This resource is hosted by the Nelson Mandela Foundation, but was compiled and authored by Padraig O’Malley. It is the product of almost two decades of research and includes analyses, chronologies, historical documents, and interviews from the apartheid and post-apartheid eras.
28 Nov 1995: Liebenberg, Chris
POM. Let me start with what I see as the contradiction in the economy. On the one hand you have this surge of optimism, you have the business index of confidence at its highest level in eleven years, you have the doubling of car sales in the period of a year, you have inflation at its lowest level in maybe 15 years in single figures, you have a rate of growth that's over 3% for the first time in innumerable years and for the first time provides some increment of income over rate of growth of the population, you have companies making record profits. I am astonished every day to pick up Business Day and see what companies' earnings are actually. You have that on the one hand and on the other hand you have after eighteen months of a government of national unity the fact that there has been absolutely no dent made in the level of unemployment at all, it seems core stuck at a very, very high level.
. You have a number of studies that have been done both internally and by international agencies which show that the level of competitiveness in the economy is very low, that if it were to compete on international markets it would do poorly not just overall but structurally, that it's just ill-prepared to compete in a global economy, you have the fact that the unit wage costs are very high and that wages are very high in relationship to productivity, you have firms attempting to restructure but restructuring involves not the creation of jobs, it invariably results in the loss of jobs, you have firms striving to increase productivity and that increases in productivity are usually accompanied by job losses, or at least job displacement rather than by job gains. I suppose the important point I would make is the relationship between economic growth per se and decreasing the level of unemployment and yet decreasing the level of unemployment would appear, at least to me, to be the crucial economic problem facing the country. Long question.
CL. I thought you were making a speech actually. The rate of growth that we need in this country to start having an impact on unemployment is 3,5% and we're not at 3,5% yet and that is why you don't see an impact on the unemployment. And yet in the last two quarters of last year we did make an impact on unemployment. The figures that we've got show that employment increased in the last two quarters simply because the growth rate was running much higher than the 3,5%. On the other hand if people think that you can correct distortions of over forty years in eighteen months they obviously don't understand economics very well. So we do have this dichotomy, on the one hand that the economy is growing, we are targeting to get it up to a 6% growth rate. Had we gone from zero to 6% our rate of inflation would have been, I don't know where it would have been today. It would have been a boom/bust situation. So whilst there is significant dissatisfaction, disappointment that we are running at 3% and it is now targeted for 3,6% I see from later surveys for next year, the fact that it's gone from 1,2% to 2,4%, 3%, hopefully 3,6% next year gives us a base for a sustainable economic growth. So we're on the right track as far as that is concerned.
. It's going to take us a little while to get our unemployment levels down to the levels where they are in Spain, which is very high, or where they are in other areas around the world, certainly higher or lower unemployment levels, lower than other places in Africa. And to do that we've got to get into a sustainable economic growth cycle which means we will have to get into the manufacturing area which means we have to become competitive which is one of the issues that you raised. Now if you look at the productivity graph over the last year, and we've got some productivity graphs drawn for us by the IDC, it will show you that over the last year the productivity has increased not because we've done something special, because simply there are less strikes, so that in itself has already made South Africa more competitive. Secondly, I believe that once the RDP takes effect, if people get three meals a day, have a bed to sleep in and start getting jobs that in itself will also add to the year's productivity. It's common sense, if people's social circumstances improve their productivity levels must increase.
. But there is a lot more that we need to do and one of the things we need to do is to move the economy from an import replacement psychosis to an export incentivised situation. And if you compare it with what's happened in the rest of the world where people have done this, for two years New Zealand went through agony where they were one of the biggest exporters, certainly for the New Zealand economy, of shoes. That whole industry was virtually wiped out and two years later they were again producing shoes, but now in niche markets where they actually export back to the East from whom they tried to keep it out through tariff restructuring. We're going to go through those restructures. You're going to quote examples to me of factories that are going to lose jobs. Hopefully in three, four years time I'm going to quote examples to you that as a result of that tariff restructure other areas of competitiveness have been found.
POM. Does this mean I get another interview between now and the year 2000?
