South African Institute of Race Relations NPC
Submissions to the three committees of the
High-Level Panel
on the Assessment of Key Legislation
Johannesburg, 29 August 2016
COMMITTEE 1: GROWTH, POVERTY, AND INEQUALITY
COMMITTEE 2: LAND REFORM
COMMITTEE 3: SOCIAL COHESION AND NATION BUILDING page 5
Growth: The vital need is to raise the growth rate to 5.4% of GDP or more, as urged in the National Development Plan (NDP). Only rapid growth will generate enough jobs to counter South Africa’s unemployment crisis, which is the key reason for persistent inequality.
For increased growth, the government must attract investment; maintain and expand essential infrastructure; increase productivity and competitiveness; reform its labour laws, and expand opportunities for the poor (see the IRR’s National Growth Strategy, appended).
To attract investment, the government must protect property rights in keeping with international best practice. It must thus repeal all legislation (and pending bills) which undermine such rights, as set out in the attached list of Legislative threats to property rights.
To maintain/expand essential infrastructure, South Africa must end the damaging public monopolies vested, in particular, in Eskom and Transnet. These have left the country with costly and inefficient electricity, rail, and port systems unable to support the rapid growth required. The government should privatise these (and other) state-owned enterprises (SOEs), and use the proceeds of these sales to boost the education, health care, and housing vouchers it should provide the poor. It should also enter into public-private partnerships to maintain and expand water infrastructure and to improve the overall functioning of the public service: now identified by the World Economic Forum (WEF) as the second most important obstacle (after fractious labour relations) to doing business in South Africa. (Attached are the IRR’s working proposals on the privatisation of SOEs; and a recent issue of its @Liberty policy bulletin, No 22, on problems in water management and how best to overcome these.)
To increase productivity and competitiveness, the government must improve education and skills development (see below); reform labour laws (see below); end damaging public monopolies (see above); reform the Competition Act of 1998 (to bring it into line with international best practice and remove the minister’s powers to intervene on overly broad ‘public interest’ grounds); counter crime and corruption; and repeal damaging employment equity (EE) and black economic empowerment (BEE) rules which benefit only some 15% of black South Africans while harming the remainder (see @Liberty, No 24, attached).
In reforming labour laws, the government must recognise (as does the NDP) that current laws raise entry-level wages so high as to price the unskilled out of jobs. Ten reforms to labour laws are needed, from introducing strike ballots to holding unions accountable for strike-related violence, repealing rules that artificially push up wages, and making it easier to fire so that employers have more incentive to hire (see @Liberty No 19, attached).
Effective measures to expand opportunities for the poor are also needed. Major progress has been made since 1994 in reducing poverty and improving the living standards of black South Africans, mostly through social grants and the wider social wage (see Addressing inequality, attached). But inequality among blacks has increased: mostly because a rising number (7.9 million, on the expanded definition) are unemployed. To overcome joblessness, the country needs growth and the other reforms set out in the IRR’s National Growth Strategy.
It is also vital to improve access to quality health care. Some 4% of GDP goes to public health care, but many public health care facilities are so badly managed that the quality of public health care has deteriorated since 1994, as the health minister has acknowledged. At present, only 16% of public health facilities meet relevant norms and standards. Between 28% and 38% of South Africans use better quality private health care, but the rest are unable to afford this because of high unemployment, along with various regulations which have pushed up costs.
The Medical Schemes Act of 1998 should be amended to allow low-cost medical schemes, while the Medicines Act should be changed to allow discounts for bulk orders for medicines in the private sector. Also needed are reforms to labour laws to increase performance and accountability, an end to EE and BEE rules, and the removal of regulatory constraints on the private training of all health professionals. The government should also introduce state-funded healthcare vouchers, so that millions more people can afford medical aid. All health-care facilities will then have to compete for their custom, giving them major incentives to improve their performance (see IRR Synopsis on NHI white paper, attached.)
It is also essential to improve education. South Africa spends more than 6% of GDP on education, but the quality of provision is generally so poor that its education system is rated by the WEF as among the worst in the world. Schools are often badly managed by principals; education officials sometimes perform poorly; revenue for school infrastructure is often badly used; teachers with little subject knowledge commonly fail to complete curricula; standards for passing have been set too low; and a major trade union (Sadtu) is reportedly ‘selling’ principal and other posts.
Reforms are urgently needed and can best be achieved by reforming labour laws for increased performance and accountability; repealing EE and BEE rules; amending the South African Schools Act of 1996 to give school-governing bodies more power over staff appointments; and introducing state-funded education vouchers. These vouchers would give all schools an incentive to improve their competitiveness, while parental choice would be much enhanced. A voucher system has worked well in many countries in giving the poor access to better quality education (see @Liberty No 12, attached).
