SA moving towards economic precipice

SMALL firms find wages unaffordable – this is all the more serious since SMMEs are the bastions of employment in other emerging economies similar to ours

IT is becoming increasingly apparent that government does not have a vision to solve the country’s problems, thereby edging us closer towards the precipice.

The state’s claimed vision is contained in the National Development Plan (NDP.

But so far, government has only paid lip service to it without any meaningful implementation.

It has failed to take any initiatives to bring business, labour and alliance partners to form a social compact to put aside past differences and to find innovative solutions in the interest of all South Africans, especially the poor.

There is a leadership paralysis borne out of a blinkered socialist mindset.

Mainstream economists and the private sector advocate making use of our existing comparative advantages to compete in the global arena through greater integration. Government, on the other hand, and its alliance partners advocate the developmental state and social welfare approach which involves redistribution, a greater role of the government in the economy through public works programmes and state owned enterprises (SOEs), while turning a blind eye on corruption and maladministration.

The net result of this approach has been a bloated unaffordable government that engages in sub-optimal forward planning (eg.in electricity and other infrastructure provision), political interference in inefficient SOEs, emerging uncertainties in property rights, both in regard to mining and land ownership rights resulting in disinvestment in these high job potential sectors.

Equity driven agendas in the agricultural sector has led to more job losses contrary to the state’s intentions of improving well-being in the sector.

The recent proposal to limit land size to 12 000 hectares affects economies of scale and goes against the grain in an industry that is operating successfully on fewer large farms amid stiff global competition.

This suggestion is based on the proposition that the destiny of the historically advantaged and disadvantaged is integrally intertwined. Alienating one at the expense of the other will result in losses to all. The state should strategically offer incentives to those South Africans that enjoy comparative advantages in the interest of sustainable job creation and skills transfer.

The drop in our potential growth rate to about 2% and the sustained rand decline over past five years is an indicator that foreign investors see our economy as an unattractive investment destination.

Many of our local companies choose foreign instead of local destinations to invest in because of the perceived risks in our economy which arise out of the following conditions:

South Africa possesses extremely high levels of industrial concentration (few individuals or interest groups own most of the wealth in the economy), and together with highly politicised and militant trade unions, this has led to centralised bargaining, which in turn has resulted in high wage agreement that is payable by all firms in a sector.

Small firms find such wages unaffordable – this is all the more serious since SMMEs (small medium and micro enterprises) are the bastions of employment in other emerging economies similar to ours.

Over the last few years labour legislation has worsened for local employers. The ability to hire employees on a flexible basis has been substantially eroded; the ability to outsource to cut costs was curtailed; hiring permanent workers and firing unproductive workers is more difficult and costly.

The NDP calls for reform of labour legislation in the direction of greater flexibility, but the opposite has occurred.

The mining industry is a critical sector in the economy. together with its backward and forward linkages it contributes 20% to GDP, creates more than 500 000 indirect jobs alone and constitutes about 60% to GDP.

Over the 1994-2010 period, there has been an unprecedented commodity boom due to the emergence of China into the world economy which translated into high expenditures and very little infrastructural investment.

High expenditures emanated from workers receiving increases in excess of productivity gains and CEOs receiving enormous salary increases and bonuses, as well as government exacting corporate social responsibility initiatives.

Overly optimistic mining houses assumed the boom would continue indefinitely and made irresponsible mergers and acquisitions.

The debilitating mining strikes, the Marikana massacres and the unwinding of the Chinese miracle has left the mining industries exposed and needing to close off unproductive operations with the combined loss of some 16 000 jobs in the near future.

The matter is worsened by government creating uncertainties regarding property and mining rights, which is a main culprit for disinvestment in the sector.