Opinionista Mmusi Maimane 11 September 2018

Seven Steps to defeating this recession

We cannot afford to let this recession persist. We must take these seven bold steps now to get South Africa growing again. Here are seven interventions that would serve to provide a “policy shock” to get the economy’s heart beating again.

Today a week ago, Statistics South Africa (StatsSA) confirmed to the nation that our economy had formally entered recession for the first time since the aftermath of the global financial crisis almost a decade ago. Following two consecutive quarters of negative economic growth since the beginning of 2018, the bad news was made official by government. Our economy is on life support and requires serious “shock” to bring it back to life.

In truth, last Tuesday’s announcement was no unanticipated surprise to anyone living in South Africa. South Africans have known this for months – they have felt it in their own homes as the struggle to make ends meet gets more difficult, they have heard it as the word spreads about more job losses every day, and they’ve seen it in the streets and in the shops and in their pockets.

There is little that needs to be said about the cause of this recession – this is beyond debate. While President Cyril Ramaphosa and the government desperately try to spin their way out of reality, the facts paint the true picture.

The facts show that this is our first recession since 2009. It was thought that we had entered recession in 2017, but this turned out to have not been so. It is a culmination of government’s consistent inconsistency when it comes to economic policy direction, coupled with a corrupt, bloated and inefficient state that bleeds public money.

The facts show that this is the fifth consecutive year that we have been in recession on a per-capita basis. This means South Africans have been getting poorer and poorer each year – with less money in their pockets.

And the facts show that of the world’s largest economies, South Africa is now the weakest, and is the only one in recession. Compared with our continental peers, we are well behind the curve. Africa is growing at around 3%, with growth in Ethiopia, Cote d’Ivoire, Senegal and Rwanda above 7%.

This is not a recession borne of global economic conditions. This is a home-grown recession, borne of economic mismanagement and bad policy. And there are two main contributing factors to this recession, both at root attributable to economic mismanagement and bad policy.

First, South Africans are feeling poorer, and are poorer: Household spending makes the largest single contribution to GDP, but five consecutive years of real per capita negative growth has left South Africans with less to spend each month. In turn, government has also taken more cash from every pocket. Petrol tax increases, a VAT increase, sugar tax, income tax increases – all of these decisions punish the poor and middle class and take more money away from hard working families. All of this extra money is demanded by an inefficient, corrupt and bloated state, and is not spent on productive investment.

Second, investors are feeling sceptical: Global investment is just that, global. It does not owe loyalty to South Africa. It requires certainty of policy. And it requires certainty of the rule of law, and of basic protection of property rights. All of these non-negotiable elements are in question in South Africa. This makes investors second-guess our country as a destination for safe and profitable investment and will make them look elsewhere. And without investment, we will simply not grow.

We are now beginning to see the negative consequences this economic mismanagement is having on ordinary citizens. There are currently 9.6 million unemployed South Africans, the highest number ever. And the rand has hit a two-year low, which leads to higher inflation, and even lower growth.

In response to this recession, the government has been flailing. They are confused, and it shows. Now is not the time for confusion. Now is the time for a decisive agenda for reform to get South Africa growing.

We know that our economy can get growing if we do the following seven things right now:

  • Scrap reckless economic policies like the proposed nationalisation of the Reserve Bank and the undermining of property rights through expropriation without compensation.

  • Announce the privatisation, or part privatisation, of SAA, and the split of Eskom into separate power production and distribution businesses.

  • End Eskom’s monopoly and allow cities to purchase directly from independent power producers, increasing competition and lowering costs.

  • Introduce a fiscal austerity package to contain current spending and stabilise national debt at 50% of GDP. Commit to funding any further revenue shortfalls by cutting wasteful expenditure, not through new taxes.

  • Cut the size of the Cabinet to around 15 ministries.

  • Exempt small businesses employing fewer than 250 employees from complying with restrictive labour legislation, other than the basic conditions of employment.

  • Immediately pay all outstanding invoices owed to small businesses from National and Provincial governments, amounting to a fiscal stimulus for small businesses of R20.7-billion and R7.1-billion respectively.

These seven interventions are not a full and complete economic policy proposal, nor are they the only interventions available. Rather, they would serve to provide a “policy shock” to get the economy’s heart beating again.

These interventions also represent a change in approach from the belief that more state intervention is the only antidote to the failure of previous state intervention. They favour a lean, capable state that creates conditions that promote investment in a broadly open, competitive, market-driven economy.

In this, no change is more urgent than our failing SoEs. These SoEs pose an existential financial risk to our country. They are bottomless pits into which billions of rand of public money is poured, never to be seen again, on top of the higher prices the public must pay for often-shoddy services.

Privatising or part-privatising our SoEs will introduce competition in key industries like power production and transport. This will very quickly reduce the cost of these goods, which alone will be a major growth boost to our economy. We believe that this change alone would increase private sector investment and economic growth by as much as 3%.

Our plan then emphasises making it easier for entrepreneurs and small business owners to succeed. Growing the small business sector is the only route to job creation on a massive scale. We must remove the constraints on entrepreneurs by simplifying regulations where possible and by exempting them from restrictive labour legislation.

Despite many constraints imposed by national government, the DA has shown that where we govern we can grow the economy and create jobs. Three quarters of all jobs created in the past year were created in the DA-governed Western Cape, despite a crippling drought. That amounts to 123,000 new jobs created, while during that same period 124,000 jobs were destroyed in Gauteng, the country’s biggest provincial economy.

This has been made possible by deliberate interventions aimed at creating a conducive environment for investment, competition, and economic growth. Cutting corruption and breaking down barriers to entry has seen direct investment triple in the City of Tshwane over the past 24 months. Despite a devastating drought, the Western Cape achieved R2.7-billion in investment in the past financial year, and innovation in the energy sector – through a provincial government “gamechanger” – has stimulated new industries and lowered operating costs for businesses.

The City of Johannesburg has attracted over R6-billion in investment into the country’s economic capital, increasing employment by 109,000 since the beginning of 2018. Johannesburg has also focused on stimulating collaborative growth through calls for private sector investment in the city’s inner-city rejuvenation project.

The DA has a plan to get the economy growing. A healthy, growing economy will be able to collect the taxes required to fund better education and healthcare systems, a compassionate welfare programme, effective land reform and restitution programmes, and an effective police service, trained, resourced and equipped to be able to maintain law and order and keep people safe.

Without growth, revenues slide and none of this is possible. Jobs disappear, investors flee, poverty grows. It is then that the soil is most fertile for the simplistic promises of populist demagogues.

That is why we cannot afford to let this recession persist. We must take these seven bold steps now to get South Africa growing again. DM

Mmusi Maimane is the Leader of the Democratic Alliance

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