Understanding the turmoil around the Economic Policy proposal

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FILE PHOTO: South African Finance Minister Tito Mboweni gestures as he delivers his budget speech at Parliament in Cape Town

Obstinate low economic growth; rising unemployment; high inequality; worsening youth unemployment; high levels of GDP to debt ratio are all the current features of the South African Economy. Faced by this calamity, Department of National Treasury suggested ideas that can help the country to turn around the lethargic economic situation. 

The Economic Transformation, Inclusive Growth, and Competitiveness: Towards an Economic Strategy for South Africa’ document marks the crystallisation of this process which started last year already. Recently, Minister of Finance, Mr Tito Mboweni, invited members of the public to engage and comment on the contents of the document. However, the (political) noise around this economic policy proposal has taken a centre stage and rendered the debate on the veracity of the economic proposals secondary. But, why is this the case?

To fully appreciate the origins of the noise around the release of this economic policy proposal, we need to understand both the ‘politics of economics’ as well as ‘economics of politics of South Africa. To do this, we shall trace some salient contour lines of the post-apartheid South Africa’s political environment of economic policy, and locate Minister Mboweni’s Economic Proposal document within this environment before we assess the economic proposals of the Minister.

The (Economic) Policy environment in South Africa and inside the ANC is a very contested terrain. The book ‘Evolution of ANC Economic Policy’ by the ANC veteran, Prof Ben Turok is instructive in this aspect. He notes that there is inter-party (economic) policy contestation which happens between political parties in South Africa, but significantly, given the ANC’s political dominance-an intra-party (economic) policy contestation which happens among different groupings and constituencies of the ANC. The tripartite alliance set-up makes this contestation acutely pulpable.

‘Politics of economics’ as well as ‘economics of politics basically refers to the notion that policy is a product of politics, and vice versa, and for this reason it does not come as a surprise that an abrupt swing from Reconstruction and Development Programme (RDP) to Growth, Employment and Redistribution Strategy (GEAR) Strategy led by the three TMs- Thabo Mbeki, Trevor Manuel and Tito Mboweni- enraged some section of the alliance, particularly COSATU and SACP. Both the form and substance of GEAR as a macroeconomic strategy was rejected by this section of the alliance. 

Firstly, on the grounds that, it was not consulted with the structures of the alliance, and secondly, it was argued that it is anchored on the ‘neoliberal principles of the Washington Consensus’-a diametrically opposite political and economic ideological posture of ‘the leftists’ in the Alliance. Fast forward to 2019, President Ramaphosa has appointed one of the TMs (Tito Mboweni) as Minister of Finance, and there is no price for guessing how this appointment  made COSATU and SACP to feel.

Furthermore, COSATU and SACP have been trying to increase their influence within the tripartite alliance, this became ostensible after the election of former president, Jacob Zuma. COSATU was given an Economic Development Ministry led by Ibrahim Patel. However, some have argued that this ministry only serves the purpose of managing the balance of forces within the tripartite alliance. While this department could develop the New Growth Path (NGP) in 2010, it was quickly replaced by National Development Plan (NDP) in 2013 as a macroeconomic blueprint of the country. As a matter of fact, this was not the first time that events of this nature befell COSATU. Jay Naidoo served as ‘a Minister without Portfolio’ under President Mandela’s cabinet and was responsible for co-ordinating the implementation of the Reconstruction and Development Programme (RDP), however in 1996 GEAR was introduced as a macroeconomic blueprint for South Africa-permanently replacing GEAR.

Consistent with the above, one of the greatest anomalies in the public administration of South Africa is the role of National Treasury and Economic Development in respect of economic policy development. On paper, Economic Development Department is responsible for developing and co-ordinating macroeconomic policy of South Africa, whereas, the National Treasury is responsible for effecting financial management discipline across the branches and spheres of government as they implement the macroeconomic policy. So, why is Minister Mboweni developing an economic policy?

The Economic Transformation, Inclusive Growth, and Competitiveness: Towards an Economic Strategy for South Africa’ document notes the challenges plaguing the economic scene of South Africa. It makes a note of the low economic growth; rising unemployment; high inequality; worsening youth unemployment; high levels of GDP to debt. It further appreciates that inherently, these challenges can only be addressed by a flexible, multi-pronged strategy, with clear short and long term interventions. The sets of immediate interventions include modernising energy, transport, telecommunication and water (network industries); lowering barriers to entry and supporting small business; prioritizing labour-intensive growth, among others.

Furthermore, the economic policy proposal also highlight the building blocks for long term sustainable growth which among others includes an improved educational outcome; implementation of youth employment interventions; and efficient and integrated transport system.

When one critically analysis these economic policy proposals and document, firstly, National Treasury was careless to use politically incorrect and offensive terms and phrases like “non-whites” especially in such a politically sensitive section of the document- Land Reform (Page 40).

Secondly, under proposed short-term interventions: lowering barriers to entry and addressing distorted patterns of ownership through increased competition and small business growth is too loaded as one theme.  ‘Lowering of Barriers to Entry’ and ‘Addressing distorted patterns of ownership’ must be separated so that they are themes on their own, each accorded a specific set of fundamental interventions.

Thirdly, contrary to certain arguments advanced by labour federation (Cosatu) and SACP in their reaction to the economic policy proposal, the interventions reflect a mixed bag-some proposal are clearly anti-status quo and an anti-thesis of economic neoliberalism. For example, “Addressing exclusive leases” and “Review where such leases have been entered into “(page 7 and page 60) is not in favour of big businesses or status quo. On the other hand, proposals like unbundling of Eskom will obviously be looked at suspiciously by those on the left in the ANC alliance.

Fourthly, where I agree with COSATU’s criticism of the proposed interventions is the role of monetary policy. Monetary policy is generally underutilised and reactionary in South Africa. It must be encouraged to work together with, and support fiscal policy.

Finally, there is a need for a formative evaluation that will carefully interrogate the role of debt during economic stagnation. While it is widely accepted among orthodox economists that too much government debt is unsustainable in the economy, but there is evidence that also suggest that government debt can be an effective instrument that can be used to invigorate the economy, on condition that the debt goes to capital formation.

 

Sifiso Ndaba is a public servant in Gauteng Office of the Premier, and a Masters of Management in Governance (Development and Economics) candidate at Wits School of Governance. He writes in his personal capacity.