Review: Zumanomics Revisited

With the celebration of 20 years of democracy and a general election around the corner, political economists are looking back and looking forward. This year JP Landman has offered The long view (read the Business Day review here) and recently Goldman Sachs published their report with the title Two decades of freedom: What South Africa is doing with it and what now needs to be done. Prof Raymond Parsons takes to this field with Zumanomics Revisited: The road from Mangaung to 2030 (buy it here).

In the first Zumanomics published in 2009, Prof Parsons edited the contributions of a number of authors and anticipated some of the issues that would be important to an ANC government headed by President Zuma. It outlined the socio-economic challenges facing policymakers and offered a range of recommendations. Since then, the global financial crisis has clearly shown the obstacles to reducing unemployment, poverty and inequality in South Africa and limited the policy room to maneuver. Growing the economy at a rate of two to three percent per annum is not good enough and in Zumanomics Revisited Prof Parsons returns with a view to how we can do better.

First there is a look back at the performance of global and South African economies. Briefly, it is the story of a recession forcing the deleveraging of private and public debt. The slow recovery has been supported by significant monetary expansion but global inflation seems to be well anchored. As economic growth picks up, this era of cheap money will come to an end and have implications for South Africa. Tapering in the U.S. and its impact on developing country currencies have recently been in the news. Prof Parsons argues that the outcomes of global changes will depend on how South Africa is able to respond and our degree of resilience in doing so. The confidence factor matters.

It is however important to distinguish between the factors over which a country like South Africa has little or no control and domestic policies. For South Africa the financial crisis has meant pressure on consumers, exporters and government finances. A small open economy will be influenced by global events, but should be able to develop the flexibility and adaptability to address new opportunities and risks.  For policy, Prof Parsons turns to the National Development Plan (NDP).

The focus of the NDP is not new and he rightly asks, why are we here again? Since 1994 there have been numerous diagnostic documents and socio-economic programmes, ranging from the RDP, to GEAR, to ASGISA, to the New Growth path, to the NDP. Good economics do not always make good politics and Prof Parsons provides some interesting political economy views of our policy efforts. He argues that the very nature of the ANC-COSATU-SACP alliance has made for a constant “tug of war” over economic policy. The result has been mixed and negative signals about, for example, nationalization or a youth wage subsidy. The question then becomes, can the NDP also overcome the challenge of implementation?

Prof Parsons classifies the challenges facing the NDP as five key deficits that need to be addressed. These are the social deficit, fiscal deficit, trade deficit, delivery deficit and the trust deficit.

The social deficit combines the obvious issues of unemployment, poverty and inequality.  Addressing these will require sustained growth, which requires improvements in education, along with the social safety net. The role of government is however constrained by the fiscal gap. In 2012 ratings agencies lowered South Africa’s sovereign debt rating.  Fitch argued that: "Economic growth performance and prospects have deteriorated, affecting the public finances and exacerbating social and political tensions".  Moody’s reasoned that unemployment and inequality increased socio-economic pressure in South Africa and this jeopardised the ability to manage economic growth and increase competitiveness. This is coupled with increased public debt, infrastructure gaps and rising labour costs. In the 2013/14 Budget the Minister of Finance again consolidated the fiscal stance and outlined plans to reduce debt levels and rebalance spending towards investment. The result is limited room to maneuver. In turn, monetary policy may come under pressure from tapering in the U.S., linked to South Africa’s sizable deficit on the current account of the balance of payments. In the meantime, it seems that South African exporters are losing competitiveness and service delivery is hampered by the poor quality of institutions.

These challenges are familiar to anyone who follows developments in South Africa’s economy, but it is when Prof Parsons relates them back to a trust deficit and the importance of social capital that the book comes to its right. He argues that we need to think more long term and trust can be built slowly. This requires leadership at all levels and business, labour and government working together. The end result can be the “social compact” that the NDP has proposed.

For Prof Parsons the key is pragmatism and action. In the final chapters he outlines the risks and opportunities facing the implementation of the NDP, from political scenarios to entrepreneurship. He examines the role of business in the mixed economy and impact assessments as a policy tool.

Finally he concludes that the implementation of the NDP may define President Zuma’s place in history. “The President has to rally the country, not just special interest groups. He needs to forge a consensus which has leverage to achieve outcomes, even a few small quick successes to build confidence”.

So can South Africa prove the skeptics wrong? Prof Parsons thinks so.

“South Africa needs a new burst of energy and effective leadership to make more things possible. We urgently need to build a national economic purpose. The battle for the future is now. Without an overall framework like the NDP at this juncture, we cannot generate an economy that will be bigger, stronger and better by 2030. A vision for 2030 provides the reason and hope on which all South Africans must build their future.”

If you are interested in the South African economy and politics, Zumanomics Revisited is required reading for your summer vacation.