​The nuts and bolts of radical economic transformation

ECONOMY

At President Jacob Zuma’s second inauguration, he vowed that economic transformation would “take centre stage” during his last term of office.

He promised that “the structure of the economy will be transformed through industrialisation, broad-based black economic empowerment and through strengthening and expanding the role of the state in the economy”.

That the economy would assume centre stage should not come as a surprise. It is part of the normal course of the evolution of statehood. All indications point to the fact that the first phase of transition — the consolidation of formal democracy — is complete. The country has entrenched all the necessary checks and balances, such as a free press, an independent judiciary, independent chapter nine institutions, and regular free and fair elections.

But this achievement is under threat owing to the unfinished business of economic transformation. In his State of the Nation address last week, Zuma was clear and unambiguous in his description of the challenge. He observed: “Twenty-two years into our freedom and democracy, the majority of black people are still economically disempowered … the gap between the annual average household incomes of African-headed households and their white counterparts remains shockingly huge. White households earn at least five times more than black households, according to Statistics South Africa. The situation with regards to the ownership of the economy also mirrors that of household incomes. Only 10% of the top 100 companies on the JSE are owned by black South Africans.”


The situation is not any different in top management, in which whites continue to rule the roost, with 72% demographic representation and Africans grossly underrepresented with a measly 10%.

The second challenge facing the country is the persistence of the triple challenge of poverty, unemployment and inequality. Underscoring the centrality of the economy in its resolution, Zuma is spot on with his observation that “the most effective weapon in the campaign against poverty is the creation of decent work, and that creating work requires faster economic growth”.

Indeed, since assuming office, economic transformation has become the hallmark of Zuma’s administration, featuring minor refinements in each of his State of the Nation addresses. Its latest incarnation is the formulation of “radical economic transformation”.

The objective is two-fold. First is to place “the economy on a qualitatively different path, that ensures more rapid, sustainable growth, higher investment, increased employment [and] reduced inequality”, and second is to deracialise the economy.

The ANC and the president could not have been more bold and direct in defining radical economic transformation — “a fundamental change in the structure, systems, institutions and patterns of ownership, management and control of the economy in favour of all South Africans, especially the poor, the majority of whom are African and female”.

Described this way, transformation of the productive structures and relations would be at the core of placing the economy on a qualitative path. This would require moving away from a situation where the country remains largely an exporter of primary products.

Rob Davies, the trade and industry minister, has elaborated on the form and key elements of radical economic transformation. He argues that, first, it must entail radical transformation of production relations, and, second, it must lead to less conflictual, characterised by more equitable benefit-sharing and by less inequality. Lastly, it must place “job creation at the heart of work programmes and promoting a more inclusive job-rich pattern of growth”.

Citing the KPMG publication, Africa Arisen: The Blue-Sky Conti­nent 2014, Davies said Africa produces and exports $6-billion worth of coffee. But that coffee is processed, packaged and branded elsewhere and is sold for $100-billion. A staggering $94-billion is earned outside of the borders of Africa on one its products. The value chain and value-added part of the production takes place outside of our continent. In other words, money that could have been earned in Africa had we industrialised is also part of the export.

This speaks to the heart of Zuma’s call for South Africa to move up the value chain and to embark on the beneficiation of its products, be it in mining or agriculture. Already, the mineral beneficiation action plan has been developed as part of the industrial policy action plan.

In addition to spelling out what radical economic transformation entails, the president used the address to provide a report on government’s performance in the past two years of implementing the nine-point plan.

In 2014, Zuma unveiled a short- and medium-term plan to resolve electricity demand. The plan involved “improved maintenance of Eskom’s power stations, enhancing the electricity generation capacity and managing the electricity demand. The long-term plan involves finalising our long-term energy security master plan.”

As the result of the successful execution of the Eskom’s build and maintenance programmes, load-shedding is now a thing of the past. But, most importantly, Eskom has connected an additional seven million household to the grid. And work is continuing to ensure energy security in the future.

As part of investing in economic infrastructure, Zuma promised that the government would embark on several infrastructure projects aimed at changing the living conditions of our people and boost economic growth.

On this score, the country’s investment in the mega-science project, the Square Kilometre Array telescope, is bearing fruit. The implementation of technology localisation has resulted in R2-billion of the project being constructed with 75% of local content.

The South African National Roads Agency has earmarked R4.5-billion to be spent on upgrading of the Moloto road.

These are some of the infrastructure projects undertaken by government with the view of reigniting the economy while contributing to the socioeconomic development of country.

The infrastructure project also assists in the diversification of the economy through the creation of artisan and maintenance jobs. An estimated two million work opportunities benefiting mainly the youth were created in the past two years.

Going forward, the president was forthright on the role of the state. He promised that the government “will utilise to the maximum the strategic levers that are available to the state. This includes legislation, regulations, licensing, budget and procurement as well as broad-based black economic empowerment charters to influence the behaviour of the private sector and drive transformation.”

Indeed, the government’s commitment could not have been louder.

Faith Muthambi is minister of communications.

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