SA is not growing because policy status quo persists

SA will learn on Tuesday whether it entered a technical recession in the second quarter. The economy likely avoided an outright contraction but growth remains weak and is unlikely to lift above 1.5% for the year as a whole.

The view that the economy is on the cusp of a recovery and will bounce back before the end of 2018 is being sorely tested.

In February, after Cyril Ramaphosa’s appointment as president, economists were hopeful that SA would grow at 2% in 2018 and mount a robust recovery back up to 3% over the medium term. Only one or two still think that’s likely.

Instead, that euphoria has been replaced by disillusionment, largely because of Ramaphosa’s failure to deliver clarity over licensing regimes and property rights, and make solid progress on structural reforms. As a result, business confidence has dipped and investors remain unconvinced about the strength of SA’s business case.

It is worth comparing the progress made in the past six months against the benchmark set out in the February budget.

At the time, the Treasury said: “Translating the cyclical upturn and improved investor sentiment into more rapid economic growth requires government to finalise many outstanding policy and administrative reforms”. These included “mining sector policies that support investment and transformation; telecom reforms, including the release of additional broadband spectrum; lowering barriers to business entry by addressing anticompetitive practices; and supporting labour-intensive sectors such as agriculture and tourism”.

Apart from the welcome fact that the Mineral Resources Amendment Bill has been taken off the table (for now) and a new Integrated Resource Plan that downplays the role of nuclear energy has been published, there has been almost no improvement in the policy environment. Some would count the tabling of the Competition Amendment Bill as good news for the economy. It will give wide latitude to the competition authorities to intervene in market structures to reduce concentration, even to the point of breaking up big firms. However, it will be difficult to stimulate economic growth in this way and the potential for unintended economic consequences is high.

Rehabilitating the tax authority and state-owned enterprises remains essential, but the latter will not translate into faster growth until it is accompanied by changes to the policy or logistical environment that reduce the cost of doing business. There remains much work to do on the Mining Charter; the visa regime continues to strangle tourism; Eskom continues to seek higher tariffs; and investment in agriculture will remain elusive as long as confusion reigns over land reform.

Part of the problem is that SA has been unable to unite around a set of economic priorities — a short list of reforms that are deemed essential to get growth going. This work seems to have been relegated to back-room committees and summits, on jobs and on investment, about which the details are sketchy.

What SA needs is strategic focus and co-ordination, not the interminable dialogue of summits. Most people would be hard-pressed to name Ramaphosa’s top priority. Is it growth? Jobs? Transformation? Ending corruption? Rehabilitating the state? Education or land reform? That we have to guess is an indictment of his leadership.

If his top priority is growth then surely the time has come to shelve the search for consensus and do what must be done: clear away the regulatory hurdles, improve the national logistics system and cut red tape. Dealing with these binding constraints is the fastest way to kick-start growth.

Until SA does, growth will remain disappointing.