/ 8 March 2013

Nonparticipation hinders growth

Tim Harris believes that President Jacob Zuma is not providing sufficient support to Finance Minister Pravin Gordhan.
Tim Harris believes that President Jacob Zuma is not providing sufficient support to Finance Minister Pravin Gordhan.

Finance Minister Pravin Gordhan's ability to drive shared growth through this year's budget was severely constrained by a R16-billion shortfall in tax revenue that has driven South Africa's budget deficit above 5% for the first time since we had to respond to the global financial crisis.

It has also contributed to the dramatic increase in public debt that is now approaching, as a percentage of gross domestic product, the level of apartheid debt inherited by this government in the mid-1990s.

Back then, the partial implementation of the growth, employment and redistribution plan (Gear) saw the finance minister at the time, Trevor Manuel, take advantage of benign global economic conditions to draw down debt levels, reform the budget process and implement consistent monetary policy. Crucially, Manuel had the full backing of South Africa's then-president, Thabo Mbeki, to implement these reforms in the face of opposition from Cosatu.

Fast forward 17 years, with government debt again approaching apartheid-era levels, and Gordhan finds himself in an unenviably dissimilar position.

First, he has the fallout from the global financial crisis to deal with, including the sobering fact that South Africa is recovering far slower than most emerging markets and especially those on the African continent.

Second, although he has the national development plan (NDP) on the table as a potential reform agenda to drive economic growth and help him to draw down debt, it is not clear whether he has the support of President Jacob Zuma in getting it implemented.

In the past four years the president has exemplified himself as the kind of leader who keeps everyone happy by avoiding the tough decisions needed to see reforms, such as those proposed in the NDP, implemented.

For example, he prefaced his recent state of the nation address with numerous mentions of the plan, but failed to support its proposals that "cadre deployment" be axed, or that bureaucrats and teachers be properly held to account.

He backed down from these decisions because they would alienate Cosatu, which is on record as disputing "the assertion of the [budget] speech that there is a broad endorsement of the NDP" and claiming that "the only other formations to have welcomed [the NDP] have been pro-business opposition parties and big business". This appears to leave Gordhan in a standoff with Cosatu, without the backing of the president.

Unable to reform government policy, but under pressure from international ratings agencies, he has been forced to keep growth-killing tax increases off the table, kick the national health insurance and carbon tax for touch, ratchet up the budget deficit, double-down on his proposals for a youth wage subsidy — blocked for three years by Cosatu — and plead with business to regain some confidence in the South Africa economy.

If Gordhan had the full backing of the president and the political capital that brings, he might implement a centrist reform agenda such as that contained in the NDP, or the Democratic Alliance's "Plan for Growth and Jobs" or recent "Alternative Budget" that attempts to locate the common ground in the first two documents and turn it into a fiscal programme for South Africa in 2013.

These DA policies would spur shared growth in our country because they see the "sharing" as the engine for the "growth".

South Africa's key growth constraints arise from a lack of participation in the economy. This situation originated when the apartheid government turned South Africa into the ultimate insider-outsider economy by denying millions access to economic opportunities and allowing large state and private companies to dominate markets.

Although the ANC has removed the racial determinism this system was built on and has changed the makeup of the insiders, it has not bridged the gap between the insiders and the outsiders. Today's insiders include big government, the biggest trade union federation and several public and private companies that abuse their position to shut down market opportunities for new entrants.

As a result, the Institute for Justice and Reconciliation has found that, since 1993, inequality in South Africa has actually increased slightly. Bridging this gap by increasing participation in South Africa's economy is the best way to drive growth in the country. By definition, it would be shared.

Opening up South Africa's trade with the rest of Africa on top of this would see the country shatter the existing growth constraints that prevent it from growing — as most middle-income countries do — at rates of up to 8% when times are good.

Right now the rest of Africa is growing at 5.8%, twice South Africa's levels.

A finance minister with sufficient political capital would be able to:
• propose reforms to South Africa's labour laws — in particular to collective bargaining arrangements — to lower the cost of hiring for smaller businesses;
• aggressively overhaul small business support without the political meddling of the department of economic development;
• welcome competition-boosting foreign direct investment with open arms; • open South Africa's state-owned enterprises to private capital to raise funds and enhance efficiency; and
​• hold unionised teachers and other public servants to account, linking public service pay to accountability.

This would be an agenda for accelerated growth that would work by making South Africa's economy more competitive and giving economic outsiders the tools to participate.

It would all hinge, however, on political backing from the very top of government.

Tim Harris is a member of Parliament and the Democratic Alliance's spokesperson on finance. He serves as the DA's international liaison and is the vice-president for Africa on the bureau of Liberal International, a global group of liberal parties. He sits on the board of SiliconCape, Cape Town's technology promotion initiative

This article was sponsored and approved by Neotel as part of its sponsorship of the Mail & Guardian Business Breakfast. It forms part of a larger supplement.