PETER ATTARD MONTALTO: Why visa policy is so important to SA’s growth prospects

Posted in: i-Blog, South Africa on March 11, 2019

This column was first published in Business Day

Who cares about visas? There is so much else going on in SA it’s sometimes a wonder why there is so much attention paid to this one issue.

Surely employment and inequality, let alone Eskom, are more important issues to be grappling with? Yet such a view would totally misunderstand the central nature that visas have taken up within the reform nexus of policy in SA.

Visas are so important precisely because they are so simple to fix and so frustrating (especially for the tourism industry but also business at large) in the lack of action.

There have been two highly specific state of the nation commitments to fix both the tourism and business visa issues, as well as numerous mentioned throughout the past year by the most senior politicians. Yet no meaningful steps forward have been taken.

Visas are an important issue, partly for the random reason that it has been alighted on by (quite literally) everyone as a seminal and single point of focus to measure the reformist credentials of President Cyril Ramaphosa.

This speaks to the strategic need to focus attention but also the real deep need for skills transfer (ie importing skills from abroad) to boost productivity and kickstart growth (let alone external skills to fix Eskom to which government seems inexplicably opposed), the ability to short circuit some of the constraining factors against growth and so lead to more job creation.

It is also crucial for the most labour-absorptive sectors — tourism. SA struggles to define a meaningful external trade offering that is also labour intensive. Tourism wins on every front and plays to the country’s natural endowment and strengths.

Tourism has employment multiplier effects of about 1.5 times and investment multipliers of about 20 times. The Public-Private Growth Initiative estimates that with better operating conditions (including visas) a R31bn direct investment could leverage R633bn of indirect investment in the five years until 2023. Similarly in such a scenario employment could rise from 880,000 now to about 1.2-million.

It should also be a political-vote winner surely.

Tourism is a quick way to boost employment and local content and services when you only have had one year to an election and are in dire need of holding on to key vote share levels. It is conceivable that a national visa/tourism turnaround strategy properly implemented in February 2018 could have turned the 2019 growth dial.

The government has been told continually by captains of industry, the Public Private Growth Initiative process, business leaders, the investment lions and the media that this is an issue of critical importance, yet nothing has happened.

Why? Because political capital has not been deployed and fundamentally this is an example of how the mechanical functioning of the state is broken.

Political choices have been transferred to policy choices (in other words the announcements have been made) yet political capital is then not deployed to ensure implementation occurs, accountability is guaranteed, outcomes measured and feedback loops created.

At a very basic level this lack of feedback loops means that a policy announcement does not transfer into a political economy study of how political blockages can be unblocked and where political capital and attention is most needed.

This is particularly applicable at the department of home affairs where deep-rooted (though not overly longstanding it must be said), securocrat policy forces stymie reform. Indeed, such forces, were seen at work recently after the leaking of a narrower critical skills list that would force foreigners already working in the country on temporary visas, out.

Such forces need to be removed swiftly through the use of oversight and accountability and then new capable or at least compliant technocrats put in place. Heads need to be whacked together and voices raised to ensure success.

This simply is not happening and hence the uncertainty seeping into the economy and tourism especially.

Moreso though, given this seminal position of the visa issue — it is affecting economic sentiment much more widely I believe — and this point I think is underappreciated in Pretoria.

The skills transfer issue is also particularly important because it speaks to a wider issue of emigration which anecdotally is now picking up, seen in part in SA Revenue Service taxpayer data.

Further, the “soft nationalism” mindset (or a term like “domestication” might be better) is now also infecting tax policy. Recent changes to the tax code in the budget create problems for SA corporate leaders who may have complex multicountry tax structures in line with their international business activities. Global incomes will now be taxed, putting SA in the same league as the US.

The effect of this is to strongly increase the risk of such South Africans who make up an important segment of the tax base, choosing to “offshore’ themselves and stop paying SA tax — so harming the fiscus and causing skills flight.

The Reserve Bank and the national Treasury have continually shown over the years in research that an open and dynamic crossborder flow of people is crucial to ensuring higher long-run potential growth. It is also one of the easiest issues to fix with the most political upside with the electorate.

Yet internal factional splits are gumming up the system of government and implementation — a situation which will not change after the election. The longer this goes on for the more damage to growth there will be, but also the more lost “easy” upside to growth that is not realised.

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

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