by the government of the day. Privateshareholders have enough say in the running of the erstwhile SOEs to prevent theseentities from becoming vehicles for rent-seeking or patronage politicsProviding access to capital through the state that companies may not otherwise beable to command in the market. This allows them to invest more in productivityboostingcapital equipment, and ultimately increase returns on their assets.Bringing private sector management expertise into the running of former SOEsaddresses their lack of competitiveness, poor corporate governance and inefficientresource allocation29 | P a g e

Second, Brazil has begun the process selling off controlling stakes in key state assets andSOEs in order to raise funds for much-needed infrastructure upgrades. One recent exampleof this is the sale of a 51% stake in Guarulhos, Sao Paulo’s main international airport, whichwill now be run as a public-private partnership. The transaction raised the equivalent of overR70 billion. Brazil plans to sell controlling stakes in 66 more airports around the country.Rather than hold onto creaking assets, this flexible approach allows the state to draw onprivate sector funds and expertise to upgrade facilities such as ports, roads, railways andairports, which are critical for the economy, as well as raise capital for new infrastructureprojects. A number of similar programmes are outlined in the DA’s Alternative Budget for2012.While state capitalism presents a role for the state that many, including the ANC, findattractive, the DA believes that the concentration of power it entails militates against itproviding a desirable model of development for South Africa. Instead, the more flexible,more pragmatic approach adopted by emerging democracies like Brazil, offer useful lessonsfor building an economy that it competitive, yet at the same time fair and inclusive.Outside the State: Measuring the Informal EconomyExisting in a grey space largely outside of formal zone of state regulation and control is aparallel sphere of economic activity: the informal economy. While there is considerabledebate among professional economists and academics concerning the actual size of theinformal economy, Stats SA estimates that the sector accounts for roughly 5.6% of GDP andemploys 2.34 million people. The agency estimates that there are approximately 1076 millioninformal enterprises operating in South Africa today. This is significant considering thatindividually, both the formal construction and agricultural sectors each account for less than5.6% of GDP.Adcorp, a labour advisory company, believes that the informal economy accounts or a muchlarger portion of the economy, at 17.3% of GDP, with 6.2 million employed in the sector. Thetrue number may well fall somewhere in between these two estimates.The DA's approach to the informal sector is to recognise, first and foremost, that it iseconomic activity happening organically in a country where economic activity is relativelyscarce. As such, we must recognise the worth of the sector and seek either to formalise itwithout extinguishing the flame of enterprise, or adjust the legal and regulatory framework toaccommodate it. The major problem with the informal sector is that participants are noteasily able to resort to the legal system to enforce contracts and access other protectionsThe bulk of these small enterprises operating in the informal sector engage in smallmanufacturing, trading and service industries, and utilise cash transactions only, which arerarely, if ever, reported. They therefore do not pay taxes on their business activities, despitereceiving services from the state. A recent Oxfam report found that this so-called ‘tax gap’could be anywhere from R19.6 billion to R39.2 billion.Finding ways to integrate the informal sector into the formal economy offers a numberbenefits for informal enterprise owners, their employees, and society in general. There isreason to believe the sector could generate significant revenue for the state by broadeningthe tax base. This additional revenue could then be directed to social programmes andmuch-needed infrastructure development. The informal sector itself, on the other hand,would benefit by being able to access government SMME programmes, gain access to30 | P a g e

credit, while the employees of these businesses would avoid potential exploitation by comingunder the protection of the law.How much revenue could the informal sector raise for the fiscus?Oxfam estimates that the state is missing losing between R19.6 billion and R39.2 billion inrevenue as a consequence of informal businesses operating outside of the normal regulatoryenvironment. If as little as 10% of this sector is formalised it could potentially result inrevenue gains of between R2 billion and R4 billion p.a. To tackle the problem of the informalsector we need to break it down into its constituent parts: if an entity is not paying tax thenthat is a taxation problem. If a business entity is not registered then that is a businessregistration problem. If an entity is breaking laws then that is a legal problem.The integration of the informal sector could already be happening, though again it is difficultto measure. A recent research report by Bank of America Merrill Lynch on the South Africaninformal sector suggests that a process of ‘formalisation’ is occurring. The state shouldenhance this process, and ensure that informal entrepreneurs and business owners benefitfrom it by:(i) making easier to start and grow SMMEs by reducing costs and administrative burdens,thus removing an important incentive to operate outside of the formal economy; (ii)subsidising business skills development and training, including knowledge of tax compliance;and (iii) promoting awareness of the already existing tax amnesty for SMMEs below aspecified asset level. A DA government would initiate a comprehensive survey of theinformal sector in South Africa, and establish an inter-departmental task team to develop adetailed strategy to assist informal business owners and their employees become productiveparticipants in a dynamic and integrated economy.31 | P a g e

READING THE REMAINDER OF THE DOCUMENTScope and scaleThe two unifying objectives of this policy document are to break down the barriers thatexclude people from the economy, and lay the foundations for a dynamic, integrated andforward-looking society by putting South Africa on a high-growth path. It does not set out toaddress all areas of policy.The core focus is the economy, and consequently, the proposals seek to make bold reformsin areas such as the labour market, the tax code, competition policy, fiscal policy andinternational trade. Social policies like education and social security are addressed wherethey have a substantial impact on economic growth and poverty reduction.Many of the policy proposals outlined here are designed to be implemented where the DAgoverns, while others are intended to provide the basis for the party’s promise to voters at anational level. Those that fall within a provincial or local government competency cantherefore begin to be implemented where the DA governs in the Western Cape, the City ofCape Town, Midvaal and other local governments around the country.These places provide beachheads where the DA will champion the high-growth,stakeholder-led model of economic development, thereby providing an example of what canbe achieved at a national level.Policy processThis is the second of two documents. The first was a diagnostic assessment that analysedthe fundamental challenges facing our economy today.The assessment process revealed a national economy that is stagnating under thecombined weight of policy indecision by the current national administration, an overbearingand increasingly exploitative state machine that quashes entrepreneurship and innovation,and high barriers that exclude millions of South Africans, particularly the young, the poor andlow-skilled, from becoming active participants in the mainstream economy.This document sets out to address the problems identified in the assessment.The policy development process has put a premium on research excellence and stakeholderconsultation and participation. A core policy group of DA public representatives, includingprovincial Cabinet Ministers, national MPs as well as Mayors, who all work on the economy,and who represent the party in all three spheres of government: national, provincial andlocal.This group has played an important role in discussing and revising these proposals followinga comprehensive consultation process involving party structures across the country.Evidence-based policy makingPolicy development is about taking our vision of breaking down barriers and building a highgrowth,stakeholder-led economy, and translating it into practical ideas that can beimplemented by the government and its partners.It is not a simple process. Each proposal has to fit within a legislative framework, budgetshave to be revised, and research conducted to ascertain whether the proposed policy will32 | P a g e

have the intended effect. In developing this set of proposals, the DA has used an approachknown as evidence-based policy making (EBP), which uses the best empirical evidence, andengages in sound analysis of the available policy options.It is an approach that is increasingly regarded as international best practice. Althoughmethodologies differ from place to place depending on the relevant national context,consistent with EBP approach is the need to gather information from, and consult, a widerange of sources and stakeholders.The policies contained in this document have been developed using the best availablenational and international research; engagement with experts from the worlds of economicsand public policy; and ‘frontline’ policy experience from practitioners in DA provincial andlocal governments.Another key aspect of the approach is benchmarking. On the one hand, internationalbenchmarks are helpful indicators of how South Africa compares on a particular issue (say,the quality of the education system) and where we need to work harder to achieve betteroutcomes.On the other, in instances where countries at a similar level of economic development havesuccessfully tackled a difficult issue, they provide useful policy lessons that we can adaptand use here in South Africa. In developing these proposals, the DA has drawn on, andlearned from, the policy reform programmes rolled-out in comparable middle-incomecountries such as Brazil, Turkey and Malaysia.Policy designThe fundamental objectives of this policy document are to break down the barriers thatexclude people from the economy, and lay the foundations for a dynamic, integrated andforward-looking society by putting South Africa on a path to rapid economic growth.Because it includes many different types of policy initiatives, however – from legislativeproposals and amendments to the introduction of financial incentives, all with varyingdegrees of impact and utilising competencies from different spheres of government – there isthe danger that the policy programme can become simplistic or incoherent.To prevent this, and ensure that each proposal addresses a specific policy challenge toproduce a measurable outcome, the document is arranged along four primary axes. Theseare: issue area, core challenge, policy outcome, and timescale.Results-oriented policyThe issue area refers to the broad policy field in which a set of particular proposals aregrouped. Policy proposals that have to do with amendments to labour legislation andinitiatives aimed at skills development, for example, are grouped under the theme ‘openingjob opportunities to all’.In each issue area, a set of core challenges is outlined that focuses on the most importantproblems facing a given area of the economy. One of the most important problems in thelabour market, for example, is that high barriers to entry exclude young, poor and low-skillSouth Africans from entering formal employment.A set of policy outcomes, which correlate with the core challenges, then sets out what theDA would like to see change in each of these issue-areas. Where ‘high barriers to entry’ limit33 | P a g e

the ability of young job-seekers from being able to enter the job market, for example, thecorrelative policy outcome is ‘reduce barriers to entry’.Each of the policy proposals that follow therefore seek to address a specific core challengeand achieve a specific policy outcome. The result is a highly focussed policy agenda thatprioritises effectiveness over ideology and outcomes over rhetoric.Here is a correlative core challenge/ policy outcome pairing from the chapter on competitionin the economy:CORE CHALLENGEHigh regulatory burdensPOLICY OUTCOMEEasier and simpler to do businessPolicy timescaleBecause individual policies differ according to the length of time they will take to implement,the extent of the impact they will have on addressing a core challenge, and whether they fallwithin a national, provincial or local government competency, each proposal has beencategorised according to timescale.These are: ‘long-term’, ‘medium-term’ and ‘short-term’ interventions. In many instances,long-term interventions require amendments to national legislation or have substantialbudgetary implications. These can only be implemented when the DA governs at a nationallevel.Medium-term interventions, on the other hand, refer to policies and programmes that can beimplemented at a provincial or local government level, but which require significant planningand budget implications, and possible changes to provincial legislation. They may includenational level interventions in instances where, for example, the DA lobbies the currentadministration to adopt a particular policy.The youth wage subsidy proposal is one such example. Short-term policy interventions are,on the whole, easy to implement, do not generally require legislative changes, and can besuccessfully implemented within current operational budgets.34 | P a g e

FISCAL AND MONETARY POLICY PRIORITIESGetting fiscal policy rightThe DA’s plan to break down barriers and build a high-growth, stakeholder economy will onlywork in a stable and supportive macroeconomic environment. Accordingly, our approach tomacroeconomic policy is to get fiscal and monetary fundamentals right, and to moderate theshort-term fluctuations in growth that drive the business cycle.Our fiscal policy position is updated each year with the publication of our Alternative Budgetshortly before the national Minister of Finance tables his Budget. The budget framework ofrecent Alternative Budgets reflects four main trends in tax policy.First, tax policy should also support a healthy financial system that meets the needs ofsavers and borrowers while providing capital to support growth. In this regard we generallypropose a reduction in taxes on savings and investment.Second, we maintain that tax policy has a key role to play in driving economic growth so wepropose appropriate cuts in corporate and business taxes to enhance the competitiveness ofSouth African businesses.Third, we believe that payroll taxes are a contributing factor to our stubbornly highunemployment rate and should therefore be reduced over the medium term.Fourth, because of economies of scale in investment and the disproportionate share ofwealth that accrues to high income earners, we support the progressive nature of taxationestablished under the current government.We note, however, that the top rates of personal income tax are high relative to ourinternational competitors, and kick in at a lower rate. We maintain, therefore, that there is nospace to adjust these in favour of SARS in the medium term.On the expenditure side there are also several trends that characterise the DA’s fiscaloutlook as indicated in each Alternative Budget. It is important that the budget framework, forexample, does not threaten our fiscal health, hence we have tabled proposals to constrainour debt-to-GDP ratio to no higher than 40% over the medium term.Moreover, the current government's failure to ring fence dedicated revenues is short-sighted.We believe that it is appropriate and just to ring fence certain taxes to ensure that taxpayersget what they pay for.Recent examples that highlight this include the debacle around e-tolling in Gauteng wherethe DA has supported the ring-fencing of the fuel levy to pay for road infrastructure, and thecarbon tax of 2010 which the DA maintained should be ring fenced for expenditure oncarbon-mitigation.Several core principles underpin each of the DA’s Alternative Budgets. These are:Policy certainty: One of the consequences of the ideological factionalism in theANC is the lack of certainty around economic policy. Ministers from variousideological backgrounds table contradictory policy documents and implementation isblocked by shifting factions at Cabinet level. While the New Growth Path posits abigger role for the state in the economy, the National Development Plan takes theopposite view. A DA government would speak with one voice on the economy.35 | P a g e

Fiscal sustainability: While National Treasury’s major success in the past 15 yearshas been the drawing down of apartheid debt and the consolidation of fiscal policy,the ANC’s alliance partners are constantly lobbying for fiscal expansion, regardlessof where we are in the business cycle. The risk of them getting their way is becomingincreasingly dangerous as the debt-to-GDP ratio is set to approach 40% in themedium term. A DA government would hold the fiscal line in the face of populistpressure and run a counter-cyclical fiscal policy to lessen the impact of downturns.The long term objective will be two-fold: First, to reduce the participation of the statein the economy and to ensure that fiscal spending does not affect price levels, orcrowd-out household and corporate expenditure. Spending should be limited to theresources required for ensuring that the public sector creates the environmentnecessary for the economy to grow. Second, fiscal expansion should, wherepossible, be limited to situations where projects can achieve significant boosts ineconomic growth, to ensure that future generations are not burdened with today’scosts without significant benefits. In order to achieve this, we would entrench limitson fiscal expansion, using mechanisms such as the Swiss and German constitutionallimitations on structural deficits, which link the government’s ability to expandexpenditure with key debt-to-output measures. .Revenue through growth not increased taxation: Unlike its counterparts in Braziland India, the National Treasury has failed to express a compelling growth narrativefor South Africa, and our country has consequently lost out on the revenue benefitsof faster growth. Instead, the Treasury seems to be casting around for new taxes toimpose. South Africans are already taxed at an extremely high rate relative to otheremerging markets so proposed carbon taxes, local business taxes or increases inVAT, payroll or income tax increases to fund the proposed National Health Insurancescheme would leave us heavily overtaxed, ultimately constraining growth and jobcreation. A DA government would raise revenue by driving growth, not by raising newtaxes.Tax breaks to drive new investment: The National Treasury has long had anaversion to using tax incentives to drive the changes we need to see in the economy.In contrast, a DA government would introduce billions of rands worth of tax breaks toincentivise savings, job creation, broad-based share ownership and small businessdevelopment.Tax decentralisation: The DA proposes a review of the funding mechanisms forlocal government that would provide local government with a better range of taxincome streams under its own control and which could be implemented according tolocal circumstances. Any new taxes introduced to fund local government would haveto be matched by reductions in national taxes. Under the current system, the taxationpowers of local governments are limited to property rates, service charges and levieson service charges (grants are provided from the national fiscus, but these are oftenunreliable). This restricts their ability to respond to the needs of economicdevelopment at a local level. Furthermore, variable local taxation would enhancecompetition between municipalities from a cost/benefit perspective, with better runmunicipalities being rewarded with greater economic activity by corporate and privatecitizens, enhancing the ability of governments to deliver services in a manner that isaccountable and responsive.Cut waste and streamline government: Government has become excessivelywasteful and bloated under the ANC. The Auditor General identified R20bn worth ofwasteful expenditure in 2010/11 alone. In addition, budget allocations to the36 | P a g e

