Stop talking economic trash
CONFUSION is reigning among the loyalists of radical economic transformation as newly appointed Finance Minister Malusi Gigaba is heading for the Western capitals to meet the international Monetary Fund (IMF), World Bank and the rating agencies.
On the eve of his travels, he silenced his economic adviser, who is talking about wholesale nationalisation of banks, the Reserve Bank, land, mining companies and a host of other commercial entities.
Gigaba is singing a different tune to that of President Jacob Zuma and his inner circle, as he calls for fiscal and monetary discipline.
With cap in hand and a begging bowl, Gigaba’s mission must be the most telling evidence of the economic confusion in the Zuma administration.
Gigaba is expected to turn things around at the Treasury.
Former finance minister Pravin Gordhan was seen as stumbling block at the Treasury by a number of lobbyists and vested interest groups.
His refusal to approve and give guarantees for unviable business projects, such as bailing out SAA, the nuclear programme, the SABC and other poorly managed parastatals, has put him on a collision course with economic anarchists.
Gigaba certainly can’t kick-start the economy by mere sweet-talking, without offering anything tangible.
The reality is that capital and financial markets want to see consistency in policy application, political stability, and a government’s commitment to fighting both public and private corruption.
World markets are aware of the eloquence of South African politicians, they will not be swayed by words of intent. They want to see action. Gigaba has to say the right things, not populist rhetoric.
He must demonstrate how he is going to stay on the fiscal consolidation route, above everything else.
He is on a road show, to convince Western capitalists and monopolists that they must come to invest in South Africa, while on the other hand his boss, the president, and his friends are clamouring to confiscate the assets of what they call white monopoly capital, that is local, established and existing businesses. How is he going to get that right?
He is representing on the world stage a government that is totally confused about economic realities. A very senior minister tells the world that if the rand falls, “we will just pick it up”.
Gigaba has a highly respected director-general who is on his way out and he himself shows no visible signs that he is capable on financial issues. It is known that the long-serving Lungisa Fuzile is leaving the department.
Gigaba’s own utterances show that he still does not grasp the issues that will turn the economic tide from the slide to an upward trajectory. Using such words as “radical” and “revolutionary” to people you want to part with their money and place it under your control is to expect too much.
Gigaba has to familiarise himself with real economic issues if he seeks to drag our economy out of the doldrums.
He should be looking at promoting strategies that will improve the low private savings level and our overdependence on primary product exports, and seek lasting solutions to our falling exports prices, relative to imports.
He has to expand our domestic market, he must broaden our consumer base.
The economy will expand once there is an industrial and an economic policy that the government believes in, and pursues with vigour.
In the last eight years our skills base has dwindled, especially in the public sector and state-owned enterprises, since the policy of cadre deployment took centre stage.
The dire consequences of this ill-conceived approach have put at risk almost all our parastatals.
The predominant role of the state is crucial in lifting an economy out of recession.
The state can play a vital role in fixing market failures.
In the aftermath of the Great Depression, the industrialised countries relied heavily on the state as a catalyst to rebuild those destroyed economies.
A country like ours, classified as developing, requires more state intervention.
Our country is nearly entirely reliant on imported goods and services manufactured and designed by countries that emphasise state intervention. Such countries include South Korea, Taiwan, Singapore and Hong Kong.
For this to work the state must maintain macro-economic balance, and the supply of public goods and services.
While doing that the state must also work hard to enhance the economy’s investible resources and establish a plan to direct the resources to productive investments, through instruments of targeted incentives.
The government’s ongoing ceaseless threatening of and shouting at both domestic and foreign investors, with reckless political sound bites such as “radical economic transformation”, is delaying capital formation, the engine of growth.
The well-established stateowned enterprises (SOEs) were a perfect vehicle from which to launch all manner of economic productivity.
Instead, they have just become the centres of inefficiency, seeking continuous subsidisation.
Cadre deployment has put at risk of extinction SOEs that used to be internationally competitive.
Due to rent-seeking (tenderpreneurship), government energies have been diverted away from real production into lobbying for disorganising existing, functioning and job-providing enterprises.
The radical economic transformation appears to be designed to break the existing business enterprises into smaller and less viable entities.
This phenomenon, coupled with rampant corruption, are some of the issues that Gigaba should be dealing with straightaway.
He should steer our country towards the example of the Asian countries mentioned, that achieved phenomenal growth by following an export-led model driven by market incentives and a vibrant private sector.
Talking nonsensical economic theories will land us in the same ruinous situation that Zimbabwe finds itself in today.
Sound economic principles will lead to economic prosperity.