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10 wasted years: The continued cost of cadre deployment

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By Johannes Wessels of The Enterprise Observatory of SA: TEN WASTED YEARS…  Tito Mboweni’s colloquium “to think outside the box about economic growth” is akin to closing the stable door after the racehorse had not only bolted, but already won a race elsewhere. Scavenging in the ANC dustbin of rejected advice, Mboweni picked Harvard economist Ricardo Hausmann as advisor, knowing well Hausmann’s advice on productive knowledge had been flatly ignored by the ANC government since 2008.

Hausmann considers productive knowledge as the key factor that separates successful countries from unsuccessful ones. A lack of productive knowledge therefore retards economic growth and development.

From 1990 to 2003 South Africa lost 7% of its professionally qualified people, predominantly high-skilled whites.  After some stability that came during the high growth Mbeki-Manuel years the exodus was re-triggered by the growing ineptitude of an administration that radically transformed departments and state-owned enterprises (SOEs) into little more than facades.

The police service, SAA, Transnet, the NPA and municipalities are some examples where cadre deployment trumped productive knowledge. The result:

  • At township level, the disgruntled resorted to service protests.
  • At professional level, they packed their bags and headed to the emigration counter with highly skilled blacks now outnumbering their white counterparts, bound in solidarity by a deep non-racial gatvolheid in the slide into corruption, lawlessness, dismal public services and the undermining of property rights. 
  • At investor level, South African businessmen have emigrated through FDI:  fixed investment by South Africans abroad exceed fixed investments lured to our shores.

Make BEE growth compatible

Hausmann, an erstwhile Cabinet minister from Venezuela, chaired Thabo Mbeki’s international panel of experts to advise on the Accelerated & Shared Growth Initiative of SA (ASGISA). Originally AGISA, the “shared” was added in an attempt to counter the growing criticism from Cosatu, ANC Youth League and the SACP that the Mbeki-Trevor Manuel duo were agents of neo-liberalism with their Growth, Employment and Redistribution (GEAR) plan.

ASGISA did not materially depart from GEAR, but introduced a stronger emphasis on black economic empowerment (BEE): in that sense, the John the Baptist of Radical Economic Transformation.  The Hausmann panel made several far-reaching recommendations regarding growth prospects as well as impediments on growth, inter alia urging them to make BEE growth compatible and to do everything to stem the exodus of high-skilled whites.

With heightened attention on a Great Trek of productive capital out of South Africa following the Chairman’s Conversation with Johann Rupert, only some of the 2008 conclusions and recommendations of the Hausmann panel dealing with productive knowledge are highlighted:

  • Skills are in short supply and requires urgently a strategy to relax this constraint: A growth strategy has to be based on the people South Africa has, not on the people that it wished it had.
  • BEE complicates firm creation, exacerbates skills constraints in managerial positions, creates greater regulatory burdens and discourages investment and job creation. Making BEE growth-compatible should be an important strategic objective.
  • BEE elements like equity transfers amount to an open-ended tax on existing and new capital.
  • Introduce a sunset clause for BEE: if the policy is successful, it should become redundant.
  • High skilled and low skilled workers are strongly complementary: the greater the demand for the one, the greater the demand for the other. The shortage of highly skilled workers causes a lower demand for low skilled workers and the lack of engineers may cause the loss of hundreds of blue collar jobs.
  • Stop and reverse the emigration of high-skilled whites. There is substantial anecdotal evidence that BEE rules may be sending a negative message to both young white university graduates and those in senior management.

Black professionals have joined the exodus

These recommendations were unpalatable for an ANC leadership and a Government convinced that they were on the right Radical Economic Transformation route by getting rid of Mbeki and his GEAR-approach and accelerating BEE.

