State forges a bigger role in the economy

2011-01-15 11:15

The government is quietly going ahead with its plan to become a ­major player in the economy, but the business sector has raised concerns about the state’s capacity to implement an interventionist ­economic policy.

Last month President Jacob ­Zuma ratified the Postbank Limited Bill, which will pave the way for the state-owned savings institution, Postbank, to be converted into a ­retail lender that offers products to low-income communities, particularly rural dwellers.

The news that Postbank would enter the retail banking industry came hot on the heels of an announcement last November by Zuma’s Cabinet that it had approved the first step towards the creation of a state-owned mining company.

The Cabinet approved plans to hive off African Exploration Mining and Financing Corporation from the Central Energy Fund. The corporation is intended to become a fully fledged state-owned mining company which will acquire mining assets and drive beneficiation in the industry.

Postbank spokesperson Johan Kruger said the institution, which has 2 400 branches mostly in rural areas, was hoping to apply for a banking licence from the Reserve Bank before the end of next year.

“The public stands to benefit from more services such as loans and insurance, in addition to our current savings, transactional and investment products offered at most post offices,” Kruger said.

Postbank had a customer base of 6.2?million, a deposit base of R6.4?billion and customer liabilities of R4.5 billion.

Figures from the Finmark Trust, which researches poor people’s ­access to financial services, showed that 40% of the population is unbanked. Within that group, three out of every four people have never had a bank account.

Being given responsible access to loans could help the poor move up the social ladder.

The establishment of a state-owned mining firm and a bank were mentioned in the New Growth Path (NGP) document as two of the proposals aimed at involving the state strongly in the economy to create jobs and wipe out inequality. There was speculation that the state-owned mining company could be used as a vehicle to nationalise mines.

Under the NGP economic policy the state wants to push economic growth to 7% a year over the next decade; a growth rate which is projected to generate 5.5 million jobs and cut the unemployment rate to 15%. For this to happen, the state sees itself as the main driver of ­economic development.

Business, however, is sceptical about the state’s involvement in running enterprises.

Neren Rau, chief executive of the SA Chamber of Commerce and Industry, said the state should steer away from operating businesses and focus on cutting excessive red tape, which is often cited as an ­obstacle that hamstrings investment and the development of small businesses.

“I don’t have a problem with the state being involved in kick-starting industries or promoting industrialisation, but it must remove itself afterwards,” said Rau.

“The state should not be involved in free enterprise. We would like to see the state focusing on ­removing obstacles to growth.”

In a paper published late last year by Business Unity SA (Busa), the country’s main voice for organised business, the organisation questioned whether the state had the manpower and skills to play a bigger role in the economy.

“Major service delivery backlogs at local government level, combined with inefficient and costly state-owned enterprises, were ­significant growth constraints that affected job creation.

“If the developmental state is to entail more involvement in the economy without a major increase in capacity and skills, the concern is that basic service delivery will suffer further and that the goals of the developmental state will remain at the level of lip service,” the paper read.

Busa also noted that the governments of successful countries had developed partnerships with the private sector.

“This not only brings in the capital, efficiencies and innovation that market forces generate, but ­also frees the state to focus on those things that only it can do. It also avoids the corruption and nepotism that follow when the state is both player and referee in major sectors of the economy.”

Busa argued that government had to focus on improving service delivery rather than embark on creating a developmental state. It also said the state should get business involved in skills development rather than leaving it in the hands of the education system and skills?­education?training?authorities. Labour federation Cosatu, however, believes the state should be involved in the economy to redistribute wealth to address unemployment, inequality and poverty.

In its own New Growth Path document, the labour federation said the state should not shy away from creating new enterprises or nationalising strategic industries which could promote industrial development and create jobs.

The union argued that conglomerates and “short-termist financial interests” have had no incentive to promote industrial diversification beyond what was historically inherited from apartheid.

“We now sit with a complex of crises ranging from energy, water, unemployment, education and health to poverty,” the union said.

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