Obsession with growth won't help South Africa's economic recovery

Unemployed South African workers wait for scarce jobs as the economy struggles to create employment.
EPA/NIC BOTHMA

Faced with a growing economic crisis, South Africa’s new Finance Minister, Malusi Gigaba, has come up with a 14 point plan to turn the country’s economic fortunes around. Sibonelo Radebe asked Mohammad Amir Anwar to assess the plan.

How do you rate the recovery plan?

It’s still early days but one thing is clear. The plan was put in place as a response to the credit rating downgrades experienced in the second quarter of 2017. It comes with a greater focus on monetary and fiscal frameworks, a slippery area which has served neo-liberal agendas in the post-1994 South Africa.

Instead of focusing on policies that allow redistribution of wealth and creating sociopolitical and economic opportunities for those who were left out of the system, successive ANC governments have been obsessed with neo-liberal dictates which have served to maintain apartheid inspired economic structures.

It’s unfortunate that Gigaba is still toeing the neo-liberal line despite all his political rhetoric, including a call for radical economic transformation.

This neo-liberal approach assumes that economic growth is the sole criterion to put the country back on the right track. This obsession with growth means that the focus is on short-term fiscal and monetary issues to gain the confidence of investors in the economy. Testament to this are the short deadlines of the plan and the accompanying narratives. These include references to reforms that “would support both businesses and consumer confidence, thereby laying the foundation for an economic recovery”.

It would seem that not much thinking has gone into changing the underlying structures of the economy for the long-term.

What are the most positive elements of the plan?

The minister has spoken about including different stakeholders in the recovery plan, which seems to be a good approach. South Africa’s history of segregation needs to be met with inclusive policies. Public consultations with key stakeholders and consensus must be key to any recovery plan.

The plan to tackle non-performing state-owned enterprises is very encouraging. But reckless recapitalisation by injecting public money into non-performing entities will only divert government resources, which could otherwise be used to help poor and marginalised people.

Government should realise that fixing troubled state-owned enterprises requires deep restructuring of the way they are operated and led. Boards that are part of the problem in terms of incompetency and corruption must be dissolved and reconstituted. Corrupt officials must be held accountable. Enhancing public-private partnership in some enterprises can also eliminate inefficiencies.

Another positive is that each of the 14 points and sub-points came with a deadline. This can focus the mind and ensure that work gets done. South Africa has seen many plans in the past come and go with no results.

But some of the dates are far too ambitious. For example, Gigaba speaks of finalising the Minerals and Petroleum Development Act amendment process by December 2017. This deadline is too tight and could result in low levels of participation. This will defeat the objective of getting stakeholder buy-in.

What are the most critical things that are missing from it?

Not enough attention has been given to job creation. The South African economy has for a very long time experienced jobless economic growth. This meant that the country’s jobless rate remained stubbornly high for many years. Recent figures of unemployment touching 27.7% are indeed worrying. Youth unemployment is said to be 52%. Any plan that addresses only economic growth without the creation of job opportunities will be found wanting.

The South African government’s priority should be to boost employment, by focusing on sectors that can easily generate jobs. I welcome the suggestion to boost the small, medium and micro-enterprises sector by giving them a share in public procurement. Small enterprises have been recognised for their potential to aid sustainable economic development and to create jobs.

The plan does not give details of overhauling the most important sectors of the economy: mining and agriculture. These sectors are key to generating growth and employment and can be used to drive economic transformation and empower communities that are at the margins of the economy.

For this to happen, the South African government needs to adopt radical approaches that include new and sustainable ways of doing business and redistribution of land.

There is a strong case for government to ensure that mining companies reinvest in workers and local economies. This can be done through investment in education of workers and forming business linkages with local companies that enable technology and knowledge transfer for a viable industrial transformation. Unemployed mine workers (and farm workers too) should be given new kinds of vocational training and education to help them find work elsewhere.

How do the ANC’s internal power struggles affect the plan?

The ANC’s leadership is in disarray. Intra-party fighting has led to opposing factions being formed, with each propagating its own economic vision. This increases the likelihood that a new crop of ANC leaders will change policy. Constant reshuffling and changes in key government positions can seriously affect policy plans and lead to uncertainty about the future.

A new leader will have to bring cohesion into an already fractured party, encourage all members to unite and work for a better South Africa and, most importantly, tackle corruption both in and outside party circles.

Mohammad Amir Anwar, Post-doctoral Research Fellow, University of Oxford

This article was originally published on The Conversation.

