"Zumanomics": South Africa's likely economic policy direction under a Jacob Zuma Presidency
Given the growing influence of Jacob Zuma's leftist proponents, it looks increasingly like South Africa's future economic policy strategy - "Zumanomics" - will consist of a smorgasbord of policies including an end to privatisation, continuation of onerous and job-crushing labour legislation, abandonment of inflation targeting, a shift to a budget deficit to fund a union-driven wish list and increased state intervention in the economy.
Such policies have no place in a modern enterprise-driven economy which subscribes to the precepts advocated by the Democratic Alliance (DA), namely price stability, fiscal responsibility, lower taxation, a deregulated, job-creating labour market and privatisation.
Zumanomic policies will most likely hurt the very constituency that they purport to assist the most, namely the poor and the unemployed. It is the millions of South Africans that fall into this category that the DA is most concerned about, and we are thus determined to ensure that there is a full and proper national debate on the future of economic policy to help secure the collective futures of all South Africans.
The implications of Zumanomics, and the necessity for proper debate become clear when considering that global rating agency Moody's recently warned that South Africa's positive outlook with regard to its credit rating relied on the continuity of economic policy. Moody's has noted that Jacob Zuma's ousting of Thabo Mbeki has caused global investors to become sceptical about the country's future.
This emphasises the importance of policy continuity under the new ANC-leadership.
However, while ANC President Jacob Zuma has gone to great lengths to assure business and potential investors that there will be no significant shift in economic policy under the new ANC leadership, it is becoming clear that economic policy continuity is not a foregone conclusion should he become South Africa's next President.
Cosatu and the South African Communist Party (SACP) have been the forces that united behind Zuma's presidential ambitions. They have both rescued and nourished his political career and have called him sharply into line over certain issues, most notably his comments in support of a more flexible labour policy - which were quickly retracted after his unceremonious summons to Cosatu House.
His policy flip-flopping at the behest of his union allies raises serious questions about the extent to which Zuma is beholden to his backers.
The declaration of the May Alliance Summit, which reaffirmed the ANC-led Alliance as the strategic political centre, reflects the greater influence of Cosatu and the SACP on economic policy development, including direct input into the ANC 2009 election manifesto.
A likely snapshot of the economy under a Jacob Zuma Presidency
1. Increased state intervention: the democratic state yields to the developmental state
At Polokwane, the ANC resolved to strengthen "the role of state-owned enterprises". Add to this the plans of Public Enterprises Minister Alec Erwin to expand the role of state owned enterprises, the moratorium on privatisation mooted at the Alliance Summit, the rise of the developmental state economic policy and the SACP's call for a central planning ministry, and the picture emerges of the role of the state under the tripartite alliance.
Given that the state lacks the capacity to drive these initiatives, at best, the expanded role of the state will further bloat the state structures and entail much planning with little implementation. However, at worst, the expansion of state intervention and state-owned enterprises could impact negatively on critical public service delivery.
2. Privatisation: Imposing a moratorium
Over the past decade the government's initial firm commitment to privatisation has become far more ambiguous, with state-controlled industries such as Eskom staying in state hands and suffering from many of the problems common to such state-controlled industries. As per the declaration of the Alliance Summit asserting that "The Summit calls for a moratorium on privatisation...", a Zuma presidency can be expected to continue this trend.
This will erode economic freedom as South Africans become secondary role players instead of primary decision makers in the allocation of their resources.
3. Labour market policy: a continuation of onerous labour laws
Early in the year, Zuma noted that labour regulation, including minimum wages, had the unintended consequence of "counting out the poorest of the poor". Predictably, his left-leaning allies rebuked him for his comments in support of more flexible labour market policy - which were shortly all but retracted as Zuma told Cosatu he would "lay down his life" for the rights of the workers. (Business Day, 2008a)
We can thus expect a continuation of onerous and job-crushing labour market policy under the Zuma-led ANC, which will inhibit the alleviation of unemployment and facilitate a system of patronage.
4. Inflation targeting: an abrupt change of direction
Zuma himself has implied a shift away from inflation targeting, saying in December 2007 "...that there's some kind of problem there. And though I am not going to pretend that I have delved into the issue properly, it is something that I am going to get to." In addition, the Alliance Summit declaration calling for "urgent national reflection on the appropriateness of inflation targeting as well as the ranges chosen as policy for South Africa..." suggests the likelihood of an abrupt change of direction under a new government.
Explicit inflation targeting anchors inflation expectations. By abandoning this framework we will loose this anchor - which will likely result in inflation expectations being revised upwards.
5. Budgeting: accelerated government spending
Cosatu has strongly criticised South Africa's budget surplus, arguing that, given South Africa's significant developmental needs, government should spend more. In December last year, Zuma commented that he differed with Cabinet in terms of macroeconomic policy. He questioned why a country with widening income inequality had a budget surplus. The Summit declaration states that: "The budgeting process... should take into account urgent social needs and other priorities". Finally, Parliament has already adopted in principle a recommendation that will enable it to amend the national budget and other money bills.
In this context, and amid the rumblings which came from Polokwane, there is the potential that fiscal prudence will all but disappear in the new era of the ANC. A growing budget deficit will likely be accompanied by rising taxes, public debt and interest payments.
Statement issued by Democratic Alliance Chief Whip, Ian Davidson MP, June 26 2008