Policy challenges

Despite a strong corporate core, the South African economy is not creating jobs. Against a backdrop of rising unemployment, politicians are feeling the pressure and are themselves raising the temperature. Policy direction is as a consequence, being pushed towards a more radical left-wing posture. The pragmatic bastions of the ANC appear to have waning influence. This is creating greater uncertainty for investors and key sectors such as mining, manufacturing and agriculture have stagnated and started to largely contract. The recent ANC policy conference exacerbated the problem of policy uncertainty. For the mining industry, the policy proposals are a choice between awful and dreadful. Nationalisation remains a policy option, failing which much higher taxes on the industry.

Job creation has become a huge frustration amongst policy makers. It is ostensibly a major policy priority. However, the government is turning to ideologies that are known to have failed.

The only known way to create jobs on a scale that would provide a solution (not just a dent) is through the creation of small businesses. Small business is capitalised primarily through household resources. Yet in South Africa, households are savings deficient. The primary cause of this is that both fiscal and monetary policy has rendered savings economically unviable. Fiscal policy can help rectify this by scrapping taxes that hinder or deplete the household’s ability to accumulate capital such as taxes on interest earned, capital gains tax and transfer duties on property transactions. The tax burden should shift more onto consumption and away from savings and investment. The tax rate between individuals and corporate should also be narrowed. While individuals are taxed at 40% and corporates are taxed at 28%, the natural economic response is to retain resources within the corporate. This will never create jobs on the scale needed. The tax distortion should be that saving and investing is a route to avoid tax while consumption is where tax is incurred. Current tax policies are akin to taxing seeds rather than harvests.

Measures taken to raise household savings need to be followed up by the removal of obstacles for the formation of small businesses. The CC needs to be revived. The red tape tangle needs to be removed. It makes no sense that costs are imposed onto doing business in South Africa that are not imposed in other jurisdictions.     A regulatory holiday is an immediate step that could be taken for start ups and small business. A focus just on labour laws is misplaced, as it is the whole job-destroying gambit of regulation that needs to be tackled. The unrecognised regulatory development in South Africa points to job creation being subordinated to the lowest policy priority.

However, policy has shifted since 2008 to an increasing statist strategy and it is palpably failing. The 2008 global financial crisis has been blamed for the stalled progress in job creation in South Africa. In 2001, the unemployment rate was 31% and this had dropped to 21% by 2008. However, since 2008, the unemployment rate has risen back to 25%. While the 2008 global financial crisis has been blamed for the reversal of the 2001-2008 progress, increasingly it has been the private sector that has been blamed for the lack of job creation. However, South Africa’s economic recovery trajectory following 2008 has been one of underperformance compared with similar countries such as Thailand, Columbia and Turkey amongst others. Job creation has also been achieved in many other countries following the crisis of 2008. The 2008 crisis is an inadequate explanation for the South African economic performance over the past 5 years. In 2008, the Polekwane elective conference was held and a different policy pathway was chosen at that conference. The developmental state concept was adopted and following that, the private sector has been increasingly marginalised. Policy uncertainty prevails and the welfare state has gained more traction. Unsustainable welfare spending has led to credit rating agencies placing South African sovereign debt under a negative watch.