Centre for Development & Enterprise head Ann Bernstein
Photo by: Donna Slater
Failure to provide conditions for growth has spread to every sector.
Despite rhetoric to the contrary, SA does not have a growth strategy. We have leaders who say they want growth, and government has policy documents that describe how important growth is.
However, at no stage has our political leadership made a decisive choice to prioritise growth or put in place the sound policies and good governance that are essential to an effective growth strategy.
Instead, we have a state that is a brake on growth and unable to deliver on its most basic functions, presiding over deteriorating infrastructure and rapidly rising levels of indebtedness; a state in which the corrupt thrive at the expense of good managers and where the lives of whistle-blowers are at risk.
The effect on growth has been devastating. Over the past 15 years average growth rates have done nothing but fall as confidence in governance and future prospects have declined.
Confidence in the future — a sense that it will be better and more prosperous than the present — is vital to growth because it is this that justifies and drives investment in physical and human capital. The brighter and more prosperous the future is expected to be, the higher the level of investment in the present because investing now is expected to pay off later. Conversely, the bleaker the future looks the less people will invest now because they cannot see how they will earn a return.
Our tragedy is that confidence in the future has collapsed as a consequence of poor policy and worse government performance over the past two decades (with no change of any significance in the Ramaphosa administration). The accumulated effect of each poor policy and each example of government failure now far exceeds the already-large sum of its individual parts.
The obvious example of this is Eskom. The government maintained a statutory monopoly long past the point where it was obvious that Eskom would never be able to produce new generating capacity at costs comparable to those that would emerge from a competitive market. Combine this with a collapse of corporate governance of catastrophic proportions, and the result is a country woefully short of power, fearful of total grid collapse and the social disruption that inevitably follows.
If future power supplies are uncertain and there is a chance of total grid collapse, this will naturally affect businesses’ willingness to commit money to projects that will pay off in future. The only industry in which investment is growing at any pace at all is private power generation, a development that comes two decades too late. This could alleviate power supply challenges in the medium and long term, but will deepen Eskom’s financial crisis, probably necessitating vast new bailouts in future.
Concerns about power as a source of uncertainty about the future are reinforced and amplified by policy and governance failures that are equally bad in other domains. Fiscal policy is an example. The government has generally made the right noises about the need to get onto a sustainable track so that debt levels stabilise. Yet actual stabilisation of debt has been serially postponed, and the level is continuously rising. Stated commitments to spending restraint and debt stabilisation have been violated in practice, whether in the form of excessive wage increases for the public sector or unfunded commitments to free higher education.
Add to that the expansion of spending on grants and the build-up of spending pressures across all spheres of government, and it is hard to see how debt levels could ever stabilise in the absence of a growth acceleration. Yet that acceleration is undermined by the high taxes and interest rates that are a direct result of higher spending commitments by the government.
Eskom is not the only state-owned company with a statutory monopoly in a critical industry whose operational and financial performance has deteriorated abominably. Transnet’s provision of logistics services is seen as a material risk to a vast range of economic activity. In addition, apart from the poor performance of the logistics network itself, there are growing indications that the commercial viability of Transnet is open to question, that it is losing skilled and experienced staff and is likely to place more strain on the fiscus if it is to continue to function.
There are also mounting concerns about the quality of SA’s roads across the country, including in the economic heartland of Gauteng. The same is true of water infrastructure, sanitation and wastewater services, and commuter rail services provided by Prasa.
A commonality underlying all of these trends is the ANC’s cadre deployment strategy. This has seen the appointment of wholly unsuitable people in organisations mandated to provide and maintain infrastructure (and other services), while also saddling them with an unconstitutional conflict of interest: it is impossible to serve the interests of the ANC and fulfil their fiduciary duties to the organisations for which they work or that they lead.
Equally important is the cancer of corruption, which remains a profound threat to the future. Corruption distorts economic activity, raises the costs of doing business and, by undermining faith in a better future, reduces investment levels.
The same can be said of high levels of crime, and in particular of the emergence of new kinds of criminality such as construction and procurement mafias, whose actions directly affect the investability of the economy. And that is before you think about the implications of the events of July 2021 (whose ringleaders have yet to be charged) for confidence in the country’s immediate and longer-term stability.
The effect of poor governance and bad policies on confidence in the future is compounded by a devastating lack of political leadership, particularly by the president. The head of state is responsible for policy choices and their implementation, yet he consistently fails to govern in the interests of the country rather than the elite of his own party.
At no time has he provided an honest diagnosis of SA’s ills — the essential foundation on which to move forward. Instead of addressing deficiencies in policy and governance, he tries to manage crises by offering “solutions” that seldom address those crises’ root causes and might plausibly set the country on a new path.
Nor, despite the crumbling state around him, has he moved away from a state-driven approach to growth. Indeed, he has not really prioritised growth at all. While sometimes seeming to favour a greater role for business and markets in growth and employment, he continues to hobble market expansion. He and his government do not appreciate how markets and business function — a question of ideology and ignorance, and the result is policy failure across a wide spectrum of activity.
Whatever it is that government says it is doing, in practice what we have is the opposite of a growth strategy. SA is now on a trajectory along which the productive capacities of the economy are diminishing, not expanding, and in which almost all signals to investors and entrepreneurs flash red rather than green.
Written by Ann Bernstein, head of the Centre for Development & Enterprise
Article first published by the Business Day