Asgi+takes+over+from+Gear+next+year,+Business+Report


 * Growth and development**

= **All eyes on skills and delivery as Asgi takes over from Gear next year** =


 * Business Report, Johannesburg, December 13, 2005**


 * By Andile Ntingi**

Johannesburg - Going into 2006, the phrase "skills and infrastructure development" is likely to dominate the debate as the country builds up to the 6 percent a year sustainable growth target by 2010. The dire skills shortage and infrastructure bottlenecks are seen as serious constraints to accelerated growth.

The key economic strategy unveiled this year was the accelerated and shared growth initiative (Asgi), which has taken over from the growth, employment and redistribution (Gear) strategy.

Whereas Gear focused largely on promoting financial macroeconomic stability, forcing down inflation and cutting the budget deficit, Asgi is designed to be the vehicle that takes South Africa to 6 percent growth. Latest official gross domestic product figures show that the economy grew by 4.2 percent in the third quarter.

Although Gear provided a solid ground for strengthening the economy, it failed to put the country on a higher growth path, deliver jobs and make a big dent on poverty.

Spearheaded by deputy-president Phumzile Mlambo-Ngcuka, Asgi is an attempt to achieve an economic miracle through targeted micro reforms. Apart from skills shortages, the policy makers have identified rand volatility, excessive red tape, weak competition and infrastructure deficiencies as some of the key constraints that could make it difficult for the country to achieve the 6 percent growth rate.

On the infrastructure investment front, the government is committed to investing about R165 billion to upgrade transport and electricity infrastructure over the next five years.

The country's infrastructure had been neglected for decades and state-owned transport group Transnet and power utility Eskom will drive the project. Over the long term, the objective of Asgi is to create jobs, alleviate poverty, improve service delivery and promote good governance.

While the emphasis is on skills improvement and infrastructure upgrades, analysts argue that South Africa needs to attract large-scale foreign investment and boost exports to ensure that the country maintains the 6 percent growth rate from 2010 to 2014.

The east Asian tigers managed to industrialise faster through attracting foreign investment and technology while simultaneously embarking on an export-led growth.

"Exports are a strong lever to give strength to an economy's internal growth dynamics," says Standard Bank's group economist, Goolam Ballim.

Asgi will be anchored by a range of sector-specific strategies and a new industrial policy, which will allow the government to play a bigger role in the country's economic activity. The industrial policy reforms, which are being driven by the department of trade and industry, will provide more support to distressed industries such as textiles, clothing, footwear and mining. These sectors have been shedding thousands of jobs for a variety of reasons.

In the mining sector, the gold mining industry has been hardest hit but the resurgence in the price of gold is likely to provide support in the future even in the face of the firm domestic currency.

The gold price is trading well above $500 (R3 175) an ounce compared with an average price of $409 in 2004. The industrial strategy will also seek to promote labour-intensive businesses in the mining, manufacturing, and services sectors.

The new industrial policy does not put much emphasis on the use of tax incentives to lure investors. Previous industrial programmes based on tax incentives often failed to create jobs and instead promoted capital-intensive production.

Earlier this year, the government was forced to terminate the strategic investment programme (SIP) after its conspicuous failure to make a dent on unemployment, which is estimated to be about 26 percent, according to the official definition and 40 percent if disappointed job seekers are taken into account.

SIP, which offered tax deductions on investments worth more than R50 million, had attracted almost R40 billion in capital investment but generated only 7 000 direct jobs and 110 000 indirect jobs. This was on the back of R10 billion that the national treasury had mobilised in foregone taxes to support the scheme.

Although there has been talk that the government might link incentive packages to job creation and the rejuvenation of underdeveloped areas, there is no indication whether a new scheme is likely to replace SIP.

This year, the government has also shown considerable urgency in improving support for small, medium and micro enterprises (SMME). Following a 10-year review of the country's SMME development strategy, the government found out that it was trying to do too much with too few resources.

The strategy is undergoing a major face-lift to ensure that small entrepreneurs operate in a friendlier environment. The new SMME strategy will form the blueprint for support to small firms over the next 10 years and government-owned development finance agencies such as Industrial Development Corporation (IDC) and Khula Enterprise will service different market segments.

Other state-owned development finance institutions that will play a role in the application of the strategy include the SA Micro Finance Apex Fund (Samaf) and National Empowerment Fund (NEF), while non-financial support services organisation Small Enterprise Development Agency will be the chief implementer.

The SMME policy reforms are intended to ease burdensome regulation, promote access to finance, advance black economic empowerment and boost market access through improved procurement policies.

Under the new strategy, Samaf will provide small loans of up to R10 000, while Khula will grant loans of between R10 000 and R250 000. The NEF and the IDC will extend funding of more than R250 000 to small companies.

Tshediso Matona, the acting director-general at the department of trade and industry, says 2006 will be the year of implementation and better policy co-ordination to ensure that the strategies achieve good results.

"We are looking for better policy co-ordination, high-intensity and high-impact approach. We will also strengthen our capacity in order to improve service delivery," Matona says.

From: http://busrep.co.za/index.php?fSectionId=566&fArticleId=3032192