The Parliamentary Budget Office (PBO) gave a briefing as part of the Committee’s continuous education to ensure it as more rigorous engagements with Treasury and other parties it encounters. The briefing was sparked by the point made that the IMF and World Bank are now calling for a larger role for the state in the economy and for redistribution of resources.
PBO explained the current state of the macroeconomic environment globally and nationally, as it pertains to South Africa's economic growth. It said that focus on Gross Domestic Product (GDP) is misleading in assessing the state of the economy and why it is better to speak about economic growth. It emphasised the need for re-sensitisation towards inequality and a more nuanced way of understanding the effect of corruption and other elements such as foreign direct investment (FDI) on economic growth.
Some parties in the Committee were offended by the briefing as said it smacked of communist ideology but the PBO hastened to explain that there is an evidenced-based international move towards a greater state role in the economy to ameliorate the huge gap in economic inequality. The Committee will continue with further educational inputs from PBO when slots are available.
The Chairperson explained that the Parliamentary Budget Office (PBO) had asked for a longer speaking time of an hour and 15 minutes rather than the usual 45 minutes. He agreed as there are two components to the work with the PBO. One is an educational component as it was not a masters' course or seminar. There were simple folk here and many Members were new to Parliament or the Finance Committee. Therefore, concepts must be used in a simple and clear way, which requires more time. The PBO would set out its perspectives on changes even within the International Monetary Fund (IMF) and World Bank and multilateral institutions on how to manage budgets and revive the economy given COVID-19, and the overall view that it had for a more state-led growth path and monetary policy also needs to break away from its traditions until now guided by the IMF, World Bank and associated institutions. The Committee needed to acquire an understanding of basic concepts as well as gain a firmer view of the PBO views so that it could bring this to bear in its exchanges with National Treasury and be more vigorous and rigorous in its oversight role.
Key challenges in ensuring economic development: Parliamentary Budget Office briefing
Dr Dumisani Jantjies, PBO Director, introduced his team. He noted the many countries and multi-lateral institutions that are currently having to think about the role that the state has to play in economic development; the macroeconomic stance, particularly fiscal policy and other factors which support economic growth and development. One has also seen a shift in thinking in macroeconomic literature from mainstream views, not only about the importance of financial fiscal policy, not only in times of crises, but also leading private sector investing in the economy.
Technology and innovation and human development are some of the areas where many countries are likely to support development. This has been recognised by the United Nations and many countries. He cited the development of the COVID-19 vaccines, which was clearly government-led. The presentation aimed to give context and explain concepts in the role of government in economic development as well as to share experiences of what has been happening in the thinking in literature on how development and growth can be realised. As introduction, he wanted to highlight two concepts that enable sustainable economic development and growth: firstly, human development and human capital formation—how much the labour force and society's wealth is equipped to deal with development; and secondly, economic development and the need for industrial structural transformation.
These are some of the concepts needing to be grappled with as a country in that context. He thought that these concepts are very much related to one another and that the enhancement of one would broadly ensure the enhancement of the other and would broadly affect the economy by creating much-needed employment. It is important for the economy to create adequate jobs as this influences the developmental indicator outcomes for the medium to long-term. In general, one finds there are large constraints on economic development due to the inadequacy of human development, economic and industrial transformation. Evidence shows that inequality is affected by growth and lack of development. Taking into account the Washington Consensus formed in the 1980s, and supported by South Africa, which advocated a smaller role for the state, this has since resulted in increases in inequality both within and between countries. One is now concerned about the rise of network industries, data collection and privacy and the global market dominance of a few corporations. There is consensus that these problems cannot be solved without the enlarged role of the state in dealing with some of these issues. Expenditure on state support is now found to be necessary and this would affect the size and performance of the economy.
