Policy vacuum

Posted On Thursday, 07 June 2001 03:01 Published by
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SA IS stuck in an economic and industrial policy vacuum. That is why Finance Minister Trevor Manuel and Trade and Industry Minister Alec Erwin cannot agree on incentives for investors in big projects.

SA IS stuck in an economic and industrial policy vacuum. That is why Finance Minister Trevor Manuel and Trade and Industry Minister Alec Erwin cannot agree on incentives for investors in big projects.

Manuel was never particularly enamoured of the idea of reintroducing tax incentives. He begrudged the R3bn that he set aside in this year's budget for the scheme. So it is not inconceivable that Manuel's team has moved slowly to put flesh on the bones. Conspiracy theorists might be justified in assuming that finance officials will strive for a set of qualifying criteria so stringent that few companies will make the grade.

The spat shows up the divisions in government over crucial aspects of economic policy. Crudely, Manuel's team represents the 'Gear' school of thought. It is by now painfully obvious that Gear the growth, employment and redistribution strategy was a misnomer. It failed to deliver rapid economic growth or any of the other promises of its title. It was, in effect, a macroeconomic stabilisation plan. The assumption was that macroeconomic stability would draw in sufficient capital inflows to generate growth, jobs and redistribution.

SA's belief that international capital markets automatically reward good behaviour has been shattered. That is why the emphasis is now on 'microeconomic' policy, which appears to be code for carefully targetted state interventions. The approach implies a more aggressive industrial policy, spearheaded by Erwin's team.

President Thabo Mbeki has made it clear that he wants to emphasise microeconomic reforms, and policies such as tax incentives and a wages subsidy were announced. But the two sides of the ideological divide have yet to find common ground. Policy implementation is being delayed as the intellectuals slug it out.

It is easy to think of reasons why the tax incentive scheme won't fly. It may favour glamour projects that turn out to be white elephants, like Mossgas and Saldanha Steel. Much of it will be linked to SA's defence procurement plan, heightening doubts about long-term commercial viability. Bureaucrats would play a big role in commercial decision-making, which they generally are illequipped to do. The scheme may also be open to abuse by corrupt business people. And so on. Manuel has a lot of ammunition.

Yet so does the other side. The fact is that Gear has not delivered. The handsome rewards assumed to flow from good behaviour have not materialised. Clearly, the straight and narrow is not all it is cracked up to be.

Carefully targeted interventions, including tax incentives, are indeed needed to kickstart growth. Manuel and Erwin must set their differences aside and get to work.

Publisher: Business Day
Source: Business Day

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