DODGE RAM
Rosch

ADVERTORIAL

OLD MUTUAL

FAMILY BUSINESS

South African Economy Has a Yoke Around its Neck

THE Monetary Policy Committee of the Reserve Bank projected South African economy to grow by half percent. There are fundamental policies which constraint growth. I will deal with three.

The policy of expropriation of land without compensation can be a yoke round the economic neck or shooting yourself on the foot.

It is not clear which land will be expropriated. Therefore, all land is affected by this policy. The policy brings a blanket uncertainly to all land except state and rural land. Such uncertainty deters both local and foreign investment.

The policy creates a wait and see approach as nobody invests where there is a threat. This land policy was trumpeted to counter the resurgence of the Economic Freedom Fighters(EFF), who borrowed this phrase from Zimbabwe.

Despite ample evidence that when Zimbabwe embarked on expropriation only 27% of the 30% of land under commercial agriculture was still strictly in white hands.

Similarly, in South Africa 41% of the land are rural areas, while 25% is state land including towns and national parks and forests. This means 66% of the land is under black control.

The expropriation is on the remaining 34% of land where commercial farming is taking place by both black and white commercial farmers. In Zimbabwe, where this land policy was derived, there was never a land distribution strategy except the dramatic events from the year 2000 to destroy opposition strongholds.

National Credit Regulation is a silent killer. The law sought to protect reckless borrowers and reckless lending, but has deep negative side effects on business. Since it came into effect in June 2006 the economy stagnated post the 2008 global financial meltdown.

NCR took away the discretion of banks to lend to startups, people who are currently working but want to start business. Lending is all based on a payslip. But one cannot buy machinery and start a factory based on a payslip.

There is very little the poor people can do to access funding even on a brilliant idea. Banks are forced to insist on a payslip even for small business borrowings, as the business owner must earn enough salary to support the installment.

Further, a depreciating currency deters foreign direct investment. Outgoing Treasury Director General Lungisa Fuzile echoed this statement during his testimony at the Zondo Commission into State Capture.


The President’s effort to attract investors would have little impact on foreign investors, other than in mining where depreciating currency phenomenon does not apply. Where the investee country has a depreciating currency projects fail at the planning stage.


ADVERTORIAL

OLD MUTUAL

CORONA VIRUS

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