“Signs of decline” a threat to democracy: Manuel


South Africa is showing signs of decline — through rising corruption, political factionalism, crumbling infrastructure and skills and capital flight — which could unravel its democracy, the National Planning Commission warns.

The Business Day and Business Report newspapers say Minister in the Presidency Trevor Manuel , also chairman of the commission, tabled a diagnostic overview of in Parliament yesterday. It identifies the state of SA’s economy and social fabric, and problems that a “national plan” should urgently address.

The Business Day says the diagnosis “is a harsh look at the country based on hard facts gleaned from detailed research reports giving an empirical analysis of the major problems facing SA.”

It identifies nine major problems that urgently need to be fixed — poor education, high disease burden, divided communities, uneven public service performance, existing spatial patterns, unemployment, corruption, an unsustainable resource-intensive economy and crumbling infrastructure.

Manuel, briefing the media ahead of his statement in the National Assembly, said SA had significant successes which should not be underestimated or glossed over, but the commission’s task was to identify and understand the country’s weaknesses and problems. “Political change brings no guarantee of social, economic or indeed political progress. Throughout history many civilisations, empires and countries have experienced dramatic decline rather than progress,” the diagnosis read.
“The indicators most often associated with decline include rising corruption; weakening of state and civil society institutions; poor economic management; skills and capital flight; politics dominated by short- termism; ethnicity or factionalism; and lack of maintenance of infrastructure and standards of service.
“Elements of these indicators are already visible in SA, though their strength and prevalence is uneven and differs from sector to sector. If they become more prevalent the country’s progress could be stalled, its gains reversed and even the foundational aspects of democracy unravelled.”

The National Planning Commission believed that if these threats were not tackled, the probability of decline would increase, Business Day added. Manuel acknowledged that many of the issues identified by the commission might sound “familiar”, but insisted they were backed up by numerous detailed reports. The commission was responding to President Jacob Zuma ‘s injunction to take a bold look at SA. He said its mandate to pose difficult questions and find solutions was unmatched anywhere in the world. The commission believed SA could be turned around if South Africans confronted what was facing them.

Commission deputy chairman Cyril Ramaphosa said some “stark” choices would have to be made.

The commission planned to take the diagnosis to South Africans to help it plan the way ahead.

Manuel said it was critically important for South Africans to take ownership of SA’s future. He envisaged a vision and a plan being completed by November 1. Public consultation would involve the internet, social media and public meetings.

In its coverage, Business Report highlighted that the NPC believed SA was over-reliant on mining. “Although mining products still accounted for a large percentage of total exports, they only made a small contribution to total employment,” the Business Report says. “And while high commodity prices meant a rising mineral resources-based income, South Africa needed to move away from dependence on the sector.”

The document is quite candid about the successes and failures of the past 17 years of democracy and the challenges faced by the current government, to which it directs its advice on the best road forward for promoting job-creating – and sustainable – growth, Business Report added. Successful economies invested “at high rates” and were continually modernising public infrastructure to suit their economic settlement and trade patterns, but South Africa had missed general modernisation, the overview warned.

Manuel, who was the finance minister for most of the democratic era, acknowledged that there was a raging debate about whether South Africa had experienced job-creating or jobless growth since the mid 1990s. “The evidence weighed in heavily towards job-creating growth as measured by positive employment expansion and falling rates of unemployment,” he noted, although the latter remained high. “Between 1997 and 2008, for every 1% growth in gross domestic product (GDP), employment expanded by 0.6 to 0.7%. By comparison, the average ratio of employment to GDP growth in successful emerging economies is generally (only) about 0.3 to 0.5%. Job-creating growth means that employment grew substantially in line with GDP growth and that the unemployment rate did fall as a result,” Manuel argued.

Kuben Naidoo, the acting head of the NPC secretariat, noted that eliminating poverty and inequality were the two main “strategic challenges”. The other seven were: poorly located, inadequate and poorly maintained infrastructure; spatial challenges that continued to marginalise the poor; the highly resource-intensive “and hence unsustainable” growth path; the ailing public health system confronting a massive disease burden; the uneven performance of public service; corruption, which undermined state legitimacy and service delivery; and a divided society.

Meanwhile, Moody’s Investors Service warns political risk is starting to affect the investment intentions of both foreigners and the private sector in SA — although it remains low. There is mounting concern that some of the populist demands from some quarters of the African National Congress (ANC) could become policy, Moody’s senior vice-president Kristin Lindow told a conference organised by the rating agency.

Business Day reported it was “disturbing” to Moody’s that discussions continued on nationalisation and were not being put down firmly as they would have been in the past, she said. “We know the government is encouraging people to speak their minds … but there is some disruption to investment intentions by both foreigners and the private sector in SA,” Lindow said. She was referring to foreign direct investment, not foreign buying of local shares and bonds, which has continued to generate capital inflows into SA this year.

So far, Moody’s sees no threat to the stable outlook for SA’s A3 sovereign and domestic currency credit ratings. But it says the high jobless rate, especially among youth, is the biggest constraint. SA’s unemployment rate is 25%, but about half of its young people are jobless.

The ANC’s loss of support in municipal elections last month was a “wake-up call” which put more pressure on the government to improve service delivery and create jobs, Lindow said. Some of the election rhetoric showed that racial and social tensions in the country warranted attention. And frustration over the lack of service delivery and job creation could lead to policies that would keep the budget deficits wide in coming years — a development that worries Moody’s.
“There has been a very serious deterioration in the fiscal position and we don’t expect there to be a turnaround … for some time to come. There’s been a dramatic shift in policy between November and February,” she said. Lindow was referring to the Treasury’s forecasts for the budget deficit. In November it predicted the shortfall would reach 4,6% of gross domestic product (GDP) in the fiscal year to March, narrowing to 3,9% next year and 3,2% the year after. In the February budget, the Treasury raised its forecasts to 5,3% of GDP this fiscal year, 4,8% next year and 3,8% the year after.

Moody’s expects the economy to grow by just 3,2% this year, below consensus estimates, mainly due to the uncertain global environment. It sees growth rising to 3,8% next year.