UCT workers to strike over working conditions

Students plan to shut down campus

By Laura Bratton
5 September 2017

UCT students demanded in 2016 that outsourced workers be brought onto the staff. Photo: Ashraf Hendricks

Members of the South African Liberated Public Sector Workers’ Union (Salipswu) at the University of Cape Town plan to strike on Wednesday over demands for better working conditions.

Some students have threatened to close the university down in support of the strike, following a meeting on the issue at Graça Residence on Monday.

Salipswu organiser Abraham Agulhas said he hoped UCT would meet the union’s demands before the 48-hour strike notice period expires on Wednesday afternoon. He said so far the negotiations had been “process without substance”.

Salipswu is demanding regular seven-hour shifts for workers who currently work four-hour shifts; a 25% shift allowance; and double time for working Sundays and public holidays. The union also wants pregnant women to be allowed to work “straight shifts” instead of alternating between morning, afternoon, and night shifts. Many of the workers and shift workers involved were brought onto the UCT payroll after pressure by unions and student activists in 2016.

The National Health Education and Allied Workers Union (Nehawu) had not yet informed Salipswu whether or not its members would join the strike, Agulhas said.

He said of the approximately 1,600 insourced workers at UCT, 515 were members of Salipswu, 418 were members of Nehawu and 300 were members of the University and Allied Workers’ Union.
The provincial secretary of Nehawu, Eric Kweleta, said the union was still negotiating with the university on shifts and benefits. “It is something that is not going to just be corrected overnight.”

In an emailed announcement today, UCT stated, “The UCT executive believes that significant progress has been made in resolving these issues and remains committed to continue negotiations with unions and staff.”

In a statement on Monday, UCT said many of the claims about the staff members’ conditions of service were “incorrect”. Since the insourcing process in 2016, 61 residence cleaning staff were insourced by UCT, the university said. These workers were hired following an agreement between the university and Nehawu as permanent staff to work four-hour days when regular staff members were on leave, UCT said. The workers received “generous leave conditions, retirement funding, and staff tuition rates, among others”.

In an email to students last Friday, the Student Representative Council (SRC) said the university was as “exploitive” as it had been before the insourcing process.

“The kitchen staff are understaffed and overworked. The cleaners are tasked to work with dangerous chemicals without necessary protective gear nor medical aid.” The SRC also noted concerns relating to staff benefits.

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Published originally on GroundUp .

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How South African business can help government fix the economy

What business is willing to say to itself is as important, as what it says to government. Which is why the document, a contract with society, released by an organisation representing big business, Business Leadership SA’s Contract with South Africa may be setting a new tone not only on how business deals with government but also how major economic actors deal with the economy’s problems.

When most commentators are asked how South African business should respond to government, the common response is that it should complain, loudly and in public. This view has no doubt firmed since the March cabinet reshuffle damaged the economy and denouncing “white monopoly capital” became a refrain of the ANC’s patronage faction. Business, as the argument goes, should stand up for itself even if that means offending government.

But, while this approach makes great headlines and makes many people feel better, it does little or nothing to advance business interests or fix the economy.

Those who want business to shout at government seem to assume that this country has no history. But it does, and it is a history in which business is associated – and not only in the minds of patronage politicians - with the minority privilege which apartheid ensured. No one would use the phrase “white monopoly capital” if it did not seem to describe the world in which many black business and professional people feel that they live.

This makes the relationship between business and government more difficult than in most other countries. It also means that politicians cannot afford to be seen to be ordered about, by business. After all, what better way to confirm that “white monopoly capital” rules us all than to insist that business people tell politicians off in public?

Yelling is not the solution

Yelling at government is not helpful to the economy because it keeps alive the myth that its difficulties are caused by government alone. But, as very mainstream figures such as International Monetary Fund deputy MD David Lipton have pointed out, the fault is not government’s alone. Other economic actors, including business, have also contributed to the problem.

If businesses want a healthier economy, they need to look at what they can change as well as what the government can fix. This will undermine the “white monopoly capital” claim by showing that businesses are willing to change what they do as well as asking the government and other interests to change.

This is precisely what Business Leadership SA’s contract seeks to do. It feels as strongly about the “white monopoly capital” slur as others. It’s chief executive officer, Bonang Mohale, said at the contract’s launch that it hoped to undo the legacy “of the ugly and deceitful white monopoly capital campaign (which) sought to blame business for all the problems that beset this country”. He said the campaign was “dishonest”; it “tried to deflect from the real issues of state capture”. It had severely damaged business’s reputation.

All of this is music to the ears of the “give government a proper scolding” school. The key difference is that the organisation seeks to counter the campaign not simply by denouncing it but by taking responsibility for fixing the problems which made the campaign possible in the first place.

