Radically transforming transformation - Politicsweb, 05 June 2017

By John Kane-Berman 

If South Africa is to tackle its overriding problem of massively high unemployment, it will need "transformation" far more radical than the African National Congress (ANC) is currently talking about. The ANC's version of "radical socio-economic transformation", spelt out earlier this year in President Jacob Zuma's state-of-the-nation address, and recently reiterated by several of his ministers, is focused mainly on using the state as an instrument to transfer ownership and control from white to black.

This policy was adopted before the ANC came to power, and has been implemented incrementally since 1994 via a series of racial preferencing laws. Proposed amendments to the mining charter to increase black ownership from 26% to 30% are just the next step. So are all the latest land reform-proposals.

Cyril Ramaphosa and Malusi Gigaba are now trying to pass off transformation as meaning "inclusive growth". The last such policy was the "accelerated and shared growth" initiative –known as Asgisa – launched by President Thabo Mbeki 11 years ago. Since then unemployment (including "discouraged" workers) has risen by 1.8 million. Nothing the deputy president or the finance minister has recently said suggests they are contemplating the kinds of policies necessary to reduce joblessness to the 6% referred to in the National Development Plan adopted in 2012.

That's as only to be expected, for the ANC cannot see beyond race. But few of the alternatives put forward by journalists, economic commentators, or business organisations will do much to generate jobs either. Too often they endorse the assumption that "transformation" is all about race. In practice, this amounts to little more than repainting the deckchairs on the Titanic to reflect South Africa's racial demographics.    

So here are three things that could be done instead: entrench property rights, privatise, and liberalise trade. Just doing these three would transform everything. We would get floods of investment, a more efficient economy, lower inflation, booming exports, more jobs, and less poverty.

Secure property rights are obviously essential to attracting the investment without which there is no hope of speeding up our growth rate. They would of course have to be accompanied by all the ancillary things: sanctity of contract, the rule of law, and an independent judiciary to protect both these and other rights.

With property rights secure, we would be able to attract investment into privatised industries. Privatisation would naturally have to be accompanied by competition, so ensuring that state monopolies do not become private monopolies. The result would be productivity gains, lower prices, better services, and the transfer of risk from taxpayers to investors.

Privatisation would have to be implemented transparently by trustworthy institutions. It is by far the best way of putting Eskom, SAA, and other state-owned enterprises beyond the reach of people who use political connections to capture them.   

But we would also need investment in new enterprises. This means abandoning the policy of localisation and import substitution which the ANC now seems to be copying from the previous government. Instead we should unilaterally eliminate all tariffs and other restrictions on imports. This would drop the prices of imported components for manufactured exports. That in turn would enable us to export more cheaply than countries which do not eliminate tariffs. We would be able to reintegrate ourselves into global supply chains.

Pushing up our exports necessitates getting all the other things right as well - among them logistics, infrastructure, education and training, productivity, and labour stability. 

Next year will be the 20th anniversary of Mr Ramaphosa's appointment as chairman of the black economic empowerment commission. Since then unemployment among Africans (including "discouraged" workers) has risen from 5.0 million to almost 8.3 million. On present growth and policy trends, most of our "born frees" can look forward to a lifetime of unemployment. It is time to recognise that fixation with "empowerment" has been a disastrous failure, and to try something radically different.  

*John Kane-Berman is a policy fellow at the IRR, a think-tank that promotes political and economic freedom. His memoirs, Between Two Fires - Holding the Liberal Centre in South African Politics, were recently published by Jonathan Ball.   

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