It is unlikely that Hausmann, recalled now as an adviser by Mboweni, will find an improved situation. In fact, matters have deteriorated concerning the availability of productive knowledge. Government acknowledges in its own White Paper on Migration (2017):

  • For every one professional immigrating to South Africa eight professionals were emigrating.
  • White professionals emigrate due to push factors that include fear of change and opportunities open to professionals.
  • In recent years, the annual number of black professionals leaving South Africa exceeds the tally of professional white emigrants.
  • Whilst the NDP prioritises skills acquisition to further inclusive growth, Government has not devised or implemented adequate policy & strategies for retaining and/or recruiting such skills.
  • Between 1989 and 2003 120 000 of the 520 000 mainly white emigrants had professional qualifications (one in four) and SA lost 7% of its total stock of professionals.

Considering that the 1990 to 2003 emigration of skills continued despite the return of stabilisation under Mandela and Mbeki, one can easily state that at least a similar number of white professional people have left between 2004 and 2018, amounting to  at least a quarter million of white professionals. The last phase of the Zuma catastrophe as well as the embrace by the ANC of expropriation without compensation have led to an acceleration of skilled emigration:  this time from all race groups.

With the White Paper on Migration stating that lately more black professionals are leaving than white professionals, one can conservatively calculate that at least 400 000 professionals have left our shores. This contributes to the shrinking percentage of high income households, as well as removing people in high personal tax brackets as contributors to SARS.

ANC effectively promotes growth in Mauritius at our own expense 

The fact that Mboweni is desperately scavenging in the ANC dustbin to recover some rejected advice, would have been encouraging were it not a tremendous acknowledgement that the ANC has, by rejecting / ignoring advice, contributed to impoverishing South Africa by becoming so unpalatable for productive knowledge. 

The current low growth high unemployment situation is too often blamed on the Gupta-isation of government spending. Hurtful as these body punches were, the head blows of inefficient economic policies and inefficient and counter effective administration have had a worse effect

Some examples how policies and inefficiencies have been drags on economic growth, are:

  • Inefficiencies in the logistic system (some of the slowest ship turnaround time and the highest duties on a global scale) were not triggered by Gupta-isation, but by transformational strategies like affirmative action elbowing out experience.  Whilst the goal of affirmative action can be understood, why would a foreign buyer of SA exports carry such additional costs of inefficiencies if other suppliers (countries) that do not have such inefficiencies can provide these more reliably at lower cost?
  • If BEE adds any cost to exporting firms (whether goods or services), the policies are making SA firms less competitive.  Such firms generally either close down and re-establish abroad or they open an international affiliate unburdened by such regulations to escape from this opportunity tax. The ANC through its policy mix is exporting successful entrepreneurs to Mauritius and Botswana.

The registers of the Mauritius Corporate and Business Registration Department and the Botswana Companies and Intellectual Property Authority indicate South African citizens are quite active in registering companies there. Some of the surnames of directors in Mauritian companies registered the past decade are Botha, Basson, Coetzee, De Bruyn, Meyer, Van der Walt: not names that would garner any BEE points in South Africa. By pursuing demographic driven economics, the SA Government effectively promotes economic growth in Botswana and Mauritius at the expense of lower local growth.

In short:  a colloquium was not required. What is needed, is leadership that realises:

To be more precise: it is time (before the 2019 elections) to:

  • declare a moratorium on BEE;
  • revamp the Police service as well as the top four tiers of all municipal staffing levels by ensuring incumbents meet the requirements of these positions and stop the practice of making mice managers of cheese factories rather than competent people.
  • free all firms with an annual taxable income below R50 million from the constraints of collective bargaining;
  • enter into port management arrangements with at least four consortia to ensure more efficient ship turnaround times as well as immediately slashing tariffs to at least the international average whilst committing to privatising the ports by not later than 2023;
  • announce the introduction of a voucher system for parents to choose schools for their children in at least two pilot provinces, preferably Gauteng and the Western Cape as from January 2020;
  • transform the SETA system by giving employers flexibility to choose from the total range of accredited training courses;
  • cut national Cabinet to not more than 20 ministers.

If not, the compromised unity slate of the national and provincial ANC lists will ensure another five years of waste.   By then the racehorses will have won more coveted trophies abroad, expanding the ranks of the Patrick Soon-Shiongs and Elon Musks and enabling countries like Mauritius and Botswana to progress whilst the vision of the National Development Plan will fade into pure fiction.