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If the state is largely broken, who will implement the reforms we need?

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If the state is largely broken, who will implement the reforms we need?

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Ann Bernstein

28th August 2020

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Amid the Covid-19 lockdown, South Africa faces escalating health, economic, jobs, fiscal and social crises. All these crises have been exacerbated by poor decision-making and implementation.

Different ministries are approaching our challenges in different ways: National Treasury wants to cut spending, the Department of Public Enterprises wants to fund South African Airways, the Department of Social Development wants a basic income grant for all adults, and the Department of Health wants to push ahead on the National Health Insurance.

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State capacity is demonstrably weak and riddled with corruption. The lockdown is characterised by irrational decision-making by decree with serious consequences. And SA has made no real progress on a reform agenda after two-and-a-half years of the Ramaphosa presidency.

Can SA get out of its terrible cycle of decline and find a path of action that will ignite growth, employment, a new approach to governance and build trust and hope in our collective future?

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Over the past month, a plethora of ‘recovery strategies’ from across the political spectrum have been published. The Treasury’s supplementary budget highlighted SA’s need to cut expenditure, but the depth of the proposed cut is not plausible, and would not stabilise the debt at 87% of GDP in three years, anyway. Its economic reforms – now a year old – have been deferred to the October Medium Term Budget Policy Statement, while its growth assumptions for the next three years either do not assume reforms being implemented; or, if they are, that they will have much positive impact. Treasury has no power to implement reform without the backing of the president.

Detailed examination of ANC and business recovery strategies are instructive. The shorter ANC document reflects some real movement from previous ANC positions, but how much of a break from a patently failing reliance on the state is not clear; and although the document has been accepted by the ANC NEC, how representative it is in terms of swirling ANC factions and currents is hard to tell.

The B4SA strategy is a substantial contribution reflecting months of work on different sectors of the economy with multiple proposals for how to get SA growth potential realised through these sectoral reforms. It reflects an urgency for action, echoing Treasury.

The main approaches

There are two fundamental approaches. Treasury and business put forward evidence-based and specific reforms, while the ANC and Alliance involve mainly the imposition of abstract ideas; more importantly, perhaps, the first grouping wants a state that enables business while the second sees the state disciplining business.

There are critical issues across all recommendations. Let’s start with infrastructure, which could turn out to be the new “jobs Summit”: that is, everyone agrees that SA should find its way out of trouble through a large-scale infrastructure programme but like jobs, this apparent consensus could result in much talk, months of effort, and then nothing significant happens, because everyone avoids the key policy choices.

If SA is to ‘build’ its way towards recovery, there are vital issues that need resolution. What has stopped private sector involvement in infrastructure in the past ten years of government saying it wanted to push infrastructure?

What must change to get private sector investment at the necessary scale? What about funding?

We do not have the domestic reserves for a massive infrastructure programme, so external financing will be required. This will create credit and currency risk for the future. This makes it even more important that when spending happens, it is not as wasteful as previous infrastructure programmes (think Medupi).

Which infrastructure has the highest returns for the country – social or economic? How do we prioritise between different kinds of economic infrastructure – from expanding port and rail capacity to a new smart city, for example? Behind the seeming consensus on infrastructure are some vital decisions that cannot and should not be ignored.

Covid-19 has demonstrated state failure very visibly. The ANC and business recovery strategies both acknowledge state weakness and the need for ‘capacity building’, but mainly ignore the implications of this hard reality in their recommendations.

The president has noted state weakness and that the country needs to develop a professional, ethical administration, but he has not put forward specific actions or a timetable that his government will implement to develop such a state. This requires a halt to use of civil service jobs as ANC spoils to be allocated and systematic moves to build a meritocracy where at least senior appointments are people – black and white – committed and trained to do the jobs required.

What few want to talk about, is what to do in the meantime. Government policy bandwidth is overwhelmed – product of enormous weakness in processes, people and judgement created by ANC misrule of past 12 years. If state is mainly broken and corrupt, who will implement the reforms we need tomorrow?

While both recovery strategies mention corruption, neither engages with the desperately slow progress in dealing with it, nor are any proposals made on how to speed up the processes to see senior people in politics and business charged successfully and put in jail.

An attack on the poor

Corruption is an attack on the poor, cripples the state, distorts decision-making, prevents growth and undermines investor confidence. Why no real engagement in what should have been key pillars of business and ANC strategies?

The ANC document acknowledges the fiscal situation while the business document takes it more seriously. However, none of the strategies spell out the implications of SA’s deepening debt crisis for recovery. Both documents make recommendations that will exacerbate the crisis unless you assume huge and speedy fiscal multipliers. The impact of the fiscal crisis on growth is not sufficiently acknowledged or taken into account, nor is the reality that without growth SA cannot solve its fiscal situation. Fiscal realities must shape recovery recommendations.

What about priorities? B4SA wrestles with this but ends up with 110 slides, 12 key projects/initiatives, 12 policy focus areas for action and 15 immediate actions which it claims require no policy changes. This undermines its call for urgent action and it’s more focused narrative report.

The ANC is sharper in some ways, but its priority areas from infrastructure to localisation hide multiple additional issues. Both strategies sprawl across short, medium and long-term recommendations. However hard it might be, choosing what should be done first in our current dire straits has to receive far more thought.

Neither document deals with the inclusive part of growth effectively. Other than a last-minute addition of a commitment to B-BBEE – business deals with this implicitly – that through the improvement of economic sectors, encouragement of more SMME activity, some labour market reform and improved skills systems, faster growth and increased taxes would do the job. The ANC wants to retain its current approach to black empowerment, but this is not working, encouraging corruption, misallocation of resources, elite enrichment and not mass empowerment.

Inclusion is a vital issue in SA’s recovery and its future. It receives too little attention in national debate and in the recovery proposals. The ANC needs a fundamental rethink and greater honesty about the costs of our current approach. Business needs to be bolder and develop a market-based strategy for inclusive growth and a compelling way of communicating this.

Written by Ann Bernstein, executive director of the Centre for Development and Enterprise. Views expressed are her own. 

 

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