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Central Economy or Just Centralised…?

The Zuma administration cannot shake off the pull of the left

President Jacob Zuma elevated the floundering South African economy to centre stage at his State of the Nation speech on June 17 as a means of addressing the triple evils of unemployment, poverty and inequality in the country. However, there has been scant evidence since then that we can take him seriously. Our economic woes cannot be treated by domestic solutions alone, and they certainly cannot be treated by yet more dubious state interventions that so far have achieved little other than draining the fiscus. The State of the Nation address implied the economy would be a central feature of policy-making into 2015 and beyond, but the only developments we have seen so far build on the old idea of centralised control of the economy. That idea is not going to deliver jobs or the growth needed to create them. In short: the State of the Nation is dire! Indeed, in the few weeks since the State of the Nation address, ill-advised and ill-conceived interventions are all we have seen. Despite all the grandiose talk of job creation and economic growth, the following has dominated developments:

1) New immigration laws: hampering tourism and costing jobs – Recently announced revised immigration regulations may have possible unintended consequences for the tourism industry. That is the opinion of Minister of Tourism Derek Hanekom and industry stakeholders who have highlighted the strong potential for negative consequences to the tourism business. Local media quoted Mr Hanekom as saying:  “Industry role players highlighted two specific provisions – the requirement for an unabridged birth certificate for minors, and the provision for in-person collection of biometric data.” It was believed that the measures might impact the country’s competitiveness. Does that seem to be a way to promote economic growth by one of the easiest mechanisms available (tourism)? Most other countries are easing visa requirements to promote tourism. It gets worse: the ill-conceived immigration law review with its near-paranoid concerns over ‘security’ has managed to kill jobs and reduce employment. Local media have reported since the plan was announced that immigration practitioners were losing their jobs because of revised immigration regulations. Under the old system, practitioners would deal directly with the Department of Home Affairs, but with the scrapping of the practitioners in the new legislation their clients were now forced to use an agency to apply for permits. The agency is foreign-owned. The Department of Home Affairs is obviously creating jobs somewhere…just not here.

2) Mining, minerals and chasing away investment – In March 2014, just weeks ahead of national elections and following this year’s first State of the Nation address in February, the ruling African National Congress (ANC) pushed through Parliament several controversial changes to the Mineral and Petroleum Resources Development Act (MRPDA) that experts said would cost South Africa billions in investment in the oil and gas sector. Most contentious was the provision for the state to get a free stake of up to 20% in any new oil and gas projects with a right to acquire an additional 80%. Members of Parliament (MPs) were in electioneering mode, with ANC members – including then Minister of Mineral Resources Susan Shabangu (thankfully now relieved of duty) – accusing critics of “representing white minority interests.” While it is common cause that mining as a major factor in South Africa’s economy is history, oil and gas may represent new opportunities for investment, growth and job creation. But perhaps not while the government does everything it can to scare off foreign investors who have opportunities in East, Central and West Africa despite regulatory concerns. There is always an argument for local benefit to flow from natural resources, but that should be in clear tax, regulatory, levies and royalty regimes that are understood upfront and not subject to frequent change.

3) Land and food security: at risk in new hare-brained scheme – Clearly not in pursuit of the State of the Nation undertaking to put the economy centre stage, Minister of Rural Development and Land Reform Gugile Nkwinti – quoting liberally from the Freedom Charter – has proposed a whole new way to damage the economy, chase investors, and shed yet more jobs. The proposal that 50% of farm land be allocated to farmworkers without compensation (or even a viable coherent plan as to what would happen next) faces legal, constitutional and common sense hurdles, and makes nonsense of government ambitions to grow the economy and create employment. The proposed policy on land reform and restitution, in a document entitled ‘Strengthening the Relative Rights of People Working the Land’, envisions that farm labourers assume ownership of half the land on which they are employed. There must be several ways where a similar outcome could be achieved without breaking several laws, acting in defiance of the constitution, and setting in motion forces that will inhibit investment, create new uncertainties among food producers, and inevitably shed jobs. Government has dragged its collective heels for close to a decade on the issue of land reform, moving from one failed policy to the next. This latest intervention by the state will thankfully not see the light of day due to the legal and constitutional barriers. But that does not diminish the stupidity of the idea in the first place and the consequences it will have. The same government that came up with this idea has stated on record that agriculture is a key job driver with a target (here we go again with the targets) for the agricultural sector to create a million jobs by 2030. Not with the above policy madness and probably not even without it: targets in government jargon are just numbers that sound impressive. Previous ‘policy interventions’ have included “comprehensive support to smallholder farmers by speeding up land reform and providing technical, infrastructural and financial support that will be provided to communities as well to engage in food production and subsistence farming to promote food security.” We have not seen anything of that nature and now we want to do land grabs…

4) Public sector: the only job growth point – A recent study found that the increase in public sector employment was not a sustainable solution to our unemployment problem. The public sector wage bill already accounts for a third of all government spending (provided no public sector wage demands push this higher), while the target of creating five million jobs by 2020 – one of the promises and targets already discounted – would require 40% growth in employment over the next decade. This required growth rate is eight times higher than has occurred over the past decade. What plans are in place to even begin to deal with these employment demands? Statistics South Africa paints a depressing picture: the narrowly defined unemployment rate increased to 25.2% in Q1 of 2014 from 24.1% in the fourth quarter of 2013. The unemployment rate averaged 25.3% during 2000-14, reaching an all-time high of 31.2% in Q1 of 2003. This is clearly a long-term endemic problem that is going to require significantly more effort than the State of the Nation Address and subsequent developments suggest. This is not a problem that is going to be addressed by government interventions that often result in more harm than good. One such failed intervention is trade protectionism that the South Africa Institute of International Affairs (SAIIA) suggests in a recent research report is counterproductive in the long term …and the long term is what should be of most concern to us all. SAIIA said that trade protection appears to be a politically attractive policy tool because of a certain degree of asymmetric information in society; most voters appreciate the immediate gains for the protected industries and underestimate the costs for the economy in the long run. The SAIIA report concludes that the latest South African industrial and trade policy initiatives were disappointing, “relying on old interventionist tools and only marginally attacking the major problems in the economy.

Analyst: Gary van Staden

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