Presidency and VIP security have increased well above the rate of inflation, while thenumber of Cabinet posts has ballooned. The DA would eliminate wastefulexpenditure, streamline the cabinet by cutting some departments and mergingothers, and place tighter restrictions on state employees doing business with thegovernment.Shift from consumption to productive investment: For three of the last five yearsthe state wage bill has increased at twice the rate of inflation. This has been one ofthe drivers behind dramatic shifting of expenditure away from productive investmentand towards consumption. It reflects the ANC alliance partner’s strong bargainingposition, but is entirely disconnected from the value for money South African citizensreceive from the public service. A DA government would rebalance governmentspending away from non-productive spending towards productive investment.Increase infrastructure investment: Between 1994 and 2004 public sectorinvestment as a percentage of GDP dropped well below the key target level of 10%of GDP. This has left South Africa with a maintenance and infrastructuredevelopment backlog estimated to be R1.5 trillion. A DA government would tackle theskills shortages in the public service that hamper effective infrastructuredevelopment; cut the red tape that delays projects; and increase infrastructureinvestment by mobilising private funds.Monetary policyThe DA supports the inflation-targeting framework implemented by a strong, independentReserve Bank. We believe that inflation hurts the poorest most, and that both high andvariable inflation are detrimental to the economy’s ability to generate wealth for all.In considering the official task of the Reserve Bank, we believe that it should be responsiblefor maintaining macroeconomic stability, with the primary objective being price stability.Employment levels fall outside the ambit of monetary policy and should be the responsibilityof fiscal policy.While the Reserve Bank should make use of a variety of tools to achieve price stability,interest rates should be considered its most important mechanism. The bank should act in aflexible exchange rate regime, with active participation in currency markets only to build thecountry’s foreign exchange reserves, with no objective of influencing exchange rates.A DA government would fully dismantle South Africa’s out-dated exchange control regimeand the many restrictions and administrative burdens it imposes. These ultimately limit theproductivity and allocative efficiency of capital flows and add unnecessary transaction costs,further undermining our competitiveness as an investment destination.While recognising that export industries would benefit both from greater currency stabilityand from a slightly devalued Rand, we need to accept that the South African economy is toosmall to take on global foreign exchange markets, and that in considering the needs of theeconomy as a whole, artificial depreciation is not attractive.We believe that greater stability of the Rand can be achieved through continued transparentand predictable Reserve Bank policy and action, which in turn will provide necessaryplanning certainty for export industries.37 | P a g e

The DA also acknowledges the interaction between fiscal and monetary policy, particularlywhere the state wage bill and administered prices are concerned, and actively manage bothto ensure their effects on inflation is minimised.Administered prices like electricity and water tariffs, communication costs and fuel priceshave all placed a significant upward pressure on inflation. In government, the DA would workto minimise the cost-push effect of administered prices and reform the management ofadministered prices to gradually transition to prices that are fully reflective of costs, allowingfor the introduction of competition in regulated industries (for example, in petrol, electricity,water, and gas).For instance, in the case of electricity, we will push for an electricity pricing strategy thatensures that all users of electricity share the costs of electricity, from variable productioncost to the capital costs of distribution as well as production mechanisms.38 | P a g e

OPENING JOB OPPORTUNITIES TO ALLThe most fundamental challenge facing South Africa today is that too few people areemployed. According to official statistics, 24% of the economically active population is out ofwork, rising to approximately 35% using the expanded definition of unemployment (whichincludes discouraged job seekers).These figures hide significant variations, and do not generally take into account hard-tomeasuresectors such as the informal economy. Another, more revealing, way to look at theunemployment problem is to ask: how many people have a job?One recent study found that as few as 41% of the working age population has any sort of jobat all, whether formal or informal. This is approximately 25% lower than other middle incomedeveloping countries such as Brazil and Indonesia. To reach the global average employmentrate of 60%, 6 million more South Africans will need to be in formal or informal employment.Why do so few people in our country have jobs?The short answer is that high barriers to entry in the labour market exclude millions of SouthAfricans from accessing employment opportunities.These barriers are a direct consequence of the inflexible work conditions stipulated in ourcountry’s labour laws, which discriminate against job seekers in favour of establishedworkers in protected employment. Vested interests such as labour union federationCOSATU have been vocal in their support of maintaining the status quo.Other important factors contributing to South Africa’s low levels of employment include theunmarketable skills imparted by the country’s failing education system and inefficient systemof SETAs; the lack of incentives for low-skill job creation; and, importantly, the break-down ofthe critical relationship between productivity and pay.These problems are underpinned by government policies that have actively created asystem of insiders and outsiders. For political elites with privileged access to public sectorjobs, or those in positions protected by South Africa’s rigid labour regulations, life is relativelycomfortable.Steady wage increases demanded by the national government’s trade union allies (whichoften bear little relationship to productivity) and generous state spending have enriched thisminority to the exclusion of millions of poor South Africans who struggle to make a living.Young, unskilled and inexperienced job-seekers are disproportionately affected by thissystem of insiders and outsiders.Breaking down these barriers to entry in the labour market will require multi-faceted reformprogramme that reduces red tape and creates incentives that will encourage businesses tohire more people.It will provide high-quality education and training so that job-seekers have the skillsdemanded by the job market; make it is easier for young people to get their first job; ensurea fairer relationship between work and pay; and allow people with drive and determination toreach their full potential.39 | P a g e

CORE CHALLENGESBarriers to entry into labour marketProtected elite employmentPoor labour relationsFailing education systemSkills mismatchPOLICY OUTCOMESReduce barriers to entryImprove competition and productivityFlexibility in labour marketImproved education outcomesMatch skills with demandTotal unemployment, 2008 to 2011 (‘000)460045004400430042004100400039003800370036003500UnemploymentTable 4: Unemployment grew in the wake of the 2008 global financial crisis. Fromapproximately 3.9 million unemployed persons in South Africa in Q4f 2008, the number ofunemployed climbed to 4.2 million in Q4 2009. 318 000 jobs were lost during this period.Source: Stats SA40 | P a g e

LONG-TERM POLICY PROPOSALSPolicy outcome: Reduce Barriers to EntryEstablish Jobs ZonesEstablish Jobs Zones in close proximity to each of South Africa’s ports and airports to attractand retain investment in key labour-absorbing industries in order to stimulate employmentcreation in these job-rich sectors. Jobs Zones will feature considerably stronger incentivesthan the national government’s current Special Economic Zones (SEZs), and will draw oninternational best practice to boost South Africa’s competitiveness vis a vis comparabledeveloping countries. Countries such as Costa Rica and Panama, for example, have offeredgenerous zone-based tax incentives to companies like Intel and Dell that do simple, largevolumerepackaging work. Their experience is that many companies that graduate from thetax holidays chose to remain invested in the country. In addition, they find that the presenceof the multinational promotes the establishment of local, related start-ups. Core aspects ofthe Jobs Zones policy include: (i) Generous exemptions from labour legislation. All investorsoperating in Jobs Zones will be exempt from restrictive aspects of South African labourlegislation in order to enhance flexibility, productivity and competitiveness with regard tolabour input costs. Amendments to the Basic Conditions of Employment Act and the LabourRelations Act will be made accordingly; (ii) Strong tax and trade incentives for investorsoperating in Jobs Zones. These will include a five year income tax holiday for all newinvestors followed by a flat tax lower than the normal rate once the holiday expires, no taxeson production inputs or capital goods, no value-added taxation, no freight taxes on thetransportation of raw, secondary or finished goods, allowing foreign-owned companies torepatriate all profits without any taxation, duty free import of machinery, goods and rawmaterials, all proceeds from exports can be retained in institutions abroad and can be spentin whatever way the exporter sees fit; (iii) Prioritise Jobs Zone investors for preferential loansthrough the Industrial Development Corporation (IDC) to fund and support industrialdevelopment projects. Applicants for preferential IDC loans will have to demonstrate the jobcreatingpotential of their project in order to be considered for such funding.Introduce an Opportunity Voucher schemeThe voucher will provide funding to young adults who would like to start their ownbusinesses or further their education and skills development. The vouchers will be allocatedaccording to strict requirements based on an assessment of the skills needed to accelerateeconomic growth. They will be available to individuals who have completed matric and willbe designed to help pay for further education, and boost the small business sector. Thevoucher would entitle the graduate (a) a partial subsidy of university or FET college fees; (b)seed capital to establish small or micro enterprises subject to a well-formed business plan;and (c) a state guarantee to cover loans extended by commercial banks to graduates toestablish small or micro enterprises subject to a coherent business plan and otherrequirements. The value of the voucher will be up to a maximum of R6000, and would varyaccording to the region where the applicant is applying. The voucher would be paid overthree years, i.e. R2000 per year. Where the voucher is utilised to pursue further educationand training, funding for the second and third years will conditional on the recipient passinghis or her exams. For recipients seeking to establish small businesses, qualification forsecond and third year funding will be based on an assessment of the commercial viability ofthe enterprise.41 | P a g e

Upscale Expanded Public Works ProgrammeProgressively up-scale the expanded public works programme (EPWP) to employ 2.5 millionpeople on a contract basis by 2025. This will take the form of annual increases in the scaleprogramme, the rate of which will be informed by available revenue. The aim of theprogramme is to provide temporary relief from unemployment and will include a skillsdevelopment component.Establish a government internship programmeIntroduce a comprehensive government internship programme across all departments,based on the highly successful Western Cape model. The programme will hire 18 000interns on 6-month contracts at a rate of R 1200 p.m. This will help bridge the ‘study-work’divide, and equip recent graduates with valuable professional knowledge and skills.Implement a UIF-based growth and jobs stimulusLower the Unemployment Insurance Fund (UIF) contributions made by employers andemployees in order to lower the costs of doing business and put money in the pockets ofworkers. This reduced contribution would remain in place until the fund contracts to apredetermined benchmark. The UIF had grown from R54 billion in 2010/2011 to R65 billionin 2011/2012, with collections reportedly rising by approximately 10% to 12.4 billion, which isat present more than sufficient to meet the requirements of its mandate. Reducingcontributions to the fund will have the effect of an economic stimulus package that willenhance employment creation and stimulate growth via increased consumer demand. Acapital base benchmark will be determined for the UIF to ensure the stability of the fund. Ifthe capital base were to contract below the benchmark, the original contribution to the fundwould be reinstated as per Section 6 of the Unemployment Insurance Contributions Act.The DA in Government: Work-and-Skills Pilot ProjectThe Western Cape Government runs a pilot project aimed at giving young South Africansaged18 to 35 the opportunity to participate in a 12-month work experience programme. Runby the Department of Economic Development and Tourism, each of the participants isplaced with a company and supplied with a R 12 000 per month stipend. This practicalexperience has significantly increased the employability of around 2500 people who havepassed through the programme.Policy outcome: Improve competition and productivityReduce burdens for SMMEsAmend Section 1 of the Employment Equity Act, Act 55 of 1998, so that the definition of‘designated employer’ is changed to ‘a person who employs 200 or more employees’. Thiswill lift bureaucratic requirements from SMMEs, and make it easier for entrepreneurs toestablish start-up enterprises.42 | P a g e

Policy outcome: Flexibility in labour marketReform NedlacReform Nedlac by amending the National Economic Development and Labour Council Act,Act 35 of 1994. Section 3(4) shall be changed so that members representing organisedcommunity and development interests shall be appointed by the Minister on nominationsmade by any registered charity, NGO, or community organisation. Paragraphs will be addedto Sub-Sections 2, 3 and 4 which that require the Minister to consult the executive councilwhen appointing representatives of business, labour and civil society according to thefollowing requirements: they represent a significant community interest on a national basis;they have a direct interest in economic development, employment creation and povertyreduction; and they are constituted democratically. This will make Sub-Section 3(5) obsolete,and it will consequently fall away. Section 5(1) will be amended so that it reads: The Councilshall (a) strive to promote the goals of economic growth, employment creation, povertyreduction, inclusion in economic decision-making and social equity.Remove extension of collective bargaining to non-partiesRepeal Section 32 of the Labour Relations Act, Act 66 of 1996, which extends a collectiveagreement concluded in the relevant bargaining council to any non-parties to the collectiveagreement that are within its registered scope and are identified at a meeting of thebargaining council.Improve ease of hiring and firingAmend Section 189 of the Labour Relations Act, Act 66 of 1996, which imposes severerestrictions on employers wishing to dismiss employees based on operational requirements.This will involve: removing Paragraph 2a and b which requires that consulting partiesattempt to reach a consensus on the method for selecting employees to be dismissed;Paragraph 3, which requires that employers provide extensive documentation concerningthe dismissal to the consulting party, including the prospects for re-employment andParagraph 7a which provides that employers must select employees to be dismissedaccording to criteria agreed to by employee representatives.Amend Schedule 8 of the LRAAmend Schedule 8 the Labour Relations Act, Act 66 of 1996, which details the Codes ofGood Practice governing dismissals. This will involve removing Section 2a, which concernsdismissals for poor work performance, and places the onus on employers to take steps toimprove employee performance prior to dismissal and Section 9b (i) which implies that adismissal for poor work performance could be unfair if the employee claims to be unaware ofthe required work standard.Amend definition of big employerAmend the definition of ‘big employer’ in the Labour Relations Act so that it only applies toentities that employ more than 250 persons. The aim here is to reduce the administrativeburdens faced by SMMEs, and encourage them to employ more people.Enhance temporary employmentRecognise the importance of temporary employment agencies in transitioning people intothe formal job market and support the formal temporary employment agency sector insupplanting illegal and exploitative temporary employment agents. This will be aligned withthe introduction a redesigned and better resourced Labour Inspectorate featuring acomputerised database of registered labour brokers, improved oversight capacity in each of43 | P a g e

