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The rose-tinted blinkers approach to economic reform

There is an ominous expectation that private capital will ‘invest’.

As I write, South Africa is in the grip of serious outbreaks of gender-based violence, attacks against foreigners, opportunistic looting and police corruption.

With unemployment at 29% (6.7 million, possibly 10 million), burgeoning government debt (quaintly referred to as having “grown considerably”, but “improved government finances and a more sustainable fiscal trajectory will contribute to a decline in borrowing costs …”), a bloated civil service, the tax authority falling billions short in collecting the budgeted revenue, a health system in disarray, a broken social affairs department, state-owned entities squandering billions, and the threat of the National Health Insurance, we need an immediate lifeline.

The economic strategy plan offers neither lifeline nor hope.

Instead, we have been handed a long-winded document that feeds on a hotchpotch of unrealistic – and wide-ranging – aspirations. There is an ominous expectation that private capital will be persuaded/coerced/enticed to invest in government failures; for instance, financing low-income housing projects, participating in the rental housing market, involvement in the rail network. There is a similar expectation for those who benefit from the renewable energy drive to “contribute towards compensating the losers”.

The report acknowledges that South Africa’s growth rate hinges on improving its fundamental building blocks: education, youth employment, public transport systems and sustainable cities, skills development, a new compact between government, the private sector and other partners, and a stable macroeconomic policy.

Sadly, except for the stable macroeconomic policy, these building blocks range from being in a state of decay, beset by a myriad of problems, to being totally unrealistic to achieve in the medium term. All the components of these building blocks require a detailed analysis, and acceptance of the need to challenge the problems head on, before they can be ‘improved’.

Pointing to education as an example, the report aspires to “improving educational outcomes throughout the educational life-cycle, with a particular focus on early childhood development”. Apart from maintaining the flawed ‘outcomes-based education’ system, it is trite to wax lyrical about improving education for all without addressing teenage pregnancies (which, for those aged 10 to 19 in 2017 accounted for 123 000 births), the blesser syndrome, the school drug problem, school violence, school sexual violence, pit toilets, school feeding systems (eradicating corruption therein), the quality of teaching, and the problem of truant teachers …

The report also suggests “aligning learning outcomes to labour market needs”. Does this imply that if there is a shortage in the construction industry, schools will have to start churning out construction workers?

On top of these five fundamental building blocks, five themes are to be prioritised to bring about “economic transformation, inclusive growth, and competitiveness”.

Very briefly, these themes include:

  • Modernising network industries (energy, telecommunications, transport, water).
  • Lowering barriers to entry (competition, access to finance, government incentives, reviewing red tape, supporting small businesses through public procurement). The authors suggest that small firms should act as sub-contractor to large firms; we have seen how this has played out in various state-owned entities, often resulting in procurement irregularities. Electricity constraints are not included as a barrier to entry; for example, large companies and supermarkets have the capital to install generators. Small poultry farmers and bakeries have been severely impacted by power outages.
  • Prioritising labour intensive industries such as agriculture and services (this will necessitate access to finance, agricultural insurance, transition to higher value agricultural products, trade promotion, access to markets and water, amended visa regulations, and support for the Tourism Safety Initiative).
  • Trade policies (evaluating industrial policy interventions, leveraging public procurement to support industrialisation, rationalising the Industrial Policy Action Plan to improve its efficacy, and widening the trade policy which is administered by the International Trade Administration Commission to include smaller firms).
  • Promoting export competitiveness (move to technologically sophisticated exports, renegotiate preferential trade agreements, incorporate automated licensing system for key exports, and “increase awareness of South African export products abroad”, while export credit and bridging finance “should be provided at internationally competitive rates”.

It is somewhat simplistic to compact all these initiatives into five themes, and then optimistically suggest that some can be achieved in the short term and others in the medium term. Implementing these themes will require changes to legislation, regulations and policies – this cannot be achieved in the short term. All of these initiatives require capital.

In opining on the benefits of labour intensive industries, no mention is made of – to cite one example – the textile and clothing industry, which was once a vibrant industry, or the reasons why it failed. And why the reasons for its failure will not remain a threat to other initiatives.

In fact, the report does not acknowledge any possible dampening effects on the economy.

In particular, low productivity and the power of the unions (referred to as “rigidity in labour market institutions”, and only in the context of increasing costs for SMMEs). Nor on the cost to industry of an uncertain power supply, the bloated and inefficient civil service, crime, the costs of corruption, and the wasted expenditure incurred by state-owned entities.

The report acknowledges some bottlenecks: that Eskom’s current business model is unsustainable and must be restructured; and the delay in digital migration and spectrum allocation. It is suggested that power plants could be sold, together with the labour … 

The report puts forward ideas to assist new businesses, without quantifying the additional financial cost:

  • The government can make incentives more accessible, and subsidise risk (freight market).
  • “The Industrial Development Corporation (IDC) can do more … to make development finance more accessible to new entrants”.
  • Smaller tourism entities should be protected from the vagaries of foreign exchange movements.

