Economic Recovery Attempts Through Social Compacting – By Dr Yacoob Abba Omar

“…Mkandawire indicated the variety of social compacts SA needs: nation-building pacts that bridge the racial divide and heal the wounds of past injustice; the “development pacts” that ensure accumulation and legitimise such accumulation in the eyes of many; “competitive pacts” that ensure performance in the global market while governing the market ; “social pacts” that produce both “patient labour” and “patient capital”’. He indicated an important reason why many of SA’s pacts have been foundering: “Compounding matters is the lack of clarity and timidity by the state about its own long-term projects”
By Dr Yacoob Abba Omar

Economic Recovery

In his February 2022 State of the Nation Address, President Ramaphosa announced that “To grow our economy, create jobs and combat hunger we have given ourselves 100 days to finalise a comprehensive social compact”. The President’s announcement came at a time when there has been growing scepticism of the prospects of the Economic Reconstruction and Recovery Plan (ERRP) which he had unveiled in October 2020 being implemented. More and more voices are questioning whether any of the objectives set out in the plan, let alone the mooted social compact, will be achieved.

Since South Africa’s first democratic election of 1994 four seminal long-term plans and a plethora of complementary ones have been produced. These are the Reconstruction and Development Programme (RDP); the Growth, Employment and Redistribution framework referred to as GEAR and its complementary Accelerated Shared Growth Initiative of South Africa (AsgiSA); the New Growth Path (NGP) and in 2012 the National Development Plan (NDP). An important complementary plan is the triennially issued Industrial Policy Action Plan (IPAP) of the Department of Trade, Industry and Competition (DTIC).

The NDP key goals were reducing unemployment to 14% by 2020 and 6% by 2030 based on the creation of 11 million additional jobs. It went on to say that achieving this would require an average annual GDP growth rate during the period of the NDP of 5.4%. Fine sees in this trajectory from the RDP to the other plans an abandoning of the ‘progressive policies for the post-apartheid economy… neo-corporatism was subject to a heavy assault (by) GEAR’ (2015:14). He has criticised the NDP for ‘presuming a unity of purpose and identity that simply does not, and increasingly so, exist’ (2015:17-18).

The 2018 Presidential Jobs Summit was seen as a follow up on a similar one held in 1999, the 2003 Growth and Development Summit, the 2008/9 Framework Agreement in response to the global financial crisis and a series of social accords on specific themes (skills development, education, the green economy, local procurement and youth employment) which were adopted between 2011 and 2013.

There had been a number of reflections as to why these various initiatives had not quite achieved what they set out to do. The Mapungubwe Institute, in its input to the Social Cohesion Conference hosted by the Department of Arts and Culture in 2020, indicated that social compact must respond to developmental challenges, with specific goals such as development, conflict resolution, social policy, labour relations etc.

In the Inaugural Mapungubwe Institute Annual Lecture, Mkandawire (2012:40) indicated the variety of social compacts SA needs: nation-building pacts that bridge the racial divide and heal the wounds of past injustice; the “development pacts” that ensure accumulation and legitimise such accumulation in the eyes of many; “competitive pacts” that ensure performance in the global market while governing the market ; “social pacts” that produce both “patient labour” and “patient capital”’. He indicated an important reason why many of SA’s pacts have been foundering: “Compounding matters is the lack of clarity and timidity by the state about its own long-term projects” (2012:40).

Other lessons the MISTRA report highlighted were that the entire political economy matters.  There needs to be incentives for various social partners to maintain social partnerships.  That the state needs to be adequately capacitated to manage such agreements. The private sector also needs to come to the party, as part of visionary leadership across society.

Given these lessons being drawn from previous pacts, there was a conscious attempt not to repeat the mistakes of the past when, auspices of NEDLAC, the 2018 Job Summit emerged with a Framework Agreement which made provisions for job creation, job retention and economic growth which was signed by the various social partners involved in Nedlac. However the Covid 19 pandemic shifted the political and economic terrain dramatically, with President Ramaphosa in an address on 21 April 2020 saying: “The pandemic requires an economic response that is equal to the scale of the disruption it is causing”. Signatories to the Job Summit recognised the need to build on the achievements of the Job Summit.

On 10 July 2022 an amalgam of business organisations organised under Business For South Africa (B4SA) released a document titled ‘Post COVID-19: A New Inclusive Economic Future for South Africa: Delivering an Accelerated Economic Recovery Strategy (AERS)’ (2020:16). Through the various negotiating forums of NEDLAC (2020a), it was agreed that the economic recovery strategy should be based on the following principles: immediate job protection, accelerators of economic activity and job creation, critical enablers of economic activity and job creation, addressing broader conditions in the socio-economic environment.

