STUART THEOBALD: Manifestos miss a chance to enhance the jewel in SA’s crown

There is an unfortunate lack of ideas regarding SA’s financial sector in party political manifestos. Yet the sector is the biggest part of our economy and the fastest growing. Since 1994 it has expanded from 18% of GDP to 23%. Compare that with the underperformance of the manufacturing sector, which has shrunk from 23% to 14% of GDP and those which have trended sideways such as mining and agriculture.

To the extent that anything is said about finance, it is about how it can be used to support other policy objectives such as infrastructure investment and financing small business. But little is said about how finance’s growth can be enhanced to create more jobs and businesses within it.

This is a missed opportunity. The relative outperformance indicates that the banking, insurance and associated services — from call centres to legal and accounting — are a competitive node for the country. The financial sector runs a considerable trade surplus with the rest of the world, exporting double the insurance and other financial services than it imports.

That is despite a regulatory environment that makes it difficult for the SA financial sector to fully compete with other jurisdictions that have been building themselves as global financial centres, including Mauritius, Dubai, Nairobi and Casablanca. SA’s banks, fund managers, capital markets and insurers have been losing market share to them at an accelerating rate. If we are to nurture and grow the jewel in SA’s economic crown, we need to act.

The ANC’s manifesto cites as its second priority (after creating jobs) to “build our industries” with strategies to “revitalise and diversity” the manufacturing sector. SA’s manufacturing competitiveness has been falling for 30 years and we must ask just what a manufacturing sector should look like in a world where Asia has such a significant comparative advantage.

Certainly, deindustrialisation has been accelerated by load-shedding and the collapse of other public services. But it has also lost competitiveness as China, in particular, has become the world’s factory. That is not to say we shouldn’t have smart policies on areas where can compete; green industrialisation is one obvious opportunity. But we should also have policies where we do demonstrate a clear competitive advantage, and our financial sector is one of those.

The ANC’s manifesto aims to “transform the financial sector to support employment and industrialisation” though doesn’t consider how it could embrace the financial sector to create employment directly. That can be done with some quite straightforward policy reforms, such as allowing the sector to do business more easily in hard currencies. The policies that it does advocate include those that would damage international competitiveness, such as prescribed assets (forcing domestic institutions to invest in designated investments including infrastructure and industrialisation).

Opportunities

Of course, there are some in the party that do sense the opportunities. The ANC in Gauteng has previously noted that financial services was a strength that could be tapped as part of a gateway to Africa strategy. But this does not percolate into national strategy for the party.

Do the other parties do better? The DA is similarly focused on what the financial sector can do rather than what it can be. So, it remarks on the need to develop a savings culture to support investment in the economy and the need to collaborate with the private sector to support finance such as student loans. But it, too, doesn’t consider enhancing the competitive position of the sector to create more jobs.

The EFF has perhaps the most detailed view on the financial sector, though its proposed policies would be largely catastrophic. Many state-owned banks are planned, while the commercial sector will face a string of punitive financial measures such as a forced reduction of banks’ prime interest rates by 3.5% (which appears to be based on a confusion on how banks are funded).

The EFF also plans to undermine the independence of regulators, forcing them to license new entrants among many other interventions. There is not a mention of creating jobs in the financial sector.

More sensible ideas come from the smaller parties including the new entrants. Rise Mzansi aims to support “anchor” industries to achieve higher growth rates, including financial services. This is the only manifesto to recognise that growing the sector directly can have significant benefits to the economy.

Build One SA notes, quite reasonably, that SA is rated poorly in international competitiveness rankings for small business funding and venture capital availability. It wants to fix these, which would help competitiveness and aid availability of finance for a key potential growth area of the economy.

ActionSA also aims to promote funding for small business, first-time home buyers and green projects from private financial institutions. Change Starts Now, which has since decided to not contest the elections, proposed “accessing our world-class financial markets” to finance public-private partnerships, but did not go into growing the sector.

This lack of imagination is disappointing. SA does indeed have top financial markets and institutions. They are a competitive strength that can be used not only to finance domestic development, if done right, but also create jobs, and  generate export earnings and tax revenue.

• Theobald is chair of research-led consultancy Krutham.