Ideologies will give way to reform – Business Day, 4 May 2016

By Frans Cronje 

EVENTS of the past two weeks have not been good for SA’s prospects of staging an economic recovery. Key Cabinet ministers put on display the worst aspects of an ideologically obstinate government acting very much against the best interests of the country.

Their actions have raised the most compelling doubts yet over a thesis developed within our own organisation that the African National Congress (ANC) may surprise its critics and succeed in turning the economy around.

In the past week or so, the labour minister threatened to fine firms that do not meet unrealistic racial equity targets a percentage of their turnover; the mineral resources minister unilaterally announced draft new black ownership requirements for miners that threaten the viability of an already ailing sector; the minister of trade and industry is moving ahead with regulations aimed at pressurising business into raising black economic empowerment ownership to 51%; and the minister of sport banned major sports federations from hosting international competitions on the grounds that their codes have not done enough to transform.

All this suggests a government that prioritises racial transformation above growth, investment and job creation. It also suggests a government that believes it can achieve racial transformation in the absence of growth. Observing this, you would not think SA is a country in which the economy is forecast to grow at about 0.5% of gross domestic product this year and where the youth unemployment rate is above 50%.

The minister of labour seems unaware that the labour market absorption rate is less than 50% for people with a qualification of matric or less, but more than 80% for those with a good university degree. She thus plans to punish the private sector for the government’s own failures in education — to cheers from the black business lobby.

Likewise, despite only 3.9% of state schools having rugby facilities and 5.9% having cricket facilities, the sports minister wants to punish rugby and cricket supporters for the fact that the great majority of school children are never presented with the opportunity to become cricket or rugby stars. A government that insists on controlling schools tightly is punishing the public for the fact that those schools have failed to develop sports stars.

These four ministers seem to believe SA has the luxury to be picky about the type of investment it will allow, what businesses it will permit to operate and on what terms. That they do it in high-flown language, citing moral imperatives and the like, adds to the farce.

At the same time, we know the government is concerned about the economic slowdown. What we are seeing is not ignorance. Rather, many in the Cabinet seem so irritated that their grandiose plans of state-driven racial engineering have failed that they now want to take revenge on business and the sporting organisations they blame for that failure.

They seem unable to appreciate that it is these very policies of racial engineering that have distinguished SA from more competitive emerging markets.

These policies have contributed directly to the economic slowdown that is becoming one of the key reasons for stalling racial transformation in the country.

The ministers refuse to concede that a focus on rapid growth, job creation and good education is the only empowerment policy that can accelerate the economic progress of poor people. Instead, with the economy hovering on the brink of recession, they seem intent on punishing it for having the impertinence not to grow faster.

There may, however, be an upside. The recklessness implicit in the interventions of the four ministers may indicate that, after almost 20 years, the realisation is beginning to dawn that the state-driven racial engineering policies have not worked and will never work. A poll conducted by the Institute of Race Relations shows the majority of South Africans have reached that conclusion.

Trying to force these policies to "work" will inflict an economic price on the country that is likely to be paid in job losses and declining living standards. Such developments could well culminate in political defeat for the ANC in the future. We already see the political tide turning against the governing party, as shown by a host of indicators we track closely.

In time, the prospect of electoral defeat may prompt reform. There are still leaders in the government and party who understand this and who remain open to policy reform. But, after a fortnight such as this, one has to question what influence they have.

Reform may in future be introduced by a government not exclusively controlled by the ANC. What is certain is that in the longer term — perhaps still more than a decade away — reform will become unavoidable. It is a pity the country may have to pay such a heavy price to get there, and this price will mainly be borne by the poor and the unemployed.

• Cronje heads the Institute of Race Relations

Read the article in Business Day here.