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Occasional paper 3/2020 Copyright © 2020 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. by Daryl Swanepoel MPA, BPAHons, ND: C.Admin Abstract Some accuse the United Nations (UN) of having turned into an irrelevant, toothless organisation. According to these critics, the disconnect between the UN General Assembly and the UN Security Council undermines the legitimacy of UN resolutions that are meant to advance human rights, socioeconomic development, and peace and security. The exclusive nature of the Security Council, member state inequality, uneven regional representation and the unfairness of the permanent five members’ veto power are issues said to diminish the credibility of the UN’s work. As a result, the body is confronted by two sets of critics: those who believe that it is no longer fit for purpose, and those who say that the need for a reinvigorated and reformed UN is now greater than ever before. UN proponents, on the other hand, maintain that the body remains best positioned to coordinate global responses to the growing number of transnational challenges confronting our interconnected world. This paper examines South Africa’s position in the debate. It finds that while South Africa has not lost faith in the UN’s role in global affairs, the country does seem to side with those pushing for comprehensive UN reform. The United Nations (UN) was founded in 1945 following World War II, primarily for the purpose of preserving global peace and security, fostering sound international relations between nations, and promoting human development and human rights (UN, N.d.(a)). A snapshot of the UN The UN is neither a government, nor does it have an army or levy taxes. Instead, it is an organisation of member states, on whom the organisation relies on to carry out its decisions (UN, N.d.(b)). It is funded by means of mandatory payments and voluntary contributions by its member states, and also receives significant donations from philanthropists and charitable organisations (Shendruk, 2018). At present, the UN has 193 member states (UN. N.d.(c)) and comprises six organs: The General Assembly comprises representatives from every member state, affording each state a single vote (UN, N.d.(b)). It takes decisions relating to key issues such as international peace and security, membership and the organisation’s budget, for which a two-thirds majority is required. Other General Assembly matters – for instance the promotion of international cooperation, development of international law, and human rights – are decided by a simple majority. Although generally regarded as an articulation of the global opinion on pertinent issues, General Assembly recommendations are not compulsory to execute (UN, N.d.(d)). The Security Council (UNSC) has 15 members, each with a single vote. Five of these members – the United States, United Kingdom, France, China and Russia – are permanent. The remaining ten are elected by the General Assembly for two-year terms. Unlike General Assembly recommendations, however, UNSC decisions are binding on all 193 member states. Nine affirmative votes are required for a decision to carry. However, substantive decisions of a non-procedural nature cannot be made if not supported, or if vetoed, by a permanent member (UN, N.d.(e)). The Economic and Social Council (ECOSOC) makes policy recommendations regarding global economic, social and environmental challenges (UN, N.d.(b)). The Trusteeship Council was established to provide international supervision for eleven trust territories. Its purpose was to take steps to prepare these territories for self-government or independence (UN, N.d.(b)). All these territories have since attain independence, but the Council is yet to be formally disbanded (UN, N.d.(f)). The International Court of Justice is charged with settling legal disputes between states and issuing advisory opinions to the UN and its agencies (UN, N.d.(b)). The Secretariat sees to the day-to-day functioning of the UN. It serves the principal organs of the UN and its programmes, and implements their policies (UN, N.d.(b)). Why is the UN important, and is it stile relevant? In short, as the global architecture designed to prevent war and restore security in areas of conflict, the UN’s significance lies in its founding purpose to protect people, advance human development and social progress, and achieve global cooperation aimed at resolving economic, social, cultural and humanitarian challenges. This is premised on the vision of an ideal world, where everyone feels protected, is able to live their lives in freedom and peace, feels loved and wanted, and has their basic housing, food and work needs fulfilled. In pursuit of this vision, the UN harnesses teamwork and mutual trust, compassion and understanding between nations, peoples and cultures. (Paradiso, 2015) However, these noble ideals are of little consequence if the mechanism to achieve them is broken, insufficient or lacking. While the mainstream opinion still is that the UN’s objectives are as relevant today as they were 75 years ago, many in society have started questioning whether the UN is still fit for purpose, with United States president Donald Trump on record for having described the body as “just a club for people to get together, talk and have a good time”. Other world leaders who have expressed an urgent (yet perhaps more eloquently phrased) need for UN reform include German chancellor Angela Merkel, Chinese president Xi Jinping and Canadian prime minister Justin Trudeau (Merelli, 2018). The question of the UN’s relevance hinges on the two issues of inconsequence for member states’ non-adherence to UN resolutions, and the UNSC’s decision-making regime. The difficulty regarding inconsequence for non-adherence to UN resolutions was illustrated when the United States chastised the UN for its inability to hold Iraq accountable for its violation of 16 UNSC resolutions. Moreover, back in 2002 already, it was reported that, in reviewing five decades of UN resolutions, Prof Stephen Zunes of the University of San Francisco had identified at least 91 resolutions – in addition to the 16 Iraq violations – that were clearly being violated. In many instances, enforcement was blocked by powerful countries. The degree of compliance, Prof Zunes suggested, “depends on the influence of each state and its backers” (Farley, 2002). These consistent breaches underscore the conundrum of the UN: While the has the power to pass resolutions, it often lacks the authority to enforce them, which erodes its overall credibility (Farley, 2002). And as stated earlier, adding to this problem is the fact that many General Assembly decisions are non-binding on members. In terms of the UNSC’s decision-making regime, several concerns have been raised. The most significant of these relates to the distinction between the UNSC’s five permanent and other, non-permanent members. No substantive decision can be adopted without the permanent five’s concurring votes, and a single permanent member can veto a UNSC decision, rendering it invalid (Security Council Report, 2020). In essence, therefore, although fourteen of the fifteen member states serving on the UNSC, as well as the vast majority of member states in the General Assembly, may support a particular position, all would come to naught should a single permanent UNSC member veto it. And there’s the rub: Permanent members are known to use the veto to defend their own national interests or the prescripts of their foreign policy, or even to advance a single issue that is important to them (Security Council Report, 2020). Another matter raised with regard to the UNSC’s decision-making is the need for better representation, both in terms of size and geographic spread. Seventy-five years ago, the UN was formed by 51 states, with the UNSC comprising five permanent and six non-permanent members. By 1960, the UN had grown to 99 members, and the non-permanent members of the UNSC were increased from six to the current ten. With a current UN membership of 193, the size of the UNSC seems out of touch with reality: In 1945, the five permanent members accounted for 50% of the world’s population; today, they account for only 26% (of whom two-thirds are in China alone) (Thibault, 2020). Geographic representation on the UNSC is equally skewed. Altogether 47% of the seats are occupied by Western and Eastern Europe, Australia, Canada, Israel, New Zealand, Turkey and the United States, who account for only 17,1% of the global population. On the other hand, the Asia-Pacific group of countries, who account for 58,6% of the global population, and the African group of countries, who account for 15,8% of the global population, are each allocated 20% of the seats. Latin American and Caribbean countries, who represent 8,5% of the global population, occupy 13% of the seats (Thibault, 2020). Yet the UN remains a relevant force. It has helped ward off hunger, poverty and violence for hundreds of millions of people. It leads the fight against climate change. Its agencies take care of approximately 60 million refugees and other vulnerable people across the world. UN observers help ensure free and fair elections worldwide. Its peacekeepers have intervened in conflicts where few countries would consider doing so alone. The Non-Proliferation Treaty has ensured the limitation of nuclear weapons (Santamaria, 2020). It also remains relevant in terms of providing an enormous range of basic services that people take for granted. And while there are a growing number of alternative platforms where world leaders can engage in multilateral cooperation, “there is no entity matching the standing capacity of the UN’s agencies across the board” (Gwertzman, 2010). The solution to the stated concerns relating to the process and structures of the UN, therefore, does not necessarily lie in withdrawal of funding or participation. The UN still has a key role to play. Instead, it might be time for a comprehensive overhaul of the organisation’s structure, systems and, most importantly, its decision-making processes and mechanisms to ensure adherence to its resolutions. Call for UN reform Despite numerous successful interventions over the lifespan of the UN, calls for reform of the organisation are growing louder. There appears to be a growing sense of discomfort that failure to reform will erode the organisation’s relevance even further. Germany, for instance, has increasingly insisted on the reform of the UNSC, and has been openly supported by France in calling for the expansion of the number of permanent seats. Turkey, in turn, wants a rotational format in the UNSC, without increasing the number of permanent members. Other countries calling for reform include Japan, Canada, Brazil, Italy, Spain and Argentina. Some have called for a greater number of permanent seats on the UNSC, while the “Uniting for Consensus” movement opposes the expansion call, instead suggesting the principle of rotation and the rejection of certain states’ veto privilege. (Erkut Eyvaz, 2019) It would seem, therefore, that failure by the UN to reform would feed into the narrative of an increasingly irrelevant organisation clinging on to old-world structures and processes, with a growing sense of disenfranchisement among many of its members. This could very well drive the global dialogue towards alternative emerging cooperation platforms. Against this backdrop, where does South Africa stand in the UN reform debate? South Africa's position on UN reform In terms of UN management reform, South Africa continues to support the UN secretary-general’s comprehensive Management United to Reform, which sets out a new management paradigm for the Secretariat. This paradigm envisages a UN with, among others, simplified processes, a better operational set-up and improved strategies and structures. South Africa also believes that there should be greater transparency, predictability and oversight in UN funding, and in the implementation of its peace mandates, especially as they relate to the African continent. Furthermore, due consideration should be given to, among others, the UN’s human resource and procurement policies, gender parity and equitable geographic representation. (DIRCO, 2020) South Africa believes that revitalisation of the UN General Assembly is a critical aspect of overall UN reform. Key to this is the recognition of the General Assembly as the most representative and democratic political organ of the UN, and so its role and authority need to be strengthened accordingly. The objective with structural reforms should be for the organisational design to support the implementation of the 2030 Agenda for Sustainable Development effectively and efficiently. (DIRCO, 2020) The 2030 Agenda enshrines the seventeen sustainable development goals (SDGs) and 169 targets that the UN aims to achieve over the next fifteen years, and with which national governments are expected to align their political agendas (EDF, N.d). In terms of the UNSC also, South Africa is concerned about the slow pace of reform, believing that reform efforts need to be urgently reinvigorated. Although global consensus on the need for the early reform of the UNSC was reached in 2005 already, no significant reform has been achieved to date. (DIRCO, 2020) The Ezulweni Consensus as a basis for South Africa's stance South Africa’s position on both UNSC and General Assembly reform is guided by the African Common Position as enunciated in the Ezulweni Consensus (DIRCO, 2020). The African Union (AU) adopted the Ezulweni Consensus in Addis Ababa, Ethiopia, in March 2005. It contains the combined African thinking on the reform needed in the various organs of the UN. In that document, the AU expressed the need for the UN General Assembly to be strengthened. While it should retain its intergovernmental character and remain essentially as a forum for intergovernmental dialogue, measures should be taken to improve its effectiveness, including its ability to ensure that its decisions are implemented. Furthermore, the relationship between the General Assembly and UNSC needs to reflect a more balanced distribution of competence (AU, 2005). Keep in mind that in 1945, when the UN was formed, most of Africa lacked representation. And in 1963, when the first UNSC reform took place, the continent was still not properly represented. Now that Africa is fully represented in the UN, however, it is better placed to influence reforms. The AU’s goal, therefore, is for Africa to be fully represented in all the decision-making organs of the UN, particularly in the UNSC, which is considered the principal decision-making organ in matters relating to peace and security (AU, 2005). In the AU’s opinion, Africa should be allocated at least two permanent seats on the UNSC. These appointments should be accompanied with all the prerogatives and privileges of permanent members, including the right of veto, should the principle of veto rights be maintained. Although opposed to the principle of a veto, the continent’s leadership argues that, as long as it exists, it should be made available to all permanent members of the UNSC as a matter of common justice. Furthermore, Africa should be allocated a further five non-permanent seats on an expanded UNSC (AU, 2005). The selection of Africa’s representatives on the UNSC should be the AU’s responsibility. Criteria should include continent-wide representation, and the chosen member states’ capacity to represent the continent and to effectively execute its responsibilities within the UNSC (AU, 2005). Although the Ezulweni Consensus stipulates that the AU reserves the right to elect the two permanent members to the UNSC, a number of African states have already