the nine provinces, power to search premises and issue notices and improved coordinationwith the SAPS, including information sharing where appropriate.Policy outcome: Improved education outcomesNation-wide bursary schemeInstitute a nation-wide bursary scheme to assist 50 000 academically talented learners fromlow-income families access high quality primary and secondary school education with a viewto expanding the programme to an additional 20 000 learners each year by 2015.Expedite independent school registrationAmend Section 46(1) of the South African Schools Act, Act 84 of 1996, which concerns therelevant conditions for the registration of independent schools, to include provision for an‘interim registration status’ in order to expedite the registration process. This will introducemore competition into the sector and improve the range of choice available to parents andlearners.New teacher strike legislationPass legislation that makes teachers’ right to strike subject to certain limitations. It willinclude provisions requiring that terms and conditions be set through consultation andagreement between government, unions and school governing bodies before a strike maylegally take place; that the rule ‘no work, no pay’ be strictly enforced; that individual teacherswho engage in violence, looting, vandalism and intimidation be criminally charged; andsevere penalties – such as stiff fines – must be imposed on unions if their members engagein violence, looting, vandalism and intimidation.Scarce skills allowance for teachersIntroduce an allowance that will supplement the salaries of teachers who possess scarcesubject knowledge or who produce excellent results in poor schools. This will create afinancial incentive for teachers to specialise in subjects such as maths and science, andencourage talented teachers to apply for positions in schools situated in economicallydisadvantage areas.Policy outcome: Match skills with demandIntroduce a Vocational Training and Apprenticeship ProgrammeIntroduce a nation-wide Vocational Training and Apprenticeship Programme (V-TAP) thatwill be administered by the Department of Education and implemented by provincialeducation departments. The programme will be run as a collaboration between public andrecognised private Further Education and Training (FET) Colleges and employers, and willbe open to learners who have completed Grade 9, and who are aged 16 or older. Keyfeatures of the programme will include: (i) access to a wide range of apprenticeshipopportunities, from hairdressing to construction work and electrical engineering; (ii)coordinated training that will sync professional development with classes taken at the FETcollege; (iii) apprentices will be paid a small salary to be negotiated with employers, whichwill be subsidised with a stipend paid by the relevant education department. The amount willincrease each year as the apprentice’s skills advance; (iv) the normal duration of theprogramme will be three years, after which apprentices will take an exam run by theChamber of Commerce and Industry. If successful, graduates of the programme will receive44 | P a g e

an accredited V-TAP Certificate. This may be upgraded to a Diploma-level qualification bycontinuing with an additional year of coursework an FET college.Amend BBBEE to incentivise external skills development initiativesThe skills development component of the Broad-Based Black Economic Empowermentscorecard will be amended so that contributions to skills development initiatives, which areopen to any South African earning less than R15 000 per month, will be recognised andgiven due credit. Recognition of skills development contributions for non-employees willprovide businesses with an additional incentive to invest in equipping South Africans toparticipate in the formal economy. In its current form, the scorecard only recognisescontributions to skills development for an entity's own employees. This excludes SouthAfrica's large unemployed population from capacity-building initiatives initiated by thebusiness community.Incentivise employee trainingReimburse employers to the value of the full amount spent on approved training, includingschemes administered by employers’ associations. This will ensure that employees’ skillsare better matched with market demand.Expand the National Student Financial Aid SchemeExpand the National Student Financial Aid Scheme (NSFAS) to provide full fundingassistance to cover tuition, books, accommodation and maintenance stipend (which mayinclude additional loans and bursaries) to all qualifying students. Develop a programme ofstate sureties for students who do not qualify, and who seek student loans from commercialbanks.Enable businesses to access required skillsAmend Section 19 of the Immigration Act, Act 13 of 2002, so as to remove the quotalimitation stipulated in Section 19(1) and significantly reduce the heavy regulatory burdenfaced by entities employed skilled foreign nationals by repealing Section 19 (2) paragraphs(a) and (b).Visa reforms for skilled immigrantsReform the rules governing skilled immigration to South Africa by: (i) introducing a 8-yearwork permit for foreign students graduating from South African higher education institutionsin order to alleviate South Africa’s shortage of technical, professional and managerial skills,and partially alleviate the export of skills by foreign students (who have benefitted from statesubsidisedtertiary education in South Africa); (ii) establishing a window period whereinimmigrants with refugee visas who can provide proof of tertiary qualifications or formaltechnical skills can easily convert their refugee visa to a work visa subject to a small fee; (iii)attracting well-educated immigrants to South Africa by reducing the complexity and timetaken in visa application processes; (iv) making it easier for qualified South Africanexpatriates to return by easing conditions for the partners and spouses to receive workvisas; (v) creating automatic qualification criteria for highly educated individuals (for instancegraduates from the top twenty five business schools in the world); and (vi) emulatingadvanced immigration scoring systems, which provide for lower entry barriers for those withstronger indicators for strong economic independence and performance45 | P a g e

Unemployment in Argentina and South Africa (%)403530252015South AfricaArgentina10502001 2002 2003 2004 2005 2006 2007 2008 2009 2010Table 5: Argentina’s strong growth in GDP has underpinned that country’s sharp decline inunemployment: from 25% to less than 8% in the past decade. South Africa’s lacklustreeconomic performance has undermined job creation, with official unemployment figuresremaining at a consistent 25% Source: Indexmundi.comMEDIUM-TERM POLICY PROPOSALSPolicy outcome: Reduce barriers to entryYouth Wage SubsidyIntroduce a targeted wage subsidy for young and low skill people aged between 18 and 29years old earning below the personal income tax threshold. It will be available for amaximum of two years and have a maximum value of R12 000 per year. It will run throughthe Pay as You Earn (PAYE) system operated by the South African Revenue Service(SARS). The subsidy will be subject to an initial implementation period of three years withdetailed monitoring and reporting on a quarterly basis. Continuation of the subsidy anddesign changes will depend on a full impact evaluation, with appropriate job creation andcost per job criteria.Policy outcome: Improved education outcomesMinimum qualifications for school principalsIntroduce minimum qualifications for school principals, including minimum experience andtertiary education qualifications. All new principals will be required to meet theserequirements, and old principals will be required to meet them within 8 years or faceretrenchment.46 | P a g e

SA’s global education rankingsIndicator Global Rank (out of 142)Secondary school enrolment 51Tertiary education enrolment 97Quality of education system 133Quality of maths and science education 138Internet access in schools 100Table 6: Despite significant gains in the number of learners enrolled at secondary level, thepoor quality of South Africa’s education system means that school-leavers are ill equippedfor the job market. The problem is particularly marked in the lack of maths, science and ITskills. Source: World Economic ForumSHORT-TERM POLICY PROPOSALSPolicy outcome: Improved education outcomesTraining workshops for teachersIntroduce training workshops for teachers during school holidays to improve their literacyand numeracy teaching skills. Workshops will draw on international best practice teachertraining and will be followed up with annual testing of literacy and numeracy skills of primaryschool learners, in order to refine literacy and numeracy strategy.Improved outcomes strategy for grade 12sDevelop an improved-outcomes strategy targeted at Grade 12 learners in underperformingschools. The strategy will include setting targets for improvement, providing learner andsubject-specific support through the provision of textbooks and a "tips for success" bookletwhich will help learners with preparation for the NSC, and additional teaching supportthrough the implementation of tutoring and telematics programmes, which will provideunderperforming schools with high-quality lessons via satellite.Extra classrooms at high-performing schoolsBuild additional classrooms at high performing schools in order to accommodate morelearners. This will increase capacity at these schools and ensure that more learners from adiversity of backgrounds, most especially from disadvantaged communities, are givenincreased opportunities to gain entry into successful schools thereby expanding access toquality education.Regular teacher testingIntroduce regular testing of teachers in the subjects they teach in order to determine subjectknowledge and competence. This serves two key purposes: (i) providing much-needed dataon subject knowledge deficits so additional training and resources can be directed to fix theproblem; and (ii) introducing an incentive for teachers to constantly monitor their subjectknowledge and ensure that it is up-to-date.47 | P a g e

Supervision for commuting learnersIntroduce ‘walking busses’ – supervised walking groups for schoolchildren – in all schooldistricts in DA-run municipalities where violent crime poses a threat to the safety of learners.Groups will be led by a trained volunteer (or ‘bus driver’) who will also be paid a smallstipend, and who will follow a set route. All learners will wear reflective safety bibs.Policy outcome: Match skills with demandSpecialist Maths and Science SchoolsOpen specialised secondary schools that focus on science, technology, engineering andmathematics education. These schools will feature highly trained teachers and specialistfacilities such as computer labs, mathematics study rooms, physics and chemistry labs andtechnology centres. These schools will give learners the competitive skills they need tosucceed in the job market, or lay the foundation for further higher education and training.The DA in Government: Premier’s Advancement of Youth InternshipsThe Western Cape Government offers a range of internship programmes across itsprovincial departments. Graduates develop professional skills, experience and knowledgethat equip them for successful careers in both the public and private sectors. Many internsare offered full-time employment in permanent positions once they have completed theirinternship. In 2011 the Western Cape Provincial Government employed 700 interns across11 departments.48 | P a g e

BREAKING DOWN BARRIERS TO INCLUSIONEconomic growth is a prerequisite for overcoming the inequalities inherited from our pastand opening up opportunities for all, but it needs to be inclusive if it is to make a difference topeoples’ lives.Today, however, high barriers prevent millions of poor South Africans from experiencing thebetter life promised to us in 1994. Approximately 48% of people in our country live in poverty(rising to over 50% using the headcount poverty rate), which is very high for a middle-incomecountry. Why are poor South Africans excluded from accessing economic opportunities?One of the most important reasons is that current conditions make it difficult for poor SouthAfricans to own assets.Without the necessary collateral, low-income individuals are effectively barred from beingable to take out a loan or mortgage, which in turn makes it difficult to do things like build up asmall informal business into a formal enterprise; pay for university or vocational trainingcourses; or make further business and quality-of-life investments.After having a job, asset ownership is the most important dividing line in South Africa’sinsider/ outsider economy.Direct interventions to broaden participation and ownership in the economy are criticalinstruments for building an inclusive society, but in their current form and application, thesuccess of policies such as Broad-based Black Economic Empowerment and EmploymentEquity has been limited.Another important factor limiting the integration of poor South Africans into the mainstreameconomy is the country’s lacklustre social security system, which has failed to bridge the gapbetween providing immediate poverty relief, on the one hand, and facilitating activeparticipation in the economic life of the country, on the other.Social security in the form of welfare grants should not be the sum total of the betteropportunities promised to us in 1994. Social security should rather play an active role inbreaking down barriers to inclusion by creating incentives and opportunities for people togain skills, pursue healthy lifestyles and participate in the broader life of the community.Breaking down barriers to inclusion requires changes to legislation and policy that will makeit easier for poor South Africans to acquire assets and have a real stake in the country’seconomic future.These changes range from financial incentives to enhance Broad-Based BEE, incentives foremployee share ownership schemes and their extension to non-listed companies; legislativechanges to make it easier for households to own the homes they live in; additional stateassistance to expedite land reform and broaden ownership in the agricultural sector; andchanges to the social security system to make it more proactive in helping people bridge thegap between poverty and opportunity.49 | P a g e

CORE CHALLENGESPoor lack access to capitalBarriers exclude poor from formal economyPassive social policy environmentBarriers prevent proactive givingPOLICY OUTCOMESPoor gain access to capital assetsBroader participation in formal economyProactive social policies and programmesIncentivise proactive givingLONG-TERM POLICY PROPOSALSPolicy outcome: Poor gain access to capital assetsDistribute shares in State Owned EnterprisesDistribute shares in the country’s State Owned Enterprises (SOEs) in order to activate ‘deadcapital’ and thereby put financial assets in the hands of poor South Africans. These listingswill be characterised by (i) a lock-up period of three months; (ii) a cap on individualparticipation of R 5000; and (iii) a loyalty bonus for individuals and groups who retain theirshares for a minimum period of two years (iv) for every five shares not sold in the first twoyears, the holder will receive a bonus share. Development Finance Institutions (DFIs) suchas the Industrial Development Corporation (IDC) and the National Empowerment Fund(NEF) will facilitate the centralised warehousing and sale of equity stakes to employeeshare ownership programs (ESOPs), stokvels, burial schemes, community groupsand individual South Africans. Preliminary research suggests that there are as many as 2.5million members of stokvels alone. Engaging these and other non-traditional financialinstitutions as equity partners in SOE share offers will therefore provide a critical mechanismto reach people who might not normally be in a position to participate in such listings.Leveraging DFIs will furthermore mobilise capital that is currently lying dormant in thesestate institutions. This approach will extend broad ownership to hundreds of thousands ofSouth Africans who, either on a collective or individual basis will be able to put in financiallysound bids for equity stakes in SOEs, and thereby become real stakeholders in SouthAfrica’s mainstream economy.Incentives for employee share ownershipDeclare 50% of the value of shares awarded to qualifying employees (above the existinglimit of R50 000 over five years under Section 8B of the Income Tax Act, and up to amaximum of R100 000 including the existing R50 000) to be tax deductible to the employer,and exempt the full value, and any eventual gain from income tax. This will help toincentivise the adoption of employee share ownership schemes.Broad-based employee bonus schemeIntroduce an employee bonus scheme for unlisted firms that replicates existing shareincentive regime for listed entities. This would apply to a maximum R50 000 bonus payableafter five years, and exclude directors, shareholders and relatives of directors and50 | P a g e

shareholders, and any employee already participating in a share scheme in that company.The bonus would be partially tax-free, in a ratio that is linked to growth in an appropriateshare index over the five-year period.Amend BBBEE Scorecard to encourage new entrantsIncrease recognition for the participation of black new entrants in ownership equityprogrammes by awarding additional points according to the Broad-Black EconomicEmpowerment (BBBEE) scorecard for equity deals that benefit individuals who have notpreviously held ownership in other entities with a total cumulative value of more than R20 000 (the current scorecard only awards two bonus points in support of new entrants).This amendment will promote broad-based participation in equity transactions, and helpreduce the incentive to further empower already wealthy South Africans. In addition, a capwill be introduced that will place a limit on the monetary value for individuals and companiesparticipating in BBBEE deals. This will not prevent black entrepreneurs from investmentopportunities, but rather it will determine the extent to which their participation will bedeemed to contribute to broad-based empowerment.Amend BBBEE Scorecard to expand opportunitiesIncrease the weighting of the socio-economic development component of the Broad-BasedBlack Economic Empowerment scorecard so that greater recognition is given to expandingopportunities to more people. This will encompass two amendments to the scorecard: (i)increased recognition for new job creation and (ii) merging the black management controland employment equity components to create a focused measure of black managerialparticipation and development. Regarding new job creation, at present only 5 out of the 100points on the scorecard for generic enterprises are allocated for this purpose. Additionalpoints will therefore be awarded on the basis of proportional annual increases in jobopportunities offered by the entity. This will encourage the meaningful integration of valueaddingblack professionals into core decision-making and thereby enhance businessknowledge and skills development through a process of ‘learning by doing’.Reduce the cost of BBBEE complianceReduce the cost associated with complying with BBBEE regulations for Qualifying SmallEnterprises can by introducing biennial BBBEE audits which produce scorecards that will bevalid for 24 months. This would also allow businesses to implement empowermentprogrammes with slightly longer timeframes.Reduce time limits on the sale of state-subsidised housingAmend Section 10 of the Housing Act, Act 107 of 1997, which concerns restrictions on thevoluntary sale of state-subsidised housing. The current probationary period of 8 years will bereduced to 2, and an additional restriction will be added to prevent recipients of statesubsidisedhousing who have successfully sold their property from reapplying.Abolish duties on first-time land transfersAbolish all transfer duties on land transfers for all first time, owner-occupied residentialpurchases of under R2m, as well as for purchases by over 65-year-olds. This aims to makeit easier for people to enter the property market who would otherwise find it difficult to do so,namely, young professionals and elderly people with limited incomes.51 | P a g e

