The DA believes that South Africa’s economy is in terminal decline and only a complete overhaul of economic policy can change its trajectory. The party’s newly released 64-page economic rescue plan shows that in most key areas of the economy, a DA-led government would do the complete opposite of the current government.
For too long, the DA has focused mainly on good management and better implementation where it is in government, according to the party’s head of policy, Mathew Cuthbert. The party has now come up with an economic plan that sets out “a clear alternative stall to the status quo”.
Its economic blueprint focuses on the areas that will produce growth and jobs: prioritising labour market reform, stabilising the fiscus, creating competitive industries, boosting trade and making it easier to start a business.
So, whereas the ANC government favours high tariff barriers and localisation, the DA would slash tariff barriers and develop an export-orientated economy; whereas the ANC favours tight labour market regulation, the DA would free SMEs from central bargaining; and whereas the ANC favours industry masterplans and reciprocal agreements, the DA would stay out of the private sector’s way.
Regarding the labour market, the DA would cap the national minimum wage at its current level (R4,412 a month), arguing that it impedes hiring and so contributes to the country’s sky-high unemployment rate. It would also allow employers to undercut the national minimum wage for young, entry-level workers as long as the latter are amenable to being paid less and have been in long-term unemployment.
Labour union federation Cosatu has “rejected with contempt” what it sees as a plan to cancel workers’ protections and has accused the DA of “declaring war” on labour.
But Cuthbert, whose five-member federal policy unit in Cape Town crafted the plan over the past year with the help of industry experts, says that despite supporting a free-market approach, it is not proposing the wholesale liberalisation of the economy.
“We’ve taken a more nuanced approach,” he tells the FM. “We’re a party of the market ... but we do understand that we operate in a particular economic context. That’s why it’s important that [while] we free up the market there’s also a role for the state to play in providing assistance to the most vulnerable in society.”
So, while the DA would sweep aside the whole intrusive regulatory environment that has evolved over the past 30 years — encompassing broad-based BEE, employment equity and preferential procurement — social grants would remain in place.
In fact, the child support grant would be raised from R530 to R760 (the lower-bound food poverty line) at the cost of R40bn a year. However, at the same time, the DA would unleash fiscal austerity so severe that Cosatu would soon long for the return of the current National Treasury.
The DA’s Responsible Spending Bill proposes the introduction of a fiscal rule that would prevent the debt-to-GDP ratio from exceeding the previous year’s. The economic plan goes further, suggesting that “a feasible target” may be to reduce the current debt ratio of 74% by 1% a year for a decade.
The FM contends that this would mean — given South Africa’s high debt service costs — that core expenditure on teachers, nurses and police would have to be cut to the bone, worsening public welfare.
Cuthbert counters that while cutting the debt ratio by 1% a year “would be the ideal”, it assumes that the DA’s overall economic reform agenda would have resulted in a growing economy and higher tax revenue.
“Honestly, we need to come to the realisation that we have to get the debt situation under control,” he adds. “I believe that there is some opportunity for us to cut waste to make [the public service] more efficient and [optimise] expenditure on front-line delivery.”
The DA’s position is reactionary and suffers from the same degree of ideological zeal as the very people the DA criticises
— Robert Wilson
It would be reasonable to expect that in classic free-market fashion, the DA would favour a much-reduced role for the state, but its plan doesn’t explicitly suggest this and, certainly, few would call the DA’s Western Cape government hands-off.
The key difference between the ANC’s and the DA’s approaches to running the state, Cuthbert explains, is that while the ANC is interventionist in a “ham-fisted” way that “tries to control market outcomes”, the DA would introduce market-based reforms and create a conducive environment for businesses to thrive.
It follows that the DA’s industrial policy approach is all about getting the basics right while paring back ministerial overreach.
The DA believes the ANC’s preoccupation with the top of the policy pyramid — trying to pick the winning sectors and firms, and favouring them with endless tariff protection and industrial subsidies — has been a dismal failure, with the manufacturing sector having shed more than 300,000 jobs over the past 16 years.
