Choose to step back from bad policy and let the economy grow - Politicsweb
Terence Corrigan
With the central assumption of South African politics – the dominance of the ANC – having been punctured, 2024 has indeed been a watershed year. Copious commentary has appeared about the nature of South Africa’s coalition arrangement, its durability, and the prospects (or threats, as the case may be) of a fightback against it.
The case for a working arrangement between the ANC and the DA was premised on the imperative of keeping power from the extremes of South African politics, embodied for some years by the EFF and latterly by the MKP. For business interests and a good part of the commentariat, for the most part, this was a really a holding action. The more optimistic hoped (the hangover of the hopes vested in President Ramaphosa as a reformer) that this would enable some decisive movement on getting South Africa into growth mode.
When the Government of National Unity committed itself to economic growth as a foundational aspiration, there was a flicker of optimism that the latter outcome might be achieved. The recent GDP figures from Stats SA demonstrate just how far from this South Africa is. The third quarter of the year registered a small decline in GDP, and South Africa may not even manage a full percentage point of growth this year.
Accelerated economic growth will not solve all of South Africa’s problems, but without it, they are pretty much all guaranteed to persist. By official estimates, South Africa needs to sustain a growth rate in excess of 5% for an extended period to begin to deal with the deprivations that afflict millions of its people, most notably its horrendous unemployment malaise and the exclusion of large parts of the workforce from productive participation.
So far, the weight of the state response has been in the “social wage”: grants that provide an income to categories of people, and the provision of services. The grants may be small, and the services of indifferent quality, but they are something. For some time, there has been an energetic campaign by civil society groups for the introduction of a universal income grant, and plans by the government to appropriate a larger pool of resources into its service envelope, notably through the creation of a state monopsony in the form of the National Health Insurance system.
The reality is that the latter path is – to use the long-standing cliché – unsustainable. What has also entered the public conversation is the concept of a “fiscal cliff”, a conjunction of circumstances in which revenue can no longer bankroll expenditure, and in which even borrowing merely compounds the problem. To square this circle, there is now an aggressive argument being made to try and print South Africa out of its corner, although for the moment at least this is resisted by the Treasury and Reserve Bank. Go down that route, and all bets are off as inflation spins as fast as the rollers on the printing presses.
Growth, it must be emphasised, is the non-negotiable condition of South African progress. Getting this right will be a long-term project, but it needn’t be a particularly difficult one.
There is actually no mystery to South Africa’s disappointing growth performance. Fundamentally, the country is not one conducive to robust returns on investment – real, fixed investment as opposed to portfolio flows – and so it fails to attract the sort of interest from investors and entrepreneurs that would lift those growth numbers. Behind this is a well-known complex of factors: the impacts of crime, decaying infrastructure, inept governance, an insufficiently skilled population, inadequate savings and counterproductive policy choices.
Fortunately, having recognised the problems, it is possible to craft solutions. Over the past year, the Institute of Race Relations has been engaged in a project to do just this. Entitled Blueprints for Growth, this series of papers seeks to set out in detail the measures needed to put South Africa onto a high-growth path – something in the order of 6%-8% per annum.
The headline concept, captured in the first of the series – Arming SA’s pro-growth forces, by IRR CEO Dr John Endres – is a fourfold approach, grounded on an intersection between expanding the economy and expanding participation so as to enhance societal wellbeing:
· expand capital inflows and foreign direct investment (FDI) into South Africa, so as to start raising the growth rate and increasing fixed capital formation;
· build and maintain essential economic and social infrastructure to stimulate growth and provide a solid foundation for further economic expansion;
· translate increased growth into increased employment; and
· help the disadvantaged climb the economic ladder to increased prosperity, while sustaining current social protection.
The keystone of all of this – the terrain of quick wins that will generate momentum – are in the policy realm. South Africa has its share of deep, structural problems, but it cannot be gainsaid that it has compounded these the choices it has made. It has imagined an economy with a intrusively empowered state, but which state lacks the capacity to do so effectively or efficiently even within its own frame of reference. It has accompanied this with a number of policies that would inevitably raise the costs of doing business, and make it subject to corrupt extraction; and has compounded this further by reckless, politically charged ventures that are set up as hostile to business activity – of which the expropriation-without-compensation drive was the most egregious.
So, what does this look like? First, by simply removing the shackles. As the saying goes, first do no harm. Recognise and protect property rights by taking EWC off the table. Accept that the state lacks the ability to perform the sort of industrial policy it has been attempting, and instead welcome and support independent entrepreneurship, irrespective of its provenance. Get rid of the failed Broad-Based Black Economic Empowerment model, which has enabled dreadful rent-seeking and price inflation, particularly in state procurement. Cease threatening businesses with bankrupting fines for failing to meet demographic targets that comport to an ideologue’s vision rather than to the realities of operating a firm in a tough environment.
Secondly, by appropriately committing public resources to areas in which they can be of the greatest benefit. Especially important here is rehabilitating South Africa’s infrastructure. This may seem an obvious point, but it needs to come with the crucial rider that such action will need to focus intently on ensuring value for money – other considerations, such as “empowerment”, need to be regarded very much as secondary, and rather not accorded much weight at all. Spending on roads and rail, for example, must ensure functional roads and rail systems, not a fatter bank balance for a politically connected contractor.
Part of this will be to involve the private sector – for example, the Build-Own-Operate model for infrastructure projects – towards which the government has hitherto been lukewarm, if not hostile. On this score, at least, there has been some progress, albeit since the scale of South Africa’s crisis compelled it almost as a desperation response.
Thirdly, positive and enabling interventions must focus on economic inclusion, particularly for those most clearly excluded. It bears noting here that race-based measures should give way to those based on class, or if one prefers, on material circumstances. Liberalising labour legislation would open some space for labour intensive ventures. B-BBEE should be replaced with what the IRR has proposed, an empowerment system geared to incentivising support for South Africa’s poorest people – Economic Empowerment for the Disadvantaged (EED).
Genuine, value-adding entrepreneurship should likewise be supported, with a view to expanding opportunities where they are most needed. An obvious candidate here is to provide independently administered financial support to the country’s vibrant township-based entrepreneurs – an expansive community of intrepid and imaginative businesspeople who have done wonders in a very tough environment. Many of their operations are scaleable with the correct support.
The goal of this is both to alter the economic environment and to send a tangible signal about the direction that the country is taking. This will in turn provide space and public optimism for the more extensive and time-consuming reforms, such as those needed by the education and training regime.
The late John Kane-Berman once said: “South Africa’s future is not preordained. The country has choices. It can continue on its present path. Or it can change course.” South Africa’s present course has brought it to close to ruin; a new choice offers a far more attractive future.
Terence Corrigan is projects and publications manager at the Institute of Race Relations