Subsidy for gap housing marketIntroduce a subsidy programme aimed at low-income individuals who do not qualify for RDPhousing which will assist people gain access to bank loans. This will help thousands ofhouseholds who fall into the ‘gap’ housing market, whose incomes are currently insufficientfor them to access mortgages from commercial banks.Repeal Communal Land Rights ActRepeal the Communal Land Right Act, Act 11 of 2004. Legislation will then be drafted thatwill provide for an orderly and rational process of transfer to individual ownership. This willinclude a comprehensive survey of all land in the former homelands, a dedicated registrationprocess in which individual community members are given assistance registering ownershipof the land they are living on. An appropriate rates collection system applied thereafter,consistent with the Municipal Systems Act.Audit of state-owned landConduct a comprehensive audit of all state-owned land in the country. The terms ofreference will require the audit to document the total land area owned by national, provincialand local authorities; assess the suitability of this land for agriculture, housing or otherpurposes and identify specific sites suitable for transfer to low-income individuals.Policy outcome: Proactive social policies and programmesAmendment to Social Assistance ActAmend Section 5(2) of the Social Assistance Act, Act 13 of 2004, which provides foradditional requirements or conditions that may be prescribed by the Minister, so that ‘schoolenrolment’ and ‘proof of vaccination’ are added to the proof and verification measures thatmay be required under paragraph (g).Social capital incentive grant (SCIG)Amend Section 13 such that, in addition to the social relief of distress grants that may beprovided for at the discretion of the Minister, a supplementary social capital incentive grantmay be provided for recipients of existing grants, provided certain requirements are met asper Section 5(2), and provided these payments do not exceed 5% of the total value of socialgrants already received. To be eligible to receive the SCIG, recipients will have to provideevidence of one or more of the following: (i) membership of a library; (ii) regular participationof a neighbourhood watch organisation or its equivalent; (iii) regular participation in a parentteacher association; (iv) membership of a sports club; (v) regular volunteer work.Housing subsidy voucherIntroduce a programme of subsidy vouchers that will allow recipients greater flexibility inchoosing the low-cost housing option that best suits their needs and incentivises ‘self-help’.By introducing a greater element of choice into state-funded housing assistance thisprogramme will ensure that individuals and households have greater stake in the success ofhuman settlement programmes.National serviced plots programmeRollout a nation-wide programme to deliver serviced plots to improve flexibility in housingprovision, expedite service delivery and encourage ‘self-help’. The core aim of the servicedplots programme is for the delivery of basic services to reach as many households aspossible, taking into consideration fiscal realities.52 | P a g e

SA Sports AcademyEstablish a world-class South African Sports Academy to foster excellence and expandopportunities and diversity in sport. Funded by the state, the academy would be tasked with(i) identifying and recruiting the best sporting talent; (ii) developing the next generation ofsporting talent to compete at the highest level nationally and internationally; (iii)spearheading the rejuvenation of South Africa as a sporting superpower.Desired outcome: Incentivise proactive givingIncentives for charitable givingReform the tax code to make it easier to set up charitable foundations, increase thepercentage of the donation that may be tax deductable and remove restrictions on the buildupof capital by charitable foundations over time. Specifically, this will involve amendingSection 30 of the Income Tax Act, Act 58 of 1962 to significantly reduce the amount thatfoundations are required to spend in a given time-frame and, furthermore, removing the 10%tax deduction ceiling in the Act to encourage wealthy individuals to give more.Working to Reduce InequalityIn the fall-out from the global financial crisis the world has focussed much attention oninequality and the perceived unfairness of large increases in executive remuneration that, attimes, appear delinked from company performance. Because South Africa’s incomeinequality is regularly measured as amongst the highest in the world, these concerns havearisen in our economy too, especially following the publication of the pay packages of thecountry’s highest paid executives in the media.The arguments in the developed world, however, do not transfer well to the South Africansituation.In the United Kingdom, with an average unemployment rate of 5% over the past decade,income inequality is by-and-large defined by the gap between the lowest and the highestwage earners. In South Africa, on the other hand, where the unemployment rate is five timeshigher at an average of 27% over the past decade, the main driver of income inequality isthe gap between the 13 million people in employment and the 6.7 million unemployed whohave no income other than social grants.Indeed, in a country like South Africa, it is impossible to address the problems of poverty andinequality separately, and the most important response to both of these issues is expandedemployment. This means that the number one intervention to reduce inequality in SA mustbe to raise employment levels, which this policy document seeks to do by acceleratingeconomic growth by breaking down the insider-outsider structure of our economy to helpoutsiders participate in the economy.These outsiders include unemployed South Africans locked out of the labour market byCosatu’s influence on our labour policies, and small businesses denied access to markets byprivate and public monopolies and cartels. They also include those whose opportunities areincreasingly crowded out by ‘big government’. The public service has grown from 11% oftotal employment to 22% in the past forty years, and economists have calculated that theaverage gross wages of government employees in South Africa are now higher than theaverage gross wages across all sectors in the rich OECD countries.53 | P a g e

Therefore, tackling inequality will - as described elsewhere in this document - requirerebalancing government spending away from wages and back towards economicinfrastructure, where we have developed a substantial backlog of around R1.5 trillion.But measures to reduce inequality will also have to tackle high-powered corporate insiderswho extract salaries that are often out of proportion to the shareholder value they create byabusing remuneration committees that are not independent and shareholders who are notsufficiently informed.Information failures in the market for management expertise and a general lack oftransparency within large companies can lead to significant distortions in remuneration andcompromise the ability of shareholders to hold executives to account. Since companies arealso corporate citizens whose presence in public life goes beyond mere profit maximisation,it is important that regular South Africans who are not shareholders in a given company alsoknow what business leaders are paid, and why.If transparency and shareholder activism are to be well established then executiveremuneration in large companies needs to structured in such a way as to reward executivedirectors who contribute to the long-term success of the businesses they run according toclear and measurable criteria. This will enable South Africa to attract top talent, maximisereturns for shareholders and benefits for stakeholders, and see growth in the corporatesector underpin higher growth in the broader economy.Decisions about executive pay in a market economy rest with the shareholders of thecompany concerned and the board of directors that shareholders elect to serve theirinterests. It is shareholders therefore who need to be empowered to hold corporateexecutives to account.To this end we need a clearer definition of total reward so that executive pay can bedisclosed in a meaningful and consistent way. We also need to be able to measure theextent to which reward to consistent with the performance of corporate leaders.To boost transparency in the corporate sector, enhance shareholder activism and improvethe functioning of the market for highly skilled managers in South Africa, the DA will:(i) Reform rules around immigration to make it easier for highly-skilled foreign managers towork in SA, thereby boosting the supply of managerial skills;(ii) Establish a ‘Cost Reduction Caucus’ between organised business, government, labourand the unemployed to work to reduce administered prices, wage increases and inflation,modelled on those that brokered similar deals in Germany and the Netherlands; and(iii) Make a number of amendments to the Companies Act to improve transparency andaccountability in the corporate sector, including:(a) Specify that the annual financial statements of an audited company should include a newdefinition of ‘total reward’. This new measurement will feature a single amount per directoror prescribed officer that represents the total monetary value of all directors fees, salaries,bonuses, performance-based payments, expense allowances, pension contributions, shareoptions, financial assistance, soft loans and other relevant payments in a year (including exitpayments if applicable); and54 | P a g e

(b) Specify that the annual financial statements should include an explanation of howdirectors’ remuneration relates to the company's performance.In both instances, the critical performance criteria used to determine appropriate levels offixed and variable pay needs to be widely circulated to shareholders and citizens. In addition,the Companies Act will be amended to enhance shareholder oversight and improvecorporate governance. Such amendments will:(c) Enhance the influence of shareholders over remuneration policy and ‘exit payments’ fordirectors and prescribed officers at audited companies; and(d) Apply those provisions of the King III Report on Corporate Governance that deal withshareholder activism and the independence of remuneration policy, to non-listed, auditedfirms.Effective and honest corporate leadership in South Africa is essential if the country is toachieve high rates of economic growth while reigning in the excesses that contribute towidening inequality. Reforms aimed at mitigating the scarcity of skilled professionals,containing the upward wage spiral, and boosting transparency and accountability regardingexecutive pay will go a long to furthering this goal.MEDIUM-TERM POLICY PROPOSALSPolicy outcome: Poor gain access to capital assetsFarm Equity Scheme FundEstablish a dedicated fund to support Farm Equity Schemes (FES) in which commercialfarmers sell stakes in their farms to farm workers, either on an individual basis or to farmworker trusts. The key aims of the programme are to broaden ownership in the agriculturalsector, promote land reform in areas of high-value agricultural land and spearhead anincentives-driven approach to empowerment. Schemes eligible for government fundingshould be split on a 60-40 basis, though schemes based on a 50-50 equity share would alsobe considered.Policy outcome: Broader participation in formal economyBusiness Voucher Support ProgrammeIntroduce a Business Voucher Support Programme (BVSP) in all municipalities, to beadministered by the municipality concerned, which will offer support services to small startups,or small enterprises employing fewer than five people. The BVSP consists of a voucherthan can be exchanged for a business skills, management, financial skills or relevanttechnical programme at an accredited business skills provider. Recipients must be over theage of 21, must produce proof of residence and must be able to produce a feasible businessplan.55 | P a g e

Rising GDP per capita in middle-income countries (US$)16000140001200010000800060004000South AfricaTurkeyMexicoMalaysia200002000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Table 7: Rapid economic growth in these middle income developing countries hasunderpinned rising GDP per capita. South Africa’s GDP per capita remained steady duringthe early to mid 2000s, but lacklustre growth meant we were swiftly overtaken by Turkey,Mexico and Malaysia after 2006. Source: Indexmundi.comSHORT-TERM POLICY PROPOSALSPolicy outcome: Broader participation in formal economyRecognition for Diverse EmployersPublish an annual list of the Top 20 Most Diverse Employers in each sector in a specialnewspaper supplement. Data will be provided by the Department of Labour’s EmploymentEquity Registry which receives annual reports from entities employing more than 150people. By providing positive publicity for top-performing firms, list will provide an incentivefor employers to develop their own innovative methods for developing a diverse staffcomponent.56 | P a g e

Small Business Growth: A Key Driver of Job CreationSmall, medium and micro enterprises (SMMEs) will play a crucial role in building a dynamic,high-growth, stakeholder-led economy that is inclusive and creates opportunities for all.SMMEs are the drivers of new ideas and the incubators of innovation and, because theyoperate within localised settings and utilise local skills and resources, they play an importantrole stimulating job creation and economic development at a community level.According to the OECD, SMMEs play a disproportionately significant role in new job growth,particularly in sectors such as manufacturing, where they can account for between 40% and80% of employment. It is unfortunate, then, that South Africa remains a very difficult place tostart and grow a small business. According to the World Bank, our country ranks 44th in theworld for ‘ease of starting a business’; far behind other developing countries such asMauritius (15 th ), Egypt (21 st ) and Chile (27 th ).This reflects the average time it takes to open a business in South Africa, as well as the highcosts and complex bureaucratic procedures involved. Whereas it typically takes 19 days and5 procedures to start a business in South Africa (though it can often take much longer thanthis), in New Zealand the same process would take only 1 day and 1 procedure. Thenational government is quick to affirm its support for SMMEs by citing the numerousagencies and programmes currently in operation. However, the truth is that high costs andbureaucratic barriers belie this claim by making it very difficult for entrepreneurs in ourcountry to start and grow small businesses.That is why, as part of the 8% Growth Plan, the DA has developed a comprehensive set ofreforms designed to make it easier for South Africans to start their own businesses andthrive.These include: (i) The establishment of business registration ‘one-stop-shops’ whereprospective entrepreneurs can register all their documentation with a single online form, andwith a single fee; (ii) the introduction of a cash-flow assistance mechanism for SMMEs with aturnover of less than R 5 million; (iii) a radical simplification of the property registrationprocess; (iv) simplified insolvency procedures; (v) an amendment to the Labour RelationsAct to make it easier for small businesses to hire more people; and (vi) a Business VoucherSupport Programme that will assist SMME owners with business skills development.57 | P a g e

OPENING THE ECONOMY TO COMPETITIONCompetition and competitiveness are critical for building and open and inclusive economy inSouth Africa. It is the essential element that allows people who have been excluded by eliteinterests to become productive members of a dynamic, integrated and forward-lookingsociety.Competition is what drives down the prices of the basic things we need – such as food, fuel,electricity and transport – so that we can enjoy a good standard of living. It makes it easierfor people with ideas and ambition to start their own businesses and get ahead.Importantly, competition puts pressure on the state to work harder to improve servicedelivery for ordinary South Africans, rather than enriching political insiders. Competition mayseem like an abstract economic concept, but the practical implications of a lack ofcompetition in the South African economy are very real indeed.Take the price of food. As a consequence of the food industry being dominated by a smallgroup of large players, there is little pressure on these companies to keep the price of foodlow. The consequence of this is that the prices of basic foods in South Africa are as much as100% higher than in other developing countries.Using a basket of basic food as an example (bread, milk and some fruit and vegetables), inSouth Africa today it costs between R 100 and R 120 per day to feed a family of four (twoadults and two children).This means the average household in our country will has to spend between R 3000 and R3600 a month on food alone to enjoy a basic level of nutrition, which is far beyond the meansof millions of poor South African families.Unless radical changes are made to improve the situation for consumers, the situation islikely to get worse. Today, food price inflation sits at approximately 14%, though the prices offoodstuffs such as maize and brown bread are likely to rise much higher, by between 30 and34%. This hits poor consumers the hardest.A core priority for the DA, therefore, is strengthening the role of the competition authoritiesand the National Consumer Commission to root out anti-competitive behaviour by firms andensure that consumers get a fair deal when it comes to the everyday items that affect allSouth Africans.Competition is also an important ingredient for opening up economic opportunities to morepeople.In South Africa today, a relatively small group of large firms and a club of state-ownedcompanies dominate key sectors, from electricity to finance, transport to food processing.This results in expensive products and poor quality services for consumers, and theexclusion of potential new entrants into these sectors.On top of this, potential entrepreneurs are constrained by high costs and complex regulatorybarriers that make it difficult to start and run a new business in South Africa. According to arecent report, South Africa ranks 44 th in the world for ease of starting a business; 76 th forregistering a property; 77 th for resolving insolvency; and 81 st for enforcing a contract.Having a business should not be the preserve of the few. It needs to be a reality that anyonewith entrepreneurial ideas and ambition should be able to look forward to.58 | P a g e

