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President Cyril Ramaphosa will present a ‘widely consulted’ South African Economic Recovery and Reconstruction Plan on Thursday 15 October 2020 in a joint hybrid session of Parliament.
Analysts and economists have asked urgently structural economic reforms to reactivate the economy. Statistics released at the end of September showed that 2.2 million people lost their jobs last quarter.
Under the expanded definition, which includes people who have stopped actively seeking work, the real unemployment rate in South Africa rose from 39.7% to 42% during the period.
The country’s economy suffered a significant contraction during April, May and June, when it came under a generalized lockdown to restrict the spread of Covid-19. The data showed that gross domestic product (GDP) fell a little over 16% between the first and second quarters of 2020, yielding an annualized growth rate of -51%.
And the World Bank predicts a weak recovery for a nation in deep recession after four consecutive quarters of economic decline. A 7.2% contraction is expected by the end of the year, followed by a 2.6% expansion in 2021.
Before Ramaphosa’s presentation on Thursday, a group of academics proposed an alternative economic strategy for South Africa.
Dr. Nthabiseng Moleko and Professor Mark Swilling predict that GDP will double in 10 years, 10 million people will lift out of poverty, and unemployment will drop by two-thirds to 12% by 2030, according to the proposed strategy.
Professor Mark Swilling is a Distinguished Professor of Sustainable Development at Stellenbosch University, and Dr. Nthabiseng Moleko is a Development Economist and Senior Lecturer in Management Economics and Statistics at Stellenbosch University School of Business (USB) .
The document, they said, seeks to ensure that there is a better alignment between South Africa’s economic policy and the constitutional commitment to heal the divisions of the past and establish a society based on social justice and correct structural economic inefficiencies and inequalities.
South Africa’s response to the Covid-19 crisis, the academics said, is an opportunity to reshape, restructure and rebuild the economy building on more than two decades of post-apartheid economic policy that has seen mediocre growth and made no progress. significant in the economy. equality.
Together, they have published an article entitled “New Wine in New Wine Skin: An Alternative Economic Strategy for South Africa’s Economic Reconstruction”.
A different approach
Continuing on the current path, relying on “general economic thinking and the use of existing microeconomic solutions” is unlikely to produce different results in the future, while the proposed alternative strategies are geared towards diversifying the economy to support inclusive economic transformation. , intensive growth and a globally competitive and sustainable economy, the academics said.
To overcome the stagnation of the economy, which has been deepened by Covid-19 and the national shutdown, the South African government must boldly seek the writing of new economic policies that can fulfill the vision set out in the National Development Plan (NDP).
The alternative economic framework is driven by strategic interventions in industrial policy with the aim of doubling the contribution of manufacturing to GDP, prioritizing sectors that absorb labor, and boosting national food production and rural development.
The framework envisages changing investment policy and mobilizing national capital, a fiscal policy aggressively aimed at higher economic growth, developing state capacity for innovation and governance, and reforming empowerment policies to achieve real growth through redistribution.
The alternative economic framework proposes a new state model, “enabled by better coordination and supported by the mobilization of national capital with reduced dependence on external capital markets and financial flows.”
The key aspects of the document are summarized below:
Establish a council
On industrialization as a key driver of growth, the report recommends the establishment of an Industrial Council to allow coherent planning in the various institutions that report to the Department of Commerce, Industry and Economic Development.
Although under a single umbrella, agencies such as the Industrial Development Corporation, the Small Business Financing Agency, and the National Empowerment Fund use different incentives and policy instruments, leading to fragmented and ineffective programs.
Changing sectors
The alternative framework establishes the objective of doubling the contribution of manufacturing to GDP from activities in the primary sector to high value-added goods and processing of agricultural products.
A phased approach would initially develop labor-intensive sectors, adopting a more capital-intensive growth path over the long term and transitioning to technology-based industrial development.
“Arguing that South Africa’s unemployment challenges are due to ineffective interventions rather than a lack of funding, labor absorption strategies are proposed to address the lack of unskilled and semi-skilled jobs and the mismatch between skill production and labor demand, “says the report.
Focus on specific industries
He said sectors with the potential to absorb large numbers of unemployed people, including agricultural processing, plastics, metals, construction machinery and the transition to renewables, should be prioritized, with education and skills programs aligned to your needs.
Sectors that do not have the potential to absorb much more labor (chemicals, machinery and equipment, and agricultural and transport machinery, for example), but still play a key role in value chains, should be supported through conditions of job creation in state acquisitions. programs, it said.
Alternative rural development and national food production strategies are needed to address the high levels of economic inactivity, unemployment, food insecurity and dependence on social subsidies in rural areas, and to increase the proportion of black farmers in the agricultural sector.
“Alternative strategies would link the rural agricultural economy to upstream and downstream value chains, and improve access to markets, including by providing state-subsidized credit to small farmers,” he said.
Make money work
The report said that it is recommended to enable debt instruments that will increase industrial and productive capacity and generate positive social results, along with the imposition of a tax on “idle capital” to encourage companies to reinvest instead of accumulating capital.
Strategic fiscal measures should link public spending with economic output and the impact on poverty, inequality and unemployment, while fiscal stimulus packages would reactivate sectors on the supply side, boost industry and boost competitiveness, the document states.
Advancing economic recovery can be achieved through inflation targeting, quantitative monetary easing, and lower interest rates, rather than increasing public spending and cutting taxes.
Fiscal stimulus should focus on sectors such as energy and those that can generate greater socio-economic impacts both in the short and long term, achieving poverty alleviation along with growth, according to the report.
“Non-debt fiscal stimulus interventions are also recommended, including reorienting investments from PIC and development finance institutions, zeroing certain items, increasing subsidies, and restructuring the tax system.”
Address governance and transformation
Government officials must be supported and rewarded for taking risks in innovative ways and being able to work through partnerships to fulfill their mandates.
State-driven transformational interventions, such as the Broad-based Black Economic Empowerment (B-BBEE), have failed to achieve equitable participation in the economy, and the alternative framework proposes a number of strategies for economic growth through redistribution, according to the report.
An empowerment model should be promoted by the Preferential Procurement Policy Framework Law to encourage and provide fiscal support to rural and municipal companies to participate in national and provincial procurement programs.
Land transfers for agricultural and manufacturing use must end in order to support the emergence of a new class of farmers and industrialists, while amendments to the Competition Law are recommended to speed up the process to limit oligopolies and open access for farmers. locally owned retailers in small towns, villages and municipalities.
Read: The South African government has a real problem: it is running out of money
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