Problem is not just government

The contract recognises that corruption is a two-way process. It vows to root out corruption in the private sector too and wants companies to sign an integrity pledge, to fight corruption.

It also commits to fighting economic exclusion by creating jobs, encouraging and empowering senior black leadership, building skills, investing in communities and supporting small businesses.

Only after making these commitments does the organisation’s document say something about government. It says it cannot achieve these goals on its own. The government “must also step up” and create the conditions necessary for the country and economy to succeed.

This approach is more likely to dispel the “white monopoly capital” campaign than one which yells at the government. While those who coined the slogan will not be impressed, it’s not them to whom businesses are talking. Their audience is the tens of thousands of South Africans who have no axe to grind but want the economy to offer opportunities to more people.

The contract recognises the problem that undermines the image of large businesses as arrogant vehicles of power. By showing that they are sensitive to economic exclusion and those who suffer it offers to do something to solve the problem.

Conversation is the key

The document also creates opportunities for mending the economy by opening the way to a bargain between government, business and other economic interests. This is the essential route to change because none of the economic interests are strong enough to impose their favoured solution on the others.

By spelling out in broad terms a willingness to change, the contract enables politicians and government officials who do want to negotiate change to begin a discussion on the specifics. This promises to restart the conversation between government and business which was beginning to blossom during the later days of Pravin Gordhan (former finance minister) and Mcebisi Jonas (former deputy finance minister) at National Treasury.

It also makes negotiation possible by taking the three steps all the parties need to take to create a negotiation climate:

• it acknowledges that the economy needs to change,
• spells out what business is willing to do to change it, and
• what it expects in return.

This opens the way for the other parties to do the same – if they do, the negotiations will have effectively begun and a way out of the economy’s dead end will be possible.

Business Leadership SA’s contract is hardly guaranteed to succeed. In the past, initiatives which depended on business and other economic interests making changes ran aground because business leaders, like the other negotiators, lacked the muscle to take those they represent with them.

It is not at all clear how many businesses are willing to follow Business Leadership SA’s approach. Nor is it clear if government and labour, whose participation is crucial, are willing and able to respond with their own bargaining positions.

What is clear is that the economy’s revival depends on the business strategy for change.

Steven Friedman, Professor of Political Studies, University of Johannesburg

This article was originally published on The Conversation.

The lesser known and scarier facts about unemployment in South Africa

South Africa’s unemployment numbers reveal chronic joblessness.
EPA/NIC BOTHMA

The latest South African jobs statistics continue to reflect a shockingly high unemployment rate which will take some doing to reverse. Concerns about the high levels of youth unemployment and the social upheaval this might cause have been widely expressed.

But a deeper analysis of the numbers reveals an even scarier picture of large sections of the population suffering from chronic joblessness and worrying details about the country’s youth unemployment statistics that haven’t been sufficiently highlighted.

These include the fact that 39% of all unemployed South Africans have never worked before. Among young people this figure is even higher – at 60.3%. The numbers also highlight that many young people struggle to find their first job.

In contrast, the elderly face the problem of long-term unemployment after they lost their jobs. A greater share of them last worked more than 5 years ago. This share was the highest at 47.4% for the 50-65 year-olds.

To save the situation the government might have to make certain difficult choices. These could include accepting that certain age groups, above youth age, are unemployable and that what they need are poverty alleviation interventions. The government might then be able to focus on facilitating job opportunities for those aged between 15 and 29 who account for nearly half of total unemployed.

Overall unemployment at a glance

According to the World Bank the 2016 average unemployment rate for all upper middle-income countries was 6.2%. At 25.9% in 2016 and 27.7% in 2017 South Africa’s rate is higher than other African countries also classified by the bank as upper-middle-income countries. These include Botswana at 18.4%, Gabon at 18.5% and Namibia at 25.5%.

South Africa’s unemployment rate has been rising steadily for the past nine years. When the rate dropped from a peak of 31.1% in March 2003 to 21.5% in the last quarter of 2008 there was hope that it would drop to a level close to 15% by the end of 2010.

The rate has gone up despite policies being adopted that promised to cut joblessness. These included the New Growth Path which was adopted in 2011 and promised to create 5 million jobs and reduce unemployment to 15% by the end of 2020.

But in the intervening six-plus years employment increased by 2.2 million, bringing the number of unemployed to 6.17 million.

What’s even more concerning is that the annualised unemployment growth rate of 4.8% is double that of employment growth (2.4%).

If these trends persist, achieving the even more ambitious goal set out in the National Development Plan of dropping the unemployment rate to 6% by 2030 is highly questionable.

