Economy - SA's package of special measures
- Plaster on a great wound
25 October 2012|
The package of special measures announced by President Jacob Zuma after tripartite crisis talks last week may put a floor under SA's sovereign credit rating for now, but it falls far short of the game-changing social compact SA really needs.
The purpose of the package, agreed to by the largest business organisations, unions and government, is to instil confidence in the economy, which is reeling following the Marikana tragedy, escalating wildcat strikes and two sovereign credit rating downgrades.
The immediate goal is to stabilise the industrial relations environment. To this end, the parties agreed that the un-procedural reopening of wage agreements and negotiations with local committees must stop.
In addition, all parties agreed to act strongly against intimidation and violence. The state promised expedited prosecutions and police action "aimed at ensuring that the state is in control and visibly in charge".
At the same time, legitimate labour grievances will be attended to. Government will send a "crack team" into mining towns to address housing needs and living conditions, tackle exploitative lending practices in poor communities and address the challenge of high wage disparities that fuel resentment and industrial unrest.
To signal their commitment to a more equitable economy, the parties have called on all CEOs and executive directors in the private and public sectors to freeze increases in salaries and bonuses over the next 12 months.
The package also seeks to provide a mini-stimulus to the economy to help offset some of the drag on growth and jobs from the prolonged strike action. For instance, public works programmes will be expanded and the training lay-off scheme will be dusted off and backed by R2bn to help workers and firms in distress. In this scheme, workers attend training programmes instead of going to work or being retrenched and are paid an allowance instead of the usual wage.
This scheme has, however, had little appeal to workers and employers so far. Of major concern is that it has not been successful in the mining sector, its design making it better suited to manufacturing, where working on short time is an option.
Attorney Anton Roskam, of Haffegee Roskam, Savage, conducted a detailed review of the scheme in 2010 for the University of Cape Town. He warns that it's not a quick and easy solution and will be impossible to continue under the current arrangement involving three different ministers and departments, since this has made it "very cumbersome".
Zuma also pledged that the R844,5bn infrastructure programme will be fast-tracked and that "credible actions" will be taken to improve institutional capacity.
"It's a move in the right direction," says Pan African Investment & Research Services CEO Iraj Abedian, "but they've gone for quick and dirty symbolic gestures in place of substantive, meaningful and credible ones. These [gestures are] in no way sufficient to deal with SA's structural problems; they don't change the game."
Take the call to freeze executive salaries for a year. "Will it cause inequality to be reduced? Will poverty fall? Will unemployment come down?" asks Abedian. "No, no and no."
Far more impressive would have been a deal in which union representatives agreed not to do anything in future to jeopardise educational reform or if Zuma had announced that the ministerial handbook was to be rewritten so that cabinet ministers would be allowed to drive only B-class cars, stay in three-star hotels and fly economy class.
While the agreement not to reopen wage agreements should allow for short-term stability to return to SA's industrial relations arena, Abedian fears it will give only short-term relief. "It will mask the pain but the real issues will remain and deepen."
That is because from the perspective of new, emerging unions, the move will be perceived as an "opportunistic contrivance" to prevent them from negotiating new, better deals for workers and in the process discrediting established unions.
A genuine social pact - as opposed to just a political one - would have included many more emerging unions, as well as opposition political parties, faith-based organisations and independent, credible NGOs and think tanks.
The whole exercise was a missed opportunity to bring society together to talk about SA's deep-seated structural flaws. All it would have taken is a few phone calls to get the other key constituencies around the table.
But Standard & Poor's (S&P) MD for SA and sub-Saharan Africa, Konrad Reuss, doesn't find the package lacking as a first step to stabilise the immediate crisis. He feels that, if speedily and fully implemented, it could take some of the tension out of the situation and may even help settle SA's sovereign credit rating.
But he's sceptical about government's ability to implement the plan. It also needs to be followed up, he suggests, by a summit of all stakeholders in which they address the root causes of SA's problems, not just the symptoms.
"The situation is dire," says Reuss. "You have a lot of conflicting interests at play and a heavy political calendar at the end of the year. There are so many unknowns about which one wants clarity before one can say the situation is improving."
In cutting their credit ratings of SA over the past few weeks by one notch each, both S&P and Moody's expressed concern that the rising sociopolitical tensions in the country could result in government making poor economic policy choices at the ANC's electoral congress in Mangaung in December. In other words, that populism will trump pragmatism.
This would cause government spending to increase and diminish SA's growth potential. For this reason both rating agencies have retained SA's credit rating on a negative outlook.
Responding to the S&P downgrade, national treasury stressed in a statement that SA's fiscal plan is "realistic and achievable". There was also no historical evidence to support the notion that government would suddenly bow to populist pressures by spending more.
Standard Chartered Bank economist Razia Khan agrees, saying it's unlikely that Mangaung will usher in a radical departure from the ANC government's trademark fiscal conservatism.
"Nonetheless, we do acknowledge that [S&P's] concern that uncertainty over the likely formulation of policy alone is sufficient to act as a drag on business confidence in SA, especially when the starting point is so weak," she says. "With SA's politics being tested in perhaps the most significant way since 1994, it is difficult to see what reassurances can be given to provide confidence with a much-needed boost."
Regardless of the politics, Rand Merchant Bank thinks another downgrade by S&P will follow during the next 18 months, noting that there will be upward pressure on unit labour cost growth and a risk of job losses down the line as firms try to raise productivity in the wake of the strikes.
Weaker growth will also make it tough for government to meet its longer-term revenue projections at a time when any deviation from SA's fiscal consolidation path could be enough to trigger another downgrade, it warns in a research note.
While Zuma's social accord makes a positive contribution to stabilising the immediate crisis, it is unlikely to be enough to repair the damage to SA's reputation or keep SA's credit rating from falling further.
To do that will require that all key stakeholders find each other in the spirit of compromise after genuine introspection. It will require a degree of honest self-reflection that has so far been lacking in SA's public discourse.