Similar reforms are needed at universities, for only 20% of black students (many poorly prepared by their schools) pass in regulation time and some 40% drop out altogether, making for great waste and massive disappointment. Again, we need labour reforms, an end to EE and BEE rules, and amendments to the Higher Education Act of 1997 to limit ministerial intervention, increase university autonomy, and put a renewed emphasis on quality, rather than massification and damaging ‘transformation’. We also need many more private institutions, and the reform of the NSFAS system to include state-funded vouchers and ensure that the bursary elements in these are timeously repaid by graduates. Critically, the country also needs major improvements to technical and vocational training to reduce the demand for university places and help young people gain scarce skills in high demand in the work place.
As regards skills development, the current TVET system, like the FET one before it, is marred by poor quality, low throughput, and limited demand. We need a state-funded voucher system, along with reforms to labour law, and an end to EE and BEE rules. The government should repeal the Skills Development Act of 1998, terminate the poorly functioning SETAs, and give employers incentives for on-the-job training. It should retain the Skills Development Levy Act of 1999, but use the levies raised to help fund TVET vouchers.
On housing and basic services, major gains have been made, but RDP/BNG houses are small, badly located (adding to spatial inequality), and often poorly built. Service delivery has been undermined by unpaid municipal bills, poor workmanship, inflated prices, and irregular spending. There are still 2.1 million households on the housing waiting list, but the state builds only 100 000 houses a year. Here, we need changes to labour, EE, and BEE rules, as earlier described; plus effective private/public partnerships to speed up the servicing of land; and a housing voucher system to give people immediate access to a range of housing options, rather than leaving them waiting on state delivery (see @Liberty No 20, attached).
Land redistribution and restitution in the context of skewed land ownership:
In 1994, the 13% of black land falling within the homelands, together with other state land amounting to roughly 13% of South Africa’s total land area of 122m hectares (ha), passed into the hands of the new ANC government. A 1996 audit put state land ownership at some 32m ha (26% of the total land area), excluding some 2.1m ha of municipal land. Including this municipal land, the state then owned some 34 million ha or 28% of the total. A 2013 state land audit put the amount of state land at 17m ha (14% of the total), but this is clearly flawed.
Since 1991(when the Land Acts were repealed), black people have bought some 2m ha on the open market. Under the Restitution of Land Rights Act of 1994, which provides for the return of land taken under racial laws dating back to 1913, some 3.1 million ha have been restored. Some 92% of successful land claimants opted for cash instead of land, while the monies they received could have bought another 2m ha. Currently, some 8 000 claims from the first window period remain unresolved, as do roughly 120 000 new claims under the Restitution of Land Rights Amendment Act of 2014, now struck down by the Constitutional Court.
The government plans to transfer 30% of commercial farmland (25.9m ha) to black South Africans by way of redistribution, of which some 4m ha have thus far been transferred. However, the 30% target (proposed by the World Bank) overlooks the fact that some 60% of commercial farmland (52m ha) is located in the arid western regions of the country, of which roughly 30m ha are in the Northern Cape. Writes political analyst James Myburgh: ‘It has been facetiously suggested that, if the government actually wants to meet the 30% land target, all it has to do is buy up most of the commercial farmland in the Northern Cape. But the opposite observation also applies. Unless the government buys up inexpensive low capability land in the west of the country, the 30% target will never be attainable.’
Since the 30% target cannot realistically be met, few people want land to farm, and most land reform projects have failed (see below), land reform needs a fundamental rethink. The 30% target should be scrapped, along with all other legislation threatening the property rights of farmers and others (see Legislative threats to property rights, attached). Outstanding land claims should be settled primarily via cash payments, while the Restitution of Land Rights Amendment Act of 2014 should be abandoned rather than re-enacted.
The government should also recognise that only some 8% of black South Africans want land to farm, making the demand for such land much more limited than the ANC has long assumed. This demand can thus be met by using under-utilised state land: much of it in former homeland areas and failed land reform projects. The government should ensure that all black farmers have secure freehold title. It should also give them practical help to expand their operations, while acknowledging the important assistance that white farmers already provide. It should leave commercial farmers alone to feed a rapidly urbanising nation, while making it easier for thousands of black farmers to move into commercial farming too (see @Liberty, No 25, attached).