Parallel to the process of developing an economic response to the devastation caused by the Covid 19 pandemic, the NEDLAC social partners agreed in September 2020 to a Framework Agreement for a Social Compact on Supporting Eskom for Inclusive Economic Growth. In its preamble it stated as a core principle, “The role of measures such as renewable energy generation and self-generation as means of both addressing climate change and diversifying the sources of energy feeding into the national grid to enable energy security coupled with concrete and clear measures to ensure a just transition that takes account of the concerns of affected workers and communities”.

Economic Reconstruction and Recovery plan

On 15 October 2020, President Ramaphosa tabled at a Joint Sitting of the Houses of Parliament, the South African Economic Reconstruction and Recovery Plan (ERRP) saying that “our challenge is not only to recover to the pre-pandemic levels of economic activity, but to lift ourselves out of an economic decline that has been several years in the making, while seeking to undo structural distortions that were (also) many decades in the making”. For this “durable social compacts are more important than ever…We must work together to build this new inclusive economy and to build a South Africa that works”. He indicated that “(t)he estimated impact of the plan as modelled by National Treasury is about 1.7% GDP growth additional to the 1.3% baseline from a no policy intervention scenario, bringing the total to about 3% GDP growth on average over the next ten years. It is also estimated that the plan shall result in additional 1.6 million jobs over and above the two million jobs in the case of the baseline scenario without further policy interventions. Thus, the plan is projected to add 3.6 million jobs over a period of ten years”.

Less than a year after the ERRP was released publicly, there were already critical voices being raised about its implementation, especially on the part of government. At a 1 February 2021 gathering the Minerals Council President Mxolisi Mgojo said that “it has been incredibly disappointing that a lack of decisive action has meant that – six months after the proposals were tabled – we still don’t have a coherent and inclusive plan…Government needs to partner with, and enable the private sector investment to grow the economy. It can do this by allowing private sector investment into rail, ports, electricity, pipelines, for example” (2021).

The Thabo Mbeki Foundation conducted a series of consultations on the ERRP with business, labour, government and civil society and came to the conclusion “that what President Ramaphosa and the Government had called a plan was in fact a vision!… When we studied the AERS, as we had done with the ERRP, it seemed to us that indeed serious work had been done by B4SA towards producing (an) Implementable Plan (2021:3).” The TMF report commented that “It was significant that for first time since 1994, business had come together to make a firm commitment to provide the much needed and considerable investment in our economy. But importantly, the Nedlac process provided the appropriate mechanism to take such important developments on board. The opportunity to do this still exists and requires that government should act to bring the social partners together” (2021:11).

In September 2021, about a year after the ERRP had been presented by President Ramaphosa to Parliament, the TMF came out with a scathing report noting business and labour expressing frustration with how government was leading the implementation of the ERRP. The TMF met with thirteen Ministers and their officials from what’s referred to as the economic cluster of government. It concluded that “it was clear that what was missing with regard to the work of the Ministers and their Senior Officials were time-specific national economic targets which were binding on Government.… In fact, only passing references were made to the ERRP by the Ministers and their Departments in their Parliamentary Budget Vote submissions between May and July’ in 2021.”

The TMF then proposed a range of steps to remedy the tardiness of the implementation of the ERPP, including the drafting of an Implementation Plan for Economic Reconstruction and Recovery (IP-ERR) which sets concrete targets, and overcome mistrust amongst social partners.

The year 2021 had not ended substantially better than the situation SA had been at beginning of the pandemic. According to StatsSA QLFS for 2021Q4 indicated that the economy since January 2020 had shed 2.2-million jobs. At the beginning of 2022, 12.5-million South Africans are without a job or income, and the number of those employed had fallen since January 2020 from 16.4-million to 14.2-million, a broad unemployment rate of 46.6%.

BUSA, through its CEO Cas Coovadia, reflected the growing frustration of the different social partners, calling upon the President in January 2022 to address the urgent need for structural economic reforms, and “a clear implementation strategy that demonstrates the importance of the government’s commitment to the ERRP”, by “identifying and calling for bids on five or six critical growth-enhancing infrastructure projects as a catalyst for job creation’”. Interestingly, BUSA emphasised the importance of the President ensuring “his government operates in a cohesive manner and that there will not be mixed messages from different departments”.

In his February 2022 State of the Nation Address, President Ramaphosa announced that “To grow our economy, create jobs and combat hunger we have given ourselves 100 days to finalise a comprehensive social compact”. Carol Paton reported in News24 that “President Cyril Ramaphosa took business and labour by surprise” with this announcement but by 11 April, 42 days will have slipped away.

