Quarterly Review 2012.09

21 December 2012
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FMF

Quarterly review

July – September 2012

The FMF’s projects for 2012 include: competition, energy, job creation / labour, growth, land reform / property rights, health, nationalisation, good law, tobacco / freedom, and red tape, as well as ad hoc issues as they arise.

Media Coverage

The FMF has been working hard to increase its media coverage in order to reach as wide an audience as possible with its message about the benefits of economic freedom and growth.

The FMF’s WEBSITE ARTICLES, sent to members weekly, are regularly republished by the local and international media. Between 1 August 2011 and 31 July 2012, articles were republished on 101 occasions (ie each weekly article was republished on average twice).

ARTICLES that quote or mention the FMF or originate from interviews or were written specifically for the media between 1 August 2011 and 31 July 2012 number 296 (154 plus 142 on the tobacco issue specifically), up from 51 in 2010/11.

INTERVIEWS on radio and TV between 1 August 2011 and 31 July 2012 number 113 (72 plus 41 on the tobacco issue specifically), up from 56 in 2010/11.

FMF has hosted six media briefings since June 2012 and plans to host two per month whenever possible. The briefings provide journalists with an opportunity to ask in-depth questions about the topic under review. Each briefing is followed by a media advisory to over 1,000 editors and journalists. (See below for more information.)

Recent leader page articles

The Star – Taking SA out of the doldrums (25 Sept)

The Star – Freedom for none or freedom for all (19 July)

Business Report – Privatising electricity generation will end shortages (18 July)

The Star – Land reform can be achieved cheaply and legally (17 July)

Energy

The FMF remains very concerned about the energy crisis in South Africa, which continues to impact negatively on economic growth with mines, manufacturers, property developers and others having to rein in potential expansion. The FMF’s Energy Policy Unit meets regularly to strategise about solutions to the crisis. The answer lies in an independent grid, competition between Eskom and a range of Independent Power Producers, access to the grid limited only by technical requirements, and wheeling across the grid by sellers to buyers.

Media briefings and advisories

On 19 July 2012, Doug Kuni (Managing Director, SA Independent Power Producers Association (SAIPPA)) and  

Leon Louw (Executive Director, Free Market Foundation), presented Energy crisis: Will SA keep the lights on? to a group of journalists.

They outlined the problem…

  1. South Africa faces an electricity crisis which if left unresolved will cost the economy further billions.
  2. Already mines, manufacturers, property developers and others have to rein in potential development and expansion.
  3. The new power stations, Medupi and Kusile, will not be completed on schedule or within budget.
  4. Proposed energy-related legislation is more restrictive than existing legislation.
  5. The Independent System and Market Operator (ISMO) Bill does not deliver an independent systems market operator.

And detailed the solution…

  1. Competition, private investment in and management of electricity generation, transmission and distribution are essential to ensure continuity of affordable supply.
  2. A properly functioning electricity supply system which adopts global best practice and includes: an independently owned and operated transmission grid; Independent Power Producers (IPPs); and market trade in electricity.

The media advisory which followed was entitled: The Energy Regulator needs to act now to keep the lights on in SA. It included the following statement: Kuni and Louw were united in their position that SA urgently needs to come into line with global best practice and introduce a properly functioning electricity supply system which includes: an independently owned and operated transmission grid; independent Power Producers; and an open and competitive market in electricity. This will ensure the regular, efficient and affordable supply of electricity and keep the lights on in SA and action is required now, they said, to replace the existing outmoded and discredited monopoly system whereby the owner and operator of the national grid and the same entity, Eskom.

On 14 August 2012, Doug Kuni and Leon Louw presented The hidden costs of keeping the lights on to a group of journalists.

They made the following points:

-               Eskom congratulates customers for "saving" electricity, but in reality there are no savings; just massive and irrecoverable losses to the South African economy.

-               Estimates show the 2007-2008 electricity blackouts were equivalent of forgoing a new power station.

-               Without electricity, there cannot be growth; without growth, there cannot be jobs.

-               By demanding people use less electricity, and by paying industries to be unproductive, Eskom and the policy makers make all talk of growth and job creation meaningless.

