ANC heads are firmly in the clouds
The word “concrete” has two meanings. One is the material used in construction, especially large projects such as bridges, power stations and railway stations. The second is “specific” or “substantial”, the opposite of abstract and vague. Both meanings come strongly to mind when reading the ANC’s documents on economic transformation, which reflect a preponderance of concrete in its first meaning, but a dire shortage in terms of its latter meaning.
South Africa’s economic challenges, according to these documents, will mainly be addressed by the massive infrastructure investment programme to which the government is already committed. February’s budget indicated that R845-billion would be spent on infrastructure in the next three years, a huge 10% of gross domestic product (GDP) a year. In a telling passage, the ANC argues that “infrastructure investment should not just be seen as a technical process, but an opportunity to mobilise our people to create a new society and expand economic opportunities”.
The infrastructure programme will, it is claimed, directly and simultaneously achieve three goals:
Job creation through labour-intensive infrastructure construction, with public works projects to the fore;
The development of new industries through “localisation” of the production of components and inputs for the programme – its “backward linkages”; and
Increased investment in other industries as profitability improves as a result of lower-cost, more reliable infrastructure services – its “forward linkages”.
But that is not all. The infrastructure programme will bring foreign investment to supplement limited savings and provide technology and skills, and reduce grant dependency and “revitalise” rural areas.
But there is little evidence of “concrete” in terms of its other meaning. The ANC’s documents are desperately short on detail in terms of the infrastructure programmes and much else. For example, we are told that “the country needs to double its capacity to generate electricity by 2028 [and] we need to take a view on how to achieve this”.
Coal versus nuclear versus renewables
End of discussion. Not even a posing of the dilemma around coal versus nuclear versus renewables, which, however resolved, will have significant implications for the programme’s three immediate goals. There are two pages on climate change, which is gratifying, but we are informed that “in terms of the energy mix, the integrated resource plan 2010-2030 has been finalised”. So there is no need for a view on coal, nuclear or renewables, then.
Similarly, the document mentions – without discussion – that the rail network must be expanded and roads upgraded, but the road versus rail trade-off is not identified. It does, to be fair, explicitly raise the issue of user charges for infrastructure services, but again there is no further discussion and no indication of the costs and benefits for different groups in society of this route versus alternative financing mechanisms.
What makes these silences all the more astonishing is that the issues have been the focus of heated debate and even conflict in the ANC and among its alliance partners, not only in the wider society. One would have expected some spelling out of alternatives in the policy documents to enable some (even if provisional) resolution of differences at the ANC’s policy conference.
Many other topics are given similarly short shrift and are at most briefly mentioned, despite their being the subjects of known disagreements in the alliance and their active discussion among the rest of South Africans. Decent work, the youth wage subsidy, indeed the whole wages and working conditions issue, black economic empowerment (a single, vacuous, paragraph), exports, the exchange rate (the last of a list of nine “cross-cutting issues that, if duly addressed, would result in substantial sectoral development and job creation”), public sector delivery, safety and security, technical and managerial skills – none are adequately discussed.
The ANC is, in sum, betting the shop on the government’s infrastructure programme, but the question is: Can it work? The strategy does have a long and respectable pedigree in development economics, although these policy documents do not mention it. In the 1940s Paul Rosenstein-Rodan argued that a “big push” – massive, co-ordinated public investment across all industrial sectors – was needed to get a poor economy out of a low-income, low-growth “trap”, which is arguably South Africa’s situation today. In the 1950s Albert Hirschman refined the argument, suggesting that the big push investment programme focuses on a narrower range of sectors, particularly those with significant linkages to other sectors, among which was infrastructure, or what he called social overhead capital.
Tellingly, Hirschman’s main motivation for a less ambitious investment programme was the limited project management capacity in poor countries. But our skills shortage is not the only concern. The public sector already spends about 7% of GDP on capital investment. It is not clear whether the infrastructure programme will be an addition to, or a replacement of, some or all of this existing public investment expenditure. If the former, the economy may well run into resource constraints, not just skills but finance and materials, leading to rising costs of investment. But if the latter, the push will not be quite so big. Either way, the impact of the infrastructure programme may well be somewhat muted.
The vaunted win-win nature of the infrastructure programme may prove difficult to realise: Is it really possible to have labour-intensive construction and new industries producing equipment and low-cost, reliable energy, transport and communications services for users?
Finally, and perhaps ironically, given the reliance on the state’s enterprises and institutions, the ANC seems to take for granted a vigorous private sector response to a public stimulus, an assumption about private investment not too different from orthodox economic theory. In any event, one wonders whether corporates, which are sitting on a huge cash pile of savings, would easily and quickly commit to major investments in infrastructure equipment supply industries. Would lower electricity and transport costs persuade manufacturers to open or expand factories to produce large volumes of wage goods when investment in producing clothing or electronics has been in the doldrums for years for well-known reasons relating to different cost factors?
A big push, indeed, but let us hope the concrete is not poured on to shifting sands.
Stephen Gelb teaches economics at the University of Johannesburg. This is an edited extract from a presentation he gave at a recent Mail & Guardian and Wiser symposium on the ANC’s policy discussion documents