Can Cyril and Tito's economic kite fly?
4 September 2019
The Centre for Development and Enterprise (CDE) issued a report on 28 August entitled “Running out of Road: South Africa's public finances and what is to be done”. They conclude that if South Africa does not overcome its fiscal crisis, there will be no accelerated economic growth. However, the opposite is also true: if we don’t start growing the economy, we will not be able to cope with the fiscal crisis. South Africa needs an uncompromising growth strategy, which must be applied strictly. CDE Chief Ann Bernstein warns that Government and the ruling party do not seem to fully realise how profound the changes are that are needed and how much leadership it will take from the President to get it right.
The previous day, Finance Minister Tito Mboweni announced that a document had been posted on the Treasury's website for anyone to comment on until 15 September. The name of the plan is “Economic transformation, inclusive growth and competitiveness - towards an economic strategy for South Africa”. Without being synchronised, the plan begins to do broadly what the CDE advocates.
The plan's point of departure is that the combination of low growth and rising unemployment mean that South Africa's economic curve is not sustainable. The government must therefore implement a series of “growth reforms” that promote economic transformation, support inclusive growth, and create an economy that will be globally competitive. The interesting fact is that in the detail of the plan, strategies are also proposed that will strengthen the Treasury (the fiscal) and reduce debt levels. One of these is to sell Eskom power stations to private companies.
All South Africans who have some insight into the political economy know that apart from State capture and corruption, the biggest problem in South Africa is the “horrible triplets” of poverty, inequality and unemployment. Tito's plan proposes “virtuous” triplets: economic transformation, inclusive growth and global competitiveness. These three are complementary to each other and will form a “virtuous cycle”.
Since becoming President, Cyril Ramaphosa has placed great emphasis on the National Development Plan (NDP), which should be the basis of all government policies and plans. To realise this, one might think that the President could have said to every Minister: “Give me a five-year plan based on the principles of the NDP”. His Finance Minister (who he, despite Mboweni's initial reluctance, returned to the Cabinet) did so now.
But is it just Mboweni's and his Department's plan? Former President Mandela many times used an ANC youth leader to send out a kite - to test something in public that Mandela did not want to do himself because of its contentious nature. Is the economic plan perhaps Cyril's own, that Tito is now airing for the first time? Although some may think that the plan would have had a greater impact if the President himself announced it, one can at least assume that the President knew broadly what was going to be in his trusted Finance Minister's plan.
The plan begins by naming six fundamental building blocks of sustainable growth, and then identifies a series of specific and detailed reforms to promote economic growth. The building blocks are:
improving educational outcomes;
youth employment and training opportunities;
sustainable cities and inclusive transport systems;
strategies to improve the skills shortage in the economy;
creating economic institutions and a capable State; and finally
stable macroeconomic policy (as a prerequisite for sustainable economic growth).
The plan has five growth themes, within which specific strategies are proposed each time.
The first of these is the modernisation of “network industries” such as transport, energy, water and telecommunications. It can promote competitiveness and inclusive growth. It is in this section where reforms are mentioned at Eskom, as well as opening up the broadband spectrum in telecommunications, opening up Transnet's rail and port system, and investing in water infrastructure.
The second theme is greater competitiveness, which can be a lever for inclusive growth and economic transformation - by fostering the growth of small businesses and attracting new market participants. Particular attention is paid to the reduction of red tape, including racial transformation.
The third growth theme is labour-intensive economic growth, which is necessary to turn around unacceptably high levels of unemployment. The plan focuses mainly on agriculture and commends the pro-active role of agriculture to help establish more black farmers. Particular attention is paid to the importance of appropriate financing, access to local and international markets, satisfactory agricultural insurance and assistance to emerging farmers. In terms of tourism, an easier visa regime and tourist safety are mentioned.
The fourth growth theme is a focused and flexible industrial and trade policy to promote competitiveness and long-run growth. Here, emphasis is placed on “beneficiation” of raw products and exports.
The last growth theme is the optimal use of international and regional value chains, by improving exports and export competitiveness.
Finally, the plan determines the benefits that can be achieved in the short-term (after two years), the medium-term (after four years) and the long-term (from the seventh year). This includes more than one million jobs and economic growth of up to 3% per year.
What is the significance of the Mboweni growth plan? Not everything that is proposed is new, but it is the first time that so many economic reforms of such a drastic nature have been summarised in one document. Secondly, it is a policy paper with practical proposals based directly on the NDP, probably a first of its kind - and an example that other ministries can follow.
The plan strikes a fine balance between economic transformation (but not on the basis of race), inclusive growth and international competitiveness. In fact, the word “race” does not appear anywhere in the document, something that should be welcomed. The word “black” is used only twice: once where black economic empowerment is described as a brake-pad for small business and once with reference to black industrialists.
Although “privatisation” does not appear anywhere in the document, “private sector” is used more than 40 times - mostly with emphasis on the sector's expertise, experience and participation in the strategies proposed by the plan. It is clear that the plan provides a major role for the private sector in growth reforms, in partnership with the State, and sometimes also in areas previously only - or largely - handled by the State (such as electricity supply and telecommunications infrastructure).
The emphasis on making it easier for small and medium businesses to grow is a big plus and something that could succeed, especially since the unions have no member interest and should not be allowed to oppose it. For example, if businesses with less than R50 million in turnover can be exempted from racial transformation and other regulations, this sector could become an engine of growth in the South African economy.
There is also (rightly so) a strong focus on agriculture, especially because it can help with labour-intensive growth and help reduce unemployment. It is especially significant that the plan makes a side note on land reform. The challenge with the important process of land reform lies in how it is tackled and what model is applied. To avoid uncertainty, this must be done in a transparent, consultative manner and within a broad framework that can ensure that factors critical to ongoing investment in agriculture and food security (such as private property security) are respected. These are deliberate words, which send a strong signal that at least the Treasury is not in favor of a reckless change to section 25 of the Constitution.
Whether it's Cyril's kite being sent up by Tito, or Tito's own kite, the question remains: is it going to fly? Criticism and approval have already begun to flow. Criticism came especially from the unions, who, as was expected, complained mostly about Eskom and the role of the private sector. After the comment period closes on 15 September and the final plan is presented to the Cabinet - and possibly to Parliament - early in the new year, the answer to whether or not it can fly, will become clear.
The growth plan is a clear sign that reformists in the ANC really want to take the initiative with regard to economic growth reforms. Although purists will say that the plan’s implementation is an “all or nothing” issue, the political reality is that some parts will fly, and others will not. This is the nature of politics and the fate of a divided ANC. How President Ramaphosa will handle this in the coming months will determine how many parts of this beautiful kite will fly.
Theuns Eloff: Chairman, FW de Klerk Foundation Advisory Board.
