Treasury report offers some exciting new possibilities

4 September 2019

“South Africa’s current economic trajectory is unsustainable: economic growth has stagnated, unemployment is rising, and inequality remains high.”

These are the opening lines of National Treasury’s recently released paper on economic strategy for SA. True though the lines are, it is nevertheless difficult to know what to make of the document.

Substantively and philosophically it is a sharp break from the grey, statist orthodoxy that dominates much of government and ruling party discussion about the economy. This report reflects a much more realistic (and more evidence-based) understanding of what makes economies tick and why ours is troubled. It offers some exciting new possibilities for policy.

Here we have a department at the policy-making heart of government declaring that SA’s critical challenge is to raise the rate of potential growth, that competition is good for growth, that Eskom’s power stations should be sold off, and that, in the short term, the only way to overcome SA’s increasingly costly skills deficit is to import them.

It wants a more labour-intensive economy, exemptions for small business from many regulations including BEE rules, argues against the extension of collective bargaining agreements to non-parties, offers support for new experiments through special economic zones, and advocates for a much more welcoming set of rules governing the issuing of tourism visas, among much else.

This is a manifesto that business leaders would be crazy not to embrace as the starting point for a new kind of dialogue about what holds SA back, and what to do about it.

None of which is to say that every detail in the document is persuasive or, indeed, that there are not important omissions.

The document gestures, for example, at the need for sound macroeconomic policies, for education reform and at the importance for long-term growth of the quality of core institutions, but says very little about these absolutely critical issues. The Centre for Development and Enterprise (CDE), by contrast, has recently argued that macroeconomic policy, the rebuilding of institutions and basic education reform are some of the most important sets of priorities for growth.

This said, there is no question that the authors of the document support sound macroeconomic policy and they are convinced about the importance of high-quality, predictable and stable economic, legal and social institutions. Indeed, they go out of their way to describe why policy uncertainty is costly because it raises the cost of waiting relative to investing now. We would add, of course, that what matters the most is policy direction, the role of states and markets, and that is not at all clear in SA today.

A critical question to ask – and one that has been touched on in some of the commentary that has followed the release of the document – is why did the Treasury and the minister of finance release it now? And why did they so without consulting, and getting the stamp of approval from, the rest of Cabinet and policy committees in the ruling party? This has enraged some on the left and in the wider Alliance.

It is possible only to speculate about the answer to this question, but the intrigue is deepened by the fact that the document appears somewhat dated, and that it may, therefore, have been drafted some time ago. There is no engagement with recent developments in the debate about the future of Eskom; and proposals relating to telecoms appear to have been drafted before the latest decisions in the sector.

Our working hypothesis, like that of others, is that it was released before it could be updated in part out of the frustration that the minister and his officials appear to feel at the slow pace of substantial reform, and the fact that such reforms appear to be constrained by so many veto-wielding constituencies.

There are clear signals in the document that Treasury thinks that optimal policy is being stymied by interest groups and ideology. It is suggested, for example, that the Integrated Resource Plan being drafted by the Department of Energy is bound to be suboptimal unless there are no preconceived limitations on the proportion of renewables in SA’s future energy mix.

Here, and elsewhere, it seems to us to be Treasury’s response to the paralysis that the current approach to social compacting has created by its introduction of all kinds of uncrossable “lines in the sand”. In this report, we have senior officials saying, “This is the right thing to do, and we should do it.”

In a governing culture in which everything must be subjected to ideological litmus tests and, more importantly, in which every move must be balanced against the interests and perceived interests of various constituencies, it is risky to present a set of evidence-based proposals aimed at a single priority – accelerating growth. And the response to the proposals from within the ruling alliance is testament to this.

This makes it all the more important for growth-hungry business leaders to throw their support behind the animating ideas and broad thrust of this document.

One component of this is straightforward and has, to some extent, already happened. Business leaders should state simply, forcefully and repeatedly that this kind of reform has the prospect of unlocking growth and, therefore, stimulating employment creation. And that this was the kind of reform that they hoped to see under President Cyril Ramaphosa, but which has not yet happened. And has in fact been prevented from happening by an inability of the ruling party and its leadership to adopt and drive policies that are not hobbled by endless social compacting which always results in lowest common denominator “reforms” that have no real prospect of success and sometimes make matters worse.

The one danger with this, of course, is that business’s support for these ideas might lower whatever chances these proposals have of becoming policy. Many people in SA seem to believe that if business likes something, it must be undesirable. This is yet one more reason why business organisations and business leaders need to adopt a priority we have long called for: finding creative and compelling ways to communicate how market-driven growth is essential for SA’s prosperity.

They need to argue persuasively the benefits of such growth for all South Africans and not just those already on the inside, the fat cats or the connected. They have to make the case for competitive markets to the poor and everyone else as well.

This has always been a steep hill to climb in SA because of the depth of conviction that all policy choices are zero-sum, so that if it is good for one set of stakeholders (such as business) it must be bad for others. This, ultimately, is why elite social compacting seems to so many people to be desirable, even though that process has itself become a huge obstacle to growth.

This is a difficult circle to square, but that is one of the reasons why the release of the document is so noteworthy. The minister of finance is articulating publicly a set of views that represent a break from the existing consensus in which the pursuit of growth is subordinated to every other priority. If this is not worthy of business’s public support and much greater attention and dedication and time then nothing is. BM

Bernstein is executive director of the Centre for Development and Enterprise.

*This article first appeared in Daily Maverick.