Property rights cornerstone to luring global investments - Business Day, 02 June 2016

THE Institute of Race Relations (IRR) has presented a new national economic recovery and growth strategy to political and government leaders.

By Frans Cronje

THE Institute of Race Relations (IRR) has presented a new national economic recovery and growth strategy to political and government leaders. The plan’s point of departure is that to get the economic growth rate up, SA needs to push up the ratio of fixed investment to GDP from 20% to 30%. To achieve this, it will have to attract significant amounts of foreign capital. Importantly, to draw capital into the country, the government must ensure that property rights are properly protected.

The IRR has four specific proposals to strengthen property rights, all of which could be put into practice within months:

• Rework the Protection of Investment Act of 2015 to increase the protection on offer to foreign investors, in particular to enter into new bilateral investment treaties with major trading and investment partners based on the Southern African Development Community (Sadc) Protocol on Finance and Investment of 2006, which was ratified by SA in 2008;

• Bring the Expropriation Bill into line with the Constitution under a revised bill similar to that put forward by the IRR;

• Abandon proposed ceilings on farm sizes and a bill seeking to vest all non-urban land in the custodianship of the state;

• Secure intellectual property rights by scrapping the proposed intellectual property tribunal and related policy proposals.

Increased capital investment must be accompanied by the growth of new small and medium-sized enterprises (SMEs). Profit-seeking, risk-taking entrepreneurship is the key to faster growth and millions more jobs. The IRR’s proposals for creating an enabling climate for entrepreneurship and business start-ups include exempting small and micro businesses and new start-ups from all labour regulation; turning a general (and multiyear) blind eye to small entrepreneurs in the informal sector who fall foul of tax and other business regulations; introducing a permanent amnesty and fast-track compliance process for start-ups that want to become compliant with a new set of business-friendly regulations; and outsourcing more state functions to the private sector through effective public-private partnerships that promote competition and improve efficiency.

If growth is to take off, available infrastructure will have to be expanded, while existing infrastructure will have to be better maintained. The state’s role should be to reform regulations and contract with private sector providers to do the work.

Our recommendations are that various new infrastructure-development models can be used including the build-own-operate model, in which a private provider builds new infrastructure (such as a water desalination plant) and operates it in return for user fees; the build-own-transfer model, in which the private sector takes on the construction task, so helping to avoid delays and cost overruns, and then transfers the new plant, railway line, port upgrade or other infrastructure to the state at an agreed price; and the "affermage" or lease agreement, in which the public sector retains ownership of the relevant infrastructure but transfers responsibility for day-to-day operations to the private sector.

It is critical that investment flows and start-ups translate into mass employment. Under its expanded public works programme, the government has provided millions of people with short-term "work opportunities", for which it pays a stipend of about R80 a day. If people were allowed to work for the same low wages in the private sector, they would generally receive better training, notch up more experience, and have better prospects of moving into higher paying jobs over time.

Our proposals are to amend the Labour Relations Act of 1995 and the Basic Conditions of Employment Act of 1997 by introducing secret pre-strike ballots; holding unions accountable for intimidation and violence during strikes; scrapping the extension of bargaining council agreements to nonparties who are often unable to afford them; putting an end to sectoral or other minimum wages; allowing private sector employers to pay wages to unskilled workers at rates similar to those under the public works programme; and allowing employers to dismiss or retrench under agreed notice periods in contracts of employment.

Even when the economy starts turning around and millions more jobs are created, the state will still play an important role in improving the living standards of the disadvantaged. However, major reforms are needed to make social protection, education and health services more effective. In essence, the government must develop appropriate policies, set targets and raise the necessary revenue, while the private sector and communities must take charge of delivery and implementation.

The IRR has done extensive research on education vouchers, but the underlying idea can easily be extended to healthcare and housing. In education, the key concept is that the government must continue to fund education out of tax revenues, but need no longer provide it. Parents will then be empowered to enrol their children at any school. As fee-paying consumers, parents will also have the power to hold school principals and teachers to account. Since schools will have to compete for the custom of parents, this will give them an incentive to improve their overall performance. The vouchers, in short, will generate a market for education, which will bring about a rapid improvement in the quality of education.

A similar idea in healthcare would see the state providing vouchers to poor households, which could use them to buy medical cover. Much the same idea can also be applied to speed up the provision of housing. To improve efficiency and empower the poor, much of the housing budget should thus be used to fund housing vouchers for poor households. These could be used to access mortgage financing and so help people build their own homes.

Our proposals on social protection are therefore to introduce education, healthcare and housing vouchers to expand skills and social protection; and maintain current social grants, which will become more affordable as growth rates and tax revenues rise and debt levels decline.

It is not for the IRR to dictate to the government or parties what to do. Too many groups overstep that mark and think they should decide policy or try to push for changes through the courts. Think-tanks such as the IRR can help to act as catalysts for change, but only the government has a mandate to take policy decisions on behalf of large numbers of people. Our role is thus to develop simple workable policy alternatives and show the benefits of these.

At the same time, the government is still capable of reform. In 1994-2007 it did much to raise the growth rate and lower debt levels, while simultaneously expanding social protection and improving living standards. The IRR national growth strategy is thus within the power of the government to start implementing very soon — and then to drive forward to successful outcomes.

• Cronje heads the IRR

Read the article in Business Day here.