OPINION | Some ideas to revive SA’s sluggish economy
Few dispute that the economy is in serious trouble – millions especially women, continue to live in abject poverty; unemployment rates and inequality levels are among the highest in the world and economic growth continues to be extremely low.
These problems have characterised the economy since well before the transition to democracy in 1994, and SA’s history of dispossession, low wages, racial and gender discrimination and inequality is a key part of why the economy continues to be hamstrung. In recent years, the problems have become more severe due to a number of short- to medium-term challenge.
Over the past few weeks Business Day has published contributions that urge the president to act decisively.
One set of contributions has proposed austerity measures: enormous cuts in government expenditure; trimming public service; clearing regulatory hurdles and red tape; reduced company taxes and incentives for business to promote investment; and privatisation of state-owned enterprises (SOEs).
There has been much talk about a "fiscal stimulus", with some suggesting a R500bn expenditure programme to boost economic growth, without explaining where this money will come from. The economy has been caught in a low-growth, high-inequality trap for a long time. SA is stuck because it has a small group of very wealthy people and a large number of poor people.
The economy is dominated by vested interests, extremely high levels of economic concentration and a dominance of financial sector interests.
Many proposals for so-called “business-friendly” reforms in fact trumpet the interests of these groups. What is needed is game-changers that will unlock the economy from the low-growth, high-inequality trap.
Long-term, sustainable growth will come from unlocking new things rather than from austerity measures, which have failed everywhere else, have failed for all of SA’s recent history, and will fail again.
The following ideas for game-changers will get SA out of the trap:
- The public sector does need to reform, but the problem is not that SA has too many workers who are paid too much, it is a productivity problem – SA receives very poor results for the investment. The country needs a productivity-enhancing pact in the public sector: moderate wage increases; improved management; and a set of agreed output measures that will improve the levels of productivity and service delivery. Some parts of the public sector do need to be cut, and a good place to start would be the cabinet.
- Land reform should be part of an economic strategy to unlock the economic potential of land and assets in the rural economy. In addition to redress in the commercial farming sector, the potential of land and rural assets under traditional authorities has to be unlocked. Reform has to be accompanied by support for agricultural development and food security.
Energy is a key driver of economic growth, and the narrow interests of Eskom are a barrier to unlocking the potential of energy to foster economic growth. The government should act decisively to unbundle Eskom and allow new entrants into the energy sector;
- The Competition Amendment Bill can address the high levels of concentration in ownership. The economy is dominated by a handful of companies in almost every sector, which means it is almost impossible for new businesses to enter the market and consumer prices are higher than they should be. The government should review what other measures can tackle this problem;
- Reform of SOEs should be strategic rather than ideological. Some, such as SAA, are failed businesses and should be sold off or closed down.
Other SOEs, such as Transnet, are of huge strategic importance for solving critical constraints in the economic infrastructure, such as transport. These should be strengthened, given a clear mandate and be effectively managed;
- The manufacturing sector should find new markets. Two initiatives need to be urgently implemented: a free trade area for Africa and manufactured export growth to China;
- SA must tackle inequality. Policies such as a national minimum wage need to be speedily implemented to increase the income of the poor, while earnings by top executives should be checked. Most important, however, are policies that will create a larger middle-class – education policies are key.
SA urgently needs clarity on policies in the basic and higher-education sectors and better resourcing to ensure much better outcomes across the board;
- Policies that address women’s economic empowerment – to promote women’s participation in both the formal and informal economy – will contribute significant new resources to the economy and boost growth;
- There is great potential for the green economy to boost growth. SA should promote policies that recognise the full environmental costs of investments and that promote investments in environmentally sustainable production; and
- Everyone is talking about the digital economy and the fourth industrial revolution’s threats to jobs. But it could create opportunities for new entrants and allow developing countries to participate in the global economy on more favourable terms. The president should appoint a special task team to put together a plan of action in three months.
Valodia is dean of commerce, law and management at Wits University and leads the Wits initiative for inequality studies.