EFF, New kid redefining economic movers (Part 1)

My first impression of Economic Freedom Fighters (EFF) founding manifesto took me to my years as an economic student, to a lesson in the history of economic thought. A group of 18th century French economists developed an economic treatise called Physiocracy. Physiocracy is derived from the Greek for "Government of Nature" and its an economic theory developed on the believe that the wealth of nations was derived solely from the value of "land development" and that natural resources should be highly priced. Physiocracy is perhaps the first well-developed theory of economics. 

EFF architectures reading this article may disagree with my take, as I assume also, that their ideas are based on Utopian Socialism. Physiocracy as a forerunner of many economic theories forms also the foundation of the latter. Understanding the role of the three economic movers it will make it easy to also understand how, they plan to grow the economy once they are in power. The table below was developed by French economist François Quesnay in 1758

Physiocracy recognizes three economic movers. The "Proprietary" class consisted of only landowners. The "Productive" class consisted of all agricultural or land related laborers. The "Sterile" class is made up of artisans and merchants. The flow of production and/or cash between the three classes starts with the Proprietary class because they own the land and they buy from both of the other classes. The process has these steps (consult Diagram 1)

The Proprietary class (Government in the case of EFF) is primary consumer of food and crafts and produces no product at all. His supposed "contribution" to the production process is the redistribution of land rent the land user pays.

THE productive Expenditures are employed in agriculture, meadows, pastures, forests, mines, fishing, etc. to perpetuate riches in the form of grain, beverages, wood, cattle, raw materials for the handicrafts, etc.

The sterile Expenses are made upon handicraft products, housing, clothing, interest on money, servants, commercial expenses, foreign commodities, etc.

EFF IDEAS FOR ECONOMIC GROWTH 

"As a decisive way to fundamentally transform the South African economy for sustainable development, the following sectors and matters will be handled and responded to in the manner described below. All these interventions are centred on the 7 cardinal pillars for economic freedom in our lifetime. These pillars should inspire the EFF-led economic emancipation movement towards realising and consolidating economic freedom in our lifetime."   Quote from the Manifesto

1) Expropriation of land without compensation for equitable redistribution.


As in Physiocracy by defining Land as a primary resource it does make it, important to create central management of the resource. The tenets of this exercise are more revealing:

• EFF’s approach to land expropriation without occupation is that all land should be transferred to the ownership and custodianship of the state similar to the Minerals and Petroleum Resources Development Act (MPRDA) of 2002. The state should, through its legislative capacity transfer all land to the state, which will administer and use land for sustainable-development purposes without compensation.
• Once the state is in control and custodianship of all land, those who are currently using the land or intend using land in the immediate will apply for land-use licences for a maximum of 25 years, renewable on the basis that the land is being used as planned. 
• State custodianship of land will mean that those who currently occupy land should apply for licensing to continue using the land and should clearly state in the application what they want to use the land for over a period of time. 
• In line with the Freedom Charter and a new vision of agrarian revolution, the state should also provide implements and related extension services to help those who work the land to use it productively. Furthermore, the state’s procurement of food should prioritise small-scale farmers so that small-scale farming becomes a sustainable economic activity for the majority of our people. 
• Food production, packaging, transportation, marketing, advertising, retail, and trade should constitute one of South Africa’s biggest economic sectors. With a growing global population, and the growing capacity of Africans to buy food, South Africa needs to produce agricultural output through provision of subsidies to small-scale farmers, and open packaging and retail opportunities for these farmers. 
• A structured state support and agricultural-protection mechanism should be applied to all food products, including beef and other meats’ production and processing. 
• With a clearly defined and well-structured mechanism, South Africa, which is, oddly, a net importer of food, can realise the development of the food economy in a manner that exceeds Brazil’s. This will add sustainable job creation, not the kind of short-term jobs created through infrastructure development.

My primary analysis of this pillar will not be concerned much with how land is re-appropriated but more on whether or not it worth doing it. If growing the economy is the primary goal of the exercise then it makes it important to understand the value Land is currently contributing to the GDP and if the current productive activity can be improved and thus justify the tenets above.

