ANC Policy Conference 2017

ANC-Policy-Conference-2017

INTRODUCTION

The Banking Association South Africa (BASA), with the Association for Savings and Investment in South Africa, met with the Economic Transformation Committee of the African National Congress (ANC) on June 12 2017 to discuss the ANC’s economic policy documents prepared for its National Policy Conference.

The meeting was arranged to show the finance sector’s commitment to ongoing dialogue with the key issues impacting our country. The ANC remains an important role player and hence a key interlocutor. We hereby present BASA’s response to the two key documents relating to economic policy. 

At the meeting all parties agreed that the CEO Initiative, which was started last year, should remain the basis of relations between the private sector and government. It was felt that the focused and rapid implementation of the various aspects of the Initiative would make a huge contribution to addressing poverty, unemployment and inequality, as well as improve our international rankings. This would have the effect of improving our country’s economic growth.

This Initiative includes: 

  • A small- and medium-sized enterprises (SME) Fund, which has been established and has already received funding pledges of R1.5 billion from the corporate sector.
  • A group of experts in eight high-potential growth sectors have been working on identifying new investment areas and places for intervention where there have been structural blockages.
  • Investor concerns on sensitive areas of regulation are being addressed to establish a way to make the environment attractive to investors and ensuring societal imbalances are spoken to.
  • A Youth Employment Scheme has been established, making use of government and private-sector partnerships that aims to equip one million young people with skills and employment over the course of three years

The meeting went a long away to assuring the finance sector that the ANC remains committed to working in the national interest. We all agreed that there can be no antidote for a laser-like focus on implementation. It is BASA’s fervent hope that this meeting is the first step in that direction.

 

Download the ANC Policy Conference 2017 PDF. 

 

BANKING ASSOCIATION SA (BASA) RESPONSE TO ANC DISCUSSION DOCUMENTS

BASA has decided to respond to the call by the African National Congress (ANC) to its structures, other sectors of society and the general public to read, debate and provide comments on its policy discussion documents. Our response is based on the belief that the ANC, as the governing party, remains a significant role player in the politics and governance of the country. 

Our comments focus on the Economic Transformation (ET) and Strategy and Tactics (S&T) papers, as these together set out the proposed policies of the ANC on the economy.  We recognise that other policies impact on the economy directly or indirectly. Those with direct impact include: education and skills development as well as science and technology. Social and governance policies also impact on the economy, albeit indirectly. We have confined our comments to those with direct impact.

We welcome the open approach adopted by the ANC to its policy formulation. The current situation we find ourselves in requires that policymaking should be inclusive, and undertaken with integrity, followed by dogged implementation. Such a process will ensure that various sectors of society are willing to partner with government in the implementation of those policies. We believe that an approach that excludes or serves the narrow interests of one section or the other will be detrimental to our country.

CONTEXT

The ANC’s understanding of the environment within which its economic policies have to be pursued is instructive. At the ‘macro global environment’ the ET document correctly identifies the key factors: impact of the 2008/9 global recession, decline in commodity prices, investor risk aversion, exchange rate volatility, rising opposition to trade flows and low growth amongst partners, including the BRICS countries. The S&T document points out that this is a poly-crisis world encompassing economic, environmental and political issues. While describing international relations to be shaped by ‘primary unipolarity’ due to the hegemony of the US, it speaks of a ‘secondary multipolarity’ which emphasises the strengthening of multilateral institutions. Within this it argues for SA having a ‘clear Africa strategy’. 

Amongst the domestic factors the ET document identifies are: electricity supply, reduced confidence in the economy due to ‘perceived rising corruption levels and increased political uncertainty’ and that SA shows an ability to self-correct, highlighting resilience of the Constitution and rule of law.

In addition, recent events and revelations of the capture of the state, and pervasive corruption in tenders, have heightened uncertainty and reduced South Africa’s attractiveness to investors. In Fitch’s view, “the cabinet reshuffle, which involved the replacement of the finance minister, Pravin Gordhan, and the deputy finance minister, Mcebisi Jonas, is likely to result in a change in the direction of economic policy.”  

The downgrade of South Africa’s sovereign rating by three ratings agencies has made what was a faltering economic recovery process, following the Global Financial Crisis (GFC) of nearly a decade ago, even harder. Adding to South Africa’s woes is the announcement by Statistics South Africa on that our economy is in recession. This, together with the rating downgrades and ongoing governance failures in State Owned Companies does not bode well for fast recovery.

The impact of the rating downgrades will be felt immediately by the financial sector but will soon extend to other sectors of the economy and ultimately reduce the resources available for delivering various social services. 

Experiences from other regions have shown that this could plunge countries into crises and prolonged periods of political instability. There is an urgent need to defend the gains of our democracy which are being threatened by the unfortunate developments on the economic front. We believe the policy discussion papers have to provide a clear policy path out of the difficult situation we find ourselves in. 

