Summit calls for urgent economic reforms post-Covid

SOUTH AFRICA needs urgent strategic interventions to help the economy recover from the damage caused by the Covid-19 pandemic, say experts.

This emerged at the second annual Social Justice Summit hosted by the University of Stellenbosch which called for collaboration among business, the private sector, government and civil society in curbing poverty and inequality.

The summit also saw the launch of the M-Fund, a  crowdfunding initiative aimed at accelerating the advancement of equality in pursuit of the Sustainable Development Goals.

The event took place against the background of a sharp rise in unemployment and hunger and a slowdown in economic growth.

“The coronavirus Covid-19 pandemic has brought into focus the harsh realities of the inequality that still exists in South Africa, despite us having one  of the most ground-breaking Constitutions in the world. We are the most unequal society in the world, one where 55.5% of people were already poor and many of these experiencing food insecurity before the pandemic," said convener of the summit and Law Trust Chair in Social Justice Professor Thuli Madonsela.

Dr Nthabiseng Moleko of the University of Stellenbosch School of Business told participants that the economic impact of the Covid-19 pandemic was expected to be huge and government policies to deal with it required a different shift in mindset and approach. Dr Moleko said Covid-19 could trigger a global economic disaster worse than the global financial crisis of 2008, with South Africa's economy expected to contract 7.2% in 2020.

Export volumes were expected to be reduced by up to 75%.

The pandemic had also triggered a contraction of production activity by up to 60%, and will affect output in sectors such as oil and gas, food, hygiene, financial and health services by between 10% and 30%.

Wage earnings were reduced by 30% and about R304 billion loss in tax revenue and collections was predicted for 2021.

According to the report, despite a plethora of economic policies. plans and programmes, government had been unable to "dislodge" and transform the historical economic legacy of colonialism and apartheid.

It noted that inequality was persistent between upper and lower income levels, races, sexes with poverty concentrated among black women.

"The majority of South Africa's youth, almost 70 %, are unemployed and those at school are not being equipped with the skills necessary to enter the formal sector," Dr Moleko added.

About 90% of asset wealth was owned by 10 % of the population and 30 million people lived below the poverty line in the country, with more than 17 million relying on social grants.

Significant drivers of poverty and inequality were the prolonged weak economic growth, ineffective income redistribution policies and the deteriorating manufacturing sector, she noted.

"The continued reliance on mainstream economic thinking and use of existing microeconomic solutions will not yield the outcomes necessary to support development in South Africa, particularly in the Covid-19 context," Moleko said.

She also called for an alternative economic strategy which, she said, was outlined in a report she co-produced with Professor Mark Swilling.

The proposed strategy, they said, could see South Africa’s gross domestic product (GDP) doubling in 10 years, 10 million people moving out of poverty, and unemployment cut by two-thirds to 12% by 2030.

The strategy would also help establish a society based on social justice and correcting structural economic inefficiencies and inequalities.

"To see equitable and fair outcomes, we need a decisive economic strategy that would also break the monopoly of some players and enable the entry of new small and medium enterprises," she said.

Moleko said the interventions should prioritise labour-absorbing sectors and boost domestic food production and rural development.

She also stressed that the country needed to "industrialise".

Sectors with potential to absorb large numbers of unemployed people – including agro-processing, plastics, metals, construction machinery and the transition to renewable energy – should be prioritised, with education and skills programmes aligned to their needs, Moleko said.

Other sectors that did not hold the potential to absorb much more labour such as  chemicals, machinery and equipment, and agricultural and transport machinery, for example, should be supported through employment-generation conditions in state procurement programmes.

Moleko added that the proposed new approach would include reconfiguring the role of the Public Investment Corporation, development finance institutions and public and private pension funds to mobilise domestic financial resources and drive growth through redistribution and structural reform. 

She also called for the prioritisation of the energy sector and others that could help alleviate poverty while stimulating growth.

Co-director of the Institute for Economic Justice, Neil Coleman also called for a shift in the "political economy" and lambasted policy makers for not taking "alternative ideas" seriously.

"We need to continue to put pressure on policymakers because the country is in need of economic reforms. We are facing economic depression," Coleman added.