The agricultural industry contributes around 10% of formal employment, relatively low compared to other parts of Africa, as well as providing work for casual labourers and contributing around 2.6% of GDP for the nation. According to the World Wide Fund for nature the Climate­soil combinations leave only 12% of the country suitable for the production of rain­fed crops. With only 3% considered truly fertile land, South Africa falls short of other countries, such as In­dia, where arable land covers 53% of the country. Most of South Africa’s land surface (69%) is suitable for grazing, and livestock farming is by far the largest agricultural sector in the country

So if the motivation is to start an agrarian revolution, there are limitations to the extend to which the revolution will be realized. The Brazilian arable land as the comparison above says is 31.3%, which is 71930000 hectors compared to South Africa's 15860000 hectors.

      

However the EFF has a point when its considered that in 1994, 85% of the land was owned by state and today over 50% of land is owned by 10% of the population and this occurred in the tenure of a black government. Also the productive use of the land has been reduced with only 30 000 active commercial farmers owning the 10% today compared to 60 000 farmer producing on Government land before 94'. So I believe more can be done to improve levels of productivity and EFF has a point to some extend.


2) Nationalisation of mines, banks and other strategic sectors of the economy.

• Owing to the character of the South African economy and the aspirations of the people for economic freedom, state ownership and control of strategic sectors of the economy should be the foundation for sustainable economic transformation in South Africa. 
• The ownership of mineral wealth should be considered through various means, prime being the expropriation of the current minerals-production processes in South Africa, and the commencement of extraction, processing and trade on new land.
• Nationalised mineral wealth will in effect constitute a very firm basis for the beneficiation of these products in both heavy and light industrial processes in South Africa.  
• Minerals and metals beneficiation will constitute a very firm, sustainable and labour-absorptive industrial process, which will feature both import-substituting and export-led industrialisation. 
• This process should conspicuously be coupled with an effective skills-development, training and education strategy, which will directly feed into a growing industrial and manufacturing process. 
• Certainly, the nationalisation of minerals and metals might ignite international condemnation by global imperialists, institutionalised in the World Bank, International Monetary Fund, and, notably, the World Trade Organisation. 
• The benefits of nationalising strategic sectors of the economy will include, but not be limited to, the following realities:

• An increased fiscus 

• More jobs for our people because state-owned and controlled mines will increase the local beneficiation and industrialisation of mineral resources.  

• More equitable spatial development because state-owned and controlled mines will invest in areas where mining is happening. 

• Better salaries and working conditions in mines.  

• Greater levels of economic and political sovereignty. 

• It is important to highlight that, as part of this programme, the transfer of wealth to the ownership of the people as a whole is not limited to mines only. 

• The EFF-led government will establish a State Bank, which should be accompanied by the transformation of the financial sector as a whole, particularly banking and insurance industry practices and norms.  

• The EFF will limit foreign ownership of strategic and monopoly sectors. 

The question of mining and the suppose contribution to fiscus, is particularly  a challenging one. Here is a quick fact about mining in South Africa. South Africa is one of the world's leading mining and mineral-processing countries. Though mining's contribution to the national GDP has fallen from 21% in 1970 to 6% in 2011, it still represents almost 60% of exports.The mining sector accounts for up to 9% of value added.The services sector constitutes the largest portion of economic activity at 64.9% of GDP. Not elevating Services to a similar level of interrogation is also the case with Government's prioritization of Industry which contributes 32.1% to the GDP. This ommision may mean in both cases of the ANC and EFF its still not clearly know what should be the economic focus in the current climate.

I remain curious without being dismissive about       

1.  Is the intention to grow the sector and there by grow the GDP contribution? or is the idea to turn operations into redistribution vehicles where the current bonuses of mine bosses and owners is redistributed to staff members as salaries and government through management fees?
2. Do we assume that such a maximising model will work because its modeled around other ideas from across the globe or do we envisage an indigenisation model where government owns with the private sector mines?
3. Why is it that Nationalization can deliver under this model versus the current state. Markets still determine commodity prices and as such global commodity demands. With the envisaged spoiling of international relations with imperial organisations, what would be the strategy to ensure that the demand remains consistent?  

On the SA Reserve Bank, it does not make sense that in a country where very few trading is happening over the counter. SARB stocks are only available over the counter and shareholder willingness to sell is the only, way people can buy the stock. Also being 1 of 7 privately owned central banks in the world shows that we are out of sink with the world. The nationalization of the SARB is overdue and I agree with EFF.

The labour environment in the mining sector has been hostile and there is no grander shame in the 20 years of Democracy like the death of miners in Marikana at the hands police for protesting against working conditions. Not withstanding other factors at play. The lives of South African miners have been sacrificed for the profiting of a few over a centuries and there are overdue reforms in the sector. It also does not booster well for the sector that it has failed to hold its self accountable to a charter on empowerment that it developed for itself.