Two extreme groups

The numbers suggest the presence of two extreme groups of unemployed in South Africa.

The first consists of youth who struggle to find the first job despite actively searching through and answering job advertisement. Most have matric, that is they have completed 12 years of schooling.

The second group comprises of the elderly with previous work experience but who have been seeking work mainly via their social networks for more than 3 years. Most have not completed 12 years at school.

There’s a third group of unemployed sandwiched between the first two , namely those aged 30 years to 65 years with past work experience but who have been seeking work for shorter duration.

The government may need to realistically “accept” the second group (long-term elderly unemployed) as unemployable and focus on poverty alleviation. And the government might want to put more focus on the other two groups of unemployed, particularly young people.

The short-term elderly unemployed may require training to have their skills upgraded to better match the skills needs of employers before they stand a better chance of being reabsorbed into the labour market.

What must be done?

The South African government is not doing enough to address the youth unemployment crisis. Its efforts to create jobs for young people through an employment tax incentive hasn’t had much of an impact: youth employment has actually dropped since it came into force four years ago.

There are lots of obstacles to job creation in South Africa. The most recent global competitiveness report shows that the country’s labour market is hobbled by inefficient hiring and firing practices, little cooperation between employers and employees as well as a poor relationship between pay and productivity.

This tempts employers to replace labour (particularly the less skilled and experienced ones) with capital and discourages them from hiring new workers. In both cases, the youth are the most vulnerable.

So, what are the other options to more rapidly boost youth employment?

A transport subsidy for youth unemployed has been recommended as an alternative policy option. The idea was motivated by the fact that many jobs are in areas which are far away from where poor people live and therefore extremely expensive to get to.

The relationship between poverty and unemployment is startling. Data from 2014/2015 show that the poorest 40% of the population accounted for a mere 12.4% of total national income, but accounted for 71.9% of the unemployed. It’s therefore possible that poverty and expensive transport costs are huge barriers to unemployed people finding work.

Self-employment is another potential route for young people. But even that number is falling. It’s alarming that between 2008 and 2017 the number of youth employers or self employed workers dropped from 390 000 to 340 000.

This suggests that entrepreneurial activities for young people deserve serious attention. This should include government accelerating support in entrepreneurship skills training, access to micro-finance and creating an enabling environment for business development.

Derek Yu, Associate Professor, Economics, University of the Western Cape

This article was originally published on The Conversation.

Trump can’t win: the North Korea crisis is a lose-lose proposition for the US

North Korea is more likely to use nuclear weapons if backed into a corner where the perpetuation of the Kim regime was directly threatened.
Reuters/KCNA

North Korea’s sixth nuclear test confirms it is very close to perfecting a miniaturised warhead for deployment on its missile delivery systems. The 6.3 magnitude seismographic reading registered by the test blast is approximately ten times more powerful than that recorded from its nuclear test in September 2016.

There seems to be no outcome from this crisis in which US power is enhanced. This adds to the gravity of the Trump administration’s impending response to the nuclear test. Let’s walk through the possible scenarios.

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Further reading: Q&A: what earthquake science can tell us about North Korea’s nuclear test

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War

If the US goes to war with North Korea, it risks the lives of millions of people across the region.

US Secretary of Defence Jim Mattis responded to the latest test with a threat of an “effective and overwhelming military response”. This is the kind of rhetorical overreach that is undermining US regional standing under the Trump administration.

There are high risks in any military action against North Korea. There are essentially no good options for compelling it with force. As recently departed White House adviser Steve Bannon said:

There’s no military solution [to North Korea’s nuclear threats], forget it. Until somebody solves the part of the equation that shows me that ten million people in Seoul don’t die in the first 30 minutes from conventional weapons, I don’t know what you’re talking about, there’s no military solution here, they got us.

The US loses in any war scenario, even though its combined military forces with South Korea would inevitably win such a conflict.

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Further reading: Attacking North Korea: surely Donald Trump couldn’t be that foolish

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Squibbing it

If the Trump administration talks tough and doesn’t follow through, it leaves America’s regional allies exposed – and gifts China pole position in shaping relations in northeast Asia.

America’s northeast Asian alliances, particularly with South Korea, will be challenged regardless of what Donald Trump does next.

North Korea’s nuclear-capable intercontinental missiles increase the risk to the US of defending South Korea and Japan in the event of war. This undermines their governments’ faith in America’s security guarantee. It does not help that the Trump administration has been slow to fill the ambassadorial roles to South Korea and Japan.

Any military action that leads to an escalation to war risks a North Korean artillery attack on Seoul, and missile strikes on other targets in South Korea, Japan and further afield.

