ANC Economic War Room Doomed To Failure
The only intervention the government should make is to ensure that the country is safe and stable, so that companies can compete and determine which truly rises to the top.
The African National Congress (ANC) and President Cyril Ramaphosa have unveiled a list of ten priorities to fix the economy. This is alongside the declaration of an “economic emergency” and the creation of an “Economic War Room”.
The first question that comes to mind is: why now?
Unemployment has been over a third of the population for half a decade, and over a quarter for double that time. South Africa’s poverty rate has skyrocketed as ever more people become reliant on increasingly unsustainable grants, all while our infrastructure crumbles and investors flee the country.
Has the ANC only noticed now that South Africa’s economy is in dire straits? Or is this just some vain attempt to remain relevant as we approach municipal elections? It has been clear for the three decades of ANC rule that the ruling party only cares about the bare minimum of governance when an election is on the horizon. And even then, their care for the people who elected them is superficial at best.
The economic emergency, so declared by the ANC, is a direct result of ANC policies. Black Economic Empowerment (BEE) cost the country billions in stifled growth and overspending on corrupt tenders. It has accomplished nothing but enriching corrupt elites. Alongside this, stringent labour laws that overly preference bloated, and powerful trade unions have prevented the poorest of the poor from finding gainful employment, while punishing companies for hiring workers.
South Africa has the potential to become a rich and powerful industrial nation. We have preexisting ports, agriculture, infrastructure and industrial heartlands. We have some of the most valuable minerals and commodities on the planet.
The ANC’s obsession with top-down centralised planning and its ideology of racialised socialism has not just held South Africa back. It has pushed us backwards, and actively driven millions into poverty.
Ramaphosa’s ten priorities to fix South Africa’s economy is yet another example of this hubris by central planners who expect to suddenly fix the mess they caused over their thirty years of governance:
Use electricity tariffs and transmission investment to drive economic activity;
Accelerate the recovery of the freight and logistics sector;
Rebuild the chrome and manganese industries;
Improve the state’s capacity to manage major projects;
Drive local economic development and investment in local infrastructure;
Scale up labour activation and public employment programmes;
Expand SMME support and transform Development Finance Institutions;
Enable growth of provincial economies outside main urban centres;
Diversify trade partners and expand export markets;
Ensure effective budget and macroeconomic coordination.
Electricity tariffs and the foolishness of preferential industries
The first priority to “Use electricity tariffs and transmission investment to drive economic activity” will only serve to distort market signals, while failing to solve the real needs of South Africa’s economy.
We need a stable grid with cheap and plentiful electricity. Ramaphosa’s plan to reinvest electricity tariffs into transmission infrastructure is not a plan. That is what Eskom and the host of other electricity parastatals has mean to be doing from day one. The issue is that huge chunks of the country don’t pay their tariffs – so what will they be investing?
Further, giving selected industries lower tariffs doesn’t stimulate those sectors sustainably. It twists market signals and shifts the cost onto other industries. This is patently unfair and misunderstands how economies grow and succeed.
When Japan industrialised after World War 2, it attempted to use similar tariffs and subsidies to build a steel industry, as Ramaphosa wants to do here, while punishing other industries to prevent them from taking capital from the steel industry. The industries it attempted to stifle were the consumer electronics and automobile industries.
Japan is not known for its steel. It is now known for its two industries that its government tried to quash. The lesson is that the economy is organic and that the government has no idea what industries should succeed or not.
The only intervention the government should make is to ensure that the country is safe and stable, so that companies can compete and determine which truly rises to the top.
Freight and logistics recovery
The ANC wants the private sector to help rebuild our freight and logistics sector, but we know from the ANC’s ideology and a long track record that this will not be a fair partnership.
The ANC is famous for exploiting private sector companies and then stabbing them in the back.
If we truly want to rebuild our freight and logistics sectors, we should be privatising Transnet wholesale and de-bundling and privatising as much of our infrastructure as possible.
Keep the ANC out of managing these deals as they will always inevitably exploit private partners to get kickbacks and BEE hand-outs.
Chrome and manganese
Why only rebuild the chrome and manganese industries? This seems like arbitrary selectiveness. Especially when sound economic policies would help rebuild any industry with the right fundamentals.
What the government should be doing is identifying the key policies and environmental factors that have led to all industries collapsing and then amending those policies to allow these industries to be rebuilt.
State capacity
South Africa has one of the most bloated civil services in the world. We don’t need more state capacity. We need less. We need fewer government employees sapping up taxpayer money, so that taxes can be lowered and reinvested by smarter investors so that capital can be put to work.
We don’t need more government, we need less.
Summing up the rest
As you can guess, the bulk of the focuses and the plans to solve South Africa’s economic crisis are not plans at all, or just plain lazy.
Public employment programmes just redirect more money from productive private sector employees and redirect them to an inefficient and corrupt public sector.
Driving “local economic development”, expanding “SMME support”, and enabling “growth of provincial economies…” are all vacuous. The ANC lacks the ideology and policy education to do what is needed to achieve those aims.
The only focuses that have some true merits are diversifying trade partners, but I doubt that ANC will do that smartly. Their track record shows that they will attempt to find trade partners in China or Russia, who have proven to be unprofitable, while they draw away from the US and EU, which purchase a lot of our exports.
Finally, the focus to ensure an effective budget is a decent one. But to accomplish this, the ANC will need to fire most of its civil service, gut the executive and cut swathes of projects that have proven costly and wasteful. I doubt they have the will to do this.
At the end of the day, this is just another shallow announcement - like the National Dialogue - where the ANC tries to cling onto power as it watches the country it has misgoverned for thirty years continue to crumble under its inept watch.
Real economic recovery requires the government stepping away from planning. It requires privatisation of public assets, an end to BEE and cadre deployment, liberalisation of the labour market, and an adoption of a laissez-faire free market outlook. Only then will South Africa begin to prosper.
Nicholas Woode-Smith is the Managing Editor of the Rational Standard and a Senior Associate of the Free Market Foundation. He writes in his personal capacity.