Government must stop BEE, NHI, and expropriation without compensation

South Africa’s economy is not reaping the full benefits of the positive developments in its financial markets and state finances because the government is focusing on the wrong macroeconomic policies. 

The government’s focus on policies such as expropriation without compensation, Black Economic Empowerment (BEE), and the National Health Insurance (NHI) scheme is preventing much faster economic growth in South Africa. 

Rather, it should focus on implementing its current reform agenda to increase private participation in key sectors of the economy, improve service delivery and redouble efforts to improve the state’s financial health. 

This is feedback from Efficient Group chief economist Dawie Roodt, who recently explained why the South African economy has not benefited in the same way as the country’s financial markets from positive developments. 

“South Africa’s financial markets reacted very, very quickly and very positively to a few changes in policy, such as a lower inflation target, and a few improvements, such as getting off the greylist and a credit rating upgrade,” Roodt said. 

“That is the financial markets. Unfortunately, that is not the economy. The positive impact on financial markets will spill over into the real economy and will support growth.”

However, this will not be to the same extent that the local stock market has appreciated, for example, nor will it be to the full extent that it should.

“Expect some growth, but, unfortunately, the real change in the economy is not happening yet because of the wrong macroeconomic policies,” Roodt said. 

“The wrong macroeconomic policies are things like expropriation without compensation. Things like BEE and even the NHI scheme.” 

Roodt also pointed out the vital role that local governments have in driving better economic outcomes, as they are responsible for much of the country’s basic service delivery. 

“The local authorities are not functioning. The state-owned enterprises are dysfunctional and have been destroyed financially and operationally by the ANC,” Roodt said. 

These factors mean that while the JSE continues to soar and the bond market is performing well, ordinary people are not feeling the benefits, and neither is the real economy. 

Misguided efforts

South Africa’s government has failed to create a conducive environment for increased fixed investment and faster economic growth. 

Instead, it has focused much of its attention and resources on policies that have little impact on service delivery and economic outcomes. Some of these policies even have negative economic implications.

This reflects the government’s doubling down on policies that have resulted in economic stagnation over the past 15 years, with South Africa’s economy averaging an annual growth rate of 1.1% during that period.

The government has also failed to listen to what private businesses need to invest and continue operating in South Africa, even as these companies sit on over R1.8 trillion in cash. 

British American Tobacco’s closure of its Heidelberg plant is the latest example of this, with the company pointing to years of government inaction as a reason for the factory’s shutdown. 

The company explained that, despite over a decade of engagement with the government on the rise of the illicit cigarette trade, no meaningful action had been taken to crack down on the industry. 

This is one example of many, with the government focusing on the wrong things at a macroeconomic level, negatively impacting the entire economy. 

Stanlib chief economist Kevin Lings compared what the government has pledged to do over the past year or so versus what it has actually done in that period. 

Lings said the government knows what is needed to boost South Africa’s economy, but for various reasons does not do what is required. 

“Please do not think the government has done nothing in the past year. The government has done stuff,” Lings said. 

“What are those things? Expropriation Bill, done. We have new fancy BEE targets. We have the National Health Insurance Act, and we have the BELA Act.” 

This stands in stark contrast to what the government has said it will do over the past year, which includes various proposals to increase the private sector’s role in the economy and boost investment. 

“How do I know the government has said they are going to do it? It is in every single speech from a government office. Sometimes they mix up the flow, but the same things are said,” Lings said. 

“They say, ‘We are going to make it easier to do business. We are going to fix crime. We are going to improve service delivery’.”

“All of those ingredients that we keep talking about that will boost the economy. It is not as if we do not know them. That is the problem – they are just not done.”

The graphic below shows the comparison Lings pointed to in detailing what the government has done versus what it said it would do.