On Beneficiation and on producing the Artisans to beneficiate natural resource. I must admit I am a fan of the Precious Metal Act of 2005 and the subsequent establishment of the South African Diamonds and Precious Metal Regulator. This organisation is turning the tide on building the beneficiation value chain and on the inclusion of Black people on the process. Maybe the scale is too low to dent perception but the model is admirable from licensing programmes, to access to raw materials from all mines through a government trading company and also to assistance with selling the final product. Any new policy direction should add to this, but don't undo it.        

3) Building state and government capacity, which will lead to the abolishment of tenders.

• For a successful state that seeks to drive real economic and industrial development and provide better services, an inspired, skilled, and well-compensated public service is required. 
•  This should, essentially, be a state that has the capacity to marshal all progressive social forces in society, particularly the working class, towards developmental objectives. 
• The state’s capacity to perform these functions will entail that the public service and its servants be properly maintained, serviced and adequately remunerated at all levels. .
• A strong developmental state should necessarily have political power and technical capacity to give developmental mandates to state-owned enterprises (SOE) and private corporations.
• As concrete steps forward, which the state should initiate, establish and give strategic and financial support to, are the following:
• These state companies will be buttressed by state ownership of critical parts of the value chains in which these companies operate.
• Within this context, the state will employ engineers, quantity surveyors, project managers, and builders for sustainable tasks. 

Bureaucracy has been the undoing of the ANC and even the hated NDP start by making this and important requirement moving forward in South Africa. The role of SOE's in growing the South African government is important. Infact I believe that in their current state they are utilized. Consider the following challenge:

OVER a third of Africa's 1 billion inhabitants currently live in urban areas, but by 2030 that proportion will have risen to a half. According to a recent report from UN-HABITAT, the United Nations agency for human settlements, the population of some cities is set to swell by up to 85% in the next 15 years. The most populous city in 2010, Cairo, will grow by 23% to 13.5m people. By 2025, however, it will have been overtaken by both Lagos (15.8m) and Kinshasa (15m). Food and water shortages, poor infrastructure and a lack of housing are among the problems faced by governments during such rapid urbanisation. Progress in meeting these challenges would be shown by a fall in the proportion of slum-dwellers, who currently account for 70% of urban inhabitants. 

This challenge is one of a few examples of how the capacity grown in South African SOE's should be shaping the landscape of the continent. No one in the content knows how to provide clean water to cities like Rand Water in the entire continent for example and this is similar to the work Eskom and Transnet are doing. That capacity I believe is trade-able and something should be said to how our national SOE's could be African assets. So there is room to reconsider their role and capacity to create opportunities for exportable competence from South Africa, thus creating more new jobs. 

The ANC has an opposing policy around Tenders and it calling for 75% of procurement by Government to be done from South African business. This capacity is shifted to state owned entities in the EFF position and thus Small business in the tender space are absorbed by government owned entity. I must admit that I am an entrepreneur and inherently a fan of the SMME development and the tender system. I cant claim to be in favour of a system that undoes them by burdening government further with responsibilities that could be decentralised through SMME. 

In the second part of these article I will look into details on the second half of the Pillars. To summarize my views of the first half,I have to admit that some of the ideas shared by EFF are different and they can proudly rebuff the ANC criticism that there are no new ideas. As to whether their ideas can rebuild the economy and make the country a better place? That question will be hard to answer immediately, radical ideas that almost call for reform on all aspects of the current status core without seeking first to understand it are hard to figure how they would plug into the future. 

What is clear though is that there are existing realities in South Africa that give voice to these views and they have application to the nations future. In the next half of the pillars the party defines a social state they would like to build, and critical around it is the question of Education and post high school education. This will resonate with many South Africans and I don't believe for a second that it has to do with South Africans being gallable but I believe it has to do with how as a country we define life chance. 

I am writing in my capacity as a voter with no attachment to any political party or media House. 

The Thinker!

The GDP Election Poser

Addressing the a New Age breakfast, President Zuma under pinned the ANC manifesto for 2014 with the promise below: 

"One of the key achievements of the past five years has been the development of the National Development Plan.  The NDP proposes that the unemployment rate should fall from the current rate of about 25 percent to 14 percent by 2020 and to 6 percent by 2030. This, states the Plan, requires an additional 11 million jobs. We should all be mindful of the fact that such growth will require an average annual GDP growth of 5.4 percent."

