‘Zuma fails to gear in policy shift’

2010-10-30 11:25

President Jacob Zuma’s ambitious new economic plan that promises to create five million jobs is likely to face strong resistance from Cosatu.

This is after Finance Minister Pravin Gordhan failed to announce radical policy shifts capable of inflicting a serious dent in South Africa’s high unemployment rate.

After carefully examining Gordhan’s medium-term budget policy statement, also known as the mini-budget, the powerful labour federation ­concluded that the government was still pursuing the conservative neo-liberal economic policies, which it expected Zuma would ditch after the federation helped propel him into power.

These policies – whose hallmarks were forcing down inflation, reduction of budget deficits and gradual dismantling of foreign exchange controls – were blamed by Cosatu and its leftist ally the SA Communist Party (SACP) for causing massive job losses and worsening poverty during former president Thabo Mbeki’s era. Mbeki is today seen as critical of Zuma’s policies.

Mbeki’s so-called neo-liberal policies were packaged into a macroeconomic framework known as Growth, Employment and ­Redistribution (Gear) strategy, which was ­implemented ­between 1996 and 2001 to combat double-digit inflation and interest rates, and a huge public debt.

“We are very disappointed because there is no shift in policy. We can’t have a new growth policy in the Gear framework .?.?. This is the continuation of the old neo-liberal policies of the International Monetary Fund and the World Bank,” head of Cosatu’s policy unit Chris Malekane said this week.

He was critical of plans by the government to cut the budget deficit to 3.2% of the GDP by 2013/14 from 5.3% this year, arguing that such a misstep could interrupt the fragile economic recovery and trigger more job losses.

Malekane was also scathing about government’s decision to weaken the strong rand by ­allowing individuals and pension funds, including the Government Employees Pension Fund, to take more money out of the country and invest it offshore. He said the government should have imposed a tax on short-term capital inflows, which were behind the 7% appreciation in the local currency against the US dollar this year.

As part of the strategy to devalue the rand, a 10% levy on blocked assets of South African emigrants was repealed.
Previously emigrants were only permitted to remit up to R8?million of their funds offshore upon emigrating.

“They want pension funds and individuals to take money out of the country, yet we need long-term investment in South Africa. Why is the budget deficit going down whereas we are failing to create jobs? The projected 3% growth this year is not sufficient to create jobs,” said Malekane.

Asked why Cosatu was sceptical about government’s intention with the new policy, given that it was driven by Economic Development Minister Ebrahim Patel, a former trade unionist who is now in Zuma’s Cabinet at the insistence of the labour federation, Malekane said the National Treasury and the Reserve Bank still dominated economic policy.

“Patel is not in charge of the budget and has no power to change the mandate of the monetary policy. You must ask yourself who controls the taxation and the budget; who determines the exchange rate and interest rates; who regulates the financial system? It is not Patel,” said Malekane.

While Cosatu was scathing about Zuma’s new jobs plan, the SACP cautiously welcomed it. But it said it would only support the social compact, a key premise of the plan, if salaries and bonuses of executives were slashed and price increases on basic food stuffs and electricity were contained.

“The SACP will, however, not support a social compact that is aimed at extracting further concessions from the working class and the poor as opposed to the rich,” the party said.

Economists are also wary of government’s grand plans to put five million South Africans into jobs over a 10-year period and cut the unemployment rate to 15% from 25%.

Colen Garrow, an economist at private equity firm Brait, said: “This is a difficult target and I think we can realistically achieve half of it, not the full target. Even when economic growth was averaging 5.4% between 2005 and 2007, we didn’t create too many jobs.”

Lumkile Mondi, the chief economist at Industrial Development Corporation, said Gordhan’s speech appeared to indicate that the government was moving away from targeting inflation to targeting the exchange rate. “They know the target but they are not going to share it with us.”

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