There are other global factors that could be advantageous if we had our own house in order. These include the positive sentiments towards emerging markets (EM) in the context of the ‘Trump’ factor, uncertainty around what impact Brexit would have and the general uncertainty in the Eurozone. The dynamics within the BRICS countries, especially developments in Brazil and our role within this economic alliance should also be taken into account.

ECONOMIC POLICY

The S&T document notes that the structure of the economy is at the centre of SA’s fault lines – because it creates too few jobs, and the skills shortages we have to endure. It decries the abandonment of GEAR’S fiscal constraints, saying that factional divisions ‘let opportunities slip through the liberation movement’s fingers’. It points out that the 2003 Growth and Development Summit (GDS) was aimed at a social compact between government, business and labour but the GDS agreements were not pursued. It emphasises that binding constraints persist: this includes an increasing debt and low savings rate. We are thus at the mercy of foreign inflows and rating agencies.

In its diagnosis the ET document notes as far as fiscal policy is concerned it has to deal with high debt payments, with ceilings on expenditure being a key instrument but the state having to deal with education demands. It therefore has to resort to progressive tax measures. On the monetary policy side, it notes that interest is at historic lows, and there is a need for confidence building aimed at improving ratings. It underlines that government is trying to avoid a debt trap, is focussed on improving the governance of SoEs, recognises that best practice requires FICA legislation and is committed to a national minimum wage.

BASA concurs with this analysis and policy stance. In addition to the structure of the economy being at the centre of fault lines, we believe policy uncertainty, failure to create an environment favourable for investment, the labour regulatory environment and the impact of everything to do with state capture and corruption need attention. 

Of particular concern is the moribund state of education and training, which indicates poor implementation and utilisation of resources, given that we have amongst the highest per capita expenditure on this single item. This means that South Africa’s competitiveness would continue eroding in the context of the “Fourth Industrial Revolution” and the very real threat to job creation, as the global economy moves towards robotics and other cutting-edge technologies.

BASA believes that we do need a focused discussion on the structure of the economy and all contributory factors. A renewed commitment to the values of clean and accountable governance enshrined in our constitution is a critical part of the recovery process.

MACROSOCIAL ENVIRONMENT

The S&T document highlights the following aspects which characterise our society: Patriarchy is prevalent throughout society, while the face of poverty is black and female. It describes the black workers as the main motive force of transformation, with the rural poor seen as part of the working class. The black middle strata are seen as being in a tenuous position, but can be a catalyst for change. It says that the black capitalist group should be seen as a bureaucratic bourgeoisie dependent on state, or a comprador class, dependent on white capital. It calls for special attention to the empowerment of black women and young people. It points out that whites share support for the new order broadly. On monopoly capital, it states that the ANC should have a relationship of ‘unity and struggle’. It emphasises the need for concentric circles of broad fronts to bring about the required changes in the economy and society generally.

BASA wants to emphasise that addressing the fragmentation of society, and developing social cohesion, is a critical priority in the macro-social environment. High levels of social unrest need to be urgently addressed. The causes of this unrest are complex and multifaceted, but will continue unabated if government remains in a state of stasis. Many research reports have indicated that while such actions by communities are a response to exclusion and ongoing poverty, it is also a response to intra-party fighting and a response to the capturing of the state, particularly the impact it has on service delivery.

There is a need for strong and visionary leadership to enable sectors to come together in robust engagement on hard issues perpetuating inequality in society. Developments in recent times have raised questions about whether the ANC can be a centre through which the robust engagements can take place. We believe a strong statement of commitment to the foundational values of good governance, followed by appropriate actions will go a long way towards building confidence in the political system.

We believe that finding the solution to the myriad of social issues facing society should be the focus of all South Africans and we must engender a long-term approach to avert the potential negative impact on the most vulnerable. To this end, the finance sector, as a critical element of the business sector, shall continue to work with civil society to address the issue of social cohesion and state corruption.

ORGANISING FRAMEWORK

Three elements of the framework which guides all policies of the ANC can be summarised into the concept of the developmental state, the idea of a National Democratic Society and radical economic transformation, which has been articulated by various senior leaders of the party.

  • Developmental State (DS): The S&T document states that the ‘ANC seeks to build democracy with social content, underpinned by a capable developmental state’. The Economic Transformation document spells this out in more detail, where it emphasises the need to build public-sector capabilities where public servants are ‘capable and professional’. It explains that the DS should set parameters for market forces to drive particular developmental outcomes. In this way it can act as a guide to the working of capital. It envisages that such coordination can be achieved through the Presidency and the National Planning Commission.
  • National Democratic Society (NDS): This is spelt out in some detail by the S&T document, which envisages the NDS being characterised by a thriving economy, leading-edge technology, labour-absorbing industrial development, successful small businesses, and use of ICT in enhancing good management. It places a premium on redistribution of land, and helping small farmers emerge. It calls upon private ownership to act in a socially beneficial way, while society engages in anti-poverty programmes for ‘sustainable integration of all communities into economic activity’. Such a society would value social activism and an honest day’s work. It reminds us that the National Democratic Revolution (NDR) does not eradicate capitalist relations: the state is there to regulate contradictions.
  • Radical economic transformation (RET): The S&T points out that talk of RET does ‘not suggest any intention on the part of the ANC to spring policy surprises’. It asks whether there is sufficient capacity and will to implement the 2012 ANC decision to move into the second phase of transition, especially today when government and the Tripartite Alliance is at its weakest since 1994. It warns that ‘attempts at ‘radical’ giant leaps, mistimed and cynically aimed at benefiting well-connected individuals and families, can plunge the project of change into murky waters of defeat’. The ET spells out the RET as characterised by the following: a reconstructive macroeconomic framework with well-managed fiscus and SoEs, improved access to education, employment opportunities, land, and subsidised services for poor, as well as a minimum wage. It also speaks of having better relations with the private sector.

