Better Choices: Ensuring South Africa's Future

By Pan Macmillan South Africa

‘A must-read, accessible and skilful account of South Africa’s socio-economic challenges, policy and governance choices.’– THEMBA MASEKO

All the numbers on South Africa’s crisis dashboard are blinking red. The economy is failing to grow and more and more young people find themselves on the outside looking in as education falters and jobs disappear. Energy and transport are in crisis. Governance is floundering as debt mounts and government runs out of money.

Better Choices is a collection by South Africa’s top thinkers on the political economy, providing an unflinching account of the myriad challenges the country faces. The picture that emerges is of a nation on the brink of a catastrophic slide into failure unless better, if tough, policy choices are made.

As stark as these problems are, their solutions are tantalisingly close at hand. The chapters in this book outline exactly the solutions – those ‘better choices’– that need to be made by leadership to alter the country’s bleak trajectory.

South Africa cannot talk its way out of trouble. Key to success is removing the sources of friction – the red tape, over-regulation and rents – that slow down investment. This is only possible if a more effective, focused government acts decisively.

Compiled by The Brenthurst Foundation, Africa’s leading think tank on economic development, Better Choices is for those who want to build a positive, inclusive future for South Africa.

• Language: English
• Publisher: Pan Macmillan South Africa
• Release date: Apr 1, 2022
• ISBN: 9781770107540

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Better Choices

Ensuring South Africa’s Future

Edited by

Greg Mills, Mcebisi Jonas, Haroon Bhorat and Ray Hartley

PICADOR AFRICA

THEMBA MASEKO is the Director of the

Executive Development Unit at the Wits School of Governance.

First published in 2022 by Picador Africa

An imprint of Pan Macmillan South Africa

Private Bag X19, Northlands

Johannesburg

2116

www.panmacmillan.co.za

isbn

 978 1 77010 753 3

e-

isbn

 978 1 77010 754 0

Editorial matter and selection © 2022 Greg Mills, Mcebisi Jonas, Haroon Bhorat and Ray Hartley

Text © 2022 Individual authors

All rights reserved. No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior permission of the publisher. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages.

Editing by Sally Hines

Proofreading by Russell Martin

Design and layout by Triple M Design, Johannesburg

Cover design by Joey Hi-Fi

Contents

foreword by jonathan oppenheimer

preface and acknowledgements

abbreviations

Introduction: Better Choices for South Africa Greg Mills

High roads, low roads, a fork in the road?

The political conundrum

Plans, plans, plans – policy rich, priority and implementation poor?

More than agency

Conclusion: A path to better choices

1 Governance Choices Ivan Pillay, Sri Kesavan and Yolisa Pikie

Background

A systems view of organisations

State of systems in the state

Most state institutions perform very poorly

A basic operating system

How does governance fit in?

Understanding governance operationally

Does the presence of four lines of defence ensure compliance?

Building a solution

The hard choice

Implementing the solution: A Governance Improvement Plan

Conclusion

2 Crime and the Justice System Gareth Newham

The impact of state capture on the criminal justice system

Decline of the criminal justice system

The consequence for public safety

Why is South Africa so violent?

What has been done?

What can be done?

3 Policy Choices for the Labour Market Haroon Bhorat and Ben Stanwix

A nation in search of jobs

Structural shifts

The public sector, union membership and wages

Labour market institutions

Dispute resolution systems

Bargaining councils

The informal sector

Scarce skills and the sectoral training system

The SETA system

Critical skills and immigration constraints

Direct employment creation

Conclusions and recommendations

4 Service Delivery at Sub-National Level Andrew Murray

The role of provincial government

Governance performance

Service delivery performance: Education

Service delivery performance: Health

Local government and service delivery

Conclusion, thoughts and solutions

5 The Informal Economy and Informal Employment in South Africa David Francis and Imraan Valodia

Definitional issues

The size and shape of the informal economy in South Africa

The informality conundrum in South Africa

Policy proposals – what can be done?

