Finance minister Tito Mboweni’s call to “think outside the box” about economic growth is akin to closing the stable door after the horse has not only bolted, but already won a race elsewhere.
Mboweni picked Harvard economist Ricardo Hausmann as an advisor, knowing full well that Hausmann’s advice on productive knowledge has been flatly ignored by the ANC government since 2008.
Hausmann sees productive knowledge as the key factor separating successful countries from unsuccessful ones, with a lack of productive knowledge retarding economic growth and development.
From 1990 to 2003, South Africa lost 7% of its professionally qualified people – predominantly high-skilled whites. After some stability during the high-growth years of former president Thabo Mbeki and finance minister Trevor Manuel, the exodus was again triggered by the growing ineptitude of an administration that radically transformed departments and state-owned enterprises (SOEs) into little more than facades.
The South African Police Service, SAA, Transnet, the National Prosecuting Authority and municipalities are among the examples where cadre deployment trumped productive knowledge.
- At township level, the disgruntled resorted to service protests.
- At professional level, highly skilled individuals emigrated.
- At investor level, South African business has emigrated through foreign direct investment; fixed investment by South Africans abroad exceeds fixed investments lured to our shores.
Hausmann, an erstwhile cabinet minister from Venezuela, chaired the international panel of experts convened by Mbeki to advise on the Accelerated and Shared Growth Initiative of SA (Asgisa). Originally Agisa, the ‘shared’ was added in an attempt to counter growing criticism from Cosatu, the ANC Youth League and the SA Communist Party that Mbeki and Manuel were agents of neo-liberalism with their Growth, Employment and Redistribution (Gear) plan.
Asgisa did not materially depart from Gear, but introduced a stronger emphasis on black economic empowerment (BEE): in that sense, it was the forerunner of radical economic transformation.
The Hausmann panel made several far-reaching recommendations regarding growth prospects as well as impediments to growth, urging government to, inter alia, make BEE growth-compatible and do everything to stem the exodus of high-skilled whites.
With heightened attention on a Great Trek of productive capital out of South Africa following a radio interview with Johann Rupert, I have highlighted just some of the 2008 conclusions and recommendations of the Hausmann panel dealing with productive knowledge:
- Skills are in short supply and this requires an urgent strategy; a growth strategy has to be based on the people SA has, not on the people it wishes it had.
- BEE complicates firm creation, exacerbates skills constraints in managerial positions, creates greater regulatory burdens and discourages investment and job creation; making BEE growth-compatible should be an important strategic objective.
- BEE elements such as equity transfers amount to an open-ended tax on existing and new capital.
- Introduce a sunset clause for BEE; if the policy is successful, it should become redundant.
- High skilled and low skilled workers are strongly complementary; the greater the demand for the one, the greater the demand for the other. The shortage of highly skilled workers causes a lower demand for low skilled workers and the lack of engineers may cause the loss of hundreds of blue collar jobs.
- Stop and reverse the emigration of high-skilled whites. There is substantial anecdotal evidence that BEE rules may be sending a negative message to both young white university graduates and those in senior management.
Black professionals have joined the exodus
These recommendations were unpalatable for an ANC leadership convinced it was on the right radical economic transformation track by getting rid of Mbeki and his Gear approach and accelerating BEE.
It is unlikely that Hausmann will find an improved situation now. In fact, matters have deteriorated concerning the availability of productive knowledge.
Government, in its own White Paper on Migration (2017), acknowledges that:
- For every one professional immigrating to South Africa, eight are emigrating.
- White professionals emigrate due to push factors that include fear of change and opportunities open to professionals abroad.
- In recent years, the annual number of black professionals leaving South Africa has exceeded the tally of professional white emigrants.
- While the National Development Plan (NDP) prioritises skills acquisition to further inclusive growth, government has not devised or implemented adequate policy and strategies for retaining and/or recruiting such skills.
- Between 1989 and 2003, 120 000 of the 520 000 mainly white emigrants had professional qualifications (one in four) and SA lost 7% of its total stock of professionals.
