The New Growth Path (2010) and the National Development Plan (2011) mark important steps taken by the BRICS’ latest member, South Africa. Much has been said about the two initiatives and the National Planning Committee, the agency responsible for priority strategic planning that necessitates an inter-departmental approach. However, what seems to have been overlooked is the specific goals and driving rationale behind these plans within South Africa’s political context, with specific reference to the policy legacy and economic thinking of the African National Congress (ANC) and their tripartite alliance partners, the South African Communist Party (SACP) and the Congress of South African Trade Unions (COSATU).

Where do the two policy documents stem from?

Throughout the ANC’s policy history, especially the two foundational documents mentioned above and the two latest ones, there has been constant referral to South Africa as a ‘developmental state’ and the solutions to its structural problems as lying within that paradigm.⁽²⁾ This has been stated in policy documents, plans and strategies regardless of the dominant economic ideology of the time.⁽³⁾ Closely in step with this thinking has been the emphasis on poverty, the notable inequity of the South African socio-economic landscape and the high levels of unemployment. The NGP makes tackling unemployment a top priority; the most express goal is creating five million jobs by 2020. The two affecting variables in the equation are rate of economic growth and employment intensity of said growth. The reasoning is that deep inequality is associated with high unemployment, the legacy of ‘apartheid geography’ is still prevalent seventeen years on and that the economy has not created ample opportunities for the unemployed. The outcome of this reasoning is a document that seeks a ‘restructuring’ of the South African economy to increase performance in terms of labour absorption and the composition and rate of growth.

The document seeks to make it the government’s responsibility to look into where employment creation is possible, to analyse policies and institutional requirements to take advantage of these. So doing, targeting the country’s limited capital and capacity at activities that maximises employment in terms of the political nomenclature of ‘decent work’. The sketched process seeks to increase labour-absorbing activities and the criteria for success will be the quantity of employment engendered, growth, and equity (which is to be measured by decreasing inequality and poverty). In terms of what has been dubbed ‘job-drivers’ the government will target labour absorbing sectors such as mining, agriculture, manufacturing and services.

Pitfalls

This is where paradoxes, logical errors in policy, confusion and overly zealous normative economics are exposed. A developmental state, based on successful historical precedents, refers to state-led planning, necessitating a determined elite, that represents a specific variation of capitalism in which the state has significant authority to exert political power over economic matters through regulatory intervention. Emphasis is commonly placed on market share over profit, economic nationalism, protectionism, technology transfers, and the existence of a large, insulated and competent civil service, a weak and subordinate civil society and an alliance between state, labour and industry. Furthermore, it is normally sceptical of neo-liberalism and assigns greater importance to economic than to political reform, being driven by legitimacy and performance concerns. Already at this point certain paradoxes have arisen in how the government sees South Africa and what policies have been followed.

The disparities between South Africa’s socio-economic classification and the image of the state held by the ANC is revealing from a policy perspective. South Africa is a ‘middle income’ NIC seen as having a medium human development. Yet, according to the Human Development Index, South Africa has the highest income inequality, the lowest real growth rate and the third lowest growth rate per capita amongst its ‘peers’. Despite its classification according to the index, the average life expectancy in South Africa is lower than the average in a ‘low human development country’ while the mean years of schooling is exactly the same as that of a ‘high human developmental country’.⁽⁴⁾ South Africa has the lowest Human Development score amongst the NIC countries. Where South Africa has grown 0.04% (only slightly higher than the worst growth average) on the index the average ‘medium human development’ country has grown 1.28%.

The South African plans strive after goals in the manner of a developmental state. However, South Africa falls short on several grounds. Most notably, the biggest structural and institutional problems in the country relate to the inefficiency of government bureaucracy, inadequately educated workforce, restrictive labour regulations, corruption, crime, inadequate supply of infrastructure, difficulties relating to accessing finance and policy instability.⁽⁵⁾ When linked to diversion of public funds, lack of trust in politicians and the high degree of bias in the decisions of government officials, then South Africa is clearly seen to lack certain essentials required by a successful developmental state, namely will, ability and capacity. Despite the success booked by the RDP and GEAR, which include the development of the financial market and macroeconomic development, the country is lacking in what is needed to push through the plans of the two latest documents.

