Dr Pali Lehohla is the former Statistician-General of South Africa. Picture: Thobile Mathonsi
Dr Pali Lehohla is the former Statistician-General of South Africa. Picture: Thobile Mathonsi

OPINION: Glaring omissions in the recovery plan

By Opinion Time of article published Oct 20, 2020

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JOHANNESBURG - I inferred six distinct incoherent components of President Cyril Ramaphosa’s speech last week that should supposedly reflect the main impact of the Economic Reconstruction and Recovery Plan.

The annual gross domestic product (GDP) growth target is a miserly 3 percent over the next 10 years. Employment is 257 000 public sector job opportunities a year over the next three years. This makes up the 800 000 jobs. Two magical figures were thrown into the mix. One was 2 percentage points derived from local manufacturing and another was 1.2 percentage points based on if South Africa produces 2 percent of what Africa consumes.

Here are the glaring omissions and inconsistencies in the messages. 
The first is the omission of targets on poverty reduction and closing the inequality gap. The National Development Plan sets poverty and unemployment as South Africa’s No 1 joint-enemy. Their omission is so fundamental that we have to ask what is this new post-Covid-19 scenario that is envisaged?

The second omission are the inconsistencies over what is new that can be expected. At annual growth of 3 percent over the next 10 years, never, in one’s wildest dreams, will jobs be created that will be different from the pre-Covid-19 scenario – a 30 percent unemployment rate will continue to dog South Africa.

The second inconsistency concerns model fidelity. In this regard, two numbers that were not part of the model definition flew in. The first was the 2 percentage points and the second was the 1.2 percentage point. If these contributions were so important, why did they not emerge from the National Treasury’s modelling exercise, or are they so spurious that the Treasury rejected them? Such an addition would place South Africa’s annual average growth at 6.2 percent over 10 years.

Third, the model is silent on how it responded to Statistician-General Risenga Maluleke’s report that 2.2 million jobs were lost in the second quarter. The recovery plan did not address this.

The Quarterly Employment Survey for the second quarter said 700 000 formal employment jobs were lost in the second quarter. These jobless may receive the unemployment insurance benefit, but the other 1.5 million of the 2.2 million are not likely to qualify for this benefit. The recovery plan said the R350 relief will be terminated by December, because the fiscus can no longer afford it. To the number should then be added at least the 1.5 million who lost their jobs and don’t have access to the Unemployment Insurance Fund. The model fails to estimate the poverty levels that will result from this impending calamity.

Fourth, the targeted job numbers are underwhelming. If the best that can be achieved is 50 000 more jobs from the target of 200 000 jobs a year mentioned in the State of the Nation address eight months ago, then the difference we aspire to from the recovery plan in the post-Covid-19 scenario is inevitably a pipe dream.

Fifth, by their own submission, the Presidential Economic Advisory Council, while warning of debt, also argued that the South African Reserve Bank must stand ready to get to up to 15 percent of GDP in order to assist growth. The recovery plan did not flag this possibility, which means that the advice may not be implemented.

Sixth, the bold targets from Business for South Africa covering the next 10 years are not in the documents. These were GDP growth of 5 percent, additional employment 6 million, an unemployment rate of 15 percent, a debt-to-GDP ratio of 60 percent, and a gini coefficient of 0.43.

Modelling is a crucial exercise, particularly in the development of economic policy. It is the eye of the needle through which all economic evidence and assumptions are processed and outputs are tested for consistency, coherence and plausibility. It is against these attributes that a policy roadmap can be crafted and tested.

What is clear in the president’s speech is that the only modelled number was the 3 percent growth. The rest of the targets, including employment, are not modelled estimates.

The eye of the needle that we need so desperately does not exist. We rely on back-of-the-cigarette box abracadabra that informs our long-term plan. What a disaster. One thing is certain: at 3 percent growth, business gets a nominal annual income increase of 8 to 10 percent; labour and the poor lose out.

Dr Pali Lehohla is the former Statistician-General of South Africa.

BUSINESS REPORT

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