The recent report by Lameez Omarjee in Fin24 raises a
number of points that need to be responded to, in case some reader simply
accepts the assertions as valid, without really understanding what they imply.
The reporter summarized a speech by Ncebisi Jonas, former Deputy Minister of
Finance, to the Mapungubwe
Institute for Strategic Reflection, as follows:
1. South Africa’s underperforming mixed economy.
2. Inequality, especially along racial lines, as a result of the
apartheid legacy. If the wealth of the country was equally distributed then it
would be possible to feed all families. Jonas pointed out that 8% of black
households have a monthly expenditure of R10 000, compared to 63% of white
households.
3. South Africa is only partially industrialised, with a high
unemployment rate and low labour market participation.
4. The private sector is dominated by large scale capital and
capital intensive industry. This indicates that capital is highly centralised,
with limited distribution among small businesses and entrepreneurs.
5. The South African economy’s integration into the global economy
relies on trade of minerals and foreign capital flows. The country is too
reliant on minerals as exports, which shows that industries need to be
developed. Secondly, the country is highly dependent on foreign assets: guards
should be placed against capital flight or disinvestment.
6. The economy is dominated by the financial, insurance, business
and real estate sectors, which have grown rapidly in the past 20 years. These
sectors must be more responsive to increase fixed investment.
7. Although there are large fiscal allocations to education and training,
the outcomes still remain poor. This is a binding constraint to all facets of
social development.
8. The public sector is weak. It must become more effective,
capable, less wasteful and less corrupt. We need political leadership.
These
issues are mutually reinforcing, said Jonas. “We can’t address some and neglect
others… It is possible to make progress with all eight at same time.”
The necessary responses to each
of these points are set out below. It does not require rocket science to
understand the lack of comprehension of the real reasons behind the comments.
“South Africa’s underperforming mixed economy.” The economy is
underperforming for many reasons, most of them caused by the ANC. The simple
fact is that investors need to be assured that the investment they make will
remain theirs in the long term, and will make such an investment in other
countries in preference to South Africa until they have that assurance, or
simply withhold their funds. To put it simply, South African investors do not
believe that the investment they make under the ANC Government will be safe. The
repeated statements by Zuma, Malema and other populists with no understanding
of how a non-command economy works are a very strong inducement to go
elsewhere.
“Inequality, especially along racial lines, as a result of the
apartheid legacy.” Such inequality exists everywhere in the world, even in the
most prosperous and advanced economies. It is a simple fact that there are
dominators everywhere, and they will take advantage of whatever opportunity
presents itself. The way an individual can avoid becoming a victim is to gain
education and skills that make him or her valuable in the market. That is not
related to race, colour or any factor other than training and, possibly,
culture. In this situation, the individual must recognize that the attitudes
and habits gained in childhood and in association with other individuals and
cultural (including religious and political) have a material impact on the
ability to participate meaningfully in the modern world.
“If the wealth of the country was equally distributed then it
would be possible to feed all families.” This is a nice theory, but it doesn’t
work in the real world. The development of an economy depends heavily on the
ability of people to invest in productive facilities and in all the other parts
of a business (of any type) activity. Feeding all the people by distributing
the available funds of the society equally between them (if that could ever be
done, in a country where almost every person in control of funds feels entitled
to put him or –herself at the front of the queue for payment) is a formula for
disaster. As President Bush proved by making a payment of $1 000 to each
taxpayer in an attempt to reboot the slowing economy, the vast majority of
citizens do not have any inclination to make the long-term investments
necessary to activate economic growth. The money would be squandered on consumption,
and the country would very soon be back behind ‘Start’, looking for ways to
feed the masses. A country in a development phase desperately needs investment,
and the investible funds of the wealthier citizens represent that reservoir, if
the owners of those funds can be convinced that to make the investment would
not expose them to loss, as they now believe. Proposing to ‘redistribute those
funds or earnings, however that is proposed to be done, is a sure way to discourage
those holders of wealth from the investment that is needed.
“Jonas pointed out that 8% of black households have a monthly
expenditure of R10 000, compared to 63% of white households.” This is the sort
of statement that one has come to expect of the ‘experts’ in Government in
South Africa. It fails to take account of the realities of the country. If one
were to remove from the calculation the very large proportion of subsistence
citizens, who do not contribute in any meaningful way to the economy, the
comparison becomes much more meaningful. It is not possible to compare the expenditure
of a peasant farmer in the Transkei with that of an advocate in Pretoria, or
even with the secretary to that advocate. Take out the top 10% of wealthy
individuals in the country, and the comparison becomes much more meaningful,
with the ‘expenditure’ of Whites (seen by Jonas as ‘wealthy’) matching very
closely the Blacks (seen by Jonas as ‘deprived’). It is dangerous to make bald
statements such as Jonas does, and even more dangerous to base political
policies on them.
