Ramaphosa should allow business to drive economic recovery
US response to Great Depression shows what private sector can do amid policy certainty
The definition of insanity, it is said, is doing the same thing over and over again and expecting different results. While the source of this axiom is unknown, its cogency is undisputed. In seeking to find solutions to reverse the stagnant economic growth, gross inequality and high unemployment that have been plaguing SA since the dawn of democracy, President Cyril Ramaphosa’s efforts, including the Economic Reconstruction and Recovery Plan he unveiled in October, are to be welcomed, with some reservation.
The plan — which aims to “create jobs, reindustrialise the economy, accelerate economic reforms and crack down on corruption” — is premised on increasing investments in infrastructure projects, expanding energy generation, creating more jobs in the public and private sectors and supporting local production and an increase in exported goods, driven by localisation targets for goods.
Ramaphosa and his government should do just one thing differently: they should let entrepreneurs and business spearhead the drive.
Politically led revivals mainly try to recapacitate state-owned entities, which are generally dinosaurs that deserve to die anyway. It is like going to a morgue with a lunchbox and spoon to feed a corpse.
SA needs to rethink its approach to who should be the vanguard in creating jobs and demand. It should be entrepreneurs, not the government. The best precedent for this is the Great Depression, the worst economic crisis in history.
How many people know that the Great Depression created the largest number of millionaires in US history? Or that the depression — which lasted from 1931 to 1940 and during which unemployment in the US was in double digits — gave rise to the creation of a double-digit number of billionaire families? Or that the Great Depression — which, thanks to images of utter desperation and stories of hopelessness, is seared into human consciousness — spawned some of the world’s most enduring inventions?
Politically led revivals mainly attempt to recapacitate state-owned entities, which are generally dinosaurs that deserve to die anyway.
While it is largely thought that World War 2 and the creation of tens of millions of military and defence-related jobs is what ended the Great Depression, several economists have challenged this. They believe the war only postponed the US recovery (as it merely traded debt for unemployment), and that cutting tax rates — income taxes, corporate taxes and high-excess profit taxes — to encourage entrepreneurs to create jobs for the returning war veterans and providing businesses with incentives to expand, actually turned the situation around.
Another key factor was regime certainty. Once businesses knew what to expect, they were confident that they could invest and would be allowed to make money. The combination of these factors — freer markets, policy certainty and lower taxes — broke the shackles of the Great Depression, resulting in unemployment of only 3.9% in the US in 1946, a level it maintained for most of the next decade.
Like the leaders of the US almost a century ago, governments across Africa should set aside their long-held belief that they are responsible for creating jobs and demand. What they are responsible for is ensuring the environment is conducive to business and providing regulatory certainty. To enable business to flourish, they need to prioritise domestic investment and offer the same incentives to local enterprises that they do to foreign investors, so that locals can compete on an equal footing.
Despite the government’s prioritisation of foreign direct investment (FDI), FDI in Africa has decreased 20%-25%, and therefore solutions to SA’s challenges will have to come from locals. Once the playing fields for foreign and local investors are levelled so that African entrepreneurs have the same opportunities as foreigners, the government should ensure that the market is open and accessible to all players.
Instead of constantly shifting policies, the government should ensure that there is policy certainty so that businesses know what is required of them and can factor it into their long-term plans.
Rather than doing the same thing once again and expecting a different result, Ramaphosa should let entrepreneurs — working with the government — lead SA’s recovery from Covid-19.
• Molai is founder of independent African portfolio and fund manager TRT Investments, which has operations in Nigeria, SA, Zimbabwe, Zambia, Mozambique and Botswana and recently entered the US and European markets.
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