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The Economic Implications of Political Manifestos: Part 1



Introduction.

The Economic Freedom Fighters (EFF) are a leftist political party that advocates for the empowerment of Africans through a militant economic emancipation approach. This is evident in their 260-page manifesto. The EFF's pursuit of what they view as socio-economic justice is what makes it a radical organization. For instance, their manifesto calls for centralised control of resources, factors of production, and development. Within this framework, the state becomes the sole custodian of land, nationalises the mines, and provides free education. The purpose of this article is to derive the short-term implications of the EFF’s proposed solutions for the South African economy. The scope of the article is limited to the four major consumer concerns: energy, employment, the rising cost of living, and immigration.

 

01 Energy (Loadshedding)

Since the 2019 South African election, there have been 767 days of loadshedding under the Ramaphosa administration, compared to 148 days during the last term of the Zuma administration. This escalating electricity crisis has constrained the supply side of the economy by reducing productivity, increasing operational costs, and causing supply chain disruptions across various sectors. Rolling blackouts of about 6 to 12 hours a day, referred to as stage 3 and stage 6 outages, detract between R204 million and R899 million from the economy daily, according to the South African Reserve Bank (SARB). This brings the cost of these rolling blackouts to between R25.6 billion and R48.8 billion, respectively. The constraint on the supply side increases the aggregate price level in the economy, with the SARB estimating a 0.5 percentage point increase in headline inflation due to loadshedding.


The energy crisis has sparked political debates to the extent that it has become a central issue in South African politics, influencing public opinion, shaping election campaigns, and prompting intense discussions on governance, economic policy, and sustainable development. The EFF’s solutions to the energy crisis can be summarized into three key points, with the first two focusing on the supply of electricity and the last one on transmission.

 

-        Eliminate Privatization

The EFF believes that state control is essential to rescuing Eskom. It plans to terminate all existing contracts with independent power producers and start anew with projects that benefit majority black producers through a transparent and corruption-free procurement process. The EFF also proposes forming a state-owned coal mining company to manage coal quality at an affordable price, reducing the national security risk posed by reliance on private mining companies that may seek to renegotiate contracts to match overseas coal prices.

 

-        Continued Use of Coal

The EFF aims to slow the pace of the transition to renewable energy (Just Transition) by implementing clean coal technologies for electricity generation. This approach seeks to ensure a smoother path to climate-friendly energy production without hindering the energy availability factor.

 

-        Pro-Poor Energy Distribution

The EFF proposes a subsidy program providing up to 200 kW of free electricity per month to poorer households to ensure universal electricity access. Additionally, the EFF plans to revoke preferential tariff deals granted to certain corporations that have received electricity at low rates.

 

02 Employment.

The EFF does not shy away from state control as the epicenter of job creation and overall development. A World Bank report shows that small to medium and micro enterprises (SMMEs) contribute to more than 50% of jobs created worldwide. A United Nations Industrial Development Organization (UNIDO) report highlights that the manufacturing sector is a major employer in emerging economies, often providing better-paying jobs relative to the agricultural sector. With these reports in mind, the EFF aims to drive job creation in three noteworthy ways:

 

-        SMME Support

The EFF plans to direct the procurement process towards SMMEs and ensure timely payments to foster their sustainability in the economy.

 

-        Revitalizing Township Industrialization

Township communities in South Africa have infrastructure for industrial zones, including areas such as Kagiso, Soweto, and Daveyton. Post-apartheid South Africa has shifted towards a service-based economy, abandoning industrial zones in urban areas and townships. The EFF plans to revitalize the manufacturing sector in these townships to create jobs.

 

-        Infrastructure Development

The EFF aims to expand infrastructure development with the goal of creating 4 million jobs.

 

Additionally, the EFF plans to insource security guards, cleaners, gardeners, drivers, and general workers. While this will not create new jobs, it will provide better working conditions for these personnel.

 

03 Rising Cost of Living.

The EFF plans to combat the rising cost of living through foreign exchange rate controls and increased government spending. On the first point, they are unclear whether they aim to establish a fixed exchange rate regime. However, foreign exchange rate controls can stabilize the currency's value and better manage import inflationary pressures. This approach is effective if there are sufficient reserves in the SARB’s balance sheet, low inflation, a balanced budget, economic growth, and capital controls, among other factors. Currently, some of these conditions are not sufficiently met in the South African economy, making this approach infeasible at the moment.

 

The EFF also plans to institute a minimum wage of R6000 and expand the grant program by doubling the amounts given to all existing grant recipients, excluding the Social Relief of Distress (SRD) recipients. For instance, the Child Support Grant would increase from R510 to R1020. They also propose a monthly grant allowance of R5000 for graduates. Implementing this minimum wage may undermine efforts to reduce the unemployment rate because many SMMEs may not afford to absorb prospective workers into their payrolls. This situation is referred to as real wage rigidities or structural unemployment in Keynesian economics.

 

The expansion of the grant program is the EFF’s proposal to combat the rising cost of living. However, this increase in aggregate demand could be inflationary if not offset by enhanced productivity and/or tightened monetary policy.

 

04 Immigration and trade relations.

The EFF plans to disband borders with neighbouring countries, allowing for the free movement of labor in and out of South Africa from other African countries. This may undermine the proposed R6000 minimum wage law if an influx of labourers negotiates with employers to work for less than the minimum wage. The EFF also plans to deepen the African Continental Free Trade Agreement by establishing one-stop border posts across Africa to reduce stoppage times for goods in transit. Additionally, it plans to invest in logistics infrastructure to reduce transportation costs. This approach to trade integration with other African countries is likely to lead to the diversification of South Africa’s exports, as noted by Songwe (2019).

 

Conclusion.

This approach, known as window guidance, has successfully transformed countries such as Japan; however, it has also failed dismally in countries like Venezuela. The success of using credit from the central bank as an instrument for economic growth depends on whether the money is directed to the supply side or the demand side of the economy. In other words, if the money is directed towards investments in businesses, infrastructure, workforce skills, and technology rather than consumer spending, imports, and grants, then the economic policy can be successful. However, if demand outstrips supply, the economic policy could be detrimental.

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