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7 ways to achieve radical economic transformation

May 09 2017 06:00
Lameez Omarjee

Johannesburg – Radical economic transformation is what South Africa needs, according to the Free Market Foundation (FMF) which has supported President Jacob Zuma’s call to restructure the economy.

According to a statement issued by the FMF, radical economic transformation is needed to achieve a free market economy with minimal government interference.

Executive director, Leon Louw explained that it is not certain what the president means by radical economic transformation. Last week at the World Economic Forum (WEF) on Africa, held in Durban, Zuma spoke on the role of radical economic transformation in achieving inclusive growth, Fin24 reported.

READ: Zuma: I reshuffled my Cabinet to make room for young people

Louw said if Zuma's call is for inclusive growth, then radical economic transformation should be supported. “In order to get inclusive growth we need a radical departure from the over-regulated system we have now,” he said.

“If he (Zuma) has in mind even more regulation, then it won’t be radical and it won’t be transformation, it certainly won’t be inclusive growth.”

Louw added that the only way to achieve inclusive growth is to have a free market economy. He explained a free market economy is one where there is recognition and strong protection of property rights and agreement-based engagements. He emphasised the importance of having less government intervention especially regarding trade and labour issues.

“There are sensible ways to bring about rapid enrichment,” said Louw. South Africa should do what it did during its first 10 years of democracy, he said. At the time, government reduced its size, balanced the budget and started restructuring by introducing privatisation and scrapped regulations. By liberalising the economy the country achieved high growth and job creation, he explained.

“Unfortunately we reversed the process and went back to over-regulation and control, state monopolies, and along with it corruption.”

Louw emphasised that wealth should be left in the hands of the people, with less government ownership and control. This entails the privatisation of “monstrous, loss-making and regressive” state-owned enterprises (SOE), he said.

The FMF suggests these SOEs are given to the people. “Every black person should get a post-Apartheid dividend or share in every parastatal.”

The FMF also outlined seven ways in which the economy should be changed:

1. Goods and property should not be confiscated for political purposes. Citizens should be certain their property is safe.

2. Less political involvement in the economy will lead to less corruption. 

3. Low taxation, where citizens should keep their earnings. Louw explained that countries like Rwanda, Ghana, Mozambique and Botswana have encouraged investment by guaranteeing higher returns as a result of lower taxes.  

4. Trade should be free, within an open market and without government interference to determine prices. He added that citizens should have freedom to move money in and out of the country by “scrapping” exchange controls.

5. Professional development should not require government supervision, such as having licences and clearance certificates issued.

6. Purchasing smallholdings should be different to other property transactions. Further, regarding property, land in townships should be given to the people who live there. This will inject wealth of about R1 tr in the hands of South Africans, this is almost a third of GDP, said Louw. Property rights should also be protected, and expropriation laws should not be inconsiderate, he added.

7. Starting businesses should be simple, and not entail “complex forms” and documents required by financial services regulations. Using the Financial Services Board (FSB) as an example of a “bureaucratic monster”, Louw said it should either be scrapped or returned to what it was previously. This being, a “small outfit” which ensures businesses are not fraudulent and which remain solvent. He added that a socio-economic assessment on regulations should be conducted. Those in excess of disadvantages should be ultimately scrapped.

Louw told Fin24 that radical economic transformation involves “radically uprooting measures causing the problems” and that more regulation would be “conservative transformation”.

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