-               Current electricity demand is below trend because of the financial crisis and global economic conditions; as these conditions ease, demand will surge.

-               A single 3-hour shutdown would lose the country around 2.25-3.55 billion Rand. This equates to:

  1. 27,108 to 40,900 low cost houses (approximately 14% of the annual low cost housing budget), OR
  2. 10,000 thirty-seat buses, OR
  3. A whole train (locomotive plus thirty coaches) with ten kilometres of rail, OR
  4. 1500 jobs at the minimum wage, OR
  5. Over 9.2 days’ expenditure on SA’s entire social grant programme (one single hour of lost electricity is worth 74 hours of social welfare).

The media advisory which followed was entitled: Crisis? What Crisis? The lights are on aren't they? It included the following statement: “… this is not “Eskom-bashing” but “bad policy-bashing”. Eskom has no choice but to take revenue from wealth and job creating organisations and use this to pay the same people not to create wealth and jobs. In any other circumstance this behaviour would be considered bizarre. Instead it is slowly destroying the prospects of the eight million unemployed citizens in South Africa and Eskom's talk of a diminished credit rating if assets are separated is simply a red herring to divert attention from the immediate and desperate electricity crisis facing South Africa.”

Submission and oral evidence

On 23 July 2012, FMF Director Eustace Davie submitted the FMF’s Comment to the Portfolio Committees on Energy and on Cooperative Governance and Traditional Affairs on the possible restructuring of the Electricity Distribution Industry (EDI). On 31 July, he and Doug Kuni, a member of our Energy Policy Unit and MD of SAIPPA, with FMF Director Temba Nolutshungu, led oral evidence to the portfolio committees.

Our subsequent media advisory was entitled State must end Eskom's monopoly to ensure growth, jobs and economic prosperity for SA and stated: “The FMF believes that resolving the current crisis in energy generation and distribution is the single most important issue facing South Africa today. Without a guaranteed and economically viable supply of electricity, growth and job creation will not happen and all debates around future development and unemployment are superfluous. Government should give priority to the long term interests of the people of South Africa. Policy makers are duty bound to find solutions that will provide citizens with efficient well-functioning electricity distribution systems that will allow high economic growth and rapidly improving conditions for all the country’s people.”

Articles

  1. The cost of electricity shortfalls in South Africa
  2. The electricity crisis – from bad to terrible

 

Media coverage on energy

-               ABNDigital.com |South Africa's electricity crisis with Doug Kuni

-               BDLive.co.za |Electricity from private sector overlooked

-               Business Day | Privatisating electricity generation will end shortage

-               Business Report | ‘Downsize Eskom’s role in power grid’

-               Business Report |Private sector must play role in energy chain

               Businessday.co.za | Shed light on policies

-               Classic FM |Energy crisis in South Africa

-               Engeneeringnews.co.za |Power developers deeply frustrated by SA’s regulatory obstacles

-               Engineeringnews.co.za |SA needs competition in electricity generation, transmission

-               Esi-africa.com|Electricity crisis in SA? Lights are on aren't they?

  1. Financial Mail | Grid independence
  2. Financial Mail | ISMO
  3. Financial Mail | Struggle for independents

-               FM.co.za |Grid independence

-               FM.co.za |SA's electricity market gets competitive

-               FM.co.za |Struggle for independents

  1. IOL.co.za | Unbundle Eskom to brighten future

-               IOL.co.za |Private sector must play role in energy chain

-               Lotus FM | Energy

-               Lotus FM |Energy

-               MG.co.za |Eskom scores as consumers switch off

-               Moneyweb | The cost of electricity shortfalls in South Africa

-               Moneyweb | The electricity crisis – from bad to terrible

-               News24.com | Eskom 'not to blame' for bungling

-               News24.com | SA electricity ‘in crisis’

-               News24.com |Solar could supply SA energy – expert

-               |Electricity distribution network collapse three years away

-               Techcentral.co.za | Time to terminate Eskom’s monopoly

-               The Mercury | End Eskom’s monopoly for or future could look dim

-               The Star | Unbundle Eskom to brighten future

-               Zasolar.co.za | Electricity in crisis

Job Creation / Labour

In-house event

On 22 August 2012, Herman Mashaba presented his Chairman’s Address to the FMF’s Annual General Meeting entitled My vision for South Africa.