Human Development Indicator (HDI)
Mr Siphethelo Simelane, PBO Finance Analyst, explained the human development indicator (HDI) is a measure of the average achievement in the key dimension of human development. There are three key dimensions to the index. The health dimension: which is measured in life expectancy; education: which is measured in years spent in education; and thirdly, the standard of living. These three dimensions yield the HDI and the range of the HDI ranges from zero to one. A zero indicator means that development in the country is very poor and where the index is 1, it means development is very good. South Africa's index is 0.709 and is ranked 114 out of 189 countries. Taking into account the inequalities existent within the three dimensions, the Inequality Adjusted HDI (IHDI) was introduced in 2010 by the United Nations Development Programme (UNDP) and South Africa's value is now reduced to 0.468.
Long and healthy life
For the first dimension of the HDI, health, the most important factor is life expectancy and the diagrams on the left indicate life expectancy and child mortality between 1990 and 2019 and 2018 respectively. The reason for the decrease in life expectancy from 63 in 1990 to 53 in 2005 was due to HIV/AIDs and other communicable diseases. It has since increased to 64 in 2019. The other diagram looks at malnutrition. The lower the line meanss the country is dealing with malnutrition better.
Access to education
Education is measured using the expected years of schooling and the mean years of schooling. Both of these have increased from 1990 to 2019. The increase means that people are spending more time in education, there is a lower rate of drop-outs, more people are finishing their degrees and thus gaining access to stable and better paying jobs.
[In the chat]
Mr Ryder asked for ‘schooling’ to be defined and if this included tertiary education.
Mr Jantjies said that tertiary education was not included.
Mr Ryder asked if 12 years is then regarded as optimal.
Mr Jantjies confirmed this.
Poverty levels in SA
This is measured by checking the multidimensional poverty index (MPI) which measures acute deprivation in health, education and standard of living. It combines all of these deprivations to find the MPI. The range of the index is from zero to one. If the index is high, it means that there is a high level of poverty. The graphs show the varied numbers over the years. The poverty gap was reducing from 2000 to 2008 and 2010; however, since 2010, the numbers have worsened.
Inequality levels and indicators in SA
One uses a human inequality coefficient to determine this. This is an average measure of the inequalities within the three dimensions of health, education and standard of living. Standard of living is measured in terms of income or gross national income per capita. The coefficient ranges from zero to one. If it is zero, it means there is zero inequality, which is good, but if the coefficient increases, it means there is a high level of inequality. In 2014, the index was 33, he explained that the index could either be between one and 100, zero and one or 1% to 100%. In this case the numbers range from one to 100. In 2014, it was 33 and the has improved to 31.2 in 2019. When this index is adjusted according to IHDI, one sees an increase in IHDI.
Service delivery in SA
The diagram details the main sources of energy used for cooking in South Africa. The graph details a steady increase in social grant beneficiaries over the years 2003 to 2019.
Economic restructuring and industrial transformation
Mr Seeraj Mohamed, PBO Deputy Director: Economics, said most of the data presented was up to 2019 and in some cases, went beyond this. He specified what is meant by inequality – this comes across as an abstract notion. The Palma Index is a ratio that compares the top 10 percent of income to the income of the bottom 40%. In 2015, SA households in the top 10 percent were spending eight times more on consumption. It was hard to get one’s head around the fact that they were spending about 8 times more than the whole bottom 40 percent and this was something to think about in talking about the structure of the economy and what is shaping it.
One has to ask who has the buying power. The term often used is 'the customer is king.' The top 10% would be king because of their driving of demand by what they buy, demand for imports amongst other things. In the top 1% a lot of money is being moved into off-shore accounts. One needs to think about what inequality means for the economy and the constraint that that level of inequality puts on the economy. Recently the IMF Head, the Organisation for Economic Co-operation and Development (OECD) and the US economy have all been flagging inequality and these are countries with much lower levels of inequality than South Africa who have recognised its impact on the social fabric, productivity and politics of the economy. This needed to be the starting point in thinking about inequality and not only thinking of it as an abstract notion which one has become desensitised to.
