Time for the Government to come to its own party, Mr Gordhan - Business Day 10 March 2014

Mar 13, 2014
Speaking after his budget speech, Finance Minister Pravin Gordhan reminded us that the private sector was responsible for generating 70% of gross domestic product (GDP).

Time for the Government to come to its own party, Mr Gordhan

By John Kane-Berman


Speaking after his budget speech, Finance Minister Pravin Gordhan reminded us that the private sector was responsible for generating 70% of gross domestic product (GDP). The burden of driving the economy should therefore be taken up by business, with the State playing a facilitating role.  


He went on, "The question now is when does the handover happen? When does the private sector come to the party again and that's the debate."


There's an element of scapegoating in these remarks. South Africa's tepid GDP growth rate has more to do with the government's performance than with anything the private sector has done or failed to do. Mismanagement of the country's electricity supply is but one example.  


As for the facilitating role Gordhan envisages for the State, this harks back to the Growth, Employment, and Redistribution (Gear) plan adopted 18 years ago, since when the State's role has usually been the opposite. In fact, while Gordhan claims that the State has been "leading" the private sector, it has been stifling it.


Nor has the Government welcomed debate from the private sector, many of whose spokesman have become praise-singers for its radical "transformation" drive without assessing the likely impact on business.  


These contradictions are nevertheless a good sign. The Government cannot keep on inviting - or pleading with - the private sector to join the growth "party" without eventually making it feel much more welcome. This means removing some of the constraints upon investment.


However, half the Cabinet is busy adding new ones in key economic sectors, including security, oil and gas, mining, land, and agriculture. Some of the constraints - tougher labour, employment equity, and empowerment legislation - are being imposed on the entire economy. Policy mooted or in the pipeline puts intellectual and other property rights at risk.


Although Gordhan speaks of creating the right climate for investment, he manages to ignore the connection between all these policies and the country's anaemic investment levels. In fact, his budget speech contains fundamental contradictions.


On the one hand he talks about providing an enabling environment for the "dynamism and agility of the private sector". On the other he talks of "transformation imperatives".


He does not define these. "Transformation" can mean many things. In South Africa right now it means re-racialisation of the economy via affirmative action and procurement and so-called black economic empowerment. It also means reopening of land claims, repudiating our bilateral investment treaties with their limitations on state power, and generally increasing the regulatory reach of the State.


Anyone doubting this needs only to refer to President Jacob Zuma's remarks after the debate on his state-of-the-nation address last month. He made it clear that economic freedom does not actually mean that. Instead it means more racial engineering to "de-racialise" ownership, management, and control of the economy. This includes "intensified" affirmative action.


Although he is hailed as less ideological and more pragmatic, the deputy president of the African National Congress (ANC), Cyril Ramaphosa, echoed Mr Zuma in a recent ANC Today article.  "Foremost among our concerns should be the achievement of racial equality," he said. "Race will remain an issue until all echelons of our society are demographically representative". (Italics added.)  This is a huge undertaking. It implies more and more state intervention in the economy. Given the country's skills constraints, its achievement is impossible. This in turn means that there are no sunset clauses on any horizon.


So the answer to Mr Gordhan's question about when the "handover" will happen is "never". Not while his government puts racial engineering at the top of its agenda.  Fortunately, Mr Gordhan wants debate. The private sector should seize this opportunity to hammer home the contradictions in its policies and start explaining the facts of economic life to the ANC. One of these is that if it really wants to hand over to the private sector it should go ahead and do exactly that.   



 * Kane-Berman is a consultant at the South African Institute of Race Relations. This column appeared in Business Day on 10th March 2014.

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