Mys­tery of SA’s missed growth

Business Day - - OPINION -

For the past decade, the gov­ern­ment, Re­serve Bank, IMF, World Bank and a host of lo­cal banks have started ev­ery year pre­dict­ing a mod­est in­crease in growth com­pared with the pre­vi­ous year. Ev­ery sin­gle time, give or take, they have all been forced to re­vise their growth tar­gets down­wards as the year’s data pro­gres­sively come rolling in. Why have they been so con­sis­tently wrong? What are they miss­ing?

Mon­day was the turn of the IMF, which slightly re­vised global growth down­wards but took a huge chunk out of SA’s growth prospects, slash­ing growth by al­most half. In Oc­to­ber 2017, the IMF in its World Eco­nomic Out­look es­ti­mated that eco­nomic growth in SA would come in at 1.5% — hardly an im­pres­sive tar­get. In­stead, it’s now ex­pected to come in at 0.8%.

SA is now in its long­est down­ward busi­ness cy­cle phase for more than 73 years. The prob­lem is not con­ti­nen­tal growth. In fact, 10 of the top 25 fastest-grow­ing coun­tries are African. The prob­lem is not emerg­ing-mar­ket coun­tries in gen­eral, al­though some warn­ing lights are flash­ing. The prob­lem is not com­mod­ity mar­kets es­pe­cially, al­though they are not help­ing much.

So where does the prob­lem lie? The IMF cites the need for grad­ual and growth-friendly fis­cal con­sol­i­da­tion to strengthen pub­lic fi­nances, fo­cus­ing on wage sav­ings and com­ple­mented by mea­sures to boost ef­fi­ciency of other cur­rent spend­ing. That means bet­ter tar­get­ing of ed­u­ca­tion sub­si­dies and the ra­tio­nal­i­sa­tion of trans­fers to pub­lic en­ti­ties. It talks about fur­ther re­forms to im­prove pol­icy cer­tainty, im­prove the ef­fi­ciency of state-owned en­ter­prises, en­hance flex­i­bil­ity in the labour mar­ket, im­prove ba­sic ed­u­ca­tion and align train­ing with busi­ness needs.

This is all solid stuff, but it’s hardly new. All of these mea­sures could have been cited a year ago, or even five years ago. They have the qual­ity of a stuck record. In­ter­est­ingly, the most blind­ingly ob­vi­ous is­sue, tak­ing land away from farm­ers with­out pay­ing com­pen­sa­tion, is not men­tioned. Yet, if you were look­ing for a rea­son why eco­nomic growth has dis­ap­pointed so me­thod­i­cally, it’s worth read­ing the fine print in the Com­pe­ti­tion Amend­ment Bill be­fore par­lia­ment. At the broad­est level, there is a pretty good eco­nomic ar­gu­ment in favour of mar­ket in­quiries to try to pre­vent com­pa­nies from abus­ing their mar­ket power. How this is achieved is of­ten tricky and complicated, but open, com­pet­i­tive mar­kets gen­er­ate ef­fi­ciency and boost pro­duc­tiv­ity. SA’s com­pe­ti­tion au­thor­i­ties have done some great work chang­ing the busi­ness land­scape to that end.

The Com­pe­ti­tion Amend­ment Bill, how­ever, pro­poses a rad­i­cal depar­ture from SA’s cur­rent com­pe­ti­tion frame­work, which has un­til now been based chiefly on pre­vent­ing sec­tor dom­i­na­tion through merg­ers, with some added bells and whis­tles. The idea now is to keep do­ing that but also em­bark on sec­toral stud­ies

— this time not with rec­om­menda­tory pow­ers but with the power to forcibly re­con­fig­ure the cor­po­rate en­vi­ron­ment.

Ob­vi­ously, in some places around the world, the power of the author­ity to do so has helped. It’s easy to imag­ine the com­mis­sion work­ing ef­fec­tively and sci­en­tif­i­cally to achieve this end.

Yet, look closer at the leg­is­la­tion and its real mo­ti­va­tion be­comes ap­par­ent. The EU — hardly a feath­er­weight in com­pe­ti­tion mat­ters — adopts a cau­tious ap­proach, dis­tin­guish­ing be­tween mar­ket share and dom­i­nance, and even then it ex­am­ines the is­sue in terms of eco­nomic harm caused. The SA ver­sion doesn’t seek to mea­sure the ef­fects, but sim­ply jus­ti­fies in­ter­ven­tion on the ba­sis of its mea­sure of con­cen­tra­tion.

The depart­ment of eco­nomic de­vel­op­ment seeks to jus­tify this ap­proach with re­search that claims great swathes of SA’s econ­omy are hugely con­cen­trated. Busi­ness Unity SA dis­agrees with the re­search not only in its wide am­bit but on a fac­tual ba­sis. It is not mar­ket cor­rec­tion be­ing sought but mar­ket ma­nip­u­la­tion. And that cre­ates an eco­nomic cost. The leg­is­la­tion, among so much other leg­is­la­tion de­signed on the same lines, is hold­ing back SA’s econ­omy be­cause busi­ness peo­ple look at it and groan. They know what’s go­ing to hap­pen: it’s go­ing to be a mess.


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