Empowerment will only come through growth - Politicsweb

Terence Corrigan 
According to President Ramaphosa, the introduction of the new employment equity targets, paired with potentially crippling fines for non-compliance, is necessary since it is “clear that not enough has been done to change the racial composition of the ownership, control and management of our economy.”

“At a time when our singular focus is on inclusive economic growth and job creation,” he adds, “we must continue to work together to improve the lives of every South African worker. Let us use the hard-won gains of workers to create new opportunities for all.”

This is standard for the President: benign and anodyne generalities and the appropriation of the “we” to commandeer a faux (and insincere) togetherness.

His rhetoric aside, there is nothing uncontentious about the measures that the President is lauding. Nor is it seen this way across society – the “we” in respect of economic policy does not exist – and given the realities of South Africa today, it shouldn’t be.

In a recent IRR survey, just 6.1% of respondents agreed with the statement “Only black people should be appointed until those in employment are demographically representative of the entire population”, a formulation that closely matches the stated intention of the Employment Equity Act, while 9% went further and agreed that “Only black people should be appointed to jobs for a very long time ahead”. Against that stood 84% of respondents who said people should be appointed to jobs on merit rather than skin colour.

It’s trite to say that South African confronts a mounting economic crisis. Fundamentally, this is one of a failure of the economy to grow – indeed, if seen in per capita terms, it has effectively been shrinking, and has since around 2008. Behind that is an investment rate in the order of 15% of GDP, half the target that the National Development Plan set for the country, and well beneath half of middle-income country averages.

We exist in a country that is not only becoming poorer, but is losing the capacity to turn this around.

There are multiple reasons for this, and many are uncontentious: infrastructural failings, crime, inept governance (the state of Johannesburg is “not pleasing”, the President tells us), dismal education outcomes and so on. South Africa is just not a great economic proposition. It is, sadly, not an especially attractive destination, whether for foreign or domestic investors.

This is hardly a new insight. Back in 1998, a column in the Wall Street Journal noted: “South Africa has the biggest need for external capital and the lowest potential for attracting it of any emerging market.” 

Within South Africa’s power has been its own policy response. Even more sadly, it has repeatedly opted for policy choices that have compounded its crisis.

The issues are fundamentally those of the ordering of priorities and of the incentives and disincentives that policy has created.

South African economic and labour policy has all too frequently responded to the demands of politically powerful interests within the President’s party. The bespoke benefits of policy that might accrue to some frequently come at a steep cost to others, but the latter seldom figure into official thinking, and are rarely acknowledged in hindsight.

Thus, the President lauds the introduction of the National Minimum Wage as having raised wages; well and good, but looking at data collated by the Development Policy Research Unit, it has also destroyed some 227,800 low-wage jobs in the last year. That was a questionable exchange.

Even more concerning are those impacts which go unreported because they manifest in investment and employment that fails to materialise.

There is considerable evidence that South Africa’s policy and regulatory environment – not least that geared at race-based “transformation” – has dissuaded investment and through it undermined the country’s growth prospects.

The Employment Equity targets amount to something looking very much like quotas. They are to be overseen by a small army of inspectors, and enforced through a regime of fines ranging from 2% to 10% of turnover. The former minister of employment and labour, Thulas Nxesi, pledged to be “very hard” on employers who failed to live up to the state’s demographic expectations – and in these fines, which could well bankrupt “offending” firms, the government is living up to this pledge.

This act is designed to be coercive in an environment that is in any event hostile to investment and growth. Its consequences are predictable – for every decimal point it shifts the demographic makeup of any of the interminable categories set out in the regulations, it will remove the prospects of new jobs and firm expansion. In some cases, it will remove firms entirely. This is what it is intended to do.

While this is all of a piece with the trajectory of policy for decades, there would be merit in the President acknowledging that the official priorities have never been growth focused, and that “inclusive economic growth and job creation” are no properties at all.

South Africa’s people need a change of course. This will only be possible in an investment-friendly climate – one that looks squarely at the realities of businesses operating in a very challenged environment and is willing to make the change.

True transformation and empowerment will come through economic growth. Measure everything against that, and by that assessment the state’s new racial quotas-by-another-name is a profoundly disempowering step. Whether we choose to realise it or not, we – we, as in all of us, and not the President’s invocation – will all pay a price for it.

Corrigan is projects and publications manager at the Institute of Race Relations

https://www.politicsweb.co.za/opinion/empowerment-will-only-come-through-growth-the-new-