Conclusions and three critical actions

6 The Politics of the Political Economy Mcebisi Jonas

Conceptual framework

Reconciliation

Renationalisation

Capture

Reform

Conclusion

7 Competition Policy and Excessive Market Power: The Other Path Liberty Mncube

The stack of the deck: Excessive market power

The challenge: COVID-19 crisis and the doom loop

The choices

Conclusion

8 Fixing SARS: An Institution Dismantled by State Capture Dennis Davis

The Nugent Commission final report, 2018

The first turnaround: The Gordhan era

The Moyane era

The challenges facing the new Commissioner

Towards solutions

9 Social Insurance: Building Better Institutions Andrew Donaldson

The Road Accident Fund

Pension, death and disability coverage

National health insurance

Employment, unemployment and basic income support

Conclusion

10 The Origins of the Fiscal Crisis Michael Sachs

The road to crisis

Political transition

Incoherent policy

The political economy elements of a chronic fiscal crisis

Conclusion

11 The Role of SOEs in Development in South Africa Alan Hirsch

A brief history

The rise of statism in the ANC

The damage done

Crisis and response in the South African SOE landscape

Why is it hard to get what you expect out of SOEs?

How to think about SOEs

Conclusions and recommendations

12 Eskom and the Great Power Puzzle Ray Hartley

Panic stations

Hyenas at the door

Crisis point

Can a new broom sweep clean?

Balancing the books

The structural challenge

Are we there yet?

The big energy choices

13 Transnet on the Line Derek Thomas

SOEs and the South African growth imperative

Transnet: Drivers of the current position

Improving Transnet

Private sector participation in Transnet

Better policy choices for Transnet

14 Agriculture in South Africa

Policy Reforms to Stimulate Growth and Employment

Wandile Sihlobo and Gracelin Baskaran9

Transformation and redistribution

Addressing structural inefficiencies in South Africa’s agriculture

South Africa’s agricultural growth and employment

Policy recommendations

Concluding remarks

15 Creating Employment: Can Labour-Intensive Manufacturing Work? Anthony Black

The poor performance of light manufacturing

Is labour-intensive manufacturing still a viable development strategy?

What accounts for poor performance?

What is the way forward?

Conclusion

16 Getting Tourism Flying Kate Rivett-Carnac

Recent tourism performance

Why the low growth rates?

COVID impacts: An existential crisis

The Tourism Sector Recovery Plan

Three priority actions for tourism recovery

Conclusion

17 The Financial Services Sector and Its Support to the Economy Annabel Bishop

South Africa’s banking sector in perspective to GDP

Recent history and the current state of the banking sector

The negative impact of government debt on the banking sector

Climate change and the responsibility of the banking system

Early-stage financing

Conclusion: The imperative for better choices

18 Tech and Business Process Outsourcing Tim Harris

Background

A 250-year-old trend worth tapping into

An increasingly remote world

The ‘offshorability’ of service sector jobs

BPO and other exported services

Tech now rules the world

Better policy choices for tech and BPO

Three critical actions

about the contributors

Foreword

Jonathan Oppenheimer

South Africa is poised, seemingly, on the edge of a low-growth, high-unemployment abyss, from which it needs a miracle to emerge.

And yet, the country consistently continues to defy the harbingers of doom, specialising in snatching victory from the jaws of defeat. Think of the 1994 election, the drop-goal that sealed the 1995 Rugby World Cup in extra time, preparations for the 2010 World Cup, and even the 2019 Rugby World Cup. We have come to expect that a few good men and women will perform miracles on the majority’s behalf in spite of the odds and the familiarly dire predictions.

It has been like this for a long time. We seem to prefer living on such an edge, even though Jan Smuts characterised South Africa as a place where ‘the best never happens, and the worst never happens’. He has been proved right, so far.

Still, this approach comes with a tremendous cost in dashed opportunities and failed dreams. It squanders potential, while the country slips backwards, not only against expectations, but when measured against the most jarring empiricism of all: our citizens’ wealth when compared to the rest of the world. South Africa has seen a dramatic decline in its GDP per capita relative to global income, from 84.2% in 1990 to 66.4% in 2019.

We are now going to have to pull yet another of our ‘miracles’ out of the proverbial hat. And this is going to be the toughest challenge of all since we have been able to ignore the telltale signs for some time, partly because of our depth of talent where it matters.

