Fix the economy stupid and provide free education (part 1)


IN 1994, the ruling party charted an economic course born out of the Interim Constitution and the Codesa negotiation process. Essentially, it involved embracing a ‘mixed economy’ approach, in which a market economy would exist side-by-side with a “dirigiste” economy, that had, as its antecedent, the ‘volkscapitalisme’ of the former National Party.

Thus the country’s industrial base was given new life, with local conglomerates such as South African Breweries emerging into global entities. The once fiercely nationalistic beer cartel, is now a thriving international business called SAB-Miller, which, as it turns out, is in the process of merging with another beer giant, AB inBev. A testimony to South African can-do attitude and the country’s ability to embrace internationalism.*

State industries such as SASOL and ISCOR were privatised, while others like Telkom, Eskom, and Transnet remained in government hands.

SASOL went on to repeat the success of SAB, while ISCOR under Mittel, faired a lot differently.

The ruling party thus presided over a long boom, which lasted approximately 15 years, coming to an abrupt end in 2009. The economy has been running in fits and starts ever since, and it is not simply because the global party of low-interest rates and easy finance has come to an end.

Arguably, more South Africans were pulled out of poverty under the administrations of Mandela and Mbeki, than under several decades of National Party rule, but under Jacob Zuma, the economy has been on the skids.

Now with talk about another credit ratings downgrade, jitters over the Rand, and looming threat of junk status for the nation’s debt, the question needs to be asked: What exactly went wrong?

For starters, the “dirigiste” economy took on a tragic life of its own.

Not only did we witness a massive expansion in state enterprises, but with the exception of Transnet, state enterprises today, operate under the illusion that annual bail-outs from central government are sustainable, that a de facto command economy, is the norm.

The effect on the nation’s fiscus has been dramatic. The public service wage bill under Zuma, (R61Bn and counting), has swelled by 80% and shows no signs of abating.  Coupled with a massive bureaucracy that has produced the largest cabinet and government ministry in the world (64 ministers and 64 deputy ministers), the country has began looking a lot like its former self, under the National Party.

As the slowing down of GDP and growth to 1.4% (2015)**, has shown, growth in the private sector is not enough to accommodate a bulging public sector. Areas of the economy which could have provided benefits, face massive obstacles from central government.

Red-tape and statute inflation (too many laws) has dramatically affected tourism, impacting small-and-medium businesses. The recent opening of the economy to Independent Power Producers, and likewise, the entry of wireless companies into the home fibre and cable market, has come a decade too late, for meaningful economic growth to benefit the class of 2015.

see part two

  • * The SAB part of the equation however, is ironically on the decline, a result of the much diminished Rand.
  • ** With a bit of luck could increase to 2.4% in 2016,  projected by Deloitte.
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3 comments

  1. Pingback: Fix the economy stupid and provide free education (part 2) | Medialternatives
  2. Pingback: Economic disconnect caused by Technology and Welfare disconnect. | Medialternatives
  3. Pingback: The Rubicon Budget Speech | Medialternatives

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