Don’t be fooled by the rebound, microeconomic reforms are vital

If ever there was a case for the kinds of microeconomic reforms urged in the Treasury’s recent economic policy paper, it was this week’s GDP figures. They showed an economy that rebounded more strongly than expected in the second quarter after the first-quarter crash. But the drivers were temporary and cyclical. Eskom’s turnaround from summer load-shedding to winter lights on helped turn negative to positive; mining picked up sharply thanks in part to an iron ore price which soared and is now tanking again. There are no guarantees the rebound will be sustained for the rest of this year, especially at a time when the global environment is turning against us. Even if it is, we’re still looking (again) at no more than 1% for the year, so SA’s standard of living continues to go backwards, as it has done for the past five years.

Macroeconomic policy — fiscal and monetary — can’t pull SA out of the trough, certainly not on any sustained basis. It has to be the micro. Hence the Treasury’s largely supply-side suggestions on fixing network industries, lowering barriers to entry, prioritising labour-intensive services and agriculture; implementing “focused and flexible” industrial and trade policy and promoting export competitiveness.

The Treasury’s two-year-old, 77-page policy document is hardly a scintillating read. The timing of its release, and the positioning of the minister who released it, have made it a piece of politics rather than economics. It’s unclear whether it will have the (desired?) effect of putting a rocket under President Cyril Ramaphosa’s administration and giving impetus to the reform process — or will do just the opposite.

If finance minister Tito Mboweni was going to create this much drama, one wonders why he didn’t make more bold proposals than the sometimes tired ones trotted out in the document.

But here’s where the substance matters. In an ideal world, this would be part of a genuine policy process within government. During the Zuma years we didn’t have that — if the president decided we should expand free higher education, there was no debate on whether this was the most effective and pro-poor way of spending R67bn of taxpayers’ money. Now, the Treasury is trying to reclaim its space in the economic policy debate. It is trying to urge action by emphasising the growth that SA is forgoing by failing to reform. Most crucially, it is or was trying to engage with other government departments on the details of policy — which is why the document is about nuances, not bold new things, and why it treads carefully in areas such as industrial and trade and competition policy. It’s one thing to take on the unions, another to take on trade & industry minister Ebrahim Patel — especially since some of the networking industry proposals already differ from what public enterprises minister Pravin Gordhan would prefer. But the nuanced differences are there.

Take trade: the document says SA effectively has no trade policy. Instead, it has a series of fragmented decisions on tariffs by the International Trade Administration Commission, often in response to the companies that shout the loudest. Over time, SA is becoming more protectionist, by default. The Treasury’s view would be that that undermines competition and export potential. On industrial policy the critique is sharp, albeit polite — 13 priority areas each with eight subsets is not an industrial policy.

Then there’s competition policy, a subject dear to Patel’s heart and Ramaphosa’s and the subject of new and more interventionist legislation that could force dominant players to get smaller. The Treasury document makes all the right noises but discreetly emphasises that its lowering barriers to entry is more about getting new players in than attacking old ones — and that entrepreneurs can succeed only if the government itself slashes the red tape and even exempts smaller businesses altogether.

Of course, urgent action on the big reforms is needed, not more debate. But some of government’s dysfunctional policies may undermine growth prospects. The question is whether policymakers or politicians are ready to take growth policy seriously.

Will Treasury policy paper put a rocket under Ramaphosa?