NEWS ANALYSIS: SA needs clear vision on economic policies
PRESIDENT Jacob Zuma has presided over a turbulent period for the economy since he was elected head of the African National Congress (ANC) in Polokwane five years ago. Given the challenges South Africa now faces at home and abroad, there will be no easy answers for whoever the ANC selects to govern the party at its elective conference in Mangaung next week.
Mr Zuma became president just months before Lehman Brothers collapsed in September 2008, triggering a global financial crisis that tipped South Africa and many other countries into a recession the next year.
The economy shed more than 1-million jobs during the downturn, and has since only recovered 670,000. With new job seekers flooding the market each year, the official jobless rate has climbed to 25.5%, from 21% when Mr Zuma ousted former president Thabo Mbeki at Polokwane. The rise in unemployment, coupled with service delivery problems, has undoubtedly contributed to the labour unrest that struck South Africa’s mining sector in August.
"We can’t blame South Africa’s problems on global issues, but they certainly fast-tracked these local problems to raise their ugly heads," says Citigroup economist Gina Schoeman.
"There is no doubt that since Polokwane labour stability in South Africa has deteriorated — the previous hard and fast bargaining process has weakened and trade unions have lost power."
The often violent wildcat strikes that swept through local mines during the third quarter of this year have ended, but the labour environment still looks shaky. Farm workers in the Western Cape have also downed tools.
The unrest has worsened a growing rift between the government, business, and labour, which are now blaming one another for the underlying reasons for South Africa’s problems of poverty and inequality.
Uncertainty as to what direction economic policy should take to address these challenges has been one of the main reasons for South Africa’s sovereign credit ratings being downgraded this year — for the first time since the advent of democracy in 1994. Analysts have not been the only people warning about the absence of clear direction from the government.
Reserve Bank governor Gill Marcus, who was appointed by Mr Zuma in 2009, said last month: "We need cohesion and certainty of policy, as well as unity of purpose to build an inclusive, longer-term vision." Unfortunately, ambitious efforts by the government to build that vision, have so far yielded no fruit.
Two separate blueprints for inclusive growth and job creation were drawn up by two new government departments created by Mr Zuma after he was elected president in 2009. A New Growth Path was announced by the Department of Economic Development in October 2010, while the National Planning Commission produced a longer-term National Development Plan the following year.
The New Growth Path aims to create 5-million jobs within a decade. It envisages the government’s role in the economy will expand significantly, and advocates tighter fiscal policy and looser monetary policy to spur economic growth in a sustainable fashion. But given the negative effects of the recession, fiscal policy could not be sharply tightened and South Africa’s budget deficit has widened. In contrast, interest rates have fallen dramatically, with the Reserve Bank cutting its key repo rate by seven percentage points to a near record low of 5% between December 2008 and July 2012.
The National Development Plan proposes to create 11-million jobs and eliminate poverty in South Africa by 2030 — a tall order. But this plan is seen as more business friendly than the New Growth Path, suggesting that some labour regulations be loosened to encourage companies to hire more people easily, as well as lower entry wages to enable young people to get jobs.
The reality is that even though international organisations and business say South Africa’s existing labour laws are too rigid, new regulations have been passed by the Cabinet that will make it even harder to hire and fire employees. New labour regulations that aim to limit temporary work have been approved by the Cabinet after stalling at the National Economic Development and Labour Council. The new rules are now with Parliament and it is unclear whether, or when, they will see the light of day.
Outright nationalisation has been ruled out by the ANC, but remains a thorny topic, spooking business amid talk the government will decide to increase its intervention in the embattled mining sector at Mangaung. Businesses are said to be hoarding more than R520bn in cash, which they are reluctant to invest due to policy uncertainty.
The government’s massive infrastructure spending drive has been touted as one of the solutions to South Africa’s economic ills, but has been slow in getting off the ground. Mr Zuma said at a conference in October that South Africa would spend as much as R4-trillion on infrastructure development over the next 15 years. But construction giant Murray and Roberts said last month not a single tender has been issued for a major infrastructure project.
Brait economist Colen Garrow says there has been "too much talk and not enough action" under Mr Zuma’s leadership. "We can’t have an economy pulling in two different directions. South Africa can’t continue to muddle along as it is; we need one economic blueprint for the economy for the next five to 10 years," he said.