Secondly, employment creation is set as a driver of economic growth and equity in the manner sketched above. South Africa, however, is plagued by a disabling health situation, in which the country shows an extreme sensitivity to health issues that should not have such an inordinate impact on the populace as it currently does. Also, it has an equally bad primary education sector and output quality.⁽⁶⁾ Not only is the enrolment in primary education low, relative to peers, but the quality of the schooling is poor, despite the government largesse in the area as a percentage of GDP. The situation is just as bad when one looks at higher education and training, characterised by low quality.⁽⁷⁾ Then, the country has notoriously low labour market efficiency. This is characterised by lacking cooperation in labour related relations, inflexibility of wage determination, excessively constricting stringent hiring and firing practices and a very low labour productivity.

At the same time the documents do not make as much mention of those sectors and indicators in which South Africa has a significant advantage and in which the country excels, such as efficiency of corporate boards, quality of management schools, market size, financial market development, availability of financial services, innovation advantages, the importance of the mining sector and the potential of agriculture.⁽⁸⁾ The documents illustrate instances of information omission and erroneous analyses, specifically regarding its interpretation of the mining sector, agriculture, land reform and resources.⁽⁹⁾

In the beginning of 2011, achieving the creation of the NGP’s five million new jobs by 2020 would have required a nine percent growth rate in 2011 followed by a sustained 7.6% growth rate until 2020.⁽¹⁰⁾ At the end of 2011 South Africa would need to sustain a 10% yearly growth to achieve the same target.⁽¹¹⁾ Then, the NDP seeks to create eleven million jobs by 2030.⁽¹²⁾ According to the International Monetary Fund South African GDP will stay under 4% until 2016 and unemployment might drop to just below the 22% mark by 2016. The NDP, however, states that unemployment must be down to 14% in 2020 and 6% by 2030. The Economic Development Minister, Ebrahim Patel, said that an employment target has been set and not a growth target, also stating, “Clearly, higher growth is required in order to achieve the jobs target. However, the jobs outcome is a function of two variables: the rate of growth and the labour intensity of growth,” and “…the New Growth Path requires measures to diversify into more labour intensive activities in order to achieve a significant reduction in the jobless rate. It is for that reason that the New Growth Path identifies jobs drivers that seem likely to create employment as they grow.”

Herein is an economic incongruity⁽¹³⁾: a state with high unemployment, serious labour market issues and not fulfilling all the prerequisites of a true developmental state seeks to ensure economic growth through employment by focusing on labour-intensive and labour-absorptive opportunities, targeting sectors in which the country does not always have a comparative advantage, sectors in which job creation is most expensive and yet most vulnerable to industrial action. All this will necessitate more money that will demand more from taxes, which are already a concern affecting businesses and investors.⁽¹⁴⁾ For example, a flaw in the logic of much policy debate in South Africa is the failure to recognise that money and investors are forced to be where the prerequisites for certain sectors are (arable land, mining and other resources) while they are free to move around to find countries where their business is not tied to a single country (manufacturing).⁽¹⁵⁾

Specifically, labour productivity is at an all time low in South Africa, and increasingly negative, thus worsened by the fact that even as employment increases, labour productivity falls, which has a direct effect on growth.⁽¹⁶⁾ South African businesses are also becoming more capital intensive and that more growth can be attributed to this, the desired increase of people through industrial policy and the targeting of labour-intensive sectors are an antithesis to improved broad economic performance. Granted, the government now seeks to add stimulus to boost employment through improving regulations and financing selected projects. This is not guaranteed to result in the envisioned creation of more jobs as businesses certainly realise that stimuli cannot be indefinitely supported.