Economic growth is not necessarily development
The question initially put to PBO was to look at constraints to the GDP. PBO very quickly changed this to looking at development. One of the reasons it did this, was because there are much better ways to consider health, welfare and economy. GDP is presented as an objective measure, but is actually a socially constructed measure and indicates certain views on what is productive and what should be classified as ‘economy’. How people budget and think about permissible levels of debt are based on this number. This is a now a system of national accounting where there is a system across countries and recommendations about how to measure GDP and what should be included, but this is something that changes over time.
Economic growth causes a positive change to the country's GDP but this change is not always good for the economy such as activities measured in the GDP that are harmful to people or nature. The harm caused is not usually measured. There are also activities with positive impacts on society not measured in the GDP and are therefore undervalued. Much of this work is carried out by women. Work such as buying pots and pans and ingredients and making a meal in a home to feed a family is not included in GDP, whilst the same conduct for a restaurant is included in the GDP under catering and accommodation. If the same work was packaged and sold to a wholesaler, it would be classified as manufacturing. A lot of policy decisions are made based on GDP.
GDP and finance
It is important to think about money for investment and to think about from where the money comes and if financial institutions like banks and pension funds are investing it in the productive part of the economy particularly those creating jobs.
The System of National Accounts (SNA) includes Finance which previously was deemed unproductive and, in many cases, a cost to production, in GDP. Slide 15 details the progress of economic growth in the country over time and the contribution of Finance to this.
Need for structural transformation
A lot of people think that talk of manufacturing is now outdated, especially in light of the fourth industrial revolution (4IR) and information technology and communication (ITC) industries. However, it is observable, particularly in East Asia and China, that manufacturing is still an engine of growth. There is historic evidence that development of manufacturing has the ability to drive technology-dependent productivity of other economic sectors within the value chains. Slide 17 gives examples of this and slide 18 includes graphs to illustrate the point.
Employment in low value-added services
There have been job losses in productive sectors. The graphs in slide 18 indicate the data. There was a big growth in wholesale and retail trade services in 2015, 2019 and 2020; however these were not big jobs they were somewhat low-paying jobs.
Sector value added contributions to GDP
Manufacturing increased for a time and then decreased from 2020 as represented on slide 19.
Capital stock and capacity across the economy
There seems to be less capacity to produce by manufacturing. This is similar in agriculture, forestry and fishing. Even though there have been increases in employment in wholesale and retail and trade accommodation, there are not huge increases in capital stock in the sector. The bottom graph indicates the comparison of capital stock and value add from 2000 to 2010. It is interesting that the value add in the finance, insurance and real estate and business services increased the most of all sectors whilst the capital stock did not increase as much but with fairly large increases. Construction had increases in both capital stock and value add. In manufacturing, value add increased by 20% but there was a decline in capital stock by almost 10%. This means that it is not investing adequately even though GDP and the economy has grown. He hoped that the GDP would increase if the country now goes into a commodity super-cycle, but it was to be seen.
South Africa’s exports
The top graph indicates the total share of South Africa's exports per sector. Mining has stayed more or less stable between 1992 and 2020; and the graph below it breaks manufacturing down into sub-sectors. SA is dependent on raw material exports and fairly low-value metal value for many of its exports despite the growth in sectors such as finance. Wood, paper, publishing and printing has declined since the 1990s, this is similar in mining and equipment as with the offshore listing of companies and the breaking up and restructuring of large conglomerates – it has lost some of this capability which has moved abroad.
Concentration, profits and low levels of investment
The concentration of markets and the role actions of large corporations are critical to understanding the poor levels of fixed investment in South Africa.
Profitability of top 50 companies
The figures in the table on slide 23 were mainly from 2017 and he did not have time to update them given the time PBO had to put together the presentation. There were, however, fairly high returns on equity. Some of this is oligopoly or monopoly power.
Concentration, profits and low levels of investment.