Land reform in the context of poverty and inequality:
Land reform has done very little to alleviate poverty or inequality. Instead, between 50% and 90% of land reform projects have failed, with land reform beneficiaries often unable to generate marketable products. However, even if fewer projects had collapsed, the impact on poverty would still have been limited as the agricultural sector is so small (see below).
This high failure rate is not surprising, for land is only one of the inputs needed for success in farming. No less essential are secure title, working capital, know-how, entrepreneurship, water, electricity, labour, implements, seed, livestock, infrastructure, markets, and protection against theft. South African farmers further confront a skewed global playing field (farming is heavily subsidised or protected in many other countries), while farmers must also contend against drought, flood, and disease. This helps explain why so few South Africans have any wish to farm and why only 2.2% see land reform as a way to get ahead (see @Liberty, No 24 and @Liberty No 25, attached).
Though the government has spent some R29bn on restitution and another R22bn on redistribution, this has done little to help the rural poor. Instead, many farming jobs have been lost, while few compensating gains have been realised. In the current financial year, some R4.4bn has been set aside for land acquisition, but this is only 0.3% of budgeted expenditure of R1.46 trillion. This shows that land reform is not a government priority, even though the ANC increasingly claims that access to land is the key to overcoming poverty. This claim is false, for agriculture contributes only 2.3% to GDP and a mere 4.4% to employment. In addition, emergent farmers cannot prosper without secure title (which government policy denies them) and without all the other essential inputs needed for success, as outlined above.
Land reform and tenure security
The Constitution entitles South Africans to security of title, but little has been done to address this key need. As regards land held in customary tenure, the Communal Land Rights Act of 2004 was struck down in 2010 and has not been replaced. Instead, customary land use rights are under threat from the Traditional Courts Bill of 2013, the Expropriation Bill of 2015, which empowers municipalities to expropriate customary land for less than market value, and other pending legislation. An estimated 16 million South Africans in former homeland areas thus remain without secure title. This helps explain why most obtain only 5% of their income from farming the land to which they already have access (see @Liberty, No 25, attached).
Land reform beneficiaries have generally been barred from gaining freehold title. Restituted land is generally transferred to Community Property Associations, and not to individuals. Redistributed land is kept by the state for itself, while beneficiaries are confined to leasehold title under the State Land Lease and Disposal Policy of 2013. Black farmers who have bought land since 1991 are at risk of losing freehold title to it, while little has been done to provide title deeds to the 7.7m black South Africans who now own their homes, but often lack legal proof of this. One of the worst aspects of past racial discrimination was that black people were barred from buying houses, businesses, and farming land in most of the country, but current and pending laws are again putting the property rights of all South Africans at risk (see Legislative threats to property rights, attached).
Land reform and rural development
Land reform has undermined rural development and could increasingly put the nation’s food security at risk if pursued in its current form. Black farmers, many of whom have bought their own land and demonstrated their capacity to farm, are also angry that current policy does so little to help them. Revised policy should focus not on land but on farming. It should ensure that farmers have the benefits of secure title, state guarantees to help boost access to finance, and an effective agricultural extension service (run on a voucher system, using levies collected for AgriSeta). It should also put an end to ideological interventions and grandiose projects, such as the mooted agri parks (see @Liberty No 25, attached).
The focus of this committee is on what divides and what binds South Africa together, with a particular emphasis on the five issues identified below:
Racial discrimination: Despite several outrageous and much publicised statements in 2016 (Penny Sparrow equating black beachgoers to ‘monkeys’, and Velaphi Khumalo calling for whites to be ‘hacked and killed like Jews’), racial discrimination in South Africa is limited and race relations are generally sound. A representative field survey conducted for the IRR in September 2015 found that 79% of black respondents experienced no racism in their daily lives. In addition, when people were asked to identify the two most serious problems which had remained unresolved since 1994, 59% of blacks saw unemployment as the most pressing problem, while 26% of them cited crime. Only 4% of blacks identified racism as such a problem (see attached IRR, Race Relations in South Africa: Reasons for Hope, March 2016).
Social and economic exclusion: The biggest factor making for such exclusion is not racial discrimination but a host of post-1994 laws and policies that threaten property rights, deter investment, stifle growth, and increase unemployment, especially among the inexperienced and poorly skilled. Equally important are the laws and policies that have helped to make 80% of public schools dysfunctional, eroded the quality of public health care, pushed up the costs of private health care, and limited the state’s provision of quality housing and services. The combined effect has been to lock millions of people out of productive participation in the economy, leaving them increasingly dependent on social grants and the wider social wage, which can never be enough to meet the scale of need (as described in the IRR’s Submission to Committee 1).