pronounced themselves ready to assume such a seat (Anon., 2020). UNSC reform from a South African perspective South Africa agrees with the Ezulweni Consensus that, since Africa’s member states make up 54 of the 193 UN members, the continent should be given two permanent seats on the UNSC. Such a step also seems fair given that most of the issues affecting Africa are dealt with by UNSC, and Africa has contributed immensely to conflict resolution, peacekeeping and peacebuilding. Currently, Africa does have three non-permanent seats, but they are rotational, which poses challenges in terms of creating institutional memory – an issue not faced by the permanent five. (Anon., 2020). Reform does not relate to composition alone, however. Going hand in hand with composition is the decision-making process. Simply adding additional permanent members without either abolishing the veto right, or at least extending it to all permanent members, may only serve to complicate decision-making. With more players at the table, retaining the veto in the hands of only the initial permanent five could very well lead to increased tension and frustration. Therefore, South Africa believes that all permanent members, including the proposed two African-held permanent seats, should be afforded the veto right as long as such right exists (Anon., 2020). Yet it is also South Africa’s belief that the veto right is often misused, thereby stifling important UNSC business: For instance, the UNSC could not even pass a resolution on the all-important topic of COVID-19 because of the United States’ insistence that there be no reference to the World Health Organisation. Similarly, when discussing the political and humanitarian crisis in Venezuela, no substantive discussion was possible given the introduction of two completely opposing resolutions by two members holding veto rights, namely Russia and the United States. Referring to these two resolutions as “equally hopeless”, one commentator eloquently captured the folly of having any expectation of a sincere consensus-seeking discussions while the “world’s most powerful nations displayed their bitter differences” within the confines of the UNSC machinery (Roth, 2019). Thus, the veto right has rendered the UNSC increasingly divided and less credible, which is not conducive to its work or the execution of its UN Charter mandate to ensure the maintenance of international peace and security (Anon., 2020). South Africa will continue advocating for genuine negotiations to commence in the UN General Assembly, as this is the only way to achieve Africa and like-minded countries’ common goal of a more representative UNSC (Anon., 2020). The Intergovernmental Negotiations (IGN) on UNSC reform that the UN General Assembly established in 2008 has been mandated to deliberate on five substantive areas of UNSC reform. These are (i) categories of membership (permanent and non-permanent); (ii) the question of the veto right; (iii) regional representation; (iv) the size and working methods of an enlarged UNSC; and (v) the relationship between the UN General Assembly and the UNSC. To date, there has not been any progress (Anon., 2020). To move the reform process forward procedurally, negotiations should, in South Africa’s view, be text-based, as “that is how negotiations are conducted in the UN” (Anon., 2020). While the UN resolved in 2015 already to follow such a text-based approach to reform negotiations, at least as it relates to the UNSC (Singh, 2015), there has been no concrete steps to advance the discussions. It appears there is currently no consensus among the permanent five for text to be put on the table. In addition, it seems that some powerful countries opposed to reform are blocking the process by arguing that there are still divergent views on the matter, and that text-based negotiations are premature and will be counterproductive (Anon., 2020). The United States and other advanced democracies, for example, reject the notion that the UNSC’s legitimacy should rely on its composition, believing that its “primary mission is to be effective, not representative” (Patrick, 2019). Although Africa is united in terms of the need for UNSC reform as expressed in the Ezulwini Consensus, South Africa’s view on the procedure to be used to negotiate such reform is not necessarily shared by other African states. Some African countries feel that the environment is not yet ready for text-based negotiations, as views within the UN are still too divergent. They believe that since the impasse is still too great, negotiations have no chance of succeeding (Anon., 2020). Another tricky area is that some African members, including South Africa, also belong to the L.69 Group, a cross-regional grouping of developing countries from Africa, Latin America and the Caribbean, Asia and the Pacific pushing for lasting and comprehensive reform of the UNSC. The L.69 Group is bound by the firm conviction that expansion in both the permanent and non-permanent categories of UNSC membership is imperative to better reflect contemporary world realities and achieve a more accountable, representative, transparent and relevant UNSC. They derive their name from the draft resolution number “L.69” they tabled in 2007, calling for intergovernmental negotiations on UNSC reform, which ultimately saw the creation of the IGN mechanism in the UN General Assembly. In the current IGN, Africa is represented by the Committee of Ten (C-10), which was established through a decision of the special AU summit in Addis Ababa in August 2005 to coordinate engagement on UNSC reform. Chaired by Sierra Leone, the other nine members are Algeria, the Republic of the Congo, Equatorial Guinea, Kenya, Libya, Namibia, Senegal, Uganda and Zambia (APAUNR, N.d.). Whilst not explicit in their criticism of the L.69 Group, the C-10 has requested African countries not to be part of other negotiating groups in the IGN to ensure that Africa remains united in the negotiations. (Anon., 2020). Yet the L.69 Group supports the Ezulweni Consensus and has indeed helped strengthen the C-10’s position in the IGN. The L.69 Group and the C-10 have a similar stance on most issues, including that the veto should either be abolished or extended to all permanent members (Lättilä, 2019). As such, South Africa believes that the L.69 Group remains one of the progressive groups and plays a supportive role in the IGN (Anon., 2020). UN General Assembly revitalisation from a South African perspective In South Africa’s view, unlike UNSC reform, reforms pertaining to the revitalisation of the General Assembly have been making some progress. The negotiations on the relationship between the General Assembly and the other principal organs of the UN have been ongoing. South Africa has underlined the need for the General Assembly to work in close collaboration with all principal organs, in particular ECOSOC and the UNSC. South Africa further believes that the General Assembly should be given a more prominent mandate in overseeing the implementation of the UN’s priorities of human rights, peace and security, and socioeconomic development. At present, even though all member states have an equal vote in the General Assembly, decisions are mere recommendations and are of no binding force on member states. South Africa’s position is that, as the most representative organ in the UN, the General Assembly should be given more teeth to hold countries accountable to the decisions it takes. Thus, South Africa will continue to work with fellow UN members to strengthen the role and authority of the General Assembly in executing its responsibilities, including those relating to the maintenance of international peace and security, and the implementation of the 2030 Agenda (Anon., 2020). Moreover, South Africa reaffirms the important role played by the United Nations secretary-general amidst the global challenges facing the world today, and in implementing the UN pillars of peace and security, human rights and sustainable development. In this regard, South Africa holds the view that the selection and appointment of the secretary-general should be more transparent and democratic. More specifically, the country believes that the secretary-general should ideally be appointed by the General Assembly, at the recommendation of the UNSC. While not an official South African position, mention has been made of the option for the secretary-general rather to be elected for one longer, non-renewable period, as opposed to the current five-year term with the option of extending the appointment by another five years (Anon., 2020). In terms of driving the South African UN reform agenda, the country uses all available platforms to do so, both within and outside the UN structure. These include high-level general debates in the UN and at other multilateral fora such as the AU, which it currently chairs, as well as the Non-Aligned Movement and IBSA (India, Brazil, South Africa) (Anon., 2020). South Africa also often raises the issue of UN reform in its bilateral discussions with other likeminded countries (Anon., 2020). How South Africa views the way forward Moving the UNSC reform process forward will be an uphill battle. With no consensus on the substantive issues between the permanent five, no reform will happen. Furthermore, the permanent five consider their veto a fundamental right articulated in the UN Charter and so not seem willing to relinquish that right any time soon (GüIler, 2019). Therefore, one could understand why many have concluded that the annual and ongoing deliberations relating to UN reform largely ring hollow. To give impetus to the negotiations, those seeking reform will need to reach out more directly to the permanent five, either as a group or individually, to find a negotiating path that will satisfy the five’s insistence on knowing upfront what the negotiated outcomes will deliver. For example, the permanent five will not agree to any expansion of the UNSC, nor to the relinquishment of their veto, without them knowing in advance who the aspirant candidates for seats on the UNSC will be. Historical conflicts and conventions will affect the likelihood of the permanent five agreeing to the candidature of countries to whom they have traditionally been opposed (Anon., 2020). China, for instance, believes that Japan’s past occupation of China disqualifies it from a permanent seat (GPF, 2006). France, in turn, while amenable to Germany’s call for extending the permanent membership of the UNSC, was not open to Germany’s proposal to convert the French seat into a European seat (DW, 2018). Of course, the idea of the permanent five vetting aspirant candidates is in direct contrast to the AU’s position, which insists on Africa determining for themselves which countries should represent the continent on an extended UNSC (AU, 2005). The AU approach may be counterproductive, however, as a group, they believe that the election of African candidates can be resolved at a later stage; to them, it is more important first to establish the principle of Africa being allocated at least two permanent seats on the UNSC. Knowing that the permanent five have indicated that they want to know upfront who the candidates will be, a rigid African approach could very well lead to a stalemate in the negotiations. This is an issue that South Africa will have to start breaching on the continent, especially since it has been asked to indicate its availability to take up a UNSC seat. Other African countries interested in the seats include Egypt, Kenya, Nigeria and Senegal (Okumu, 2005). South Africa also has other work to do among its fellow African states. As mentioned earlier, there is no consensus on the continent on a text-based approach to UN reform negotiations. Anxious not only to see the negotiations move forward, but also to strengthen Africa’s negotiation effort, South Africa will have to be more proactive by starting to approach progressive countries across the continent to advance the reform process (Anon., 2020). The South African government is pleased that it was able to have a call for the reinvigoration of the UNSC reform negotiations included in the heads of state declaration that will be adopted at the special high-level commemorative event to mark the UN’s 75th anniversary, scheduled for 21 September 2020. The country hopes that the president of the 75th session of the General Assembly will appoint, as a matter of priority, co-facilitators to take the IGN’s work forward (Anon., 2020). Conclusion For those who deride the UN as a toothless instrument (Dejevsky, 2016), South Africa has a clear message: For all its faults, the UN still has an important role to play, now more than ever before. The COVID-19 pandemic has proven this. The UN and its agencies remain the only intergovernmental body able to bring all nations together to find a coordinated approach to resolving global problems. Withdrawal from the UN or from multilateral agreements, or the cutting of funding to multilateral institutions, will not only be detrimental to the country doing so, but will have global implications for noble humanitarian and development programmes, as well as for the pursuit of the SDGs. To say that the UN is a toothless body is to say that countries can go it alone. They cannot. There are too many transnational challenges facing the globe – no country can go it alone. Thus, current global challenges such as COVID-19 warrant a renewed commitment by the international community to uphold and defend the purposes and principles of multilateralism, with a view to establishing a world that is peaceful and prosperous, along with a just and equitable system of global governance (Anon., 2020). Nevertheless, no sober assessment of the workings of the UN can ignore that the organisation is facing serious issues relating to its credibility, legitimacy and relevancy. The choice is this: either business as usual, which will undoubtedly further erode the UN’s standing, or reform, which will gear it for the future and enable it to build on the critical humanitarian, socioeconomic development and peacekeeping work it has carried out since 1945. In recognising the relevance of the UN as a global instrument to promote human rights, socioeconomic development and peace, South Africa has chosen to promote reform. Some major flaws have been identified in the UN’s design. These include inequality resulting from the veto right and UNSC permanent versus non-permanent seats, and exclusivity resulting from limiting the UNSC’s membership to a small portion of the total UN membership (Lättilä, 2019). South Africa’s approach to UN reform acknowledges the inherent complexities encapsulated in these flaws. It attempts to weigh the question of exclusivity in the UNSC against inclusivity in the General Assembly. It does so by acknowledging the need for decision-making efficiency in the UNSC, and the strengthening of accountability mechanisms in the Assembly (Damianou, 2015). In its quest for UN reform, South Africa seems to be singing from the same hymn sheet as UN secretary-general António Gutteres, who called for a “new social contract” and a “new global deal” in delivering the annual Nelson Mandela lecture on 18 July 2020. He said: “For this new social contract to be possible, it must go hand in hand with a new global deal. The global political and economic systems are not delivering on critical global public goods: public health, climate action, sustainable development, peace. 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N.d.(b).[Online] Available at: https://www.un.org/en/model-united-nations/un-structure [accessed: 25 July 2020]. United Nations (UN) N.d.(c). General Assembly of the United Nations. [Online] Available at: https://www.un.org/en/ga/ [accessed: 25 July 2020]. United Nations (UN). N.d.