Old Wine, New Bottle: The Economic Reconstruction and Recovery Plan

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Trevor Shaku
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A year after government’s Economic Reconstruction and Recovery Plan (ERRP) promised to stimulate equitable and inclusive growth in order to ‘tackle the historical structural inequalities, unemployment and poverty’, it’s ‘failing dismally’ says Trevor Shaku.  

The continuity of the neoliberal economic framework

ERRP identified several areas of intervention, key enabling elements and reforms to be introduced to bring about the economic reconstruction and recovery.

These are meant to deepen and advance the vision and objectives of the 2012 National Development Plan (NDP) policy framework, which aimed to grow the economy at an annualised rate of 5.4%, reduce unemployment rate to 6%, reduce inequality to a 0.60 Gini-coefficient (which would still be among the world’s worst) and totally eradicate poverty.

The NDP was a continuation of the neoliberal dogma first laid in the economic debates during the transition from apartheid. This was implemented through the Growth, Employment and Redistribution (GEAR) policy in 1996 and continued in 2003 with Accelerated and Shared Growth Initiative for South Africa (ASGISA).

These policies are all premised on Washington Consensus policies that assume GDP growth will be a driver of social development and job creation. In reality, the low-quality growth achieved since 1996 was accompanied by extreme de-industrialisation (manufacturing GDP was nearly halved), worsening inequality, soaring unemployment and overwhelming levels of poverty which if measured properly with an adjusted Upper Bound Poverty Line would exceed two thirds of our population.

Due to these policies, government capacity to provision public goods and services was hollowed out. The fiscal framework has turned to such extreme austerity that in February 2020 with the world’s worst-ever pandemic looming, the Finance Minister cut the health budget by R4 billion and yet in 2021 he proceeded to cut corporate taxes rather than increasing them to raise tax income. The liberalisation of trade caused extreme disadvantages to domestic manufacturing, as East Asian imports (produced by repressed workers under terrible environmental conditions that externalised the cost of pollution, including greenhouse gases) led to massive job losses in this country.

Throughout, consistent with “attracting Foreign Direct Investment” (FDI) as a central policy goal, multinational companies were given all manner of subsidies: there was deregulation of finance, including the relaxing of exchange controls. All of these measures maximised both capital flight and illicit financial flows to the point where even Treasury admits that up to 7% of GDP is lost annually. Moreover the South African private sector is not to be trusted; PwC ranks SA corporations as tied for second most corrupt in its biannual economic crime rankings.

In short, trade and financial liberalisation left domestic manufacturers unprotected against multinational corporations, cheaper imports and capital flight. The result was, according to Sampie Terreblanche, the destruction of the local footwear, clothing, textile, appliance and electronics industries.

Promoting FDI remains a key element of pro-capitalist dogma, dating from Portuguese slavers and the Dutch East India Company in 1652, to the 20th century Guptas’ Sahara Computers which came from Saharanpur India in 1993, followed by many other infamous firms that have corrupted and underdeveloped South Africa. Without a sense of irony, the learned economists and neoliberal strategists still blame lack of industrialisation on the failure to attract FDI. This despite the third world which is littered with a trail of destruction in the wake of the neoliberal-inspired structural adjustment programmes, at the heart of which was FDI which removed far more in profits than were left behind.

Far from developing our countries, these companies have been responsible for the illicit financial flows that are costing Africa over R1.3 trillion annually, or the R1.5 trillion in what even the World Bank acknowledges is annual net loss from depleted mineral wealth. For example, the AIDC reported in 2019 that South Africa lost R1.7 trillion to illicit financial flows between 2005 and 2014.

Trade liberalisation optimised the conditions for multinational corporations to exploit especially natural resources of third world countries and accumulate wealth at the expense of domestic industries. The imperialist countries’ FDI was joined by extractive-industry firms from China, India and other sub-imperialist countries. This alone is indicative that GEAR, ASGISA and the NDP, and now the latest reincarnation, the ERRP, will never ‘tackle the historical structural inequalities, unemployment and poverty’ because they require attracting FDI instead of using the state to develop and protect local industries.

The proof of the failure of neoliberalism is seen in the rate of private sector investment (‘gross fixed capital formation’). The peak during apartheid was 21% of GDP in 1980, after a low point when the 1960 Sharpeville Massacre dropped the rate to 12%. Protest and sanctions hit investment hard during the 1980s, but despite very little FDI take-up after liberation, a recovery in the investment rate finally occurred from 2002-15 due mainly to the commodity super-cycle. After that, private sector investment ebbed; not even Cyril Ramaphosa’s replacement of Zuma in 2018 could nudge the rate above 15% which is below even the replacement rate (i.e., factoring in wear and tear), indicating ongoing de-industrialisation.

Instead of looking at the behaviour of industry, bourgeois economists blame the political climate and labour regulations as hindrances to attracting investment. They claim that trade unions have disproportionate powers, and that the labour market and trade are overly-regulated. Yet this is disproven because business has a supportive government and new labour laws make strikes much harder but corporate fixed investment rates keep falling.

