Investment Research - Slowly improving coordination
SLOWLY IMPROVING COORDINATION
9 OCTOBER 2018
An acquaintance in the Union Buildings once made this profound observation about South Africa’s leaders since the advent of democracy: ‘Mandela gave us freedom, Mbeki gave us discipline, Zuma gave us chaos’. After working through the recent Job Summit agreement, one could add: ‘Ramaphosa is giving us coordination’.
The golden thread of the 84-page Job Summit agreement is to bring diverse stakeholders together to work on problems and projects. From fixing problems at SARS to helping establish 2 400 ECD (Early Childhood Development) centres (where women entrepreneurs can run the centres for profit and help to bring ECD to small kids). The emphasis is on connecting people to achieve results. The word ‘partnerships’ appears 41 times in the 84 pages, and ‘collaboration’ 27 times. There is full realisation that jobs are an outcome or a derivative of something else. That ‘something else’ is for people to coordinate with one another to increase activity and ensure more output.
Dani Rodrik from Harvard has written a lot about coordination failure, poverty and government policies. It is not just him – there is a whole set of literature in economics about coordination problems. In that sense, the Job Summit agreement finds itself in good company.
There is no easy fix like lower interest rates, a bigger deficit, or cutting taxes – just the slog of tackling problems one by one and trying to solve them with better cooperation. It is all about making the cake bigger by focusing on doing things better, as opposed to take and redistribute as envisaged in, for example, ex-mining Minster Zwane’s now-jettisoned Mining Charter.
A FULL AGENDA
It is an extensive agreement, covering more than 50 areas of activity: from helping more than 15 sectors in the mainstream economy to stimulating small businesses; from education and skills training to equity schemes for workers and their representation on boards; from cutting the time to issue water permits to mobilising retired people to help in municipalities. The detail is simply too much to summarise here.
In his closing address, President Ramaphosa said that there are 70 projects that will flow from this Job Summit. Suffice to say it is comprehensive and wide ranging. If half of the projects are implemented, South Africa will be a better place.
WHAT IS DIFFERENT THIS TIME?
The previous Job Summit 20 years ago in 1998 did not render the jobs results everybody was hoping for. What is different this time? The difference is measurement and corrective action.
A Presidential Jobs Committee will be formed, which will receive quarterly progress reports and take remedial action where required. In the private sector, a monthly or quarterly financial report is the big driver of remedial action. In the public sector, it is the intense interest of a minister and the president that drives remedial action. Part of the agreement is that a monitoring and evaluation framework will be developed to measure the outcomes envisaged in the agreement, and progress reports will be made available on the NEDLAC website. These measures were not in place 20 years ago.
SOME THINGS WILL FAIL
It is a given that some of the 50 areas will not show improvement, either because of poor collaboration or because it was a bad idea from the start.
An 80+-year-old friend who in his earlier life organised business people to provide help in some rural municipalities in Mpumalanga (an action agreed on page 38 of the agreement), can relate many stories on how the inability of two individuals to get on with one another torpedoed attempts to fix a municipality. It was normally the arrogance of the one and the lack of self-confidence of the other. No collaboration, no improvement. We are in the hands of human beings.
Some ideas may also be poorly conceived. For example, the agreement refers to apple juice concentrate. Distell is the country’s biggest buyer of apple juice concentrate for cider production; they take everything that is available and then still need to import a significant amount. The agreement states that ‘…considerable opportunity exists to substitute these imports with incremental apple juice concentrate by developing local apple farming …’. A friend who is an established apple farmer points out that concentrate is made from apples not fit for the retail market (they have sunspots, are not the right size, got damaged in the harvesting and so on), which makes up about 25% of a normal harvest. The price for such apples is obviously much lower; in South Africa it’s far less than the cost of production. No farmer plants trees to sell apples for concentrate. How the agreement is going to give expression to the goal to substitute concentrate imports is therefore unclear. Other undertakings are also vague and with out clear commitments, actions and timetables. But there are many that are clear.
So, between the agreement and actual implementation, many things can go wrong. Nevertheless, if 50% of the agreement’s goals can be achieved, it would make a positive change.
HOW MANY JOBS?
The president claimed that 275 000 jobs per year can be created by the Job Summit agreement. No detail was given on how that number was calculated. But as a reference point, in the last 12 months, the economy created 188 000 jobs. Over the last 10 years, the number was nearly 2,6 million, or an average of 256 000 jobs per year. So, if the 275 000 jobs per year is on top on the 10-year average, it would really be a game changer. However, if it is merely the total number of jobs to be created, it would be only a marginal improvement on the 10-year average.
FITTING INTO THE BIGGER PICTURE
One should also view the Job Summit in its bigger context. The National Development Plan (NDP) calls for a compact or social accord for ‘growth, employment and equity’. During the Zuma years, nothing was done to realise this goal of the NDP; in fact, it was radically obstructed.
The Job Summit is an important step towards such a grand social compact. The Investment Summit at the end of October will be another such step. It also looks like a social compact is being forged around land reform. The Job Summit touched on the land issue with some concrete proposals. A fourth process is the ongoing discussions between business leaders from 13 sectors of the economy and the Minister in the Presidency, Nkosazana Dlamini-Zuma. They meet again in November to discuss concrete plans on more expansions and growth. So, there is a lot of social compacting going on.
The Job Summit is the most advanced, but it is not the only kid on the block. When these contracts are combined, it begins to look like the huge chasm and mistrust that developed during the Zuma years are slowly being rolled back and new trust is being built.
- Economic growth requires much more than sound fiscal and monetary policies. It also requires coordinated activity, and through that, economic growth. The Job Summit agreement is in this spirit.
- The emphasis is clearly on having more growth, and more inclusive growth (including more people in that growth) and doing the things that will help reverse inequality.
- If half of the Job Summit projects can be realised, it will make for a better South Africa.
- The Job Summit is part of a bigger project of building confidence and trust between sectors in South Africa, something that was thoroughly rubbished in the Zuma years. It is trite to say that much more must be done, but it’s a start.
- Next up is the Medium Term Budget on 24 October and the Investment Summit on 26 October. These will tell us whether this wagon can be creaked into momentum.
Courtesy: JP Landman - Political Analyst
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