By contrast, if the annual growth rate were to rise to 7% of GDP, the economy would double in size every ten years (as China’s has done). South Africa must thus shift its policy focus from redistribution to rapid growth. It also needs to make that growth inclusive by reforming labour laws, extending secure property rights to all, putting an end to damaging employment equity (EE) and black economic empowerment (BEE) rules, and giving the disadvantaged a far more effective leg-up through state-funded vouchers for education, health care, and housing (see @Liberty, No 24, attached).
Redress and transformation: Rapid implementation of EE in the public service has led to a crippling loss of experience and institutional memory. It has also eroded the state’s capacity to expand essential infrastructure and deliver services to the poor. Implementation in the private sector has been much slower at senior levels, as blacks of the necessary age (35 to 64) make up only 40% of the economically active population, while many of these older individuals are not among the 5% of black people with the tertiary training often needed for management positions. Yet business now faces draconian penalties for failures to meet unrealistic racial targets, which is further reducing investment and limiting growth and employment (see attached Damaging EE and BEE rules, while further data and analysis is available in Anthea Jeffery: BEE: Helping or Hurting? Tafelberg, Johannesburg, 2014).
BEE requirements are also being tightened up at great risk to the economy, for BEE ownership deals are costly, while preferential procurement often makes for inflated prices and poor performance, while encouraging corruption. BEE also undermines black entrepreneurship, and is a further major constraint on investment, growth, and jobs (see again Damaging EE and BEE rules).
In addition, EE and BEE help only a relatively small elite. As the IRR field survey shows, only 17% of blacks have benefitted from EE, while 14% have been helped by BEE deals and 12% by BEE tenders. BEE is thus singularly unsuccessful in overcoming past disadvantage. On the contrary, it harms the great majority by undermining service delivery and fostering corruption, even as it chokes off investment, growth, and jobs (see @Liberty, No 24, attached).
BEE policies also overlook key obstacles to black advancement, from low growth and crippling unemployment to poor skills, high rates of violent crime, and broken families. BEE should thus be replaced by a new policy of ‘economic empowerment for the disadvantaged’ (EED) which focuses directly on the poor (instead of using race as a proxy for poverty) and seeks effective ways to overcome all barriers to upward mobility. In particular, EED recognises that the poor will benefit far more from state-funded vouchers empowering them to buy the education, health care, and housing of their choice (see @Liberty, No 24).
BEE also damages social cohesion by requiring racial classification and racial preferencing, both of which are contrary to the Constitution’s founding value of non-racialism. This emphasis on racial targets is also unnecessary and irrational when more effective and race-neutral measures are available to overcome the consequences of past racial discrimination.
Trust between citizens: Racial laws and the ANC’s racial rhetoric seem calculated to drive a wedge between black and white South Africans. That race relations still remain generally good is a tribute to ordinary people, who continue to seek racial harmony and co-operation, unlike many in the ruling party. As the IRR’s field survey shows, 85% of blacks think that ‘the different races need each other for progress’, as do 86% of whites. Some 83% of blacks say that ‘with better education and more jobs, the present differences between the races will steadily disappear’, while 82% of whites think the same. Black and white South Africans also share various other views, including a dislike of racial targets in employment and in sport (see again IRR, Race Relations in South Africa: Reasons for Hope).
However, if the economy continues to falter – and the ANC uses this to drive more polarising racial rhetoric and further damaging race-based legislation – current social trust could well be eroded. There is, however, an effective remedy against this: to shift from BEE to EED; put the emphasis on growth and jobs, rather than redistribution and dependency; and empower the poor through education, health, and housing vouchers (see @Liberty, No 24, attached).
Social solidarity and active participatory citizenship: South Africa already has very high levels of redistribution via the budget, with some 60% of revenue going to fund social grants and the wider social wage. This speaks to a high level of social solidarity, especially as the middle class that pays most taxes gets little back from the state in return. However, current policies also encourage the poor to become passive dependents on the state, so eroding active participatory citizenship.
The best way to promote such citizenship is to implement key political reforms aimed, among other things, at strengthening parliament, increasing accountability, and combating the corruption which many people now feel helpless in trying to counter. A shift from BEE to EED, in combination with reforms aimed at stimulating investment, growth, and employment, would also be effective in building self-reliance and allowing people actively to pursue their own advancement (see again the IRR’s National Growth Strategy, attached).
South African Institute of Race Relations NPC 29 August 2016
NB(1): Submissions were limited in length to two pages, plus attachments.
NB (2): Attachments can be found on the IRR website