The Competition Commission has noted that concentration within sectors has increased since 1994, reinforced by barriers to entry. There are both concentrated financial and non-financial sectors, meaning that investment finance is allocated towards existing dominant firms..
The push for increased competition across the world in competition law, has not led to less concentration in many economies. In East Asian development models especially, in countries like Japan, South Korea and others, there was a dependence on large corporations to drive the development of the industry and value-add in those countries. To some extent, there was a relationship the state and companies, where there was a lot of discipline by the state, but also reciprocal agreements where companies received lots of benefits, including access to finance, import control through tariffs and trade and industrial policies and so on. To some extent then large corporations can be part of economic development, but that has not happened. However state-owned banks provide a huge share of development finance in countries like China and India and development finance plays a huge role in industrialisation
Impact of capital flows in SA
In terms of international finance, there is enough foreign direct investment (FDI) and most of this is through short-term portfolio flows. There is however an increase in other investment linked to increased carry-trade. This is where people borrow in the country where interest rates are low, then put the money in SA and get a short return on the high interest rates and then move the money back into their own country, sometimes not even needing to do the country conversions.
What is represented in slide 25 are net flows, meaning inflows minus outflows rather than FDI. There a have been periods where FDI has spiked, such as in the 2001 currency crisis and in 2008 when portfolio flows crashed. In 1997 and 2001, the spikes were linked to offshore listings, where the ownership of companies that were South African became foreign owned. These were paper transactions that were effectively FDI. The diagram on the right speaks to current accounts whilst the left one is financial flows.
Lots of people think about the current account simply in terms of the trade balance, but a lot of the flows, especially in SA since the period before the global financial crisis, have been linked to financial flows where foreigners buy more shares in your economy, have more financial interests, profits and dividends and earnings are re-repatriated. The red lines indicate the total balance on the current account and the blue is the trade balance. Looking at the period, most of the current account outflows are linked to financial transfers. This is a problem because in SA, once GDP takes off and people start investing; if in mining manufacturing or finance; a lot of this equipment has to be imported. He referenced the Growth, Employment and Redistribution (GEAR) document, and said the 2019 Treasury document on the need for structural reform reflects on what is limiting investment and growth in capital stock and the economy.
Mr Mohamed explained the balance of payments, saying that once SA needs to start importing, one sees that the trade balance starts to turn negative. If one looks at 2007-2008/9; the country’s balance on the current account goes towards 6%. There is a combination of the financial transfers linked to foreign ownership of South African shares, combined with the need for the negative amount in the trade balance. This creates a constraint on the expansion of the economy.
Operations of many of the largest corporations on JSE market
A lot of the large corporations hold most of their stock outside of South Africa. Most of them hold 10% or less within the country. This mainly changed after the transition to democracy and he speculated that there were fears that large corporations might be controlled similar to China.
Private sector corporations net acquisition of financial assets
Linked to what is happening with finance, one saw average net acquisition of financial assets by private businesses being substantially larger than the actual net capital formation between 2000 and 2019. The red line in the graph is the net acquisition of financial assets in the private corporate sector, mainly non-financial businesses. The relatively large stress on acquisition of financial assets over net capital formation may indicate pressure from institutional investors and the shareholder value movement for higher short term returns over long term productive investment.
Prerequisites for growth
Mr Rashaad Amra, PBO, Economic Analyst, discussed COVID-19 and food security. The issue in SA seems not to be the ability to supply food but the ability of most of the population to feed itself without adequate or no income. The policy has been to provide income through social grants and growing employment but despite this it still has high food insecurity with more than 20% of households experiencing food inadequacy. COVID-19 worsened this with the interruption of daily activity. Despite the state intervening with temporary grants, there was widespread hunger throughout the country.