(d). General Assembly. [Online] Available at: https://www.un.org/en/model-united-nations/general-assembly [accessed: 25 July 2020]. United Nations (UN). N.d.(e). Security Council. [Online] Available at: https://www.un.org/en/model-united-nations/security-council [accessed: 25 July 2020]. United Nations (UN). N.d.(f). Trusteeship Council. [Online] Available at: https://www.un.org/en/model-united-nations/trusteeship-council [accessed: 25 July 2020]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Occasional paper 4/2020 Copyright © 2020 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. by Joanmariae Fubbs MSc in Public Policy and Management, 2012 (University of London), Postgraduate Diploma in Economic Principles, 2000 (University of London), MSc Development and Planning, 1993 (University of the Witwatersrand), BA Hons degree in Clinical Psychology, 1990 (UNISA), BA Political Science and Psychology 1980 (UNISA) Abstract In the midst of growing inequality, poverty, and unemployment South Africans were hit by the Covid-19 pandemic which exacerbated the socio-economic decline. To make matters even worse, corrupt officials played havoc with the Covid-19 funding, with no thought for the impact it would have on the vulnerable and the economy broadly. So, what can be done to arrest this erosion of the objectives of a better life for all, and a prosperous society with an inclusive economy? What measures can we employ to significantly reduce and then eliminate poverty? Surely, there is a need to adopt realistic targets and implementable policies that can be monitored and measured to track outputs and outcomes. Statistics South Africa (Stats SA) enjoys an enviable reputation. The statistical tables, graphs and figures it produces are backed by current research and are readily available. One of the issues that Stats SA has identified as highly relevant to the current stagnant economy is the deficit in trust. No amount of money can establish trust. However, this paper attempts to show that through the establishment and pursuit of social cohesion by all spheres of government, departments and entities, business and corporates, trust can be re-established. Poverty and inequality can then be confronted with a multi-dimensional approach but from a strong social cohesion base backed by a social compact. The struggle for economic, social, and political freedom has reached a defining moment in South Africa. Many South Africans fought for this and established a constitutional people’s democracy which encompassed the conception of democratic socialism within a mixed economy. Today, we live not only in a Covid-19 environment, but worse, in a contaminated moral environment. Nevertheless, the struggle for socio-economic and political freedom pursued by the African National Congress (ANC) is enshrined in the Constitution and should continue to drive transformation. The 2008-2009 financial crisis emphasised that unregulated markets are unsustainable, and that the intervention of the State is essential for the well-being of the population and the long-term eradication of poverty, according to Edigheji (2010:1). This view is echoed by Ben Fine (2010:171) who in contrasting the “political school” with “economic school” raises the danger of the latter’s pre-occupation with exclusively correct economic policies. Income inequality has been rising as evidenced by 2011 and 2014 statistics (Statistics South Africa, 2011; 2014). Unfortunately, the growing tendency and subsequent trend to resolve unemployment, service delivery, strategic skills development, poverty, poor educational outcomes, and deteriorating health of people in low-income groups focused largely on using purely economic measures. Former Statistician General Dr Pali Lehohla, in the Indlulamithi 2020 Scenarios this year, responding to this approach re-emphasised those issues related to unemployment, poverty and inequality, and low growth are complex and best resolved socio-politically, not purely economically. To “build back better” we need to examine the superiority of the “multi-dimensional poverty lens”, after which we should be more specific with our solutions, by developing “believable employment” figures and lower poverty and inequality rates (Lehohla, 2020). The ANC ideological programme The ANC deems itself a force of national liberation in the post-apartheid era; it officially defines its agenda as the National Democratic Revolution. The ANC is a member of Socialist International. In 2004, the ANC declared itself to be a social and national democratic party. Socialism theory had its genesis in Europe in the revolutionary theories of Karl Marx (1818-1883), the evolutionary theories of Eduard Bernstein (1850-1932), and in Africa, socialism was interpreted by the philosophical theories of Kwame Nkrumah (1909-1972). Nkrumah’s (1970) theory of consciencism draws together strands from the three main traditions that make up the African conscience: Euro-Christian, Islamic, and African. Nkrumah characterises traditional African society as essentially egalitarian, arguing that a new African philosophy must draw its nourishment chiefly from African roots. Supporters of the idea of a more just society were given the umbrella term socialists and included social democrats and democratic socialists. Peter Lamb, in his book Socialism: Key Concepts in Political Theory (2019), identifies the key ideas and principles of socialism and explores different (often conflicting) interpretations that have appeared in Europe, Asia, Africa and the Americas, from the early nineteenth century until today. Social democracy is a political, social, and economic philosophy within socialism that supports social, political, and economic democracy. Many countries, from Sweden to Ghana and New Zealand, consider themselves as enjoying a social democratic form of governance, and consequently there are just as many definitions. The instruments used in a social democratic government include ensuring strong workers representation, support for trade unions and parliamentary processes all aimed at achieving a better society. Democratic socialism evolved to include both reformist and revolutionary forms of socialism arising from the pursuit of reform measures and those that evolved from revolutionary measures. Today, the ANC, which is pursuing the National Democratic Revolution, is arguably advancing modern day social and national democratic values. A strong thread links the 1943 African Claims, 1955 Freedom Charter, 1969 seminal Morogoro Conference, 1979 Green Book, and the National Development Plan first drafted in 2012, and with its workshopped 2030 vision of “unfolding learning” knowing that social cohesion is anchored in our strategies to provide services to the people. It seeks to refocus South Africans on what they have in common rather than their differences. Furthermore, South Africa should, as Joel Netshitenzhe put it, “join the progressive humanity in fashioning a more equitable world order from the ruins of the Covid-19 pandemic” (2019). Social democracy has been in “terminal decline in the last decade”, reflected in the lack of voter support for social democratic parties in Europe (Servaas, 2020). However, since the 2008-2009 financial crisis, socialism has made a dramatic comeback in the 21st century. With rising inequality and social decay, socialism is becoming more relevant as people become disillusioned by the lack of ethical good governance and hope of a better life. The Covid-19 pandemic has simply underlined the challenges of inequality, social and economic justice, and poverty. In South Africa, the land issue is directly linked to socio-economic justice and poverty. As Nyerere said: “To us in Africa land was always recognised as belonging to the community” (Lamola, 2018). The land question can therefore be understood as a socio-economic issue. The “forced seizure of land led to the disintegration of the African social and economic fabric” (Lamola, 2018:8). The land question is historically linked to the basic principles of socio-economic justice which can be traced back to the Land Act of 1913, which legally disposed the indigenous population of their land. The Freedom Charter also states that those who work the land should share it. Land was the fundamental source of income for black Africans who were dispossessed without compensation. Establishing an inclusive South African economy The establishment of an inclusive economy demands that we first address the many inequalities that are becoming more pervasive every year, whether it is income disparities, gender anomalies or the accumulation of wealth through unproductive means. In the last decade, a young economist, Thomas Piketty, shot to prominence because he tackled the growing inequality, in his book Capital in the Twenty-First Century (2013). His studies went back two centuries and showed that the rate of return on inherited wealth will always grow faster than the income one earns through one’s compensated labour. However, in his following book – Capital and Ideology – Piketty roots inequality in ideology (2019). He argues convincingly that societies justify this through their political-ideological environment, which shows that inequality is not a natural phenomenon and can be reshaped when confronted effectively through socio-political mobilisation. When one examines the modern legacies of colonialism and slavery, whether in Brazil, South Africa, or China, it becomes clearer that inequality can be transformed if the legal, fiscal and education spheres are confronted effectively. This is the intention of the national democratic struggle as South Africa pursues the establishment of a society in which social, economic, and educational justice prevail. The Constitution provides a solid foundation from which to launch the fight against inequality. The crisis generated by the devastating effects of Covid-19 offers South Africa the opportunity to use more focused strategies to overcome the growing inequality in the country and to track its impact. This is achievable first through the deployment of regular robust oversight institutions from the legislature, civil society, and the executive, and second, by the identification and use of appropriate technical tools that shine light on the multifaceted nature of poverty and the development phenomena. Balancing State power with people's rights Rights and responsibilities are balanced in a social democracy; therefore, the citizens can expect the government to do things for them like providing protection, health services, education, and housing. Citizens also have responsibilities like obeying the law and paying taxes to the state. The rights of the majority in a social democracy are also balanced with the protection of minorities, for example those of the Khoisan community. Thus, social democracy is about achieving a greater balance in society, which arguably South Africa’s system of representative and participatory democracy provides. However, neither the Constitution nor legislation can protect South Africans from corruption, only a paradigm shift in the mindsets of all the people can predispose us to an environment in which integrity, a commitment to serve the people and ethical good governance can create such an enabling environment. Former Statistician General Dr Pali Lehola called this “the eye of the needle” approach, referring to the ANC document which focusses on the disciplined and selfless character of the kind of cadre required to lead. More than 50 years ago, when the balance of forces had shifted against the forces of change and the ANC and other progressive movements were being assailed on all fronts, the Morogoro Conference took place. Three key themes characterised this seminal conference: first, the methodology to be used in assessing and managing the balance of forces in a given conjuncture. The conference took place during the international context of transition to a socialist system following the breakdown of the colonial system, as a result of national liberation and socialist revolutions. The ANC leadership at the conference acknowledged this and realised that their first strategic objective then was to change the methodology in assessing the balance of forces during a given conjuncture. The second strategic objective required the contextualisation of these global changes so that the complex challenges that faced the “people’s government” could be addressed. The leadership during the Morogoro Conference appreciated the urgency demanded to meet the economic needs of the oppressed people, which could only be done if all basic resources were “at the disposal of the people” as a whole and not manipulated by sections or individuals, black or white. The third theme and strategic objective revolved around the national question which Joel Netshitenzhe quotes from the document: “The main content of the present stage of the South African revolution is the national liberation of the largest and most oppressed group – the African people. This struggle must govern every aspect of the conduct of our struggle.” As the document points out, if “properly channelled and properly led”, this would not be in conflict with the principles of internationalism but rather become the foundation for a lasting and more meaningful cooperation that would be self-imposed (Netshitenzhe, 2019). This recognition of a stronger social content had first been raised in the 1943 African Claims and again in the 1955 Freedom Charter. Together with the Morogoro Conference, these documents reinforce the organic social and national democratic character of the ANC. The current inequality arising from distortions in the socio-economic environment that continue to plague South Africa is at the root of unemployment, poverty, and distorted spatial patterns, which threaten to destroy the soul of South Africa. South Africans and people all over the world no longer trust their governments. So, what can be done to overcome this disillusionment? Early this year, in February, Minister Nathi Mthehwa reiterated that “social cohesion can never be separated from economic justice”. To achieve this, Minister Mthethwa believes that a social compact between business, government, labour, and civil society, who agree to “work together to bring about future change”, needs to be put in place (Polity, 2020). Development needs social cohesion In the last ten years or so there has been growing recognition globally and in South Africa that social cohesion in communities, and regions, can rebuild people’s trust in their political leaders. Social cohesion draws upon a broad body of studies and research across the social sciences and is leading to a more effective understanding of “its effects on the economic life” (Ritzen, Easterly & Woolcock, 2000). “Social cohesion” according to them is central to development as it relates “to an inclusive civil society and responsive political institutions” (Ritzen, Easterly & Woolcock, 2000). So how do we define social cohesion? Having read a number of studies on this subject, I believe it relates to the cooperation in a neighbourhood, community, city, and even a geographical area as large as a country. Defining social cohesion, Prof Klaus Boehnke, who has undertaken research across continents including Africa, Asia, America, and Europe, stated that the “commonality of values remains at its definitional core” (2018). As Minister of Arts and Culture Nathi Mthethwa stated in his briefing to the media prior to the Social Cohesion Compact Convention early this year, if it does not “seek to bridge the past divisions and simultaneously deal with the whole question of improving material conditions of the previously marginalised communities … it cannot succeed” (Polity, 2020). University of Cape Town’s Poverty and Inequality Initiative (PII) also identified social cohesion as a significant factor in poverty and inequality and concluded that it is an important policy goal for South Africa. The research argues that without finer definition and measurement it would, however, be to formulate polices that could promote cohesion. An overview of the current environment in South Africa exposes the high incidence of not only poverty and inequality but also violence, gender conflicts and mistrust. These are all factors that influence social cohesion and inclusive development. Alongside other academics the PII project recognises that social cohesion is “multi-faceted” and therefore requires a multidisciplinary approach which includes history, economics, political science, sociology, law, and psychology (UCT, 2018). Through the establishment of an active network of researchers and practitioners whose work speaks to the issue of social cohesion in South Africa, the project aims to engage effectively with policymakers in achieving the vision of the National Development Plan 2030. This research project also recognises the relationship between social cohesion and economic inequality and asks, what kinds of institutional change does South Africa need to promote social cohesion and reduce inequality? It also raises the growing intergenerational divide. Isaac Khambule and Babalwa Siswana, both of the Human Sciences Research Council, argued in a paper on how inequalities are undermining social cohesion in South Africa (2019). The “triple socio-economic challenges of poverty, unemployment and inequality” have been compounded by the high unemployment rate of more than 27 percent, with a youth unemployment rate of more than 50 percent. This has undermined the campaign promise of a “better life for all” and widened the gap between rich and poor (Statistics South Africa, 2014; International Labour Organisation, 2014). This in turn has impeded the country’s aspirations to eliminate poverty through doubling the GDP as noted in the 2030 National Development Plan. Statistics continue to reflect the widening gap between wage disparities, which impacts directly on inequality, along racial lines. According to research done by Uslaner, as quoted by Khambule and Siswana, social cohesion is undermined “because of the racial socio-economic disparities and … the fight for resources with foreign nationals” (2019). Inequalities are not unique to South Africa but are reflected in countries such as Brazil, also identified by Piketty. The South African situation is different by virtue of its high inequality in comparison to other countries. This toxic relationship between inequalities and social cohesion is reflected by the measure of “trust by Statistics SA showing that only 34 percent of South Africans trust” local governments. According to the World Bank in its 2019 Overview of South Africa, it projected a growth of 1.3 percent and accelerating to 1.7 percent in 2020, but that was before the full impact of Covid-19. Unfortunately, progress towards poverty reduction has “slowed”, which is put down to structural challenges and the weak growth since the global financial crisis of 2008. However, there is also a reference to the strategic skills deficit and the reality that South Africa with its dual economy continues to have one of the highest inequality rates in the world, with the Gini coefficient standing at 0.63 in 2015. Again, there is the gap between the top 10 percent of the population, which holds 71 percent of the net wealth, and the bottom 60 per cent holding only 7 percent of the net wealth. The World Bank also confirms that a further negative social cohesion factor, namely intergenerational mobility, continues to pass down its inequality from generation to generation (2019). Again, Ritzen, Easterly and Woolcock of the Development Unit of the World Bank in Paris 2020 refer to the four dimensions of social exclusion: firstly, the economic dimension which it linked to poverty. Secondly, the social dimension, where in some societies, unemployment deprives one of not only income but also of status. Exclusion, according to Ritzen, Easterley and Woolcock, also has a political dimension. This third dimension directly affects “women, ethnic, racial, and religious groups, especially minorities, who find access to their rights being limited”, or impeded in some countries. The fourth dimension, in which South Africa led the way with its identification of “non-sustainable modes of development”, is reflected in the Constitution and the Bill of Rights, where First degree and Second-degree human rights are expressly acknowledged. It is also recognised that unsustainable modes of development “compromises the survival of future generations” and it is this that leads to generations living in poverty, because of their exclusion from the benefits of valid and robust development. Conclusion In times of significant transition and in the face of harsh global economic challenges, social cohesion in a social and democratic society will create space for the government to manoeuvre. Given that South Africa is pursuing a national social democratic path, there is hope that this trajectory of inequality can be changed, but only if we can re-establish trust in our institutions and political leaders. South Africa has a National Development Plan which already identifies the need to address the manifestations of inequality and poverty by anchoring its strategies in social cohesion. People are planet Earth’s custodians and as the NDP has emphasised, social cohesion should anchor the country’s strategies to overcome the increasing poverty, deprivation, and to reduce inequality. The stagnant economy and persistent energy challenges existed before the advent of Covid-19, so a socially just economy with tangible prospects for a better life for even the most vulnerable should be the focus. Strategies that simply offer scenarios that existed pre-Covid-19 are not a potential solution. Instead, a stagnant and socially unjust economy needs a fresh approach that will generate an inclusive economy. Focusing on social cohesion offers a realistic and fresh approach to re-establishing trust upon which to generate implementable policies. References Adelzadeh, A., Malumisa, S. and Benecke, J. 2020. Covid-19 and South Africa’s Future Economic Outlook. [pdf]. Applied Development Research Solutions (ADRS). Available at: https://adrs-global.com/resources/static/downloads/adrs_report_on_covid_19_and_SA_future_economic_outlook.pdf [18 September 2020]. Alt, J.E., Chambers, S., Garrett, G., Kurian, G.T., Levi, M., and McClain, P.D. 2010. The Encyclopaedia of Political Science Set. Washington: CQ Press. Boadi, K. 2000. The Ontology of Kwame Nkrumah's Consciencism and the Democratic Theory and Practice in Africa: A Diopian Perspective. Journal of Black Studies, 30(4):475-501. Boehnke, K. Leader of a panel discussion on Developing a New Economic Blueprint for South Africa: Lessons from Germany, hosted by the Inclusive Society Institute, 20 August 2020. Delhey, J., Boehnke, K., Dragolov, G., Ignácz, Z.S., Larsen, M., Lorenz, J. and Koch, M. 2018. Social Cohesion and Its Correlates: A Comparison of Western and Asian Societies. Comparative Sociology, 17(3-4):426-455. Edigheji, O. 2010. Constructing a democratic developmental state in South Africa: potentials and challenges. In: O. Edigheji, ed., Constructing a democratic developmental state in South Africa: potentials and challenges. Pretoria: HSRC Press. Fine, B. 2010. Can South Africa be a developmental state? In: O. Edigheji, ed., Constructing a democratic developmental state in South Africa: potentials and challenges. Pretoria: HSRC Press. Khambule, I. and Siswana, B. 2019. How Inequalities undermine Social Cohesion: A Case study of South Africa. 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(Ritzen, J., Easterly, W. & Woolcock, M. 2000). On "good" politicians and "bad" policies - social cohesion, institutions, and growth. [Online] Available at: https://www.researchgate.net/publication/23722390_Ongoodpoliticians_andbadpolicies_-_social_cohesion_institutions_and_growth/link/55e9058208ae65b6389ae666/download [accessed: 18 September 2020]. University of Cape Town (UCT). 2018. Building a social cohesive society. [Online] Available at: http://www.povertyandinequality.uct.ac.za/social-cohesion-0 [accessed: 18 September 2020]. World Bank. 2016. South Africa Overview. [Online] Available at: https://www.worldbank.org/en/country/southafrica/overview [accessed: 18 September 2020]. World Bank. 2019. Overview: South Africa. [Online] Available at: https://www.worldbank.org/en/country/southafrica/overview [accessed: 18 September 2020]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Post-Second World War lessons from selected democratic states, developmental states and populist states Occasional paper 5/2020 Copyright © 2020 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. Author: Prof. William Gumede Associate Professor, and former Convener, Political Economy, School of Governance, University of the Witwatersrand; and former Senior Associate and Programme Director, Africa Asia Centre, School of Oriental and African Studies (SOAS), University of London; and author of South Africa in BRICS (Tafelberg) Introduction Prudent macro-economic policy, especially the management of monetary, fiscal, and public debt is more crucial in developing countries wanting to catch up to or surpass industrial countries in terms of development. In the postcolonial period many developing countries who genuinely pushed broad-based development fell short when they neglected fiscal and monetary discipline, undoing their development efforts. Unpacking the terms: “Fiscal policy” relates to the policy decisions on the levels of government spending, taxation and borrowing. Whereas “monetary policy” is the coordination of the supply of money in the economy to influence inflation, the value of the currency and employment. Many developing countries put little focus on curbing inflation, keeping exchange rates stable or managing public debt levels. Furthermore, they often allow large budget deficits, where expenses exceed revenue by huge margins. Milton Keynes in his General Theory made an argument for “functional finance”, the use of deficit spending to overcome “cyclical fluctuations in the economy” (Keynes, 1936). However, many developing countries by the 196os onwards pursued persistent deficit spending which over time ballooned into large national debts (Emenike et al, 2017). For example, by the 1960s many African governments had, on average, budget deficits of 30% of GDP. The Nigerian economist Bade Onimode writes that many African countries have, since independence from colonialism, experienced a “chronic balance of payments crisis” (Onimode, 2000). The economists John Healy and Mark Robinson say: “There was a fairly common pattern to African economic policy in the 1970s and early 1980s which included the following recurring features: the persistence of high and volatile public sector deficits, often financed from the banking system; failure to stabilise inflation, especially in the face of terms-of-trade shocks; lack of clear prioritisation of public expenditure and weak economic appraisal of investment together with overvalued exchange rates” (Healy & Robinson, 1992). Chronic balance of payments crises undermine development Many developing countries also mismanaged their balance of payments situations (Ocampo, 2016). The balance of payments being the record of all transactions between the residents, firms and government of a country and the rest of the world. There are three parts to this record: a current account, a capital account and an official financing or balancing account. The current account is the balance of trade, which includes both government and private sector payments and the earnings on foreign investments excluding payments made to foreign investors and cash transfers. Whereas the capital account is sales and transfers of contracts, ownership of fixed assets and patents. The financial account is the transfers of financial assets and liabilities between residents and non-residents, including banking flows – hot money, portfolio flows – debt and equity and foreign investment flows, and official reserves. Developing countries often struggle to manage their budget deficits, current accounts, and their exchange rates. Setting developmental interest rates – which promote the outcomes set out in the national industrial or developmental plan, keeping inflation manageable and setting sustainable exchange rates are crucial for development. Moreover, public spending is often not disciplined and in many cases developing countries do not use taxes towards increased development. The result is that they pay the price in rising levels of poverty, underdevelopment, and financial instability. Therefore, the challenge for many developing countries is “balancing the competing objectives of economic policy: price stability, exchange rate stability and free capital mobility” (Nassif et al, 2011; Williamson, 2008; UNCTAD, 2011; Rodrik, 2008). Furthermore, the Brazilian economist Luiz Carlos Bresser-Pereira points out how “the experience of the East Asian countries has demonstrated, keeping the budget deficit as well as the current account under control is a necessary condition for keeping the macroeconomic prices right and the macroeconomic aggregates balanced” (Bresser-Pereira, 2017). Naturally then, when developing countries pursue expansionary fiscal policies – whereby they increase public spending to stimulate aggregate demand in the economy – ill-discipline results in unchecked government spending, which may cause harm including rising inflation and crowding out private investment. Developing countries often increase public spending to levels where they end up increasing the budget deficits. The government spends more than it collects in revenue and grants, thereby running a budget deficit, resulting in macroeconomic imbalances. Unless the budget deficit is covered by private savings, it creates a current-account deficit with the rest of the world, obliging the country to borrow to finance said deficit. If the government cannot finance the deficit by borrowing, pressure builds to finance it through depreciation of the national currency. Depreciation then leads to greater exports and, hence, reduces the current-account deficit. The problem with this is, firstly, that many developing countries export single commodities, with prices dependent on demand in buying countries. Secondly, depreciation may lead to inflation, which cuts purchasing power. Another issue is that developing countries often hold their currency at too high a rate for the state of the economy, meaning the country’s exports are more expensive than its imports. And during periods of low growth, an overvalued currency is bad for the economy. Brazil, for example, experienced overvaluation of its currency for most of the mid-1990s period. It has worsened now because many industrial country investors move their money to developing countries when interest rates in those countries are low, to seek higher investment returns. Then, when interest rates increase again or during times of economic and political uncertainty within those countries, the investors move their money out to avoid losses. Post-Second World War macroeconomic management success in Japan For a brief period following the Second World War, during the occupation of the country, the operations of the Bank of Japan (BOJ), the central bank, was suspended and a special military currency used in the country. The bank was restructured in 1949 and began to