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SAFTU’s response to Ramaphosa’s Economic Stimulus and Recovery Plan

South African President Cyril Ramaphosa addresses a media conference at the end of the BRICS Summit in Johannesburg on July 27, 2018, as the heads of the BRICS group -- Brazil, Russia, India, China and South Africa -- met in Johannesburg for an annual summit dominated by the risk of a US-led trade war. Five of the biggest emerging economies on July 26, stood by the multilateral system and vowed to strengthen economic cooperation in the face of US tariff threats and unilateralism. / AFP PHOTO / POOL / Themba Hadebe

The South African Federation of Trade Unions is deeply disappointed with President Ramaphosa’s  Economic Stimulus and Recovery Plan.

It is a statement of business as usual, based on the same failed policies which have caused the economic catastrophe of unemployment, poverty and inequaity, and a plan which will do nothing improve the lives of the majority of South Africans.

It in no way recognizes the depth of the crisis, revealed most recently by the fact that for the second quarter in succession, the country’s GDP – the value of goods we produce – declined. This was not what some like to call a ‘technical recession’, but a massive blow to the hopes and prospects of millions of South Africans. It will mean more retrenchments, and thousands more with less and money to spend.

The Plan however fails to reflect this nightmare for the workers and the poor. or the fact that South Africa has the world’s sixth highest level of unemployment, at 37.4%. Economist Mike Schussler has exposed the incredible fact that “South Africa is one of the few countries in the world where there are more adults not at work than adults at work”!

Fourteen million South Africans are living in extreme poverty, surviving on less than a R18 a day and we are the world’s most unequal society.

In the face of this colossal disaster, the plan consists mainly of little more than vague pledges of better things to come – “to firstly ignite economic activity, secondly restore investor confidence, thirdly prevent further job losses and create new jobs, and fourthly to address some urgent challenges that affect the conditions faced by vulnerable groups among our people”.

There is no clarity on how even these vague promises will be achieved and especially how they will be paid for. But a key paragraph in the plan is the President’s admission that “the reprioritisation of spending we are outlining as part of this stimulus and recovery plan will take place within the current fiscal framework and in line with the normal budgetary process”. [Our emphasis]

That means that no extra government money for any new spending will be available beyond the R50bn already announced in February’s budget. In real terms this means a zero percent increase!

Ramaphosa said more details on how the budget will be reprioritised will be provided when finance minister Nhlanhla Nene presents the medium-term budget policy statement, but that crucial information is only to be released about a month from now. Nene says that most of the funds for the stimulus package would be moved from under-performing departments, but has given no details of who faces more austerity, and no net stimulus.

This inevitable means that any additional money to be spent will be shifted from the budgets of other departments. We shall be robbing Peter to pay Paul.

For instance SAFTU welcomes the additional additional funds to ensure the completion of 1 100 sanitation projects in public schools in the current financial year and the funding to be made available immediately to buy beds and linen for hospitals and to fill 2 200 critical medical posts, including nurses and interns.

But if the money for these long overdue and vital improvements is taken from the already inadequate budgets for all the other areas of the education and health services, it will take even longer for other other vital improvements to be implemented.

There are other welcome steps, including trade measures to protect poultry and other sensitive sectors and a vigorous crackdown on illegal imports; there are also amendments to regulations on the travel of minors, and the list of countries requiring visas to enter South Africa, which can boost tourism and create jobs.

The federation also welcomes the plan to reduce data costs which are amongst the highest in the world, because the sector is dominated by just four big companies, who have been overcharging consumers for years. Electronic communication has become central to both economic activity and the lives of all South Africans and, as the plan says, “Lower data costs will provide relief for poor households and increase the overall competitiveness of the South African economy”.

The plan says nothing however about similar overcharging by the monopolised banking sector, or the policy of ‘import parity pricing’ which charges consumers of steel and other products manufactured in South Africa at the much higher price it would have cost to import those products.

Ramaphosa says that to reduce the cost of doing business, to boost exports and to make South African industry more competitive, government has begun a review of various administered prices, starting with electricity, port and rail tariffs”. That implies Eskom consumers will pay more, to cross-subsidise the export sector, such as BHP Billiton’s R0.12/kWh electricity, one of the post-apartheid era’s greatest eco/energy injustices

The plan says nothing about the continuation of corruption, fraud, tax evasion and money laundering in the private sector as well as the public service, which robs the country of millions of rands which could be spent to provide better service and create more jobs.

