Solidarity on Thursday said, overall, it welcomed Finance Minister Tito Mboweni’s economic policy, released on August 27, saying that the document was a step in the right direction towards economic freedom.

It noted, however, that it was not a comprehensive plan for complete economic recovery.

Solidarity Research Institute head Connie Mulder said during a media briefing that there had been myriad poor, counterproductive policies in the last 20 years, which had not made doing business any easier.

“The solution does not lie in urgent interventions, but urgent withdrawal from the economy and from business. Government caused the [sluggish economic growth] problem through superfluous involvement in the economy and only government can solve it by interfering less,” added Solidarity researcher Morné Malan.

South Africa’s gross domestic product (GDP) had grown by 3.6% a year on average between 1994 and 2008, but this shrunk to an average of 1.5% a year between 2008 and 2019.

Solidarity said it was as if South Africa had never fully recovered from the global economic crisis in 2008/9.

The union said the economic policy proposed by Mboweni set out greater privatisation, less government intervention and less regulation and was, therefore, a first step towards a free market system and economic prosperity.

Solidarity explained that countries with greater economic freedom had substantially higher per-capita incomes than those countries with less economic freedom.

It further noted that entrepreneurial dynamism increased when economic freedom increased, owing to less red tape and bigger markets.

However, South Africa continues to progress towards a less-free economy and would continue on that path unless the economic policy proposed by Mboweni was practically implemented and politically feasible.

Solidarity pointed out that it took about 40 days in South Africa to open a business, while it took only half a day to do the same in New Zealand.

Malan and Mulder said Solidarity would contribute to discourse around the economic policy and planned to submit comments to the Minister before the September 15 deadline.

The comments would be aimed at illustrating to the Minister the significant benefits that accompany a greater level of economic freedom within a country, as well as the importance of ensuring ease of doing business.

CASE IN POINT

Solidarity highlighted how the Spanish economy had taken the opposite turn from South Africa in terms of both economic freedom and economic performance over the last decade.

While South Africa’s ranking on the World Economic Forum’s Competitiveness Index had fallen from thirty-fifth in 2007 to sixty-seventh in 2018, Spain rose from forty-second in 2011 to twenty-sixth position in 2018.

Firstly, Solidarity explained that South Africa taxes its people to a far greater extent, on a tax revenue-to-GDP basis, than the rest of the world, including Spain.

High taxation of income, profits and capital gains may be associated with a decline in productive activity as these are the forms of economic activity that are most closely associated with production.

“These taxes present disincentives to production, which has further negative effects on economic growth,” said Malan.

In the same period that South Africa moved from thirty-second to eighty-second position in terms of ease of doing business in the rankings of the World Bank’s Index, Spain moved from fifty-first to thirtieth position.

Additionally, Spain’s unemployment rate in 2013 touched similar heights to those currently being experienced in South Africa. “Spain managed to turn the slump around in a relatively short period, dropping by almost 14 percentage points in six years.”

However, Solidarity noted that South Africa’s structural economic issues were more entrenched than those of Spain in the early 2010s. Yet, the value of the turnaround could hardly be overstated.

Malan said Spain’s recent ability to attract long-term capital investments contributed to the turnaround in the unemployment rate, which was achieved as a result of greater economic freedom.