play its central developmental role in Japan’s post-war economic miracle. The BOJ operated with reasonable autonomy during the post-war period, although critics throughout have criticised it for being too independent (Horiuchi, 1993). Many East Asian developmental states have been successful in reducing the volatility in their currencies by building up large international reserves (Aizenman & Ito, 2014; Rodrik, 2008; UNCTAD, 2011). Many of these states, such as South Korea, Malaysia and Singapore, pegged their currencies to a basket of currencies. In the post-war period, Japan focused its monetary policy on promoting “export- and investments-led growth”, focussing determinedly on ever-diversified exports. A pillar of the BOJ’s monetary policy was called “window guidance”, in which the central bank gives credit quotas to commercial banks, which they must channel to specific industries prioritised by government as growth sectors (Cargill, Hutchison and Itō 1997; Werner 2005). The BOJ would directly communicate the industries that should get quicker loans, thereby directly influencing the activities of commercial banks. Japan’s Ministry of International Trade and Industry (MITI) was one of the key institutions in setting fiscal policy. MITI managed the allocations of foreign exchange to companies, with which they bought raw materials or equipment. Government subsidies to prioritised industries were also crucial to expand industrialisation. To secure foreign exchange, companies had to, in return, support the government’s export and investment-led strategy (Pham, 2017). Many Asian economies, more recently including China, have copied the Japanese monetary policy of “window guidance” as “an effective tool to control the total volume of credit to financial institutions” and to “regulate the growth rates of money and investment spending more easily” (Pham, 2017). In the two decades before the collapse, in 1971, of the Bretton Woods System of linking currencies to the value of gold, the Japanese currency was fixed at 360 yen to the US dollar. The collapse of the Bretton Woods System caused the Japanese currency to appreciate sharply. Japan then devaluated its currency, and in 1973, set a floating exchange rate with the mission to stabilise the exchange rate. In the immediate post-war period, Japan’s external current account had large deficits which were financed by US aid. The country also experienced hyper-inflation. “Monetary policy faced difficulty in pursuing two contradictory purposes at the same time, namely stimulating investments to restore supply capacity and depressing the hyper-inflation” (Suzuki, 2017). During the same period, Japan rolled out a massive infrastructure rehabilitation and expansion programme. In addition, the government had to make large payments in reparations for damage it inflicted during the war – both of which were financed by government bonds, underwritten by the Bank of Japan (BOJ). The government formed the Reconstruction Public Finance Corporation in 1947, underwritten by the BOJ, to issue bonds to state-owned entities for industrial rebuilding. Private businesses also expanded dramatically, borrowing from private banks to finance their expansion. The BOJ provided lending to private banks who in turn provided lending to private firms. Importantly, the country’s savings were channelled into investment projects (Hamada & Kasuya, 1992). The government provided subsidies to crucial sectors, called “priority production system” (Hamada & Kasuya, 1992). By 1948, such subsidies came to 24% of the country’s general account (Hamada & Kasuya, 1992). These subsidies were financed by the Bank of Japan and also increased inflation. The Japanese government had a Trade Financial Special Account which sold crucial imports at a much lower price than the international prices. This was subsidised by the BOJ. This also caused additional inflation. There were strong arguments for deficit budgeting – which was rejected In 1946, then Fiscal Minister Tanzan Ishibashi, in his budget speech, basing his argument on Keynes General Theory, argued: “In order to achieve the goal of resuming production there is no harm if government deficits occur. Since both capital stock and labour force were clearly underemployed, the problem was simply that bottleneck factors such as the lack of raw materials from overseas stood in the way” (Hamada & Kasuya, 1992). The government until the 1950s maintained a balanced of payments equilibrium, maintaining similar levels of investments abroad to foreign investment locally. During this period, infant industries became competitive. Japan, from the 195os to the 1970s, undervalued its currency in relation to the US dollar. Furthermore, throughout the post-Second World War period, Japan undervalued its currency to encourage export manufacturing. Then, from the 1970s, the focus became currency stability (Green, 1990). The government regularly intervened in the market to either buy or sell dollars to gain that stability. Furthermore, the government regulated capital flows (Hutchison, 1984; Suzuki, 1986). Japan’s current account was in surplus since 1968. The country accumulated large foreign reserves and the country’s citizens were encouraged to save. Until 1965, the Japanese government implemented a balanced budget principal. Then, in 1965, the Japanese economy experienced a recession. The government for the first time introduced an expansionary fiscal policy, financing a budget deficit with a national bond (Takagi, 2015). The government maintained price stability – targeting inflation at 5.5% per year. The export growth focus provided a surplus in the country’s balance of payments with the world, and foreign investment was introduced selectively in targeted industries. However, capital liberalisation, whereby foreign companies could enter unencumbered, was only introduced in 1973. From 1966 to 1973, the government financed a deficit on the capital accounts, through the issuing of a national construction bond. The government also built up foreign exchange reserves which, by the early 1990s, totalled over US$100bn – a record amount for the IMF (International Monetary Fund, N.d.). During the period leading up to 1990, Japan’s currency was knocked by three international crises. In 1971, the US withdrew from the Bretton Woods System which pegged the US dollar to the value of gold. This caused an appreciation in the yen, which had been under a fixed rate to the value of the US dollar. The government responded by depreciating the currency and adopting a free-floating currency exchange policy. During the first oil shock, in 1972, Japan’s balance of payments accounts declined. This put pressure on the value of the currency, and so, the government restricted capital outflows (Green, 1990). The first oil crisis in 1973 exposed the deficit financing through national bonds. All throughout Japan’s high growth period, the government used monetary policy as a counter cyclical tool to encourage growth, rather than fiscal policy (Funabashi, 1988; Ito, 1987 and 2003; Takagi, 2015). Another shock to the Japanese yen was the Plaza Accord and Louvre Accord of 1985-1987, which again appreciated the value of the dollar. Between 1980 and 1985, there was a dramatic appreciation of the dollar against the currencies of the major industrial countries – almost 50% against the Japanese yen. All as a result of the US Federal Reserve System fighting stagflation, which hounded the US dollar in the 1970s (Frankel, 2015). However, the intervention went belly-up when the dollar became overvalued (US Department of Treasury, 1983). In 1985 the Ministers of Finance and central bank Governors of the G5 countries – the US, Japan, Germany, France and the United Kingdom – signed the Plaza Accord, which agreed on a planned devaluation of the dollar, with the other countries coordinating their activities with that of the US central bank. By the time of the Plaza Accord the US economy was in recession, its current-account deficit was at 3.5% of GP and its exporters uncompetitive. The intervention helped to narrow the US trade deficit with major industrial countries. By 1987, the devaluation of the US dollar had now decreased the value of the dollar against the yen by 51%, and Japan had restrictions on imports. The appreciation of the yen forced the country to respond with an expansionary monetary policy. It increased the money supply, lowered interest rates and decreased the value of the yen – to increase aggregate demand, the total use of goods and services in the economy. However, this in turn caused an asset price bubble, deflation and low growth. The combination of these would become known in Japan as the Lost Decade (Obstfeld, 1990). In 1987, the US industrial country partners signed the Louvre Accord to stop the devaluation of the dollar. In a coordinated approach, the US would in 1988, reduce its deficit to 2.3% of GDP, cut interest rates and cut government spending by 1% (US Department of Treasury, 1983; Krugman, 1991). All four of Japan, Germany, France and the UK would cut interest rates, reduce public spending and taxes. Japan would reduce its trade surplus. Throughout the period, the Japanese government emphasised currency and price stability. The government maintained a low interest rate policy throughout the high growth phase and contained inflation. It also eschewed used tax increases to finance budgets and channelled savings to support targeted export manufacturing, infrastructure and housing. Lessons from Japan Independent central bank, the Bank of Japan (BOJ) Developmental monetary policy prioritised export- and investment-led growth Ministry of International Trade and Industry (MITI) set fiscal policy Monetary and fiscal aligned to prioritise export and investment-led growth Throughout Japan’s post-Second World War high growth period, monetary policy was used as a counter cyclical tool to encourage growth, rather than fiscal policy The BOJ provided lending to private banks who in turn provided lending to private firms Throughout the post-Second World War period, Japan undervalued its currency to encourage export manufacturing The government regulated capital flows Until 1965, the Japanese government implemented a balanced budget principle Only in 1965, when the economy was in recession, an expansionary fiscal policy was introduced, financing a budget deficit with a national bond The government maintained price stability throughout the postwar period, targeting inflation at 5.5% per year Capital liberalisation, whereby foreign companies could enter unencumbered, was only introduced in 1973 From the 1970s currency stability became the focus Persistent balance of payment crisis undermined Brazil's post-Second World War development In Brazil, the military took power in 1964 and ruled until 1985. The military governments prioritized high growth rates to maintain support. The high initial growth rates – from 1960 to 1980, came through state investments in infrastructure, telecommunications, mining and atomic energy. It was dubbed the Brazilian Miracle. The high economic growth rates came with high inflation and large budget deficits. From 1981 to 1994, growth slowed down, and was accompanied with hyperinflation and large deficits (Ayres et al, 2018). Throughout the period from 1960 to 1994, Brazil’s central bank was not independent (Ayres et al, 2018). Brazil fell into a balance of payments crisis in early 1970s, as global demand for its commodities slumped because of slowdowns in industrial country economies buying its commodities (Ayres et al, 2018). The government pursued import substitution industrialisation, economic diversification and self-sufficiency. The import of products that were already locally produced was restricted. The costs of this conversion were paid by foreign loans. The plan was that over time a structure in the economy would materialise, whereby more local products would be produced for export, and the foreign earnings would pay for the accumulated debt. The Brazil government ran a large current account deficit. In 1973, the deficit was US$1.7bn and by 1980 it was US$12.8bn. Foreign debt became more expensive to repay because of higher interest rates charged by lenders. In the 1960s Brazil introduced what it called “indexation”, in which it tried to align prices, interest rates and wages, to past inflation levels, to keep inflation constant across the economy. This, in the absence of firm monetary policy, actually increased inflation (Ayres et al, 2018). By the mid-60s until the early 1970s, the government increased taxes to plug deficit holes, including introducing value added tax (VAT). Until 1964, Brazil had no official central bank. The Treasury implemented monetary policy through the Bank of Brazil, which was a state-owned bank, while at the same time being a commercial bank (Ayres et al, 2018). The government had in 1945 established a Superintendency of Money and Credit (SUMOC) committee, with powers over monetary policy. The Bank of Brazil had majority seats on the SUMOC, giving it a controlling say over monetary policy. In 1964, the government created the Central Bank of Brazil (CBB). At the same time the government restructured the SUMOC into a National Monetary Council (CMN), which oversaw the central bank. The Central Bank of Brazil has been nominally independent, however, in 1994 the bank was given formal independence, and put fully in charge of monetary policy (Ayres et al, 2018). By 1983 Brazil had the largest foreign debt of any country in the world – standing at US$92bn. The government responded by hiking interest rates to record levels, and Brazil’s terms of trade – the ratio between a country’s export prices and import prices – deteriorated by 10% between 1971 and 1979. The 1973 oil crisis, in which the price of oil spiked, hit the economy badly. In addition, the US ran up large budget deficits in the early 1970s, of US$200bn annually, which forced its main trading partners to increase interest rates. Developing countries such as Brazil with very high foreign debts struggled to pay interest on their debts because of the higher interest premiums. Worse, Brazil imported large numbers of products, from machinery, components and raw materials. Efforts to diversify local production of at least consumer goods were pedestrian. The government also repeatedly devaluated the currency, which increased inflation. Low growth, high inflation and high interest rates caused the collapse of many local companies. The second oil crisis in 1979 gave the Brazilian economy another knock, increasing the foreign debt, as interests on repayments of foreign loans rose further, lowering the terms of trade and worsening the balance of payments crisis. Until then, the early 1980s, the government maintained its strategy to lift growth. However, as the debt accumulated, the government changed tack to foster trade surpluses, by pushing exports, and using the income to pay off debt. The 1982 Mexican debt crisis had a further knock-on effect on the Brazilian economy. The International Monetary Fund and Western commercial banks put pressure on the government to introduce a structural adjustment programme, adopted by the country’s legislature in 1983, which included reducing inflation, cutting wage increases and privatisation of state-owned entities. In 1994, Fernando Henrique Cardoso was elected president, and introduced a stabilisation programme, the Real Plan, with a new currency. Monetary policy was tightened, the new currency was anchored to the US dollar, and inflation was reigned in. Lessons from Brazil Military took power in 1964, ruled until 1985 In 1945 a Superintendency of Money and Credit committee was established, with powers over monetary policy Until 1964, Brazil