Thursday, May 28, 2009

The ANC and economic policy: Destination unknown

George Palmer writes on the prevailing atmosphere of uncertainty and confusion among investors.

The comrades are taking charge of the ship of state, determined to make radical course corrections. Destination? Unknown.

Not that the Mbeki regime always steered the right course.

Far from it. Just look at the parastatal sector mess the Zuma crew is inheriting. It can hardly deliver anything efficiently due to the failure to appoint, or promote, qualified people to key positions; the tender process is in shambles. Companies have been strong-armed to surrender equity - mainly to Mbeki cronies - in the name of Black economic empowerment. Corruption is rampant.

But at least under the Mbeki-Manuel-Mboweni troika investors and business leaders had the comfort of continuity.

They knew broadly what macro-economic policy to expect: a disciplined fiscal regime emphasizing balanced budgets; a monetary policy whose target was price stability; and a sustainable rate of growth in GDP driven principally by private sector investment operating in a comparatively free market environment.

There were also agreed social objectives: wider employment opportunities particularly for the less-skilled and under-educated; better working conditions and wages; and easier access to affordable housing for those with low-incomes.

Not perfect to be sure. But realistic enough to provide the predictability investors, domestic and foreign, needed to assess the potential risks and rewards in establishing new enterprises and expanding existing ones. The overall result was a post-1994 era of reasonably rapid economic growth and job creation in which most, if not all, South Africans shared, albeit unevenly.

Now all that is about to change as the Zuma crew begins to implement the pre- and post-election manifestos of the ANC-SACP-COSATU alliance. And with them come a host of unknowns that heighten investment risk and generate anxiety among the business community.

Peter Duminy, former Director of the Parliamentary Office of the South African Chamber of Business, lists some of the reasons for the prevailing atmosphere of uncertainty and confusion:

The Presidency: We are in the dark about:

(a) Zuma's grasp of the key issues that are likely to call for difficult decisions

(b) who will exercise the most influence on those decisions

(c) whether Zuma will, in fact, be the key decision-maker during his five years in office. Or will others? And if so who?

Economic Portfolios: We don't know --- and possibly are not supposed to know --- which of several ministers/departments will carry the most weight in determining economic policies and their implementation. We don't even know whether the President himself has firm views on who should decide what. All we know is that ministers have been told to define their respective responsibilities, if possible by November.

Government Intervention: No one as yet has any clear idea how the ANC's proposed shift to the Left is going to impact economic growth, the private sector's prospects, and the current market-driven allocation of resources.

Monetary Policy: Who will be the next Governor of the Reserve Bank and thus set interest rates? And will he/she comply with the Constitutional mandate and give priority to safeguarding the value of the rand (via inflation targeting)? Section 224 of the Constitution states that "The primary objective of the Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth ... The Reserve Bank in pursuit of its primary objective must perform its functions independently and without fear, favour or prejudice, albeit "in consultation with the Cabinet member responsible for national financial matters".

Amend the Constitution? : A change in the Bank's mandate would require a two-thirds majority of the National Assembly. According to Press reports Finance Minister Pravin Gordhan (a life-long member of the SACP) has indicated he intends to review present inflation targets.

The Judicial System: The status and independence of the judicial system is under increasing threat as a result of ill-chosen appointments to the judiciary and/or the questionable behaviour of some appointees. At one time the Constitution seemed the best imaginable but now it appears to be unable to ensure the reputation and independence of the judiciary.

Organised Labour: Cosatu has undoubtedly increased its political influence. But we don't know how this will play out in terms of tariff protection for industry in view of South Africa's WTO obligations. Nor how the government's commitment to "decent work" will impact today's high levels of casual labour in the context of a fast-deteriorating macro-economic situation.

Business Lobby: In contrast to the growing influence of organized labour, that of organized business has been weakened by the transfer overseas of many corporate head offices.

Replacing confusion with clarity cannot wait. It should be Zuma's top priority. One can scrutinize both the pre-election and post-election manifestos of the ANC and its Alliance members and one will be hard put to find any acknowledgement of the private sector's vital role in innovation, investment, risk-bearing, productivity, efficiency, employment and wealth creation.

It's as if these key private sector drivers of prosperity, work opportunities, and higher living standards are no longer considered relevant by the new regime. And will the Accelerated and Shared Growth Initiative for South Africa (AsgiSA), which Zuma's economic policy team inherits from Mbeki, be seen as equally irrelevant?

In its place are opaque references to a "transition to a developmental state" that will play "a central and strategic role in the economy". And emphasis is put on a "state-led industrial policy" that will lead to "the transformation of the economy"; on "the targeting of "labour-intensive production sectors"; and on "a massive public investment programme for creating jobs".

The belief that more government intervention in economic life and centralised economic planning by politicians and bureaucrats --- who know little or nothing about business or about what consumers really want ---- can deliver significant economic growth, higher living standards, and lower unemployment is a dangerous illusion.

It has no foundation in real life.

Since the 1980s country after country has abandoned attempts at central planning and embraced privatisation of their economies. They include former communist countries such as Russia, Hungary, Poland, Czechoslovakia as well as China. Countries like India, which were once burdened with initiative-suffocating bureaucracies, have been freeing up their economies as fast as they can. They recognize that the role of the state is not to stifle private enterprise but to focus on regulatory oversight, ensure financial transparency and promote a competitive arena in which consumer protection and the rules of the game are observed and enforced.

Here's a well-worn cliché to ponder: "A rising tide lifts all boats". Implementing the sort of centrally-planned economy envisaged by President Zuma's allies virtually guarantees that for South Africa the tide will soon be going out. Fast.

George Palmer is a former Editor of the Financial Mail

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