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Bury NDP. State monopolies a double whammy – expert analysis

Sep 07 2016 11:34

It’s long and detailed but well worth the read. Regular Biznews contributor Johannes Wessels sinks his teeth in the state owned ports, and unpacks the inefficiencies created by such a monopoly. He goes as far as saying these types of entities demonstrate a death grip on the economy.

And clear examples of where poor public service delivery spawned private sector interventions are education and policing.

And while government thwarts market forces and blackmails vested interests to obtain their ideals, the NDP and NGP are merely instruments of helping it forge this consensus. And throw on all the legislation and regulation that follows, it is constraining economic competition and retarding growth. – Stuart Lowman

By Johannes Wessels*

It is time to bury the National Development Plan (NDP). Government has through both ignorance and deliberation strangled it to death since its publication.

But spill no tears (despite Raymond Parsons’ repeated pleas that this “good plan should only be implemented”): it was not a plan that would have enhanced the economy. It was not based on planning for increased competition.

The recent development around State-owned enterprises (SOEs) – often referred to in Afrikaans as “die Grypnet Konglomeraat” – is a case in point. The President unexpectedly assumed the chair of a committee to oversee whatever Treasury may be up to concerning the SAA, Eskom, Transnet, Portnet and the plethora of more than 170 SOEs.

It demonstrates the total irrelevance of the NDP: that 400 page document put together under the leadership of Trevor Manuel and Cyril Ramaphosa who argued the case for a clear public interest mandate for each and every SOE.

The NDP states unequivocally (p 395) that the reason why some SOEs were created may not be relevant today since “the character of both government and the market changes over time” and the “gap that they were set up to fill has either ceased to be of policy significance or can now be dealt with in… a sustainable way without public sector involvement”.

The NDP further states that individual SOEs should be “held accountable for how they use public resources in promoting the public interest”.

Who has held the SAA, Eskom, Transnet, Portnet, the wasteful IDZ structures and the majority of the other SOEs accountable? Maybe it is time for President Zuma in his new role as chairman of the committee overseeing SOEs to state what the public interest is in maintaining a state monopoly on ports given the fact that the National Port Authority (NPA) determines tariffs.

With no competition between ports there is however no incentive to improve infrastructure, productivity or technology. Two recent reports confirm this:

The Port Benchmarking Report: SA Terminals 2015/16 (published in May 2016) states “one of the constant and recurring themes… is the cry about inefficiencies in South African ports which affect the country’s trade and competitiveness.

Except for a pre-occupation with Gross Crane Moves (GCM) per hour and complaints about vessels spending too long at anchorage and even at berth, the quantification of the problem reveals a serious dearth in documentation of the magnitude of the problem. From the perspective of shipping lines, GCM has limited value in assessing port efficiency as they are far more interested in Ship Working Hours (SWH) and total port turnaround time.”

  • • The latest available Port Tariffs Benchmarking Report of 2015/16 states that even after significantly lowering tariffs the previous year, “SA port tariffs remain significantly higher than the international benchmark”. For cargo owners the premium over the global sample average is an almighty high 267% (down from 388% in 2014/15) with users in container ports paying a premium of 117% above the global sample average.
  • These premiums however do not guarantee exceptional service (Port Benchmarking Report: SA Terminals 2015/16): Ship turnaround time in our premium container port (Durban) is more than double the Global Average Time and 4 times longer than the average Japan port turnaround time (See Figure 1).

    It is a massive impediment on economic growth with both opportunity and real costs for exporters and importers rendering them less competitive in the global world and thus less able to create jobs.

    It is the poor that suffers most due to lack of growth and consumer prices inflated though managerial and logistical incompetence. Employment opportunities and additional entrepreneurial space open up when there is growth. The report also highlights Durban’s rating as Liquid Bulk terminal as “very low on the efficiency scale and is ranked as a follower of benchmark ports”.

    Wessels_average_ship_turnaround

    The high tariffs as well as inefficiencies are protected through the state monopolistic structure. It makes for bad planning: Richards Bay harbour has no container facility and all the containers for import and export for the industries in Richards Bay and the mills of northern Natal have to be trucked from Richards Bay to Durban or the other way around.

    The NPA maintains a container terminal in Richards Bay was not warranted since Richards Bay was not earmarked for container handling and should not compete with the port of Durban. In 2013 a spokesperson of the NPA acknowledged: “our ports are complementary, not competitive”.

