Manuel's policy gambit

By Staff Writer

By Quentin Wray, Business Report

The treasury on Thursday released for public comment a harsh analysis of South Africa's economic shortcomings and a raft of 21 policy recommendations to fix them.

Many of the recommendations (listed on page 5) by an international panel of top economists are bound to infuriate the ANC's left-leaning allies, which have dominated economic discourse since the party's leadership conference in Polokwane in December.

Among the report's findings is that while only 42 percent of working-age South Africans have jobs, in other countries at a similar stage of development this figure stands at more than 60 percent.

If South Africa were to have this employment level, 6 million more people, mostly young and African, would be off the streets and in work.

To remedy this, the panel, led by Harvard's Ricardo Hausmann and Dani Rodrik, wants:

Government interventions that will weaken the rand and keep inflation and interest rates low.

  • Import tariffs to be cut and simplified, and cartels smashed to reduce prices.
  • Young workers to qualify for a wage subsidy but to have no job security during a probation period, so that employers can fire them without having to give a reason.
  • Skilled whites to be encouraged to stay and immigration actively encouraged to boost the country's skills base, so that firms are able to absorb young, unskilled workers.

National treasury director-general Lesetja Kganyago said in an interview yesterday that members of President Thabo Mbeki's cabinet had seen the report, which was based on 19 research papers prepared over a two-year period, but that it had not been tabled before the cabinet for approval.

Only once the report and its recommendations had been roundly discussed by private sector economists, business, the labour movement and social groups would it then be taken through the government process. The treasury is planning a workshop next month.

Kganyago said the treasury wanted a robust debate.
 
"I do not see any reason why this should not spark a huge national debate on economic policy," he said.

This is a break from previous practice. Gear - the government's controversial strategy, which cemented the last decade of macroeconomic stability but was blamed by labour for worsening the plight of the unemployed - was pushed through without much debate at all

The accelerated and shared growth initiative for South Africa - which is based on the same growth diagnostic methodology as the panel's report but differs in key areas - was also presented as a fait accompli to the public.

Asked whether he anticipated a backlash from the Left, Kganyago said diplomatically that policy was "always controversial in South Africa" and that it was "too soon to tell how the recommendations would be received. Some tie in with what labour wants, others don't."

He said that the recommendations had to be digested whole; policy makers could not cherry pick the ones they liked and discard others.

"They are cleverly crafted."

He accepted that implementing the recommendations, should they become government policy, would be difficult.

"Policy is painful and you've got to take some tough decisions," Kganyago said.

However, rejecting them would not be easy, as alternative solutions to the problems would have to be found.

If these recommendations had been available two years ago and implemented then, the economy would be in a better position today, he said.

"But hindsight is always perfect," Kganyago said.

Colen Garrow, an economist at Brait, said that if certain of the panel's recommendations were to be implemented, the economy would become more attractive, "not only as a foreign direct investment destination, but also a destination for domestic investment".

But he warned that some of the initiatives were unlikely to find favour with organised labour, "especially the part that is critical of South Africa's rigid labour legislation, not to mention the part which promotes hiring and firing".
 

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