PETER BRUCE: No, SA will not thrive in a siege economy

As September runs into the sands, and with it National Prosecuting Authority investigating director Hermione Cronje’s assurance that she would lay a breakthrough state capture/corruption charge this month, there’s a strange battle plan being drawn up to get the economy, still in ICU, at least sitting up in bed.

So far it is all on paper. The latest draft of the social partners’ economic recovery action plan that I have seen is No 18. But if you cast your mind back to mid-Covid (Part 1) you’ll recall business and the ANC each working feverishly on economic recovery plans as companies and small businesses and jobs went rapidly down the Covid-19 lockdown plughole.

I remember the business effort, Business for SA (B4SA), led by Martin Kingston, working hard to put together what was a comprehensive proposal for President Cyril Ramaphosa to consider. An ANC paper tried, perhaps a little less industriously, to do the same.

What was interesting was the degree of concurrence between the two around infrastructure expansion being the key to recovery. They obviously differed in how that might best be financed, but there was enough there to talk about.

By around June and July, the SA Left was hot to trot on the questions of economic rescue. It turned on the Reserve Bank, demanding that it design a programme of quantitative easing, and on the government to force access to your and my pension fund to build dams and hospitals. There was some to and fro argument in print and online between Left and Right but nothing seemed to progress. There was a flare-up of excitement about the possible introduction of a basic income grant, but that too has faded.

Faded, you understand, not dead and buried. The Left will be back. But what was happening in the meantime was that Ramaphosa was quietly pushing ahead with his own plan to “relaunch” a brand-new economy post-pandemic. Its “flywheel” would be infrastructure spend, but he was much more ambitious. He wanted an economic phoenix, a new, inclusive, decisively black, industrial economy with new manufacturing and new products, and, mainly, capable of absorbing mountains of jobless people.

With that in mind, Ramaphosa wasted little time in getting the “social partners” – government, labour, business and civil society – around the table at the Nedlac building in Rosebank, Joburg, to put all their plans together and to come up with just one. For a moment I thought there’d be a big announcement but no, this is Ramaphosa. Everything has to be discussed by everyone, especially the politicians around him. So when the Nedlac talks ended earlier this month he announced he would be taking the deal to the cabinet.

That has not yet happened as far as I can tell, but a few things are abundantly clear.

The most important is that out of the blue, the recovery plan, at least in the version I have read, has come to be dominated not by business or labour, but by one man. That would be Ebrahim Patel, minister of trade, industry & competition. I was astonished, reading the text, at how often what can only be his phrasing appears in the 13-page plan.

We will be “deepening industrialisation through localisation”, the plan says at the start. Pure Patel. One of the three main focus areas of the action plan is “employment-orientated localisation, reindustrialisation and export promotion” with a focus on “revitalising manufacturing in light of changed global conditions” (pay attention).

“Social partners recognise that localisation and import replacement have significant potential for job retention and creation,” the paper reads, “the developments of new SMMEs and start-ups and the initiation of new technology platforms that can strengthen SA’s human resource endowment. Further, import replacement lowers SA’s vulnerability to global value-chain disruptions in strategic sectors.”

What is happening here is that Patel and Ramaphosa are betting on world trade becoming more restrictive when the pandemic finally passes. That may or may not be the case. If US President Donald Trump loses the election in November we will be better able to measure his mark on the world.

But even if Patel’s bet is right, basing the reindustrialisation of this country on a programme of import substitution – a not unpopular view inside the ANC is that they, like the Afrikaner nationalists that preceded them, would thrive in a form of siege economy – is a huge risk. Not bothering to wait until Ramaphosa shares his recovery plan with the cabinet, Patel is already hard at work creating the restricted new conditions he thinks will spark new industries.

Already livelihoods and landscapes are being reshaped. He has banned the export of scrap metal for most of the year so far, as local producers complain they can’t compete with the prices being offered in India. The effect, though, trickles back through exporters and right down to scrap pickers in the streets of Joburg.

In addition, he has imposed stiff import duties on a wide variety of imports, including, astonishingly, some products that are not made in SA anymore. Initially these duties were designed to support ArcelorMittal’s SA operations, but even those are being cut back. ArcelorMittal is shutting down its integrated plant in Saldanha and has closed its tin plate line. But duties in importing tin plate remain in place. Seriously. We make people pay to import something we don’t produce.

National Employers Association of SA members in the steel or steel-fabricating business complain about relentless pressure from the import duties. This one from its e-mails is typical: “Adding to the views of previous companies, and now finally admitted by them, Mittal cannot supply the local market, yet they are requesting import duties. They have also just announced yet another increase from October 1 2020, after they have already put an increase through on September 1 2020, and now they have closed their order book for the year.