Herman said: “I decided to throw my weight behind the Free Market Foundation because they have for three decades been arguing for the very environment that I believe will make this country great. The FMF was the only organisation I found that was, in the same way as I am, openly and proudly promoting free-market capitalism.” Herman’s vision is a broad one; he wants South Africa “to grow and to rank among the most peaceful and prosperous on earth”.

“In the FMF,” he said, “we are working to persuade the policy makers to sweep away the barriers that are preventing people from getting jobs; to create the conditions that will allow them to take responsibility for their own lives. The current untenable situation that keeps more than 7 million people unemployed has to go. In my vision for South Africa, there will be a shortage of labour. Employers will be bidding for the services of every single person who wants to work and wants to get ahead. Young people will be encouraged to work hard at their studies and hone their skills either to get better jobs or start their own businesses. Above all, in my vision young people will have hope and believe that for them the sky is the limit.”

FMF publication on job creation

Our distribution agents tell us that someone from the Education Department recently saw Jobs Jobs Jobs in a library and is evaluating it for possible purchase. Watch this space for more.

Growth

In-house events

On 18 July 2012, Dawie Roodt, Chief Economist, Efficient Group, having been labelled an “unreconstructed neo-liberal fundamentalist” by Jeremy Cronin, presented Confessions of an “unreconstructed neo-liberal fundamentalist”: A plan for South Africa to an audience at the FMF.

Dawie noted: “We have many plans for the country. We have the Industrial Policy Action Plan (IPAP), the Reconstruction and Development Programme (RDP), the Growth, Employment and Redistribution Plan (GEAR), the New Growth Path (NGP), and the National Development Plan (NDP). We also have numerous updated versions of these plans, as well as DA plans, Cosatu plans and SACP plans. Actually, we continually plan to have even more plans. We are so plan flush, in fact, that we can start a plan library.” Dawie’s own plan for growth included reforming the tax regime, state expenditure, and trade and labour policies.

On 31 July 2012 the Free Market Foundation was proud to participate in the 2012 Friedman Legacy for Freedom Day. We hosted an evening event at our offices to provide an “opportunity to learn about the late Nobel laureate, to share his ideas, and to celebrate the impact they had on the world”, where Leon Louw addressed an enthralled audience of “fans of Milton Friedman and lovers of liberty”.

Leon spoke first with affection and humour about Milton Friedman, the man, emphasising his likeability and ability to put others at ease. Then about Friedman’s intellect and the wide range of issues about which he cared and was superbly knowledgeable. Leon spoke of Friedman’s books and awards, and then enlightened our guests by analysing the differences between the monetarists (Friedmanites) and Austrians. Leon ended his presentation with some of Friedman’s best-loved quotes and pointed out that Milton and Rose have clearly passed their excellent genes on to their son, David!

One of our guests had this to say: “I would just like to express my congratulations on the excellent presentation on Friedman last night.  It was by far the most entertaining economic presentation that I have ever attended!”

Economic freedom of the world: 2012 Annual Report (EFW)

EFW is co-published annually by the FMF. This year’s South African edition was launched in Johannesburg on 18 September 2012 and was sponsored by the Friedrich Naumann Foundation for Liberty.

According to EFW2012, African and formerly Communist countries have enjoyed the largest increases in ECONOMIC FREEDOM: Rwanda (106th in 2000 to 44th), Malawi (114th to 84th), Ghana (101st to 53rd), Romania (110th to 42nd), Bulgaria (108th to 47th), and Albania (77th to 32nd). In highest-ranked countries, the AVERAGE INCOME of the poorest 10 per cent was $11,382, compared to $1,209 for economically unfree countries. The poorest 10 per cent in the freest countries are twice as rich as the average population of the least free countries.

