Cabinet must accept reality, or the economy is in for a beating

Eye

IT IS unusual to see a government that is, on the face of it, so entrenched in power – a solid 62 percent of the national vote after two decades in office, eight out of nine provincial assemblies – in such disarray. Yet President Jacob Zuma’s government limps from disaster to disaster, full of public bravado, but ineffectual in execution and constantly wrong-footed.

Nowhere is the disconnect more obvious than in the eagerness to announce new policies which turn out to be disastrous. After a period of bluster, denying stark realities obvious to everyone except the ideological dinosaurs that created the policies in the first place, the government reluctantly backs off. By then the damage has been done.

The onerous tourism regulations introduced by Home Affairs Minister Malusi Gigaba are a case in point. From the outset, the tourism industry warned they would be hugely damaging. Yet these pleas were ignored and the regulations implemented, costing South Africa billions in tourism revenue and an estimated 5 000 jobs before they were scrapped more than a year later.

This week, Higher Education and Training Minister Blade Nzimande gazetted a surprise proposal on the future of the 21 incompetent and corruption-riddled sector education and training authorities – which will effectively strip them of their operational role. It is a belated acknowledgement, a mere dozen or so years too late, that these bodies, charged with ensuring a steady stream of skilled labour, have been a hopeless failure.

Despite more than R13 billion in annual funding to the authorities, research shows around 44 percent of the country’s unemployed cannot find a job because they lack skills employers want.

Under Nzimande’s out-of-the blue proposal, 40 percent of the money flowing to the authorities from the compulsory payroll levy that larger businesses pay, will now be diverted to a National Skills Fund which will be centrally administered. In other words, the ministry’s endlessly replenishable piggy bank.

Already authorities are being stripped of R1.2bn from their budgetary underspend to help cover the costs of the government’s foolish promise there would be no university fee increases next year. Once the skills fund is operational, the temptation to continue bailing out the university sector instead of training apprentices and industrial workers will be irresistible.

These problems with tourism and training have had disastrous economic effects. However, they pale into insignificance when one contemplates the pain in store for the economy if the government persists with the folly that is the Protection of Investment Bill, which was passed in the National Assembly this week.

The bill, when enacted, will replace bilateral investment treaties concluded with mainly European countries that are now expiring and not being renewed. It removes foreign investors’ right of recourse to international arbitration for the settlement of disputes and gives the government the room it says it needs for investment regulation in the public good.

What European and American investors worry about, based on the government’s increasingly dirigiste tendencies, is a waning commitment to protecting property rights, the threat of expropriation, and pressure to meet a vague and growing demand for “transformation”.

The chairman of the EU Chamber of Commerce in South Africa, Stefan Sakoschek, was unusually blunt in an interview last week. “New investment decisions have been put on hold. And serious disinvestment decisions are next on the agenda.”

Foreign direct investment in developing economies grew by about 2 percent last year. Except for South Africa. Here, FDI dropped by 31 percent to $5.8bn (R82.6bn).

For now, Trade and Industries Minister Rob Davies is adamant the bill will benefit South Africa’s FDI flows. He is no less delusional than Gigaba and Nzimande have proved to be. Expect a U-turn down the road but only after we’ve taken another economic drubbing. Follow WSM on Twitter

@TheJaundicedEye