Unemployed men sit waiting for workThe present economic stagnation may partly be a result of a lack of diversification, which limits employment opportunities and overall workforce employability. (Delwyn Verasamy/M&G)
A decade ago, the National Development Plan (NDP) set ambitious targets for the economy. These included a GDP growth rate of 5.4% a year and the creation of 11-million jobs by 2030.
The vision was to reduce the unemployment rate to 6%. There were targets to achieve an investment to GDP ratio of 30% and a public investment to GDP ratio of 10%.
In his February 2018 State of the Nation address, President Cyril Ramaphosa said: “This year, we will be initiating measures to set the country on a new path of growth, employment and transformation. We will do this by getting social partners in our country to collaborate in building a social compact on which we will create drivers of economic recovery.”
But at Jessie Duarte’s memorial service in July, former president Thabo Mbeki said: “There is no national plan to address these challenges of poverty, unemployment, inequality. It does not exist.”
He reminded mourners that Ramaphosa, in this year’s State of the Nation address, had said there would be a comprehensive social compact in 100 days. “But nothing has happened.”
In his closing address to ANC Kwazulu-Natal’s provincial conference, Ramaphosa hit back, saying: “We should challenge the claim that nothing is being done to build the social compact.”
Four years after Ramaphosa first mooted the idea, the government has published a shambles of a 32-page document — Framework for a Social Compact in South Africa — that has 28 pages of waffle and only four pages of so-called commitments.
The document reads like the work of an intern. It does not refer to the NDP targets and has none of its own. There are no targets for GDP or employment. There is only half a page of government commitments. None have a target.
And 80% of the government commitments — implementing the Zondo state capture report’s recommendations, reducing red tape, addressing economic sabotage, and improving municipal governance — do not belong in a social compact. These are things the government should do without a social compact.
Unemployment, poverty, and inequality are macroeconomic policy issues that we cannot address through projects. The East Asian developmental states and countries such as China had mobilising visions and plans for their economies, which were broken down into five-year plans that were monitored annually.
Typically, the objective was to double the size of the economy every decade, which required an annual GDP growth rate of 7%. Each year, the government would monitor achievement against the target and adjust the tools of macroeconomic policy.
For example, in China, the GDP growth target for this year is “about 5.5%”. First-quarter growth was 4.8%. Second-quarter growth was 0.2% because of lockdowns in large cities. For the rest of the year the government has instructed local government financing vehicles to spend more money to make up for the shortfall.
Over the past three decades, the South African government has had numerous plans and social compacts for the economy, most of which had GDP growth and employment targets. They include the Reconstruction and Development Plan of 1994, the Growth, Employment and Redistribution (Gear) strategy of 1996, the Accelerated Shared Growth Initiative of 2006 and the New Growth Path of 2010.
At the National Economic Development and Labour Council (Nedlac) there was the 1998 Jobs Summit and the 2003 Growth and Development Summit. In 2011 and 2012, Ebrahim Patel’s former department of economic development drafted five social accords that were so forgettable that only a handful of South Africans can remember their details. There was a Jobs Summit agreement in October 2018.
These plans and social compacts did not achieve their targets because they were not aligned with macroeconomic policies. GDP growth and job creation were subordinate to other macroeconomic policy goals such as debt reduction and inflation. The treasury focused only on debt. The South African Reserve Bank focused only on inflation. Nobody was responsible for achieving the NDP targets.
Over the past decade, there is not a single treasury budget review publication or Reserve Bank monetary policy statement that has explained how the country will achieve the NDP targets. Therefore, the NDP is a vision without a plan. And a vision without a plan is just a dream or a hallucination.
In October 2019, the treasury released an economic strategy that discarded the NDP targets. It proposed structural (or microeconomic) reforms that would add “an estimated 2.3 percentage points to baseline growth over the next 10 years, while creating over one million jobs”.
Structural reform is code for privatisation, deregulation, liberalisation and the withdrawal of the state from network industries — electricity, transport, telecommunications and water.
When he launched the Economic Reconstruction and Recovery Plan in October 2020, Ramaphosa said: “According to modelling done by the national treasury, the implementation of this plan will raise growth to around 3% on average over the next ten years.”
If South Africa had a real recovery plan it would show in public and private sector GDP forecasts. But the consensus is that the economy will grow by 1.5% a year over the next five years.
South Africa needs a mobilising vision and plan for the economy that has a 6% GDP growth target that is binding on the treasury and the Reserve Bank. The government must spend into the economy the 4.5% difference between the target and the growth forecasts.
If a fiscal stimulus blends consumption and investment spending, there could be a fiscal multiplier — the GDP growth generated by each percentage point increase in government spending — of 1.5. This means the government must spend R180-billion into the economy next year. The annual shortfall to achieve the NDP’s total investment target is R1-trillion. The shortfall to achieve the public investment target is R400-billion.
The social compact discussions must be about how to divide the additional spending that is required to reach the 6% GDP growth target between the government and the financial sector, which has assets of R22-trillion.
Duma Gqubule is a financial journalist, analyst, researcher and adviser on economic development and transformation.
The views expressed are those of the author and do not necessarily reflect the official policy or position of the Mail & Guardian.
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