    Read also: Donwald Pressly: NDP reduced to a lame duck. No collective Thuli Madonsela.

    This lack of competition is the root cause for the state monopolistic results of inefficiency and extraordinary high costs.

    Now that Eskom can meet the lower electricity demands caused by lower growth (and even real decline) in mining & industrial activity, Brian Molefe turns on independent power generating companies: demonstrating again the inherent distaste for private sector initiative and proving (yet again) that economic policy uncertainty is alive and well.


    Trevor_Manuel large

    Cyril Rampahosa (L) and Trevor Manuel were instrumental in developing South Africa’s National Developmental Plan.

    The ambitious NDP envisaged the trebling of the South African economy by 2030 adding in the process 11 million work opportunities: there is no evidence of progress.

    Neither has the New Growth Path (NGP) any chance to reach its target of 5 million jobs by 2020.

    Government’s explanation of these failures being international global conditions (first the financial crisis and then the implosion of the commodity cycle with China having changed its raw resources diet) and the ever-lasting impact of apartheid, reminds me of the “splinters in the eye” complaints whilst ignoring the “beam in the own eye”.

    Let us for a moment look at what the hard statistics reveal. Figure 2 tracks the Budget surplus/deficit on the vertical axis and the current account surplus/deficit on the horizontal axis. (Source: Denker Capital, Thomson Reuters Datastream).

    Wessels_Full_Steam_Backwards

    During the Mbeki-Manuel era (encircled in green) there were 2 years of budget surplus, 6 years of budget deficit not exceeding 2% and one breakeven year. In this period there were also 2 years (2001 & 2002) of current account surplus.

    After Mbeki’s ousting as ANC leader during the Motlanthe-Manuel year a budget deficit of almost 6% combined with a current account deficit of 4.5% (yellow circle). The Zuma-Gordhan era of 2009 – 2014 (encircled in red) ran up significant budget deficits (-4% and worse) and current account deficits in all those years as well. The single Zuma-Nene year is encircled in purple.

    This chart tracks how the hesitant yet respectful acknowledgement of free enterprise by Mandela and to a lesser extent Mbeki gave at the Polokwane ANC conference way for an undiluted commitment to an economic dispensation dictated by Government.

    The Chinese and Venezuelan models of state-led development with control of the economy and a plethora of state owned enterprises was closer to the ideological mothers’ milk of the ANC-SACP alliance than accepting freedom and space for private initiative.

    Since then it has been full steam backwards towards disaster: Government expenditure has accelerated, but in the most unproductive way. A bloated civil service without efficiency gains was the result.

    Education and policing are two prime examples where poor public service delivery spawned private sector interventions: the growth of Curro-school enrolment and the ballooning of private security services by almost 170 000 jobs.

    We have seen Von Hayek’s reasoning that well-intentioned socialistic ideals and the quest to pursue “better outcomes” (read utopia) through a centrally planned approach that laid the foundations for extremism.

    Socialists and supporters of state-led central planning advocate that inequality is so entrenched that blueprints are required to change historical and structural defects.

    Listen to the NGP: “Creating decent work, reducing inequality and defeating poverty can only happen through a new growth path founded on a restructuring of the South African economy… The developmental state has to minimise costs for business except as required to support transformation toward a more equitable, decent work-generating and green economy. A developmental state is not simply hostage to market forces and vested interests”.

    In effect Government thereby says: The developmental state can maximise costs for business as and where the government decides such costs will help with the governmentally determined transformation targets. In short: Government will thwart market forces and blackmail vested interests to obtain their ideals.

    Are charters, BEE, preferential tender procurement minimising or maximising costs? Hear also Ramaphosa’s 2016 utterings that the ANC will persist “until we have control of the economy”. Government’s primary objective is wealth distribution according to racial demographics: not economic growth.

    The NGP states: “There is growing consensus that creating decent work, reducing inequality and defeating poverty can only happen through a new growth path founded on a restructuring of the South African economy to improve its performance in terms of labour absorption as well as the composition and rate of growth… The Government is committed to forging such a consensus and leading the way”.

    It implicitly leaves only “a follower role” for business, freedom and competition in the economy.

    The NGP and the NDP are not instruments promoting free competition in the marketplace: they are instruments of governmental “forging” consensus down the throat of all other actors.

    The NGP and NDP are diametrically the opposite of what Von Hayek argued for: planning aimed at increasing competition. The monopolistic port situation that is utterly failing the case for economic growth can be turned around by privatisation in a manner that would ensure competition: the NDP is silent on that.