had no official central bank In 1964, the government created the Central Bank of Brazil Throughout 1960 to 1994, Brazil’s central bank was not independent Treasury implemented monetary policy through the Bank of Brazil, a state-owned bank, operating as a commercial bank Import substitution industrialisation strategy, a trade and economic policy focusing on replacing foreign imports with domestic production The military governments prioritised high growth rates to maintain support Initial growth rates – from 1960 to 1980 - came through state investments in infrastructure, telecommunications, mining and atomic energy. It was dubbed the Brazilian Miracle. The high economic growth rates came with high inflation and large budget deficits. From 1981 to 1994, growth slowed, accompanied with hyperinflation and even larger deficits Overvalued currency in early 1970s undermined export 1970s oil crises caused a trade imbalance Heavy borrowing increased the current-account deficit Current account deficit financed through foreign debt Expected import substitution industrialisation with exports rising over time, which was anticipated to result in trade surpluses, failed In 1983, the International Monetary Fund and Western commercial banks pressured Brazil into a structural adjustment programme, resulting in the reduction of inflation, the cutting of wage increases and the privatisation of state-owned entities. Prudent macroeconomic management under Sweden's Rehn-Meidner economic model Left of centre governments in industrial countries – such as Sweden, which was governed by the Social Democratic Party – maintained prudent monetary and fiscal policies to finance the welfare state (Braconier & Steinar, 1999; Calmfors, 1993; Calmfors et al, 2001; Erlandsen & Lundsgaard, 2007; Forslund and Krueger, 1997). In 1951, Swedish trade union economists Gosta Rehn and Rudolf Meidner, at the Swedish Trade Union Congress, designed what would be called the Rehn-Meidner economic model (Rehn, 1952, 1969, 1977, 1982 and 1987; Meidner, 1952 and 1988), which was based on high growth, low inflation, full employment and income equality (The Swedish Confederation of Trade Unions [LO], 1951). The model was based on a “third away” between Keynesian, central planning and neoclassical economics. After the Second World War until the end of the 1970s, the Swedish model was “able to combine a relatively fast rate of GDP growth with full employment, considerable economic security, and a rather equalitarian distribution of income” (Lindbeck, 1997: 1273). The Swedish economist, Assar Lindbeck, who chaired what became the Lindbeck Commission - an inquiry in 1993 into the reasons for Sweden’s economic decline in the late 1980s and early 1990s - listed seven crucial institutional elements of the Swedish “third way” model. These are according to Lindbeck (1997: 1274): “ (a) large public-sector spending and high taxes; (b) a stabilisation policy, to foster full employment, with an active labour market policy as a tool; (c) government intervention to influence aggregate saving, credit supply, and investment, as well as their allocation, by public sector saving, capital market regulations, taxes, and subsidies; (d) strong central government control of local governments; (e) centralised wage bargaining on a national level; and (f) centralised decision making in the private sector, where a small group of large firms dominates on the production side and where the holdings of financial assets, including shares, are highly concentrated in a few large institutions, banks, insurance companies, and investment firms; with (g) the centralised private sector system being combined with a strong free trade regime.” At the heart of the Swedish model was a growth policy, based on disciplined macroeconomics, with price stability, but still advocating for fair wages, through using an active labour market policy. Immediately after the Second World War, a number of Western European Social Democratic Parties implemented Keynesian policies, which were “counter-cyclical” fiscal policies, by reducing spending and raising taxes during boom times, and increasing spending and reducing taxes during downtimes (Beveridge, 1944). These governments pursued expansive macroeconomic policies. They used expansionary fiscal policy by using their budgets to increase spending or cut taxes; and expansionary monetary policy through expanding the money supply through lowering reserve requirements, lowering interest rates and lowering the currency. In the Swedish model, applied during the country’s golden growth period from the late 1940s to the late 1970s, the “expansionary macroeconomic policy measures are combined with selective fiscal measures and with regulation to conquer inflation” (Erixon, 2010). For example, the Swedish Social Democratic Party reduced possible rising inflation, current deficits and overvaluation of the currency that would result from expansionary policy, by “regulation, including informal incomes policy, and by extraordinary fiscal measures” to “moderate price and wage increases in the most overheated industries” (Erixon, 2010). The Swedish central bank, the Riksbank, had both functional and institutional independence, and was one of the agencies that were directly reporting to Parliament (Commission of Inquiry, 2007). The country has a National Debt Office, a public entity reporting to Parliament, which ensures that government borrows prudently. The government used restrictive fiscal policy, particularly indirect taxes to hold down inflation. The country introduced consumption taxes – taxing people when they spend money on goods and services, rather than on income or profits, and devaluated the currency in 1949. “Sweden met actual and expected deficits in the current account with a devaluation of the krona, not with deflationary macroeconomic policy measures” (Erixon, 2010). Sweden in the 1950s to the 1970s began to coordinate wage bargaining, to protect weak industries and to manage inflation (Nickell et al, 2005; Johannesson, 1981). Although the model envisaged wage increases linked to productivity, and wage restraint during tough times, underproductive firms would necessarily go under (Rehn, 1982). However, the argument was that new industries would be created simultaneously through investments in new more market-relevant industries, active labour policies, including continuous industrially relevant training and social welfare (Gowan & Viktorsson, 2017). Wages are determined centrally through collective bargaining. This often resulted in uncompetitive and low-productivity firms, that were unable to afford the agreed wages, to collapse. More productive firms secured comparatively lower wages “than they would have to pay in a ‘free’ labour market” (Ryner, 2003). In the Swedish model, during recessions, a countercyclical fiscal policy, reducing spending and raising taxes during boom times, and increasing spending and reducing taxes during downtimes, was still part of the macroeconomic arsenal. In the model, during a recession the temporary use of budget deficits, moderating wage increases and selective employment subsidies in weaker industries are practical options. To prevent inflation, the government used prudent public finance management. It pursued strict fiscal policy, focusing on generating budget surpluses. Uncompetitive companies with high costs and poor price structures struggled, whereas highly productive companies, with favourable cost and price structures were advantaged (Erixon, 2010). Through effective coordination of the economy, the government continually shifted employees from low-growth to high-growth sectors (Blanchflower et al, 1995). The government managed an active labour market policy: comprehensive industrial skills, training, education, life-long adult-education programmes to cushion the “losers” (Erixon, 2010). Full employment was seen as unemployment below 3%. A core part of the Swedish welfare state was universal education, health and pensions. The model also has a high degree of gender equality, including in the labour market. Private property rights and the freedom of companies to trade internationally were pillars of the model (Bergh, 2017). Progressive taxation, including that on property, funded many of the welfare programmes (Lindbeck, 1997). During the 1950s to the 1970s, Sweden extraordinarily for the country’s size, had large global engineering firms – SAAB, Ericsson, SKG, Electrolux, Volvo and others – which by the 1960s had accounted for 20% of the country’s total exports. In the early 1970s there were criticisms that wage constraints in profitable firms meant that massive profits went to a small circle of private company shareholders and owners. The Swedish Trade Union Confederation (LO), ally of the Social Democratic Party, proposed the establishment of a worker controlled, “wage-earner” funds, which would be funded through taxes. The proposal would give trade unions a direct say in the investment decisions of listed companies. Organised business saw it as a “collectivism of corporate ownership” (Gylfason, 2020). The Swedish government established commission in 1973, proposing employees become shareholders over time. This would be done through setting up sector-based wage-earner funds which would get a proportion of company profits through shares. These funds would be managed by employees. Proportions of the proceeds of the wage-earner funds would be reinvested in their companies, used to finance research and specialist management training for employees, to provide them with the skills to run businesses. However, the wage-earner fund proposals were not implemented – as it faced opposition from employer organisations (Gowan & Viktorsson, 2017). More importantly, the disagreement over the wage earner proposals would collapse the famous Swedish tripartite consensus model (Lindbeck, 1997). Sweden was also hit by the 1973 and 1979 oil crises. The Bretton Woods System of fixed exchange rates, with the US dollar’s value fixed to gold, was ended in 1971, essentially collapsing the fixed currency system (International Monetary Fund, 1972-810). In addition, Sweden struggled in the new conditions to stabilise the value of its currency. The rise of Japan and East Asian developmental states now also provided competition to Swedish global manufacturing. Furthermore, the global recessions sparked by the oil and currency crises meant diminished markets for Swedish products – the Swedish economy faced headwinds (Erixon, 2010). The Swedish Social Democratic Party lost power in the 1976 elections; and only returned to power in 1982. A limited form of wage-earner funds was established in 1984, funded through “excess” profit tax over a 7-year period, rather than through acquiring company shares (Gowan & Viktorsson, 2017). It was not employee managed. The Swedsh Social Democratic Party lost power again in 1991, and the funds were privatised by the new government post-1992, after the Social Democratic Party were out of power again. In the post 1970s oil crisis period, Sweden, whether governed by the Social Democratic Party, or the centre-right coalitions that took power for periods thereafter, struggled to maintain Sweden as an open, competitive economy. And amid the global economic crises, together with increased competition from the rising East Asian economies, they battled to maintain the social benefits of the welfare state, (Bergh, 2017). Until the early 1990s, successive governments tried to maintain the economy’s competitiveness through currency devaluations (Lindbeck, 1997). The policy of high marginal taxes to fund the welfare system, saw many high net individuals seeking ways to avoid tax; and at the same time generous welfare benefits discouraged many who could work from seeking work (Bergh, 2017). The support to companies to protect jobs often led to the cushioning of uncompetitive businesses. Rather than innovate to stay competitive, many companies sought government bailouts. Furthermore, wages increasingly rose above productivity increases, causing rising inflation. “Repeated currency devaluations led to both a lower living standard and investment-sapping uncertainty” (Bergh, 2017). Between 1991 and 1993, struck by the most severe financial crisis since Great Depression that hit several Scandinavian countries, the Swedish government instituted an inquiry into why the successful post-war model had faltered after three decades and how it could be refined for new times. Both the government and opposition parties accepted the criticisms and advice of the report and implemented its key proposals to modernise the Swedish welfare state (Gylfason, 2020). Lessons from Sweden “Third away” between Keynesian central planning and neoclassical economics Growth policy, based on disciplined macroeconomics, with price stability, but still advocating for fair wages, using an active labour market policy Expansionary macroeconomic policy combined with selective focused fiscal measures Combat possible rising inflation, current deficits and overvaluation of the currency that result from expansionary policy Through regulation, including informal incomes policy, fiscal measures taken to moderate price and wage increases Focused on generating budget surpluses Restrictive fiscal policy, using indirect taxes to lower inflation Dealt with expected deficits in the current account through a devaluation of the currency Actively coordinated wage bargaining to protect weak industries and to manage inflation During recessions, a countercyclical fiscal policy, reducing spending and raising taxes during boom times The temporary use of budget deficits during recessions, moderating wage increases and practical options such as selective employment subsidies in weaker industries Increasing spending and reducing taxes during downtimes part of the macroeconomic arsenal To prevent inflation, the government used prudent public finance management Central bank, the Riksbank, has been relatively independent and one of the agencies reporting directly to Parliament Botswana's prudent macroeconomic management is an African post-colonial exception Botswana is one of the few African countries since colonialism to pursue prudent macro-economic policy, especially the management of monetary, fiscal and public debt (Maipose, 2008). When Botswana became independent in 1966 it was among the poorest countries in the world, but through prudent economic management, the country achieved real GDP growth averaging 9 percent between 1965/66 and 2005/06. The country is now an upper middle-income country (Rodrik, 2003). Immediately after independence, Botswana borrowed from abroad, like many African countries (Maipose, 2008). However, the foreign loans were used for infrastructure, unlike in most African countries in the immediately post-colonial period. Botswana also immediately went searching for foreign investment, specifically to develop new industrial sectors (Maipose, 2008). Many African countries immediately after independence discouraged the entry of private investment, often nationalising or indigenising, replacing the owners, managers and employees with locals, frequently members of the governing party, not necessarily with the experience to manage sophisticated private sector firms (World Bank, 1989; Young, 1982; Elbadawi, 1996; Rosberge and Jackson, 1982; Ndulu & O’Connell, 1999; Collier & O’Connell, 2007). The government was also tougher on corruption than most African countries. In 1976, it enacted a law, the Finance and Audit Act, which made accounting and project officers personally liable for waste, misuse and stealing of public funds (Crisuoldo, N.d.). The government ran budget surpluses for 16 years since 1982; and only in 1998/99 ran up a budget deficit (Harvey, 1997; Gaolathe, 1997; Lewis, 1993; Mupimpila, 2005; Sentsho, Eds.; UNDP, 1998). It judiciously accumulated foreign reserves and used the savings from these to finance the budget deficits of the 1998/1999 and 2002/2003 financial years. The Botswana government has a National Employment, Manpower and Income Council which annually determines public service wage increases. The Council does this by taking into consideration the overall macroeconomic targets, including inflation levels, whether the country has a budget deficit and the levels of public debt. During budget deficit years, the government has capped public salary increases (Maipose, 2008). Like many other African countries, Botswana relied on a single or two commodities – in the case of Botswana, beef. This often causes “boom and bust” cycles, with revenue depending on the price and uptake of the commodity (Brautigam, 1996; Gaolathe, 1997; Hyden, 1983; World Bank, 1989). Since commodity prices are volatile, African economies have years of booms followed by recessions, depending on the global commodity price they export. In 1973, the Botswana government put together a long-term strategy which would build up reserves during boom periods to be used during downturns. The government planned much more competently than most other African governments. “The government explicitly pursued a counter-cyclical policy in the management of foreign exchange reserves and government cash balances, basing year-to-year spending decisions on the intermediate-term forecasts of export earnings and government revenue, and on a realistic view of spending capacity” (Maipose, 2008). Furthermore, the Bank of Botswana has exceptionally been one of the most independent central banks in Africa, where central banks are often appendages of the governing party or used by the leader as a private bank. It has been central to consistent exchange rate stability, low inflation and sustainable current account levels (Hill & Knight, 1999). The Bank of Botswana also judiciously invested commodity surpluses. Monetary and fiscal policies are tightly coordinated between the central bank and the Department of Finance and Development Planning to ensure alignment of objectives. The Pula has been consistently under-evaluated to “a level below the perceived equilibrium” (Maipose, 2008), to promote exports. In 1973, the Botswana government resolved to establish three funds to stabilise debt, reserve and to fund local development. In 1979, the Public Debt Service Fund (PDSF) and the Revenue Stabilisation Fund (RSF) were established. The main Revenue Stabilisation Fund became the repository of export surpluses to finance the budget during downturns. By 1995 Botswana had the highest domestic savings rate in Africa at 45% of GDP (Motsomi, 1997). In 1975 it was 16% of GDP (Motsomi, 1997). By 1984, all gross fixed capital formation, the acquisition of new fixed assets, minus disposals, by government, business and households were financed by local savings (Maipose, 2008; Motsomi, 1997). The Botswana government have maintained strict discipline in using the Revenue Stabilisation Fund only for the purposes of creating budget surplus during downturns and not for other things, as is the case in many African countries which set up such funds (World Bank, 1989; Elbadawi, 1996). The government also built up large foreign exchange reserves. “The high level of foreign exchange reserves is a result of a deliberate policy to accumulate as much as possible for unexpected changes regarding the balance of payments” (Maipose, 2008). The Public Debt Service Fund was to pay off public debt. It was financed by appropriations from the national budget, budget surpluses and the profits of investments that were made by the fund. The fund essentially, over time, became an investment fund, loaning funds to state-owned enterprises for the purposes of infrastructure, new investments and buying new stock. Subsequently, the government established the Domestic Development Fund to finance local development. Foreign funding was initially deposited into the Domestic Development Fund. Later, money specifically set aside for capital spending is also deposited into the fund. Development project proposals are evaluated by the fund, and if they meet the requisite standards, funds are disbursed (Maipose, 2008). Depositing donor money into a separate fund, dedicated to development, is also a departure from general African practice of donor funding going uncoordinated to different government departments and local projects (Brautigam, 1996; Gaolathe, 1997; Hyden, 1983; World Bank, 1989). Lessons from Botswana The Bank of Botswana has been one of the most independent central banks in Africa The central bank has been central to consistent exchange rate stability, low inflation and sustainable current account levels Botswana ran budget surpluses for 16 years since 1982 Only in 1998/99 did Botswana run up a budget deficit for the first time since 1982 It judiciously accumulated foreign reserves and used the savings from these to finance the budget deficits of the 1998/1999 and 2002/2003 financial years To ensure alignment of objectives, monetary and fiscal policies are tightly coordinated between the central bank and the Department of Finance and Development Planning The Pula has been consistently under-valued to promote exports Export surpluses finance the budget during downturns By 1995 Botswana had the highest domestic savings rate in Africa - 45% of GDP The government built up large foreign exchange reserves After independence Botswana borrowed from abroad, however the loans were used for infrastructure Botswana also searched for foreign investment, specifically to develop new industrial sectors The government was tougher on corruption than most African countries A National Employment, Manpower and Income Council determines public service wage increases on an annual basis The Council takes the overall macroeconomic targets, including inflation levels, whether the country has a budget deficit and the levels of public debt into consideration During budget deficit years, the government has capped public salary increases The government pursued a counter-cyclical policy in the management of foreign exchange reserves and government cash balances It based year-to-year spending decisions on the intermediate-term forecasts of export earnings and government revenue Developmental fiscal and monetary policy lessons for South Africa Developmental fiscal and monetary policy must, in the public interest, be done in partnership with social partners and be part of an overarching national industrial plan. Brazil during its period of high growth with inflation, balance of payments crises were run by dictatorship – and alternative policy voices were snubbed out. Botswana in the first two decades after independence was more inclusive in economic policymaking, bringing in government and business to cobble together macroeconomic policy. In Sweden, there was a partnership between government, labour and business to jointly strike developmental fiscal and monetary policies. Japan, Asia’s most democratic nation, struck up partnership agreements over economic policy between governing and opposition parties, and with business and labour. Macroeconomic policy must be aligned to and support the national industrial plan. It must focus on growth. However, successful broad-based development necessitates prudent macroeconomic policies. It needs fiscal and monetary discipline. This means keeping inflation at low levels, keeping exchange rates stable and sustainably managing public debt levels. Public spending has to be disciplined. Setting developmental interest rates, keep inflation manageable and setting sustainable exchange rates are crucial for development. Developmental fiscal and monetary policy is complicated, sophisticated and complex. It means the institutions that oversee fiscal and monetary policy must be staffed by competent people. There has to be the policy sophistication to deliberate on the appropriate policy solution, to correctly analyse the environment and to change tactics, when there are economic shifts. All of this demands coordination between the private sector, government and local and global markets. For government to be trusted by the markets, private sector and implementing government entities, it must be seen as credible, honest and competent. 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New Haven: Yale University Press. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

BRI and the implementation of the African Continental Free Trade Area Occasional paper 6/2020 Copyright © 2020 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. Author: Daryl Swanepoel MPA, BPAHons, ND: Co. Admin Abstract The geo-political and geo-economic landscape has over the last decade witnessed quite dramatic shifts in political alignment and regional economic integration architecture. One such realignment relates to Africa’s relationship with China. The Forum for China Africa Cooperation (FOCAC) establishes a strategic partnership between the two sides in areas such as politics, economics, international affairs and development. Simultaneously, China has introduced the Belt & Road Initiative (BRI) with similar purpose albeit within a wider geographic area that covers large swathes of Asia, Europe, Africa and Latin America. To add to the complexity, China and South Africa form part of the Brazil, Russia, India, China, South Africa grouping (BRICS), with the same objectives at its core. Moreover, the recent coming into force of the African Continental Free Trade Area (AfCFTA) will impact the way in which future dialogue and negotiations will be conducted between Africa and other international bodies, including those which are the subject of this analysis. This paper firstly questions the impact of the multiplication of institutions on the coordination of programmes envisaged by each of the ‘blocs’. It ponders the effect of such proliferation on the harmonising and synchronisation of agreed to programmes. The paper then also touches on the impact that COVID-19 has had on global supply chains. It suggests that the pandemic has laid bare flaws in its current design; and that it has highlighted the need for adjusted thinking as it relates to the way forward for strategic cooperation within the geo-economic trade blocs. And lastly, it examines what the implications are for the overlapping institutional mandates resulting from the establishment of the AfCFTA, and what bearing it implies for the relationships between Africa, BRICS, and the BRI. It concludes that greater FOCAC/BRICS/BRI programmatic coordination will be required within a new post-COVID-19 order. It identifies the need for the establishment of novel institutional coordination. It weighs up re-shoring versus globalisation and concludes that the right blend ought to be found that can help boost self-sufficiency without turning away from globalisation. It closes with a recommendation that the secretariats of BRICS, FOCAC, the BRI and the AfCFTA consider further structured interrogation and dialogue to determine the merits of the arguments made for the introduction of greater institutional coordination between these bodies. The China-Africa Think Tanks Forum could, the paper suggests, be the ideal body to undertake such research. Abbreviations AfCFTA African Continental Free Trade Area AU African Union BRI Belt and Road Initiative BRICS Brazil Russia India South Africa FOCAC Forum for China Africa Cooperation FTA Free Trade Area 1. Introduction Two significant China-driven global geo-political and geo-economic re-alignment initiatives affecting the African continent are playing themselves out simultaneously. On the one hand, there is the Forum for China Africa Cooperation (FOCAC), which aims to coordinate, in a mutually beneficial manner, China and Africa’s global political, economic, social and international interests. On the other, there is the Belt and Road Initiative (BRI), that aims to integrate, for similar purposes, a broader geo-political constituency that includes large swathes of Asia, Europe, Africa and Latin America. To add to this complexity, Brazil, Russia, India, China and South Africa (BRICS) in essence replicate the objectives within a third geo-political, geo-economic configuration. Concurrently, Africa is itself, through the establishment of the African Continental Free Trade Area (AfCFTA), undergoing its own regional integration. All this while having to coordinate its own internal realignment processes with the realignment processes of the three other inter-regional initiatives. A single integration and re-alignment project on its own is complex and challenging. To manage four such integration and re-alignment processes at the same time, requires great skill and coordination. There is not much evidence to support the notion that sufficient coordination is in place to synchronise the work of the AfCFTA, FOCAC, BRICS, the BRI. This paper examines the phenomena, the need for coordination between these initiatives and explores proposed mechanisms that can give effect thereto. 2. FOCAC, BRICS & BRI: Necessary process or superfluous triplication? To give support to its foreign policy initiatives, the Chinese government has incrementally introduced policy instruments to coordinate their activities and programmes across the various regions they have targeted for strengthened relationships in support of their own development, albeit within mutually beneficial arrangements with their strategic counterparts. From an African perspective the first such coordinating initiative was the Forum for China Africa Cooperation (FOCAC), which held its first ministerial session in Beijing from 10 – 12 October 2000 (PRC,2000). FOCAC has established a strategic partnership between China and Africa, which is working towards greater cooperation between the two sides in the areas of politics, economics, international affairs and social development (Shelton & Paruk, 2008). The second coordinating mechanism involving Africa was the formation of BRICS. It was founded on 20 September 2006 on the margins of the United Nations General Assembly in New York. It was initiated by Russia as BRIC, since South Africa was not part of the initial formation. Its first summit was held on 16 June 2009 (BRICS, N.d.). On 24 December 2010, BRIC was expanded to BRICS, when South Africa was invited to join the group of developing nations. It joined its first summit on 14 April 2011 in Sanya, China (RSA, N.d.). South Africa was invited to join because of its position to make a unique contribution to the BRICS Africa agenda of promoting global economic governance reforms and the institution of BRICS as a credible international organisation. It was a strategic move by the bloc to get a foothold in Africa as a whole (Manda, 2018). Then came the Belt and Road Initiative (BRI) in 2013. It is an ambitious programme which aims to improve regional integration, grow trade and stimulate economic growth by connecting Asia with Africa, Europe and Latin America via land and maritime networks. The initiative has five major priorities: policy coordination, infrastructure connectivity, unimpeded trade, financial integration and connecting people (European Bank, N.d.). With the advent of the African Continental Free Trade Area (AfCFTA), which came into force on 30 May 2019 (tralac, N.d.), BRICS and BRI planning will by extension also impact African countries that are not part of these formations. As such BRICS and the BRI programmes and projects will also by necessity have to be integrated into the AfCFTA planning. It will become increasingly difficult to isolate non-BRI and BRICS African countries from these regional