Initiatives > Legal successes > SONA – Sakeliga’s advice for a rapid economic turnaround in 2019

President Cyril Ramaphosa will be presenting his second State of the Nation address on Thursday – in a policy-climate which is not only uncertain, but also counterproductive. Pres Ramaphosa faces the difficult task of not only placating international and local investors and juggling severe domestic economic challenges, but also curtailing the belligerent influences in his own party.

The South African economy is in desperate need of a different kind of SONA, one that serves to improve economic prospects almost immediately. Such a SONA would include policy-announcements along the following lines.

  1. The impact of B-BBEE should be assessed, policy revised

The ANC’s brand of Black Economic Empowerment is counterproductive and harmful to the economy.  What it boils down to is transfers of ownership at the expense of employees, entrepreneurs, and consumers from all walks of life. Moreover, the policy has never been subjected to a thorough cost-benefit analysis that evaluates the effects on productivity, investment, red-tape and overall compliance cost.

The present application of the policy also fails to heed to the reasonable recommendations in the Final Recommendations of the International Panel on Growth in 2008, produced on request of then-President Thabo Mbeki and chaired by professor Ricardo Hausmann. Prof. Hausmann is presently consulting with the treasury on economic policy. Recommendation 20 of the 2008 report called for the elimination of the equity participation requirement for newly-formed businesses.

Sakeliga would like to see initial decisive steps toward scaling down B-BBEE, starting with retro-actively exempting bona fide new businesses, formed from 2008 onward, from B-BBEE equity requirements.

  1. The risk SOE’s pose to the economy should be minimised

State owned enterprises currently represent a clear risk to the South African fiscus. While previous SONA addresses have made many promises along the lines of cleaning up the governance of these institutions, these efforts have borne little fruit. In fact, it seems that things have continued to deteriorate – with even the Public Investment Corporation’s (PIC) R2 thousand billion wallet being implicated in allegations of corruption.

State capture and corruption are only symptoms of a far more serious underlying condition – the capture of private sector resources and activities by the state. If Ramaphosa is serious about making the economy work better, he would be well advised to present a road map to a scaling-down and privatisation of risky SOE’s such as Eskom.

  1. The independence of the Reserve Bank should be placed beyond contention

Despite Ramaphosa’s assurances in Davos earlier this year, the ANC, judging by its election manifesto, seems intent on intensifying political interference in the operation of the South African Reserve Bank. If Ramaphosa is serious about attracting investment in the South African economy, he must provide strong assurances that the currency will not fall under undue political influences.

  1. Scaling back Government

South Africa’s cabinet, comprising of 70 ministers and deputy ministers in addition to the President himself, is far larger than similar bodies in other jurisdictions. This trend continues all the way down the line – with South Africa’s wage bill being far too large, proportional to GDP, at around 11,7%.

These jobs aren’t for free, of course, as they are created and maintained by government at the cost of jobs in the private sector – jobs which are under constant threat by the economic consequences of Government’s ill-fated policies.

The private sector needs far more room to grow and raise employment – and scaling back the government’s payroll (along with concomitant taxes and regulation) will give it ample opportunity to do so.

 

  1. Securing private property rights

The discourse on land reform and expropriation without compensation has done serious damage to the South African economy – and will likely continue to do so if public discourse continues along the same lines. It is imperative that the President should commit, unequivocally, to preserving and protecting property rights.

  1. Corruption should be addressed adequately

The South African public needs more than just an endless stream of commissions of inquiry to effectively combat corruption. Self-serving bureaucratic gatekeepers to the economy do far more harm than can be measured simply in the money-value of bribes and ill-gotten tenders. To restore confidence and the rule of law, immediate steps should be taken to prosecute those implicated – but, in the longer term, opportunities for rent seeking and special favours by officials and regulators should be phased out.

 

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