    Von Hayek argued that central planning is an inferior method of guiding the economy. “Competition is superior not only because in most circumstances it is the most efficient method known, but because it is the only method that does not require the coercive or arbitrary intervention of authority.”

    Von Hayek is also not against regulation: “The successful use of competition doesn’t preclude some types of government interference” e.g. “to limit working hours, to require certain sanitary arrangements, to provide an extensive system of social services fully compatible with the preservation of competition… To create conditions in which competition will be as effective as possible, to prevent fraud and deception, to break up monopolies – these tasks provide a wide and unquestionable field for state activity.”

    But legislation and regulations constraining economic competition retard growth.

    What then of the NGP that argues for the need for a competition policy to combat “concentration and collusion on price and market-sharing”. The NGP sets itself against “anti-competitive conduct” that “profits from narrow and backward-looking strategies based on inherited positions of market power”.

    It is beset by ensuring competition through control: it is dumb on promoting competition through facilitating competition. That is why the NGP is blind for the negative outfall of the monopolistic port situation.

    If the NGP (and Government therefore) is really convinced monopolies are bad, commence with dismantling the apartheid inherited monopoly on railroads, harbours & airports.

    The fact that there is no move in this direction is indicative that Government is only against monopolies in areas where it deems private space as being beyond government control. Again a case of so focused on the splinter in the other’s eye and not seeing the anti-competitive beams sticking out from its own eyes.

    Von Hayek’s statement “the demand for the new freedom was thus only another name for the old demand for a redistribution of wealth” reminds of the NDP where it proclaims: “South Africa needs an economy that is more inclusive, more dynamic and in which the fruits of growth are shared more equitably”? Von Hayek considers that dangerous for freedom: “The claims that a planned economy would produce a substantially larger output than the competitive system is… a false hope which drives us along the road to (state-led) planning”.

    Businesses that play along easily diluting shareholder value to meet transformation targets through BEE schemes or tender-wise-value-foolish joint ventures endanger economic freedom.

    The principle that the end justifies the means (which in individualistic ethics is regarded as the denial of all morals) in collectivist ethics becomes the supreme rule. There is literally nothing which the consistent collectivist must not be prepared to do if it serves ‘the good of the whole’ because that becomes the only criterion of what ought to be done”.

    Enterprise in Nazi-Germany realised that too late. Their subservience made them lame tools to be manipulated by the Führer. The same for enterprises in Chavez Venezuela: in the end they were eaten by the compulsive collectivist devourer. Any business in South Africa thinking there is an end to BEE shareholding demands need to listen to Cyril: he is dead earnest when he states the ANC will not stop before having control of the economy. Business leaders imagining therefore that Ramaphosa’s business experience will be the saving grace are Red Riding Hoods believing comforting utterances and disregarding what their eyes can clearly see.

    Von Hayek said collectivism required that people should come to regard the collectivist goal as their own. To achieve that control manipulation of information was required. Were P W Botha’s calls on society to mobilise against the “Total Onslaught” in principle different from the ANC calls to total transformation? In both cases Government formulated the paradigm: forging the economy to suit their ideologies and narrowing the entrepreneurial playing fields.

    If captains of business & industry choose freedom and not serfdom, they will actively engage with a Government experiencing a double deficit pinch. And they can roll back central planning and practices that stifle competition.

    How?

    The IMF recently remarked the inefficiencies and extraordinary high costs of our ports should be addressed.

    Von Hayek would argue that if the monopolistic stranglehold can be broken and competition be introduced, the benefits of more efficient ports, lower logistical costs for landed products and adding value to exports by lower freight costs would result in a common good. That growth will be achieved through freedom and competition: not control and charters.

    The downgrading by the rating agencies will not be averted by saving on whiskey at state dinners or convincing Mr Zuma to fly economy class: it will only be achieved by getting rid of the policy and regulatory barricades that prevent growth.

    This is what captains of business and industry should work for: form four or five logistical consortia (Bidvest could lead one, Remgro-Grindrod another, and involve the international logistical giants from Singapore, Denmark, Rotterdam as well) and approach Government with proposals to buy all the ports as well as the railroads with detailed investment plans how to improve efficiencies, lower tariffs and what the effect and impact of that would imply for the overall economy.

    It will not only restore confidence: it will restore growth and begin the roll back unemployment and poverty.

    • Johannes Wessels, Director of the Enterprise Observatory of SA. Views expressed are his own.

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