CL. If I'm still here, yes.
POM. Let me go back now. It would seem to me that your predecessor Derek Keys and yourself have some differences on the question of unemployment. He has said to me rather categorically every year for the last four years, I think that I have interviewed him from when he first came in as minister for finance and have subsequently interviewed him every year just to get his opinions on the economy, and the one thing he sticks on is that, yes, there is economic growth but it is really having no significant impact on the level of unemployment at all and if we get unemployment down by 1% a year between now and the year 2000 ...
CL. I am saying to you in the last two quarters of last year we had an impact because the economy was then growing at a rate of 6% annualised.
POM. In the last two quarters of 1994?
CL. We had an impact on unemployment. The graphs show it very clearly. But if we have a growth rate at 3% it's highly unlikely that we will make impact on our unemployment rates because we need higher than 3½% to make a significant impact on the unemployment.
POM. You need 6%, or higher than 3½% to make a significant impact?
CL. You need higher than 3,5% of growth GDP to have an impact on unemployment, but we are targeting for 6% on a sustainable basis down the line.
POM. Is the economy caught in a kind of a trap that insofar as it begins to achieve a higher rate of growth, the rate of growth of the imports, or the margin of propensity to import is greater than the rate of growth?
CL. The rate of imports is only high because of our lack of competitiveness. It's cheaper to buy or cheaper to import than make and the moment we get our competitive structure correct that will take care of itself and the exports will also be addressed. That's why our two biggest challenges are competitiveness and our savings ratio.
POM. OK, but last quarter, or was it last month, there was a huge deficit, it's been very uneven, there has been surplus.
CL. Don't look at one month.
POM. The long term cycle of the economy has been that as economic growth increases deficits tend to increase.
CL. If you look at our deficits over the past year a lot of it has been capital equipment imports for a couple of major expansions that we've had in this country and once you take those capital imports out and those capital imports are really growth for the future, that's effectively what it is, once you take it out the picture is not that depressing. And all of it has happened during a period of low gold price and drought where we had to import food rather than export. So once you take all those things into account the situation is not as black as it may seem.
POM. Do you think the RDP is, I won't say doing it's job, but is it the correct instrument to have an impact on employment or whether there must be more direct intervention?
CL. The RDP is more aimed at equalising the distortions that have developed, but under that umbrella we have developed a whole number of jobs. I haven't got the figures at my fingertips but I quoted the other evening of jobs that have been created under the RDP umbrella, also in our Public Works Department which is not generally seen as operating under the RDP umbrella. There in itself a whole range of new jobs have been created. But the whole philosophy of the RDP really spells out the corrections of the distortions and spells out a long term economic philosophy which will bring about the kind of things that we're talking about, a competitive South Africa and beneficiation of our raw materials, a booming tourist industry, etc., etc., etc.
POM. Looking at that through, say, the attitudes in the country that are necessary to bring about economic change, and I'll pick two; one is in the labour movement where labour leaders I have talked to have been quite adamant that the path to economic growth in this country is not going to be at the expense of the workers, i.e. there's not going to be a Malaysian model of low wages, long working hours and productivity achieved in that manner. They would argue that the lack of productivity or the high unit labour cost is due more to the disparity between what labour is paid and what management is paid, that there are huge disparities between the two. And labour costs here are out of line with what would be their competitors in Poland or Brazil or wherever. That's one problem. Two, you have this culture of entitlement which after the Masakhane Campaign took off looked as though it was going to actually achieve its goals but has floundered badly in the last several months and there is still a strong culture of entitlement out there that people expect services for nothing. How do you address those two fundamental things in changing people's vision of the way in which they must act if they want economic growth and development in the longer run?
CL. Let's just take the eastern end, the Malaysian example, and it's not only Malaysia but a lot of other countries have built their whole economy on a low wage structure that got them social security, or social stability I should say, and from that followed political stability. We in South Africa have actually started at the other end and it is just impossible to even conceive with our labour unions as they are structured today to go to a low wage philosophy so we've got to address it differently. If we are really intent on a low wage and force those wages down we'll have such political disruption in this country that it would be futile to follow that policy so you've got to follow something else that is feasible. I had a meeting with business leaders last night where the president was present as well and it was actually remarkable to hear, and these are businessmen talking, how co-operative the labour unions are now to talk productivity agreements. So there is a turn and I would suggest one must be careful in judging the labour movement by what is said in the press as to a large extent they are also politicians and don't judge a politician by what he says in the press. My Dad used to say with politicians, look what they do, don't look what they say, and he was quite right and perhaps we should do the same with the labour leaders. We must also be careful on making general statements, that all our labour is unproductive. There are things that we make that we export and where we have niches of productivity. Men's clothing is being exported to the east. A lot of the men's clothing being bought in England comes from South Africa. A lot of the car parts world wide in Mercedes and BMWs are made in South Africa. And there are many other things that we export.
