The New Growth Path is an economic framework in search of a compelling substance. The more government justifies it, the clearer it becomes that South Africa’s economic policymaking machinery is in a muddle, and in need of complete overhaul. Instead of inspiring optimism about the future of the country and its growth and employment prospects, the repetitive rhetoric about jobs, jobs, jobs, is achieving the opposite effect – raising serious doubts about whether government is up to the job.
What capacities will the state unleash to achieve these objectives, and is there a plan in place to meaningfully engage the private sector? Evidence so far suggests that on both scores, government is at the weakest: its institutional capacities are handicapped, and its relationship with the private sector is extremely weak.
With the growing mistrust between government and business, it is not clear how the ambitions set out in the New Growth Path will be achieved. In his State of the Nation Address, President Jacob Zuma declared 2011 ‘a year of job creation through meaningful economic transformation and inclusive growth’. Yet there is deep ambivalence about the private sector in the New Growth Path.
Zuma’s announcement of a R9 billion Jobs Fund, an allocation of R10 billion by the Industrial Development Corporation (IDC), and tax breaks of up to R20 billion to promote investments in the manufacturing sector, was meant to demonstrate government’s seriousness about tackling unemployment. Again, it is not clear what the sectoral distribution of this funding is, and what the size of return in the form of job creation will be. It is possible that IDC allocation is old money shifted from activities that will be discontinued as a result of restructuring. IDC’s capacities are also in question given the decline in staff morale, and potential hemorrhage of talent in that organisation.
Apart from the poverty of ideas that are glaring in the New Growth Path, there are two fundamental weaknesses that characterize Zuma’s economic flagship programme, and these go to the heart of the functioning of government as a custodian of economic change: the first regards the disorganized institutional mechanisms at the disposal of the state to manage economic change more effectively.
If government is to set a new tone about economic growth and job creation, especially to strengthen and refocus institutional capacities, some of the departments in the economic cluster should be restructured. I suggest that one of the ways to recalibrate the institutional mechanism for effective execution is to break apart the bureaucratic behemoth the Department of Trade and Industry (DTI) has come to epitomise.
The Economic Development Department, headed by Ebrahim Patel, should never have been created in the first place. Its existence has generated a great deal of confusion in government’s economic cluster. This department was born out of political jostling, with the unions eager to flex their muscles post-Polokwane. They got what they wanted; but not quite. While Patel boasts a strong trade union background, having led the South African Clothing and Textiles Workers Union (SACTWU), he is fast losing credibility with the unions as evident in Cosatu’s barbed critique of his New Growth Path.
The duplication of work between Patel’s department and the DTI is as unmistakable as it is unnecessary. For example, the DTI, headed by Rob Davies, has a mandate to play a leadership role in economic development, manage and implement industrial policy, undertake corporate regulation functions, promote small business development, advance black economic empowerment, manage economic agencies, negotiate bilateral and multilateral trade deals, and to promote trade and investment – a massive and convoluted agenda.
Some of the DTI functions are also simultaneously pursued by Patel’s department, with agencies such as the IDC, Competition Commission, and the International Trade and Administration Commission (ITAC) now falling under Patel with no clearly articulated rationale for this cherry picking. Why the IDC, and not the National Empowerment Fund, part of Patel’s department, is not clear.
Instead of appointing Patel with a duplicate mandate, Zuma should have taken a bolder step to restructure the DTI and make it more agile, leaner and responsive. For example, the functional units that interface with the economy at the DTI - dealing with regulatory issues, job creation, empowerment, and industrial policy - should constitute a separate department with a strong and coherent focus on jobs, growth, and business competitiveness.
The international trade function would be best placed as a separate agency or possibly absorbed into the Department of International Relations and Cooperation (DIRCO) in order to reduce unnecessary duplications and resources in the two organisations and in their foreign missions. In any case, foreign policy in the 21st Century takes on a strong economic and commercial diplomacy thrust.
Another important DTI unit that performs significantly below its potential is Trade and Investment South Africa (TISA). It currently exists in obscurity and without proper leadership – so much for our commitment to attract investments and promote exports, both crucial for enhancing growth and facilitating job creation. Ideally, this agency should have greater latitude to act independently outside of bureaucratic constraints. It should be a lot more responsive to the needs of exporters, and address critical investment needs in the economy.
Apart from glaring institutional weaknesses, the second major weakness in the Zuma administration - perhaps the most crucial - is serious lack of leadership at the apex of government. This lack of leadership unmasks itself starkly at two levels.
First, there is hardly a strong coordination on policy development and implementation within the economic cluster, which includes, amongst others, National Treasury, the Departments of Economic Development, Trade and Industry, Public Enterprise, and Rural Development and Land Reform. Judging by the quality of the New Growth Path, and Zuma’s diffident State of the Nation Address, it would be fair to describe the cluster as chaotic and lacking in sense of purpose and urgency.
To be effective, teams require leadership orchestration at the top. This is essential for harnessing high performance. Such leadership is absent in government’s economic policy management. Appointing a lead department that enjoys respect both domestically and globally would have also gone some way in buttressing the work of the economic cluster.
Without a doubt, the National Treasury fits this profile. The Treasury occupies a unique role, sitting at the nexus between the domestic economic policy-making and global economic governance – responsibilities that are co-reinforcing. It enjoys respect in global markets and in the business community in South Africa. Hopefully, Pravin Gordhan will assert this leadership role in his budget vote this coming week.
Second, the weakness of leadership at the top is also revealed in the widening chasm between government and business. Government is clearly out of touch with the needs of the private economic agents in society. Strong collaboration between the state and the private sector is important for both confidence building and for achieving shared objectives linked to economic growth, competitiveness and job creation. To harness this relationship requires government to reach out to top business leaders and seek their counsel on addressing complex challenges in the economy.
In the past year, South Africa has lost ten steps in the World Economic Forum Competitiveness Ranking, clearly demonstrating low priority accorded to competitiveness, and absence of a shared vision between government and the private sector. Countries that take economic performance seriously understand the value of working closely with the private sector.
Recently, the Barrack Obama administration in the US appointed Jeff Immelt, the Chief Executive of General Electric, to head the President’s advisory council on competitiveness and to help put the economy in a better shape. Similarly, when the coalition government took over in Britain, Prime Minister David Cameron sought out private sector expertise, appointing a number of respected businesspeople to various advisory councils.
Not so in South Africa. The prevailing anti-business dogma blinds government to the creative potentialities that lie in the private sector and that could help drive structural change. This is best exemplified in the existence of the ‘Progressive Business Forum’ nurtured by the ruling party. Those who are not part of it are cast in the wilderness and stigmatised as unprogressive or ‘counter-revolutionary’.
Strategic collaboration with the private sector broadly is not mutually exclusive with orienting economic policies towards addressing social exclusion, delivering public services, undertaking public investment in infrastructure, and getting more people to work. It is when the state and the private sector work together, rather than at cross-purposes, that better ideas and new ways of positioning the economy for higher performance can be nurtured.