This is when a country has enough energy including electricity, gas and liquid fuels. A modern economy cannot be fired up and one cannot have economic growth and development without adequate energy. Energy needs to be accessible price-wise. It needs to be acceptable when it comes to the public's considerations of the environment and the quality of the energy. Energy security in SA has been a major challenge with its familiarity of load shedding. It has been most severe and long-lasting and has had a massive impact on lost potential growth, lost income and lost economic and human development. Factors contributing to this include failure of government planning and management of SOEs, financing challenges and commissioning of plants and procurement of new energy. The last 15 years have been characterised by energy policy uncertainty, significant incoherence of existing policies and a clear case of vested interests affecting policies. PBO recently presented on South Africa's energy policy in the Economic Reconstruction and Recovery Plan (ERRP). This is a welcome policy prioritising energy security.
Adequate economic and social infrastructure is critical for growth. One cannot partake in the gains of 4IR without sufficient 4G, fibre and the likes. Education, sanitation and water have been a policy priority for a number of years; however, SA is falling short of the NDP target.
Changing views on the role of Government
On macroeconomic policy, specifically monetary and fiscal policy, one has seen huge changes in the way in which developed countries in particular are approaching the role of the state. The state recognises with the global financial crisis and with COVID-19 that one cannot depend on the profit motive, operators and markets to deal with many challenges faced – which are being reinforced by the climate crisis. It sees the state playing a major role. There has also been a recognition that the focus on monetary policy was incorrect. After the global financial crisis, the dependence on the use of monetary policy and its shortcomings were revealed. The new consensus about fiscal policy is that it is effective and does not crowd out the private sector but includes the state dealing with and investing in people's health, productivity as well as infrastructure and supporting industrial development. The US is on the edge of a bipartisan agreement on a huge investment in industrial policy. Part of it is linked to it feeling that China is acting unfairly, but the measures are very much classic and traditional industrial policy measures.
It has shown that large levels of government debt are not necessarily a constraint on GDP growth and development. It is how effectively governments spends its money and how much waste and corruption there is, needs to be taken into account. The overall lesson and what has happened is that the pendulum has swung back to a situation where a larger role for the state is foreseen.
Lastly, even though liberalisation policies have spoken about a smaller role for the state, this has not been happening due to all the financial crises which have taken place since the 1990s – the Asian financial crisis and the global financial crisis, amongst others. The role of the state changed to stopping and regulating crises from not happening and regulating capital markets to one where it did not regulate and cleaned up and locked up after the crisis. In fact, there has yet to be a proper recovery since then. He thanked Members for the extra time and apologised for taking too long.
The Chairperson said the content was too much for the allocated time but it was very good input. He thanked the Director and his team.
Mr D Ryder (DA, Gauteng) noted that PBO said that it would be helping with the South African Communist Party (SACP) Centenary function. The comparisons the PBO made in the briefing were very one sided and it did not make sense to compare those countries the way it did. The Committee should at least hear different sides of the story. PBO's independence was called into question in the content it had presented. Slide 10 shows what happens when the wrong people get into power as during Jacob Zuma’s tenure and the effect on the economy.
The point was made that economic growth is not development. It is not, but it sure as anything is an indicator of development and gives one the tools needed to create development. It is not the only factor that should be taken into account but it is central to what development is about.
There was a comment that FDI did not materialise but not why. There was no mention of policy uncertainty and its impact. One also needed to ask why local operations have taken their business off-shore. It is because the state has started to intervene and to manipulate.
PBO made no mention of corruption and no mention of electricity capacity. The state which runs electricity supply is unable to keep up with demand. It may only be a perception, but there is the perception of labour law concerns that is a huge hurdle and prevents FDI. Linked to this were the increased compliance costs and red tape in a government that is trying to take over more and more functionality. The red tape it has brought made it difficult for people to start small businesses and to have those businesses thrive. He requested that PBO give a presentation on how many entrepreneurs have started small business and their failure rate. A survey on these entrepreneurs about why they think they failed would be useful.