POM. Yet in the textile industry you have this trend of where they are moving off out of South Africa to Zimbabwe.
CL. Indeed, if it's an area that's based on low wages it will move away, it will. If it's an area based on specialisation and on value addedness we will probably compete and that's the philosophy that we will have to follow. We cannot compete on low wages. We cannot compete with Thailand or Vietnam and even Japan can't compete with them any more, so we've got to find a way in finding the niches where we are competitive, allocating our resources to that and making sure that those little niches become successful and pull the economy up, and there are many of them. The tourist industry must be the most obvious to everybody.
POM. But this carving out niche markets usually depends upon a higher level of skilled labour and a higher level of value added and the mass of those employed out there singularly lack skills.
CL. Well we've got to do a lot of training and for that reason we've got to isolate the sectors which are going to be competitive and allocate our resources there and with our resources I mean training amongst others. Tourism doesn't need that much of training to get people to behave and serve and the right attitude. Car seats we are already making and as I say, clothing we are already making, so there are opportunities but it's not going to happen in 24 hours.
POM. It's going to happen in 24 years?
CL. I don't know, I don't know. Come back and have a look.
POM. I won't be around by then.
CL. Your book will be written by then.
POM. I'll be out of here. I'll be in kind of Burma. How would you rate ...?
CL. I can't give you guarantees, all I can tell you is what we're busy doing.
POM. Sure, and I'm trying to put it in the context of what people's expectations are of what they might reasonably expect to see.
CL. Whose expectations are you talking about?
POM. The people who live in townships.
CL. I would challenge you on that. I would challenge you on what their expectations are in the townships.
POM. I haven't said yet what they are.
CL. No, you said ...
POM. That they would expect at some point, that is before the end of this government, that there will be a tangible change in their economic situation whether it be in housing where the government has failed miserably, whether it be in employment where the government has failed miserably, whether it is in a decrease in the level of crime where the government has failed miserably, whether it is in the area of education which is a mess. Just to take four areas. So after eighteen months they might have lower expectations than they did eighteen months ago but the problems they are looking at they now expect to be addressed through the new local government structures.
CL. What they expect is to get jobs. They have an understanding, I think, that it's unlikely that everybody is going to be employed in South Africa in eighteen months time. You say education a mess? Let me tell you education is one of the greatest miracles we've had in this country, that where you had an education system based entirely on race, based entirely on income, geographically, that we integrated that whole thing with one disruption. That is a miracle.
POM. Well I could beg to disagree in the sense that I go into a lot of townships and in all of them ask them about their schools and one finds that most of the schools are still entirely African or still entirely Coloured and there's a sprinkling of children who are going to Model C schools and better schools and are undoubtedly better off, but that for the most part children go to the schools that they went to.
CL. Have you been to the schools in the northern suburbs? Have you looked how the colours have changed there? Have you been to Parktown Convent? That's in a white area that is virtually entirely black. Have you been to the school on the corner where we live? St Davids which is virtually 60% black. And all of that's happened in the question of two years. You must accept that if you have people that have for forty years been forced into geographic areas where they can live, unless you do bussing you're going to find that generally the people around the school go to the school where they are.
POM. Well that's why I would introduce bussing because in Boston where I live it was notorious in the mid 1970s for what was called forced bussing and that actually in order to achieve racial balance they bussed children from one district to another creating social havoc and actually destroyed the entire school system but it was a by-product at the time. But my point would be most children want to go to school in the neighbourhood they want to grow up in and there is a strong sense of community and if you ask black people where they would prefer their children to go to school they would say, if my school was as good as the school a white child goes to, I prefer my child to go to the school my child is going to but there's been no, in terms of infrastructure, no infrastructural improvements in most of these schools. Now there may be a movement of black children from townships into more affluent urban areas, like you're talking about, to go to school, but there is certainly no movement in the opposite direction. There are no white children who are going into townships to attend schools so the imbalance is still there.