We need growth, and growth across the whole economy: growth that creates real jobs that are sustained by real activity; growth that is felt at all levels of the country and not just by a small elite who have access to the financial markets.

The COVID-19 crisis has laid bare all of the signs of ill health of the South African economy in three respects: we spend much more than we can afford; our economic growth rate has been low and stuck there for more than a decade; and our society is increasingly characterised by in­equality, essentially between the minority, who have a stake in the economy, and the majority, mostly young people, who are on the outside looking in, dependent on social grants or hand-to-mouth informal work.

COVID-19 has exposed already shaky circumstances, the result of a number of factors that have combined to constrain the country’s ability to grow: a quarter-century of insufficient growth, governance built on the back of an apartheid legacy and amplified by a decade or more of state capture, an enormous skills deficit and an over-influential trade union sector.

We know what to do, at least economically, to get out of this trap. We have to attract more capital into the real economy, the economy that makes things and services and so creates, rather than redistributes, wealth. We need to cut the state wage bill, grow the economy, decentralise powers and services (including electricity, policing and transport), loosen onerous labour laws that make it difficult to hire people, and possibly increase taxes.

And we have to do this aggressively and quickly because without faster growth, and slower expenditure, our situation will not stabilise. All COVID-19 has done is accelerate the day of reckoning.

There will be no acceleration of growth without investment. We need to ask the hard questions – and this book does – about why it is that South Africa is failing to attract investment while many of its peers are succeeding. The most obvious answer is that we must finally make good on our promise to make it easier to invest by reducing the frictions facing business – including endless permissions, visa challenges, connectivity binds, the cost and reliability of power, and labour market rigidities. These are among the ‘better choices’ that must be made, however politically painful they might be.

The starting point must be to strip away unnecessary barriers to productive investment. And that must begin with a new mindset towards regulation.

The change in mindset that is needed is from process-heavy, rules-based regulation to regulation that is purpose-led and nimble. Flexibility would allow businesses to innovate and seek out better methods of achieving the regulatory goal. That flexibility also means that purpose-led regulation is more adaptable when market conditions are changing rapidly, such as now.

We do not have to look far to find an example of how such reforms can change the game. Vaccine approvals have been a case study in purpose-led regulation – which sets objectives, principles or outcomes for regulation, without specifying in detail how these are to be achieved. Economic ­policy-makers should learn from the vaccine experience to drive a rapid and wide-reaching economic recovery.

There is much that still makes South Africa attractive as a destination for investment and a place to do business, aside from the usual pleasantries about weather and people, as important as they might be. We are an emerging market, which means that there will always be significant economic challenges but high-return opportunities available to investors.

If we do not make the structural changes, we will not be able to create the virtuous circle of growth that creates job opportunities, which, in turn, attract more capital-reinforcing growth, jobs and social equity and stability. This is not a zero-sum game where we have to rob someone else to prosper. There is abundant capital available – all we must do is make it attractive for that capital to flow into the real South African economy. Government only has to give our nation of great entrepreneurs a chance to shine.

Until now, our politics has hindered the necessary changes from occurring. A move to the policy centre and abandoning dead-end paths to socialism would play well not only with the market, but also with a population tiring of the chimera of visions and plans. At the same time, this acknowledgement should not forgo the social obligation we must all shoulder for a more just society, free from poverty and rich with opportunity.

In this way, leadership is a responsibility for all of us, not just for politicians. We need to expect it from our leadership and pressure and support them through our engagement. Engaged citizenry, a hallmark of our smaller communities, is a critical strength in times of adversity and can be a powerful asset for change. We all must use that power and be participants, and not spectators, in this process.

It is thus with some pride that The Brenthurst Foundation has responded to this challenge in assembling this volume of expert contributions on the country’s critical thematic and sectoral challenges. More importantly, the authors have applied themselves not just to outlining the problems, but developing practical policy solutions, here presented as key better choices for South Africa.

Preface and Acknowledgements

This book has its long-term genesis in a series of questions about the art of the possible in South African policy-making, and the extent to which the direction and trajectory of any country is a political choice.

