Mike Brown, the outgoing CEO of Nedbank, identifies two problems to be fixed in the economy, which will give us a growth rate of 6% if resolved – Eskom and Transnet.
While these are obviously essential to sort out, they are insufficient to get us anywhere close to the 6% growth rate we all aspire too, or even the more modest 4% alternative proffered by Brown. Here is why.
Transnet and Eskom are not natural disasters, which if resolved, will return South Africa back to normal. Their failure is the outcome of very bad policies, executed by incompetent people (thank God, or it would be worse).
Yes, we are now working off a low base, but this does not imply that the growth will automatically be high if the binding constraints of Eskom and Transnet are lifted. The same underlying thinking which gave us Eskom and Transnet still dominates the policy space.
In the 30 years from 1994 to 2023, we only had three years where gross domestic product (GDP) growth exceeded 5% (2004 to 2007), all in the period before active industrial policy, localisation, designation (preferential procurement) and the second and third mining charters. Our total debt was less than 10% of what it is now and our first bout of load shedding (bolt in the reactor) had only just happened.
Yes, if Eskom and Transnet were fixed, we would see some bounce back effect, but I still don’t see 6%. In 2020 (the worst year of Covid), our GDP fell by 6%. It took till the end of 2022 for our GDP to return to 2019 levels and then continued at its sub 1% growth.
Any growth we would see would, in this flawed policy arena, will result in a relatively small change in employment simply because our catastrophic levels of unemployment are exacerbated, not caused by the failure of these state-owned enterprises. To see employment growth, along with economic growth, would require us to address the reason why companies don’t employ more, when we have an abundance of unemployed people. I think this comes down to three things.
Firstly, government’s minimum wages, bargaining councils and sectoral determinations price most people out of the market. Remember, a company will only employ someone if they cost less than the value they add to the business. To do otherwise is to doom the business to failure.
The government and unions have made the cost of employing someone so far beyond their level of productivity that employment is the last option after everything else has been considered. Instead, we pay people R370 per month to stay out of the labour market, until by some miracle of sitting at a traffic light for long enough, they will be worth more to a business than the minimum wage. The minimum wage keeps rising faster than inflation, making it ever more difficult to absorb inexperienced people into the workplace.
Secondly, our medieval levels of public education make it impossible for someone born in a poor family (most people), to become productive. If only 50% of the kids starting school finish high school, then we are relegating these citizens to the ranks of the unemployable. It is unconscionable that just because someone was a victim of our public education system, they should be doomed to beg at a traffic light. Meaningful adult training is essential, yet absent.
Thirdly, even if we fix all our labour law problems, I’m not sure enough jobs can be created with our economy structured as it is. Our labour and industrial policies favour large, highly concentrated industries. Competition is actively discouraged through ‘public policy’ (political policy?) rules at the Competition Commission.
The use of trade protectionist measures, most often by old monopolies, entrenches a low innovation environment where new businesses are punished for being disruptive. The result is a moribund economy. Small businesses are celebrated in name, but destroyed in reality, with draconian legislation. The outcome is people subsisting on selling sweets at a taxi rank, but unable to do any business which threatens to dominance of the large, well-protected incumbents (three of the four largest users of the anti-dumping instrument in the past 20 years are monopolies and all are older than 100 years).
I don’t think the answer is to privatise everything. Astral Foods is not the best supplier of water to their plant. This should be the municipality. The fact that they had to go to court just to argue for their right to provide themselves with water, in the face of a completely failed municipality, tells us how serious the problem is.
But Astral’s solution doesn’t scale to every other company in the municipality who also needs and is prepared to pay for water. The government needs to do its job and, yes, its job should be restricted to its job, not to be everything to everyone. There is no market failure that requires a state-owned shipping company, yet the legislation to create one has been published (not yet approved, and hopefully never will be).
I want Brown’s 6% growth rate to become a reality, but this will require an honest assessment of the process which creates such as astonishingly large number of truly terrible policies. The secret lobbying which so often benefits a small number of large companies at the expense of society has to stop.
Openness has to be the default. Bad policies persist because the small number of winners win really big and often the cost is socialised across the whole population, but the cost of secrecy is real. Just ask the Guptas.
Donald MacKay is the founder and chief executive of XA Global Trade Advisors. He has been advising local and foreign companies on global trade issues for more than two decades. X handle: XA_advisors; email: donald@xagta.com; website: xagta.com.
* The views in this column are independent of “Business Report” and Independent Media.
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