The nuts and bolts of radical economic transformation

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By Ms Faith Muthambi

On the occasion of his second inauguration President Jacob Zuma vowed that ‘economic transformation will take centre-stage’ during last term of office. He promised that “the structure of the economy will be transformed through industrialisation, broad-based black economic empowerment and through strengthening and expanding the role of the state in the economy.”

That the economy would assume centre stage should not come as a surprise. It is part of the normal course of evolution of statehood. All indications point to the fact that the first phase of transition, consolidation of formal democracy is complete. The country has entrenched all the necessary checks and balances such as free press, independent judiciary, independent chapter 9 institutions, and regular free and fair elections.

But this achievement is under threat owing to the unfinished business of economic transformation. In his State of the Nation Address last Thursday President Zuma was clear and unambiguous in his description of the challenge. He observed;

“Twenty two years into our freedom and democracy, the majority of black people are still economically disempowered…The gap between the annual average household incomes of African-headed households and their white counterparts remains shockingly huge. White households earn at least five times more than black households, according to Statistics SA. The situation with regards to the ownership of the economy also mirrors that of household incomes. Only ten percent of the top one hundred companies on the Johannesburg Stock Exchange are owned by black South Africans”.

The situation is not any different in top management in which whites continue to rule the roost with 72% demographic representation and Africans grossly underrepresented with a measly 10%.

The second challenge facing the country is the persistence of the triple challenge of poverty, unemployment and inequality. Underscoring the centrality of the economy in its resolution, President Zuma is spot in his observation that ‘the most effective weapon in the campaign against poverty, is the creation of decent work, and that creating work requires faster economic growth.’

Indeed, since assuming office, economic transformation has become the hallmark of President Zuma’s administration, featuring with some minor refinement in each of his State of the Nation addresses. Its latest incarnation assume the formulation of ‘radical economic transformation’. The objective of radical economic transformation is two-fold. First is to place ‘the economy on a qualitatively different path that ensures more rapid, sustainable growth, higher investment, increased employment, reduced inequality’ and second is to deracialize the economy.

The ANC and the President could not have been more bold and direct in defining radical economic transformation – “a fundamental change in the structure, systems, institutions and patterns of ownership, management and control of the economy in favour of all South Africans, especially the poor, the majority of whom are African and female”.

Described this way, transformation of the productive structures and relations would be at the core of placing the economy on a qualitative path. This would require moving away from a situation where the country remains largely an exporter of primary products.

Dr Rob Davies the Minister of Trade & Industry has elaborated on the form and key elements of radical economic transformation. He argues that first, radical economic transformation must entail radical transformation of production relations, second it must lead to less conflictual, characterised by more equitable benefit-sharing and by less inequality. Lastly it must place ‘job creation at the heart of work programmes and promoting a more inclusive job-rich pattern of growth.’

Citing KPMG publication, Africa Arisen: The Blue-Sky Continent 2014, Davies points out that Africa produces and exports $6 billion worth of coffee. But that coffee is processed, packaged and branded elsewhere and is sold for $100 billion. That is, a staggering $94 billion is earned outside of the borders of Africa on the basis of its products. The value chain is outside of our continent with the value-added part located outside of our continent. In other words, money that could have been earned in the continent, had we industrialized, is also part of the export!

This speaks to the heart of President Zuma’s call for South Africa to move up the value chain and to embark on the beneficiation of its products, be it in mining or agriculture. Moving up the value chain will enable South Africa to embark on industrialization. Already, the mineral beneficiation action plan has been developed as part of the Industrial Policy Action Plan.

In addition to spelling out what radical economic transformation entails, the President used the State of the Nation Address to provide a report on government’s performance in the last 2 years of implementing the nine point plan.

In 2014, President Zuma unveiled a short and medium term plan to resolve the electricity demand. The plan involved ‘improved maintenance of Eskom’s power stations, enhancing the electricity generation capacity and managing the electricity demand. The long term plan involves finalising our long term energy security master plan.’

As the result of the successful execution of the Eskom’s build and maintenance programmes load shedding is now a thing of the past. But most importantly, Eskom has connected an additional 7 million household onto the grid. And work is continuing to ensure energy security in the future.

As part of investing in economic infrastructure, President Zuma promised that government will embark on several infrastructure projects aimed at changing the living conditions of our people and boost economic growth.

On this score, the country’s investment in the mega science project Square Kilometre Array telescope is bearing fruit. The implementation of technology localization has resulted in two billion rand of the project being constructed with 75% of local content. SANRAL has earmarked 4.5 billion rand to be spent on upgrading of Moloto road. These are some of the infrastructure projects undertaken by government with the view of reigniting the economy while contributing to the socio-economic development of country. The infrastructure project also assist in the diversification of the economy through the creation of artisan and maintenance jobs. An estimated two million work opportunities benefiting mainly the youth were created in the last 2 years.

Going forward, the President was forthright on the role of the state. He promised that government “will utilise to the maximum, the strategic levers that are available to the state. This includes legislation, regulations, licensing, budget and procurement as well as Broad-based Black Economic Empowerment Charters to influence the behaviour of the private sector and drive transformation.” Indeed, government’s commitment could not have been louder!

  • Ms Faith Muthambi is the Minister of Communications of the Republic of South Africa. Article courtesy of(Khuluma Afrika)