South Africa’s disastrous decline in economic freedom during recent years from 41st to 91st has finally been arrested with a rise to 85th (out of 144 countries). South Africa’s ranking will continue to improve if this means that South Africa is back on the road towards the greater economic freedom we enjoyed during the first decade of democracy.

The EFW component on which South Africa scores highest is in the provision of Sound money (8.18 out of 10). EFW2012 identifies several important factors that the South African government can act on now to improve economic growth and progress: Reliability of police (2.52); Business costs of crime (4.38); Capital controls (0.77); Hiring and firing regulations (2.46); Centralised collective bargaining (3.39); Government consumption (3.96) and Government enterprises and investment (4.00).

EFW is available from the FMF at R150.

Land Reform / Property Rights

Secure property rights represent one of the most important requirements for the protection of both economic freedom and civil liberties. The FMF remains concerned about the slow pace of land reform, especially as the solutions that exist require only political will to implement. The FMF proposes that:

  1. All black occupied council-owned urban plots be converted to full ownership (“freehold”) (see “Perryville” below).
  2. Superfluous government land be redistributed to the victims of apartheid as a substantial once-off compensation for the crime of apartheid.
  3. Pre-emptive clauses be removed from existing and future RDP titles.
  4. In tribal areas, communities be allowed to grant private title over homesteads while maintaining communal rights over arable land.
  5. The Subdivision of Agricultural Land Act, 70 of 1970 should be repealed because it would make it easier for poor individuals to finance smaller, more affordable plots of land. Furthermore, lowering the statutory costs of subdividing and transacting farmland would allow commercial banks to finance lower income individuals’ applications.

“Perryville”

FMF is working with “Perryville” to convert 33,000 council-owned urban plots to full freehold title thus granting black South Africans the same land rights as whites and releasing around R3bn into the local economy. We believe this project can be replicated countrywide, converting “dead capital” into “dynamic capital” and altering forever South Africa’s landscape.

Having resolved (some) of the more difficult technical issues relating to the granting of freehold title, a process that took several years, FMF and its partners are finally making some real progress though new issues arise daily. Of the 314 properties in process, 47 involve deceased estates; 115 include incorrect property details and cannot be traced in the deeds office; and 93 have been found to have been transferred already. According to a local conveyancer, many of these 93 may involve occupants taking advantage of the council’s decision to transfer properties free of charge and using private conveyancers to transfer their properties rather than waiting for the project to reach them.

Media briefing and advisory

On 30 August 2012, Leon Louw presented Government’s “blue light” approach to land reform to a group of journalists. He dealt with the following issues:

  1. Government focus on the redistribution of white-owned farm land is politically emotive obfuscation designed to hide the truth. It is the “blue light” technique used in live theatre where the spot light reveals only what the audience is allowed to see and the blue light is used to hide the reality of what is happening behind the focal scene.
  2. The government has pledged that 30% of land will be redistributed to black citizens and says this has not happened with the threat of land seizures hanging in the air.
  3. But what does this mean? What kind of land, where and with what value? Is it by area size, by value, privately or government owned? Does it include industrial, urban, residential or institutional land? How about municipality-owned land which is also defined as private land? What about land owned by airports, parastatals and state agencies?
  4. The debate is not about land per se: there is plenty of land available in government hands to meet the requirements of redistribution. The debate is all about white-owned farm land and contrived to achieve ideological ends.
  5. By directing the debate to white-owned farm land, the government diverts attention from the easiest and biggest redistribution by race and any other criteria which would have the biggest impact and benefit for most people. This is the conversion of all black-occupied residential land to full ownership and title. With the spotlight on white owned land the government avoids the real task hidden by the blue light.

Health

Media briefing and advisory

On 26 July 2012, Jasson Urbach, FMF Economist & Director of the FMF’s Health Policy Unit, presented Treasury plans to restrict choice and availability of medical insurance “gap” cover, including your hospital plan to a group of journalists.

