SA's weak economic growth and dismal unemployment figures are symptoms of economic policies that contradict each other, and without clarity there will be no clear path for SA to emerge from the quagmire it is in.
A 2.2% contraction in GDP in the first quarter of 2018 was the largest quarter-on-quarter decline since 2009, with agriculture, manufacturing and mining the primary contributors to the poor performance.
Pundits have argued that the structural composition of our economy will remain a key constraint in realising long-term sustainable growth - necessitating a critical assessment of our economic policy frameworks.
In August 2007, the cabinet approved the first iteration of the Industrial Action Policy Plan (Ipap), emphasising value-added manufacturing as a primary growth imperative. Secondary effects would be growth in employment and an improved trade balance. The policy argues that low interest and concessional finance aimed specifically at industry will be key levers for sectoral growth - arguably a more "pro-business" policy framework.
In October 2010, minister of economic development Ebrahim Patel introduced the New Growth Path (NGP), which envisaged promoting a more labour-intensive economy with job creation as its primary focus, and the reduction of inequality and poverty alleviation as secondary focus areas. This was in the context of decent work and minimum income levels - that is, "pro-labour".
This policy framework targeted creating 5-million jobs by 2020 and reducing unemployment to 15% through infrastructure development, supporting labour-absorbing activities across the main sectors, knowledge, and green economies, social economy and public services and rural development.
Then, in 2012, the government launched the National Development Plan (NDP), whose primary focus is to "provide all South Africans with a decent standard of living through the elimination of poverty and reduction of inequality". Its target is to eliminate poverty by 2030, reducing the number of people earning below R418 a month from 39% to zero. The NDP argues for state intervention, investment and societal transformation as levers to achieve its target. Let's call it "pro-development".
Sipho Pityana, president of Business Unity SA, says: "In an ideal world, these economic policy frameworks are meant to be successive, complimentary and mutually reinforcing."
However, in reality their philosophies are contradictory in nature, meaning that implementation through the various programmes will not be cohesive, or conducive to a sustainable growth agenda.
In a typical case where capital leads policy, it would appear that Ipap has enjoyed the better part of the spoils. For example, 51% of the Industrial Development Corporation's (IDC's) funding over the past five years has gone to manufacturing. This is despite manufacturing being a declining sector, now only contributing just over 12% to GDP. Its share of employment declined to 10.7% in the second quarter of 2018.
The rest of the IDC's funding over the past five years comprised 20% to electricity generation, 18% to mining and 9% to services. What makes this intrinsically contradictory to the "pro-labour" position of the NGP is that the funding has gone to the most capital-intensive sector with the lowest employment multiplier, not to those sectors with the highest number of jobs created per R1m spent.
According to the economic and financial data consultancy Quantec, agriculture, business services, wholesale and retail, community, social and personal services have employment multipliers of 11.7 (per R1m spent), 10, 8.5 and 7 respectively, compared to 1.5, 1.8 and 4 in mining, construction and electricity respectively.
The NDP relies largely on public resources to achieve its goals, while the NGP and Ipap recognise the economic trade-offs of investment vs public spending. The government is currently on an austerity path, which means it will not meet the NDP targets.
In another example, Ipap and the NGP seem to be proposing the same thing where they both call for low positive real interest rates. But when you comb through the specifics, you find that the NGP is calling for a monetary policy stance that will support a competitive exchange rate and lower investment costs, while Ipap considers low real interest rates in the context of funding concessions for sectors. The latter proposes a quasi-monetary easing for growth sectors.
A considerable amount of work needs to be done to ensure that the economic policy frameworks speak the same language, which by design will lead to an alignment in the expected growth outcomes of each policy framework.
Cohesiveness in the policy environment will require that all framework revision be done in the context of a broader economic vision.
What does it mean to be pro-business, pro-labour and pro-development at the same time? The answer lies in the balance between these policy frameworks. While this balance remains elusive, the South African economy will not pull itself out of its structural growth trap.
• Skenjana is a PhD candidate and an investment and economic research specialist
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