‘Governments come and go,’ warned Denis Healey in this regard, ‘but the rules of arithmetic and geography remain the same.’¹ The former British foreign secretary and chancellor of the exchequer might have been referring to the fiscal constraints facing the South African government, or the limits of economic redistribution in the relative mismatch between political and individual aspirations and the absence of investment and growth, or its trade constraints at the relatively poor (by the global norm) southern tip of Africa. Yet, within these hard boundaries, there remains considerable scope for policy manoeuvre – the soft space that was explored in Mcebisi Jonas’ refreshing 2019 take on South Africa’s economic options after the Zuma presidency, After Dawn: Hope after State Capture. The former deputy finance minister’s insights fuelled, in turn, a debate within The Brenthurst Foundation about how to translate this thinking into ­immediate-term and practical policy steps. As South Africa’s economic crisis dwelled and deepened, so too was the sense of urgency to respond heightened in a constructive way; hence this volume.

But economic choices are at least partly a product of politics. There are profound debates to be had about the role of leaders. Do people get the leaders and governments and thus the policies that they deserve? In a democracy, Joseph de Maistre maintained, this was true. And what if, at least in some circumstances, the system turns good people into bad leaders, incapable of doubling down on difficult reforms?

Here we should take heart from the Asian experience, the study of which was a further prompt for this analysis, which appeared in 2020 as The Asian Aspiration: Why and How Africa Should Emulate Asia – and What It Should Avoid. Asian societies have assumed a responsibility (and suitable mindset) to fulfil their part of the development bargain, which is reflected in the commitment of their leadership to popular welfare above all else. By contrast, many in Africa have simply ‘opted out’ of politics: out of fear of repression in some cases, out of a fear of being labelled on racial or ethnic grounds, or just because they could not be bothered. If the turnout of the electorate is anything to go by, South Africans are increasingly disengaged from politics and the choices that lie behind our national direction: it fell from nearly 90% in the 1999 national election to the 2021 municipal poll when just under half of registered voters turned out.

And yet, Asia reminds us of the value of a change in policy direction by leadership, whether this be from Mao Zedong or Deng Xiaoping in China, or from a command to a free market economy in the case of Vietnam, both countries that could easily justify their policy inertia and choices on a bloody and divided history.

Herein lies the key message from this collection of essays by leading South African public and private sector intellectuals: we have options, and we don’t have to be prisoners of our past. Fears that inhibit a change of direction are frequently exaggerated and then seldom remembered as the development benefits of reform accrue. The current economic model of funding redistribution through social grants to a burgeoning group of unemployed people is neither just nor sustainable.

The editors would like to thank several important people who have helped to facilitate this volume on South Africa’s better choices. Leila Jack, Wadia Naidoo and Sarah Marriott ably marshalled the two virtual workshops in 2021, at which early versions of the essays were presented. Pan Macmillan’s team of Terry Morris, Andrea Nattrass and Sally Hines – again assisted by Sarah – quickly and assiduously brought the essays together in this production. And Jonathan Oppenheimer selflessly funded this project, as he has done The Brenthurst Foundation since its inception in 2005.

Greg Mills

Pringle Bay, January 2022

I am grateful to my friend, the late Lord John Roper, for this observation.

