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.