Breaking down the barriers that keep the cost of living high, and protect economic insidersfrom competition from new and innovative entrepreneurs, will require a range of policyinterventions that challenge established interests.It requires that we increase budget allocations to the competition authorities and the NationalConsumer Commission, and increase their powers; it means slashing red tape so that it iseasier for new entrants to start new businesses and grow; it means creating an environmentthat is internationally competitive and conducive to cutting-edge innovation; and ensuringthat we have government support services that are reliable, efficient, of high-quality andcorruption-free.CORE CHALLENGESAnti-competitive behaviourHigh regulatory burdensInefficient SOEsComplex industrial policyState inefficiencyPOLICY OUTCOMESStronger competition and consumer authoritiesEasier and simpler to do businessEnhanced performance by SOEsSimplified, incentives-driven industrial policyImproved state efficiencyLONG-TERM POLICY PROPOSALSPolicy outcome: Stronger competition and consumer authoritiesImplement the Competition Amendment Act of 2009Implement the Competition Act, Act 1 of 2009, which provides for a number of amendmentsto the 1998 Act, and makes it a criminal offence for a company, its directors and managersto be involved in, or knowingly acquiesce to, collusive behaviour. Though it has beenpassed, the new Act has not yet been implemented.Additional amendment to the Competition ActAmend the Competition Act, Act 89 of 1998, by adding an additional paragraph to Section 20which is concerned with the independence of the Commission. The paragraph will be addedto Section 20(2) and will read: The Commissioner, each Deputy Commissioner and eachmember of staff of the Competition Commission must not (i) be a member of a political partywhile employed by the Competition Commission; (ii) hold a hold any political office; and (iii)must never have previously held any political office.Additional amendment to the Competition ActAmend the Competition Act, Act 89 of 1998, by adding an additional paragraph to Section 21which is concerned with the functions of the Competition Commission. The paragraph will be59 | P a g e

added to Section 21(1) and will read: The Competition Commission is responsible to, at thediscretion of the Commissioner or Deputy Commissioners, at any time, initiate investigationsto determine the state of competition in a given economic sector, and based on the findingsof these investigations, proceed with formal inquiries where appropriate.Increase competition authorities budgetIncrease budget allocation for the Competition Commission and Competition Tribunal toallow them to hire more personnel, monitor a broader range of economic activities and takeon and hear a greater number of cases. The Commission’s mandate will be amended toallow it to adopt a more proactive, rather than reactive, stance to tackling anti-competitivebehaviour.Amendment to the Consumer Protection ActAmend the Consumer Protection Act, Act 68 of 2008, by addition an additional paragraph toSection 87(1) which is concerned with the appointment of the Commissioner. The paragraphwill read: The Minister must appoint a person with suitable qualifications and experience ineconomics, law, commerce, industry or public affairs as Commissioner of the Commissionwho must not (i) be a member of a political party while employed by the Commission; (ii)hold a hold any political office; and (iii) must never have previously held any political office.Amendment to the Consumer Protection ActAmend the Consumer Protection Act, Act 68 of 2008, by adding an additional subsection toSection 112 which concerns the imposition of administrative fines. The new Section 112(6)will read: The Commission may impose an administrative fine in respect of prohibited orrequired conduct. The fine may not exceed the greater of 10 percent of the respondentsannual turnover or R 500 000. The factors stipulated in Section 112(3) that apply to finesimposed by the Tribunal will also apply to fines imposed under the new Section 112(6). TheCommission and Tribunal may not both impose fines on the same respondent.Increase Consumer Commission budgetIncrease budget allocation for the National Consumer Commission (NCC). The NCCcurrently cannot fulfil its mandate to protect ordinary South African consumers from unfairand exploitative business practices because its budget is insufficient, which results in severecapacity constraints. This policy seeks to resolve this issue.Policy outcome: Easier and simpler to do businessBusiness registration one-stop-shopsCreate a One-Stop-Shop for business registrations where prospective entrepreneurs mayregister a company name, lodge their documentation with the Companies Commission, andregister with SARS, the Department of Labour and the relevant commissioner under theCompensation for Occupational Injuries and Diseases Act all with a single online form andwith a single registration fee, thus significantly reducing the time and cost of opening abusiness. Applicants will be able to follow the registration through an online tracking systemwhich will highlight each stage of the process as it is completed.Simplify property registrationReplace the complex and expensive property registration process (which includes acquiringa rates clearance certificate; a transfer duty receipt from SARS and physically lodging a titledeed, and requires extensive consultations with conveyances) with a cost-effective,streamlined, two-step model that requires (i) obtaining a Land Information Memorandum;60 | P a g e

and (ii) registering the Title Deed. Each of these steps should take less than one day tocomplete, and all relevant information and documentation will be available at local DeedsOffices and at participating local and provincial government departments and agencies. Inaddition, property transfer rates will be reduced to encourage greater liquidity in the propertymarket.Abolish Estate DutiesAbolish Estate Duties in order to put more money in the hands of South Africans toencourage investment and stimulate economic growth.Licenses for private fixed-line operatorsGrant operating licences to additional fixed-line operators in order to encourage competitionin the ICT sector, bring down prices and improve service delivery for consumers. This willbring to an end the monopoly enjoyed by Telkom, which has until now undermined SouthAfrica’s competitiveness in this important sector.New regulatory framework for ICT sectorRe-develop the regulatory framework governing the ICT sector to ensure that broadbandcapacity improves so that prices fall and the internet is accessible to all.The DA in Government: ICT Infrastructure Project Boosts ConnectivityThe Western Cape Government has launched a wide-ranging information andcommunications technology infrastructure project as part of its Cape Catalyst initiative, whichaims to boost the competitiveness of the Western Cape as an investment destination. Theproject will see the development of a West Coast broadband cable; improved connectivity forall government offices and facilities; the integration and extension of existing ICTinfrastructure; the use of schools, community centres and clinics as hotspots to extendhousehold internet use; and connection cost reductions for targeted industries in theWestern Cape. The project aims to have 70% of government offices and every school in theprovince connected by 2014.National Venture Capital FundEstablish a National Venture Capital Fund to provide investment capital to start-ups andearly-stage businesses. The Fund will aim to support innovation in start-ups and SMMEs.Key stakeholders in the programme are: (i) the state; (ii) the venture capital fund; (iii) thefund manager or general partner; and (iv) the implementing agency assigned by the state.Cash-flow assistance for small businessesIntroduce a three year Tax Loss Carry-back for businesses with turnover of less than R5m.This would allow a small cyclical business to recoup a loss by setting it off against a prioryear profit. As an elective alternative, declare that a tax credit that derives from an assessedloss (which hasn’t been claimed as above) can be set off against VAT payable. This willterminate at the commencement of the year following that in which the taxpayer’s estimate oftax for the second provisional payment exceeds R5m.61 | P a g e

Reduce corporate tax rateReduce the corporate tax rate to 27% with a view to reducing it to 25% in the medium term.By making South Africa a more attractive place for both local and international businesses,this proposal aims to make is cheaper and easier for people to start run successfulenterprises, and ultimately stimulate private sector growth, both of which are central to jobcreation.The DA in Government: Incentives for Call Centre IndustryIn 2011 the Western Cape Government, in partnership with Internet Solutions, announcedan incentive scheme that offers free internet, voice and data services for a period of sixmonths to companies that set up call centres in the province. The initiative, which is backedby a Department-run training programme, seeks to create 10 000 new jobs in the WesternCape’s call centre industry, which is currently worth R 6 billion and employs 30 000 people.Policy outcome: Enhanced performance by SOEsPrivatisation feasibility studyCommission an independent feasibility study that will examine the economic impacts ofprivatising particular SOEs, or divisions thereof. Terms of reference will include a fullestimation of the costs involved in such as process, recommendations as to which, if any,SOEs would be suitable for sale and how the process should be managed in order tomaximise value.SOE boards appoint executivesRemove political interference in SOE’s by ensuring that CEOs, CFOs, COOs and othersenior executives are appointed by the relevant company boards, and not the state. Boardswill, in turn, be appointed in consultation between the affected shareholder and relevantpolicy ministries. This will contribute to improved corporate governance and reverse thetrend of political appointees occupying positions of executive responsibility in key utilities andstate companies, a trend that has ultimately undermined performance and accountability.62 | P a g e

E-government in Africa (global ranking)Country Global Rank (out of 142)Mauritius 54Kenya 55Botswana 63Uganda 70Ethiopia 81Zambia 85Egypt 87South Africa 89Mozambique 90Nigeria 95Table 8: Many governments in Africa have taken steps to improve service delivery bylevering information technology. These indicators rank countries according to the extent towhich they use information and communication technologies to improve the efficiency ofgovernment services. Source: WEFPolicy outcome: Simplified, incentives-driven industrial policyIndustrial Development and Growth StrategyReplace the current Industrial Policy Action Plan (IPAP2) with a simpler, streamlinedIndustrial Development and Growth Strategy (IDGS), the twin aims of which will be to correctmarket failures resulting from information constraints (where businesses are not aware ofnew markets and are not incentivised to engage in R&D) and coordination constraints(where supporting or related business activity, as well as the necessary economicinfrastructure, is absent). The IDGS will have the following characteristics: (i) it will be basedon engagement between the state and the private sector through PPPs, policy forums,Parliament and Nedlac. The final identification of tools will follow from these interactions; (ii)it will be run by a competent implementing agency with a track record of success (such asthe IDC, as opposed to the bureaucratic DTI) and will incentivise, on a temporary basis, newactivities (such as a technologies or services) rather than support specific sectors; (iii) clearperformance benchmarks will be set for IDGS-assisted activities (such as productivity orexport performance) and assistance will be cut if these are not achieved; (iv) in all instances,assistance will be limited to initial financial support, but will not extend to other businesssupport services such as marketing. Specific programmes will include, but are not limited to:innovation prizes to encourage ‘self-discovery’ by businesses; the provision of high-riskfinancing through a National Venture Capital Fund and public guarantees to assist projectswith a higher risk profile; enhanced interaction between the government and the chambers ofcommerce, agriculture and industry to address coordination constraints; public-funded R&D;and support for the Homecoming Revolution and other initiatives to encourage SouthAfricans living abroad to return to the country and thereby alleviate the skills shortage.Desired outcome: Improved state efficiencyImplement Regulatory Impact AssessmentsEstablish a fully-fledged Regulatory Impact Assessment (RIA) Unit in the Presidency that willoversee the comprehensive adoption of RIA procedures by government departments andagencies. Assessments will examine the likely costs, benefits and risks to be incurred by allnew primary legislation, subordinate legislation and subordinate regulations. RIAs will beconducted from time to time on existing legislation and regulations where this is deemedappropriate by the implementing authority. RIAs will utilise five key indicators: (i) risk63 | P a g e

assessment of the proposed measure; (ii) identify the various alternative options available(i.e. do nothing, propose self-regulation or introduce regulations); (iii) assess the relevantenforcement, monitoring and review mechanisms; (iv) provide a record of the consultationand information-gathering process; and (v) indicate a recommended option or course ofaction based on a cost/ benefit analysis. These indicators will be used to estimate the likelyimpact of proposed legislation and regulations on economic growth, employment creation,poverty reduction, income distribution, economic redress, public health, and environmentalsustainability.Increase penalties for corruptionAmend Section 86 of the Public Finance Management Act, Act 1 of 1999, so that the 5 yearlimit on prison sentences for persons convicted under the act is increased, and the relevantclause in subsections 86(1), 86(2) and 86 (3) reads ‘an accounting officer is guilty of anoffence and liable on conviction to a fine, or to imprisonment for a period not exceeding 10years…’Enhance tender compliance oversightEnhance the powers of tender compliance and monitoring authorities to improve theiroversight capacities and investigate whether tenders and other contracts awarded by stateentities represent optimal value for money.National Business Interests of Employees ActIntroduce a National Business Interests of Employees Act, based on the Western Capeprovincial legislation, to significantly tighten restrictions on state employees doing businesswith the national government, and limit the scope for corruption. It will limit the amount ofstock, shares, membership or other interest an official may have in an entity that doesbusiness with the state and require that entities providing goods or services to thegovernment provide an affidavit disclosing whether or not it is owned or part-owned byemployees of national or provincial governments. In addition, state officials will be requiredto disclose their business interests at prescribed intervals.Public Service Graduate Recruitment ProgrammeDevelop a formal graduate recruitment programme for the public service featuring skillsstrategies and programmes for senior management, technical professionals and localgovernment staff components. The programme will require a basic entrance examination toensure that public officials possess basic competencies, and will, in addition, pilot a highperformance‘fast stream’ recruitment initiative modelled on the UK system to attractedtalented individuals from the best universities.Activity based costing pilot projectIntroduce Activity Based Costing (ABC) as a pilot project in four government departments toreduce costs and wastage, and promote efficiency. ABC is a special costing model thatidentifies activities in an organization and assigns the cost of each activity with resources toall products and services according to the actual consumption by each. This model assignsmore indirect costs (overhead) into direct costs compared to conventional costing models.The four departments are: the Presidency, International Relations and Cooperation, Arts andCulture and Correctional Services.64 | P a g e

