Unexpected gaffes and unimagined harm in the two years since key political economic review

Two years ago we published How SA Works — And Must Do Better. We wrote it because we believed a new approach was required to deal with the overwhelming challenge of unemployment. With one in three South Africans unemployed at the time, we argued that if this situation was not tackled, it would not only be impossible to sustainably lift many millions of people out of poverty, but the challenge of nation building would inevitably prove fraught.

Since then, things have got considerably worse. Economic growth is down and unemployment is up, in effect now above 36%. The youth unemployment rate is still higher, with 58% of unemployed people aged between 15 and 34. This reflects a vicious cycle of low investor confidence, policy failure, rising corruption, faltering infrastructure and bureaucratic dysfunction. All of this arises from a toxic political environment, distracting from the task of development.

At the moment, there is no hope at all of the National Development Plan (NDP) being implemented, no matter the government’s belated attempts to (sort of) distil it into nine and, now, 14 points. There never was the necessary political will, though that is more apparent now than two years ago. The focus is elsewhere: on capture, control and corruption.

Moreover, the quality of ministerial appointments suggests that, in the cases where ideology does not rule over the NDP, loyalty asphyxiates good policy intent.

We are regularly asked today: would we write anything differently now?

We urged a laser-like focus where every government action should be evaluated by the measure of whether it enhances growth and employment. We believed then, as now, that black economic empowerment (BEE) and other redistributive measures have probably reached the limit of what they can accomplish and inflate the costs to the economy at the expense of many for the benefit of a few.

We advocated incentivising employment by limiting minimum wage increases and making it easier for employers to fire and redeploy workers, and fixing companies that the state owns and invests in. The education system, we noted, needs to be mended so that employers can actually find and hire skilled workers. We would not say much differently today.

In 2015, we foresaw the continued decline of the manufacturing sector and the related dead end of industrial policy, the relative failure to gain a bigger slice of the global tourism market and the rapid shrinkage of mining, under pressure from technology and poor policy. Little change there too.

And we were correct in arguing that there was too much of a focus on land ownership and not enough on making African farmers, in particular, more productive. Finally, we understood that the parastatals (including Eskom, the Post Office, Transnet and South African Airways) would have to work better to provide a strong foundation for the economy. Over the past two years, it has become clear that all of these state companies suffer from even greater pathologies than we believed.

We would perhaps be tougher on the need to remove visas for tourists. We did not foresee that government policy, led by the then home affairs minister, would in the intervening period be led off into such a mindlessly costly direction. The visa regime must be designed to promote tourism, a sector with outstanding potential to create more jobs.

We equally did not imagine that the government would want to commit mining hara-kiri through the implementation of the new Mining Charter, to the point where, in the words of one industry expert, "there will be no new investment; existing mines will work till they run out and then they will leave". This is evidence of a deeper malaise, however, since it appears that the government’s foremost aim is politics, within or without the ANC, rather than a better life for all.

Take the current edition of the Mining Charter, whose stipulations on who can sell shares to whom appear to be designed to fail under court challenge. But this failure would only turn public opinion against "counter-revolutionary" mining companies or those seen as close to them, perpetuating the legend of the ANC as the protector of the poor from the rich.

If the new charter were, however, to stick, the costs and challenges of compliance can only encourage regulatory disobedience, as corporate survival will increasingly depend on operating outside the law.

It can only be a lose-lose situation for the economy, the fiscus and legitimate companies, but a win for certain politicians. It would certainly be helpful to revert to the 2004 charter and appoint someone with a mining background as the minister responsible.

We acknowledged then, as now, that the responsibility to turn the situation around is not the government’s alone. Business and labour also have a role to play. Big business can cope with high wages by employing fewer workers and big labour’s members benefit from high salaries.

The losers are small and medium-size businesses and the unemployed. Not only should the private sector commit to promoting skill acquisition, we wrote, but it needs to find a better way to communicate with the government, where the habit remains, despite numerous forums over the years, to talk right past each other on critical issues. Equally, we concluded that organised labour has to realise that, instead of only protecting the interests of its ageing union members, it has to help to ensure conditions that can create more jobs, not least to refresh its membership.

Given SA has lost two more years, there is greater urgency attached to how to stop the drift and enable, quickly, a step change in the economy. The first step is to get the politics right. What we did not foresee was the extent to which segments of the ANC are willing to introduce destructive policies simply to stay in power. Restoring good faith is a key first step to getting the economy on track and can by itself unleash goodwill, commitment and investment.

The article can also be found here: https://www.businesslive.co.za/bd/opinion/2017-07-31-unexpected-gaffes-and-unimagined-harm-in-the-two-years-since-key-political-economic-review/

© The Brenthurst Foundation 2017.