Economic Change Essential Post COVID-19

Past government policy wrecked the economy. Change is essential.

– In conversation with Dawie Roodt, Efficient Group chief economist and Leon Louw, FMF CEO 

South Africa’s dire economic situation was caused by the wrong macro-economic policies being adopted in the past, and the country needs a radically different path going forward, according to Free Market Foundation (FMF) CEO Leon Louw and Dawie Roodt, Chief Economist at the Efficient Group.

Watch the full discussion here

“South Africans are punished twice by bureaucrats: we are punished through taxes, and then punished again stifling laws and policies,” said Louw. South Africa could become an attractive investment destination, but this will only happen if the right policies are implemented. “If a country adopts pro-market reforms, growth and prosperity will follow inevitably. The global evidence is indisputable.”

On the R500 billion relief package announced by President Ramaphosa, Roodt said that, “State debt levels will balloon significantly. The fiscal account simply cannot afford these sorts of measures.” Roodt predicts a downward spiral, with ever higher levels of inflation. “The state’s debt to GDP level is likely to exceed 80% within a year or so. Crucially, a ‘temporary’ increase in state spending is never truly just temporary – it sets a very concerning precedent,” he said. 

Louw provided a simple list of policy areas that should be the focus of government’s attention and, if addressed correctly, will result in the material improvement in economic well-being. In brief, these are:

  1. The electricity crisis: In the Electricity Regulation Act, 2006, change the word “no” to “any”, to read: ‘Any person may generate, supply, trade electricity’.
  2. Property rights: Say no to expropriation without compensation. Instead, reassure investors and individuals coming to South Africa that “nowhere in the world is your property safer than here,” and mean it.
  3. Get rid of foreign exchange controls, which disincentivise investment.
  4. Significantly cut red tape, especially to small business and now especially to informal traders and street vendors.
  5. Allow people to improve the quality of their own housing without jumping through regulatory hoops. People living in tiny shacks are prohibited by law from improving their homes with unreasonable building code and town planning regulations.
  6. Small business impact assessments: Every single law or policy must pass a small business impact assessment test. If a law or policy does not pass the test, but is enacted nonetheless, that law must be challenged in court on the strength of the test.

Louw advised citizens, politicians and bureaucrats, to look at the Fraser Institute’s Economic Freedom of the World (EFW) index, especially the South African edition published by the FMF.

“If you want to prosper, and you want to have a high life expectancy, and you don’t want to die of COVID-19 or flu or TB or something similar, you need to become rich – and how do you become rich? You live in a country with a high score on the EFW Index. SA was going up (we were 47th in the year 2000) but we have been dropping consistently. In 2019 we were ranked 101 out of 162 countries. The further a country falls on the rankings, the poorer its citizens will be.”

Roodt emphasised that, going forward, people need to be as well-informed as possible, particularly, “You need to identify those risks in the area in which you operate, especially business risks and then you need to figure out how to manage those risks.”