ERRP’s appeal to foreign investors is therefore misplaced. In trying to please foreign investors, particularly via the New York credit rating agencies Moody’s, Fitch and Standard & Poors, government imposes fiscal austerity. That means expenditure on public goods and services falls, in everything that matters: education, skills development, job creation, public infrastructure, healthcare and social security.

Green economic intervention and energy production

Most importantly for future generations, we have a deficit when it comes to the climate catastrophe. And where we need to invest in renewable energy, there has been an engineered crisis at Eskom, caused in large part by sheer looting by the ruling party. This has crippled the power generator and given the neoliberals an excuse for rationalising, restructuring and privatising energy generation, leaving solar and wind at the whim of profiteers.

Plans to restructure Eskom by moving towards corporatization and then privatisation were laid in concrete terms in the White Paper on Energy Policy in 1998, and further extrapolated in the Accelerated agenda towards the restructuring of state owned enterprise in 2002. The NDP also insisted that bringing in independent power producers had to be ‘accelerated’, and the ERR plan echoes this.

President Cyril Ramaphosa has tried to please his friends in business and accelerate the dismantling of Eskom’s monopoly in energy provision, and so recently awarded private companies permission to produce up to 100MW. So, the engineered crisis and the resultant power cuts (loadshedding) are excuses to privatise energy more rapidly.

In spite of climate catastrophe and the likelihood South Africa will face crippling trade sanctions through the West’s new Carbon Border Adjustment Mechanism climate tax, the Department of Mineral Resources and Energy (DMRE) has no plan to move away from fossil-intensive energy production. In fact, government is still far behind in meeting renewable energy targets. In the NDP, they committed to produce 20 000MW of renewable energy by 2030, yet only 8 131MW of renewable energy are on track, far behind the levels we require to decarbonise in time to avoid runaway global heating.

Even more worrying are the plans to gradually phase in renewable energy through the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). Based on this, such a transition will not be a Just Transition as envisioned by civil society and trade unions, but a transition just for business. Instead of protecting communities and jobs tied to the coal industry, there will be profiteering by mainly multinational corporates which will take advantage of the state’s new-found desperation once climate taxes halt our carbon-intensive exports.

Mass employment interventions

The ERRP committed to ‘boost mass employment creation’ through various initiatives amongst which was the aim to create 300 000 teaching and school assistants’ jobs, protect 44 933 vulnerable teaching posts and support over 34 000 lives in the creative, culture and sport sector.

The 300 000 assistant jobs in schools were created in December 2020 to April 2021, and now have been opened again for 4 months from December 2021 to April 2022. This mass employment initiative is not created to alleviate poverty, reduce unemployment or address the climate catastrophe as needed. Instead, they are created to slightly stimulate consumer demand for business and are now used for electioneering towards the local government elections.

The main story, though, is austerity. The Department of Basic Education in KwaZulu-Natal has announced that attrition will eliminate 6 000 teaching posts. In the Eastern Cape, some schools have been closed and posts of teachers nearing retirement will be eliminated.

Likewise, in the creative, culture, arts and sports sectors, the National Arts Council (NAC) has mismanaged the diminishing funds meant to provide relief to artists and other creatives in the sector. The SA Roadies Association reported that 39% of the beneficiaries were not related to the arts and creatives industry. Out of 2 486 applications the NAC received by January 2021, only 1039 applicants benefitted. The corrupt disbursement of these funds has led to a protest by artists that has lasted for over 2 months.

The crises are structural

Instead of getting better, economic and social conditions for working-class people have gone from bad to worse: economic growth rate has averaged below 3% since 2012, unemployment has risen from 25% in 2012 to 34.4% in 2021 (36.6% to 44.4% respectively using the expanded definition), the Gini-coefficient is 0.63 with 10% of the population owning more than 85% of household wealth.

These figures provide graphic evidence of the failures to achieve the aims set out in the NDP. They certainly are not surprising to us in SAFTU because the fiscal and monetary frameworks are premised on limiting public expenditure.

Private businesses are concerned with profit maximization, and not reinvestment in productive activities. The real investor in infrastructure and greatest enabler can only be the state, but if its spending powers are limited by neoliberal fiscal restraints, it cannot play its role adequately as an enabler of economic reconstruction and recovery.

The inability to create jobs, eradicate poverty and close the inequalities in this country are structural. They are endemic to the distorted kind of capitalism we suffer in the neo-colonial world where multinational corporations are rapidly depleting our natural wealth.

Repackaging the same neoliberal structural framework of our economy from one policy to another, will not solve the structural problems. Like a mad man, economic policymakers keep repeating the same strategy in the same environment but expect different results.

This is because capitalism offloads and resolve problems it encounters in the capitalist centres by super-exploiting the neo-colonies. We need a substantial break, a delinking from the most destructive circuits of global capitalism, beginning by imposing urgent exchange controls and rethinking the self-destructive reliance on FDI.

References

Sampie Terreblanche, Lost in Transformation: South Africa’s search for a new future since 1986, 2012

Trevor Shaku writes in his capacity as the National Spokesperson of SAFTU.

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