He pointed to the reputational damage from State Capture which was a massive hurdle to economic development and growth. It has meant that any FDI South Africa was hoping for has been taken off the table because people are not sure that their money will be safe in South Africa and who they will need to bribe to keep their business here.
He was furious about the PBO presentation; it left a bad taste in his mouth. The Committee keeps discussing the role of the state and then points fingers at the financial institutions. Whilst it was the banks that helped the economy in the financial crisis through their own internal regulations.
Mr S Du Toit (FF+, North West) asked if there were graphs projecting what inequality would have looked like if State Capture had not happened, if the high levels of ongoing fruitless and wasteful expenditure had not happened and excluding the effect of talking about expropriation without compensation. It seems as if the top percentile of the economy are begin referred to as over-spenders, when in many instances, they are involved in job creation. Population growth in income groups was not taken into account – what are the effects of population growth in both low and high-income households because it was a controversial topic. Most research asserts that lower income groups tend to have higher population growth. This will obviously have an impact on inequality in a country.
Mr Z Mkiva (ANC, Eastern Cape) asked if a more organic approach to policy direction could be followed rather than an academic one since South Africa is predominantly a rural country. He feared that its policy is flying over the heads of the people in the country.
The Chairperson said that he could not stop anyone from saying what they want to say provided they follow the Rules of Parliament. He did not understand what Mr Ryder was saying about the SACP Conference and their call for papers. He chuckled saying that he frankly had no idea what this had to do with what the PBO was saying. Mr Ryder was honestly out of touch with Communist Party thinking. He had never heard such 'sound and fury signifying nothing' coming from a Committee member.
How this briefing meeting came about was during the joint committee meetings on the 2020 MTBPS, the PBO mentioned that many stakeholders such as the IMF and World Bank were saying that the state should play a more active role in the economy, particularly due to the calamity that COVID-19 has created. If one looks at Joe Biden, he is hardly a Communist Party member, he is a middle-of-the-road social-democrat party person or what one might define as a fairly decent conservative liberal in this country and not even a far left liberal, but someone in the middle. To give an example, he asked what the British government is doing under a fairly conservative neo right-wing, in his opinion, Prime Minister. The PBO had said that there is a change in stance in the IMF and World Bank about the relationship between the state and the economy.
At that stage, the Committees could not deal with this matter, so agreed to be briefed on this later and he did not remember anyone objecting to it. Even if someone did, the majority would make the final decision as in any democracy and any committee in Parliament. All that was needed was to find a date on which both the National Assembly Committee and the Select Committee could meet. However, the Select Committee could not keep on running after the NA Committee which was busy with Bills. As it happened, this Committee had a free slot today, and the v National Assembly is not sitting. All the Committee is doing is implementing its resolution and the PBO was asked to brief the Committee on these views. Whether one is on the far right or far left, it is best to have a number of perspectives. The PBO was not asked to give different perspectives on economic growth, but was specifically asked to take forward what it had said to them, which was one particular approach and not a multiplicity of approaches.
The ultimate reference point was the IMF, the World Bank and multilateral institutions – certainly not the SACP, who would be unlikely to support that approach. It might be taken a bit further by an individual within PBO, but they were intellectuals and this made sense. It was not desirable for the PBO to be filled with many Dr Jantjies, but a diversity of views was welcome. The PBO had done exactly what was asked of it by informing the Committee on what is going on globally. He personally did not have the time to read all the documents and he would rather get a summary from the PBO. The PBO's job is not to tell the Committee what to do, and therefore it had nothing to apologise for; but had to answer Mr Ryder’s questions to the extent that they were relevant.
The Chairperson said that what Mr Ryder was doing was forcing the PBO to enter into certain narrow political terrains. He was befuddled by what Mr Ryder was saying about the 2008 financial crisis which was the first time that the state intervened to rescue the banks – the banks did not rescue themselves. Perhaps this was Mr Ryder’s view and he should present on how the banks rescued themselves. Even right-wing liberals agree that it was the state. If it was not for the injection of taxpayers' money into the economy, how would the banks have been rescued in the US economy.