He pointed out that current government policy will effectively monopolise health care under the NHI by making it prohibitively expensive for ordinary South Africans to join medical schemes or illegal to buy their own supplementary insurance products. Jasson noted that the government is systematically destroying the private medical scheme and insurance industries. Each new pronouncement further limits consumers’ options and increases healthcare costs. Treasury’s proposed new demarcation regulations will restrict the choice and availability of medical insurance “gap” cover, hospital plans and other private health provisions and will seriously impact the industry and consumers. This follows the budget announcement that tax deductions on medical scheme contributions will be replaced with tax credits and continues the damage done by the 1998 Medical Schemes Act which introduced four key changes: open enrolment, community rating, statutory solvency requirements, and prescribed minimum benefits (PMBs).

The FMF’s subsequent media advisory was entitled Government demarcation plans attack private healthcare insurance industry and drive up cost of medical aid schemes for all and reiterated that “… the government is fundamentally opposed to private healthcare but is afraid to say so openly. Instead, it is systematically destroying private medical schemes, the main vehicle for accessing private healthcare, by artificially raising the cost of medical schemes. The process began with the introduction of the 1998 Medical Schemes Act which introduced four key changes (open enrolment, community rating, statutory solvency requirements, prescribed minimum benefits (PMBs) that restricted competition between medical schemes, reduced consumer choice and raised the cost of joining medical schemes, forcing younger and poorer members out of schemes.

The government’s plans for your healthcare…

Vivian Atud, FMF economist, asking a question at a breakfast presentation by Minister Aaron Motsoaledi, outed his long-term plans to undermine the private healthcare and sector in SA. The article below, published in The New Age, says it all…

Insourcing of health services on table

The encroachment of the Free Market Foundation at the press briefing of the ANC policy conference on Friday proved to be a blessing in disguise. It prompted Health Minister Aaron Motsoaledi to explode into a passionate narrative that gave critical nuances around ANC thinking on the role of the state in the economy and provision of basic services.

In reporting back resolutions taken by the health commission Motsoaledi had said the ANC delegates recommended that state hospitals should take back provision of basic services like cleaning, security and food provision. Not surprisingly and in line with the well-known Free Market Foundation ideological dogma, a person from the foundation asked if this recommendation would not compromise efficiencies. Motsoaledi in his usual sensibility exploded into a passionate narrative that best captured the rationale for an increased role of the state in the provision of basic services.

“I don’t want to go down the ideological lane but we disagree fundamentally with the foundation,” said Motsoaledi. “We regard health as a basic public service. It (health) cannot at all times be subjected to the nuances of the market. People are realising this around the world, including the US.”

“I don’t hate the markets, but in health they can cause havoc,” said Motsoaledi. He said a significant portion of basic services within the country’s public health system had been privatised. The system as it stood was not efficient.

Motsoaledi’s passionate narrative went beyond the narrow focus on the actual service provided and into the broader socio-economic implications of the privatisation brigade.

He pointed to the fact that, when services are outsourced by public entities, workers get a raw deal. Most private service providers go the contract worker or labour broking route, which leaves many workers in a vulnerable socioeconomic position. They don’t get pension funds, medical aid and other benefits, which they used to get when such services were insourced.

“They hire on a hit-and-run basis,” said Motsoaledi. Without long term financial security “these workers come back to be a burden on the state’s welfare system. In the past the system worked well. These workers were employed by hospitals.”

He said many of the problems in the supply of basic services in the health system were linked to the vagaries of the market and mainly money issues. “Some contractors will just stop supplying food to the hospital because they are angry for one reason or another. This then threatens the supply of basic services. People must be assured of services, despite what the market says.”

It is partly this fault line raised by Motsoaledi, which has seen the ruling party push for a roll back of many other basic services. Motsoaledi’s narrative came to expose what remains untold in discussions about the role of the state. Since 1994, a significant portion of basic goods and services have been privatised.

Despite decisions to halt macro privatisation in the post-Gear era, massive outsourcing trends have continued unabated at micro level, mainly at hospitals, educational institutions and in many government offices. This has happened at great social cost to multitudes of workers who have been left in highly vulnerable positions in what is evolving into a biblical social welfare crisis.