Internet users in South Africa and Malaysia (millions)181614121086South AfricaMalaysia4202000 2002 2005 2008 2009Table 9: Internet access has risen steadily in Malaysia over the past decade with directpositive impacts on the competitiveness of that country’s economy. Internet connectivity hasstagnated in South Africa, with detrimental consequences for our economy. Source:Indexmundi.comMEDIUM-TERM POLICY PROPOSALSPolicy outcome: Easier and simpler to do businessTime limits for building authorisationRevamp the construction permitting process in all DA-run city authorities and municipalitiesso that time limits are placed on each stage of the process overseen by the municipalityconcerned (such as paying the road repair deposit, submitting notification of compliance forfoundation work and plumbing, and applying for and receiving the necessary compliancecertificates) and a basic list of requirements is published for each type of development tohelp investors plan for the necessary time and costs involved.Competitiveness and Innovation: Positioning SA as a Global Hub for R&DResearch and Development or R&D is defined as the process by which new knowledgeabout products, processes, and services is developed and applied to fill market needs. It isthe means by which new commercial opportunities are born and existing activities are honedand improved. R&D is therefore a core driver of competitiveness.Increasingly, as globalisation means that companies’ value chains become geographicallyfragmented and international investors seek to capitalise on the dynamism andcompetitiveness of emerging markets, developing countries such as Brazil, Turkey andMalaysia are becoming more important as international centres of science and technologyR&D.65 | P a g e

In order to capitalise on this shift in R&D investment towards emerging economies, and notlose out to our international competitors, South Africa needs to position itself as an attractiveplace to conduct cutting-edge research.According to a recent OECD report on the attractiveness of different locations for R&Dinvestment, factors that prospective investors take into account include: the size of themarket; the availability of high-quality resources such as scientific infrastructure and thesupply of skilled labour; agglomeration effects arising from proximity to other companies; anda stable policy environment. How have other governments sought to facilitate high-valueR&D growth?A good example of international best practice is the US State of Georgia, which has beenparticularly innovative in its approach to leveraging university-based science and technology(S&T) innovation to spur economic growth. This involved establishing a state-wide researchalliance between Georgia’s six research universities and the state to build a technologydriveneconomy in the region.Public-private partnerships were developed between the R&D ‘triple helix’: universities,government and business. A key component of Georgia’s approach concerned the creationof a Georgia Research Alliance Venture Fund that provides commercialisation grants toassist researchers turn their work into marketable products.This combined with changes to legislation that incentivise cooperation between industriesand university-based research units (by allowing the institution to retain title to governmentfundedwork, thus enabling them to benefit financially from their inventions and innovations)has contributed to Georgia becoming major centre for R&D investment in the United States.With a number of good universities, and a selection of top-flight research institutes,specifically in high-value industries such as pharmaceuticals and science and technologyresearch – where we are ranked 30 th in the world by the World Economic Forum - SouthAfrica has the intellectual assets to become a world-class centre for R&D. However, smartpolicy reforms will be needed at a national level if we are to harness these assets to boostour country’s overall competitiveness and drive growth.As the case of Georgia shows, these policy changes need to: (i) Put in place the rightfinancial incentives; (ii) introduce a facilitative regulatory framework (iii) establish asupportive institutional environment and (iv) encourage entrepreneurial thinking amongresearchers.SHORT-TERM POLICY PROPOSALSPolicy outcome: Easier and simpler to do businessEntrepreneurship competitionEnter into partnership with companies, NGOs and local business schools and trainingcentres to establish an annual ‘My Future Starts Now’ entrepreneurship competition for 18 to30 year olds that will pay a cash prize each year to an individual or group of individualsresponsible to developing a winning business plan. The exact amount would differ from yearto year, depending on partner contributions, and recipients would be ineligible to apply morethan once.66 | P a g e

Policy outcome: Improved state efficiencyRecruit qualified municipal managersUpgrade the quality of management in local government by actively recruiting and employingsuitably qualified managers. Intensive management training will be provided to existing staffmembers in partnership with leading business schools around the country. Once recruited,managers in local government will sign strict performance management agreement to whichthey will be held accountable.The DA in Government: Breaking Down Bureaucratic BarriersThe Western Cape Government understands that one of the most important burdens facedby entrepreneurs is excessive red tape. Ineffective, time-consuming regulations, rules andadministrative procedures make it difficult to do business and detract from the attractivenessof South Africa as an investment destination. The DA administration is tackling this head-onthrough its Red Tape to Red Carpet initiative which will identifies and removes unnecessaryred tape in the province and streamlining government processes. The administration is intalks with Singapore to bring world-class e-government to the Western Cape to improveefficiency even further.67 | P a g e

BUILDING THE BASE THROUGH TRADE AND INVESTMENTA healthy, growing economy that opens opportunities to all South Africans requires solidfoundations.In successful middle-income countries like Brazil, Turkey and Indonesia, where high rates ofeconomic growth have underpinned rising incomes and rapid declines in poverty andunemployment, governments have paid careful attention to building the base through smarttrade policies and promoting investment.So far, in South Africa, the current national administration has failed to champion oureconomic interests abroad and has preferred consumption and wasteful expenditure overlaying the foundations for future growth.The evidence clearly indicates that the future of the global economy lies in the East andSouth. Our country is located in one of the fastest-growing regions in the world: Africa.This proximity should provide lucrative opportunities for South African businesses andentrepreneurs to market their goods, in much the same way as growth in large developingcountries like China and India is sustained, in part, by large domestic markets.Trade with the continent is hampered, however, by time-consuming import and exportprocedures; complex customs processes; poor regional economic integration; and anunclear and unfocussed trade strategy.Other African countries are out-competing South Africa on many fronts.According to the World Bank’s Doing Business report, our country ranks 144 out of 148countries surveyed for ‘trading across borders’. A brief comparison of procedures required toexport a standard cargo load of goods out of South Africa and Mauritius illustrates this well:Whereas it takes under two weeks and requires five documents to export a container load ofgoods from Mauritius, exporting the same container from South Africa would take a month,require eight documents and cost twice as much.Combined with perceived political instability and considerable policy uncertainty under thecurrent national government, figures such as these are contributing to our country graduallylosing its status as the ‘gateway to Africa’.This is because international companies are finding it more attractive to do business with ourAfrican competitors directly, and as a result, foreign direct investment (FDI) is increasinglybypassing South Africa in favour of more lucrative opportunities on the continent.According to the UN Conference on Trade and Development (UNCTAD) World InvestmentReport 2012, for example, Nigeria has already overtaken South Africa as the top destinationfor investment in Africa in terms of FDI inflow. A recent survey by professional services firmErnst &Young reiterates these findings:Though South Africa has received the greatest number of FDI projects on the continentsince 2003 (827 compared with 563 in Egypt, which comes in at second place) the value ofthese investments puts South Africa in fourth place, at $10 billion over the next five yearscompared to Nigeria, in first place, which is expected to receive $23 billion.This is illustrated by the fact that a number of key multinationals such as General Electric,Coca-Cola, Heineken and Nestle, have chosen to locate their African headquarters inNairobi, rather than the continent’s financial hub: Johannesburg.68 | P a g e

In the interests of sustaining strong economic growth, it is essential that South Africa’sdeclining relative attractiveness as an FDI destination is halted and reversed.Three essential ingredients are required in order to achieve this.First, investors need policy certainty. Under the ANC, the direction of national policy changesdepending on the machinations of different factions within the party and its alliance partners.Under a DA government, policy-makers will follow a consistent line that places job creationthrough rapid economic growth front and centre.Second, South Africa needs to be proactive about identifying potential investors, and activelylobby them to invest in the country.To do this successfully, we will need a coherent and focussed strategy; a properly trainedcohort of diplomats that can promote South Africa as a reform-minded and business-friendlydestination; as well as a welcoming and facilitative domestic institutional set-up to helpinvestors integrate into the South African economy.Third, the government needs to create the right environment for business to flourish so thatboth domestic and international players receive good returns on their investments.This requires that tax rates are competitive relative to other developing countries, and thatthe South Africa’s physical infrastructure is upgraded and expanded to meet the needs of avibrant and growing economy.The current national government has, until now, furthermore neglected the importance ofinvesting in economically strategic infrastructure - such as roads, rail links, ports, dams andpower stations – instead preferring to allocate the country’s fiscal resources to items such ashigh salaries for politicians and state employees. This is a trend that also needs to bereversed.According the Department of Public Enterprises, the country has, over the past fifteen years,accrued an infrastructure backlog of R1.5 trillion. This means South Africa has effectivelymissed a generation of infrastructure investment, with adverse consequences for thecountry’s competitiveness, as well as its long-term economic growth.Take the example of the logistics sector where the economic impact of poor infrastructureplanning and maintenance is very evident.Without adequate rail infrastructure, goods have to be transported by road. This, whencombined with the impact of rising administered and regulated prices of inputs such aselectricity and fuel, has contributed to transport becoming the single-biggest factor impactingon logistics costs: 53.2% compared to the global norm of 40%.Breaking down barriers to trade with the rest of Africa and the world, and building thefoundations for long-term growth by reorienting fiscal policy to prioritise investment, are thetwo cornerstones of the DA’s growth strategy for South Africa.To achieve this we have to deepen engagement with the rest of Africa as a strategiceconomic partner; radically simplify the rules and procedures involved in importing andexporting goods in and out of the country; actively promote investment; increaseinfrastructure investment to 10% of GDP to deal with our current backlogs; and eliminatewasteful expenditure through tighter fiscal governance, so that our resources go to buildingthe economic base, rather than lining the pockets of politically-connected elites.69 | P a g e

Note that infrastructure development policies concerning energy and water supply aredetailed in the chapter that follows.Sector share of Africa’s GDP growth, 2002-2007 (100% = US$ 235 billion)Sector Sector share (%) Compound growth rate p.a.(%)Resources 24 7.1Wholesale and retail 13 6.8Agriculture 12 5.5Transport, communications 10 7.8Manufacturing 9 4.6Financial intermediation 6 8.0Public administration 6 3.9Construction 5 7.5Real estate, business 5 5.9servicesTourism 2 8.7Utilities 2 7.3Other services 6 6.9Table 10: Africa’s has experienced strong GDP growth of 4.9% p.a. from 2000 through 2008,more than twice its rate during the 1980s and 90s. According to The Economist, over thepast decade, six of the ten fastest-growing economies in the world are in Sub-SaharanAfrica. While the continent’s growth was widespread across all areas of the economy, rapidgrowth was recorded in the resources, financial, construction, tourism and utilities sectors.South Africa is in a prime position to benefit from this strong growth. Source: McKinsey andCompanyCORE CHALLENGESContinental barriers to tradeIneffective trade strategyInfrastructure backlogs hamper growthInefficient use of state resourcesPOLICY OUTCOMESEnhanced regional integrationImproved economic ties with Africa and the worldIncrease infrastructure investmentEffective resource allocation70 | P a g e

LONG-TERM POLICY PROPOSALSPolicy outcome: Enhanced regional integrationOne-Stop Border PostsIntroduce a system of One-Stop Border Posts (OSBPs) at each of South Africa’sinternational land borders in order to expedite the border crossing process, reduceadministrative burdens and costs, and enhance regional trade. Agreements will be signedwith each of the country’s territorial neighbours that will allow for the mutual recognition ofregulation and inspections procedures so that the emigration and immigration stages ofprocess may be completed in a single step, with officials from both parties working side byside. Key components of the OSBP system will include: (i) project inspection through jointcustoms control; (ii) single-window inspection with coordinated opening hours; (iii) priorexchange of information for clearance; (iv) systematic reduction of routine inspectionpractices; (v) reduction of the number of documents required by both sides and theelimination of superfluous procedures; (vi) alignment of trade document to the standard UNlayout; and (vii) the introduction of customs inland clearance practices by all cooperatingpartners.SA National Peace CorpsEstablish a South African National Peace Corps (SANPC) to provide developmentassistance and build closer ties between South Africa and the rest of the continent. TheSANCP will provide training, cover transport costs and pay school-leaving volunteers a smallstipend for the duration of their tour of duty. Volunteers will gain leadership skills as well aspractical knowledge of key areas such as health, education, business and ICT, which willassist them in the job market. Recruitment will be targeted at school-leavers.SA International Development AgencyEstablish a South African International Development Agency (SAIDA) within the Departmentof International Relations and Cooperation. SAIDA will provide development loans andassistance, policy expertise and other technical support to developing countries, with a focuson Africa and Southern Africa in particular. While offsetting the effects of the SACU drawdown,the primary aim of SAIDA will be to further South Africa’s broader economic and geostrategicinterests.SADC-wide tourist visaNegotiate the introduction of a single SADC Tourist Visa. The visa would allow tourists fromnon-SADC states visiting one or more member states the option of unimpeded travel in theSADC area. The agreement would place obligations on all signatory states to strengthenexternal border posts, and take all appropriate measures to prevent document fraud.Phased drawn-down of SACUNegotiate a phased drawn-down of the Southern African Customs Union (SACU) withBotswana, Namibia, Lesotho and Swaziland that will see the 2002 SACU Agreementreplaced with a sub-regional Free Trade Agreement (FTA) as a precursor to a future regionalCommon Market.71 | P a g e

The DA in Government: Western Cape leads Angola Trade MissionIn September 2011, Western Cape Economic Development and Tourism Minister AlanWinde led a 78-company strong national trade delegation to Luanda, Angola, with the aim ofopening up new export markets and growing South Africa’s oil and gas sector. The missionformed part of a strategic initiative by the Western Cape Government to grow the province’sR 1.5 billion repairs and maintenance industry by deepening economic ties with partners inAfrica.Policy outcome: Improved economic ties with Africa and the worldEliminate exchange controlsDismantle South Africa’s exchange control regime. Although restrictions have eased overthe past few years, remnants of the out-dated apartheid era exchange controls remain whichlimit the productivity and allocative efficiency of capital flows, and adds unnecessaryadministrative burdens and transaction costs for firms, ultimately undermining ourcompetitiveness.Negotiate membership of OECDEnter into negotiations with the Organisation for Economic Cooperation and Development(OECD) with a view to transition from enhanced engagement to full membership status. Thiswill allow South Africa full access to the policy development and information sharing capacityof the OECD, engage in multi-lateral policy dialogue and benefit from greater integration intothe global economy.Enhance strategic trade diplomacyEnhance South Africa’s strategic trade diplomacy by (i) growing the country’s presence, andseeking strong economic ties with key emerging economies in the Global East and Southand (ii) ensuring that South Africa’s ambassadors and high commissioners are fullyequipped to promote the country’s economic interests abroad by establishing up-to-datetraining and selection criteria. Regarding (i) additional consulates will be opened in Macau(China), Shenzhen (China), Bangalore (India), Hyderabad (India), Rio De Janeiro (Brazil),Istanbul (Turkey) and Sydney (Australia), Surabaya (Indonesia), Guadalajara (Mexico).South Africa is currently underrepresented in these fast-developing trade and investmenthubs, relative to their global economic significance. Regarding (ii) a new curriculum for highcommissioners, ambassadors, and high-level diplomatic officials will be developed that willdraw strongly on the Indian Foreign Service training programme (regarded as a model ofinternational best practice) which will include compulsory modules in economics, tradestrategy and WTO law. This will be carried out by the Department of International Relationsand Cooperation (DIRCO) training facility in Pretoria. In addition, the criteria for candidateselection to senior diplomatic positions will be updated require that candidates demonstrateknowledge and experience in one or more disciplines relevant to trade diplomacy (such aseconomics, international political economy, international trade law and policy, or equivalentbusiness or government experience).72 | P a g e

