Johannes Wessels
@johannesEOSA1
If Ramaphosa’s bold plan to restart the economy was a film, the premiere already proved it’s not an ‘out-of-the-box’ blockbuster that will rake in Oscars for economic growth and sustainable job creation. Growth through state-led infrastructure development XXI is a lame sequel fit for an infamous Razzie award.
Like its predecessor – the lengthy National Development Plan – the Economic Reconstruction & Recovery Plan (ERRP) is a sure box office flop.
The ERRP announced by the president after lengthy consultation processes with big business and big labour states “Non-implementation of the ERRP could lead to loss of economic capacity, including collapse of the supply capacity, consumer and business confidence, the labour market and increased vulnerability of the poor. The overall plan aims to mitigate these risks”.
This script suggests its authors live in a make-believe reality: South Africans, whether tax payers or the growing number of unemployed, know consumer and business confidence and employment are not waiting for collapse through the non-implementation of a plan. It has collapsed already and was meticulously crafted by the very same government now purporting to be capable of getting the economy firing on all cylinders again.
There is a hidden sub-text as well: Covid 19 was the excuse to gain more arbitrary power and programs to recover from the lockdown devastation are aimed at cementing these arbitrary powers.
The plot has five major themes:
- Increased flag waving through a revamped Extended Public Works Programme (EPWP);
- a re-industrialisation drive through import substitution and local beneficiation of minerals;
- The Umpteenth Rehabilitation of the Eskom Monster;
- the Resurrection of a Capable State, and
- targets for local procurement set by government diktat.
These thrusts are to have an “employment centred approach” in common, quite ironic for:
- a government that through lockdown had destroyed 2.2 million jobs in the second quarter alone with the death toll of businesses still unaccounted for;
- Business4SA (B4SA) that (still) unreservedly supports the governments’ Covid strategy, including the continued lockdown that devastates the economy and jobs; and
- Cosatu whose members are still hesitant to come out for work and whose absence in classrooms and public offices causes a new lost generation and extreme opportunity costs through backlogs at Home Affairs, the Deeds Office and municipalities.
The plan will be monitored by a committee of representatives from all three the parties and chaired by the president himself to ensure action beyond the words.
Given Ramaphosa’s previous commitments of a concentrated focus to remedy matters, South Africans have a choice: they could either pray for not-too-much-additional-damage or start shaping their own future. The previous commitments to action plans by the president have not been more successful than his predecessor’s ‘unrelenting fight against corruption’.
Horror movie: More jobs of flag waving than by 4IR
The economic devastation of the lockdown strategy that secured for SA the bottom position with the worst unemployment rate of the 83 countries Bloomberg is tracking, is supposed to be rolled back by large public works projects. It will also parade as skills development through learning on the job. Although this had repeatedly been tried without much success, the conviction of the Ramaphosa government is that the only problem was the absence of proper implementation.
The current government still believes it has proper managerial kudos under the belt as proven by their impeccable and effective management of departments like Water and Sanitation that cannot explain what happened to its budget and that has repeatedly delayed the important enlargement of the Clanwilliam dam, and the South African Police Services (SAPS) (internationally acclaimed as one of the 20 worst police services in the world).
It also has a proud record for proper oversight as sole shareholder in SOE’s that (apart from constant changes at director and CEO level, repeated bail-outs and erratic service delivery) are considered by the government as crown jewels.
Add to this government’s efficient planning based on totally erratic modelling by ensuring superfluous Covid quarantine sites and field hospitals constructed well after the demand for such facilities has shown to be totally over estimated and that there was indeed never a need for these.
The public works programme will therefore most likely be characterised by:
- thousands more waving flags at road works or construction sites;
- trenches dug by hand and not on time, sidelining cost efficient mechanical procedures, thus ensuring running up costs as was the case at Kusile and Medupi;
- bricklaying by unskilled and semi-skilled (forgetting the dismal quality of many low-cost housing projects where the beneficiaries of these houses now sit with lower-than-par products).
Priority infrastructure projects (to be funded by public debt – government is operating in the red, not the black – and probably prescribed private sector equity) were identified. The “mass public works programme” will roll out fibre, upgrade roads, ports and public facilities.
The result will be temporary employment, but few will acquire the kind of skills to enable SA to shift to a higher innovation and growth cycle. In addition, with low productivity and guaranteed time and cost overruns the productive facilities (e.g. port upgrading) will in all likelihood kick in later and at far higher costs than now estimated.