The PBO did as it was asked. As a whole it presented too much content. Overall, it did much better than its previous presentation where it used a lot of difficult and complicated language. He thought this was a refreshingly different approach. Members could disagree, however, most of the things PBO said are actually government policy for now. This did not mean the ravages which Mr Ryder spoke about of corruption and incapacity of the state. There was no choice but for state intervention, given the widening, mostly racialised inequalities.
The country is hitting a racial time-bomb because the prospects of growth are so limited and the consequences are borne disproportionately by the poorer strata across all communities, whatever the racial background. About 30% of people he sees begging at traffic lights are white. In his home town, people are at every traffic light late into the night even in winter. He asked what this said about the country. There is white poverty too. It was never the aim of the ANC it for there to be white poverty or any poverty; so, the poor whites are also the responsibility of this non-racial government.The fact of the matter is that it is disproportionately African and so-called ‘coloured’ people, who are bearing the consequences of COVID-19. There is no country in the world that he knew of with such huge inequalities. There was a racial time-bomb and it was ticking. The State must intervene.
Much of what the PBO was saying is in the editorials of the Financial Times. The SACP's critique can be found on its website, for anyone seeking that out. It was unfortunate that there were not more Members present, but there was nothing he could do about this due to the way the NCOP managed the programme. PBO took on too much by including 4IR and energy which both needed to be separate topics.
He thought the Committee needed ongoing classes with proposed topics to be presented by the PBO. He exaggerated using hyperbole saying a topic could be, ‘The private sector is the panacea for all the ills of society,’ and a position could be given on that. The point of this discussion was intended to be more of a technical education rather than a polemical discussion between parties.
Dr Janjties replied that the PBO was trying to show that there actually has been convergence on the role of the state in the economy. There is evidence out there and it is not as if PBO is making up its own story. He had added a link to an article on a US fiscal bill where both Democrats and Republicans have come together because both realised the benefit of this new fiscal plan.This convergence is happening globally. Such evidence is very important to him as one of the commitments he had made when appointed was that the conversations PBO engages are largely evidence-based. He tells the PBO team always to refer to evidence in the points it presents to Committees. It would provide the Committee with relevant and useful information which helps it to hold government to account. Therefore, its view is not one-sided but is global.
Another point was the PBO briefings try to spell out items clearly. He has tracked over time that sometimes Members mention there were gaps when those items had been raised in the presentation. Mr Ryder said that incapacity was not mentioned yet it was emphasised throughout the presentation. He mentioned corruption and expenditure composition yet PBO had stated that even if government spends money, it will not lead to the fiscal multiplier required if it wastes that money. He pleaded with Members on this point as it has happened a number of times.
Mr Mohamed replied to Mr Mkiva’s point about rural areas. He acknowledged that this is an area PBO does not give a lot of focus on as it focused on macroeconomic perspectives. He hoped it would be an area it would be able to do more work on and include in the future. This point was well-taken. The question spoke about implementable policies. PBO was not talking about policies that could be implemented, but it simply tried to speak about the South African economy and why PBO thinks there has not been adequate investment plus speak to the role of the state and draw on lessons from other places in the world. It tried to simplify the presentation as the Committee noted, but got carried away in trying to give too much detail and he again apologised for this. The PBO came into the meeting to explain the South African economy, and not to take a specific pro-state, anti-state, pro-market or anti-market perspective. A lot of its efforts were to show nuance, explain the structure of the economy and not to take sides.There have been a lot of shifts since 1994 with a shift towards corporate social responsibility. This may not have been mentioned but helps to give an understanding as to what has happened. In this discussion, Mr Mohamed thought it was important to look at things from a more nuanced and sectoral perspective.