Abbreviations

AG – Auditor-General

ALMP – active labour market programme

ANC – African National Congress

ARV – antiretroviral

ASGISA – Accelerated and Shared Growth Initiative for South Africa

BBBEE – Broad-Based Black Economic Empowerment

BEE – Black Economic Empowerment

BPO – business process outsourcing

CCMA – Commission for Conciliation, Mediation and Arbitration

CEO – chief executive officer

CWP – Community Work Programme

CX – customer experience

EFF – Economic Freedom Fighters

EPWP – Expanded Public Works Programme

ERRP – Economic Reconstruction and Recovery Plan

ETI – Employment Tax Incentive

EU – European Union

FIC – Financial Intelligence Centre

4IR – fourth industrial revolution

GDP – gross domestic product

GEAR – Growth, Employment and Redistribution

GVA – gross value added

ICT – information and communications technology

IEA – International Energy Agency

IMF – International Monetary Fund

IP – intellectual property

IPID – Independent Police Investigative Directorate

ISCOR – Iron and Steel Corporation

JCPS – Justice, Crime Prevention and Security

LPG – liquefied petroleum gas

MFMA – Municipal Finance Management Act

MRGP – maximum refinery gate price

MRP – maximum retail price

NDP – New Development Path

NDPP – National Director of Public Prosecutions

NEC – National Executive Committee

NEDLAC – National Economic Development and Labour Council

NERSA – National Energy Regulator of South Africa

NGP – New Growth Path

NHI – National Health Insurance

NPA – National Prosecuting Authority

NSC – National Security Council

OECD – Organisation for Economic Co-operation and Development

OEM – original equipment manufacturer

PFMA – Public Finance Management Act

QLFS – Quarterly Labour Force Survey

RAF – Road Accident Fund

RDP – Reconstruction and Development Programme

RET – radical economic transformation

SAA – South African Airways

SAB – South African Breweries

SABC – South African Broadcasting Corporation

SADC – Southern African Development Community

SADTU – South African Democratic Teachers Union

SANRAL – South African National Roads Agency

SAPS – South African Police Service

SAR&H – South African Railways and Harbours

SARB – South African Reserve Bank

SARS – South African Revenue Service

SETA – Sector Education and Training Authority

SEZ – special economic zone

SMME – small-, medium- and micro-sized enterprise

SOE – state-owned enterprise

SSA – sub-Saharan Africa

TB – tuberculosis

TERS – Temporary Employer/Employee Relief Scheme

UK – United Kingdom

US – United States

VAT – value-added tax

WHO – World Health Organization

Introduction

Better Choices for South Africa

Greg Mills

Summary

South Africa’s economic and growth performance suggests that the time for tinkering around concepts of improving state capacity and promoting visions is over. The key development problem is political. The country remains constrained by its history, the legacies of both apartheid and the liberation movement. Solutions are within reach. But fixing the state means increasing capacity, while making critical choices in leaving aside certain things that the state should avoid trying to do and putting people at the centre of development. In winning the battle for ideas, delivery, not debate, is necessary. In all this, the key question is: what is the strategy for South Africa’s recovery and growth?

The American physicist J. Robert Oppenheimer, sometimes credited as the ‘father’ of the atomic bomb, said of the challenges and changes of that age that ‘the world alters as we walk in it’.¹

He might well have been speaking of the world after COVID-19. The pandemic and the effects of the ensuing lockdown have disrupted the global economy, accelerated developments, amplified contradictions and challenges, and forced rapid adaptation. These events will likely continue to disrupt labour markets, push up levels of indebtedness and limit state manoeuvrability, accelerate digitalisation at the expense of some jobs, and see the maintenance, for a while, of unprecedented peacetime fiscal deficits. These events might also encourage longer-term improvements to the way the world works. But this outcome will largely depend on the way states respond. There is reason to believe that demand consumption will speed a return to normal economic activity, sooner rather than later. After all, people remain social creatures, with appetites and needs.²

The crisis has seen remarkable and rapid changes, not least to the role of technology, driving a digital transformation that has leapfrogged 10 normal years. That comes, however, with costs and trade-offs, not least to jobs – or at least the way in which we go about work and the contrasting abilities of some to access this new world. Data is no longer a luxury, but a lifeline – the new oil of commerce. Some other things remain the same.

After the Second World War, Oppenheimer used his position as chairperson of the General Advisory Committee of the US Atomic Energy Commission to lobby for international control of nuclear power. He was stripped of his security clearance amidst McCarthyism in 1954, and with it his political influence. Speaking truth to power was then, as now, a difficult road to navigate.

His speech at Columbia University’s bicentennial the same year explored the paths that connect the different ‘villages’ in which we pursue work in art and science. He argued for a cultivation of these intimate paths, as an antidote to the superhighways of the mass media, which create around us ‘a great, open, windy world’. Oppenheimer might have been speaking of the importance of relationships, compacts and collaboration in the ­present-day world.

The societies that have done better in managing crises are those that are characterised by high degrees of trust, between citizens, business and government, which reflects in standards of governance. Social cohesion is intrinsic to sustainable growth. But it is as much an input for growth as an output of the same phenomenon. There needs to be a shared purpose to make things work in systems that are structured to tackle problems.