She indicated that “separate engagement between government and the social partners is starting to pinpoint the issues. However, with the clock running, the parties are yet to meet together in one forum’. She reported that, according to her sources, the issues for a social compact are labour law reform, a basic income grant, investment targets for the private sector, and a debt-equity swap by government pension money for Eskom.

Conclusion

From this brief survey of SA attempts at economic recovery through social compacts, we have to ask ourselves why can we cannot get it right. Much of this is to with fundamentals, such as:

• “A capable state is the essential foundation for delivery on NDP objectives”, as noted by the National Planning Commission December 2020 review of economic progress.
• Need to prioritize, especially in a context where economic policy is being shaped by a disparate range of commissions, councils, departments, and advisory structures.
• Need for what Singh and Ovadia has termed a “political settlement” which is by its nature elite-led.
• Central to all this, an agreement of a pilot agency which can coordinate the workings of a social compact.

Such an approach is needed for the kind of elite compacting which has been pursued by states such as Mauritius. Such elite compacting should involve the various leaders of the social partners, with a particular emphasis on the black business playing a more responsible role. This facilitates a unified approach to rent management which is in the interest of the country as whole and not to any particular slice of the well-connected elite. At the same time, business need to visibly display a higher level of commitment to the well being of South Africans. The racially defined inequality in this country will always make the largely black working class, unemployed army and impoverished sections suspicious of capital which remains largely in the hands of whites.

The sector master plans could lay the basis for a clearer industrial policy, especially one which responds to the burning needs of addressing the dire state of employment, the need for a just transition to a low carbon economy, and advances in technology. However, addressing the financialisaton of the economy is critical so that capital can be deployed in ensuring the successful pursuit of these plans and the industrial policy generally. It also requires of the bureaucracy the technical competence to be able to muster the captains of industry behind these plans.

Last and not least would be the establishment of a firm ground upon which these compacts can thrive, a foundation based on democracy and trust amongst South Africans and between the various social partners.

ENDS/

References

Business for South Africa, July 2020. ‘A New Inclusive Economic Feature for South African Presentation’,   https://www.businessforsa.org/wp-content/uploads/2020/07/B4SA-A-New-Inclusive-Economic-Future-for-South-Africa-Presentation-10-July-Final.pdf

Business for South Africa, July 2020. ‘A New Inclusive Economic Feature for South African Presentation’, https://www.businessforsa.org/wp-content/uploads/2020/07/B4SA-A-New-Inclusive-Economic-Future-for-South-Africa-Presentation-10-July-Final.pdf

Coovadia, C. 2022. https://www.busa.org.za/business-unity-sa-busa-media-release-prior-to-the-state-of-the-nation-address-sona-2022-time-for-implementation/

Fine, B. 2016. Across Developmental State and Social Compacting: The Peculiar Case of South Africa. ISER Working Paper No. 2016/1. Grahamstown: Institute of Social and Economic Research, Rhodes University.

Freund, Bill. 2011. ‘A Ghost from the Past: The South African Developmental State of the 1940s’ https://phambo.wiser.org.za/files/seminars/Freund2011.pdf accessed 14 December 2021

MISTRA, 2019. Social compacts: theory and practice: MISTRA social compacting project 2019: updated MISTRA 2014 report

2020. MISTRA Social Compacting Report: Case Studies. Mapungubwe Institute: Johannesburg

Mkandawire, T. 2012. ‘Building The African State in The Age Of Globalisation: The Role of Social Compacts and Lessons for South Africa’, 29 March 2012, University of Johannesburg.

Nedlac, 21 July 2020. ‘Building the New Economy: Refocusing the 2018 Job Summit to Support the Economic Recovery Plan: Placing Employment at the Centre’, Nedlac.

2020. Framework Agreement for a Social Compact on Supporting Eskom

for Inclusive Economic Growth, September 2020 Annexure-A_Signed-Eskom-Social-Compact.pdf (nedlac.org.za)

Parks, M. 2021.’A mixed bag of fruit’, South African Labour Bulletin, https://www.southafricanlabourbulletin.org.za/a-mixed-bag-of-fruit/?msclkid=13248dd1c3b211ec80fbb1500a7ed0d4

Singh, JN and Ovadia, JS. 2018. ‘The theory and practice of building developmental states in the Global South’, Third World Quarterly, 39(6), 1033-1055, DOI:10.1080/01436597.2018.1455143

Thabo Mbeki Foundation, 2021. Report of the Thabo Mbeki Foundation on its engagements with the Nedlac social partners and proposals on a way forward. September 2021