Abandon policies that inhibit growth goals – The Sunday Times, 20 March 2016

By Frans Cronje 

In a statement released by the Treasury this week, the minister of finance Pravin Gordhan states that “the next few months are critical as South Africa is expected to demonstrate concrete actions to map a path for higher economic growth as it seeks to preserve its investment grade rating”.

The trouble is that many of Gordhan’s cabinet colleagues continue to send the wrong message about the economy.

For example, the Department of Public Works continues to press ahead with the Expropriation Bill, which, in its current wording, could allow the state to seize land and other property without compensation.

The Department of Agriculture, Forestry and Fisheries is proceeding with an Agricultural Land Bill which threatens to vest all agricultural land in the custodianship of the state.

Despite not having a sufficient budget, the government has also re-opened the land claims window and encouraged the lodging of some 120 00 new claims. The unfortunate impression is that the government is not interested in attracting further investment into agriculture.

The Department of Trade and Industry (DTI) has pressed ahead with the Protection of Investment Act, which provides much diluted protection to foreign investors. That same department has proposed a Copyright Amendment Bill that, in its current wording, dilutes protection for copyright holders.

This bill also provides for an “intellectual property tribunal”, to be appointed by the minister of trade and industry, which would be empowered to grant compulsory licences over patented products. Such licences would allow the use of these products against the will of the patent holder and in return for limited royalties, as decided by the tribunal.

These are not the actions of a government that is successfully positioning South Africa as a leading research and innovation hub in Africa.

The DTI also continues to press ahead with ever-more onerous black economic empowerment (BEE) requirements, which large firms tell us have become an investment disincentive. Miners have gone as far as to approach the courts to seek relief from shifting BEE ownership requirements.

Last week, my colleagues released a report pointing to a decline in the number of children passing maths in matric with a grade of 70% or higher. The Department of Basic Education‘s response was a denial that there was a problem suggesting a government not yet willing to face up to problems in our schools.

The Department of Health, which oversees a poorly functioning public health system, is pursuing the National Health Insurance scheme, which is geared at undermining South Africa’s world class private healthcare providers. Better healthcare policy would be to expand the scope and reach of the private sector.

The government remains open to the introduction of national minimum wages, even though the labour force absorption rate among black people is just over 40%. The absorption rate is lowest among less skilled people. Primary sectors such as mining and manufacturing have recorded steep falls in the number of employees.

Even entertaining the idea of a new minimum wage raises doubts about whether the government is serious about addressing our unemployment crisis.

Countries that suffer downgrades to sub-investment grade tend to stay down for long and only recover after painful internal reforms. If South Africa does suffer further ratings downgrades this year, it will not be because the finance minister failed to make a credible commitment to fiscal consolidation, but rather because the government of which he forms part persisted with policies that are inimical to economic growth.

Not for a moment should the government assume that large investors and investment analysts do not see the contradictions.

What “concrete actions to map a path for higher economic growth” should the government undertake to make a compelling case for growth and avoid a further downgrade?
Start with sweeping policy reforms to secure property rights by scrapping the Investment Act, reworking the Expropriation Bill and arresting the raft of other policies that threaten property rights, stretching from agriculture to patents.

Replace counter-productive BEE policies with the far more effective Economic Empowerment for the Disadvantaged or EED policy developed by the Institute for Race Relations. Repeal aspects of the Basic Conditions of Employment and Labour Relations Acts so as to deregulate the labour market and price poor people into jobs. Sell state owned enterprises.

The good news is that these policy shifts will get South Africa back onto a higher growth track. They are also shifts that are within the power of the government to implement. More than before there are now reformist thinkers — including in the government and the ANC — who are open to these reforms.
With sufficient support they might yet turn our economy around.

Cronje is the CEO of the IRR, a think-tank that promotes political and economic freedom.

Read the article in The Sunday Times here.