Simplify import and export proceduresExpedite imports and exports by reducing the number of documents and proceduresrequired by replacing the current system (which requires a bill of landing; certificate of origin;commercial invoice; customs declaration; foreign exchange form; inspection report; packinglist; and terminal handling receipts) with a simplified system that requires only threedocument: (i) a bill of landing; (ii) customs declaration; and (iii) a packing list (for exporters)or terminal handling receipts (for importers). This will simplify cross-border trade, and reducethe time it takes to import and export from over 3 weeks to between 7 and 8 days.Simplify customs proceduresExpedite the customs clearance process by introducing an electronic data interchangesystem, modelled on the Mauritius example, which will allow users to submit customsdeclarations online to the South African customs authorities. The system will include a riskmanagement component, which will assist officials to target their inspections on cargodeemed risky, and thereby minimise delays. These measures should reduce the customsclearance process form the current average of 4 days to only 1 day.Trading across borders (various indices)CountryDocumentsto export(number)Time toexport(days)Cost toexport (US$)Documentsimport(number)South Africa 8 30 1531 9 35Mauritius 5 13 737 6 13Singapore 4 5 456 4 6Time toimport(days)Table 11: Red tape and unnecessary delays hamper South Africa’s international trade. As aconsequence we are beginning to lose out to potential competitors on the continent, such asMauritius, which has put in place ambitious reforms aimed at making trade more competitive.Singapore is regarded as international best practice. Source: World BankPolicy outcome: Effective resource allocationEstablish a Parliamentary Budget OfficeFully implement the Money Bills Amendment Procedure and Related Matters Act, which waspassed in 2009. The Bill gives Parliament the power to amend the budget after it has beentabled and presented by the Minister of Finance (previously Parliament had only had thepower to approve or reject the budget) and provides for the creation of a specialistParliamentary Budget Office. Implementing the legislation fully by establishing a BudgetOffice will enhance the oversight role of Parliament and provide greater scope for promotinggrowth-enhancing fiscal policy.Limit government wage bill increaseLimit the total increase in the Government Wage Bill to the inflation rate, but allow fordifferential pay increases determined by performance. This is critical for reigning in the outof-controlpublic sector wage bill, which has far outstripped inflation, and has not beenmatched by productivity gains.73 | P a g e

Rationalise State Owned EnterprisesBegin a process of rationalising South Africa’s portfolio of state-owned enterprises (SOEs).This will begin with a comprehensive review of their core mandates, strategic importance,corporate structure, current financial position, and commercial viability. Based on thisassessment, an SOE consolidation programme will be rolled out that will see either (i) the fullor partial sale of SOE assets to interested investors; (ii) the listing of SOE assets on the JSE;or (iii) the retention of state ownership where this is deemed strategically desirable or in thepublic interest. In the case of scenarios (i) and (ii) the sale of these assets will assist withdeficit reduction; increased revenue for infrastructure development and social projects;enhance technology and knowledge transfers; and bring about efficiency gains resulting inimproved delivery and economic performance. In general, these will be instances where thecore function of the asset is not a strategic priority or where it does not provide an essentialpublic good. State mining company Alexkor is a prime example. Where assets, or divisionsthereof, are retained, their mandates will be narrowed considerably, their corporatestructures rationalised, and improved governance and oversight measures put in place (seeprevious chapter). Examples of this may include, but are not limited to, certain divisions ofDenel and Eskom.The DA in Government: Clean Audit means Clean GovernmentIn 2011 the Auditor General delivered a clean bill of health to the Western CapeGovernment. Every single provincial department received an unqualified audit opinion for thesecond year in a row. The Western Cape is the only province in South Africa to haveachieved this, which makes the DA administration by far the best-run provincial governmentin the country. Over 99% of its budget was fully spent, the bulk going to health andeducation.Desired outcome: Increase infrastructure investmentIncrease infrastructure investmentIncrease infrastructure investment to 10% of GDP. By building and maintaining the vitalinfrastructure that our economy depends on (such as roads, rail, ports, airports, pipelines,hospitals and schools), this investment will lay the foundation for future growth. Financingthe infrastructure development programme will require a mix of (i) direct state expenditure;(ii) listing SOEs themselves and/ or selling existing SOE assets; and (iii) private investment.This mixed financing approach will raise significantly more capital than direct state financingalone, and will contribute to mitigating the budget deficit while also ensuring that otherbudget priorities (such as social security) are not compromised. Private investment will beencouraged not only by creating the demand for private participation in infrastructuredevelopment through PPPs, but also by growing the private infrastructure asset class. Thiswill be achieved through active encouragement of household savings, which will fuel theavailability of capital for investment.Refine and strengthen the role of infrastructure regulatorsConduct a comprehensive analytical review of the current state of South Africa’sindependent infrastructure regulators. The review process will (i) clarify their respectiveroles; (ii) strengthen accountability; (iii) update relevant legislation and regulations; and (iv)make recommendations regarding institutional design reform. The Regulatory Impact74 | P a g e

Assessment Unit, located in the Presidency (see previous chapter) will conduct regularreviews of the impact of the independent regulators on economic growth, while alsoproviding advice and support to these bodies.Renew Freight Rail FleetInitiate a process of renewing the country’s entire freight rail fleet to expand capacity andenhance the efficiency, reliability and competitiveness of transporting goods around thecountry and to our trading partners abroad. This will take the form of a region-by-region shift(beginning in areas facing immediate capacity constraints) to new generation high-capacityrolling stock, and will be augmented by station upgrades and improved facilities to enhancethe interface between rail and road-based services. As this is a long-term process, improvedmaintenance of existing rolling stock will be integrated into the renewal process.Develop inter-SA business corridorUse infrastructure investment to improve commercial connectivity between regions byupgrading the Durban-Gauteng freight corridor, and build a new port at the old DurbanInternational Airport site. This will both stimulate commercial activity within South Africa andenhance our trade profile by better integrating the country’s primary economic hub(Gauteng) with the main port (Durban).Upgrade Information and Communications Technology InfrastructureEnter into private-public partnerships to expand and upgrade South Africa’s Information andCommunications Technology (ICT) infrastructure, with a specific view to extending theavailability, reach, and competitiveness of broadband internet. Each PPP investment projectwill be accompanied by a report that will (i) examine the ability of the market to sustainadditional infrastructure; (ii) provide a cost/ benefit analysis in instances where there is aduplication of facilities; and (iii) identify opportunities to reduce costs associated withtrenching by creating common rights of way for competing operators to lay dedicated lines.The implementation of the ICT-PPP investment programme will take into account (i) thegeographical distribution of existing network infrastructure and the correspondinginfrastructure needs; (ii) the appropriate role of private and public partners in a project-byprojectbasis; (iii) the need for improved coordination and communication links withinstitutions responsible for developing demand-side strategies in other sectors.75 | P a g e

Top five recipients and sources of FDI inflows in Africa, 2010 and 2011 (Billions ofUS$)10987654201120103210Nigeria South Africa Ghana Congo AlgeriaTable 12: Although foreign direct investment into Africa has fallen each consecutive yearsince 2010, largely as a consequence political instability and falling investment in NorthAfrica, investor sentiment in Sub-Saharan remained strong, with $ 37 billion invested in 2011alone. The number one investment destination on the continent is Nigeria, followed by SouthAfrica and Ghana. Nigeria and Ghana rank 23 rd and 16 th of the UNCTAD FDI AttractionIndex respectively, while the same report noted that South Africa performed ‘belowexpectations’. Source: UNCTADMEDIUM-TERM POLICY PROPOSALSPolicy outcome: Improved economic ties with Africa and the worldRegional government partnershipsDevelop economic partnerships between the Western Cape and other provincial and stategovernments in Southern Africa with a view to facilitating engagement between WesternCape businesses and potential partners in neighbouring countries, disseminating informationregarding investment opportunities and applicable regulations, and encouraging crossbordertrade along the West Coast.Desired outcome: Effective resource allocationNew Ministerial HandbookIntroduce a ‘No Frills’ Ministerial Handbook in each new province that comes under DAcontrol. Based on the Western Cape example, it will dramatically cut back on expenses forMECs in the province (for example, on cars and hotel stays) and impose significantly tighterrules and regulations regarding benefits and business interests as compared to their nationalcounterparts.76 | P a g e

The DA in Government: ‘No Frills’ Ministerial Handbook Cuts ExpensesConsistent with the DA’s belief that public money should be utilised to maximise benefit forthe good of all, not the politically connected few, in May 2011, the Western Cape ProvincialCabinet formally adopted a new ‘no frills’ ministerial handbook that dramatically cuts back onexpenses for MECs in the province and imposes significantly tighter rules and regulationsregarding benefits and business interests as compared to their national counterparts.SHORT-TERM POLICY PROPOSALSPolicy outcome: Effective resource allocationOutsource non-core government functionsOutsource certain non-core functions – such as catering and cleaning services - to privateservice providers and enter into public private partnerships (PPPs) to improve the qualityand efficiency of service delivery, enhance innovation in local government, lower costs andincrease savings.Policy outcome: Increase infrastructure investmentIncrease transport infrastructure budgetIncrease budget allocations to the public transport network to better connect people withopportunities (for example, by extending Rapid Bus Transit systems) and increase spendingon upgrading informal settlements.77 | P a g e

Global share of middle class consumers (%)120North America Europe Latin AmericaAsia Pacific Sub-Saharan Africa Mid. East and N. Africa1008060402002009 2020 2030Table 13: Raid economic growth in Asia, Africa and Latin America is changing the landscapeof middle class consumption globally. To capitalise on these trends, South Africa needs tofocus on building its market presence in the Global East and South. Source: CHECProjected middle class consumption in developing countries (US$ ‘000 000)140001200010000800060004000ChinaIndiaBrazilIndonesiaMexico200002009 2020 2030Table 14: Rapid economic growth in these developing countries is resulting in improvedliving standards and the emergence of a large and expanding middle class. By 2020, theAsia Pacific region will replace Europe as the world’s largest consumer market, and by 2030two out of every three middle class people will be Asian. Source: Brookings Institute78 | P a g e

A SUSTAINABLE FUTURE FOR ALLWe have an ethical responsibility to ensure that our country’s economy creates jobs andopportunities not only for the current generation, but for generations to come. This requiresthat we take proactive measure to ensure that economic growth is sustainable in the longterm.South Africa faces a number of significant resource and environment-related constraintswhich, if not managed carefully, could limit the future growth of the economy. Climatechange also poses a number of cross-cutting challenges, and its effects are likely to hit poorcommunities, particularly in rural and coastal areas, the hardest.Two resources pose fundamental challenges to the ability of the South African economy tocreate jobs and opportunities in the future: energy and water. Already, energy is in shortsupply. Poor planning and low levels of investment, coupled with an inefficient statemonopoly in the form of Eskom, has lead to a situation where electricity supply issimultaneously insecure and increasingly expensive.On the one hand, businesses are reluctant to make further investments and expand theiroperations because they fear further disruptions to electricity supply. On the other, money isbeing taken out of consumer’s pockets (in the form of exorbitant tariff hikes) to fundinfrastructure upgrades that the state should have completed years ago. Both issues imposeconstraints on economic growth and job creation.Water, the second fundamental resource, is essential for human life, and is a key input for adiverse array of economic sectors, from agriculture to mining, manufacturing to tourism.As a consequence of our geography, semi-arid climate, dilapidated infrastructure, andinefficient distribution system, it too is in short supply. Only 35% of the country receives morethan 500mm of rain per year, with 21% of the country receiving less than 200mm of rain peryear.For many poor and rural communities, which in the past have been inadequately servedbecause of the spatial planning priorities of the apartheid government, water quality andaccess continues to be a problem.Exacerbating both these resource constraints are the interrelated challenges posed byclimate change and pollution.While it is clear that careful planning is required to mitigate the impact of climate change,particularly on vulnerable communities and sectors, it is equally true that tackling thesechallenges has the potential to unlock new economic opportunities in emerging ‘greenindustries’ such as solar water heater manufacturing.Achieving sustainable economic growth that creates wealth and opens up job opportunitiesfor future generations of South Africans will require that we develop smarter ways to manageour natural resources by living within our means, putting our country’s energy security backon track, and tackling climate change and pollution in ways that creates, rather than limits,economic opportunities for people.In policy terms, this means adopting a transversal approach to natural resourcesmanagement; separating Eskom’s different functions and expediting procurement fromindependent power producers; making key investments in water storage and distributioninfrastructure; and introducing measures to help entrepreneurs and communities participatein tackling climate change.79 | P a g e

CORE CHALLENGESUncoordinated natural resource managementWater shortage, access and qualityHigh carbon emissions and pollutionSecurity of energy supplyImpact of climate changeNo systematic evaluation of environmental resourcesPOLICY OUTCOMESTransversal approach to resource managementSustainability of water supplyReduce carbon emissions and pollutionEnhance energy capacityPlan for impacts of climate changeDevelop a plan for a system of natural capital accountingSouth Africa in International Environmental Performance Index (rank out of 132)CountryGlobal RankZambia 57Tanzania 64Botswana 66Cote d’Ivoire 67Kenya 83Ghana 91Sudan 104Nigeria 119Eritrea 122South Africa 128Table 15: The Environment Performance Index, a report produced by scientists and policyexperts at Yale and Columbia universities ranks South Africa 128 out of 132 countriessurveyed. This is only four places ahead of Iraq, a country that has suffered two destructivewars in the past 20 years. The report reveals that South Africa's air and water quality,biodiversity, the functioning of its ecosystems, and its agricultural and fishery systems, hasseriously deteriorated with detrimental consequences for long-term social and economicdevelopment. Source: Yale University80 | P a g e

