The New Growth Path: An uncertain destination
The Democratic Alliance (DA) notes the release today from the Minister of Economic Development, Ebrahim Patel, of further documentation on the Zuma administration's New Growth Path (see here). We shall study this document thoroughly in the coming days and weeks. However, on first glance, this appears to be a thoroughly problematic move by the administration.
Once again, Minister Patel seems to be unclear on how to take South Africa forward economically. Earlier today we saw another set of disappointing growth figures, and in recent months we have witnessed regrettably little improvement in the overall employment situation in the country. We desperately need growth and we need a real vision to achieve it. On a first reading, however, this plan includes several proposals that have only vaguely articulated goals with equally vague plans on how to actually achieve these goals.
Firstly, and perhaps most problematically, section 3.2.3.1(b) of the document released today states the administration's intention to "cap pay and bonuses for senior managers and executives earning over R550 000 a year" and "moderate price increases, especially on inputs and wage goods."
According to the document, this would be part and parcel of "efforts to retain the benefits of the competitive exchange rate and support the proposed macro stance through a broad development pact".
The administration needs to state categorically what it is proposing, and who it will affect. Is this a sector-wide proposal? If the administration is genuinely proposing hard caps on wage and market prices, then that will quite clearly do a lot of damage. It will stifle job creation by suppressing investment and economic growth.
Secondly, Minister Patel alluded to fiscal restraint as a key objective of the new policy, yet the plan calls for massive increases in public spending through public investments and development bonds, to be issued to the Public Investment Corporation and government pension fund. This is an inherent and glaring contradiction. Fiscal restraint and massive public spending are two approaches to economic planning which are diametrically opposed. The one suggests minimal state intervention; the other doesn't.
Thirdly, the announcement of a "massive [state] infrastructure programme", which the minister hopes will create 250,000 new jobs a year between now and 2015, was desperately short on specifics. When asked where the funding would come from, the Minister simply passed the buck to the Treasury. He told journalists that they would have to wait for the Finance Minister to clarify the matter in February. That is not good enough. An announcement, with no indication that any actual financial planning has taken place, is not the way to go about governing responsibly. Frankly, this seems no different to the recent announcement of a R20-billion cash injection for Eskom, which was made without bothering to first consult the Treasury either.
Fourthly, this proposal makes no explicit mention of a wage subsidy. At one point, the document refers vaguely to ‘targeted subsidies' that are being considered.
The DA believes that wage subsidies must form the central component of any true path to economic growth and job creation. The Finance Minister clearly believes so as well. It is disappointing that the document does not deal with this critical policy proposal.
Fifthly, Minister Patel further contradicted himself by stating that the plan calls for "easier" monetary policy to allow for a more competitive exchange rate. This is a clear contradiction of the minister's earlier commitment to low and stable inflation.
The New Economic Growth Path currently lacks a clear and directly articulated vision for economic change. It promises fundamental changes in the country's economic approach without clearly indicating how these changes will be achieved and includes many contradictory policies and policy priorities. The Democratic Alliance will be asking the minister and other related ministries for clarification on these issues. South Africa needs a clear commitment to stable and prudent macroeconomic policies, coupled with an effective plan to create jobs and grow our economy. The New Economic Growth Path fails to offer clear and substantive solutions to these challenges.
Finally, the degree of support from other ministers, such as the Minister of Finance, will be a revealing indicator of the chances of the proposals, such as they are, being implemented. It is curious that the input of ministers who would give this proposal real meaning, seems to be entirely absent from its conception and execution.
Statement issued by Kobus Marais MP, Democratic Alliance Shadow Minister of Economic Development, November 23 2010
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