The report also refers to “the plethora of state funds and funders”, but fails to address the financial state of these funds.

What happened to the National Employment Fund? Was it absorbed into the IDC?

The authors optimistically envisage that it is possible to transform the economy and still be able to compete in product and labour markets, and simultaneously address the challenges of unemployment, poverty and equality, and change “ownership and control”. This should raise a red flag for any potential investor.

In quantifying the impact of these proposed growth reforms, the authors take a huge leap of faith – and come up with one million job opportunities and an additional 2.3% increase in GDP.

And then there is the unfailing belief in the “virtuous cycle” that “economic transformation promotes inclusive and sustainable growth and is likely to contribute to a greater potential growth rate”.

In other words, one plus one equals five.

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It is time for the government to take lessons from their idealistic mentor, China. Sort out corruption, law and order. Get our infrastructure right, from road to rail transport. Scrap minimum pay and BEE. 5% of our population can not be a threat. Reward excellence and productivity. We are being surpassed as an economic hub in Africa by the rest of Africa with the help of China.

Dont assume the ANC actually care, they are sinking the ship but getting fabulously wealthy along the way… Aluta continua

Spot on – and this is what the 5% threatens.

@Barbara Curson

I could not have summed it up better myself ‘one plus one equals five’.

As you say in the third last paragraph:

‘In quantifying the impact of these proposed growth reforms, the authors take a huge leap of faith – and come up with one million job opportunities and an additional 2.3% increase in GDP.’

The come up with this idea that 1 million jobs will just fall out of the sky, with no concrete plan.

Number of Employed people in SA:

N.B. The number of people employed in SA, no “unemployed” or “expanded unemployment rate” stuff, just employed.

I’ll go on the stats from ‘Quarterly Labour Force Survey (QLFS), 2nd Quarter 2019’ published 30 July 2019:

Apr-Jun 2019:

Population 15-64 yrs: 38 433 000
Labour force: 22 968 000
Employed: 16 313 000
Unemployed: 6 655 000
Not economically active: 15 465 000

So the so called labour force is made up of the employed and unemployed categories, so Stats SA just ignores the 15.5 million that is not economically active?

So if 16 313 000 (or 42.4%) out of 38 433 000 is employed, I can’t help but question the definitions of unemployed and not economically active.

I am the only one that notices that 22.12 million (or 57.6% of) people are not employed?

Should you chose to remove the age group of 15-24 for the sake of argument that they are still attending school and university, this is what it looks like for the age group from 25-64 years.

Population 25-64 yrs: 28 140 000
Employed: 15 145 000
Unemployed: 5 145 000
Not economically active: 7 851 000

So 15.1 million out of 28.1 million are employed, so 53.8%, leaving 46.2% either unemployed or not economically active.

I am convinced South Africa is only heading in one direction and that is down. Unless the ANC actual bring in reforms and changes, it’s one way and one way only.

There are people who are not looking for employment for example housewives and those classified “gave up looking for work”. Probably people working in the informal economy and subsistence farmers in tribal areas also not included in the employed category. BTW, in western economies roughly half the population (all age groups) is employed, the rest consist of kids, students, retirees, housewives and of course unemployed. Using this 50% figure SA should have about 29 million people employed instead of 16 million. Because of the large number of young people in the country the number should be a bit lower. This gives roughly 40% unemployment rate which is close to the “expanded unemployment rate”.

@The Hun

Thank you, the students on page 74 was the one missing that skewed the numbers a bit too much. That’s brings the numbers more in line with the 38.5% expanded unemployment rate. I knew the youth unemployment was bad, but I couldn’t believe that age bracket could throw everything off that much all the way to 64 years old bracket.

That was why I wondered how big an influence students and kids could have and why I looked at the 25-64 age group as that would exclude almost all kids and students.

Population 15-64 yrs: 38 433 000
Unemployed: 6 655 000
Not economically active: 15 465 000
Students: 6 278 000
Not economically active (minus students): 9 187 000

So you’re left with 15 842 000 (41.2%) that is either unemployed or not economically active (excluding students).

Of course like anything in the world it’s never just one factor or metric.
Another metric that makes for scary reading it the amount of people living under the upper-bound poverty line.

As Patrick Cairns quoted in his article “Too little, too late”:

“49.2% of South Africa’s total adult population of 35.1 million live below the upper-bound poverty line”

As the far as the definition goes:
“Upper-bound poverty line – R1 227 (in April 2019 prices) per person per month. This refers to the food poverty line plus the average amount derived from non-food items of households whose food expenditure is equal to the food poverty line.”

