Category: economic policy

Categories
economic policy entrepreneurship

The economic funk continues/ interest rate response from SARB

Governor Gill Marcus has had some tough words for South Africa lately. At a gathering of accountants some weeks ago, she pointed out that our problems are of our own making. A sobering indictment, during times in which we like to couch our challenges in terms of the after-effects of the global financial crisis. But there is a silver lining in these words, reminding us that this economic funk we’re in is for us to resolve.

But with no resolution on sight so far, the Reserve Bank, mindful of its core mandate to keep inflation in check, has increased the repo rate by 0.25 to 5.75. The Governor took us through the context one more time: weak growth barely kept aloft by household expenditure, labour relations strife, exchange rate depreciation and current account pressures.

The moderate increase of 25 basis points seems to be driven by the need to strike a balance between restraining inflation (which, as she points out is as a result of supply side shocks, not run-away consumer demand) without dampening economic growth. However, this might not be the last interest rate hike. According to the Governor, future moves will be gradual and data-dependent.

The central bank has lowered its growth forecast for 2014 to a pitiful 1.7%. The metal strike has not been factored in fully into the bank’s analysis and it’s not clear how deep that strike will turn out to be. Wage demands, if unaccompanied by productivity gains as the Governor warned, also pose a risk for higher inflation. And there’s Eskom tariff demands to add to the mix. Only in the second quarter of 2015 is inflation expected to be back within the 3 to 6% range.

It’s also concerning that private sector investment and job creation remain weak. Recent statistics have shown that employment gains have been in the public sector; whereas the private sector shed jobs, especially in mining.

The Governor was at pains, as always, to point out that monetary policy cannot generate economic growth. She thinks that trust issues between labour and employers have to be addressed. And the structural reforms suggested by the National Development Plan have to be implemented. The NDP mantra has probably done little to calm anxieties in the economy. Clear communication from the government on implementation plans or progress is overdue.

***

I spent this morning at the Branson Centre for Entrepreneurship in Braamfontein, listening to their entrepreneurs pitch their business ideas to James Caan of Dragon’s Den fame. He was known as the nice dragon for his constructive approach to criticism in an otherwise tough show. It’s always inspiring to engage with people who are building businesses from scratch.

In years to come, we should be talking about businesses such as Vuyo’s (which could easily become a food empire) or Ubuntuism (a business built on a strong values-infused brand) or Yivani Cosmetics (an export-oriented enterprise).

I’m optimistic that determined entrepreneurs will push through anyway, in spite of the difficult economic climate, but it would be much better if we made it easier for them to succeed. It’s not that entrepreneurs are homogenous and demand similar policy stances from the government. In today’s group, there were importers and also exporters, with obviously different views on the exchange rate. But the basics: such as the supply of electricity and its pricing, stable labour relations, effective logistics, affordable credit; should be a non-negotiable package whose existence new businesses can take for granted. These are some of the reforms called for in the NDP. In fact, the very premise of the NDP is that economic growth will come from mass entrepreneurship.

The Governor should meet the passionate people behind these business. This won’t change her monetary policy stance, but it might cheer her up a bit.

Categories
ANC DA economic freedom economic policy EFF political economy

Election 2014: It’s all about the economy

The Economic Freedom Fighters party, with its vintage policies snatched hastily from the historical archives, should not be mistaken for a throwback. It simply understands that when people revolt, rarely do they replace an old order with creative, futuristic ideas. Be it the French Revolution, the Iranian revolution or the Arab spring, we find that old ideas find their niche after the upheaval. They may even come to dominate. Though the EFF is not about to deliver radical social change, it has chosen to frame its identity in revolutionary terms and it knows that innovation is not essential. Change, or the promise thereof, or even its illusion, is enough. Certainly enough for the EFF to gain the kind of electoral share that makes them power brokers.

The EFF’s undoing is that it promises economic emancipation but its policies reflect the opposite. This is not a real problem for them, of course, because they are not about to form a national government any time soon. The EFF promises freedom to toil under state monopolies in an economy with almost no space for black people (who they claim to emancipate) to participate in independent economic activity. In fact, it’s more of the same, with black people being dictated to in their economic lives. The party also indulges in an economic fantasy where South Africa’s industry is protected by high tariffs and tough localisation policies, yet the rest of Africa and the world embraces its products without so much as a phone call to the WTO. 

Freedom, closely examined, turns out to be a defeatist retreat from private enterprise couched in fiery language. Capitalism has failed to deliver for the South African masses, the rhetoric goes; but have attempts at communism delivered well-being anywhere?

The ANC tells us that it will be guided by the National Development Plan in its next term in office. It also tells us that it will continue to implement policy instruments such as the National Growth Path, the National Infrastructure Plan and the Industrial Policy Action plan. Its manifesto suggests an attempt to balance private sector-driven growth with state intervention, which promises to be extensive. Past experience shows that the party has struggled to strike this balance. The next government will continue to bumble along at the now-established Khongoloserate of growth which averages around 3% per year.

