Stalled on the road to growth
22 Jun 2012 10:47 | Lumkile Mondi: COMMENT
There is no question that South Africa’s post-1994 economic performance has been disappointing. On the back of a political settlement and the promise of a better life for all, the majority of South Africans are no better off than they were under the apartheid regime.
Unemployment, poverty and inequality have worsened. The education and health systems are biased towards the ruling classes. Arguably, the weaknesses in the ANC’s economic policy, the endless economic policy debates in the ANC-led alliance and a suspicion of the private sector account for South Africa’s continuous economic slide at a time when our economic peers, such as Brazil, have pushed back inequality, are improving employment and delivering decisive blows to poverty.
Three of the ANC’s policy documents – “Social Transformation”, “Economic Transformation” and “State Intervention in the Mineral Sector” – do not talk to each other and were obviously written by different scholars who, perhaps, also come from different versions of the ANC’s “broad church”.
This lack of coherence is disappointing for a party that promised so much in building hegemony and unity of purpose before 1994 and yet is so fragmented in economic thought today.
At the turn of the 19th century, South Africa had a thriving mining sector in which gold comprised 75% of our exports. After the South African War, the generals were intent on improving the lives of the Afrikaners, who lagged behind urban Africans. They were united around how to catch up to the English, who dominated the mining and financial sectors of the economy.
Amalgamating power companies
The concept of a developmental state and its tools of interventionism led to the generals nationalising the railways, amalgamating the power companies and taking over the main steel-producing company, Iscor.
They argued that cheaper input costs were a prerequisite for the economy to industrialise. That meant passing laws to exploit blacks and nationalising the rail, energy and steel companies.
The generals went further by appointing Hendrik van der Bijl, who is credited with establishing South Africa’s first state-owned power utility, Eskom. Jan van Eck played a leading role in the establishment of the first state-owned synthetic coal-to-fuel plant, Sasol.
The lessons learned from this era include the salience of a hegemonic regime that can pass laws to exploit labour, delegate responsibility to professionals on a clear state mandate and learn from failure.
Van Eck and Van der Bijl soon realised that industrialisation would not happen without a source of cheap funding and started the Industrial Development Corporation in 1940.
By 1990, manufacturing was the biggest economic sector, contributing about 24% to the gross domestic product. Last year mining contributed only 9.8% to GDP and manufacturing contributed 13.4%.
South Africa’s manufacturing sector benefited excessively from cheap black labour, cheap energy and steel inputs under a semiautarkic economy. This cannot be replicated today in our globally integrated economy. At the height of the boom in 2008, most jobs were created and destroyed in the services sector, which now contributes more than 70% to GDP.
According to the three ANC discussion papers, all is not lost. The “Economic Transformation” document treats the direct foreign investment review commission, the new growth path, the industrial policy action plan, the presidential review commission on state-owned enterprises, the national skills strategy, the national development plan and the provincial and departmental reviews as necessary ingredients for tackling unemployment, poverty and inequality. The document premises its argument on a hegemonic and effective government, something the ANC has not delivered.
And the paper is not convincing, particularly in its silence on the capacity of the state and its willingness to make decisions in the interest of South Africa rather than the party.
The “State Intervention in the Mineral Sector” paper is excellently researched and well argued, but ideologically premised. In its critique of the energy intensity of the economy, in what is referred to as the “minerals-energy complex”, it recognises its impact on our social, political and economic lives.
Disappointingly, it argues for the replay of the minerals-energy complex in South Africa’s industrialisation efforts to create jobs, eradicate poverty and make a significant improvement in the lives of South Africans.
I agree with the potential and possibility of the minerals-energy complex as presented in the document, but the ANC should look at replicating its knowledge in the rest of the Southern African Development Community.
A market of 50-million people who have industrialised through the minerals-energy complex needs a bigger market of about 200-million people, using the tried-and-tested expertise and experience for the benefit of the SADC region.
In the west, Angola is well endowed with oil. In the centre, the Democratic Republic of Congo is rich in minerals, gas and oil, not to mention all the wealth in Tanzania, Zambia, Malawi, Zimbabwe and the rest of the region.
A low-hanging fruit is Mozambique with its gas resources, where Sasol has played a leading role. South Africa, in partnership with Mozambique and the rest of SADC, can replicate Sasol and supply PetroSA with gas through a pipeline to Mossel Bay.
South Africa can have a vibrant “minerals-energy complex” right next door with the resulting job creation, poverty eradication and equality – not only for Mozambique, but for all of SADC.
Some tax relief
The silence of the three policy discussion documents on fiscal, monetary, trade and competition policies is deafening. The Reserve Bank has managed monetary policy exceptionally well, keeping interest rates at the lowest levels to support growth while cautioning South Africans in these challenging economic times.
The ANC needs to look at some tax relief for individuals at the top of the pyramid to foster savings and entrepreneurship. This may be unpalatable for some in the tripartite alliance, but boldness is needed if South Africa is to change its growth trajectory. On trade policy, an emphasis should be on competitiveness and addressing microeconomic reforms, including the labour market.
The ANC’s scepticism of the private sector is glaring in all the documents – it is only addressed under public-private partnership discussions. South Africa is not Brazil, India or China. It has a dynamic private sector, as shown by its global markets winners such as Shoprite, MultiChoice, MTN and others.
State-owned enterprises and direct foreign investment are not a panacea to South Africa’s economic problems. Together as South Africans we can do more. To quote from Afrikaans: Eendrag maak mag (unity is strength).
Lumkile Mondi is the chief economist of the Industrial Development Corporation. 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
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