EDITORIAL: The mystery of SA's missed economic growth
Proposed new powers for the authorities in the Competition Amendment Bill are a perfect example of what makes business people groan
For the past decade, the government, Reserve Bank, IMF, World Bank and a host of local banks have started the year predicting a modest increase in growth compared with the previous year. Every single year, give or take one or two, they have all been forced to revise their growth targets downwards as the year’s data progressively comes rolling in. Why have they been so consistently wrong? What are they missing?
Monday was the turn of the IMF, which slightly revised global growth downwards but took a huge hunk out of SA’s growth prospects, slashing growth by almost half. In October 2017, the IMF in its World Economic Outlook estimated that economic growth in SA would come in at 1.5% — hardly an impressive target. Instead, it’s now expected to come in at 0.8%.
The consequence is that SA is now in its longest downward business cycle phase for over 73 years. The problem is not continental growth. In fact, 10 of the top 25 fastest-growing countries are African. The problem is not emerging-market countries in general, although there are some warning lights flashing. The problem is not especially commodity markets, although they are not helping much.
So where is the problem? The IMF cites the need for gradual and growth-friendly fiscal consolidation to strengthen public finances, focusing on wage savings and complemented by measures to boost efficiency of other current spending. That means better targeting of education subsidies and the rationalisation of transfers to public entities. It talks about further reforms to improve policy certainty, improve the efficiency of state-owned enterprises, enhance flexibility in the labour market, improve basic education and align training with business needs.
This is all solid stuff, but it’s hardly new. All of these measures could have been cited a year ago, or even five years ago. They have the quality of a stuck record. Interestingly, the most blindingly obvious issue, taking land away from farmers without paying compensation, is not mentioned.
Yet, if you were looking for a reason why economic growth has disappointed so methodically, it’s worth reading the fine print in the Competition Amendment Bill before parliament. At the broadest level, there is a pretty good economic argument in favour of market inquiries to try to prevent companies from abusing their market power. How this is achieved is often tricky and complicated, but open, competitive markets generate efficiency and boost productivity. SA’s competition authorities have done some great work changing the business landscape to that end.
The Competition Amendment Bill, however, proposes a radical departure from SA’s current competition framework, which has until now been based chiefly on preventing sector domination through mergers, with some added bells and whistles. The idea now is to do that but also embark on sectoral studies — this time not with recommendatory powers but with the power to forcibly reconfigure the corporate environment.
Obviously, in some places around the world, the power of the authority to do so has helped. It’s easy to imagine the commission working effectively and scientifically to achieve this end.
Yet, look closer at the legislation and its real motivation becomes apparent. The EU — hardly a featherweight in competition matters — adopts a cautious approach, distinguishing between market share and dominance, and even then it examines the issue in terms of economic harm caused. The SA version doesn’t seek to measure the effects, but simply justifies intervention on the basis of its measure of concentration.
The economic development ministry seeks to justify this approach based on research that claims great swathes of SA’s economy are hugely concentrated. Business Unity SA disagrees with this research not only in its wide ambit but on a factual basis too.
What is being sought here is not market correction but market manipulation. And that creates an economic cost. The legislation, among so many other pieces of legislation designed on the same lines, is what is holding SA’s economy back because business people look at this legislation and groan. They know what’s going to happen; it’s going to be a mess.