LONG-TERM POLICY PROPOSALSPolicy outcome: Transversal approach to resource managementIntegrated permittingDevelop a system of integrated permitting for developments requiring authorisations underthe National Environmental Management Act and the National Water Act. This will allow for amore comprehensive assessment of impacts on the environment of developments, while atthe same reducing red tape.Increased application of Environmental Management Frameworks (EMFs)Use EMFs in conjunction with spatial planning regulations to guide where particular types ofdevelopment are best suited. Applied effectively, the EMFs will be able to simplify theenvironmental impact assessment processes for many types of developments.Policy outcome: Ensure sustainability of water supplyNational Water Resources Management PlanDevelop a National Water Resources Management Plan (NWRMP) that will identify andguide the implementation of interventions to identify and prioritise the reconciliation of waterrequirements with available water resources across South Africa. This will include a detailedinvestment programme for water resource development (including alternative sources suchdesalinated seawater and purified wastewater), bulk water supply, and wastewatermanagement. The plan will, in addition, provide details on: (i) a programme to develop waterresource management, research and technical capacity; and (ii) a dedicated conservationand demand-management programme, with sub-programmes focussed on municipalities,industry and agriculture.Fixing existing water infrastructureRehabilitate existing water infrastructure, particularly at a local government level, to curb thecurrently high loss of water in transmission. A National Water Resource InfrastructureAgency (NWRIA) will be established to provide assistance to the relevant authorities byhelping to plan, develop and manage large-scale water infrastructure systems.Prevent pollution of water resourcesInstitute a comprehensive national corps of compliance and enforcement officers to curb thepollution of rivers and dams. Pollution of water resources, whether from failing wastewatertreatment works, mine water or industrial sources, pushes up the costs of purification of bulkwater and hence contributes to the increase in water tariffs. Reducing pollution will alsoimprove dilution capacity thus freeing up clean water for productive use.81 | P a g e

Policy outcome: Reduce carbon emissions and pollutionAssistance for local solar water heater manufacturersProvide assistance for local solar water heater manufacturers by: Waiving the SABS testingfees; allow individual component testing by SABS; and introduce a 50% differential rebateover imported systems. This will make it easier for domestic manufacturers to enter and gaina foothold in this important market.National Building Retrofit FundIntroduce a National Building Retrofit Fund administered by the new Department of NaturalResources to provide bridging finance to private sector companies to retrofit large buildingsfinanced by the savings on their electricity bills. The retrofit will focus on upgrade airconditioning,heating, insulation, lights, glass and geysers & water heaters based on an auditof potential savings.Policy outcome: Expand energy capacityDecentralise power productionMove Eskom’s current system operator, planning, power procurement, power purchasingand power contracting functions to an independent system and market operator. Eskom’stransmission assets may, over time, also be transferred to this separate entity, whilecapacity will be enhanced through the development of dynamic, frequently updatedindicative power and transmission plans and the expedited procurement from andcontracting of independent power producers (IPPs). Such procurement will also seek tostimulate the development of independent renewable energy suppliers and private sectorrenewable energy R&D. Amendments will also be made to the regulatory framework to allowfor ‘wheeling through the grid (where energy intensive users such as large companies will beable to contract with IPPs to source their electricity needs directly) and, where appropriate,allow for net metering in municipalities to enable households to generate their own energyand sell it to the grid.Resolve outstanding distribution problemsRing-fence the electricity distribution businesses of the 12 largest municipalities, resolvemaintenance and refurbishment backlogs and develop a financing plan, with acomplimentary programme investing in human capital in the energy sector.Revise National Electrification PlanRevise the national electrification plan to ensure 95% coverage by 2020 and 100% coverageby 2030 through an appropriate combination of on-grid and off-grid technologies. This isimperative for improving the lives of all South Africans, and ensuring that our country iscompetitive and is able to adapt to the latest technological developments.Develop a National Coal StrategyDevelop a long-term coal policy and country investment strategy based on a thoroughscientific assessment of South Africa’s coal reserves, the sustainable supply of domesticcoal needs to power high rates of economic growth and rapid industrial development, andthe sustainable expansion of coal export markets with the intention of gradually reducingcarbon intensity in the long-term.82 | P a g e

MEDIUM-TERM POLICY PROPOSALSPolicy outcome: Ensure sustainability of water supplyFinalise Table Mountain Water StudyFinalise the Table Mountain Group (TMG) Aquifer Feasibility Study and Pilot Project andimplement its recommendations. Begin a feasibility study on the Cape Flats Aquifer todetermine its potential yield and the likely costs involved in operationalising an effective andsustainable freshwater extraction mechanism.Policy outcome: Reduce carbon emissions and pollutionIncentives for green investmentFacilitate investment in green technology industrial centres in disadvantaged urban areas byoffering rental premises on specially designated city-owned land to green technology andservices firms at highly competitive rates. As part of this process, the relevant municipalitywill also provide detailed information about the land and the various additional financialincentives available.Policy outcome: Plan for climate changeCoastal set-back zonesDevelop planning regulations in all DA-run municipalities to give effect to Section 25 of theNEM: Integrated Coastal Management Act, Act 24 of 2008, which requires the establishmentof coastal set-back zones through consultation between the MEC and affectedmunicipalities. By requiring that a minimum distance is maintained between the coast andbuilt-up areas, this will help ensure that communities are protected from climate changerelatedrisks such as rising sea levels and extreme weather events.Climate change grant for farmersEstablish a dedicated climate change adaptation grant scheme in the Western CapeDepartment of Agriculture’s Farmer Support and Development Programme (FSD) as anational pilot project. This will assist famers in the province adapt to the warmertemperatures and lower rainfall caused by global warming.Policy Outcome: Develop a plan for a system of Natural Capital AccountingRelease a White Paper on Natural Capital AccountingRelease a White Paper on Natural Capital Accounting. The White Paper will be developedand promoted by the DA’s national representation in Parliament. It will recommend ways tomove towards an effective valuation of ecosystem goods and services, and find a crediblemeans to integrate natural capital accounting into economic policy development.83 | P a g e

SHORT-TERM POLICY PROPOSALSPolicy outcome: Ensure sustainability of water supplyDesalination plant feasibility studyConduct a feasibility study for a large-scale desalination plant to augment the water needs ofthe City of Cape Town, which currently stands at 511 million cubic meters per year. Theterms of reference will include all projected costs, the plant’s broader environmental impact,its estimated water supply capability as well its energy needs. Wastewater purificationalternatives will also be considered.Policy outcome: Reduce carbon emissions and pollutionExpand MyCiti bus networkExpand the MyCiti bus service network to link Mitchell’s Plain and Khayelitsha with the citycentre by the end of 2013 to reduce car use and reduce carbon emissions in the city. Theexpansion and upgrading of public transport is also a key component in the DA’s strategy tobetter link people with opportunities.Sustainable design awardsIntroduce a Sustainable Design Awards Competition in the City of Cape Town for architectsand industrial designers in the city. The initiative will build on the public awareness andmomentum created by the city being named the 2014 World Design Capital. Winners andfinalists will be selected by a committee consisting of the heads of relevant professionalbodies and a cash reward announced at a special ceremony hosted by the Mayor’s Office.Expand Cape Town recycling programmeRoll out the City of Cape Town’s Think Twice recycling programme to the Cape Flats,Southern Suburbs and Northern Suburbs, thereby increasing the waste diverted from thecity’s landfill sites by approximately 25%. This is a precursor to a comprehensive ThinkTwice campaign that will aim to significantly reduce the city’s ecological footprint.Payment facilities for recyclingOpen a direct payment facility at community drop-off sites in every DA-run municipalitywhere individuals and small-scale business not contracted to the city can exchangerecyclable dry waste (clean and dry paper, cardboard, plastic bags, containers, bottles, glassand tin cans) for a small cash payment.The DA in Government: Cape Town Environmental InternshipsOpening opportunities and protecting the environment doesn’t have to be an either/ orequation. Both can be achieved at the same time. This is why the DA administration in theCity of Cape Town offers 12 month paid internships for graduates, who work in itsenvironmental, spatial planning, land use management and transport divisions whiledeveloping professional skills through mentorship programmes and specialist trainingworkshops.84 | P a g e

CONCLUSIONSouth Africa’s economy is divided into insiders and outsiders. On the one side are those whohave jobs, homes, and the prospect of rising incomes and a better future. On the other sideare the millions of poor South Africans who continue to be excluded from the economicmainstream. After 18 years of democracy, this is an unacceptable state of affairs.This document sets out the DA’s plan to reduce poverty and create jobs by putting SouthAfrica on a path to rapid economic growth. It outlines how the DA will break down thebarriers that inhibit opportunity by creating an open and inclusive economy in which eachperson has the skills, the opportunities, and the resources, to become a productive memberof a dynamic, integrated and forward-looking society.Breaking down barriers - to job creation, to having a real stake in the economy, to a betterstandard of living - and building a high-growth, stakeholder-led economy, will be thecentrepiece of DA economic policy as we move forward to 2014.South Africa’s insider/outsider economy is no accident.It is a product of our nation’s tragic past and its troubled present. The system of apartheid,which involved the legislated denial of opportunity to black South Africans – to assets, jobs,proper education, and even citizenship – left an economic legacy of racially determineddisenfranchisement, marginalisation, and exclusion, which confined our nation’s talent andwounded our psyche.Despite the political miracle of 1994, the policies pursued by successive nationaladministrations have not fixed this legacy, but have instead created new barriers that protectelites and established insiders while excluding millions of poor South Africans fromaccessing economic opportunities.Breaking down these barriers is essential if we are to effectively tackle the triple challenge -of unemployment, poverty and inequality - facing South Africa today. It is the DA’sfundamental purpose and overriding goal.Creating an open and inclusive economy is no simple task. It means breaking down thebarriers that keep young, poor and low-skilled South Africans out of the job market. It meansbreaking down the high costs and bureaucratic red tape facing entrepreneurs and smallbusinesses, and making it easier for poor South African to own assets.It will require that we challenge established interests.Vested interests that seek to monopolise access to opportunity for the privileged few at theexpense of the majority – whether in the form of closed business networks, patronagepolitics, or protected employment for members of labour union COSATU and its affiliates –needs to be met with bold and decisive action.The high costs and bureaucratic red tape facing entrepreneurs and small businesses needto be drastically reduced and the scourge of corruption and poor service delivery needs to beeliminated so that we can begin to build an effective state that works to improve the lives ofSouth Africans.For this plan to succeed we need a healthy, growing economy.In many developing countries of Asia, Africa and Latin America, strong economic growthcombined with smart social policies has resulted in sharp declines in poverty and85 | P a g e

unemployment. In these countries, the end of poverty is not a vain promise. The reality is insight.However, no country that has tackled the interrelated challenges of poverty andunemployment successfully has done so in the absence of high rates of investment andstrong economic growth. Both are necessary to create new wealth and opportunities. Aneconomy capable of doing this has more to share: enough, for all, forever.The DA has closely studied the experiences of these high-growth developing countries in thedevelopment of this plan, which focuses on five key areas:Opening job opportunities to all: Breaking down barriers to entry in the job marketrequires multi-faceted reform programme that creates incentives that encouragebusinesses to hire more people; that ensures delivery of high-quality education andtraining so that job-seekers have marketable skills; that makes it is easier for youngpeople to access employment by reducing barriers to entry faced by first-time jobseekers; that ensures a fairer relationship between work and pay; and that allowspeople with drive and determination to reach their full potential.Breaking down barriers to inclusion: The priority of this section is to make it easierfor poor South Africans to have a real stake in the economy. It includes policyproposals ranging from financial incentives to enhance Broad-Based BEE and extendthese benefits to non-listed companies; legislative changes to make it easier for poorand low-income households to own the homes they live in; additional stateassistance to expedite land reform and broaden ownership in the agricultural sector;and changes to the social security system to make it more proactive in helpingpeople bridge the gap between poverty and opportunity. Half of all policies in thissection are designed to help poor South Africans own assets.Opening the economy to competition: Breaking down the barriers that keep thecost of living high, and protect economic insiders from competition from new andinnovative entrepreneurs, requires a range of policy interventions that challengeestablished interests. The section includes policies designed to: augment the powers,and increase the budget allocations for the competition authorities and the NationalConsumer Commission; slash red tape so that it is easier for people to start and grownew businesses; create an environment that actively encourages innovation andentrepreneurship; ensure that government support services that are reliable, efficient,high-quality and corruption-free.Building the base through trade and investment: Breaking down barriers to tradewith Africa and the world, and building the foundations for long-term growth byreorienting fiscal policy to prioritise investment, are the two fundamental cornerstonesof the DA’s growth strategy for South Africa. This section explains how we plan to:engage Africa as a strategic market and economic partner; radically simplify the rulesand procedures involved in importing and exporting goods in and out of the country;increase infrastructure investment to 10% of GDP to deal with current backlogs;rationalise South Africa’s state-owned enterprises; and eliminate wastefulexpenditure through tighter fiscal governance so that our resources go to building theeconomic base rather than lining the pockets of politically-connected elites.A sustainable future for all: Achieving inclusive, job-creating economic growth thatis sustainable in the long-term requires that we develop smarter ways to manage ournatural resources by living within our means; putting our country’s energy securityback on track, and tackling climate change and pollution in ways that create, rather86 | P a g e

than limit, economic opportunities for people. In policy terms, this means adopting atransversal approach to natural resources management; separating Eskom’s differentfunctions and expediting procurement from independent power producers; makingkey investments in water storage and distribution infrastructure; developing a longtermNational Water Management Plan; and introducing measures to helpentrepreneurs and communities participate in tackling climate change.The DA believes that building an open and inclusive economy that opens and expandsopportunities to all South Africans is not optional. It is built into the founding document of ourdemocracy – the Constitution.In the Bill of Rights chapter, it is made explicitly clear that everyone has the right to a decenteducation; to have access to healthcare, food, water and social security; and to be able toaccess adequate housing.The failure of the current national administration to expand economic opportunities to thepeople of South Africa has led some to suggest that the answer lies in dismantling ourcountry’s constitutional foundations by pursuing a state-dominated development trajectory.As discussed elsewhere in the document, there are several inherent flaws to this approachthat militate against it offering a suitable model for South Africa.A preferable, more nuanced approach – the one promoted by the DA – views the state ashaving an important role to play in the economy by providing an environment conducive togrowth, including the provision of critical infrastructure; correcting market failures; ensuringfairness by promoting broad-based ownership and participation; and championing our firmsand entrepreneurs on the global stage. This document outlines the DA’s vision.It is not an abstract wish list, but rather a living blueprint for an alternative economic future.It has outlined what the DA would do were it to govern at a national level. Its policy proposalsprovide recommendations for bold reforms in key areas of economic policy such as thelabour market, the tax code, competition policy, fiscal policy and international trade, as wellas targeted reforms in the arena of social policy, particularly in education and social security.The document also outlines reforms the DA can begin to roll-out right now where it governsat a provincial and local government level. In each of the five priority areas addressed in thisdocument, reforms aimed at making this alternative economic future a reality, are alreadyunderway.South Africa’s history of marginalisation and exclusion has been exacerbated by the policiesof the current national administration which has actively created a system of insiders andoutsiders. We do not have to go any further down this road.By breaking down barriers - to job creation, to having a real stake in the economy, to a betterstandard of living - and building a high-growth, stakeholder-led economy that opens andexpands economic opportunities to all South Africans, we can make the promise of 1994 areality.87 | P a g e