North Korea is more likely to use nuclear weapons if backed into a corner and the perpetuation of the Kim regime was directly threatened. US alliances with South Korea and Japan would come under great stress if they were attacked, given that those alliances are in place to prevent such an occurrence.

Sanctions

If sanctions continue to be ineffectual, North Korea completes its end-run to having a deployable nuclear weapons capability.

This outcome undermines the nuclear nonproliferation regime. North Korea’s successful nuclear weapons development weakens this system by serving as an example to other would-be proliferators that they can develop nuclear weapons without any meaningful consequences – the ineffectual economic sanctions regime notwithstanding.

This outcome will also demonstrate that the US cannot prevent a determined nuclear proliferator from undermining its nuclear hegemony.

Nuclear monopoly, underpinned by the limit on the number of countries with nuclear weapons built into the Nuclear Nonproliferation Treaty, is one of the pillars underpinning US global power. The “nuclear shadow” cast by countries with nuclear weapons provides them with greater leverage in dealing with the US and narrows America’s menu of choice for exercising power.

Trade war with China

If the US threatens to squeeze China as a path to influencing North Korea, it risks a trade war it inevitably loses.

Trump has tweeted that the US “is considering, in addition to other options, stopping all trade with any country doing business with North Korea”. This is a not-so-veiled message to China, North Korea’s largest trade partner.

Treasury Secretary Steven Mnuchin doubled down on this proposition. He claimed his department was working on a sanctions package that would strangle “all trade and other business” with North Korea.

There have also been calls to urge China to embargo crude oil deliveries to North Korea to further squeeze the Kim regime.

However, the US consumes Chinese imports to the tune of US$463 billion worth of goods. As Hillary Clinton pointed out while secretary of state, China has enormous leverage over the US as its largest creditor.

Risking global recession through a foolish protectionist spiral or forcing China to drop the “dollar bomb” is not a credible strategy for soliciting Chinese assistance with handling North Korea.

Nuclear freeze

In the unlikely event that the US negotiates a nuclear freeze with North Korea, it simply kicks the can down the road.

When we strip back the ritualised tough talk that regional leaders routinely articulate after North Korean provocations, and the inane repetition of the meme that diplomacy equates to “appeasement”, talking to North Korea may be the least-worst option forward.

The Kim regime may agree to a nuclear weapons development and production freeze, or a missile testing moratorium to buy time.

But given the importance of nuclear weapons to Kim Jong-un’s Byungjin development model (simultaneous nuclear weapons proliferation and economic development) to his domestic legitimacy, and North Korea’s long history of coercive bargaining tactics in which it engineers crises to obtain concessions in exchange for de-escalation, this could only be a postponement of North Korea’s inevitable proliferation success.

The problem with the negotiation gambit is that there is no mutually agreeable starting point. There is no outcome in which the regime willingly relinquishes its nuclear weapons program because the Kim regime is so heavily invested in nuclear weapons as the foundation of its security strategy, economic development pathway. and domestic political legitimacy.

A peace agreement

If the US sits down to negotiate a peace treaty with North Korea, its regional prestige will be forever damaged – and the raison d'être of its military presence in South Korea will evaporate.

Another avenue for negotiations to progress may arise once North Korea has perfected and deployed its nuclear weapons capability.

At this time, North Korea may call on the US to negotiate a security guarantee and a formal conclusion to the Korean War, which remains technically alive since the 1953 Armistice Agreement.

But why would North Korea want to engage in such negotiations? It will have greater leverage in these negotiations when backed by a nuclear deterrent.

Yet such an agreement might be the least worrying option available to the Trump administration, given the unpalatability of other options. It seems likely that regional countries will ultimately have to find a way to manage a nuclear North Korea.

A marker of US decline

There are no avenues for the Trump administration to demonstrate strength and resolve that do not ultimately expose the limitations of that strength.

Could current events on the Korean Peninsula represent America’s “Suez Crisis” moment? In 1956, Britain over-reached in its attempt to maintain a post-war imperial toehold in Egypt, exposing the chasm between its imperial pretensions of a bygone era and its actual power in the aftermath of the second world war.

The North Korea crisis is the most obvious face of hegemonic transition. Trump’s US is facing a set of outcomes to the current crisis that are lose-lose. They are exposing the reality of US decline and the growing limitations of its ability to shape the strategic environment in northeast Asia.

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For more on this topic, you can listen to Benjamin Habib and Nick Bisley discuss North Korea on this recent La Trobe Asia podcast.



Benjamin Habib, Lecturer, School of Social Sciences, La Trobe University

This article was originally published on The Conversation.