“South Africa is only partially industrialised, with a high
unemployment rate and low labour market participation.” This is true, but the
reasons for that lie almost entirely at the feet of the Government, which has
demanded bribes, equity participations at no cost, and excessively onerous
start-up formalities of those wishing to establish industries, and still
strongly supports the Trade Unions which make excessive demands for wages and
benefits, demands which would be onerous in a developed society and are totally
unaffordable in the developing state in which South Africa finds itself. If
there is any doubt about this, consider the mining industry which has been
faltering throughout the last several minerals booms, and which now employs
fewer than a half of the people in t at the ‘dawn of democracy’. South Africa
is a Third World country with First World aspirations in wages, employment
standards, regulation and every other element of cost. Added to that is the
appallingly low standard of education at school and tertiary level, as well as
in the trades. The underlying problems need to be addressed before the
aspirations of the workers and (might it be said) the employers can be met.
Almost everyone would like the workers to earn more and enjoy better working
conditions, but the demand that these aspirations be met before the workers are
able to offer better productivity and quality is the reason that the industries
cannot grow to the position of being able to offer them.
“The private sector is dominated by large scale capital and
capital intensive industry.” This is an inevitable result of an economy that
has grown out of mining, and the situation is not improved by the heavy
bureaucracy that every company faces. A company which employs ten workers cannot
afford to carry the cost of at least one additional employee to complete the
multitudinous reports to Government every month, to pay the fees and levies
imposed by half a dozen different Departments, and the legal costs required to
fend off the predatory ANC cadres who want to participate in the profitability
of the business without contributing anything. Then, to make it more difficult,
the company is faced with the requirement to employ a ‘previously disadvantaged
individual’ who is almost certainly under-qualified and over-priced, and, if it
want to do business with the Government in any form, to pay the bribes required
to win the business at an economic price. Then, when those hurdles have been
overcome, an employee who slacks or steals takes the company to the CCMA, where
a failure to obtain adequate (and expensive legal advice) results in an award
of a year’s salary to the ex-employee.
“The country is too reliant on minerals as exports, which shows
that industries need to be developed.” The answer is simple. Fix the problems
inhibiting investment in industry, and you will fix the imbalance.
“Secondly, the country is highly dependent on foreign assets:
guards should be placed against capital flight or disinvestment.” Even suggesting
such a measure is an almost sure way to frighten off foreign capital
investment, and to discourage any good-hearted foreign investor from even
considering such an investment. The history of South Africa, and the insane
rhetoric of the ANC and the EFF has already convinced most foreigners that
investing in South Africa is almost equivalent to making a donation to the ANC.
“Although there are large fiscal allocations to education and training,
the outcomes still remain poor. This is a binding constraint to all facets of
social development.” This is the root cause of most of South Africa’s economic
problems, apart from the overburden of Government controls. From the ANC’s
point of view, however, the solution to the problem will generate a mass of
ex-voters who are able to understand what exactly the Government is and isn’t
doing. As Blade Nzimande of the South African Communist Party said, ‘If the
mass of voters read a newspaper, the ANC would not be in power.’
“The public sector is weak. It must become more effective,
capable, less wasteful and less corrupt. We need political leadership.” This
statement is only partly correct. The public sector is both weak and crooked.
No industrialist really believes that it is possible to get fair treatment from
the public sector, unless a healthy bribe is paid. It is urgently necessary to
upgrade the performance of the public sector, along with an intensive drive to
eradicate all forms of corruption. This must take the form of putting the
President and most of the Cabinet Ministers behind bars as a first
demonstration of the commitment to honest and competent government. Coupled
with this, there is a need to evaluate the real benefit, in the present
context, of the numerous Departments that provide jobs to more than 20% of the
salary-earners for no discernible contribution to the economy, and to reduce
the size of the civil service drastically. The concept of ‘effective’ must be
construed in the light of ‘contribution to the effectiveness of the country’,
and anything found lacking must be dumped. There is a clear principle that
business must be left to businesspeople. There is another rule that
unconstrained business activity generates jobs and tax revenue.
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