We need to spend so much since we have destroyed so much…
Unfortunately, this expenditure will also not be applied to expand the public good or the productive capacity of the country. A large percentage will merely be used to:
- replace the more than 1200 vandalised schools and stations as well as the steel rail track that vanished from under the nose of the SAPS through a system of preferential proletarian procurement,
- rebuild roads that through low maintenance and deliberate neglect have transformed into 4×4 routes, and
- complete hospitals, clinics, courts, police stations and housing projects that have not been completed though the full contract sums were already disbursed.
But that is the infrastructure part of it. The job side is just as bad. The 800 000 jobs (many will be there only as long as the funding lasts) to be created through public works programmes would not have been required if the lockdown measures did not put more than 2 million additional workers out of work.
Public works programmes in South Africa seldom address problems in a systematic manner. Getting many people on the payroll to chop off alien trees without scooping off the seed infested layer of composting leaves and undergrowth only results in next generations of alien trees. Problem solved?
This kind of programme is akin to wallpaper over structural cracks. Even if 800 000 jobs will be temporarily created through EPWP, it will not systemically address the unemployment problem.
But there is another sequel movie that’s about to roll as well…
Just when you thought it was safe to take your own business decisions again…
The jingle with which JAWS II was advertised – “Just when you thought it was safe to go back in the water…” – could be reworked. Just when you thought Ebrahim Patel would not interfere with your business by telling you which T-shirts can be sold, he is preparing regulations to tell you where to buy your supplies and services.
Businesses are to be assessed by targets for local procurement. Given Ramaphosa’s commitment to BEE as a permanent feature of the economic landscape as well as his ideological passion to use the economic crisis he had caused to further his ideal of enterprises resembling the racial landscape, the “buy local” will effectively be a “buy black”. The president is on record that township enterprises and female-owned businesses should benefit from this.
This is aligned to the commitment he had made in his New Deal Manifesto. EOSA had warned three years ago that that economic philosophy could lead to the South African version of Hitler’s instructions about buying from German shops (boycotting those owned by the Jews).
The government has a track record of disregarding both consumer interests and enterprise efficiency as long as they can further their social engineering drive to have every aspect of our society resembling the racial composition of the country’s population. Time and again the African National Congress (ANC) has ripped the non-racial veneer that they had portrayed to pieces.
Higher than market price is not price-hiking as long as you are ‘previously disadvantaged’
Patel had launched a Competition Amendment Act that exempts businesses from the regulations of the Competition Act enabling them to pay higher prices for services and goods provided these are procured from “previously disadvantaged businesses”. The fact that the majority of poor consumers are black and therefore have to pay more for their goods to enable “a previously disadvantaged business” to survive on a basis of uncompetitive behaviour, counts for nothing.
The economic mentality of buying local is not only a massive step backwards from modernity. It will:
- increase the say of government in the internal affairs of businesses,
- add to the regulatory burden that businesses have to comply with and
- funnel benefits away from especially the poor.
Buying local when product quality and price are competitive with the landed cost of imported goods, makes sense. But to buy local for the sake of supporting local manufacturing that would not be viable if competing against foreign producers, is a massive opportunity cost on society. Just ask any member of National Employers Association of South Africa (NEASA) what the tariffs to protect Arcelor Mittal against imported steel imply for both SMEs and consumers in the sector.
South Africans are already poorer simply because they pay far too much for imported goods due to some of the highest port tariffs in the world and the high costs of under-productive port management. These factors – already advantaging producers who only exist for the internal market – render exporters less competitive in the world.
Where is B4SA on the continuum between Marx and the Market?
To clamp in addition to these leg irons another one for local procurement in the hope that it would create jobs, makes only sense in the minds of those that believe that the government knows best how enterprises should be run.
Central planning will cramp entrepreneurial space and enterprise liberty will give way to ministerial diktat, taking us back to the mercantile mentality prior Adam Smith.
Patel’s Regulations VIII is sure to send icy shivers down the spine of every freedom loving person. But B4SA welcomed the ERRP, hoping there would be speedy implementation. Where is Martin Kingston, chair of B4SA positioning himself and B4SA on the continuum between Marx and the Market?
(More about this in the second part on Ramaphosa’s bold plan to be posted later this week).
Johannes Wessels is CEO of the Enterprise Observatory & a member of the Advisory Panel of @EndLockdownSA
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