OP-ED

This is what President Ramaphosa should have said in his Opinionista column

By Asghar Adelzadeh and Pali Lehohla 20 January 2020
Caption
President-elect Cyril Ramaphosa raises his hand to the oath during his inauguration ceremony at Loftus Versveld Stadium in Pretoria, South Africa, 25 May 2019. South African lawmakers elected Cyril Ramaphosa as president following the ruling African National Congress (ANC) party's win earlier this month in the country's general elections. EPA-EFE/YESHIEL PANCHIA / POOL

An economy is a complex machine with innumerable economic, social, financial, political and spatial parts moving, and responding simultaneously. Understanding this complexity is a necessary condition to anchor policies for a better life for all.

On 18 December 2019, President Cyril Ramaphosa penned an Opinionista article in Daily Maverick titled A new era in energy generation. We have drafted an article in his voice giving an alternative view of the future.

In the wake of continuing poor performance of the economy and keeping with the ANC’s last Election Manifesto, the government has agreed to a number of policy measures to accelerate the pace of economic growth, job creation, and reductions in poverty and inequality. In effect, the path has been cleared on a significant scale for South African growth and development over the next decade.

After last year’s national election, the debate on a suitable growth and development strategy for the next decade started in earnest. Persistent weak statistics about growth and employment has meant that new measures must be implemented with greater urgency, and on a larger scale. These measures aim to ensure that the country can achieve inclusive growth, create enough jobs to meet its needs, and rein in poverty and inequality to promote greater social cohesion.

The economy is a complex system that demands to be diagnosed and managed accordingly. Our economic challenges are both macro- and microeconomic in nature for which we must employ all policy tools that can potentially help. Therefore, the government has agreed to adopt a multi-pronged growth-oriented policy framework to address our challenges over the new decade.

We have adopted five interventions that capture this complexity and pass through the eye of the needle in terms of their coherence, and their immediate and future likely impacts. I implore support from partners on this path and commit my administration to public scrutiny on these five focal points.

First, the Cabinet has agreed to a set of microeconomic reforms designed to systematically improve the competitiveness of the South African economy, including measures to enhance the social and economic environment of doing business in the country.

Second, our trade and industrial policy will continue to emphasise the manufacturing sector since the sector has relatively stronger spill-over effects. We, therefore, plan to use both supply- and demand-side measures to increase investment in the manufacturing sector, expand exports, increase local content and promote the procurement of more locally-manufactured products. We will increase support for trade and industrial policy, while insisting on the improved measurement of the impact of our interventions.

Third, as per the ANC NEC resolutions, we plan to make sure that our macroeconomic policy will contribute towards higher growth and employment. Therefore, annual investment by the public sector will expand over the next decade by an additional 4% in order to both stimulate economic growth and address the country’s economic, and social infrastructure investment needs. At the same time, over the next decade, we plan to annually spend an equivalent of 21 to 22% of GDP on government services that cover important areas such as education, health care, social services and land reform.

We also believe monetary policy can do more to help economic growth. Therefore, necessary adjustments will be made to enable the Reserve Bank to use policy tools at its disposal to help the economy achieve 6% growth and keep general inflation below 8%. As was the case of the transition to inflation targeting in the late 1990s, the Treasury will focus on a smooth transition with monetary policy.

Relative to the period 2000 to 2008, the average annual growth of credit to households and private businesses has plummeted during the last eight years by more than 100%. Monetary authorities are therefore expected to make necessary policy, and institutional changes to raise the annual growth of credit extensions to the private sector to 15% and more.

Fourth, there is consensus within the Cabinet that even though achieving 5% growth is essential, it is not sufficient to satisfactorily drive down the unemployment rate, poverty or inequality. We must utilise the positive impact of expected economic growth on government revenue to support social policies that help drive down unemployment, poverty and inequality.

Currently, the labour force in South Africa includes about 10-million unemployed persons, using the expanded definition of unemployed. More than 60% of this group has less than a secondary school education. The South African economy has been creating employment at a slow pace and it’s increasingly skewed toward high-skilled workers. With the rising demand for skilled labour and the 4th Industrial Revolution, this trend is likely to intensify. Consequently, it is increasingly unlikely that the formal labour market will be able to employ the 6-million unskilled-unemployed workers that also live in poverty.

Therefore, the government has agreed to two key measures. Within the next seven years, it will gradually allow public works to give the unskilled-unemployed a last chance of employment. By expanding public works, these workers will gain valuable skills while contributing to the infrastructure and other public projects needed in South Africa. Moreover, we plan to introduce a caregiver grant for the family member who takes care of a child receiving either a child support grant, or a care dependency grant, with a maximum of one such grant per family. Evidence shows that these two social measures will be highly effective in contributing to reductions in unemployment and poverty.

Fifth, the government will continue to engage with the private sector to ensure that the significant investment commitment made under the Public-Private Growth Initiative (PPGI) is carried out over time. Moreover, the government is extending its support for the Public Investment Corporation, PIC, to consider investing R100-billion in the South African manufacturing sector over the next five years.

Finally, the government believes that the successful implementation of all these policy measures and their positive impact on the economy will gradually increase the level of foreign investment in South Africa.

We believe that these combined measures will propel the South African economy on a new growth and development path that will produce above 5% growth and will gradually reduce the debt-GDP ratio to less than 35% by 2030. Importantly, the economic gains and prosperity that will result from this calibrated policy mix will be shared by everyone in the country.

More specifically, our impact analysis shows that the poverty rate in the country will decline by two-thirds by 2030. We can expect that these policies will help move nearly 15-million people out of poverty. People at every socioeconomic level and especially poor families will benefit from government’s consistent investment in social, and economic infrastructure, which translates to better roads, transportation, schools, clinics, healthcare services and all other public services across the country.

The working class will also benefit from the substantial improvement in the economy. We believe that the new policies will create close to 9-million jobs over the next 11 years, thus reducing the unemployment rate by more than 60%, taking it close to 12%. New jobs will be across all sectors of the economy.

The business class stands to significantly profit from the doubling, in real terms, of the size of total demand in the economy over the next decade, with the investment-GDP ratio climbing to almost 30% by 2030. Improvements in economic infrastructure, education and healthcare will increase our labour productivity and competitiveness. Much lower inequality, poverty, and unemployment will significantly improve the social and economic wellbeing of the population as a whole. These gains can only improve social cohesion and the long-term positive trajectory for business.

Our monitoring and evaluation team will be responsible for providing early warning systems and signals to identify if, and when we need to fine-tune our policies to ensure that key growth and development indicators remain within their expected levels.

These measures signal that government will take major steps to fulfil the commitment we made to the public during the last election. We will transform the economy to serve all people through interventions that address the persistent realities of unemployment, poverty and inequality. We count on our alliance partners and the business sector to embrace and actively support us as we embark on this momentous and historic journey. DM

Dr Asghar Adelzadeh is the director and chief economic modeller at Applied Development Research Solutions (ADRS) and Dr Pali Lehohla is the former Statistician-General of South Africa. The policy mix described here has been generated by ADRS Global using its South African multi-sector macroeconomic and household model. For the full research report that underpins the writing of this piece see here.

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