WHY RAMAPHOSA’S PLAN FALLS SHORT
President Cyril Ramaphosa’s economic recovery plan will provide a shot in the arm for business confidence. It contains reforms that business, economists, academics and the World Bank have been begging SA to undertake for years. Yet few believe it will allow SA to sustain rapid economic growth or turn it into a winning nation.
Certainly, the plan is a positive step towards getting the economy back into first gear (from where it languishes in a deep stall) but it would be hopelessly naive to think that 10 ad hoc measures will set SA on a new growth trajectory.
There is still far more that should be done. At an absolute minimum, the government must achieve certainty with regard to the availability of water and energy, licensing regimes and property rights. But apart from that, SA suffers from deep-seated structural rigidities and inefficiencies — including the legacy of bantu education and apartheid spatial planning — that manifest in low growth and high unemployment.
For instance, it’s extremely unlikely that SA will make significant inroads into youth unemployment until it tackles labour-market reform. In this respect the 10-year extension to the youth wage subsidy in Ramaphosa’s plan is revealing. It suggests nothing is likely to improve any time soon, so business will have to continue being subsidised by the taxpayer to hire young people.
Other major constraints to growth include the lack of a cost-effective and efficient logistics system; a shortage of skilled labour; a lack of competition; the regulatory burden on small business; and deficiencies in state organisations.
Ramaphosa’s plan ticks several of these boxes. For instance, in committing to review port, rail and electricity charges and to reduce the cost of broadband, the plan should improve SA’S logistics system and lower the cost of doing business.
Easing visa entry for highly skilled foreigners should help combat the skills shortage while deeper reforms to the education system are also contemplated. And the intention to invite the private sector to collaborate on infrastructure projects can mitigate the state’s lack of capacity.
So why won’t the plan transform SA’S growth? Quite simply, it can’t substitute for a consistent economic policy — something which SA has failed to implement apart from Gear, which had run its course by 2001. Ramaphosa’s plan offers no diagnosis as to why SA won’t grow and which levers must be pulled to get it out of its low-growth trap — other than the implicit acknowledgment that higher levels of investment are essential.
The National Development Plan does a sound diagnostic job, and is still Ramaphosa’s starting point, but at its heart is the belief that the private sector must be SA’S growth engine. This means private sector involvement must be encouraged, and business-friendly policies implemented. But this will require changing the culture in government from one which views the private sector as an irritant, to one in which civil servants take pride in cutting the regulatory burden.
It’s scandalous that in the three years since the World Bank’s last ease-of-doing-business study, only five of SA’S nine major cities have instituted any reforms to reduce the cost of doing business. Port Elizabeth gets a mention for having halved the time to obtain an electricity connection — from over a year to just over six months. (And we wonder why the economy doesn’t grow.)
Even where most cities are doing well (in the time taken to approve construction, transfer property and enforce contracts) their efficiency is nullified by fee increases. In Cape Town and Buffalo City, building-plan approval fees have shot up by nearly two-thirds. (And we wonder why small businesses are failing.)
In short, SA will not move to a sustainably higher-growth path until South Africans understand that what is good for business is also good for the country as a whole. Unfortunately, SA is very far from making this mindset shift.