Tito joins the battle of ideas

John Kane-Berman assesses Treasury's proposals for economic reform

The timing could not have been better. Just as the employment and labour minister, Thulas Nxesi, was again threatening to get "very hard" on businesses failing to comply with his racial quotas, the National Treasury last week published its strategy for "urgent" reforms to boost economic growth.

The National Development Plan adopted seven years ago had three key objectives: reducing inequality, eliminating poverty, and halving unemployment. The new Treasury document says, by contrast, that the "starting point" has to be "an economy that grows". This, it points out, necessitates a supportive business environment, secure property rights, competitiveness, and rising productivity. Other concerns should not compromise these.

The Treasury document is refreshingly free of homage to the "developmental state" and hostility to the private sector. It also proposes auctioning off Eskom's coal-fired power stations, while introducing competition into railways and harbours. Moreover, instead of seeing small business alone as the key to growth, it says that an environment in which small business can thrive is "inextricably" linked to creating conditions in which all businesses (including "high-growth firms") can "thrive". And it wants small businesses to be exempt from bargaining council wage extensions.    

That said, the document has too much faith in industrial policy action plans. It says, for example, that the country is "deindustrialising" despite numerous policy interventions aimed at supporting the manufacturing sector. The fact that South Africa might be deindustrialising not in spite of, but because of, all of these interventions (such as minimum wage laws) is overlooked.

Finance Minister Tito Mboweni has nevertheless set up an alternative to the ideology of radical economic transformation and national democratic revolution. His document also contradicts some of the policies emanating from Cyril Ramaphosa's government and the African National Congress (ANC). For example, the proposed nationalisation of health care is completely incompatible with the "fiscal sustainability" whose importance the Treasury stresses. Nor is fiscal sustainability compatible with racial procurement requirements that put up costs or with the Treasury's warnings against "rent-seeking".

Another area of contradiction is tourism. According to the Treasury, most tourism businesses are small. They also face "among the highest levels of regulation in the country". Regulatory burdens protect incumbents from competition. Tourism, however, is "an important potential driver of inclusive growth" through its "labour absorption potential". Yet the recently published Tourism Amendment Bill will increase the regulatory burden on the Airbnb sector and work to the advantage of the hotel sector.  

Whereas Mr Ramaphosa's favourite promises include "forging ahead with localisation", "reducing the consumption of imports", and "intensifying 'buy South Africa' campaigns", the Treasury document sees things differently. Although it says that local procurement can drive economic transformation, it also argues that "foreign import competition can put competitive pressure on local firms, making them more efficient".

Exports, it adds, are a "key driver of economic growth". But any strategy to boost exports will need to "facilitate intermediate imports". This runs counter to the protectionist instincts of much of South African big business, and some of the protectionist measures implemented by the Department of Trade and Industry. Among these are the tariffs imposed on steel imports which protect major producers at the cost of small businesses, who would rather import cheaper steel from China and elsewhere.

Tariffs inflate prices, reduce competition, redistribute income from small to large businesses, and from consumers to shareholders. They also bake low productivity into the economy. When they inflate the prices of imported intermediate goods, they undermine the country's export potential. Ostensibly designed to protect the local manufacturing sector, in the long run they undermine it.

The Treasury document raises the possibility that this department will resist further protectionist measures and that it will also resist the bill designed to protect the hotel industry from the Airbnb sector, never mind the ruinous national health insurance plan. Of course the "rapid" growth and "thriving" business environment the Treasury seeks to achieve is entirely incompatible with threats to confiscate land, impose "prescribed asset" requirements, and enact yet more onerous racial procurement and empowerment decrees, let alone tamper with the South African Reserve Bank.

Last month Enoch Godongwana, head of the ANC's subcommittee on economic transformation, said it was "incorrect" to say the president's plans for economic growth had been held back by the ANC. The government, he said, "has not placed any hard policy choices before the party". Now the finance minister has. It is a start, a move towards deregulation and liberalisation, and a shift away from socialism in South Africa's battle of ideas. The question of course is whether President Ramaphosa will now give this plan his support.       

* John Kane-Berman is a policy fellow at the IRR, a think-tank that promotes political and economic freedom. Readers are invited to take a stand with the IRR by clicking here or sending an SMS with your name to 32823. Each SMS costs R1. Ts and Cs apply.