The crisis has contrastingly worsened and widened strains already present in societies, including the search in South Africa for a ‘just transition’ from apartheid lifestyles to something more equitable and sustainable in its economic order. Indeed, nowhere is this need for trust better illustrated than in South Africa.

And yet, thinking about our options – our better choices – is a recurring theme in the South African journey.

High roads, low roads, a fork in the road?

In the early 1980s, a team from the Anglo American Corporation produced High-Road/Low-Road Scenarios for South Africa. These scenarios offered a choice between conflict and negotiation, between an increasingly isolated, repressive society and controlled economy and that of an open, non-racial democracy capable of increasingly closing the gap between rich and poor.

Three other sets of scenarios have stood out in South Africa since the groundbreaking Anglo initiative.

A second notable series was produced by Old Mutual in the early 1990s, examining the ‘prospects for a successful transition’. These stressed the need to ensure competitiveness in manufactured exports as part of a two-stage recovery: the government would make large investments in infrastructure and in social programmes, after which a compact between business and government would lay the foundation for the export drive.³

Thirdly, the Mont Fleur Scenarios, concluded in 1992, considered what South Africa would be like 10 years hence, coming up with four possible ornithological outcomes: ‘Ostrich’, in which a negotiated, representative political settlement to the crisis in South Africa was not achieved; ‘Lame Duck’, in which a settlement was achieved but the transition to a new dispensation was slow and indecisive; ‘Icarus’, in which transition was rapid but the new government unwisely pursued unsustainable, populist economic policies; and ‘Flight of the Flamingos’, in which the government’s policies were sustainable and the country went down a path of inclusive growth and democracy. In the last scenario, it was generally agreed that monetary and fiscal discipline was a prerequisite for successful economic development, that foreign exchange earnings also had to be built up by growth in exports and in tourism, and that ‘more efficient delivery systems would be the cornerstone of increasingly effective service provision’.⁴

Finally, the Dinokeng Scenarios of 2009 offered three possible futures for South Africa circa 2020: ‘Walk Together’ (a ‘collaborative and en­abling state, and an engaged and active citizenry’); ‘Walk Behind’ (an ‘interventionist and directive state, and a dependent and compliant citizenry’); and ‘Walk Apart’ (a ‘corrupt and ineffective state, and a distrusting and self-protective citizenry’). Dinokeng’s high-road economic conclusion was to be enabled through business shouldering a greater burden of delivery, and through the formation of ‘social pacts’ and political alliances, the latter forced due to weakened political support for the ruling party.⁵ South Africa, during the Zuma years, increasingly came to Walk Apart.

The traditional selection of two extreme scenarios, the high-road versus a low-road comparator, is analytically crude, however, not least since that always makes the middle-of-the-road option the most likely. It is also misleading: a strawman of two Manichean outcomes forcing a middle option, where the reality supposedly lies somewhere in-between. And the consequence of that absence of choice also has the effect of disempowering the populace as participants – the resignation that ‘there is nothing we can do, we’ll never be Singapore and we are too sophisticated to be Somalia’.

There are vested interests in allowing the debate to trace these schisms. Polarisation around paths and choices allows political actors, especially those on the extremes, to increase their own power by a cocktail of threat, fear and hatred, a tendency which undermines the politics and economics of the centre.⁶ The manipulation of the perceptions of their enemies and their agendas in this way serves to strip opponents of their moral authority and citizenship in portraying a false and stark choice; in South Africa’s case, between the ruling party as ‘progressive’ and the official opposition as returning the country to apartheid.⁷

Such analysis can serve in this way to sabotage a debate about the avail­able choices, and force a consensus about the role of the state in development – an assumption, if you would, that the responsibility for development lies in the hands of the state and not the poor. Get the design right, apply the regulatory and even coercive levers of power, and, according to this argument, development will follow. Yet, the choices about development are wider than an assessment about the gradualism of a socio-democratic state and its determination of the extent of the market.⁸

The political conundrum

We are products, just as J. Robert Oppenheimer was, of our own experiences and expectations, as well as prejudice – political and personal. Put differently, politics is embedded in policy, and policy in politics.