On the ANC's 2014 election manifesto - Jacob Zuma

There is no doubt South Africa needs economic growth to achieve the promise of democracy. The issue should decide the 2014 elections. The ANC challenge is that most parties have no new ideas on the table to address the challenge. What I can confirm though is this, the current trend of GDP is far worse than 2008 before the peak of the recession and the quarterly number continue to show, the trend is still down.

The ANC over promise  

It is an ambitious but commendable idea for the ANC to embark on a 2030 plan to grow the economy by 5.4%, for three reasons which I will share below:

1. Trading Economics issues long term forecasts with analysts expectations and technically projected using an Auto-regressive Integrated moving average (ARIMA) model. First, they model the past behaviour of a time series by using vast amounts of historical data. Then, they adjust the coefficients of the econometric model by taking into account, analyst’s assessments and future expectations. From these economic the projections of GDP growth, the forecast looks very gloomy. The number is 2.48% GDP growth by 2030, only countries growing at around 4.2% now will reach the desired 5.4%
2. The NDP is an elaborate programme which is founded on ten pillars and the first half requires a Social revolution unprecedented in South Africa. This is even wider than the anti-apartheid movement. South Africans needs a new conscientious of their role and responsibilities in the new South Africa. Such a social compact will take time to build in the absence of immediate economic relief.
3. The magical word in our politics is New ideas. Who has them and can they bring the desired economic growth. Here is a quick scan of the Economic ideas as proposed by the ANC, in their manifesto. (in later articles I will explore other party manifestos). Through these policies I am trying to locate the magic idea that South Africa's fortunes will be change by.  

ANC Top Ideas to grow the Economy

• Establish capacity in the state to do long-term planning, drawing where necessary on expertise that exists in wider society.

This is particular interesting considering the Midterm budget speech in 2013, where the Minister of finance lamented the use of consultants in the public sector and the Auditor General call annually to reduce such spending. So this manifesto promise means the ANC has a new consultative process in mind to lookout for. This has to be encourage though, in the past 20 years, our scenario planning as country has been bad, to an extended that we are still producing wrong skills from our institutions versus the opportunities the economy is creating.

• Promote local procurement by directing the state to progressively buy at least 75% of its goods and services from South African producers and support small enterprises, co-operatives and broad-based empowerment.

I have always been a fan of the tender system, precisely because as an entrepreneur the platform has always been my easiest access to capital for my other ideas. This is a common reality to many. However the DA lament and perhaps to an extend an AgangSA one has been the Government assuming this role and not charging the private sector with a similar burden to service their needs. The primary and missing cohesion in South African economics in the effective management of Nedlac, it is way overdue and we need a new compact between labour, business and government to shape a common future and to reduce the amount of strikes we are getting and labour market volatility. Government cant do it alone, lets task business and let not fear or protect it.     

• Accelerate the roll-out of the massive economic and social infrastructure programme “ especially in energy, transport, ICT and water “ to unlock economic opportunities, create jobs and improve people's quality of life.

There is not doubt that Infrastructure development is an area this economy is going to grow on. With the country at estimated 1.3 Trillion backlog this is where the jobs are going to come. I have five questions that I believe are lost though in the ambiguity of the statement:

Financing: The NDP says 10% of the GDP will be allocated to these projects. That is commendable, save the highway project in Gauteng has an outstanding bill and its an infrastructure project, which remains open ended. So: 

• How are the relevant government institutes tasked to build infrastructure? 

• What happens to the potion of GDP growth accredited to private business contribution, who invests that portion into infrastructure development? 

• How do past projects such as the Gauteng Highway project benefit from such future programmes?    

• In the case where GDP growth remains slow, do we abandon the project or do we finance through debt again and add to the deficit?  

Projects: I am a fan of Broadband communication and to the idea that anyone with access to the internet is a lot more empowered than where they stay or what the ate. So what happened to the Broadband project and how far are we from implementing it. Also what happened to Universal Access projects in rural places, at some point Universal access was an ANC policy driver resting with ICASA and now its gone cold. How can we empower the youth in rural areas if their level of access to information is not on par with their peers across the country.

Priority: What is the primary infrastructure project that we need to execute to create jobs. Where are starting?     

• Empower, educate and create jobs for youth through job placement and internship schemes, allocating 60% of employment in infrastructure and other projects for youth, and promoting youth employment and training incentive schemes.

