Redistribution can't be a substitute for growth

Toby Chance says that for economy to thrive, there is no alternative but to focus on export-led growth

Commentators often say there is no difference between ANC and DA policies, with the only differentiator being the latter’s track record of better implementation.

Recent statements made by two senior ANC officials on the economy, however, expose the fallacy of this supposition.

In an attempt to highlight what she stands for as a candidate at the ANC’s congress in December, Dr Nkosazana Dlamini-Zuma gave insight into her manifesto on these pages (“SA can overcome its obstacles if we work towards common goals”, 23 October). Finance Minister Malusi Gigaba, on the other hand, used the medium term budget policy statement (MTBPS) to try and placate South Africans and market watchers expecting relief from SA’s prolonged economic malaise.

While delivering his budget speech, Gigaba referenced a quote from Oliver Tambo which illustrates how embedded the mantra of redistribution is in the ANC’s psyche: “the issues as to how the wealth of the country is redistributed for the benefit of all our people, how the economy is moulded in order that all South Africans may thrive and prosper, are of prime importance and should find their solutions in the context of democracy.”

This is mimicked in the Freedom Charter, with the clarion call that “the people shall share in the country’s wealth.”

By contrast, the DA’s policy focuses on empowering individuals to take part in the economy to create wealth, specifically through the supply of an educated, motivated workforce and higher demand created by the formation and growth of new businesses and a focus on exports. In a nutshell, increasing the size of the pie generates increased tax revenues to fund improved government services.

To some this distinction may seem like splitting hairs, but is in fact fundamental to the two parties’ diagnosis of South Africa’s problems and the solutions they offer. After 23 years of ANC rule, the distinction lies at the heart of why economic growth is flat-lining, unemployment queues are lengthening, schools and hospitals are failing, and crime and social discontent are rising.

Both Dlamini-Zuma and Gigaba devoted their introductory paragraphs to the dreadful state our country finds itself in. The statistics are well-known, though it is disturbing to know for certain that our revenue shortfall will hit R50,8 billion and the deficit will increase by 30% more than the 2017 budget target, to 4,3% of GDP.

More worrying is that our gross national debt is projected to reach 61% of GDP by 2022, approaching levels regarded as high-risk by ratings agencies and the IMF. No wonder the Rand tracked down as Gigaba delivered his speech

These macro statistics mask the all too real realities of over 9.3 million unemployed people and the millions more living in poverty, seeking a path to a better life.

They also sit in stark contrast to our continental neighbours and trading partners, which are averaging growth rates of 3,6% in 2017, five times our rate. The days are gone when the finance minister can blame the banking crisis and low global growth for our woes.

The focus on redistribution rather than wealth creation is central to the ANC’s radical economic transformation agenda, as espoused by Dlamini-Zuma. She backs it up with a determination to build a developmental state.

In the context of a South Africa struggling to create new wealth and bedevilled by corruption, especially in government and state-owned enterprises, this would be laughable if it were not so serious.

The problem is we have heard all this before, and things never change.

There are three principal reasons for this: the ANC is corrupt and promotes loyalty over competence; it has failed to develop our people, particularly the poorest and most marginalised; and it has strangled the economy, crippling the entrepreneurial incentive so vital to achieving growth.

The disasters unfolding at Eskom, Transnet, Prasa and countless other SOEs are manifest. The ANC has destroyed these beneath the altar of cadre deployment, which became policy at its 1997 Mafikeng conference. The DA, by contrast, has always pursued a “fitness for purpose” policy, though aligned with a commitment to redressing the ills of the past.

The DA is firmly behind creating an “opportunity ladder”, providing the means for youngsters to invest in their talents with help from government, their families and communities.

In a DA-run South Africa, from early childhood through basic and tertiary education and on towards the world of work, young people will be able to pursue their dreams freed from politicised teachers unions which hinder educational opportunities, and freed from an over-regulated economy which makes it hard to find a job or start a business.

According to Stats SA, between 2008 and 2015 the number of formal small businesses in South Africa dropped from 707 000 to 670 000 while their contribution to employment dropped from 64% to 55%. This is completely the opposite of what the NDP expects to happen leading to 2030.

South Africa’s labour absorption rate of 40% compares to 60% in other upper-middle income countries. Our high unemployment rate and low labour absorption rate are inextricably linked. In South Africa, less than 20% of all formally employed people are self-employed or employers. The norm for upper middle income countries is 40%. It is clear, therefore, that rapid economic and employment growth will come on the back of a growing mass of small and medium-sized companies.

The idea of supporting small companies that take domestic market share from large domestic companies rests on the fallacy that this contributes to economic growth and employment. This reflects a profound inward-focused, isolationist outlook which leads to ongoing stagnation or worse. Hence government’s 30% procurement policy for small business will at best shift jobs not create new jobs.

Growth will come from big companies, with their scale economies, financial muscle and market access opportunities, collaborating with nimble, innovative small companies to penetrate niche export markets, creating sustainable new jobs and boosting our balance of payments. 

It will also come from incentivising more of the likes of Patrice Motsepe (ARM), Brian Joffe (Bidvest), Adrian Gore (Discovery), Sipho Nkosi (Exxaro) and Jannie Mouton (PSG Group) to start and up-scale world class businesses that acquire and spawn other businesses through innovation and competitive advantage.

For our economy to thrive, there is no alternative but to focus on export-led growth. No economy has experienced rapid growth without integrating into the global economy and South Africa has failed to do this.

The period of relatively rapid growth in the mid-noughties was driven by the resource super-cycle and debt-fuelled consumption. Today we are experiencing the hangover from this period of indulgence. Our problems are not cyclical, they are structural and political and will soon take us down the road to Venezuela and Zimbabwe if not reversed.

Far from the DA being ANC-lite, there are signs the ANC could finally be waking up to the DA’s values of freedom, fairness and opportunity.

Using purple prose, Gigaba closed his budget speech with the words “this is what we must pursue – the expansion of the frontiers of political, social and economic opportunity of our people to enhance their freedom of agency.” He also announced another DA-inspired idea – the formation of a fund for start-up businesses under the watch of Ministers Zulu (Small Business Development) and Pando (Science and Technology).

Meanwhile Dlamini-Zuma enjoins us to “adjust our curricula so that young people leave matric with the capabilities and skills either to go to university or further education or to become entrepreneurs.”

The question now for commentators is: can the ANC implement what the DA has long been calling for or will we have to wait for a DA-led government to see real action?

Toby Chance MP is DA Shadow Minister of Small Business Development.

This article first appeared in Business Day.