Development is thus a profoundly political process, centring on who gets what, when and how.⁹ Understanding why things happen – and don’t happen – why decisions are made – or not made – in particular ways demands an understanding of the political incentives that shape these outcomes. Without addressing these aspects, reform efforts inevitably fail to take root, and money flows make only a fleeting difference.

This book focuses, inevitably, on the relationship between politics and economics and the policy choices that exist in the interplay between these two disciplines, summed up by the term ‘political economy’. This explains who gets what, when and how (the core questions in the discipline of politics) in the context of scarcity (the key question in the discipline of economics). The key reform challenge in Africa centres on the political economy of change: turning away from the political class having no incentive to correct the system of governance and the policy choices that fuel it.

South Africa is an extreme illustration of the effects of such prejudice. Rather than asking what is possible in South Africa on a neutral canvas – in tourism, in agriculture, in manufacturing, and so on – we ask what we can achieve in spite of or because of such post-apartheid redress. Such policy constraints both limit and institutionalise a political economy of dysfunction and of elite self-justification, where the intersection of political entitlement, ideological boundaries, a private sector driven by rent-seeking and a pernicious governance logic together produce a familiar outcome.

Plans, plans, plans – policy rich, priority and implementation poor?

South Africa has never been short of economic policy documents and prioritised plans. It is policy rich but implementation poor. As ever, the devil is in the detail and, when it comes to how these themes should play out, there remains a sharp divergence of views. The South African economy’s greatest enemy remains itself – the entrenched patterns of decades of doing things the wrong way, which are hard to change.¹⁰

The Reconstruction and Development Programme (RDP), which became the African National Congress’ 1994 election rallying point, reflected the overriding tension in the more than quarter-century of ANC economic policy that followed the 1994 victory.¹¹

The RDP suggested an understanding that there had to be a balance between the state and the market: ‘We are convinced that neither a commandist central planning system nor an unfettered free market system can provide adequate solutions to the problems confronting us. Reconstruction and development will be achieved through the leading and enabling role of the state, a thriving private sector, and active involvement by all sectors of civil society which in combination will lead to sustainable growth.’¹² At the same time, a strong role for the state was envisioned: ‘The democratic government must play a leading and enabling role in guiding the economy and the market towards reconstruction and development.’¹³

The RDP effectively handed the unions considerable power in designing economic policy in exchange for political and electoral support, even though, paradoxically, the unions did not represent the poorest segments of South African society, since those with jobs are not the most impoverished. While economic debate continued in the Tripartite Alliance, on the almost existential issue of the labour market, the unions were able to win, if not always in rhetoric but certainly in policy execution.

The realisation that redistribution, by itself, would not suffice, and that South Africa would have to grow the pie for job creation to be assured and poverty accordingly reduced, came to the fore in policy terms in the Growth, Employment and Redistribution (GEAR) strategy in 1996. This view was driven by a realisation that the country would never repair historical injustices without investing more, moving the country’s trade stance from protectionist to open, and stabilising the macroeconomic environment. The formulation of GEAR signalled the start of public tensions between the Treasury and other government departments, which continues into the 2020s.

GEAR was the first initiative, too, in a series of government plans aimed at answering the tensions – growth or redistribution, public or private emphasis – that were running through the ruling Tripartite Alliance of the ANC, the Congress of South African Trade Unions and the South African Communist Party. By their own admission, it was difficult for some ANC members to live with a market-based economy with ‘the profit motive of business’ at its core, ‘especially in a highly unequal society such as South Africa’s’.¹⁴ This issue was at the heart of the compromise that Nelson Mandela had led the Alliance to after his Damascene conversion to the realities of free market growth – and South Africa’s needs – at Davos in 1991.¹⁵

Under GEAR, the Treasury argued that South Africa had to have an annual growth rate of 6% and create 400 000 jobs per annum. To do this, the government proposed some significant reforms that were a direct threat to the position of labour, including ‘a brisk expansion’ in private sector capital formation; ‘improvement in the employment intensity of investment and output growth’ that could presumably be garnered by decreases in wages; and, most tellingly, ‘greater labour market flexibility’.