“Their audacity … to claim a force majeure (unforeseen) event on the breakdown at their Newcastle plant is simply hysterical. As far as logic goes, and in my humble opinion, maintenance is not an unforeseen event … We also found that the quality of materials received by Mittal lately is horrible.”

Patel is desperate to hold onto what remains of ArcelorMittal SA (once Iscor). And the scrap export ban serves mainly to ensure feedstock for Scaw Metals, which the Industrial Development Corp (which falls under Patel) bought from Anglo American in 2012.

But what Patel doesn’t, or can’t, address is the reason people who make burglar bars or steel wheels or, in fact, anything from steel prefer imports is that they are cheap. SA labour is uncompetitive and it seems the Ramaphosa recovery plan is going to try to protect it and grow its numbers.

There will be a price to pay. Small businesses will fail. They can’t afford metalworking bargaining council levels of pay. Jobs will be lost. But in the new sunlit upland they’ll be replaced as SA, closed off from all that it imports, finds new export markets in the rest of Africa.

That, at least, is what the recovery plan says on page 10 and 11. “Growing the productive economy,” it says, means the social partners agree on prioritising “strategic localisation to repurpose the SA manufacturing sector, job retention, job creation and labour intensity … transformation and, in particular, broad-based BEE and export promotion and regional integration to grow markets for SA products.”

I know this all sounds reasonable, but it is also foolish. For a start, the export market the plan looks to is the rest of Africa, as if it were not already crawling with Asian imports. Can we get a frying pan to Sudan at a lower price than China or India?

Of course not, and in making the effort we will waste years chasing a centrally planned dream to the absolute nth degree. Nothing will be left to chance or, god forbid, enterprise. In this country manufacturing is being “repurposed”. There is no reason to believe this ends well.

The sad thing is that when Ramaphosa does take it to the cabinet the ministers will love it. At the centre of the reindustrialisation impulse is the presumptuous, and always nationalist, belief in “beneficiation” – where instead of digging up our minerals and exporting them we should be turning them into microchips and planes here.

It is a childish idea and SA risks giving up its place in the global value chain because of it. We are good at two things in this country – mining and farming. Obviously you add value where you can (platinum, for instance, is pelletised for export) but if you are going to hold product back from the world because you think you can do better with it, you’re crazy. We sell our ores to customers who have customers.

The tiny thought in the ANC brain is that, more with minerals than, say, fruit, we can simply have our customer’s customers, that they wouldn’t fight for them. Our response, if they do, would be to cut our prices, to force mines to make product available locally at less than the international market price. Central planning knows no limits.

Neither does Patel. By page 6 of the recovery plan he is racing ahead on his own. The social partners, says the document, agree that they should implement “measurable and significant increases (by volume and value) in public and private sector procurement from local manufacturers across value chains by … establishing targets for improvement of current levels of localisation in value chains, with the first set of targets to be announced within six weeks; and subsequent targets to be materially completed by the end of November 2020.” That’s immediately. Company law would be changed to require reporting on local procurement.

The recovery plan’s weakness is in the degree of control it gives to the state. There’s no denying that jobs need to be created and that “buy local” is a good thing, but they aren’t going to happen by decree. To create more jobs you first need more employers and they don’t happen overnight. They happen because an economy is an attractive place to do business, where costs are low and opportunities high.

We should be opening our doors to any immigrant willing to take a chance and start a business here. There are many worse places in the world to try. Instead, the recovery plan limits itself to fast-tracking the recruitment of foreigners of who fit a recently approved list of critical skills.

Obviously Ramaphosa is not without an arsenal. There are big things to do and the recent gazetting (after a long delay) of approvals for increasing our power-generation capacity by 30% is important. Patel can’t have an industrial economy absent electricity on demand, but while he chases measurable localisation by the end of November it will take two or three years for electricity supply to stabilise.

The sad thing is that this plan, along with the earnest contributions from business, is really the ANC’s last throw of its industrial dice. I don’t think we have a state capable of managing its complexities and, once outside of the heady confines of the Nedlac process, you have to ask whether business feels it has been spoken for.

It isn’t the job of a company to create jobs. They are a by-product of growth and profitability and ambition. Stamping on people who import for their living in order to give a living to someone else is destructive and will yield little. We are too small an economy to shut ourselves off from the world. It is all very well that we can now make a useful ventilator, but so can dozens of other countries. And as the pandemic fades, so will the market for ventilators. What can we make that we are a big enough market for?

The answer is precious little. Not a ventilator. Not an airline.