PETER ATTARD MONTALTO: Trying to solve all problems at once risks missing the opportunities

Posted in: Economics, i-Blog, Politics on November 9, 2020


One must target what is most important in a resource-constrained world and hope the rest will follow.

This column was first published in Business Day. 

Does attempting to compact the deep divisions between conceptions of the economy ensure the failure of President Cyril Ramaphosa’s economic reconstruction and recovery plan (ERRP) and the recent medium-term budget policy statement (MTBPS)?

Failure would be setting the sights too low and accepting a return to only 1% growth, or indeed only returning to the previous 1.5%-2% growth average as inequality still rises. Success would be Ramaphosa’s 3% growth target — recouping the more than 2-million jobs lost this year — and maybe then nibbling away at the historic stock of unemployment (particularly of the youth).

Success would be a more dynamic economy in which people can access employment and set up companies and invest more freely and easily.

The divisions are deep and often glossed over with talk of bonhomie. A number of interactions with people “on the other side of the aisle” have driven this home to me recently.

Cutting through all the specifics — at root between the two sides of the economic argument — is the belief, or not, in resource constraint.

On the one side there is an understanding that economic and fiscal policy must be optimised with a limited set of imperfect tools and a limited allocation of means (capacity, revenue and debt issuance) to go around. Everything is suboptimal and therefore if we can’t have the best, the second best is better than the rest.   

The other side, however, doesn’t believe the resource constraint is binding, and higher ideals such as human rights and solving all the country’s problems simultaneously must override. We can have our policy cake and eat it and some voodoo modelling can be produced to show growth will end up being 6.5% at the end of it.

When one starts to set this against an iterative process of interactions between the two sides, as tension and tempers rise and as SA remains stuck in the mud, so things can seem stale. But this doesn’t mean the fundamental divide can be wished away.

Both sides agree we want lower inequality and lower poverty, more employment and more investment, better and fairer growth, dignity and human rights. 

Yet each side believes the other’s path leads to ruin and the failure to achieve these goals — or indeed to compound existing problems.

Social compacting is a death cult because it pretends to gloss over these irreconcilable differences and sustains an unsustainable status quo to the point of destruction.

You cannot gloss over constraints — they exist or they don’t. True, they can be further away or nearer, but ultimately you believe that the Treasury is doing the right thing now or it isn’t.

Business ultimately sees a small window of upside that needs to be seized and is pragmatic enough to believe that not all solutions can be solved in one step when there are capacity constraints. One must target what’s most important in a resource-constrained world and hope the rest will follow as much as possible, with the state guiding and nudging.

To try to solve all problems at once risks missing the opportunities available. This is especially true of needing an investment-led, labour-intensive economic recovery where every single ask in terms of local content and empowerment and corporate tax and prescribing how it must happen and with what money from whom, will simply derail the whole thing.

The just-energy transition is an example of this where interests are happy to squabble over getting everything just right while also reinventing global capitalism and finance and missing the opportunity for cheap energy and protecting the transition of coal jobs, which, if you can just pick two things, are all that matter here.

When positions can’t be reconciled, political leadership at the highest level is about deciding winners and losers when everyone can’t be satisfied. This will be particularly important for the just-energy transition but also for fiscal policy, the public sector wage bill (which cannot be negotiated in some kind of trade-off) and for skills immigration reforms.

Here, talk-shops such as the Presidential Economic Advisory Council can be of use. While its report into the ERRP process was a mixed bag concerning blockages to reform, the president can make choices that could eventually work. 

If all sides want the same outcome for jobs and development, then what separates them is that one has a pragmatic fear of an explosion that throws the country off the fiscal cliff as the resource constraint is ignored, with the result that there are even worse outcomes for jobs and development.  That view of sustainability is the key to the divide.

Between now and March is the time for a large number of key choices, especially on the public sector wage bill and energy policy. They cannot wait.

• Attard Montalto is head of Capital Markets Research at Intellidex.




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