The promise of South Africa’s transition in 1994 was not just political freedom for the majority, but economic emancipation as well. This was encapsulated in the election slogan of the African National Congress – subsequently re-used in all other elections –
promising “A Better Life for All”.
Climate change advocates want the state to adopt a comprehensive policy and funding models to close the country’s gaping inequality gap
But delivering on this promise has been harder than articulating it. For 26 years South Africa’s average GDP growth has been pedestrian at best. Unemployment has been high even when economic growth was good, never falling below 20% during the democratic era. With a full-blown economic crisis today, it stands at over 31% and is projected to rise above 40% by year’s end. By most comparisons, South Africa remains the most unequal society on earth. Even before the Covid-19 pandemic hit, the economy was in a deep recession. It now faces the possibility of a depression, should growth not rebound in 2021.
While government leaders, the ruling party and business repeatedly say that addressing Covid-19 should include moving into a sustainable future, until now, the country is mostly seeing stopgap measures. Even a look at recent documents from the ANC’s Economic Transformation NEC sub-committee and Business for SA, much of the content is about identifying the issues, with little attention to how to bring about real immediate change.
But there are socio economic think-tanks which are putting alternative proposals on the table that are doable and should be considered
Recently, a group of NGOs – 350Africa.org in partnership with the Climate Justice Coalition and the Institute for Economic Justice – released a report titled No going back to normal: Imagining a Just Recovery in South Africa. It focuses on how to build a resilient future, with an emphasis on the climate. South Africa already has a Climate Change Bill, drawn up in 2018, but it is yet to see the light of day as an Act of Parliament.
The report is centred on five pillars:
- Put people’s health first, no exceptions
- Provide economic relief directly to the people
- Help our workers and communities, not corporate executives
- Create resilience for future crises
- Build solidarity and community across borders – do not empower authoritarians
“Here we begin to think through how South Africa can develop new economic and social policies which reflect the above principles through the various stages of COVID-19: respond, recover, and rebuild. We argue that policies must be geared towards building a different kind of economy and to recalibrating the system in which we live in order to mitigate the climate crisis, build resilience, and ensure the wellbeing – including health – of all people. A programme for response cannot skirt on the edges of transformation but must entail a fundamental rethink of the economy,” the document reads.
WHAT NEEDS TO BE DONE
The report says a good place to start with is rebuilding the public service by
transforming public transport and through public densified, low-carbon housing, which will help start seeing a positive shift in the country’s spatial inequality.
“They can grow the economy and fight both unemployment and poverty through reducing what people spend on transport and the time spent commuting, improving support and infrastructure for pedestrians and cyclists and by stimulating consistent and well-paying jobs across manufacturing, housing, transport, and infrastructure maintenance,” it reads.
“And they can address climate change through reduced carbon emissions and lowering harmful land usage.”
A green economy needs to be complimented with the “purple economy”, which prioritises and values care work in societies. This requires more investment in quality social infrastructure such as care, health and education services.
A study from the International Trade Union Confederation has found that investing 2% of GDP in care activities and infrastructure will increase overall employment by 2.4 to 6.1%.
The report calls for social ownership to be central in the transition to a zero-carbon energy system. It must include communities and cooperatives.
“A Green New Eskom should also play a vital role in driving forward publicly owned renewable energy. A Just Recovery must support a just transition for coal-dependent communities and workers, as well as other sectors who may be impacted by a transition to a zero carbon, renewable energy future.”
The document says it is time to start pursuing structural transformation instead of structural reforms. It says the structural reforms being punted by The Treasury focus on less regulation, cutting of budgets, and policies “supposedly” aimed at increasing investor confidence. But these interventions have not worked to build an inclusive and responsive economy, and instead have entrenched inequality, poverty, unemployment and ecological destruction.
“Structural transformation on the other hand aims at a more diversified economy able to sustain better paid, more productive, higher skilled and more sustainable jobs. This requires moving away from reliance on commodities and fossil-fuel production… changes to our macroeconomic policies… a diversification of the goods and services we produce and how we produce them.”
Also, while a greater role for the state is essential, South Africa should not be caught in a false choice between corporate ownership and large, centralised state-owned enterprises. Instead, democratic public ownership must be part of the solution, which will see a change in ownership and more stakeholders participating in decision making.
HOW TO FINANCE A JUST TRANSITION
While at least for now it looks unlikely, the report, like many others being
produced by developmental economists calls for a post-COVID-19 fiscal stimulus package to support the proposals. It says in addition to direct state financing, the Development Bank of Southern Africa (DBSA) and Industrial Development Corporation (IDC) can play a more strategic role.
“The IDC played a central role in catalysing industrial development in the South African economy by funding large-scale strategic projects, mostly in mining and quarrying, machinery and metals products, electricity, gas and water supply, and chemicals and other mineral products. It was a leading contributor to the carbon-and mineral-centric monopolistic structure of the economy and must now play its role in moving the economy away from that,” it reads.
“The DBSA plays a central role in providing finance for industry and has been an important funder for critical infrastructure projects, including supporting industries such as electricity, water, transport facilities, and municipal services. It has also funded projects towards large-scale adoption of renewable energy, in total approximately 33 renewable energy projects, amounting to R 17 billion up to 2019.”
It says given their important role in financing development projects; their current funding capacity is insufficient to galvanise financing a “just recovery”. It makes a comparison with the Brazilian development bank (BNDES) and Chinese Development Bank (CDB) which stand at 16 and 14% of GDP respectively. By contrast, the combined assets of the IDC and DBSA amounted to only 5% of GDP in 2017.
Both foreign banks receive fiscal transfers from the state, whereas the IDC relies on raising funds in financial markets which limits its ability to lend at low rates, or to risky ventures. Another way to raise money is through tax revenue. The paper says taxes on high incomes and accumulated wealth should be raised. About 3500 individuals own 15% of South Africa’s total wealth. According to a study released earlier this year by Aroop Chatterjee, Amory Gethin and Léo Czajka from Wits University, a wealth tax on the country’s richest 354,000 individuals, could raise at least R143 billion for a post-COVID-19 recovery package.
The paper argues there is also room to increase tax rates on income derived
from holding wealth, from dividends or inheritance, which are currently taxed below income tax levels. For now, it says R80 billion can be raised by removing or reducing tax breaks, such as on private medical aid. It agrees with many other reports that by the government cracking down on illicit
capital outflows – South Africa’s revenue can almost double. In addition, an
estimated R7bn is lost annually to tax avoidance by multinationals alone.
The report also calls for the country to explore debt relief and the unconditional cancellation of all its fossil fuel-related debt, such as the World Bank loan given to Eskom to build a coal-fired power station.
By: Amy Musgrave