Strong reaction to ‘state capture’ means SA will not fall into dysfunction

“EXTRACTIVE institutions” structured to extract resources from the many by an elite few could not deliver sustainable economic growth, and although SA was seeing a disturbing emergence of such institutions, the fact that there had been such a strong response to “state capture” suggested SA was in no danger of falling into dysfunction.

This was the word from Prof Mthuli Ncube, of Oxford University’s Blavatnik School of Government, who opened the Treasury’s first winter school on public economics in Pretoria on Monday.

The week-long winter school hosts about 90 post-graduate economics students from around SA as well as interns and staff from the Treasury and other government departments.

The winter school, which is being addressed this week by international and local experts, aims to build capacity in government and to provide a forum to analyse the public policy and developmental challenges SA faces.

Ncube’s comments on the strong links between political institutions and economic growth will resonate in a context in which the independence of some of SA’s key institutions have come under attack, most notably in December’s “Nenegate” debacle.

Ncube said “inclusive” economic institutions were those that could create a level playing field, ensuring rules of the game that created economic opportunities for all, so encouraging investment and providing incentives for economic growth.

By contrast “extractive’ institutions did not protect property rights nor provide incentives for economic growth. They could deliver growth but not on a sustainable basis because they stifled innovation and created political instability as groups vied for political power, which conferred economic power.

SA did not yet have fully inclusive institutions and the cost of doing business was still too high, said Ncube.

The relatively small size of the informal sector in SA suggested something was wrong with SA’s economic institutions — it was easier to open a business in Rwanda than SA. Ncube also said SA’s black economic empowerment had not worked well and there was a need for a much greater focus on entrepreneurship.

Commenting on Brexit, he said it had negatives and positives for SA. While the decline in UK growth would affect SA’s growth, SA could craft stronger bilateral trade relations with the UK, and the repricing by capital markets of UK risk had made emerging markets such as SA look better.

Among the other speakers, national planning commissioner and Stellenbosch University Prof Mohammad Karaan said evidence showed that agriculture could play an important role in a modernising economy and the potential in SA was to develop more export-oriented agriculture, in areas under irrigation.

SA had 1.5-million hectares under irrigation and should bring another 500,000ha, with the potential for significant job creation.

He cautioned that SA’s land reform programme had been a “dismal failure”, with R70bn spent on land reform by 2014-15 but 90% of those failing. A new approach was needed.

SA’s land tenure system needed to be fixed, to allow more secure tenure that would enable an investment-friendly agricultural sector. Other impediments to investment in agriculture that SA needed to address included policy inconsistency and the capacity of the state, Karaan said.



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