Motsoaledi proceeded to say that the health commission pressed for the speedy implementation of the establishment of a state-owned pharmaceutical company, an initiative which has already gone some way towards implementation. This linked to the overriding theme of the ANC policy conference, which emphasised the role of the state in the economy, while rejecting nationalisation.

The conference dedicated lots of time on enabling the state to bounce back as a provider of basic services and goods. Most of these debates were fleshed out inside the economic transformation commission, which debated a discussion paper on state-owned enterprises (SOE).

It is almost a foregone conclusion that recommendations about bulking up SOEs will be approved at the highest decision ANC platform, the national conference in Mangaung in December. The big question, though, centres around the organisation of this SOE animal. Where will the pharmaceutical SOE be housed?

Housing it within the health department, which is also supposed to regulate it, will come with serious conflicts of interests. There was a big push to reorganise the entire SOE universe into a single centre, which might give birth to a gigantic SOE department. Will that be the Public Enterprise Ministry?

Media coverage on health

The Medical Chronicle now hosts a monthly FMF article written alternately by Eustace Davie, Director, and Jasson Urbach, FMF economist and Director of our Health Policy Unit.

Articles published in the Medical Chronicle this quarter were:

Jasson Urbach: SA’s pharma patent laws under threat (July)

Eustace Davie: State should stop intervening in healthcare market (August)

Jasson Urbach: Local content requirements are sick (September)


Red Tape

Informal traders

FMF’s sister organisation, the Law Review Project (LRP), continues to be concerned about the ongoing ill-treatment of street traders at the hands of The City of Johannesburg and to work with top South African church leaders in support of the economically disadvantaged street trading sector. 

Presentations This Quarter

  1. 29 August 2012, Temba Nolutshungu, Harvard Training Institute conference on traditional leadership and local governance on Traditional leadership grappling for relevancy in a developmental local state:  Current relationship between democracy and traditional governance in South Africa.
  2. 6 July 2012, Leon Louw, Friedrich Naumann Foundation Liberal Lunch on the FMF’s National Development Plan submission.
  3. 24 July 2012, Leon Louw, ICFP conference panel discussion on Rule of Law.
  4. 25 July 2012, Leon Louw, FW de Klerk Foundation conference on the Second Transition on The implications of the ANC’s proposed development state.
  5. 11 August 2012, Leon Louw, Taxpayers’ Movement on South Africa: The solution.
  6. 21 August 2012, Leon Louw, Pet Food Industry Forum on Do we have a recession or a growing (glowing) future?
  7. 22 August 2012, Leon Louw, FMF AGM on From Polokwane to Gallagher: ANC policy.
  8. 23 August 2012, Vivian Atud, SA Institute of Race Relations on Black Advancement and Dependency indices.
  9. 31 August 2012, Herman Mashaba, UJ Centre for Small Business Development on FMF and labour legislation.
  10. 13 September 2012, Herman Mashaba, RMB Morgan Stanley Big Five Investor Conference on FMF and labour legislation.
  11. 14/15 September 2012, Temba Nolutshungu, US Alumni Indaba as facilitator for a session on Job creation and economic opportunities.

Other

FMF history: Monetary policy and visit to the Reserve Bank

In 2002, FMF Director Eustace Davie wrote to the Governor of the Reserve Bank, Mr Tito Mboweni, expressing concern about the rapid increase in the base money supply (M0), suggesting that if the trend continued South Africa would experience runaway inflation and the rand would weaken substantially. He suggested to him that the bank should heed the views expressed by Dr Richard Grant in the FMF book Real Money, copies of which had previously been supplied to the Reserve Bank. The Governor invited the FMF to give a presentation to senior officials of the Reserve Bank. Dr Grant was brought to South Africa from the United Arab Emirates and spent two days in the Reserve Bank, during which he gave two presentations and had one-on-one discussions with several officials. As a result the bank regained control of increases in the money supply to the extent that the year-on-year increase in M0 to the end of February 2003 was 3.26% compared to 30.51% at the end of February 2002.

The influence of this visit still continues. Monetary policy, except for a period of laxity in mid-2007, has been sound and probably a main factor in shielding South Africa from the worst of the global recession.

 

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