However, while GEAR contained many prescient critiques of the South African economy and its rhetoric enraged the unions, publication of the document did not yield major reforms. As Ray Hartley notes, ‘Following the strong political challenge to GEAR from within the ANC and its Alliance partners, government wilted. Despite many public pronouncements and plans to do so, no changes to the labour markets would ever be implemented.’¹⁶

A key business-led attempt to advance the debate around jobs and growth was in the form of the ‘Growth for All’ economic strategy prepared for the South Africa Foundation in February 1996. The document called for a ‘comprehensive reform programme’ in dealing with what it saw as South Africa’s biggest challenge of unemployment. It noted that if the ‘economic challenges are not met, and economic policy is not transformed, then the world will forget about the political miracle before long, because its economy would have failed’. ‘Growth for All’ argued that South Africa’s economic growth rate was too low to address steadily rising unemployment. Instead, the country needed a ‘development strategy 1996–2015’ to enable ‘rapid and sustained growth (5–6% per annum) and job growth rapid enough (3.5–4% per annum) to cut unemployment markedly’. It called for greater labour flexibility in creating a zone of entry for outsiders, in the form of a dual labour market rather than overall deregulation.¹⁷

Despite the plea in the document that ‘government should work with business, not against it’, ‘Growth for All’ was roundly rejected by government. Even though some of its tenets, for example those on sound macroeconomic policy and limits on government spending, found policy expression soon after in GEAR, and despite its overall orthodoxy and government apparently accepting the value of the South Africa Foundation document in private, in the words of one of its authors, ‘government viewed the business establishment as prescribing what economic policy should be’.¹⁸

While the economy – or at least some aspects of it – moved forward, the ANC government recognised in the 2000s that growth was still not fast enough. Therefore, another economic policy statement, the Accelerated and Shared Growth Initiative for South Africa (ASGISA), was developed in 2006. ASGISA saw a major role for government and, thus, the trade unions, perhaps as a sop by President Thabo Mbeki to the left after he had fired Jacob Zuma as deputy president in June 2005.¹⁹ Although the left was lukewarm about the document, there was even less hope that it would lead to labour market restructuring than there was for GEAR.

Then, following the global financial crisis, the Zuma government formulated a new economic strategy – three in fact: the New Growth Path (NGP); the Department of Trade and Industry’s Industrial Policy Action Plan; and the National Development Plan (NDP).

The NGP, a product of the Department of Economic Development, saw jobs coming from investments in infrastructure (2.5 million), agriculture and agro-processing (nearly 500 000), the green economy (300 000), the public service (260 000) and mining (140 000). The 430-page National Development Plan foresaw that most of its nearly 11 million planned new jobs (by 2030) would be created in small firms servicing the domestic market. The NDP has literally dozens of policy measures flowing from its comprehensive diagnostic designed to induce employment. It appears that those who authored the NDP understood what actually needed to be done (increase labour market flexibility and bring down real wages to increase employment), but they lacked the ability or political clout to counter the unions’ strength.

President Zuma followed up these plans with a Nine-Point Plan, as announced at the 2015 State of the Nation Address, notably: resolving the energy challenge; revitalising agriculture and the agro-processing value chain; advancing beneficiation or adding value to mineral wealth; more effective implementation of a higher-impact Industrial Policy Action Plan; encouraging private sector investment; moderating workplace conflict; unlocking the potential of small-, medium- and micro-sized enterprises (SMMEs), co-operatives, townships and rural enterprises; boosting the role of state-owned companies, information and communication technology infrastructure and broadband roll-out, water, sanitation, transport infrastructure as well as science, technology and innovation; and rolling out Operation Phakisa, essentially a fast-delivery methodology.²⁰

This Nine-Point Plan was taken up by President Cyril Ramaphosa in subsequent speeches, but with similar lack of discernible effect. It was abandoned for Operation Vulindlela in October 2020, a 19-point plan incorporating elements of the NDP and the 2019 National Treasury growth paper on ‘Economic Transformation, Inclusive Growth, and Competitiveness: Towards an Economic Strategy for South Africa’.²¹

True to national form, in the wake of the COVID-19 shock to the economy, both the ruling ANC and business issued