Considering that the 1990-2003 emigration of skills continued despite the return of stability under Mandela and Mbeki, one can easily state that at least a similar number of white professional people have left between 2004 and 2018, amounting to at least a quarter million of white professionals. The last phase of the [former president Jacob] Zuma catastrophe, as well as the ANC’s embrace of land expropriation without compensation, has led to an acceleration of skilled emigration by all race groups.
With the White Paper on Migration stating that more black professionals are leaving than white professionals, one can conservatively calculate that at least 400 000 professionals have left our shores. This contributes to the shrinking percentage of high-income households, as well as removing people in high personal tax brackets as contributors to the South African Revenue Service (Sars).
ANC effectively promoting growth in Mauritius at its own expense
The current low-growth, high-unemployment situation is too often blamed on the ‘Gupta-isation’ of government spending.
Hurtful as these body punches were, the head blows of inefficient economic policies and inefficient and counter-effective administration have had a worse effect.
Some examples are:
- Inefficiencies in the logistics system – including some of the slowest ship turnaround times and highest duties on a global scale – were not triggered by Gupta-isation, but by transformational strategies such as affirmative action elbowing out experience. While the goal of affirmative action can be understood, why would a foreign buyer of SA exports carry such additional costs of inefficiencies if other suppliers (countries) that do not have such inefficiencies can provide these more reliably at lower cost?
- If BEE adds any cost to firms exporting goods or services, the policies are making SA firms less competitive. Such firms generally either close down and re-establish abroad or they open an international affiliate unburdened by such regulations to escape from this opportunity tax. The ANC, through its policy mix, is exporting successful entrepreneurs to Mauritius and Botswana. Authorities in both countries indicate that SA citizens are quite active in registering companies there. Some of the surnames of directors in Mauritian companies registered the past decade are Botha, Basson, Coetzee, De Bruyn, Meyer and Van der Walt; names that would not garner any BEE points in South Africa. By pursuing demographic-driven economics, the SA Government is effectively promoting economic growth in Botswana and Mauritius at the expense of local growth.
- Summits cannot replace the restoration of standards and productivity.
- To assist the poor, the scuttling of anti-growth policies is more important than maintaining the unity tightrope between the factions of the ANC.
- Before one can lure foreign investment, the inefficiency of the police service – considered one of the 20 most inefficient in the world, with the cost of crime for business the fifth highest – has to be tackled.
- The high cost of state monopolies should be addressed by creating competition; this implies breaking up and privatising the majority of SOE components.
To be more precise, it is time (before the 2019 elections) to:
- Declare a moratorium on BEE.
- Revamp the police service and the top four tiers of municipal staffing by ensuring incumbents meet the requirements of these positions and stop the practice of making mice the managers of cheese factories rather than competent people.
- Free all firms with an annual taxable income below R50 million from the constraints of collective bargaining.
- Enter into port management arrangements with at least four consortia to ensure more efficient ship turnaround times as well as immediately slashing tariffs to at least the international average while committing to privatising the ports by not later than 2023;
- Announce the introduction of a voucher system for parents to choose schools for their children (in at least two pilot provinces, preferably Gauteng and the Western Cape) from January 2020.
- Transform the Sector Education Training Authority (Seta) system by giving employers the flexibility to choose from the total range of accredited training courses.
- Cut national cabinet to no more than 20 ministers.
If not, the compromised unity slate of the national and provincial ANC lists will ensure another five years of waste. By then, the racehorses will have won more coveted trophies abroad, expanding the ranks of the SA-born Patrick Soon-Shiongs [US-based surgeon, entrepreneur and philanthropist] and Elon Musks [US-based entrepreneur behind Tesla and SpaceX] and enabling countries like Mauritius and Botswana to progress while the vision of the NDP will fade into pure fiction.
Johannes Wessels is director of the Economic Observatory of SA (Eosa). His article was originally published on the Eosa website here.