South Africa’s middle class isn’t big enough: SARB

 ·2 Mar 2021

South Africa’s inability to make trade-offs between competing interests is hampering the implementation of growth-enhancing structural reforms, according to Kuben Naidoo, a deputy governor of the central bank.

Extreme inequality in South Africa that persists even after the apartheid system of racial discrimination that disadvantaged the Black majority ended in 1994 means the country doesn’t have a large enough middle class to play a stabilising role in policymaking, Naidoo said Tuesday in a web conference hosted by the University of Johannesburg.

This has given rise to policies with multiple objectives instead of primary goals, competing interests and a difficulty to compromise, he said.

“We don’t have the institutional mechanisms in government to make these simple trade-offs, so they are never made,” Naidoo said. “In almost every area of public policy, you have this simple problem.”

Policy paralysis means Africa’s most-industrialized economy was stuck in its longest downward cycle since World War II even before the coronavirus pandemic hit output. Gross domestic product hasn’t expanded by more than 3% since 2011.

The government has formally adopted five blueprints to boost GDP growth and job creation since the African National Congress won the first all-race election in 1994. However, most of the policies have been stalled by powerful vested interests.

The structure of South Africa’s government renders it “entirely incapable” of making coherent decisions around trade-offs and that’s partly by design, Naidoo, who was on the secretariat of the panel that drew up the 2012 National Development Plan, said.

Former President Jacob Zuma “fragmented economic policy making to the nth degree” by creating more and more government departments to diffuse economic policymaking, Naidoo said.

Some reforms proposed almost two years ago in a National Treasury policy paper, forecast to lift growth by two to three percentage points and create more than one million jobs over a decade, and the Economic Reconstruction and Recovery plan unveiled by President Cyril Ramaphosa in October to revive the economy after the damage done by the coronavirus pandemic, are only now starting to show progress.

These include getting electricity from independent power producers and steps to ease congestion at ports.

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