Treasury’s strategy paper an illustration of SA’s inability to plan

Finance Minister Tito Mboweni’s economic strategy discussion paper is flawed.

This is according to former statistician-general of South Africa, Dr Pali Lehohla, who has described the 77-page discussion document released by National Treasury last week as “an assemblage of essays.”

Treasury says the document – ‘Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for SA’ – is a response to the diagnosis that the country’s economic trajectory is unsustainable.

Economic growth has stagnated. The South African Reserve Bank estimates that the economy will grow by only 0.6% this year. Added to that is rising unemployment, which currently sits just under 30%, while inequality remains high.

At its core, the paper aims to steer the country to a higher growth path through a number of structural reforms categorised under five themes drawn from the National Development Plan (NDP). Read the document here.

Weakest point

Lehohla says that while the NDP’s primary motive is to deal with poverty, inequality and unemployment, Mboweni’s paper does not go into any real detail about how it plans to reduce the levels.

The paper does however emphasise inclusive growth and economic transformation without compromising competitiveness as “the most sensible strategy to address the challenges of unemployment, poverty, and inequality.”

Treasury outlines a number of interventions that will result in lower electricity, communication and transport costs for all. There is a focus on labour-intensive growth in the tourism and agricultural sectors, which are best positioned to absorb low-skilled workers who make up the bulk of SA’s workforce. There are also policy, financing and government interventions aimed at increasing the ease of doing business in the country, particularly for small and medium-sized enterprises.

Lehohla says that while those are “good words” the paper should have specified by how much it aims to reduce the three issues and that omission is the “weakest point” of the document.

Had the document been explicit about those elements, one would be able to test how valid the interventions are in terms of reducing or eliminating unemployment, poverty and inequality, he says.

“[Instead] it talks about a whole host of things that will have to be done that will enhance growth and then, at the end, it says growth will be 2% to 3%,” Lehohla toldMoneyweb.

“Is it because the growth is so pedestrian that they would not commit to saying poverty, inequality and unemployment? I am left with that kind of question in my mind.”

Unemployment 

In addition to the three-percentage-point growth projection, Lehohla finds issue with the document stating that should the interventions be successfully implemented they would “create one million job opportunities”.

Currently, by official count, 6.7 million people – 29% – are unemployed in South Africa. The extended definition brings the number to 38.5% or more than 10 million people being jobless.

A breakdown of the million jobs and economic growth targets is provided in three scenarios (short, medium and long term), where government quantifies the impact of the interventions using Treasury’s South African General Equilibrium (Sage) model to make estimates.

Lehohla says the language of “job opportunities” in the first paragraph is a cop out and there is an inconsistency between the number of jobs mentioned in the abstract and the concluding statements in the paper.

“That statement at the front, and the concluding table, leave you completely confused as to whether it is a million jobs in 10 years or whether it is 10 million jobs in 10 years,” he says.

“Now, when you have to contend with that, we have to start asking is this document really serious? Where is the arithmetic? Where is the transmission mechanism?”

Lehohla believes that regardless of whether the document refers to one million jobs or 10 million, it is “wrong” in both cases.

If one million jobs in the long term scenario translates to 100 000 jobs a year, this is not realistic when there are 10 million people who are unemployed and every year an additional 400 000 people are added onto the list, says Lehohla. On the other hand, 10 million jobs over the next 10 years cannot be sustained by growth of three percentage points.

“I am terribly worried that numbers that big are just thrown around like that.”

Planning 

Instead of being a plan, Lehohla says the document is better described as an “assemblage of essays” and a good attempt that raises issues around how SA goes about planning a system.

“There is no systematic process that makes everything go through the eye of the needle. It is a compilation of pieces of paper and then we think that’s a plan. That’s a problem.”

The former statistician-general says a master plan also requires all spheres of government to talk the “same language”.

For instance, in July President Cyril Ramaphosa said that he planned to create two million jobs in 10 years, through private sector participation as well as by leveraging off the tourism and agricultural sectors. This is not dissimilar from the Treasury document, however, the economic blueprint only speaks of one million jobs.

“Those are two big, different numbers and in terms of development communication, it shows the fault lines in the plan itself,” said Lehohla.

‘I can’t trust those numbers’

It is this incoherence by political heads that Lehohla argues creates distrust in the bigger numbers asserted by the document.

The economic document proposes that embattled power utility Eskom sell off its power stations and their respective obligations as a way of limiting the fiscal and economic risk that Eskom poses. It is estimated that the sale will generate R450 billion. The paper also proposes greater energy production by independent renewable power producers.

This comes against a backdrop where Minister of Mineral Resources Gwede Mantashe has affirmed his backing for coal and nuclear in the country’s energy mix. Meanwhile, former energy minister Jeff Radebe’s unpromulgated Integrated Resource Plan sees coal as part of the country’s energy mix only until 2030, to be replaced by renewables, and does not account for new nuclear projects.

“This incoherence is so serious and so deep that you can’t swing in less than a month on issues like these,” says Lehohla.

“I have very little confidence in the R450 billion, because there is nothing that proves to me that the one million and 10 million [jobs] are not different.”

Lehohla says it’s not just the process of implementing reforms that SA does not get right, it is also the process of planning.

“Unless we get those right it will be very difficult to win the confidence of South Africans that things may look different.”

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