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Categories: Financial

Our Failing Economy: Some Common Sense Solutions

Article © CA(SA)DotNews by DotNews

Failing Economy

There is no doubt that in terms of being part of the global economy, South Africa has lost ground over the past two years or so. The currency is near an all time low and the stories in the global media have turned negative – from success story to a failing economy and a nation facing growing corruption.

The Organisation for Economic Cooperation and Development (OECD) is a credible organisation which, inter alia, seeks to assist its members by independently reviewing the socio-economic outlook of its member countries plus the outlook for economies which its members trade with.

Recently, it released an outlook for South Africa. It is hard to dispute its logic. As with many other studies, its major finding is the country has major unemployment (officially 25% but 37% if you include the people who have given up looking for work) and the high inequality that exists in the country.

Boosting Small Business

So, the first problem to solve is how to create inclusive growth which creates jobs. Their first statistic was that even though small business only employs about 20% of the economic workforce, they create 42% of new jobs in an economy. Thus, the starting point is how do you encourage the growth of small businesses? 

Relaxing regulations can kick start this. Onerous labour laws should not apply to small business, taxes should be simplified (to be fair SARS has already begun this process) plus the impact of laws should be objectively measured – for example, the hoops business has to go through to employ foreign skilled people.

Next, South Africa has a code to redistribute resources to the previously discriminated against – Broad Based Black Economic Empowerment. Why not use this to build up a nation of small black owned businesses?   

Coordination, confusion and competition

The OECD also looked at other facets of the economy. Government-owned businesses (Eskom, SAA) need more governance and less operating power – the distribution of power, for example, should be given to a body independent of Eskom. Within government and the businesses it controls there is a lack of coordination which results in confusion and poor service delivery. A ranking of all its projects and investments would show which programs to back, where to allocate resources and would improve service delivery. Investment in infrastructure is a key process in securing long term growth.

The economy should encourage more competition in all sectors.

Employment and labour relations

One good idea was to have the government launch a national portal for jobs. This process is in fact now being rolled out and should save time and resources for both employers and for job seekers.   

In terms of labour relations, the OECD suggests that both employers and unions accept a mediation process once negotiations break down. This would save considerable down time and loss of wages. This is particularly important as research has shown there is a negligible difference in wage outcomes when increases are swiftly agreed upon versus protracted strikes and labour unrest.

Tweaking taxes

On taxes, the survey suggests fewer tax deductions for individuals and companies, an increase in the rate of personal income tax at the higher levels, higher property taxes  and broadening of the VAT system.      

The framework is already there!

Finally, the OECD comments that the National Development Plan (NDP) produced under the stewardship of Trevor Manuel envisages all of the above. 

Government has committed to the NDP – now is the time to implement it.

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