Mr Mohamed agreed with the view that corruption, wasteful management and inefficiency of the state have been a problem that seriously affected the state’s ability to deliver and support infrastructure investment. SOEs are a serious indictment. However, looking at what has happened across the economy in different sectors, then one can understand that not all sectors are equally affected and many sectors, such as finance in particular, have managed to grow within this kind of an economy, and this is seen globally in this and other sectors too. These sectors have invested more and depending on how you measure it, they have added more value. They have not increased employment much, but their footprint in SA and other countries with similar problems with corruption, these sectors have nevertheless grown. There was a need for nuance in understanding the role of corruption.
Empirical evidence over a long period shows that FDI is attracted to opportunities for profit and growth, whether in mining, manufacturing or other sectors. The fact that so much of offshoring and outsourcing went to China and other economies proves that FDI is less ideological than one would think. The effort to develop businesses, mines and manufacturing enterprises shows that corruption levels do not necessarily keep out FDI. Some businesses, especially in mining, seem to be attracted to states like this, including India. Some of the talk about the resource curse refers to mining should bring in resources to reduce poverty yet it tends to make a society even more unequal and brings more problems. PBO was not approaching this from the ideological perspective that Mr Ryder was pointing out.
A lot of the discussion on the state was drawn from mainstream economists. Within the mainstream, you have economists on the far left and the far right, but many of the economists he draws from are more middle of the road – some being social democrats and some being slightly less so and include people such as Lawrence Summers and Paul Krugman. Mr Mohamed said he came into this job after teaching international finance, macroeconomics and development and he is more familiar with the mainstream discourse and writings. Things outside of the mainstream are not often even taught. Keynes asked in the 1930s the question of when markets run wild, how to save capitalism from capitalists, especially the financiers. What one sees around the world is this situation but also the response to a global pandemic and realising that the role of the state has to increase. Generally pro-finance and pro-business mainstream publications are actually saying very similar things.
The views of the IMF and World Bank may even be to the left of that in calling for a larger role for the state and redistribution of resources and it is even speaking about a minimum corporate tax and now there seems to be a move by the G7 to do this. Inequality after the global crises increased due to lack of employment opportunities and there is no doubt that the President Zuma years, with the corruption and the undermining of SOEs, contributed to this. On a macro-economic level, the productive investment to create the engine for growth across the economy in primary sectors from mining to agriculture, forestry and fishing is not seen. There is old capital stock and declining levels of capital stock, which affects services provided. The levels of inequality then affect this. We often think about corruption as a cause for poor growth, but lack of investment and opportunities can actually be an incentive for corruption, especially where people may already be corrupt as this allows them to become more corrupt. The levels of dependency grew when more people became unemployed and as the population grew.
Population growth and poverty
This issue is a sensitive one because growth and development correlates with people having fewer children and investing in education. He would not say that population growth is the cause for growing inequality. The levels of growth and inequality have been such that there are deeper structural and systemic problems that population growth causes.
Skills, education and capabilities
There is interesting literature on the de-industrialisation of Britain from the 1980s as well as other countries in western Europe that had drops in industrialisation and manufacturing. There is one important exception to this that can be used as a counter-example – the socio-democratic countries like Norway and Sweden are an important counter-example. This raises questions on the causation between lack of education, poor education outcomes and skills and the literature gives one the sense that de-industrialisation actually causes better education and skills development outcomes. This is something that has not been a part of the South African discussion
Dr Jantjies said that PBO would end its briefing there. Due to time constraints, some points have been left out, but it would appreciate a further opportunity to communicate with the Committee.
The Chairperson said that over the next two weeks, Members can suggest what it wants to include in its educational programme for the year whenever it has an empty slot.
The Chairperson noted that the NA Committee had finished the Financial Sector Laws Amendment Bill but, unfortunately, it was not yet approved by the National Assembly. The Select Committee would get an informal briefing on it on 15 June as it cannot proceed with it in terms of the Rules as it needs to wait until the Bill is formally referred to the NCOP.
He thanked all present and adjourned the meeting.
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