To get the economy right, we must get the politics right
With the economy stuck on a low growth, high unemployment path and policy confusion in the ANC, there is still a way to get SA back on track, writes David Maynier
WE too easily forget there are millions of people, many of whom are young, who live without dignity, without independence and without freedom because they cannot find a job in South Africa.
Up until last week, President Jacob Zuma had been trying to convince us that when it comes to his plan to boost economic growth and create jobs, it’s not all “doom and gloom”.
This week, he finally did an about-turn, before jetting off to China, and conceded that the economy is “sick”.
That much, one would have thought, would have been obvious, given the deluge of negative economic data on South Africa.
The economy, we are told, will grow at well below the 5.4% per year envisaged in the National Development Plan, and below the 2% projected by the National Treasury in 2015-16, largely because of major structural growth constraints, the most important of which are the electricity shortages.
With slower economic growth, tax revenue — excluding customs duties — fell short of the target by R4.2-billion, and total revenue fell short of the target by R2.1-billion in the first quarter of 2015, despite increased taxes in 2015-16.
There is very little fiscal space, with a budget deficit of R162.2-billion being projected in 2015-16 and the entire R5-billion contingency reserve allocated to the R12.6-billion required to finance the average 11.5% increase in public sector wages in 2015-16.
The national debt has spiralled from R500-billion in 2008 to R1.6trillion in 2015, and is expected to rise to R2.2-trillion by 2017.
Debt service costs, the fastestgrowing item of national expenditure, will be R126.4-billion in 2015-16.
With inflation rising, the target range is likely to be breached early next year, and further interest rate increases are likely, which will choke off economic growth. Not to mention the fact that a large current account deficit makes us vulnerable to global capital flows, and an honorary member of the “Fragile Five”.
The economic outlook is even gloomier when you consider the global slowdown, especially in China; the fall in commodity prices; the volatile rand; and the proposed nuclear build programme, which, we are told, is at an advanced stage of planning, and which has the potential to sink the National Treasury.
In the end, the economy is stuck on a low growth, high unemployment path, where 8.4 million people cannot find a job, or have given up looking for a job.
With red lights flashing and headlines screaming “job losses”, Minister of Finance Nhlanhla Nene was presumably galvanised into delivering an assessment of the economy to the ANC’s national executive committee lekgotla in July.
The committee was provided with a brutally frank assessment of the economy, which made no bones about the fact that, in the past seven years, there has been no real income growth or employment gains in South Africa.
The committee was forced to confront the economic reality in South Africa.
Despite this, the ANC government’s response has largely been a combination of forming new interministerial committees, displacing blame to the global economic crisis, hostility to foreign investors and generally bashing the private sector for being “unpatriotic”.
The ANC, like most dominant political parties, does respond to external pressure, and adapts to the environment, although only on the margins, triggering minor changes in economic policy.
Under political pressure to introduce a youth wage subsidy to reduce barriers to entry in the labour market, the ANC was forced to introduce a watered-down version of the original proposal, in the form of an employment tax incentive, which now supports the employment of young people.
And under fiscal pressure, the ANC was forced to sell state assets, including a R26-billion stake in Vodacom, which was used to bail out Eskom.
But the ANC’s national general council discussion documents, which provide insights into future economic policy thinking in the party, suggest there will be no deviation from the state-led growth model inspired by our new best friend, China.
In fact, the discussion documents tell you everything you need to know: the US is, we are told, involved in a “destabilisation strategy” against China, the “guiding lodestar” of the ANC.
The ANC is clearly in an economic cul-de-sac and there is no evidence of any new direction or major policy shift to boost economic growth and create jobs.
This should not come as a surprise, because the “root cause” of the economic problem is the political problem.
We need clear policy that is focused on growing the economy and creating jobs by dealing with the key “binding constraints” on the economy, including: a shortage of electricity; a rigid, volatile labour market; infrastructure backlogs; a shortage of skilled workers; and onerous regulations, which increase the cost of doing business.
But what we have is policy confusion caused by deep divisions between the ANC and its alliance partners, the SACP and Cosatu.
Zuma tells us that the National Development Plan is the policy of government. But Deputy Minister of Public Works Jeremy Cronin tells us the plan is “more of a vision”. And now the discussion documents tell us the National Development Plan “is a living document not cast in stone”.
The truth is the National Development Plan has been “downgraded” to a “working document” and is now subject to renegotiation in the ANC.
What this illustrates is that one of the biggest “binding constraints” on the economy is politics, rather than economics.
And that unless we get the politics right, we will never get the economics right.
The ANC may be tied up in political knots, but this does not mean that there is no hope.
In the DA-run City of Cape Town, for example, we have over the past nine years:
Provided an extensive package of free basic services, including water, sewerage and electricity;
Provided primary healthcare with more than 10 million patient visits per year;
Spent R40-billion on infrastructure and increased spending on maintenance and repair;
Rolled out the MyCiTi public transport system;
Cut red tape to promote investment; and
Run a strong police service. The City of Cape Town works and does boost economic growth, create jobs and improve service delivery — and there is no reason that this should not be the case in Nelson Mandela Bay, the City of Johannesburg and the City of Tshwane in 2016. It’s up to the voters. Maynier is the DA shadow minister of finance
The ANC’s response? Generally bashing the private sector for being ‘unpatriotic’