Decade later, SA faces same constraints
Who said, “The tragedy of SA is that we like talking about growth instead of implementing policies that would drive growth”?
Was it Reserve Bank governor Lesetja Kganyago, lamenting the government’s failure to implement the Accelerated and Shared Growth Initiative for SA (AsgiSA) in 2006? Was it former finance minister Trevor Manuel in 2017, lamenting the failure to properly implement the National Development Plan (NDP)? Or was it SA’s current finance minister, Tito Mboweni, in 2019, lamenting the government’s failure to embrace his new economic strategy?
The answer is Kganyago, but it could easily have been any of
the three. The truth is SA has failed to implement a growth strategy since the short-term stabilisation plan Growth, Employment and Redistribution (Gear), which had run its course by the end of the 1990s. It came close with AsgiSA — a plan developed with a panel of international economists, locally dubbed the “Harvard Group” as it included 12 Harvard University economists, such as the chair, Ricardo Hausmann.
The Treasury whittled the 20-odd recommendations down to a few key growth constraints that were holding the economy back, including the lack of a cost-effective, efficient national logistics system; the scarcity of skilled labour; a lack of competition; the regulatory burden on small business; and deficiencies in state capacity. But, just when the Treasury was ready to launch the plan in 2007, Thabo Mbeki was ousted by Jacob Zuma as ANC president and its political sponsorship vanished.
Instead, SA went on to produce three new plans between 2009 and 2012: the department of trade & industry’s Industrial Policy Action Plan (Ipap) in 2009; Ebrahim Patel’s New Growth Path (2010) and the National Planning Commission’s NDP in 2012. Though they all had the same goal of creating faster, jobs-rich growth, they contradicted each other in how they sought to achieve it. And none managed to emulate the clear focus of AsgiSA and its binding constraints.
Until now, that is. Mboweni’s economic strategy, released last week, focuses on removing the same constraints to growth that have been holding the economy back for a decade. What an indictment of the government that they are as binding, if not more binding, than then.
Kganyago, who was director-general of the Treasury at the time of AsgiSA, believes that if it had been implemented in 2007, when growth was already at 5.5%, SA would have hit the AsgiSA real GDP growth target of 6% the next year. Had SA been able to sustain this level of growth, unemployment would have halved by 2014 given the very strong job elasticities that prevailed at the time. SA would have been a very different place today. Instead, politics derailed AsgiSA and the global financial crisis derailed the economy.
Two lessons are to be had from this dismal history. First, economists cannot ignore the political cycle. When bringing new policies, they must consider whether politicians will expend the necessary political capital to implement them. By inflaming political opposition to his proposals by sidelining left-leaning economists and bypassing ANC structures, Mboweni probably doomed it from the start.
Second, as Kganyago points out, there is a huge opportunity cost in not acting. According to a Bureau for Economic Research (BER) study, SA’s economic stagnation since 2010 has cost it R1-trillion and 2.5-million jobs.
Mboweni’s document estimates conservatively that if all its proposals are implemented, SA’s growth potential of 1.5% would more than double in a decade and 1million more jobs would result.
So, where does this leave President Cyril Ramaphosa?
If he embraces Mboweni’s pragmatic, progrowth reforms, he risks the ire of Cosatu, the SA Communist Party and a portion of the ANC. But if he defaults to SA’s usual policy mode of bumbling half-measures in an attempt not to offend anyone, he will be dooming the country to another 10 lost years.
The choice is that stark and that straightforward.
● Bisseker is a Financial Mail assistant editor.