The EFF has the potential to provide scrutiny over government action, though it is difficult to speculate on the quality of its forthcoming contributions. Given its self-declared Marxist-Leninist Fanonian stance, it will reinforce, if not spur, the ANC’s drift towards state-led beneficiation and industrialisation in an uncritical manner.

Shooting at an unprecedented 8% growth rate, the DA puts forth a conventional growth model, which can generate some jobs (though not 10 million) and alleviate poverty and inequality. The risk of such a conventional growth model is that it cannot, on its own, deal with the legacy of centuries of oppression, which means that many people do not have the basics in education, transport and health for example. This approach also treats the outcomes of past injustice as if they were just a set of unfortunate and accidental deficits to be treated with gradual remedies. Our constitutional order, if it is to mean anything, requires a far more robust response to the effects of the systematic exclusion of the majority from the economy. The DA’s document on economic inclusion deals with this legacy, but this is a strain of thought that is under-developed and also under-exposed in the party’s communication of its policies and its previous engagements in Parliament. This is unfortunate, for a party which is not only the second most important in South Africa, but which hopes to occupy the Union Building.

Full article at Daily Maverick: Election 2014: It’s all about the economy
Categories
competition policy economic development economic policy political economy wealth

The path to riches is paved with crony capitalism

In the wake of the Public Protector’s report on Nkandla, many of us are reflecting on the type of society we have become. What the report reveals, in line with many other scandals, are the dysfunctions that may emerge in the relationships formed between private service providers, and public sector officials and politicians. The Economist just last week ran with a cover story on ‘The new age of crony capitalism’ based on an index it had created of countries that are friendly to that form of wealth accumulation.

Full article at Daily Maverick: The path to riches is paved with crony capitalism
Categories
competition policy economic policy mergers political economy Video

Role of public interest criteria in assessment of mergers

This is always a hot topic in competition policy discussions, especially since South Africa is one of the few countries in the world to have a formal approach to the assessment of public interest issues by an independent competition agency during the merger approval process. This is an interview I participated in at Deal Flow with host Erika van der Merwe and Webber Wentzel partner Robert Wilson. Pity we didn’t have enough time to fully explore that (tangential) philosophical debate on the role of business in supporting policies geared at employment generation. With years of jobless growth behind us, I think this is a debate we should all have more often.
Categories
economic policy IMF micropolicyview National Development Plan

IMF highlights insider/outsider dynamics and the need for structural reforms

The IMF has released its report on the South African economy. From a macro growth perspective, the report argues that it’s two steps forward (government spending, export growth) & two steps backward (weak consumption, muted private investment) for the economy. Various areas of concern are highlighted:

  • Lackluster economic performance compared to other emerging markets and commodity-based economies
  • Fiscal and current account deficits
  • Depreciating currency
  • Higher risk rating of the country’s debt
  • Labour and social tensions
  • Negative demand conditions in export markets
  • Low household savings rate
  • Risks of unsecured lending
And the advice includes:
  • Speedy implementation of the National Development Plan
  • Labour market reforms
  • Product market reforms
  • Improved business climate
  • Trade liberalisation
  • Increased co-ordination amongst (financial) regulators
The IMF also echoes the view that there is policy uncertainty in the country, as a result of political debate. It may be true that there is a climate of uncertainty with regard to government policy. However, the importance of political debate in a young democracy cannot be minimised. In fact, debate is crucial to any democracy. The real point is the need to balance debate with implementation and to avoid paralysis. 
I was musing to myself early this week that a US-style government shut-down driven by political contestation will remain unthinkable for a long time in our country. But then again, factionalism-induced paralysis may lead to our own unique kind of (invisble) shut-down. But let’s not condemn debate in and of itself.
The macroeconomic arguments in the report have already been ventilated in the press, but the microeconomic aspects are also worth reflection. The report appreciates the challenges of concentration and uncompetitive markets. The enhanced powers of the competition authorities (the power to conduct market inquries) are noted. There is the suggestion that greater competition in product markets should be twinned with greater competition in labour markets, and developed as part of a ‘social bargain’.
In short, the argument is that the modes of operation and agreements entered into by big business and big labour have locked the economy into a low growth scenario characterised by high prices, high wages and unemployment. So the deal would be struck thus: organised labour exercises wage restraint, big business submits to measures to increase competition and government provides better public services. The report makes some interesting suggestions on how to improve the competition commission’s capabilities, including, quite obviously, increasing its resources.* 
International competition is important, and the report argues for further reductions in tariffs. Interesting, in the wake of the recent determination to increase tariffs on certain lines of poultry products.
* Some of the analysis on the competition regime draw on a 2012 paper by Makhaya, Mkwananzi and Roberts (How should young institutions approach competition enforcement? Reflections on South Africa’s experience) published in the South African Journal of International Affairs.