Economy needs overhaul, not magic
Last week the Mapungubwe Institute for Strategic Reflection invited me to be part of a discussion with more than 20 economists about a project to study the evolution of the structure of the economy since 1960, with a focus on the postapartheid period. Whichever way one slices the data, the government has mismanaged the economy during the past 27 years.
At the end of 2020, GDP per capita was 17.6% higher than it was in 1994. But there is no plan to get the economy out of the crisis, where 47.4% of black South Africans are unemployed, according to the expanded definition. The unemployment rate for African women is 51.4%. In the Eastern Cape, the unemployment rate for people of all races is 52.4%.
I said during the discussion that it is pointless to study structural change without looking at the macroeconomic policies that are the main reason for the failure to transform the apartheid economy. The biggest mystery is why the government decided in 1996 to replace the Reconstruction and Development Plan (RDP), which articulated a vision for the postapartheid economy within a Keynesian paradigm, with the Growth, Employment and Redistribution (Gear) programme, a neoliberal stabilisation plan. There was no macroeconomic instability or debt crisis in 1996. The debt-toGDP ratio was 49.5%. The inflation rate was 7%.
Until 2007, there was no industrial policy because the ideological framework did not see the need for one. The market would magically transform the economy. The result was capital flight, financialisation and deindustrialisation.
In 2007, the department of trade, industry & competition developed a national industrial policy framework. Since 2010, it has produced annual industrial policy action plans (Ipaps) to stimulate the growth of the manufacturing sector. But they have received limited budget support. I have stopped reading them.
Instead of seeking to transform the whole economy, the Ipaps focused on a limited number of sectors within manufacturing. Compared with the Asian developmental states, they used too few policy tools. Between 2016/2017 and 2020/2021, departmental incentives have declined 28.7% to R4.9bn from R6.9bn. During the three-year medium-term expenditure framework period, there will be a real (after inflation) decline in the incentives budget of 2.3% a year.
According to the department’s latest annual incentive report for 2019/2020, the department’s industrial financing division disbursed R5.3bn, of which R2.3bn (43%) went to the automotive incentive scheme. The projected number of new jobs that will be created in the automotive sector is 819. Total funding through the department and the Industrial Development Corporation (IDC) was R17bn in 2020, equivalent to 0.3% of GDP — too little to decisively achieve structural or racial transformation of the economy. Manufacturing’s share of GDP declined to 13.7% in 2020 from 20.9% in 1994. The sector has shed 606,000 jobs since December 2008.
During 2020, the IDC and the department provided funding of R3.6bn for black industrialists, which would have been enough to buy 10% of Spar. More alarming has been the failure within the public and private sectors to provide funding for black-owned small and medium enterprises (SMEs), which should be front and centre of any strategy to transform the economy.
The Small Enterprise Finance Agency disbursed R1.3bn during 2019/2020. The National Empowerment Fund has received no state funding since 2010, despite a clean audit every year since inception in 2005. It is a miracle that it managed to disburse R304m during 2020. “We survive through collections,” a board member says.
Total public sector funding of black SMEs of R1.6bn is a joke. A Banking Association SA report found that the exposure of SA banks to black SMEs was R28.8bn in 2018. This was equivalent to just 0.5% of total bank assets of R5.9-trillion. SA needs a new macroeconomic policy framework that will generate the resources and develop new policy tools to drive industrialisation and structural change.