Mzansi Agriculture Talk responds to the recent paper titled “economic transformation, inclusive growth, and competitiveness: towards an economic strategy for South Africa,” written by the National Treasury.
The key feature of South Africa’s policy formulation processes is inclusivity where all social and economic partners are offered an opportunity to enrich the process. The recent paper titled set new precedence of unilaterally formulating the government policy without involving the social and economic partners.
The inability of the National Treasury to recognise the established government processes of policy formulation has attracted unnecessary criticism from the political communities and civil societies. Leading the criticism front is COSATU which has called for the withdrawal of the policy paper to avoid further confusion in the policy environment.
Despite its shortcoming to follow the established policy processes, the paper has enjoyed wide praises from the academia and prominent economic commentators both within South Africa and abroad. Many economists hail the National Treasury for providing bold and practical policy reforms that are essential to boost the economy and create jobs to a tune of 1 million in the next 10 years.
In this article, we provide critical analysis of the paper.
The paper’s policy reform focused on five strategic areas namely: modernizing network industries; lowering barriers to entry and addressing distorted patterns of ownership; prioritizing labor-intensive sector; flexible industrial and trade policy; and promoting export competitiveness and harnessing regional growth. The paper made a brilliant effort to capture the real challenges facing the South African economy – led by the three-headed problems of unemployment, inequality and low economic growth.
From its titles, the paper advocates for a more inclusive and transformed South African economy that deals directly with monopolies that exclude small businesses in the formal economy. It also advocates for the modernization of networks such as communications and technology to align with future industries derived from the Fourth Industrial Revolution. It also recognized the importance of primary industries such as agriculture for job creation – especially absorbing low skilled workers and generating foreign earnings that the countries needs to attain a positive trade balance.
The policy reform advocated in the paper is however contradictory to the simulation conducted in the paper. The reforms encourage value addition on primary industries and a review of industrial policy to expand manufacturing. However, the simulation results indicate the opposite as manufacturing sectors will shrink from the current base of 19.7% share in the economy to a 17.9% share in the next ten years. Similarly, to the primary industries, they decline from 11.8% share to 5.8% share in the next decade.
This implies that the economy will be driven by service sectors that only caters for the high skilled labour force and bias towards bigger cooperations that relies on technology and capital for its daily operations. This policy reforms and simulation results suggest that small businesses will continue to be excluded in the formal economy unless they aligned themselves with large existing cooperations.
The silent tone of the paper on monetary and procurement policies which continues to push small businesses out of action due to the inability to access affordable funding and late payments by government institutions is extremely concerning.
Moreover, the paper focuses on strengthening the regulatory framework in the transport industry but fails to recognize the critical role the taxi industry plays. About 60% of the GDP from the expenditure side is driven by households. The biggest cost items on the household budget are for transport (taxi industry) and food (agricultural industry).
Despite this skewed economic structure, there are no incentives proposed to boost the taxi industry. Instead of the paper to encourage upstream ownership in the manufacturing of the automobile sector that enjoys significant subsidies from the government, the paper promotes a reduced role of the taxi industry.
Furthermore, the paper promotes export-oriented agricultural commodities even though South Africa has 13.8 million people that go to bed hungry on a daily basis because of the skewed composition of agricultural products. Instead of promoting agricultural industries that can tackle poverty and inequality in South African, the paper promotes the export-oriented industry with the belief that a “trickle-down” effect will occur.
In closure, the policy reforms and simulation results do not portray the same message – which suggests that one of the two was either outsourced or created with great influence of researchers that are not in close range interactions with the grassroots realities.