Radical rethink for SA economy
Things do look grim – but with a radical rethink, solutions for South Africa’s economic woes can be found, writes financial journalist Peter Bruce
WILL he stay or will he go? This is the question many South Africans are asking as President Jacob Zuma fights to stay in office. But as he ducks and dives in a desperate bid to see out the rest of his term, which ends in 2019, many sections of our society are coming together to talk – not so much about how to stop him, but what to do once he goes. Is it possible to repair what he’s broken?
Whoever steps in to fill his shoes will inherit a big mess, yet it’s not hopeless. There’s still a chance to turn things around. “The passing of the Zuma era is a wonderful opportunity for renewal,” says Peter Bruce, editor-in-chief of the Financial Mail. “It’s a time to get it right.”
In this thought-provoking manifesto the respected political and economic commentator maps out the radical action that needs to be taken to put South Africa back on track.
REALITY CHECK
First, it’s time to face facts. No stable society can live with our levels of poverty, so urgent economic reform is needed. Change must come.
Right now the biggest thing holding us back is our inability to understand why we can’t grow; to assume that if you say you want “radical economic transformation” it will somehow happen and will magically produce the growth you seek. Basically, if we’re serious about turning this ship around, with every reform we consider there are only two questions that need to be asked: Does it encourage inclusion? And will it help economic growth?
If it doesn’t tick both these boxes, then it’s not worth doing. The point is to leave no one behind. We’ll be an inclusive economy only when every South African has a stake in the country’s success.
LAND
The ANC has had 23 years to address the land issue and level the playing field in terms of property ownership. How is it possible that there’s still so much open land, so much emptiness lying there unused and wasted, whether in the middle of nowhere or near big cities?
Section 25 of the Bill of Rights spells out how land reform should take place with compensation either agreed or decided on by a court. But clause 8, the final clause in the property rights section, says: “No provision of this section may impede the state from taking legislative and other measures to achieve land, water and related reform.” C’mon, a child could get this right without reaching for the Constitution – as Zuma has recently threatened to do.
It’s really not so complicated. First, do an aerial cadastral map of the country on which every piece of land, every roof, every pasture will show up. It will quickly tell you what land is being productively used and what isn’t. Unused land is what gets put into the pot. Some of it will be impossible to live on, or just too far from anywhere. Some of it would make
excellent grazing, some wi ll be arable.
The state owns vast tracts of land it doesn’t use. So does the private sector. You don’t need to change the Constitution. Pass a “use it or lose it” law on land. It’s a common device around the world.
A NATIONAL BASIC INCOME GRANT
There will never be enough jobs in SA for everyone. How much could we afford? Could it replace the current welfare system?
The numbers are huge, but so is the R14 billion PetroSA lost last year and hardly anyone seems fussed about it. Meanwhile, ensure that everyone over 65 gets a pension equivalent to the prevailing minimum wage. Countries such as Chile do it and we should too.
REDISTRIBUTE STATE ASSETS
Give everything the state owns to the poor, the people the government claims to represent. And then rent it back from them and manage it all responsibly. Find a mechanism, be it community trusts or individual shareholders.
Give them the embassy in Trafalgar Square in London and the more than 100 huge embassies and ambassadorial residencies we own around the world. Give them the Reserve Bank building in Tshwane, the Simon’s Town naval base near Cape Town, the Waterkloof air force base, the Union Buildings, the houses of parliament, Transnet, Eskom, Denel, SAA and all the state-owned companies. Give them the Kruger National Park.
It isn’t privatisation, it’s socialisation. Give it all to poor black people exclusively. And rent it back from them and then run “their” assets as though your life depended on it – which it might.
I know these things have been tried before – Czechoslovakia got it wrong. We can learn from that mistake.
GROWTH
Sadly, we’ve lost scale as an industrial economy. Efforts to win it back are failing because we’re trying to do the wrong things. While our industrial policy tries to focus on exports, the fact is our wages and employment conditions are just not competitive in dollar terms, even at R14 to the dollar. We’ll never make a T-shirt or a domestic generator as cheaply as they can in Bangladesh or Thailand. Worse, our domestic market is just too small to allow any industry to scale up here first and then spread around the world. There are two broad things the state can do to make growth possible and sustainable here. The first is to do its job properly. Build great infrastructure. Build smart cities. Be consistent. Investors like efficient states. And by investors I mean foreign investment. It may stick in the craw of some but SA lives off foreign investment, whether we borrow money from foreign institutions or whether they invest it here of their own volition.