CL. Sure, sure. And that's not going to be corrected in the question of six months. And we've taken an in principle decision, we're not going to bus.
POM. To go back to the RDP, if you had to rate it on a scale of one to ten where one would be a very unsatisfactory performance and ten a very satisfactory performance, at this point in terms of achieving it's goals where would you place it?
CL. I think it would be very unfair to place it, to make an overall rating. If you take water I would place it at a seven or an eight. If you take housing I'll probably place it at a three. If you take municipal upgrading in certain areas it will be a ten. If you take municipal upgrading in certain other areas it will be a three. If you take road construction and improvement in certain areas a seven or an eight, in others it will be a one. If you take school feeding, if you take free health, those things must be running at the sixes and the sevens.
POM. I want to go back to the trade unions again. You have this debate going on at the moment of the ...
CL. You should have asked that of the Minister of Labour.
POM. I will too, but I like to get the opinion of a number of ministers on the same subject. It makes for interesting comparisons. The whole debate about a minimum wage or a liveable wage for different sectors.
CL. It's never been discussed with me, it's never been discussed in Cabinet.
POM. It never has?
CL. Minimum wage has not been on the table ever.
POM. A liveable wage?
CL. Since I've been here those discussions have not taken place.
POM. I know of one study done, since he's a colleague of mine at the University of Massachusetts, by Sam Bowles is his name, he's an economist, rather a radical economist, who was commissioned by COSATU to examine the relationship between job creation and the rate of increase of wages and he found that there was indeed a negative correlation between the two and the study in its partial form was promptly kind of closed out, so to speak. Do you believe that there is a negative relationship between the two?
CL. I really can't respond to that. I'm not an authority in that area and I have not made a study of it. I really suggest you discuss that with the Minister of Labour.
POM. It would come under the way that economic policy is made and what the goals of economic policy are.
CL. That might be one of the areas if it's a key area under a specific area that we would discuss. As I say, it has not even been on the table.
POM. The level of crime, is that having an impact on foreign investment?
CL. Certainly, certainly. It has an impact on tourists coming here, it has an impact on people having reservations and say, let's just see how the crime situation is treated before we commit ourselves finally. Yes, obviously it has and we are very mindful of that.
POM. Again I'm getting back to how policy is made, are considerations of crime taken into effect when considerations of fiscal policy or monetary policy are made?
CL. Certainly not in monetary policy.
POM. But in fiscal policy?
CL. Fiscal policy and I said again last night there seems to be a perception out there that we've got crime because you've got a tight fisted Minister of Finance, which of course is not the case. Money is not the problem for the police, there are a whole lot of other issues.
POM. Could you run them off the top of your head?
CL. I wouldn't like to discuss other people's portfolios. You should discuss that with Mufamadi, what are the problems that he faces.
POM. I will publish nothing until after the year 2000.
CL. It doesn't make any difference. I would rather let the authority speak on that portfolio. He wouldn't talk to you on fiscal nuances, I would do that. He's got a whole range of problems, transition being one of them. All the countries that have gone through transition have had a criminality problem, so we must expect that there would be an increase in crime. But there are a whole range of other issues that he needs to address. But speak to him or the Commissioner, George Fivaz. He gave a presentation last night for about 45 minutes which was fascinating and what the government has been very bad at is to communicate what we do in those areas and therefore there is a perception that nothing is happening.
POM. But do you think the government has, again I go back to the question of attitude, the fact that the Masakhane Campaign has been a failure, that many municipalities are at the verge of bankruptcy if not bankrupt, that they have already been told that their budgets for next year are going to be slashed not increased so they are going to have less resources rather than more to deal with their problem.
CL. I don't know who told them that.
POM. It was in the paper.
CL. Then it must be true.
POM. If it was in the paper it must be true!
CL. I have certainly not told them that.
POM. Why has a campaign like the Masakhane Campaign not, despite the considerable amount of resources that were poured into it, why has it not been able to get off the ground where people are willing to put aside this culture of entitlement and realise that if the country is to grow they have innate responsibilities to contributing to the growth of the country, that it's not just going to happen overnight? Why has that vision not been adequately conveyed? And I say that in the context of the president being probably the best salesman any country could have on anything and yet this message has not come across.
