Why is SA economy shrinking? Blame it on the Soviet-inspired NDR - Biznews

5 March 2020 - This misplaced myopia seems the only reason why – in all the in-depth analysis of last week’s budget and the country’s current technical recession – the NDR has rarely merited even a passing mention.

Anthea Jeffery

The economy is officially in recession for the second time in the past two years. It contracted by 1.4% in the fourth quarter of 2019, following a (revised) 0.8% contraction in the previous quarter. As a result, the growth rate for the whole of 2019 was a paltry 0.2% of GDP – the lowest level since 2009 but well in line with a long succession of poor growth figures.

That growth has been so limited for so many years helps explain why revenue is not keeping pace with government spending – and hence why public debt has ballooned so greatly under a government determined not to cut its coat to fit its cloth.

According to last week’s budget, the public sector borrowing requirement has increased to almost R410bn and is expected to reach close on R500bn in 2022/23. Gross loan debt will rise to R3.6trn in 2020/21 (65.6% of GDP) and increase further to R4.4trn (71.6% of GDP) within three years.

No wonder President Cyril Ramaphosa warned (in his newsletter this week) against the government’s ever escalating interest payments, which have long been rising faster than any other budget item. At R229bn in 2020, these interest payments already exceed the public healthcare budget (R225bn) and are projected to rise to R290bn by 2022.

Budget constraints
The budget also provides some surprising insights into the government’s spending priorities. Particularly striking is the additional R16.4bn bailout for SAA over the next three years, which is effectively to be financed by cutting transport spending by R13.2bn over the same period. Commuters reliant on failing public trains and buses will be short-changed once again, while yet more billions will be poured into SAA to prevent it’s being privatised.

Striking too is the R160bn that is to be sliced from the public service wage bill – if this can be achieved in face of strong union resistance – contrasted with the R111bn that will go to bail out SAA and other SOEs.

Much of that bailout money will go to Eskom once again. As BizNews reports, cumulative bailouts to Eskom over some 12 years total R133bn, while another R112bn is to go to it between now and 2022. Thereafter, Eskom will receive annual sums of R23bn for seven years. By then, Eskom bail outs will total more than R400bn.

The government claims that debt is gradually being tamed and that the budget deficit will drop from 6.8% in the 2020/21 financial year to 5.7% in 2022/23. But these projections rest on the unrealistic assumptions that future growth rates will equal Treasury projections, and that earmarked savings in spending will be achieved. If either assumption fails, the budget deficit will rise from the 6.8% now projected to at least 7.5%: the figure foreseen by both Fitch and Moody’s if the public service wage bill is not trimmed.

So what is being done to turn the economy around? Nothing of substance, is the short answer.

What price reform?
Finance minister Tito Mboweni continues to punt his strategic reform policy proposals, which the cabinet has now endorsed. But at least two of his key reforms have been removed. There will be no relief from the extension of bargaining council agreements to small firms unable to afford them and often driven into bankruptcy as a result. The minister’s ideas for slashing red tape have also been side-stepped. (His proposal to sell off Eskom’s failing coal-fired power stations was earlier rejected too, but the government may now be willing to sell off ageing stations as they come up for decommissioning.)

The rest of the Mboweni package – if in fact implemented – could help to improve port and rail logistics, expand broadband access, bring down data prices, adjust tariff barriers to help small manufacturers, and make it easier for business to import scarce skills, among other things. But these proposals will not get to the heart of what is ailing the economy.

Crisis has NDR at its root
At the root of the rising economic crisis lies the ANC’s stubborn commitment to the National Democratic Revolution (NDR). The NDR is a Soviet-inspired programme intended to take the country by incremental steps – and over a period of 40 years or more – from a capitalist economy to a socialist one.

The NDR is the key reason for anaemic growth, high unemployment, exploding public debt, and other economic ills. But despite the harm existing NDR interventions have already caused, the ANC remains determined to keep advancing its revolution.

The three most damaging NDR interventions soon to be introduced are:

the constitutional amendment allowing for expropriation without compensation (EWC), which is sure to have disastrous impacts on investment, growth, employment, the banking system, and macroeconomic stability;
the NHI proposal, which may have been delayed under the current budget but needs to be jettisoned altogether before it generates a state monopoly over healthcare, drives skills abroad, and greatly expands the scope for corruption; and
prescribed assets for pension funds, both public and private, which will force them to fill rising revenue gaps and help finance the further stages of the NDR.
Other pending NDR interventions may seem limited by comparison, but their cumulative impact is likely to be considerable. These include:

a sovereign wealth fund, into which a nationalised South African Reserve Bank may in time be compelled to transfer its R700bn in foreign reserves;
a new state bank to help crowd out burgeoning private banks;
another major energy SOE (focused perhaps on gas) to limit the scope for private-sector provision;
state-imposed employment equity targets for businesses to erode their efficiency and reduce their autonomy; and
onerous competition rules (brought into effect last month) to hobble ‘dominant’ companies in retail and other sectors and give an artificial leg-up to BEE firms primarily held back, not by limited competition, but rather by low growth and restricted consumer spending.
All these NDR interventions are being zealously pursued by a government that has long failed to discharge its most basic responsibilities. Its core duties are, of course, among other things, to clamp down on crime, stamp out corruption, end irregular spending, stop daily sewage spills, sustain electricity and water supplies, provide good schooling and healthcare, enforce the rules of the road, and ensure sound governance in every sphere.

No less important are the government’s vital economic tasks. Its most pressing obligation is to implement policies that attract rather than repel direct investment, accelerate growth rather than retard it, promote employment rather than reduce it, and give all South Africans a realistic prospect of upward mobility.

The government has failed to fulfil these basic obligations. Yet the ANC keeps seeking to expand state power and control so that it can ‘roll back the capitalist market’, ‘de-commodify basic human needs’, put ‘social needs before private profits’, and move ever close to a socialist nirvana.

The NDR has dominated ANC thinking and action for the past 50 years. It provides the only convincing explanation as to why South Africa has persistently failed to live up to its enormous potential – or even to mirror the growth rates in other emerging markets – yet it remains the (sedulously) unseen elephant in the room.

This misplaced myopia seems the only reason why – in all the in-depth analysis of last week’s budget and the country’s current technical recession – the NDR has rarely merited even a passing mention.

This article was first published on the IRR's online publication, Daily Friend.

Dr Anthea Jeffery holds law degrees from Wits, Cambridge and London universities, and is the Head of Policy Research at the IRR. She has authored 11 books, including People’s War: New Light on the Struggle for South Africa and BEE: Helping or Hurting? She has also written extensively on property rights, land reform, the mining sector, the proposed National Health Insurance (NHI) system, and a growth-focused alternative to BEE.

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