A note on South Africa’s second Presidential Economic Advisory Council

South Africa’s second Presidential Economic Advisory Council (PEAC) held its inaugural meeting on 14th of January. The subsequent press release advises that the council “discussed the need to position South Africa for growth in a rapidly changing global environment”. After more than a decade of economic decline, rising unemployment and stagnant or declining living standards, there is surely some urgency to this. We need to know what the drivers of growth will be, and how policies will be adapted to expand investment and employment and raise living standards.

There are some clues in the previous council’s end-of-term report, published in May last year. It highlights the PEAC’s role in supporting reforms in the energy sector, including the 2021 lifting of license requirements for electricity generation investments. The PEAC also provided early guidance on facilitating private investment in the electricity transmission grid. It has advised on consolidating the plethora of existing funding mechanisms for small business development and on measures to broaden agricultural development and investment in rural areas.

The PEAC’s January 2024 “Reflections on South Africa’s Economic Policy Challenges” posed the question “What can be done to lift growth and job creation in South Africa?” Six “pillars” were proposed:

• Building a new “energy-industry-complex”
• Maintaining and expanding transport and logistics infrastructure
• Boosting agriculture exports and the release of government-owned land to selected beneficiaries
• Tourism promotion
• Support for mining through rail and ports logistics and promotion of minerals linked to the global energy transition
• Mobilising the growth potential of South Africa’s world-class financial sector and other service and commercial activities.

These are no doubt topics of interest, but they are disposed of in just three pages with no quantification or specific policy recommendations, while a later section on “place-based policy and spatial reform” comprises just four sentences. A section headed “promoting employment through firm support and incentives” sensibly focuses on extending the existing employment tax incentive but misses the key problem with the ETI which is that it applies to young workers for a limited two-year period only.

Elaborating on what is required for effective economic policies, the January 2024 Reflections argued for “embedded autonomy” – meaning that government programmes should be “firmly rooted in the political, social, and economic realities of the societies that they seek to grow and transform.” Or, quaintly, “…the programme of the developmental state cannot be ‘pie in the sky’, but rather must ensure that more ‘pie’ is baked, with input from those who know the ‘pie-making recipe’.”

It is not yet clear what “recipes” the second PEAC will favour, but it seems likely that it will continue to draw on specialized perspectives of key council members, as is reflected in the various “briefing notes” that have been prepared in previous years. Advisories that have assisted in shifting specific policies include work by PEAC member Haroon Bhorat and colleagues on income support during the Covid-19 period, Alan Hirsch and Bhorat’s 2022 work on immigration policy and skilled immigration, Grové Steyn’s electricity sector work, Liberty Mncube’s analysis of merger control, worker ownership and black empowerment, Ayabonga Cawe’s work on sub-national planning and contracting, and several papers on agricultural issues that reflect the thinking of Wandile Sihlobo.

Expert perspectives such as these may well be helpful in clarifying sectoral or regulatory reform options. But a “growth strategy” requires a broader perspective, an economy-wide analysis of macroeconomic and sectoral trends and capacities, and explicit choices about budgetary and policy priorities.

There is a hint of this kind of strategic thinking in Dani Rodrik’s contribution to the July 2022 Briefing Note, which recommended that for both growth and equity reasons South Africa should focus on stimulating production in labour-intensive sectors. Rodrik’s recent work with Rohan Sandhu on services-led development suggests several ways in which this might be taken further.

More ambitiously, a January 2024 note by council member Mariana Mazzucato on building state capacity offers a “mission-oriented” interpretation of the state-owned enterprise holding company and social compact ideas championed by former Ministers Pravin Gordhan and Ebrahim Patel. It is yet to be seen whether the new administration will pursue these moonshot initiatives.

There are glaring gaps in the PEAC’s work, to date. Housing and municipal infrastructure investment deserve greater attention. The government’s national health insurance plans have not yet been reviewed. Contributions on tax policy, public expenditure and debt management do little more than rehearse National Treasury views.

The key question to ask is whether the government of national unity intends to give the PEAC real policy coordination responsibilities. The signs, so far, are not encouraging. The previous council’s end-of-term report set out 13 recommendations aimed at strengthening its future work. The Presidency has been silent on whether these will be implemented.

Even if they are, a fundamental problem will remain: the council is too large, has no statutory mandate and is chaired by the President. Taken together, these features dull the council’s independence and dilute its coherence. It is not so much an advisory forum as an echo chamber. The likelihood of it effectively confronting tough and politically awkward choices seems remote.