The fundamental problem with this plan is its failure to recognize the underlying cause of the economic crisis, which is the economy’s domination by the still overwhelmingly white-owned monopoly capitalist class which we inherited from the apartheid regime.

That ruling class, and successive ANC governments, have based economic policies on the dictates of the International Monetary Fund, the World Bank and their enforcers, the Credit Ratings Agencies. They have imposed neoliberal, pro-market policies which only prioritise the amassing of as much profits as quickly as possible for a super-rich elite.

Creating jobs, paying living wages, improving the lives of communities, preserving the environment and ensuring the long-term future of the country are their lowest priorities. Yet this new plan expects this class to play a central role in reversing all the damage they and their system have created.

“With a view to unlocking the potential to create more jobs on a large scale,” says the plan “we have decided to set up a South Africa Infrastructure Fund, which will fundamentally transform our approach to the roll-out, building and implementation of infrastructure projects… [that] will reduce the current fragmentation of infrastructure spend and ensure more efficient and effective use of resources. The private sector will be invited to enter into meaningful partnerships with government in this fund.” [Our emphasis]

The president said that R400bn will be leveraged from various development finance institutions, pension funds and ordinary investors, among others over the medium term to drive this infrastructure fund. “Additional infrastructure funding will be directed towards provincial and national roads, human settlements, water infrastructure, schools, student accommodation and public transport… sewerage purification and reticulation, refuse sites, electricity reticulation and water reservoirs.”

But since these can never turn a profit for financiers, the devil’s going to be in the details. And after all, the very first substantive statement about the new Ramaphosa regime’s commitment to exactly these kinds of vital investments was made by Malusi Gigaba as finance minister seven months ago, and as Business Day reported, it was simply a “savage” set of cuts in funding to exactly these kinds of projects.

South Africa is in its worst post-apartheid economic crisis. This was President Ramaphosa’s most important speech that would set the tone for his presidency. He had two choices – to change course or to double-down on the neoliberal policies of the government. He chose the latter.

The stimulus is not really a stimulus. It does not meet the definition of a stimulus of which there are two types:

1) A monetary stimulus – cuts in interest rates that provide immediate relief to households and firms. There should be an immediate cut, but yesterday, the Reserve Bank did not cut rates. There needs to be an escape clause that allows the Reserve Bank to cut rates when there is a recession. If the Reserve Bank also had a growth and employment mandate it would have foreseen this recession and cut rates long ago. The economy’s trend growth rate slumped to about 1% between 2014 and 2017. This means that there has been declining GDP per capita over the past four years.

2) A fiscal stimulus, which involves the injection of new money into the economy. A UN study of 48 emerging markets in the wake of the global financial crisis found that that there was an average fiscal stimulus of 4.5% of GDP. Even a fiscal  stimulus of 3% of GDP would translates to about R500bn a year over three years. On the lower side, a fiscal stimulus of 2% of GDP would require almost R300bn over three years.

The president said that the so-called stimulus would happen within the current budgetary envelope. However, the current budget includes austerity measures (tax increases and expenditure cuts) of R63bn this year alone. You cannot have a stimulus within the context of an austerity budget. That is an oxymoron

The so-called structural reforms are old wine in a new bottle. They will have zero impact on the rate of economic growth or employment in the short term. They are recycled initiatives that appeared in Malusi Gigaba’s budget and previous state of the nation addresses. They will tick all the boxes that are required by the rating agencies but deliver nothing for 9.6m unemployed South Africans. The economy will grow by less than 1% this year. The number of unemployed will increase to more than 10m people.

The federation is prepared to join in any genuine attempt to find solutions to the plight of all South Africans, but rejects completely this plan which only proposes more of the same pro-big business policies.

The reason why the economy will not grow fast enough to resolve the crisis is that the government is trapped in the overarching economic strategy which started with GEAR and the National Development Plan that are underpinned by inappropriate fiscal and monetary policies.

We are paying the price for neoliberalism which dictated that we drop trade tariffs and open our economy to the chilly winds of international competition as Trevor Manuel and Alec Erwin argued during their brief and disastrous spell as the Ministers of Trade and industry.

SAFTU stands by its Founding Congress Declaration which said:

“The federation will oppose any attempt to resolve this crisis within the parameters of a capitalist system which has proved that it has no solutions. It is the working class who produce the country’s wealth and who are the main consumers of its commodities.

“The only way out of the crisis has to be through a mass movement of the working-class based on a program guided by the principles of Marxism-Leninism for the nationalisation of the mineral and manufacturing monopolies, the banks and the land, in line with the aspiration expressed in the Freedom Charter.”