The youth employment challenge is a pressing one and the EFF is on record to saying the ANC has adopted Neo-liberal idea from the DA to overcome the challenge of youth unemployment. Youth Wage subsidy has come under scrutiny and criticism by proponent of protecting the working class. There is room for the ANC to explain further the idea around this manifesto promise but here are Economic game changing ideas that I would like to share around this subject:

1. Youth education and career planning do not start after high schools. In a knowledge development system we need to grow our citizen to add to the economy we are building. We should be able to direct the population from primary school to areas of interest they could develop careers into. For a long time the system has been about delivering education in a given year, surely we deserve that, it now becomes about producing productive members of society.
2. Township based fully licensed community universities. I believe we have shot our-self on the foot for divorcing access to tertiary education from tertiary Institutes. Access in this context define our ability to attend tertiary education because we can travel to it and its affordable. Tertiary institutes receive 50k applications and take only 10k like UJ in 2014, this must be burdening to our ruling party that the rest have no access, even if they can afford it because the opportunities are limited. Bring back community colleges and force tertiary institutions to license community centers for their programmes. Its a quick win.
3. The management of Youth Entrepreneurship should form part of an education process. The is no single clear agenda for youth entrepreneurship in SA. Here is evidence, no youth can access a loan facility from banks and even from the NYDA without satisfying NCR regulations. When a young person starts a business they are viewed and considered as adults.
4.  The University dropout rate is high among black people and there is no study or proposal to manage it. 
5. If the assessment process still requires in-service opportunities, how are we going to achieve this when its already hard to get our FET learners to complete in-service hours in the current environment of mistrust between the private sector and government   

• Promote investment and access to credit in the productive economy from the financial sector, including development finance institutions, through bolder and far-reaching reforms.

I agree this would be a great move. South Africa has failed to attract Direct Foreign Investment(DFI), in fact the trend has shown that the US has become the place for money to be invest over the past ten years. Cheaper assets after the recession may have something to do with it. However South Africa has remained a good destination for Speculative investors and our Stock Exchange has continued to enjoy the attention of multinational investors. The bold reforms proposed here will have to take in mind these very ideas. Firstly that we do not alienate FDI and that we still maintain the discipline necessary to manage Speculative investors. The Adcock Ingram and Walmart deals may suggest that SA is not a great destination for foreign investment. The long drawn out process on both deals with a government agency at the centre with each may create a wrong perception.

 The second part of the position is on how, do we define productive economies (historically being the manufacturing sector), I remain uninformed. The EFF would argue for Land, AgangSA for SMME's and the DA for Big business participation, there is room for clarity there. However on the historic assumption that our Industrialization policy has already defined productive economies, what happens to those left out like services sector?      

• Consolidate the public works programme, creating six million work opportunities by 2019. Many of which will be of long duration.

The success of the public works programme is genuine and it will continue to make an impact. The nature of jobs, I assume they are not as envisage on the youth policy point. These opportunities are by nature very short-term and some may fail to satisfy the COSATU definition decent work. A number has been attached to the EPWP before by the President and the debate as to whether He delivered the number was never settled, hence I would rather put the 6 Million jobs target on all programs I am implementing, not just on the public works programme.      

• Investigate the modality for the introduction of a national minimum wage as one of the key mechanisms to reduce income inequality.

Minimum wage modality as the position says, are hard to decide on. Last year the minister of Agriculture had a challenge in the Western Cape harvest on the subject and the Minister of Labour had to intervene and even then for a good five minutes it was easy to assume that they contradicted each other. Thus I like the idea of a national minimum wage, its how it will be sold that would like to see. The youth wage subsidy was hard enough to sell to labour, this may just be harder given the post Marikana era, where the minimum wage for drillers was high.

• Enforce measures to eliminate abusive work practices in atypical work and labour broking.

I am not sure if the ANC has promised to cancel Labour broking from this position. There is an ambiguity that requires further elaboration. Although I am for better working conditions without abuse.

• Promote decent work and strengthen measures to speed up employment equity.

Employment Equity after 20 years in South Africa is surprisingly stagnant. I would have assumed that in the 90s we warmed to the idea of a inclusive nation. We are still lurking behind our own national convictions. In our mind this country is improving but the reality is we still need our social conscience to be educated on building integrated working place. Policing Employment Equity should be an indictment to us all.

The manifesto points covered here are on the economy, and I have failed to notice that game changing strategy that will change the current GDP growth trajectory. I am writing as a voter and not a critic and I am not attached to any news company and I hope this article is viewed as such. 

The Thinker!