During the 2015 State of the Nation address, President Jacob Zuma managed to squeeze in a few words in between the chaos to actually update us on the state of the nation. He outlined a nine-step plan for economic growth. Aaisha Dadi Patel spoke to Professor ALAN HIRSCH, Director of the UCT Graduate School of Development Policy and Practice, to find out how that has turned out.
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According to Professor Hirsch, the “nine-point plan” is little more than “a useful to-do list”.
“It identifies key issues like the mismanagement of state-owned enterprises and the energy and water crises, it reiterates existing industrial policy commitments, and yet again commits government to supporting small business development. This is a familiar list and a relevant list, but it will only become credible if and when consistent actions are taken to support these intentions. In some areas, such as SOE (state-owned entities) management, outcomes are extremely uneven, to put it kindly.”
This year, in the wake of the fees protests, it will be interesting to see how Zuma broaches the issue of education, given that it was not included in last year’s plan.
“Some key omissions in the plan are urgent attention to education and skills development, and a radical improvement in the regulatory environment for network industries such as electricity and telecommunications. Greater certainty and clarity about BEE would also be the kind of regulatory reform that might give greater confidence to investors. And there are some labour regulations which seem to have perverse effects on growth and employment. Finally, we do need a clear plan to cut government waste, so that priorities such as education and bulk and social infrastructure can get more resources.”
The current environment, hugely affected by the drought, will affect the economy gravely – but not necessarily agricultural development.
“The drought will be a huge burden for the next couple of years, and is another reason why we have to make hard fiscal decisions. We need to maintain food security and prevent and prevent hunger and thirst in poor communities. The drought doesn’t necessarily halt the continued implementation of agricultural development work.”
When it comes to resolving the energy challenge, the first point in the plan, Hirsch believes that South Africa is lagging behind by only looking at improving Eskom, and not focusing on other renewable, more sustainable options.
“Brian Molefe is a strong leader for Eskom, but this is not enough. We should be recognising the success of the renewable energy procurement initiatives of recent years and encouraging much more of it. Renewable energy solutions are now more reliable, cheap, decentralised, and much quicker to implement than large coal or nuclear projects. It is tragic that this is not yet accepted in government policy and the regulatory system for investment in electricity.”
This will also affect one of the other points of the plan – encouraging private sector investment.
“The private sector won’t invest if police are unpredictable, if there is a lack of trust between political leaders and investors, if growth is weak for a long period and if society is seen to be relatively unstable or in ferment. These fundamental issues need to be addressed. There are other issues like the reliability and cost of water and electricity and the quality of schooling training. The price of telecommunications services would be relatively easy to reduce if some key regulatory reforms were implemented.
One of the points the plan made was to “unlock SMME [small, medium and micro-sized enterprises] potential” Hirsch says that it is imperative for the government to understand that SMME potential in itself can be divided into two categories.
“Government needs to accept, without reservation, that there are two different types of small enterprises. There are those which have the potential to grow and create jobs, which tend to be run by relatively educated and experienced people, and there are those which allow poor people to survive. Government needs a distinctive set of policies for each of these sectors and needs to implement them vigorously and consistently. It also needs to open up some markets which are blocked by powerful monopolies and oligopolies in South Africa.”
In terms of adding value to South Africa’s mineral wealth, it will take a few steps, says Hirsch.
“We need to simplify the environment for investment and develop strong and constructive relationships between government, the workers and their unions and with investors. Chopping and changing the Mining and Minerals minister every couple of years certainly doesn’t help that.”
The current exchange rate and state of the economy will affect the implementation of the plan, says Hirsch. “It is heartening to see that the exchange rate began to stabilise when suitable macroeconomic policies were adopted, and after the president reversed course on the Van Rooyen debacle. A relatively stable and predictable exchange rate helps investors, especially those who want to build up export markets, and to replace imports in the domestic market. Stability is more important than the level of the exchange rate. In fact, a consistently low but stable rate will help to rebuild the economy. It will take a great deal of time and effort to win back confidence in macroeconomic policy, but this is something we have to do.”
But that may not be the biggest concern when it comes to implementing the plan: in terms of the overall implementation of the plan, Hirsch doubts whether citizens and investors are convinced.
“Key elements of a successful plan would be appointing highly effective leaders to drive these programmes, and ensuring strong and consistent top level political support to the implementation of programmes. It’s important that the plans are implemented, but it is just as important that citizens and investors believe that implementation is happening.”