A clear example of how all the analysed parts come together is to look at South Africa’s state owned enterprises, an integral part of south Africa’s ‘developmental state’ image. Bailouts alone have cost in excess of US$ 32 billion in the last five years, while lacking energy capacity is now an inhibitor in South Africa as Eskom fails to meet the economy’s demand. Then, the logistically illogical construction of a new airport in Durban (which has consequently been rated the most expensive and inefficient in the world) has resulted in increased airport taxes, damaging the vitally important tourist industry, which receives scant coverage in the analysed documents.⁽¹⁷⁾

Concluding remarks

Politicians and policy documents have cited Brazil, China and India as countries similar to South Africa. They are not, especially in terms of policy and relevant structural circumstances, such as government spending on investment, unemployment rates and capacity to act as true developmental states (in which South Africa scores much worse than its so called ‘peers’). One must admit that the two documents, especially the National Developmental Plan, do seek to target and improve issues relating to labour regulations and relations, ease of doing business, improving infrastructure and ensuring the economy becomes more environmentally friendly. To actually affect the goals set forth will require vast and dedicated political capital, which is exactly what the analysis shows South Africa does not have.⁽¹⁸⁾

NOTES

(1) Contact André Dumon through Consultancy Africa Intelligence’s Finance and Economy Unit (finance.economy@consultancyafrica.com).
(2) National Growth Path, Department of Economic Development, Republic of South Africa, 2010.
(3) Gumede, W., ‘Delivering the democratic developmental state in South Africa’, Development Bank of Southern Africa- Working paper series: 9, 2009.
(4) Klugman, J., ‘Human Developmental Report 2011’, United Nations Developmental Programme, 2011.
(5) Schwab, C., ‘The Global Competitiveness Report 2011-2012’, World Economic Forum, 2012.
(6) Hlongwane, S., ‘Trevor’s NPC goes to Youtube’, Daily Maverick, www.dailymaverick.co.za.
(7) National Developmental Plan, ‘National Planning Commission’, Republic of South Africa, 2011.
(8) ‘All the wealth we ever need is right under our feet’, Business Day, www.businessday.co.za. Schwab, C., ibid.
(9) ‘A better plan than all the rest’, Business Day, www.businessday.co.za. Eberhard, A., ‘National Development Plan: Tough choices in SA’s development path to 2030’, Business Day, www.businessday.co.za. ‘Land plan might just be workable’, Business Day, www.businessday.co.za.
(10) Chait, G., ‘China is not like South Africa – the myth of the New Growth Path’.
(11) Gernetzky, K., ‘SA needs to raise growth to 10% to create 5-million jobs, says DBSA’, Business Day, www.businessday.co.za.
(12) Hlongwane, S., ‘How the National Planning Commission plans to save SA’s economy’, Daily Maverick, www. dailymaverick.co.za.
(13) Isa, M., ‘Manuel plan moots new approach to lift investment’, Business Day. www.businessday.co.za.
(14) Anderson, A., ‘Mine union says policy uncertainty is deterring investors’, Business Day, www.businessday.co.za. Naidoo, P., ‘Expropriation legislation: take first, haggle later’, Financial Mail, www.fm.co.za. Isa, M., ‘Moody’s warning to SA not a total surprise’, Business Day, www.businessday.co.za. Seccombe, A., ‘Bonuses linked to mine production must stop — Shabangu’, Business Day, www.businessday.co.za.
(15) Radebe, H., ‘Government lacks courage on land reform’, Business Day, www.businessday.co.za.
(16) Anderson, A., ‘Labour productivity ‘lowest in 40 years’, Adcorp says’, Business Day, www.businessday.co.za.
(17) Lewis, G., ‘Economy’, Business Day, www.businessday.co.za.
(18) Eberhard, A., ‘National Development Plan’, Business Day, www.businessday.co.za.

Written by André Dumon ⁽¹⁾