South Africa will be grappling with economic devastation for the foreseeable future. It is critical we seize this moment to implement necessary reforms. Luckily for us, National Treasury has already done the work. All that remains is for ministers to implement the proposals emanating from the economic strategy document released by the Treasury last year.
The document, titled ‘Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa’, is organised around five themes: 1) modernizing network industries, 2) lowering barriers to entry and addressing distorted patterns of ownership through increased competition and small business growth, 3) prioritizing labour-intensive growth in sectors such as agriculture and services, including tourism, 4) implementing focused and flexible industrial and trade policy, and 5) promoting export competitiveness and harnessing regional growth opportunities. Under these themes, a set of specific policy proposals are made which Treasury estimates could ‘raise potential growth by 2-3 percentage points and create over one million job opportunities’.
These are exactly the kind of results we need in response to the economic devastation of Covid-19. The document rightly recognises education as the key to long-term growth, but it is also one of the few areas without any concrete proposals.
Improve quality
The Government cannot avoid free markets if it seriously wants to see South Africa’s children properly educated. It is, therefore, a matter of urgency to implement reforms in the public education sector, and improve quality by allowing competition by the private sector through the loosening of regulations.
The charter school model, where schools are privately run but funded by the Government, is also one to consider, along with vouchers, for the medium to long term. Allowing education providers to innovate could also benefit the broader effort to minimise social interaction beyond the lockdown. Greater numbers of children could be homeschooled if the Government makes this option easily available for parents.
The energy industry is one of the network industries given priority in this document, and for good reason. Finance Minister Tito Mboweni even said in his budget speech that economic growth is essentially capped by the problems at Eskom. The Treasury had initially made some good proposals in this regard, including selling off some coal-fired power stations to investors. This would have helped free up Eskom from its unmanageable debt. However, the policy was scrapped in a later version under pressure from the unions, and it needs to be resurrected now.
The state cannot hope to manage both its own debt and Eskom’s. Under the current economic conditions, tax revenue is going to diminish. Business for South Africa estimates an 8-10% decline in GDP this year. Under these conditions, it makes sense for Eskom to sell some power stations in order to reduce its debt.
Sell assets
That is exactly what millions of ordinary people are going to be asked to do over the next few months and possibly years: sell their assets in order to extinguish debt or acquire the means of survival.
If the Government fails to implement these reforms now, the economic misery will be made worse. We have already had more than a decade of economic pain because of government failure to reform.
Another network industry is telecommunications, and we have seen how mobile providers have come under attack from government regulatory agencies. These attacks, ostensibly targeted at reducing data prices, have been used to extract concessions from the operators. As a matter of policy, the regulatory agencies are generating uncertainty in the industry, which deters investment. After ending these regulatory attacks, the Government should speedily arrange the auction of spectrum as recommended in the document.
Removing regulatory barriers on business is the next big area of focus, probably the most important area. The Red Tape Impact Assessment Bill should be made law as a matter of urgency. This would start the process of government departments examining the regulations they have responsibility for and finding the ones that should be removed. The bill would require departments to reduce red tape by 25% over five years, with Treasury itself recognising that the ‘design and accountability’ of such an initiative is critical.
Red tape
Labour regulations also fall under the theme of reducing red tape on small business, but they deserve special mention here as they do in the document. This is because South Africa’s shockingly high unemployment rate is largely a result of well-intentioned policy along with the inability to resist the trade union lobby. Therefore, exempting small business from some of these regulations, especially the extension to them of collective bargaining agreements, as well as exemption from laws such as the minimum wage, should also be seen as an urgent, necessary policy step.
Small business is the means by which the poor get themselves out of poverty. Given the period that we are heading towards, it is critical that we give as much freedom as possible to the poor, as entrepreneurs. We have creative, hard-working people who do not need handouts, they need for us to stay out of their way.
The last point is the need for an institutional framework that allows effective policy reform and the long-term basis for a sound economy. In this regard, policy certainty and evidence-based policy-making by Government are imperative. Most importantly, private property rights are necessary for an economy that encourages long-term investment, sustainability, growth and stability. This is also mentioned by Treasury: that property rights are essential to economic growth.
Property rights
This is why the most important step the Government needs to take towards reform is abandoning the disastrous policy of EWC (Expropriation without Compensation). Without this step, anything else the Government does risks coming to nothing. The abandonment of EWC should be accompanied by legal recognition of the property rights of people living in rural areas, as well as transfers of government land to people living in informal settlements or to any poor person under objective criteria.
The policy document contains many other proposals that are not covered here, but this would be a great start. It would signal to investors that we have learned from our past mistakes and are ready for business. That is how you snatch victory from the jaws of defeat.
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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