Letter: What business must do - Business Day

7 August 2019 - Step one is to be explicit about what is already implicit in South Africa’s growth and investment numbers; that the business community will find it very difficult to invest in an economy where race-based edicts and threats to property rights combine to put all but the most lucrative projects beyond the risk appetite of many investors.

We watch a number of markers that we think are indicative of the future trajectory of South Africa’s economy. One of those is what organised business does and says and, specifically, whether it will find its way to turning public opinion against two pieces of policy that stand between South Africa and economic recovery.

Business Unity South Africa (BUSA) has issued a stern warning to the government about the implications of runaway debt (‘Ramaphosa warned on runaway debt’, 5 August) and the necessity of austerity measures. As an emergency measure, austerity can be considered but it is no solution to a debt problem that arises from very low rates of economic growth and will have many very serious ramifications in areas that range from consumer spending to living standards.

At best, austerity buys time. What is needed is equally stern advice on what has given rise to the low-growth problem. Part of the answer is corruption and state capture and, here, organised business has been quite good – which shows what it has the capacity to do.

But two other areas of policy need to be rejected with equal vigour.

The first is race-based empowerment policy, which undermines South Africa’s economic competitiveness while doing very little for the poor. This policy needs to be replaced with a new approach to empowerment that identifies its beneficiaries on the grounds of their actual established disadvantage, and rewards firms that address the root causes of such disadvantage.

The second is to make it absolutely clear that until the threat of expropriation without compensation is off the table entirely, South Africa will never draw much by way of fixed foreign or domestic investment.

But here we encounter two problems. The first is that organised business remains perhaps the most prominent advocate of race-based empowerment policy and is quite central to forcing the provisions of such policy across the economy. The second is that on the question of expropriation without compensation, the position of organised business is at best qualified – conceding, at times, many of the government’s racial nationalist justifications for the policy while flirting with aspects of the policy at others. Lobbyists for business are not going to get very far down the road of reform by bemoaning the effects of low growth and proposing measures such as austerity if they are not at the same time able to confront some of the primary reasons why growth is so low. In any event all involved in these questions know that the government will not act on the austerity advice because many in the government know what the implications would be for rent seeking, while others know that cost-cutting will bring an abrupt end to the socialist nirvana they are spending towards.

We could all save a great deal of time by conceding that the focus should move to the questions of policy that underpin the low rate of economic growth. Here, of course, the government will also not simply listen to advice. But that is a reason to concede one further point – that the government will have to be compelled to consider the advice.

There is a lot that the organised business community can do to compel it. Step one is to be explicit about what is already implicit in South Africa’s growth and investment numbers; that the business community will find it very difficult to invest in an economy where race-based edicts and threats to property rights combine to put all but the most lucrative projects beyond the risk appetite of many investors. When these two points are made explicit by the representatives of organised business, two of the most important markers on the road to real reform will have gone up.   

Frans Cronje

CEO, Institute of Race Relations

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