Towards an economic policy for South Africa
With dark clouds hanging over the South African economy, Finance Minister Tito Mboweni’s economic policy document offers a silver lining. It does not promise to be a fix-all. But it does offer concrete steps to stop the downward spiral of social instability, economic stuttering, policy uncertainty, weak business confidence and political inaction that has gripped South Africa for too long.
Its subtitle, “Towards an Economic Policy for South Africa,” acknowledges the chasm South Africa faces in finding agreement on a vast array of policy issues, from land and labour reform to energy. It openly acknowledges that, “Inequality contributes to extremely divergent views, which make compromise difficult,” and that “the resulting stalemate and policy uncertainty can contribute to economic weakness.”
Seldom has government so succinctly put proposals into policy language, so openly pushed for a capable state, and so willingly extended a hand to labour and the private sector for a constructive compact. National Treasury has laid its cards on the table, challenging South Africans to take the first hard step towards consensus.
A pragmatic approach
Populism has made promises at the expense of pragmatism for too long, and it is society’s poorest that have paid the highest price. Yet, the Congress of South African Trade Unions (COSATU) has called the paper incoherent, confused and unreliable; while the South African Federation of Trade Unions (SAFTU) referred to it as “insanity”. The fact is that an effective strategy will demand tough choices, firm decisions and sacrifices – something that South Africans who have been excluded from equal education and employment opportunities are reluctant to make.
Even those broadly supportive of Treasury’s policies could argue that its seemingly incompatible aims of economic transformation, inclusive growth and global competitiveness risk further stasis. Can a country be globally competitive while aiming for labour-intensive growth? Can the kind of rapid economic transformation the country so desperately needs be realised without undermining competitiveness? If so, how can this be brought about without falling into the pattern of endless debate and failure to effect change that has afflicted South Africa’s politics for so many years?
Crucially, however, the paper doesn’t aim to solve all of South Africa’s problems overnight. Nor does it aim to reinvent the wheel, or to debate the merits of the wheel compared to other forms of transport, as economic policy discussions have done to date: we already know what we need to do. What the paper does is succinctly state the measures needed, and support these proposals with hard evidence.
It is pragmatic, richly researched, steeped in evidence and allows flexibility for the industrial policy interventions outlined to incorporate experience gleaned during implementation – all while maintaining policy certainty, and holding to certain short-, medium- and long-term timeframes. This open-minded, adaptive and time-bound framework is exactly the kind of roadmap South Africa needs.
The policies focus on opening the economy through interventions including: encouraging new entrants in industries dominated by large incumbents; formalising the participation of the taxi industry; lowering barriers to entry for small business; fostering enterprise through such initiatives as a subcontracting ombudsman; and reducing red tape across industries by 25%. The focus is on five themes:
- Modernising network industries such as energy, transport, telecommunications and finance;
- Lowering barriers to entry and addressing distorted patterns of ownership through increased competition and small business growth;
- Prioritising labour-intensive growth in sectors such as agriculture and tourism;
- Implementing focused and flexible industrial and trade policy; and
- Promoting export competitiveness and harnessing regional growth opportunities.
The majority of the interventions proposed are realistic and executable, and are expected to add some 0.8% to gross domestic product (GDP) in the short term (one to three years), 1.8% in the medium term (first five years), and 2.3% on average in the longer term (up to ten years).
Reversing a decade of decline
Mboweni’s policy paper underlines the point that the growing chorus of calls to “transfer wealth” are short-sighted: they simply won’t last long or go far enough. At the same time, South Africa’s economic and social ailments need urgent attention. The only sustainable path lies in policies that grow and open the economy as opposed to carving it up, with transformation and inclusion prioritised.
Certain policies placed on the table are straightforward, such as the focus on early childhood development and employment policies that focus on the youth. Other outcomes are more of a long shot, such as building sustainable cities, and finding a buyer willing to pay anything close to R450 billion for Eskom’s power stations. That being said, the paper’s open-mindedness on alternatives such as households selling power to the grid shows a willingness to explore other avenues.
We are all too familiar with the challenges we face, including unemployment; inequality; stalled economic growth; the looming threat of a credit rating downgrade; and failing state-owned entities – especially Eskom. While cyclical factors such as the drought and weak commodity prices have had some impact, the drag factors now are unquestionably structural, and deeply entrenched.
Government does not deny this, and National Treasury’s policy document offers a coherent and cohesive plan that, once agreed upon and implemented, will provide the certainty society and investors need to start the hard work of reversing the country’s decade of decline. This type of transparent policy engagement is an important first step, and it offers hope and achievable measures for reaching realistic goals at a time when we are in critical need of all three.