The government will soon draw up an economic recovery plan based on consensus between itself, business, and labour. Is it possible that a credible growth plan can be based on agreement between South Africa’s ‘social partners’?
‘In the coming weeks we will work with our social partners to finalise an economic recovery programme that brings together the best of all the various proposals,’ President Cyril Ramaphosa wrote in a letter to the nation earlier this week.
Soon after the lockdown began, Ramaphosa gave a speech in which he mentioned the need for both ‘structural reforms’ and ‘radical economic transformation’. Structural reforms normally refer to the type of measures needed to lower costs and make an economy more efficient and competitive. In South Africa, the list of the IMF and business includes labour reforms, improved management of state-owned enterprises, making the country a lot more business-friendly and ensuring policies are more certain for investors.
Radical economic transformation will lead to the opposite – a bigger state and expropriation without compensation.
Consensus is not possible on some key reforms, such as cutting public pay and public-enterprise reform, because there are winners and losers. And there is little room for consensus with business on African National Congress proposals for state pharmaceutical, land, and other companies, and radical economic transformation. There is agreement on the need for infrastructure investment, which means more jobs for unions and contracts for business.
All are keen to underplay their differences, as none would like to be pointed out as a spoiler. Therefore, omissions can be more important than actual statements.
The clear big win for all the ‘social partners’ is investment in infrastructure, and Ramaphosa could be using this programme as a gateway to obtain concessions on other measures. Earlier this week, the Presidency released a list of over 60 projects. According to Business Maverick, this will allow the government to leverage a R1.7bn direct contribution into R340bn in the total value of the projects, and 290 000 jobs.
Real contribution to growth
The substantial involvement of the private sector gives some assurance that this could be a real contribution to growth, but there are still risks. If, with its stretched capacity, the government is to manage the projects, concerns will arise as to whether there will be a large or negative contribution to growth.
The big political obstacle to reform is public spending, which, along with measures to ensure a more business-friendly environment, has to be tackled first. Government spending does not have much of a multiplier effect in South Africa because of poor choice of projects, corruption, high salaries, and poor management. Besides, with the Covid-19 disaster there is no scope for attempts at more spending to boost the economy.
Public sector pay in South Africa is on average higher than it is in the private sector. Labour laws have to be changed to make them less rigid and more investor-friendly. The adage, ‘the more you can fire, the more you can hire’, is well based on evidence.
Will labour agree to actual cuts in pay to help the government meet its goal: cuts of R230bn over the next two financial years?
About 60 percent of tax revenue in the 2020/21 Budget released in February will go to pay salaries. Based on this, more than 48 percent of total spending goes toward salaries. After grant payments and debt service costs, that leaves little for spending on programmes and new investment.
Talks between the unions and government on pay could turn out to be a long and vicious fight. With the decline in mining and manufacturing over the past 20 years, union strength now lies in the public sector. To ensure that these unions retain their political clout, they will have to fight their corner.
Unions insisted on the closure of government schools, saying that there was a large health risk in their reopening, despite medical opinion to the contrary. This is a sign of their substantial sway over government. That does not make for a good sign that the government is prepared for a showdown on pay.
Consequences
It is probable that the conditions for the R70bn emergency loan from the IMF are that the government should meet its fiscal goals. The Fund also wants transparency on how the loan is spent, which could mean the government is required to release far more detailed information on contracts and spending with empowerment companies. The consequences of veering from these conditions will be serious. A halt to disbursement of the loan or a critical report would be highly damaging to the country.
Apart from public pay and labour market problems, black economic empowerment (BEE) could also become a target for future reform. Business For South Africa (B4SA) has said there are problems with current empowerment policies, as few have benefited. An internal document questioning the benefit of empowerment has put the matter on the policy agenda of the Democratic Alliance. There is probably no room for consensus on BEE.
B4SA, which released its Post Covid-19 strategy for South Africa, has not called for outright privatisation, but the problems of mismanagement of public enterprises has to be solved if growth is to be boosted. It is simply untenable to continue with bailouts of Eskom on this scale.
Even if Independent Power Producers can come on stream soon, it does not necessarily mean that Eskom will not require continuing bailouts. The extent to which independent producers are prepared to invest may be contingent on their being allowed to play a far larger role. There is still substantial protection of the state power producer under the new energy dispensation and that might mean that load-shedding remains a constraint on growth. Again, there is no room for consensus on the type of measures that would have any real hope of turning around state enterprises – privatisation.
After a long wait, we will see allocations of additional broadband spectrum some time next year. That will allow greater and faster online access. This is positive, but it has taken a very long time.
Terrible lack of urgency
Government has displayed a terrible lack of urgency in addressing growth constraints. For years, business has moaned, as we have mostly slipped in global rankings such as the World Economic Forum’s Global Competitiveness Index and the World Bank’s Ease of Doing Business, yet the government has been slow to respond.
South Africa has long been dragged down by the same list of factors – poor security, labour market inflexibility, difficulty in hiring foreigners, government lack of adaptability to change, and low business dynamism. This is in part due to the government’s administrative burden, with problems in starting a new business, lack of reliability of the electricity supply, and cross-border red tape. There has been progress on ease of starting a new business, but little else.
Undertaking reform by consensus, rather than with urgency and decisive leadership, risks delay and derailment.
[Picture: Ross Findon on Unsplash]
The views of the writer are not necessarily the views of the Daily Friend or the IRR
If you like what you have just read, subscribe to the Daily Friend