BASA supports the articulations of these elements of the framework discussed above. We believe that the issues around NDS and RET are linked. The components of an NDS need to be achieved through RET and a developmental state that is able to professionally implement socio-economic policies. We must achieve restructuring of our economy in a way that enables access, skills development, competition and inclusion. These are all essential elements for sustained high growth levels and also contribute to inclusive growth. In addition, we need a regulatory environment that encourages investment, and monitors collaboration between business, labour, and government to ensure growth does address poverty, unemployment and inequality (PUI). However, the central issue remains growth and what we must do to enable that, within a very clear understanding of the global environment and its impact.

Inclusive growth requires, in the SA context, a restructuring of our economy so that blockages to entry of emerging enterprises, black service providers and black senior managers are identified and addressed. We must progress from a fixation on the Codes to a robust and honest introspection of the way we do business, acknowledge the impact of our history and proactively ensure access to new businesses and to the majority in the economy. 

From the banking sector perspective, we are committed to working with government and other social partners to address challenges that have limited our progress on critical aspects of transformation namely, ownership, employment equity (in particular management and control), small and medium enterprise finance, and procurement. While significant progress has been made in each of these elements, the advances in the mortgage lending that have brought many black people into the formal property market indicates that the financial sector can do far more in advancing transformation in the entire economy through expanding access to financial services to various sectors of the population and economy with a particular focus on funding SME. This would ensure that in every industry concentration is reduced and competition enhanced as new entrants are supported to run profitable businesses. We acknowledge the sector has the opportunity to play a far greater transformative role and a balance has to be struck between meeting the various transformation elements set out in the codes and playing the industry to its strength by emphasising the financing elements. 

OVERALL COMMENT

The Economic Transformation and the Strategy and Tactics documents provide a reasonably cogent account of the economic policy direction that the ANC intends to pursue. We believe that differences in emphasis between these documents may be due to the composition of the relevant sub-committees of the ANC.  Like many other concerned citizens, we read through the documents to see what these policy documents had to say about radical economic transformation. 

We are disappointed with the lack of detail around that. However, we believe that when taken as a whole, these documents represent the blueprint for the root and branch restructuring of our society in a way that could lead to higher inclusive growth and greater social cohesion.  We take heart in the central focus placed on improving the capacity of the state, and the need for political certainty. The poor capacity of the state has been too glaring to miss and has been the direct cause of many of the economic problems engulfing the country. 

THE WAY FORWARD

The ET document’s central theme is the need for inclusive growth and job creation. It points out that SA from 2017 to 2030 is experiencing a sweet spot of ‘enough people of working age to support the non-working population’. It then reiterates various targets articulated in the NDP:

  • Education and ICT skills, identified in the NDP as ‘crucial enabling inputs’, to move SA up the value chain.
  • The need to address apartheid’s spatial legacies – costs of getting to work, no employment in black areas etc.
  • NDP target unemployment by 2030 is 6%
  • NDP interventions:
    • Lower costs to make employment less costly, help
    • poor households
    • Investment from 17% GDP to 30% GDP by 2030
    • Better urban planning, water and waste management
    • Improve transport logistics, telecoms

It is noted that the economy is skewing to high skills/high productivity and that there was a need to focus on entry-level jobs. Also, there is a need for a flexible approach to skilled migrants to SA. In terms of economic infrastructure, it did highlight the opportunities presented by the transition to a low carbon-intensive economy and that water infrastructure requires the more efficient management of water areas. It points out that the ‘heart of the economic transformation programme is a strong, integrated and inclusive rural economy’. Noting features such as the communal land system, extreme weather and reliance on rain, lack of access to capital, technology and know-how, it points out that restitution and redistribution have not resulted in effective production. 

BASA welcomes the emphasis on the NDP, especially given the democratic manner in which it was formulated. We believe that having good policies is not enough; there needs to be visionary leadership to drive their implementation. This, in our view, has been lacking. We believe it is possible to achieve the goals of the NDP through mobilising society around a common vision set out in the plan. Our sector stands ready to work with other sectors of society to achieve common objectives.

 

Download the ANC Policy Conference 2017 PDF. 

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© The Banking Association South Africa 2017