MARKET THE COUNTRY AS A TOURISM DESTINATION
The best way to get foreigners to bring their money here is as tourists. This is such a slam dunk it’s amazing we still argue about it. A tourist dollar is an export dollar. In our hands. And we barely have to move a muscle to get it.
I recently attended the World Travel and Tourism Council (WTTC) summit in Bangkok and, boy, are we South Africans missing out. In 2016 there were 1,2 billion tourists in the world. They reckon that will be 1,8 billion by 2030. Tourism adds around $7,6 trillion (R102,6 trillion) to the world economy every year.
SA recorded 10 million arrivals and overnight stays in 2016. But this is tiny. Thailand hosted 32 million tourists last year and expects that number to grow in double digits for the next decade. Spain last year took in 75,3 million and has among the highest foreign-exchange reserves in the world as a result.
We must make it a national priority to get 25 million tourists here by 2025.
In his opening remarks to the summit
in Bangkok, David Scowsill, the WTTC president, had some advice about how we can make this happen.
“Visa reform is the biggest single step any government can take to increase the number of international visitors,” he said. “Let’s lose the paper visas. The consular visits. The long queues. The bureaucracy. It took the world’s airlines just three years to move globally from paper tickets to electronic tickets. What prevents our governments from doing the same?”
Our politicians hate the idea, of course, of “rich” foreigners treating SA as a “playground” but that’s a stupid response to the scale of the opportunity. We have a far, far better chance of radical economic transformation or inclusive growth as a major tourist destination than we ever will as an industrial economy. If we could do tourism as well as we can mine and farm and process food, we’d be good to go. Everything else is a sideshow.
IMMIGRATION
It’s a tough pill for the government to swallow but we simply have to allow people with technical skills to come and live here, be they white, brown or orange. An economy is only as good as the sum of its skills. Skills reside in human experience inside human brains and the human with the skills has to be present to pass them on.
Ricardo Hausmann, the great Harvard development economist and a former Venezuelan planning minister, lectures first-year students on the cases of Ghana and Thailand.
In 1963 they were the same size. Ghana produced cocoa and Thailand grew rice. Today the Thai economy is 10 times larger than Ghana’s. Thai GDP in 2015 was $395,3 billion (R6,2 trillion). Ghana managed just $37,86 billion (R586 billion). The Thai success was down to just one thing: they allowed skills in while Ghana kept them out.
Today Thailand is a huge industrial economy because the government decided that what mattered was that things got made in Thailand, not who made them.
South Africa should be able to do the same. Our infrastructure is good and improving. We speak English. The land and the weather are fantastic. And we’re nice people. What more could an investor want?
THE PRIVATE SECTOR
Get big business and labour to work together. The government should talk to business and labour about adopting the German model of mitbestimmung, or co-determination, in SA. If either resists, simply impose it.
Basically, the German model in companies is to have two boards, one executive and one supervisory.
The supervisory board has rank and comprises shareholder and worker representatives 50:50, with the chairman always coming from the shareholder side and having a casting vote in the case of a tied vote.
It forces the two fundamental arms of capitalist economies to get along with each other. It builds consensus and trust exactly where it’s required. In many cases worker and shareholder representatives take sides with and against each other, as recently occurred at Porsche. The system means labour gets the same information as shareholders and at the same time.
It democratises the real economy and that’s how you grow strong and resilient.
In SA, though, neither business nor labour is keen. Business thinks the very thought of those chaps on the board is, well, appalling. Labour worries about being “co-opted” or selling out. But the evidence that it works over time is clear.
GIVING BACK
Business should revisit an idea former Standard Bank CEO Jacko Maree proposed years ago.
If every company on the JSE were to issue, over two years, new shares equivalent to one percent of its market capitalisation, they would raise, at the current JSE market cap, about R140 billion. Company share prices can move either way by more than that on any one day and no one turns a hair.
This would be pooled into a development trust, run purely by the private sector. Trustees wouldn’t be paid and their remit would be to spend it fast. Ask the state what it needs. Fix the hospitals? Sure, but what the trust spends its money on, it gets to manage. Deal?
‘Let’s lose the paper visas. The consular visits. The long queues’