Policy will catch up if the private sector drives updated pilot projects to show how economies and social goals can thrive with less heavy-handed regulations
17 NOVEMBER 2016 – 06:29
Adjusting to SA’s political economy has become nearly as demanding for investors as negative interest rates in other regions. But it can be far more rewarding. The pursuit of higher returns, alongside fiduciary obligations to mitigate risks, should now motivate investors to promote productivity-enhancing transformation. The ANC’s policy mix has long been destined to produce miserable results. Slow global growth has brought forward the day of reckoning.
With political reverberations from entrenched economic stagnation compounding the situation, the ANC’s confidence in maintaining its majority in 2019 has been rocked by August’s local election results.
Corruption-busting is the media’s “flavour of the day”, but by 2019, the ANC will have new faces and updated messaging. Their more enduring threat will be household stresses rendering party loyalty unaffordable. The era of ANC economic policies lacking electoral consequences has ended. Irrespective of how “white”, “black”, or “monopolistic” SA’s capital is, it also needs to respond proactively to swelling economic and political stresses.
The country’s business and investor communities cannot afford to be targeted as the blame game advances.
Global money managers have invested trillions of dollars in government bonds with negative yields. In SA, nonfinancial companies hoard hundreds of billions of rand. The common causes trace to low growth as the new normal.
The binding constraint is stagnating consumer incomes, not access to capital. Economists concur that growth is held hostage by stagnating productivity. Industrialisation overcame such chains by marrying machines and workers. Such possibilities continue to fade.
Commensurate with stagnating wages, real rates of return have trended sharply lower in major markets. This reflects how difficult it can be to improve productivity. Global economic growth is slow as catalysts remain elusive.
In SA, the challenges are far more manageable. SA uniquely combines resource wealth, huge poverty, sophisticated and diverse companies, and divisive, antibusiness politics.
For experts in economic policy-making, such as those who direct research at the IMF or credit agencies, it is not difficult to envisage policy reforms provoking a steady reduction in SA’s unemployment and poverty. The more difficult public-and private-sector success factors are largely in place.
Few countries could benefit as much, or as quickly, from simply shifting to economic policies that resemble those of successful nations.
Conversely, SA’s transformation challenges will remain intractable if economic policies are not overhauled.
The point has often been made that about two decades ago, large numbers of SA’s best teachers were unbundled from the education system.
What is far less appreciated, but features on the Department of Trade and Industry’s website, is that at about the same time, “Tenders were ‘unbundled’ into smaller tenders to allow smaller enterprises to tender for work.”
This may seem innocuous but it has been at least as deleterious as undermining teaching resources.
The goal, favouring young black companies over established white companies, was understandable but success always hinged on effective diffusion of knowledge and resources. Necessary collaborative solutions were rejected in favour of regulatory diktats. Costly inefficiencies have proliferated in every direction.
Government-inspired small business lending programmes have generated losses in seeking to overcome resource shortfalls, while inadequate knowledge and efficiency has been countered by regulations to downplay competitiveness.
Policy shifts necessary to unlock SA’s ingenuity are now within reach, given that the ANC suddenly has to avoid being sunk in 2019 by an economic malaise. It is not, however, reasonable to assume the ANC can easily discard more than 20 years of policy biases.
Investors must provide analytical leadership by strategically supporting creative pilot projects that fuse transformation and productivity tools. Business-government dialogue should build on how such projects can be replicated through policies being reconceived.
SA’s business efforts to blend transformation and commercial objectives peaked long ago. They were suffocated by increasingly prescriptive policy directives.
Moderates in the government can better sway policies if the private sector drives updated pilot projects to demonstrate how economies and social goals can thrive with less heavy-handed regulations.
SA’s government policymakers overcompensate for creativity and business acumen shortcomings with regulatory assertiveness. Business leaders should arm solution-minded politicians for policy skirmishes by showing what could happen if policy blockages were lifted.
Socially responsible investing in SA is mostly about private sector redistribution efforts to mitigate poverty symptoms. It is time to update the assumptions underlying such investment mandates with a view towards diffusing know-how along commercially natural paths that uplift productivity.
The limits of redistribution are nearing. Thus productivity and competitiveness must be improved to spur value-added exports. Instead, SA’s public policies and practices undermine productivity and competitiveness. Meaningful inclusive growth is contingent upon these objectives being aligned.
Blending commercial and transformation goals is doable, difficult and necessary. Now is the time for private investors to become more purposeful towards such initiatives while practical voices advocate for policy shifts to unlock the nation’s growth potential.
SA needs to reconsider what is possible.
Published in Business Day