So that would mean around 17.3 million people are living off less than than.
Just another metric pointing towards how few people and contributing to income tax in South Africa.

Of course as the negative politics and economic legislation continues the more people will emigrate (read tax revolt) and the smaller the pool from which to collect taxes become.

South Africa’s “Arab Spring” gas started, just like R W. Johnson predicted it would.

For years there were daily low intensity protests in remote townships throughout the country.

The intensity and violence slowly increased

Now it moved to major cities like Johannesburg and Pretoria. Much bigger with lots of violet, arson and violence.

And government and police seems to be powerless to stop it

…and also one of the reasons why ANC Govt has rushed into NHI: as the voters are becoming increasingly unhappy, incl. poor state hospital service, the ANC has to now rely on getting (the only functioning) private healthcare sector to help carry the burden and provide acceptable care to the masses, and to appease them.

Over time, the one sector declines/fails after the other. So far our commercial banks are holding up well. All those cash/money market funds doing at 8% and so nicely guaranteed….until the bank goes poop. That’s why respect of property rights must be sacrosanct: IF law-abiding citizens’ properties burn en masse / or become worthless = similarly our homeloans will be defaulted (at the cost of depositors).

What Barbara (and many commentators) are describing is the mere demographic phenomenon of a previously Western-colonised nation, returning the “mean average” represented as African.

Very simplistic:

Prior colonial times, the southern tip of continent had nomadic bantu tribes, while North Africa (Arabic civilizations, specially Egypt) presented the strongest civilization on continent. Africa south of Sahara developed steadily with southern nomadic movement. The southernmost regions did not stand out compared to northern civilizations.

Then colonialism reached (also) the southernmost tip of Africa. (While the Belgians claimed Congo, Germany parts in East Africa & Nam, the Portuguese Angola and Moz, the French owning parts of West/North Africa, the British claimed Eqypt, Kenya, Uganda, Rhodesia, and the Cape.)

The problem for the ‘southernmost tip’ of Africa is that since the arrival & brutal influence of Europeans (Diaz,1488), Vasco da Gama (1500s), the RUTHLESS INVADERS of 1652, and followed up by EVIL 1820-settlers ruled with tyranny….all had the adverse impact in later centuries to completely OVER-DEVELOP this region OUT OF PROPORTION to the rest of Africa.
(Unless I’m historically wrong, and suspect that the local bantustans and Khoisan tribes must’ve been vastly superior to the rest of tribes on continent, which lead to fast development overtaking rest of continent?)

Post apartheid/colonialism, these brutal Eurocentric tribes, who ruled ruthlessly up to 1994 (…they even had ‘fun’ killing each other 1899-1902) started to lose power and influence to the great bantustan tribes. The bantu kingdom will reign again, while strengthening their proud traditions.
There is NO PLACE for Eurocentric values.
As more skilled Eurocentric families flee, the more one can celebrate the returning to the African value system. (Who am I to decide, as minority, what the correct system is for the majority?)

Expect to see, feel & witness the following: identify the hallmarks of a western industrial civilization, and experience parts of it to evaporate. Imagine how it will disfunction?

Where SA is heading is perfectly normal (manifesting itself as the contents in this article)….and understandingly scary for Eurocentric westerners. Don’t fear Africa. It’s beautiful.

Agree entirely. Irritates me when a turnaround strategy etc for SA is suggested and debated.
The way SA is going, is what was to be expected as you describe. There is nothing to turn around or reclaim.
Live with it or leave.

I believe one’s energy & time is better spent by researching relocation solutions abroad, be it future work or for retirement.
Moneyweb’s commentators (and journos) repeatedly come up with the best, practical economic solutions for the general good of SA (only to realise politicians don’t share the same goals, and we’re the minority, and the ‘revolutionary struggle heroes’ of the ANC only care about themselves and cadres / desperate to cling in power).
Farting against a hurricane will tire you out!

It’s like the marine-engine mechanic on the Titanic, jumping for joy after he found the elusive minor oil leak, meanwhile seawater gushes in elsewhere a few decks below a dancing party, entertained by a drunk captain ZuptANC….

Time better spent to figure out how the life-raft system works, identify a boat, and silently slip your family onto it…

There is an ominous expectation that private capital will ‘invest’.

Is there? Haven’t met a single person who believes this other than the mean reversionist fund managers.. and even they know it’s a dead duck.

…I’m rather disappointed in you 😉 I’d thought you’d be the perfect proponent for “impact investing” or social investing. Apparently it’s a new, exciting investment concept.

(You and I are ‘old school’ you see…we only focus on real returns, seemingly an outdated strategy(?)

It seemed, to me, to be wish list, not an economic plan. Your insightful article raises the red flags.

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