CL. Perhaps we sold it badly, but again I have not made an analysis is why Masakhane has not delivered. Jay Naidoo is pulling that thing apart to see how it could be done better. So there again I would really suggest you do that analysis with him.
PAT. If I could just interrupt, despite the Masakhane Campaign what does it mean economically if people do not make this conversion from the entitlement theory?
CL. What it means very simplistically is that people are not going to get new houses to live in because the banks are not going to finance their houses and that message will come through very quickly if their houses don't get built. Banks will only go in where they are certain of getting their interest and capital and if there is an area where people are massing action not to pay you will find the banks withdraw and it will just slowly go down the hill. And the same will happen with municipal services. Unless they raise their taxes in some other way government is not going to run around and support forever where people use services, abuse services and refuse to pay for it.
PAT. And that will have an impact on jobs because that's a major place ...
CL. Impact on jobs in that specific area obviously. So the people in the street will very, very clearly get the message very quickly.
POM. Derek Keys in an interview I did with him, and I'll just give you a couple of his replies and maybe you could just comment on them. The question was, is there a single outstanding priority for the government? And the answer was, "The thing that is least addressed is some kind of direct remedy for the unemployment level. You could have much rapid economic growth than you are having for a very long time without fundamentally changing the unemployment percentage for one reason or another." Do you agree with that?
CL. Well I say fundamentally the most important thing we've got to address is competitiveness.
POM. OK. The question is, is the South African challenge all about getting from 3% annual growth to 6%? And again he says, "You can certainly get from 3% to 5% but my point is that even 6% doesn't address this core problem and the RDP as it is presently constituted at present doesn't attack the problem either and the way in which you get to that 6% is by raising the level of saving and investment and through productivity gains. The problem is that productivity gains destroy jobs so that while you can create some jobs with your new net investment you are destroying others with your productivity gains which means that your unemployment problem is chronic in relation to economic growth and calculations and requires some direct action."
CL. Yes we're going to have a high unemployment rate, or relatively high for a long time even if we have a 6% growth rate. At 6% we start making major impacts on the unemployed level, major impacts. And what we've got to do is to take the blockages out of our growth, or take the blockages out of the economy that prevent growth rising to 6%. At the moment we don't have the resources to sustain a 6% growth rate.
POM. I find it very interesting that you say competitiveness is the main problem facing the country because I read an extract by the Chairman of Sanlam, Marius Dalling, recently where his whole point was that competitiveness isn't everything. He was making a case for not breaking up the conglomerates.
CL. It might not be in the insurance industry. For South Africa competitiveness is the major problem.
POM. Is the major problem, OK.
CL. Or lack of competitiveness.
POM. If you were a foreign investor would you invest in this country now?
CL. Obviously, obviously.
POM. Even though ...
CL. But you're asking the wrong person. I'm parochial.
POM. But you're also honest and non-political and somebody whose answers can be depended upon to be relied on in the year 2000.
CL. If I didn't think that it was worth investing here I would have lived in England or in America by now, or in Boston. Obviously I think it's worth investing in, that's why I'm still here.
POM. But is the capital coming in at the rate it should or are the uncertainties that exist with regard to crime and the situation in KwaZulu/Natal, the situation in the public sector where you have had - there may be less industrial unrest but there certainly has been a lot more public sector unrest and very undisciplined public sector unrest in the last year.
CL. What do you mean by public sector unrest?
POM. I mean the municipal workers who go on strike, the nurses, the garbage collectors.
CL. Have you made a comparison of our days lost in strikes with the past?
POM. Yes and it's doing better, but it's doing better in the manufacturing sector not in the public sector. Overall the rate is lower.
CL. Taken overall it's significantly lower. That is why our productivity curves are going up.
POM. But if you take it on a sectoral basis that's not true.
