Fixing South Africa: The case for economic deregulation and decentralisation

Sindile Vabaza, an aspiring economist and an avid writer, is a contributing author for the Free Market Foundation.  

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The views expressed in the article are the author's and not necessarily shared by the members of the Foundation.

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This article was first published on Biznews on 13 December 2022

Fixing South Africa: The case for economic deregulation and decentralisation
"Things fall apart; the center cannot hold; / Mere anarchy is loosed upon the world, / The blood-dimmed tide is loosed, and everywhere / The ceremony of innocence is drowned; / The best lack all conviction, while the worst / Are full of passionate intensity..."
This passage from a poem, published in 1920 by WB Yeats and titled The Second Coming, was written at a time just after the First World War when millions of people began to die in the waves of a flu pandemic, which infected Yeats's wife, Georgie Hyde-Lees, while she was pregnant. It could reasonably also serve as a succinct portrait of what South Africa has over the years slowly fallen under the ever more corrupt, rent seeking and capricious leadership of the ruling party.
The latest findings from ratings agency, RatingsAfrika, show that six of South Africa’s eight major metropolitan municipalities are financially unsustainable and need critical intervention. The group, which tracks and assesses the financial sustainability of approximately 100 local councils and eight metro councils annually, described a death spiral: Rampant corruption and mismanagement at many municipalities result in a lack of funds and increasingly poor service delivery, the latter of which reinforces a culture of non-payment of municipal rates and service fees which, in turn, exacerbates the financial deterioration of the municipalities and further affects service delivery.
A recent SME study titled,
The Case for Economic Deregulation & Decentralisation, authored by Dr Christoph Klein and published by the Free Market Foundation, argues that the fundamental problem with the degradation of municipalities and municipal services is rooted in the very centralized nature of government in the country. The author argues that:
An analysis of regulation and its harmful effects must be devoted to understanding municipal governance structures and the degree of financial autonomy. It must look at those services that are crucial for every business, in particular the core infrastructure services of electricity, water, sewerage, and telecommunication, the first three of which are provided by public monopolies. Expecting municipal representatives to be accountable to their citizens when they have no local tax revenues and, worse, have all their funds allocated as grants from the national government is either naive or ignorant.”
In other words, incentives matter. Municipalities which are unaccountable to the residents they serve, and an all-powerful national government which is out of touch with local needs, creates a fertile breeding ground for political operatives (municipal management) who embezzle municipal finances for their own benefit, and don’t bother to provide services while not suffering the consequences of a faltering local economy. They continue to draw high salaries through disbursements from the national government (the fruits of taxation from wealthier parts of the country), while residents and businesses in their own municipality suffer as businesses shutter, unemployment shoots through the roof and social problems and crime are exacerbated. 
The author goes on to say:
“As to promoting higher economic growth of SMEs (as well as larger enterprises), the best deregulation policy is to allow people to take matters into their own hands. As we speak, resident associations have taken over the operations of water and sewage infrastructure. Such “take-overs,” it is argued, are the first steps to liberate South Africa’s economic system from its destructive infrastructure monopolies. In sectors where the state has created a monopoly to provide affordable universal infrastructure services to all, such mandates can be defended—provided they succeed. If not, they must be abolished. The energy, water, railway, port, and postal sectors need competition in all areas of the value chain. Perhaps, some of these entities can emulate Telkom if private capital induces the necessary commercial discipline.”
The author argues for the Promotion of Economic Activities Bill, championed by the Free Market Foundation, which would empower the president to deregulate certain sectors of the economy where laws and regulations are unduly hindering or impeding economic development, competition, or the creation of job opportunities.
The exercise of this power would be subject to parliamentary oversight, and the president would be prohibited from exercising it in such a way that might result in the protection or advancement of any economic incumbent, monopolisation, or exempting the State from complying with laws that the private sector must follow.
Similar bills can also be adopted at the provincial level to bestow a similar power upon premiers. 
This Bill, combined with political decentralisation to the lowest possible level (otherwise known as subsidiarity), is just the tonic needed to revive the country’s moribund economy. Not only will it free up the market to operate more efficiently and introduce competition where now there are legally enforced monopolies, but also keep municipalities accountable to the residents they are supposed to serve. 
Deregulation and functioning municipalities will also make the country a more attractive destination for foreign direct investment. Given appropriate host-country policies and a basic level of development, a majority of studies show that foreign direct investment triggers technology spillovers, assists human capital formation, contributes to international trade integration, helps create a more competitive business environment, and enhances enterprise development. All of these contribute to higher economic growth, which is the most potent tool for alleviating poverty in developing countries.

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