Jammine on MTSF: Another contradictory, confused Edict from Pretoria | September 13, 2014

Dr Azar Jammine is a leading South African economist.

Dr Azar Jammine is a leading South African economist.

South Africa’s political leadership has the ability to espouse wonderful ideals. But its ability to execute is pathetic, a fact reflected in the slide in just about every measurement matrix imaginable. From global agency downgrades to the ever sliding exchange rate; stagnant economic growth to the WEF’s Global Competitiveness Report, the trend clear. For everyone, it seems, except President Jacob Zuma and his cohorts. Former Business Day editor Peter Bruce articulated the frustration of many of his countrymen in an emotional column this week. In the piece below Econometrix’s chief economist Azar Jammine (above) applies a more measured approach in his excellent analysis of Pretoria’s latest treatise, the MTSF. Both reach the same conclusion. Those who try to please all sides send contradictory messages and end up making everyone miserable. Leadership has always been about making the tough choices, listing priorities after considering the consequences. And then acting by applying the appropriate expertise to the plan. Muddling through, rewarding loyal cadres, ignoring the disciplines of a complex, competitive world have a predictable result. Drift. – AH

Dr Azar Jammine is a leading South African economist. In this in-depth report, he sets out the costs to South Africa of ongoing strikes.
South Africa’s political leadership has the ability to espouse wonderful ideals. But its ability to execute is pathetic, a fact reflected in the slide in just about every measurement matrix imaginable. From global agency downgrades to the ever sliding exchange rate; stagnant economic growth to the WEF’s Global Competitiveness Report, the trend clear. For everyone, it seems, except President Jacob Zuma and his cohorts. Former Business Day editor Peter Bruce articulated the frustration of many of his countrymen in an emotional column this week. In the piece below Econometrix’s chief economist Azar Jammine (right) applies a more measured approach in his excellent analysis of Pretoria’s latest treatise, the MTSF. Both reach the same conclusion. Those who try to please all sides send contradictory messages and end up making everyone miserable. Leadership has always been about making the tough choices, listing priorities after considering the consequences. And then acting by applying the appropriate expertise to the plan. Muddling through, rewarding loyal cadres, ignoring the disciplines of a complex, competitive world have a predictable result. Drift. – AH

By Azar Jammine*

About a month ago, the government released its Medium-Term Strategic Framework (MTSF) for the period 2014 to 2019. On a recent roadshow we found that there is very little knowledge of the programme and where there is knowledge, its likely implementation is being met with huge scepticism.

The MTSF can be interpreted as a medium-term version of the National Development Plan (NDP), identifying similar priorities, but limiting the goals to the next five years rather than up to 2030 as is the case with the NDP.

Many of the goals are laudable, including the attainment of a 5% GDP growth rate by 2019 and the creation of five million new jobs by the end of the decade. Nonetheless, consideration of the contents of the MTSF yields several contradictions between its objectives and what is currently taking place in terms of the implementation of government policy. It is for this reason that scepticism regarding its implementation abounds.

At the heart of the MTSF is the premise that the private sector is absolutely crucial to economic growth in South Africa. To this end, the programme calls for significant cooperation between public and private sectors to promote economic growth. Furthermore, in respect of the ability of the private sector to create jobs, there is repeated reference to the need to promote Small Business Development as a major driver of job creation.

Unfortunately, in presenting the MTSF in a roadshow amongst a variety of asset managers, we found that knowledge thereof was very scant. Even in instances where knowledge of the MTSF existed, there was great scepticism as to whether it would ever see the light of day. This scepticism in itself poses a serious problem in the implementation of the programme, because if the government cannot secure the buy-in of the private sector to assist it, the MTSF will effectively be dead at the starting blocks. Clearly, communication of the programme has been severely lacking, accounting for the lack of knowledge about its existence and its contents.

Scepticism is also derived, one imagines, from the reluctance to focus sufficiently on the need to improve industrial relations between employers and workers and the role that government should be playing in this regard. More generally, also, the emphasis on programmes such as the New Growth Path, IPAP and the NHI all reek of increased rather than decreased regulation. Similarly, although one understands the need for promoting black economic empowerment to overcome the legacies of the past, the strong emphasis on such empowerment initiatives forming part of the process of “radical economic confirmation” is seen by significant elements of the private sector as being inimical to promoting enterprise in a motivational manner.

On our part, as much as we commend most of the elements of the MTSF, reflection on their contents throws up a variety of contradictions between what is intended in the program and what is currently being put into practice. We list a number of these below:

– Although the MTSF emphasises the critical role of the private sector and the need for increased co-operation and coordination between private and public sectors, the reality is that frequently statements made by leading members of the government come across as seeing the private sector as “the enemy”, rather than a critical vehicle with which to cooperate.

– Although the MTSF focuses extensively on the elimination of unnecessary regulatory burdens, in part to support small business activity, in practice increased government intervention in a variety of spheres is merely compounding the burden of regulation. Although the MTSF calls for a reduction in business concentration, the effect of increasing the weight of the regulatory burden is driving greater rather than reducing the level of concentration in South African business.

Small businesses are far less able to cope with the regulatory burden than their big business counterparts, who have the resources and the means to address what is required by such regulations.

– Nowhere is the aspect of small business struggling to cope with the regulations more onerous than in respect of the stricter enforcement of the BBBEE regulations, which form part of the so-called “radical economic transformation” earmarked by the MTSF. In contrast, big business, with its dispersed ownership and its ability to pay more for the appropriate staff, is in a far better position to deal with empowerment requirements.

– On similar lines of argument, big business is more readily able to cope with the mooted introduction of a national minimum wage than small businesses.

– Although the MTSF alludes to the introduction of the Employment Tax Incentive as a vehicle through which to promote youth employment, the fact is that implementation of this initiative is being hamstrung by opposition from within its Alliance partners.

– Although the MTSF keeps emphasising the need to reduce corruption as a means of alleviating one of the huge impediments to more efficient service delivery, evidence suggests a reluctance on the part of government to act against people convicted of corrupt practices.

– Although the MTSF emphasises the need for improved accountability within the public sector and increased conviction rates for those found guilty of corruption and higher levels of respect for the independence of anticorruption agencies and the essence of the Constitution, the Public Protector is being vilified from within the government.

– Although the MTSF emphasises the need for stability and continuity in leadership, the Cabinet reshuffle following the general election and the change in directors general of many departments was fairly dramatic in many instances.

– The MTSF calls for “in migration” of skills to help promote improved education and skills development. In practice, however, access to work permits for foreigners needed to assist in the improvement in the educational system, is becoming ever more difficult.

– One of the industries earmarked as being a vital potential source of employment creation is the tourism sector, yet stricter visa regulations for foreigners visiting the country with their children, is jeopardising the drive for improved tourism.

In conclusion, we find it very frustrating and sad that the government has indeed outlined substantial areas of policy that are constructive and which could assist in promoting improved sustainable economic growth, but there is so much scepticism as to the implementation of such programmes, based on the failure to implement in the past. In order to overcome this shortfall, there clearly needs to be increased co-operation and more sincere interaction and communication between the government and the private sector and across the different races of the country. For this to be achieved, the country needs the appropriate leadership to overcome this yawning gap of trust.

* Azar Jammine is the chief economist at Econometrix. This is an edited version of a report he sent to clients this week. 

Menzi Kulati.

#BringBackOurGirls

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