11th November 2009

The IFP comes today with dissenting views on the MTBPS.  In the finalization of the joint Committees Report, the Chairman of the Finance Committee censored these views, ruling that they could not be mentioned in the Report even though under the Rules of the National Assembly minority views must be reported when dealing with legislation. The IFP has mainly two concerns. 

Firstly, the IFP cannot associate itself with the MTBPS' total reliance on the economy turning around this fourth quarter and thereafter maintaining a high rate of sustained economic growth for the next three years. This way too optimistic scenario is pegged on selected positive signs; and on the uncorroborated belief of a sudden rise in consumer spending; and on the assumption that the South African economy will be raised by the raising of the US economy; and at the same time as it.  It is also based on underplaying signs which suggest that the depression will continue next year, such as the projected decline in construction and the recessionary effect of the completion of the world cup infrastructural and commercial preparation.  It is risky boosting consumer confidence with the untested promise that the hard days are over. 

Secondly, realizing, as one should, that even though the global depression started as a financial crisis it has now become an industrial crisis, the IFP criticizes the MTBPS' failure to make required structural adjustments to create a new and globally competitive industrial basis and to cut on chronic government created industrial problems. 

The depression should have given the impetus to abolish the entire system of exchange controls which has no purpose at this country's stage of development; and to introduce the flexibility in the labour market which government has been talking about since 1998; and to reform the non-performing or under-performing sectors of the parastatal.  This would be the time to merge the many similar government institutions providing essentially the same services to SMMEs, to transform the Land Bank into a specialized division of the IDC; to shut down the non-commercially viable arm manufacturing division of Denel and to privatize SAA, SALCOF and other SOEs as an alternative to raising public debt. 

This would be the time to take a hard look at government assisted economical sectors which are not viable in the global marketplace.  

Focused as it had to be on social services since 1994, South Africa has not undertaken a structural transformation of its parastatal and of government's industrial policies; with the end result that thepre-1994 mould has been kept alive in fear than anything replacing may be worse.  This would be the time to question whether our economy grows or shrinks under the opportunity cost of subsidies and tariff and non-tariff trade barriers for the benefit of the textile and auto industries. This would be the time to reconsider the many monopolies and cartels which are legally beyond the reach of the Competition Commission and have expanded the pre-1994 anti-competitive mould. 

The IDC is providing mini-bail outs to industries across the board on the basis of the assumption that what was viable before the depression will return to be viable after it.  This may prove not to be the case. 

The MTBPS speaks of necessary relief for our economy, such as devaluation of the Rand and cuts in interest rates, but none have affected in any relevant manner, as if there is time for it. The MTBPS should bring tax reliefs and a new package of long-term incentives for the creation of new viable economic sectors, such as assistance in R&D, but it contains none. 

Government funding of both groundbreaking and basis industrial R&D should be the incubator of new industries capable of creating South African global products, even if this means to fund the revamping of Denel's R&D and establishing a few more dedicated SOEs for this purpose.

This would be the time to build a future; instead the MTBPS reflects the attitude that it shall soon be business as usual. And if in the next three weeks the economy does not turn around as hoped, we are up the creek with no paddle and deep into the spiral on higher public debt, requiring higher interest rates to finance it, creating high inflation, impairing economic growth, causing even greater need for public debt if one is not to cut social spending.