The DA would focus on getting the basics at the base of the pyramid right by ensuring safety and security, investing in network infrastructure and raising the quality of basic education. In this way, it argues, South Africa’s competitiveness will be improved from the bottom up, boosting exports and economic growth.
When it comes to regulation, the DA’s plan favours predictability and a light-touch approach. So light, that it would scrap the public interest clause in the Competition Amendment Act and consider repealing the extensive subsidies and rebates that underpin the automotive industry.
It is here in the detail that the DA has encountered the most blowback.
Senior competition lawyers say the proposal to scrap the public interest clause puts it behind the curve of worldwide developments in competition law. The clause enjoins the authorities when adjudicating mergers to consider the implications for employment, international competitiveness, patterns of black business ownership and the participation of black-owned SMEs, among other things.
“The DA’s position is reactionary and suffers from the same degree of ideological zeal as the very people the DA criticises,” says Webber Wentzel partner Robert Wilson.
“It misses the point that the problem is not with the statute ... but with policy incoherence, institutional (and, indeed, state) failure, regulatory capture and weak and ineffective leadership at all levels of government.”
Take the Massmart-Walmart merger. It was approved in 2012 on condition that Walmart establish a R200m supplier development fund to upgrade small Massmart suppliers so they would not be displaced by cheaper Asian producers in its global supply chain.
The government and labour argued for a R500m-R2bn fund. The Competition Appeal Court pruned that back to a less draconian R200m — but the point is that without the public interest clause many SMEs, which the DA sees as a major source of job creation, would likely have been lost.
Cuthbert is unmoved, saying that trade, industry & competition minister Ebrahim Patel has failed to provide data to show that the R200m fund has yielded results.
“Ultimately [the issue is] do we use competition policy to achieve social goals or is it there to create fair market conditions and allow everyone a level playing field?” he asks. “There is an ever-encroaching role that the likes of government and Patel are playing in this space and it’s something that needs to be warded off.”
The DA’s economic policies differ markedly from the ANC’s, but a few are equally as ideologically driven
— What it means:
For this reason, the DA would also tear up sector masterplans and the reciprocal agreements that relate to import duties. (Reciprocal agreements compel an applicant for a duty change to commit to things like creating jobs or increasing capital expenditure in exchange.)
While not discounting the utility of constructive engagement between business and other role players, Cuthbert says “there’s a fundamental flaw in this type of policymaking” — where the connected few get together and make deals behind closed doors.
He cites the steel industry, where “secretive back room deals” between Patel and primary steel producer ArcelorMittal South Africa (Amsa) have been made that protect Amsa from competition, to the detriment of downstream users of steel products.
The high tariff protection granted to industries such as steel and poultry has compensated primary producers for the government’s failure to deliver basic infrastructure, Cuthbert says. But it has been to the detriment of competition and innovation and has failed to achieve sustainable, labour-absorptive growth.
This reasoning also informs the DA’s aversion to automotive subsidies, which it says amount to about R31bn a year — more than the annual budgets of 33 national government departments.
However, BMA Analysts chair Justin Barnes, an architect of South Africa’s automotive masterplans and the production & development programme, describes this analysis as highly misleading.
He says the sector receives only R2bn a year in cash-based investment support; the rest of the benefit is structured around import duty rebates, which incentivise billions of rand in local production and exports. Without this system there would be no domestic car manufacturing industry, he adds, especially if the DA’s plan to also allow used-vehicle imports went ahead.
“I would like to know what technical understanding the DA has of our policy and the challenges of a developing economy,” says Barnes. “Their proposals are very glib and sound very developed-economy to me.”
The DA is open to examining all the evidence once in government, and to piloting some of its proposals first, says Cuthbert, but the country must start changing the frame in which it operates. While he concedes that turning the economy around would be “a task of epic proportions”, it’s clear to the DA that South Africa will have to do things very differently if it’s to get out of its low-growth trap.
As a general proposition, that is very hard to argue against. But clearly, the devil will be in the detail.
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