2018 has hallmarks of being a watershed year for South Africa – Rob Jeffrey

JOHANNESBURG — There’s a greater sense of positivity in the air at the start of 2018 when compared to 2017. Last year, the country was on the edge of its seats as jaw-dropping details of the Guptas’ state capture and Jacob Zuma’s flagrant disregard of the Constitution and economy took centre stage. Today, a Ramaphosa victory presents some hope. But the country has several challenges it needs to overcome. – Gareth van Zyl

South African president’s radical economic transformation. More magic available at www.zapiro.com.

By Rob Jeffrey*

2018 will certainly be a watershed year for the country. It offers opportunities to forge ahead with the necessary radical economic policy transformation which could change the countries prospects irreversibly for the better for existing and future generations. Failure to do so will ensure that the country slips further into global obscurity of a potentially failed state. In order to effect the essential changes, it is necessary that South Africans, particularly its leadership, sit down and honestly assess where the country is, determine why it is there and reason exactly what needs to be done about it. This is not as difficult a task as some people may think.

  • The current position is that the country is in a downward spiral of low economic growth, less than 1% per annum, with little prospect of this improving much above 2.5% in the foreseeable future. As a result, unemployment is steadily increasing with some painful consequences. By almost every measure the economic situation of the country is steadily deteriorating. Poverty alleviation is slow at best, international competitiveness is falling, the business environment is becoming more difficult, inequality is actually in many segments increasing. As a measure of inequality, the country has one of the highest Gini coefficients in the world.  
Rob Jeffrey

The causes for this serious situation are not difficult to find. Undoubtedly the slow growth and lack of investment is being caused by faulty policies.  

  • Corruption and state capture are near the top of the list. This Ieads to corruption at many levels often by essentially respectable people who are led by the example given, by greed or in many instances by coercion to participate. Corruption is rife, it does not apply just to government but also individuals and companies, including international accounting and consulting firms. Ripping off the country’s wealth has become a popular pastime for those with vested financial, idealistic or personal interests. Fortunately, a vigilant autonomous media has exposed these activities and the public has been fully alerted to the financial damage to the public interests.  
  • Underpinning slow growth and corruption are the many faulty policies being pursued by various ministries which have negative economic outcomes. These are ruled by a continued desire to centralise economic and public control of enterprise and the individual. This is affected by a number of state controlled enterprises and a complex set of laws that interfere directly or indirectly with market orientated systems. As a result, efficiency and productivity in the country particularly in government and the public service has plunged. Without doubt many public enterprises have fallen from grace and have become a burden to the state and hence the public coffers. These include such giants as the SABC, SAA, Transnet, Eskom, Denel to name but a few. In some instances, this is not necessarily the fault of management but are as a result of policies being imposed on them. Policies or potential policies which remain dangerously damaging include, the potential implementation of the mining charter, the threat of interference to the independence of the SA Reserve Bank and the attacks on white capitalism. In addition, there are a host of often well-meaning but damaging regulatory laws that interfere in market efficiency and effectiveness in a wide range of markets ranging from labour through to purchasing and investment policies. These policies often lead to extreme and unwarranted excessive prices being paid for services and products. The excuse is often transformation but in practice it leads to enrichment of the few at the expense of the many which compound slower economic growth at further cost to the many mainly unskilled through higher levels of unemployment. Such policies or potential policies include the minimum wage act, carbon tax, imposing caps on interest rates, imposing caps on insurance premiums on certain policies, the sugar tax, employment and shareholder policies among many others.

Rating agencies such as S&P, Moody’s and Fitch and other agencies have reflected the true situations and downgraded the financial status of the country to junk. The 2017 Fragile States Index has placed the country on its elevated warning category. Not surprisingly, both domestic business and foreign direct investment has fallen to unacceptably low levels in line with these deteriorating trends.

The solutions are not difficult to find:

  • There must be a determined bid to reduce if not eliminate corruption. This requires recalling the president and charging those who have been guilty of corruption and those who have effectively stolen from the state and plundered the wealth of ordinary South Africans. The country is fortunate to still have a largely independent legal system and judiciary. People must be persuaded to see that it is their wealth that has been stolen.
  • The focus must almost exclusively be on policies that create and raise sustainable economic growth and foster the domestic and foreign direct business investment necessary to achieve that. Only in this way can unemployment, inequity and poverty be reduced on a sustainable basis. To use an analogy, it is time to “stop cutting the cake and start baking it”. That way there is more cake to share between more people. One must increase income per head and reduce the Gini coefficient. This is the only sustainable way of reducing inequality.
  • It is necessary to rapidly move away from the proven economic and social failure of the centralised power agendas of communist and socialistic policies. The extent of the failures of these policies can be measured by the failures of the countries in the Eastern block before the Berlin wall came down in November 1989, including East Germany, Poland and Russia. Compelling proof can be found by an economic and social comparison of East Germany and West Germany from the end of the second world war to 1989 or a comparison of North Korea and South Korea today. If any further evidence was required comparing the standard of living and economic growth of South Korea with Ghana from 1957 or of Vietnam and South Africa from 1994 should be sufficient proof to persuade anyone except those with idealistic and uncompromising views of economic and social reality to forever forget their socialist preferences.  
  • A host of well-meaning policies that restrict fair and equitable labour market practices, leading to low productivity and loss of efficiency must be adapted or withdrawn. These policies often have unintended consequences that benefit the few but often in practice make matters worse, not better, for the poor. They can also be abused and lead to increases in graft and corruption. These range from current labour legislation to the proposed legislation on minimum wages. All these have the potential to significantly reduce investment, slow economic growth and increase unemployment.
  • The government has insufficient funds to finance infrastructure development and extensive growth itself. South Africa must restore investment confidence. This would attract the domestic and foreign direct business investments to restore sustainable high economic growth in the economy. The country has a treasure chest of natural and human resources.  
  • The country is being bled dry by the above policies and ailing state-owned companies requiring bail-outs. The government must privatise some of them or form genuine arms-length (i.e. no buddies) public-private partnerships?  
African National Congress (ANC)

2018 has all the hallmarks of being a watershed year for South Africa. The question for all South Africans and its leadership is, are we prepared to make a clean break with the failed policies of the past and move the country towards a brighter future for all? The radical economic policy transformation required by the country is therefore not the radical transformation espoused by the EFF or the being proposed by certain pro Zuma factions in the ANC. It is rather the radical transformation of economic policy from socialism towards greater economic, market, social and individual freedom by removing barriers to market entry and fostering a spirit of unity and co-operation. Our leaders should like Kennedy: “Ask not what your country can do for you: ask what you can do for your country.” Only in this way can this country move away from the culture of entitlement and non-payment to one of a high work ethic and reward for productive effort. The government by its laws and actions must lead the reunification of South Africa.  

It is time for South Africa to put its anti-capitalistic stance behind it and create the necessary conditions for future growth and prosperity by genuinely fostering domestic and foreign investment. If this is not done South Africa will at best stagnate with rising unemployment and increasing poverty or slowly sink into the abyss of a Chavez Venezuela or Mugabe Zimbabwe style decline. The choice is South Africa’s. It will require strong and unequivocal political and business leadership by supplying a common vision which all stakeholders can share and work together to achieve.

  • Rob Jeffrey is an independent economic risk consultant. He is the former MD of Econometrix and continues to consult for them. 
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