CL. Oh I'm not surprised because on a sectoral basis you must then take and say the retailers last year had higher strikes than the year before, and yes they did. It was just an industry in which they had a lot of strikes and the nurses are underpaid and didn't get increases. But your question is really, does the capital come in at the rate that I would have liked it. The answer to that is obviously no. Is the capital coming in faster than we would have anticipated before the 27th April? The answer is yes. Are we getting enough fixed direct investment? No. Why not? There is still a concern. We've only been in the democracy for 18 months. People are still sitting back and saying, let's just see how it works out. People that I speak to overseas are still saying, what's going to happen after Mandela? Are you sure you've still got a country that can survive after Mandela? There are also investment cycles that people go through. They don't close their Budapest factory just because we had a democratic South Africa so they can open one in Cape Town. You've got to wait for the investment cycle for the Cape Town factory to be opened. Ultimately if we are reasonably successful with our social stability and with our political stability, investors cannot ignore 40 million consumers. More importantly they will not be allowed to ignore 130 million consumers because that is SADEC, the twelve countries at the bottom end of South Africa, to which South Africa is the key and for which South Africa has been given the investment and the finance portfolio to create a protocol for all those twelve countries. And that's what you're going to deal with. You're going to deal with 128½ million consumers and for the first time in Africa you have the base for a production line long enough to be competitive on the international markets. There are a few things we've got to do before that.
POM. So by the year 2000 what would you expect the level - as a guessing man, what would you expect the level of unemployment to be at? Cut by 5%? 1% a year?
CL. I would need to sit and make projections on that. Just to throw a figure off my head will be unkind to some stake-holder because I really haven't made that detailed analysis of it.
POM. Patricia raised the question about the housing, and I know you are running for time - five minutes?
CL. I'm five minutes late.
POM. OK, five, consensus.
CL. One minute.
POM. Oh come on. Three. This was going to be the key at one point of the rebuilding of the economy, that mass housing would be built and that would generate income and that would generate demand and create jobs and all this, and yet it has ended up with one blockage or another, blockages that were unforeseen in the industry and that are still being dealt with. Again, how long does the government have? You're a member of the Cabinet, to start saying we've got to start making meaningful inroads into the problem of providing housing in the same way as we've got to make start making meaningful inroads into the problem of alleviating unemployment otherwise the two pillars on which we sought democracy for our people will remain illusions rather than reality in the foreseeable future.
CL. Have you spoken to the Minister of Housing at all?
CL. You have. Well then you should have a lot of answers to that questions.
POM. I've asked, but answers vary. If ministers knew everything the country would be in great shape.
CL. You know better than that. Ministers know nothing.
CL. Housing has been a major challenge for us for a whole host of reasons. Can we build a million houses a year? Unlikely next year, very unlikely. Will we build more houses next year than we have done this year? Hopefully because some of the blockages are being addressed. Will the housing programme run as high as I would have liked it to run? Unlikely. Until you get this what you call a culture of entitlement and people making contributions to the full extent, until we remove all the blockages, the political interplay between the three levels of government where each one wants to do his own little turf issue, until you get all of that out of the way and hopefully the election, the democratic election of a local government, it's going to play a major role in that, we are not going to build houses at the rate that we wanted to. The building of houses of not a money problem. There is more than enough money for that. It's actually a capacity problem and I don't think we have enough builders and skills to transform the rands and cents into bricks and mortar at the rate that people have glibly thrown figures around of political platforms.
POM. How many other sectors is that true of?
CL. I don't know. People probably say the same about me. Make promises that we haven't delivered.
POM. Last quick question. The greatest or the single biggest problem in the immediate future facing the country in terms of its economic possibilities?
CL. Well there are three, there are three issues we've really got to address in the relatively short term, some in the very short term. Criminality and the perception of a criminality and the whole issue of having given the dog a bad name, now everything that happens is ... Competitiveness and our savings ratio.
POM. Is that the savings ratio at a person level or through the reduction of government expenditure?
CL. No I'm talking about a combination. The deduction of government expenditure, that's being addressed. That's normal fiscal discipline.
POM. What happens to all the profits, I mean the record profits that one reads in the newspapers of Barlow Rand's earnings up 74%?
CL. It depends how those profits are applied whether they go into the savings ratio or not, but the companies are doing well and hopefully that will attract more capital to this country.
POM. But they are not creating jobs. They are making record profits but ...
CL. But when you have a capacity level that was 20% and you go up to 50% you make a lot of money, but not necessarily using more resources. That's why you make a lot of money. Thank you.
PAT. Are these being reflected in higher dividends to stockholders? Is that where it's going?
CL. Hopefully it's going to be reflected in higher taxes!