Business believes the economy will soon be ready for a relaxation of monetary policy and a cut in interest rates, according to its proposals for the Growth and Development Summit released this week.
Such a message, the first from organised business, could have an impact on the Reserve Bank, which faces mounting calls for a lighter hand. At the same time the business sector has also called for an investigation into administered prices — the cost of food emerged last year as the key inflation driver.
For the first time, business has also shown its hand on how it thinks black economic empowerment (BEE) should be financed. Pressure is growing on the big guns in the financial-services sector to provide empowerment finance, but corporates will use the summit to deflect the heat.
They want government to use funds housed in state-owned institutions like the Industrial Development Corporation, Ntsika and the National Empowerment Fund to guarantee BEE transactions. “[These] institutions should be utilised for risk enhancement, guarantees, equity and other instruments to enable transactions to comply with the principle of sound business practice and sustainability.”
Business also called for a global calculation of the funds needed for BEE and an assessment of the financial sector’s ability to absorb the costs in a way that “does not inhibit the financial sector continuing on a sustainable growth path”. Only the mining sector has calculated the cost of BEE.
Business says other sources of funding should be targeted include grant funding and foreign investment.
On monetary policy, the seven-page submission supports the current inflation target of between 6% and 9%, which the Congress of South African Trade Unions (Cosatu) believes should be set at a higher band. Its pivotal principle remains that low inflation drives growth.
“The current cycle of price increases is slowing down. This suggests that monetary authorities could soon be in a position to lower short-term interest rates to facilitate investment,” says the composite set of proposals drawn up by Business SA and the other key business formations. “Because [policy] is anchored in fiscal discipline and trade liberalisation, the long-term trend in South African inflation is downward.”
The document, a paean of praise to government’s economic management, acknowledges that “macro-economic stability is a necessary condition, but not a sufficient one for growth and development”.
An area where business differs substantially with labour is in its view that fiscal policy is “stimulatory” and social expenditure spending “almost sufficient”.
Further spending should go on capital expenditure, notably infrastructure projects, it says.
So, what will secure growth and development? “The business position has been heavily influenced by the need to concentrate on what is ‘doable’ … practical programmes and projects that can make a difference to growth and development.”
The “doables” for both itself and the government include increasing fixed public- and private-sector investment to 25% of gross domestic product (GDP), reducing the tax burden on savers, labour-market reforms, setting a target for learnerships to be established by business, and reducing the cost of regulation on small business.
Current growth rates of between 2% and 3% are supported by investment levels of 15% of GDP. Making a dent in unemployment requires growth of 6%, which makes investment a key area of discussion for the summit.
For what it plans to do, business expects something in return. Public private partnerships (PPPs) — valued at an estimated R12-billion between 1998 and 2002 — should be stepped up and laws that hinder them must be “reviewed”, says the submission. Cosatu, in particular, has hardened its opposition to PPPs, indicating an early area of contention at the June 7 powwow.
Over all, the business submission, like those of the government and labour, sets out a broad negotiating position. The nitty-gritty will be the subject of negotiation next month. A core principle is that “the [summit] can help to develop consensus around the primacy of growth in the hierarchy of policy objectives for South Africa”.
The left is of the opposite view, believing in the primacy of redistribution over growth. The other area in which the two begin from different starting-blocks is the business belief that tax and fiscal policy has resulted in “the current huge redistributional effect of the state”. Both the community and labour sectors want a much more redistributive state.