The Minister of Economic Development announced the New Growth Path for the first time on 26 October 2010. However the initial document contained very little detail other than that the main focus of the plan is to create 5 million jobs over the next 10 years. On Tuesday, the government released further details of the New Growth Plan. Below is a summary of the 36 page document.
Job creation: 5 million jobs over the next 10 years:
The following is a list of industry and job creation targets identified by the government. There is unfortunately not a lot of detail on exactly how these jobs will be created, but presumably much of this detail will be released over the coming months. There are also some unusual industries identified for job creation such as “Not-for-profit institutions”. Overall, while these targets are laudable, they appear extremely ambitious.
| Infrastructure (by 2015) |
1 250 000 |
| Agriculture smallholder schemes (2020) |
300 000 |
| Agro-processing (2020) |
145 000 |
| Mining (2020) |
140 000 |
| General industry (2020) |
350 000 |
| Tourism, business services (2020) |
250 000 |
| Green economy (2020) |
300 000 |
| Knowledge intensive sectors (2020) |
100 000 |
| Not-for-profit institutions (2020) |
260 000 |
| Public service (2020) |
100 000 |
| Exports to SADC (2020) |
150 000 |
| Total number of jobs |
3 345 000 |
The mix of macro-economic and micro-economic policies to be implemented by government:
- More competitive exchange rate (weaker exchange rate)
- Lower cost of capital (lower interest rates)
- More restrained fiscal stance
- Re-prioritisation of public spending
- National consensus on wages, prices and savings
- African development fund
- State mining company
- Possibility of a state owned bank to promote rural development (possibly use PostBank)
- Review of administered prices, price control on food and healthcare
- Promote small business
Many of the above policies are contradictory. In particular, the idea that government’s fiscal policy will be more restrained (and counter-cyclical) yet the New Growth Plan envisages that the role of government in the economy will expand very significantly. The stated policy objective of a “looser monetary policy” will raise serious concerns about the independence of the Reserve Bank (which will hurt their credulity), as well as raise doubts about the ability to control inflation and increase savings. There is also a worrying suggestion that government could start to introduce various price controls (eg food and healthcare). Price controls always create distortions that are normally accompanied by adverse unintended consequences.
There is also no clear indication of how the exchange rate will be weakened. The Reserve Bank has already cut rates 650bps and is more aggressively accumulating foreign exchange reserves, both of which have had very little impact on the value of the Rand. Also the policy assumes that a weaker exchange rate is always beneficial for the country. The recent history of the SA economy has shown that bouts of extreme currency weakness can be extremely disruptive and harmful to the economy. So, how much weakness is government aiming for?
Wage controls:
The Minister has proposed the following wage controls:
- People earning R3 000 to R20 000 a month – salary increase of inflation plus a modest real increase
- People earning over R20 000 a month – salary increase of inflation
- Cap pay and bonuses for senior managers and executives earning over R550 000 a year
Wage controls, as outlined above, are simply absurd. These types of controls would create enormous distortions in the economy including massive problems with the procurement and retention of skills, problems with incentivising staff, problems with improving labour productivity, the introduction of ‘creative’ remuneration schemes, the affordability of housing, lower tax receipts for government etc.
Skills development:
- 30 000 more engineers by 2014
- 50 000 additional artisans by 2015
- 1.2 million workers for certified on-the-job skills a year from 2013
- 1.0 million additional enrollment at FET colleges by 2014
- Enhanced ICT training
All of these targets would be very welcome, but there is nothing in the plan that highlights the need to also improve primary and secondary education. Other skills are also in short-supply, for example healthcare professionals (doctors, nurses) as well as Maths and Science teachers.
Overall, while the main objective of the New Growth Plan (ie create 5 million jobs over the next 10 years) is extremely welcome and desperately needed in SA, a number of the key macro and micro economic policies outlined in the plan are either contradictory or will result in many unintended consequences. In its current format the New Growth Plan has the real potential to do more harm than good. It is one thing to argue that the current ‘tried and tested’ economic policies implemented in many of the developed economies have not worked and that one can ‘throw away the economic textbooks’, but it is a completely different thing to discard commonsense along with the economic textbooks.