Opinionista Ian Ollis 4 June 2020

Fixing many of SA’s problems is relatively cheap

When we all have to return to the office post-Covid-19, South Africa will have to confront the fact that the economy is in crisis because of an unforgiving global environment and poor choices by government over time. But imagine if there was an almost limitless resource at very low cost that South Africa could tap into that could turn this situation around and build a prosperous economy once again?

I don’t believe in economic magic, but rather in the systematic application of means at government’s disposal to turn the ship around. I’m suggesting that law reform and structural changes in the South African and Southern African economies can significantly improve the standard of living and economic growth of citizens in the region. 

Often, these changes cost relatively little to implement but produce outsize results. It is no accident that these measures, together with the apparatus of state are often referred to as the “levers of power”.

The first structural change needed is intra-regional. Currently, the Southern African Customs Union (SACU) consists of five states – Botswana, Namibia, South Africa, Lesotho and eSwatini, and represents a population in 2018 World Bank figures of 65.7 Million people. This is a smallish market when compared with countries like the US, China, India, Indonesia or countries in the European Union. Small markets mean difficulty in achieving economies of scale and attracting investment. However, a much larger market is within reach and could be sold to the world as a more significant market to invest in. 

The South Africa Development Community (SADC), consists of a market population of 344.8 million if the four island nations are included. This is a population larger than the US (I’m not for a moment implying that they currently have the same buying power). 

There has been a plan on the cards for many years to turn SADC into a full customs union. This does not imply a single currency or the free movement of people without national borders. However, it does mean removing all burdensome customs regulations as well as customs and excise duty on goods. 

Border posts then become clearing spots recording movements of goods and checking for narcotics and the trafficking and movement of people, rather than excise reception points. Such a free market of goods for a population of 345 million people is rather more attractive to investors, if goods may move unhindered. Of course, some currency arrangements will need to be made.

While a large slice of this population would not be regarded as economically active, that is a very large market. This should be coupled with a new anti-corruption watchdog for SADC headquartered in Gaborone at the HQ of SADC where bribery and extortion can be reported. 

But that’s not where it stops. Within South Africa, there are opportunities to improve the economy through legal or structural change too. The electricity crisis is an obvious place to begin. This burden to fund construction of electricity generation capacity should be completely shifted from the taxpayers’ shoulders – the money has run out. 

The way to do this is a complete liberalisation of the electricity generation market in SA. Government can, at the stroke of a pen, allow anyone with expertise to generate and sell electricity. With the current cash-constrained Eskom, the policy should allow any operator who registers to generate and sell electricity into the grid or to companies, cities and towns, provided that the connections should be funded by the electricity generation supplier. Eskom should not be burdened with this cost. 

Cities, towns and large mining and manufacturing concerns should already be allowed to purchase electricity from whomever they wish. Eskom is unable to fulfil the current demand, let alone future growth. There is no way around the electricity generation market being liberalised. Government simply doesn’t have the money to keep up current practices. This is a much bigger crisis than government is admitting, but again it is inexpensive to change the law and regulations.

The uncertainty in the South African economy can further be calmed inexpensively too. Providing foreign investors the surety that private property will not be expropriated without due process and compensation, is essential to digging out of the economic crisis. 

If improvements to property cannot be sold at market value, no one will put money into improving property in South Africa. This does not even require any changes to legislation. In fact, it requires the opposite: An assurance that legislation will not be changed. 

This provides the certainty that market economies require. Over time even places like China provide more, not less security of tenure and instruments to dispose of residential and business property. Very few places are successfully tampering with property rights. Most places that do, end up chasing needed investment in manufacturing and infrastructure away, and South Africa urgently needs both.

Ease of doing business in South Africa is a final pillar of successful markets that can be implemented relatively inexpensively. For example, the number of state agencies that require paperwork, inspections and fee payments at the borders of South Africa for goods to move freely into or out of the country is ridiculous. Fast-tracking the movement of goods is essential to productivity – South Africa doesn’t have it. Moving skilled workers into the country is extremely difficult too. 

As a former MP, I often had people appeal to me because they were having difficulty getting a visa for their foreign-born CEO or directors to work in South Africa. If you want jobs, you have to have new businesses. If you want new businesses, you have to have skills. If you want skills, you have to import some of them, because the country is unable to produce sufficient skilled workers from universities and TVET colleges – ask any hospital for that matter. None of this is news.

Isn’t it amazing that virtually none of these measures cost much money, and most can be implemented within 12 months? DM

 

Ian Ollis is a graduate from MIT and Wits Universities and a former MP. He can be followed on Twitter @ianollis

Gallery

Comments - share your knowledge and experience

Please note you must be a Maverick Insider to comment. Sign up here or if you are already an Insider.

Scorpio

The Full Story: Zondo Commission testimony fills key gaps in Lucky Montana’s R45m ‘bribery’ scandal

By Pieter-Louis Myburgh for Scorpio