African Federation of Trade Unions (SAFTU) deems the second Investment Council
as a pure jamboree designed to pull wool over the eyes of South Africans and
international visitors. It is a façade that seeks to deliberate obfuscate the
facts. Once again it raises false hopes that steps are being taken to address
the very low investment levels by both the private sector and the public sector
in the economy.
investment levels of the investment is around 18% of GDP: way too low to drive
growth and economic activity. During the 1970s, in contrast, the rate was
26-32% of GDP.
South African gross capital formation as a share of GDP, 1969-2018
capitalists don’t invest, why would international corporations? Ramaphosa brags
that he made a great start
attracting Foreign Direct Investment (FDI) last year. But look more closely at
the UN Conference on Trade and Development’s World Investment Report 2019 explanation:
to South Africamore
than doubled to $5.3 billion in 2018, contributing to progress in the
Government’s campaign to attract $100 billion of FDI by 2023. The surge in
inflows was largely due to intracompany loans…
But the problem here is simple: because of South
Africa’s very high interest rates – even higher now than Venezuela’s – it is
profitable for multinational corporations to just make credit available to
local branch plant borrowers who don’t
even need to use it. They simply repay the head office, and shift profits
out of the country in an artificial way, a kind of Illicit Financial Flow that
is actually ‘licit’ and even celebrated by an uncritical government and
The problem with UNCTAD’s analysis of South
Africa – “(t)he surge in inflows was largely due to
intracompany loans” – is that today, we are on the verge of a foreign debt crisis because of
a sustained current account deficit (due to the profit, dividend and interest
outflows from SA, in spite of a trade surplus). Our foreign debt rose from $25
billion in 1994 to $180 billion today, about 50% of GDP. We don’t need more fake FDI in this form.
total foreign debt (millions of US$)
on the both government and private sector to do the right thing and act
decisively before the South African economy reaches the point of no return. The
following should be the basis of a new investment drive:
Austerity measures (cutting of expenditure) will not help our
economy to grow. You cannot cut public expenditure and reduce levels of
investment and then hope that will lead to growth. South Africa needs a
real stimulus package of R500 billion to kick start the economy. The
American government needed a $750 billion fiscal stimulus to respond to the
2008-09 crisis. South Africa is doing the opposite, yet facing our
worst-ever poverty, unemployment and inequality. Government’s own
investment is dropping fast, due to Treasury’s extreme cuts in provincial
and municipal budgets last week. This must be reversed if there is going
to be any hope for this economy.
Government must stop leakages and massive fraud linked to its
procurement budget. Treasury officials estimate that between 30-40% of
government’s procurement budget is lost to tender fraud and outsourcing.
That is a staggering R300 billion that could be spent strategically and make
a massive difference.
Government must study and implement recommendations of the research
that was funded by the Department of Trade and Industry and conducted by the
University of Johannesburg’s Centre for Competition, Regulation and
Economic Development. Economists there established that there has been
increased corporate concentration that has led to anticompetitive
behaviour. More importantly they found that the cash reserves in the JSE’s largest 50
companies had increased from R242bn to R1.4-trillion between 2005 and
2016. Government must aggressively tax all companies that are hoarding
this investable cash.
Design policy that would incentivise
firms to invest domestically.
Government must take practical steps to implement Judge Dennis
Davis’ recommendations. Capacity must be built within the Receiver of
Revenue to put an end to tax dodging schemes, mispricing and illicit cash
outflows that see the economy losing R150 billion to R370 billion annually.
Requiring firms to leave these profits inside South Africa, through
tighter exchange controls, would immediately improve the disastrous 18%
investment level in the economy.
Macroeconomic policies pursued since the unilateral introduction of
GEAR are wrong. No country ever developed by adopting an inflation target
as low as the 3 to 6% range (as mandated within the European Union), by
removing exchange controls, and by allowing billions to leave through tax
dodging schemes including mis- invoicing., transfer pricing and illicit
cash outflows. No economy dropped corporate taxes by half – from 56% in
1994 to 28% today – at the time when it needed resources to develop.
SAFTU calls on the government to change a monetary policy that has choked
the economy. This will include scrapping of the inflation targeting policy
of 3-6% and reduce interest rates decisively – we call for a 3% fall – while
implementing the ANC’s most recent national conference resolutions to
nationalise the Reserve Bank and change its mandate so that it focuses on
growth, jobs, poverty and fighting inequalities. This will lead to cheaper
borrowing, and bolster the household and SMMEs expenditure. Which country
allows a situation where the monied can just put their money in the
financial markets and earn a profit of between 3-4% in real terms?
SAFTU insists on reversal of corporate tax cuts, setting them back
to where they in 1994 which is 56%. This will release resources we so
desperate need to rebuild our industrial base.
Government still pursues the objective of keeping the debt/GDP at
low levels. Yet the debt to GDP ratio is inappropriate as a measure of our
ability to solve problems with state programmes. South African debt is not
out of control, and no country facing this magnitude of underdevelopment
ever embarked on a programme to keep debt to GDP ratio at the current
levels. In order to achieve this objective of meeting artificially-low
debt/GDP levels, the government is reducing expenditure by R21 billion in
2020/21 and 28,5 billion in 2021/22 mostly falling on goods and services.
But if instead, Treasury considered a full accounting of the public sector
‘balance sheet’ to include our state’s mineral wealth, then as the
International Monetary Fund admitted in last year’s Fiscal Review, South
Africa is the 6th most wealthy major state in the world. It
should be our wealth, not our income, that helps Treasury expand
expenditure, and those who promote fear of a credit ratings downgrade
should take a deep breath and contemplate South Africa’s wealth.
remains locked out of NEDLAC as the parties who form part of the sweetheart
arrangement are hell bent on excluding critical voices of society who they
perceive to be too independent, too militant and radical.