initiatives. At its core, and as illustrated in the table below, the three initiatives, essentially, have the same objectives: Sources: Mackinnon (2016); Dristi Media (N.d.); OECD (2018). The proliferation of regional initiatives in which China plays a central role, is linked to China’s rapidly growing global role and more assertive approach in the international arena (Hass, Rubenstein & Thornton, N.d.). As can be deduced from the preceding sections, China has asserted itself in a growing number of regional initiatives. From an African perspective these include FOCAC, BRICS and the BRI. Whilst affirming the constructive roles that these initiatives play in advancing development, the question arises whether this proliferation best serves the objective, or whether the streamlining of the multiple approaches will enhance greater efficiency in the execution of the mutually beneficial development goals as envisaged in the mandates of the various formations. Whilst each of these initiatives are in essence promoting the same policy ideals, or at least different elements of the same policy areas, and indeed many of the same players, there does not appear to be a bridge between the various initiatives and/or an umbrella coordinating mechanism. This paper highlights, what it believes, a flaw in the multi-lateral coordination architecture. There are practical reasons to invest time and political capital in coordination. These include, amongst others: (i) the elimination of duplications, which can produce unnecessary costs for government, and lost time for citizens and businesses, (ii) the avoidance of contradictions where different organizations, often for good political reasons, implement programmes that are directly contradictory, (iii) minimising displacement, where one organisation, without consultation, may make decisions that create problems for others, (iv) greater efficiency in dealing with cross cutting problems, where scarce resources needed for a range of services often cut across the usual and/or regional lines, and (v) to ensure simple tidiness, through which governments can appear more capable, building public confidence in the process (Peters, 2018). Moreover, political leaders traverse the globe to attend a multitude of multi-lateral meetings, often to discuss the same cooperation issues with different partners. This comes at great expense to the fiscus and exacerbates the already stretched capacity of the civil service. The secretariats of FOCAC, BRICS and the BRI need to contemplate how best to coordinate their individual activities into a cohesive whole, that is to ensure cross-organisational planning and coordination. This may take the form of a new global counter-balancing institution, which essentially absorbs the three initiatives; or a cross-organisational coordinating mechanism, which at the very least eliminates duplication and at best ensures an integrated approach to the global issues they jointly wish to address. This becomes even more important given the very high cost of development projects, the fact that countries along the BRI have different levels of development and at times poor governance, which may hinder infrastructure development and the development of trade and investment (Hind, 2019). China holds the key to FOCAC and BRI coordination, in that, although the initiatives are multi-laterally owned, both are driven by China (Burger, 2017). This means that establishing coordination between the two initiatives could prove less complex than it would be with BRICS, which is not driven by a single country. It may therefore be that coordination does not take on one form, but a combination of forms. The author does not presume to have the competence, nor the mandate, to prescribe such coordination mechanisms, but does offer illustrative approaches that could be applied to effect greater coordination between the BRICS, FOCAC and BRI initiatives. The absorption model This model would entail the fusing of BRICS, FOCAC and the BRI into a single multi-lateral development agency, to carry out a common mandate across all the countries that have subscribed to the various initiatives. There could be different streams within the single entity that will execute the peculiar geo-political and/or geo-economic priorities envisaged by the former formations. (Source: Author, 2020) The collaborative model In turn, this model would retain the three independent initiatives, which would continue to direct their own programmes. They would however agree to coordinate their individual activities in an effort to ensure a greater level of synchronisation aimed at improving delivery effectiveness for the greater good of their subscribing members. This would require the establishment of a coordinating mechanism established by the three secretariats to cede certain activities to either BRICS, FOCAC or the BRI, and/or to supplement and support projects initiated by any one of the three, and/or to carry out individual projects in a manner that effectively integrates the separate initiatives into an aligned result. (Source: Author, 2020) The hybrid model In this instance, the two Chinese-led initiatives – FOCAC and the BRI – would, under the banner of the BRI, be folded into one, whilst BRICS would continue independently, albeit within a cooperative arrangement with the BRI. Within the BRI there could be regional streams that would fulfil the previous regionally executed programmes, but now within an integrated overall master plan. This would entail a similar approach being followed with other regional programmes that also face parallel duplicity akin to FOCAC. (Source: Author, 2020) The exact form and shape of the coordination mechanism remains to be seen. It will be the subject of much intense diplomatic dialogue and negotiation. What that form and shape turns out to be, is, however, in the authors mind, secondary to the indisputable reality that efficacy in policy implementation will require a greater level of structural coordination. Coordination is crucial within the ever more interconnected and integrated world. For them to remain at the cutting-edge of global realignment, FOCAC, BRICS and the BRI will, sooner or later, have to factor these into their execution arrangements. 3. COVID-19 highlights gaps in global supply chain architecture In the previous section the paper dealt with the need for coordination between the various regionally orientated bodies. The COVID-19 pandemic laid bare the negative effect that a lack of coordination has on the global economy. The lock down in China, and later in other countries, for example, disrupted the global supply chains. The global pandemic, according to Marianne Schneider-Petsinger (2020) of the renown Chatham House, suggests that the coronavirus “is transforming the future of supply chains as a tool for policymakers”. She says that a “new era of government policy that inextricably links supply chains with wider industrial policy and strategic competitiveness is already upon us”. As a practical example of such disruption, one may cite the impact that the COVID-19 lock down in China had on the computer sector in South Africa. A large supplier of computer hardware in South Africa was caught unawares. Without prior warning they did not have the time to sufficiently stock their products and as a result, were unable to fill orders for some months. The impact on their financial performance is evident (Anon., 2020). This situation was not an isolated case. As suggested by Schneider-Petsinger, this appears to have been a global phenomenon. Some, such as the United States of America (US) seem to believe that the solution lies in the re-shoring of global supply chains, even if it means a cost to the fiscus, through for example paying subsidies to domestic manufacturers to counter supplies from abroad. The US are not alone. French president Emmanuel Macron has called for greater industrial sovereignty, and the European Union, in light of economic vulnerabilities created by the pandemic, recently adopted the concept of ‘open strategic autonomy’, which seeks a new balance between open trade and efforts to ‘reduce dependency in order to strengthen security of supply. (Schneider-Petsinger, 2020). This paper argues that the solution does not lie in the re-shoring approach. Rather, the right blend ought to be found that can help boost national self-sufficiency without turning away from globalization. By exposing companies to domestic concentration, does not reduce the supply chain risks, for their domestic and international customers, in cases of domestic catastrophe (Schneider-Petsinger, 2020). To illustrate: The same computer hardware enterprise cited earlier, also supplies optical fibre, which, as a result of a Chinese investment, they manufacture in South Africa. When the Chinese economy locked down, their optical fibre supply remained uninterrupted. At the same time, whilst the Chinese side could not, due to the lock down, export optical fibre, the potential existed for them to fill their order books via their South African operation (Anon., 2020). This is the blend argued for: ensuring security of domestic supply without turning away from the benefits of globalisation. Herein lies the motivation for greater coordination between and within FOCAC, BRICS and the BRI. Holistic planning across these regions is necessary to overcome the pitfalls that catastrophe holds for supply chains. By diversifying manufacturing capacity across the regions ensures continuity of supply when one’s domestic economy shuts down, for whatever reason. This requires careful central planning to ensure, amongst others, optimisation of economic complementarity, competitiveness and equal administrative treatment in areas such as customs, residence permits, investment guarantees, etcetera. The groundwork for such coordination has been laid by FOCAC, BRICS and the BRI. However, each of these bodies serve different constituencies, negating, in the absence of coordination, the ability to optimise security of production across the combined membership. Brazil and India are for example not part of the BRI, and FOCAC covers only Africa and China, which excludes the other Asian, European and Latin American countries that form part of the BRI. The coordinating mechanism promoted in the previous section will help overcome such supply difficulties and will promote inter-regional planning. In moving development forward, this paper argues that it is no longer a question of whether coordination is necessary, but rather why such coordination would not be pursued? The COVID-19 pandemic has exposed the extreme vulnerabilities within the global supply chain environment, and its threat to economic growth. Similar vulnerabilities exists within various other sectors as well, for example tourism, health and the environment. Accordingly, it is proposed that FOCAC add to its agenda the question of coordinating its activities with those of BRICS and the BRI. 4. Extending the BRI to AfCFTA There are currently 39 countries in Africa participating in the BRI (Risberg, 2019). At the same time, the AfCFTA has come into force. The overlap between the two sets of countries has implications for the BRI. In accordance with the African Union’s Agreement Establishing the African Continental Free Trade Area (AU, 2012), the general objectives of the AfCFTA are to: create a single market for goods and services, facilitated by movement of persons in order to deepen the economic integration of the African continent and in accordance with the Pan African Vision of “An integrated, prosperous and peaceful Africa” enshrined in Agenda 2063; create a liberalised market for goods and services through successive rounds of negotiations; contribute to the movement of capital and natural persons and facilitate investments, building on the initiatives and developments in the State Parties and Regional Economic Communities; lay the foundation for the establishment of a Continental Customs Union; promote and attain sustainable and inclusive socio-economic development, gender equality and structural transformation of the State Parties; enhance the competitiveness of the economies of State Parties within the continent and the global market; promote industrial development through diversification and regional value chain development, agricultural development and food security; and resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes. In these provisions, there are especially two stipulations that have a direct bearing on the way forward for the BRI – AfCFTA planning. Firstly, it lays the foundation for a continental customs union, and secondly, it aims to resolve the challenges of multiple and overlapping memberships and expedite the regional continental integration processes. Practically, this means that the BRI objective of creating integrated trade markets, including FTA’s, is no longer feasible by means of a bilateral agreement between an individual African country and the broader BRI. Any arrangement with an individual country will be subject to that country’s obligations in term of the AfCFTA agreement. Furthermore, since the AU is moving in the direction of a continental customs union, here too, the BRI will be obliged to consider the aspirations of the broader AfCFTA as opposed to individual African countries. And, in terms of regional integration, the AU has adopted the Program Infrastructure Development for Africa (PIDA) masterplan (AU, N.d.). This plan has as its primary objective the development of infrastructure that will support the economic integration envisaged by the AfCFTA. All of the above would suggest that in terms of developing an African BRI integration plan, BRI architects will have to shift away from negotiations with individual African countries, towards negotiations with the organs of the AU. This in turn places a heavier burden on the BRI planners, in that they will have to understand the intricacies of layered economic infrastructure planning, that is between the individual African countries, at an African continental level and between the continent and the broader BRI. And finally, it appears the author is not alone in his concern relating to overlapping memberships of individual African countries and its impact on trade growth and economic infrastructure optimisation for the continent. In identifying the need to resolve the challenges of multiple and overlapping memberships, they in effect give guidance to the BRI planners. African countries’ integration into the BRI requires coordination at an African continental level. This brings the discussion full circle. Is the proliferation of political and economic integration initiatives necessary process, or, as it relates to FOCAC, BRICS and the BRI, superfluous triplication? The paper leaves the question open for the political leaders to ponder, suffice to suggest that it is an issue worth pondering. 5. Conclusion The status quo relating to the current global multi-lateral institutions has for some time now been challenged as not ‘being fit’ for purpose, in that it is often experienced as transactional, ideologically uncompromising and exclusive in its decision-making. The inability to transform this architecture has gradually led to the establishment of alternative geo-political formations aimed at addressing the divide. Prominent amongst these have, from an African perspective, been FOCAC, BRICS and the BRI. The progression of each has served their objectives well, and they have gathered momentum and good reputation. There is general consensus that FOCAC, BRICS and the BRI have enormously aided socio-economic development on the continent. However, given the recent developments on the African continent whereby progress is rapidly being made in the implementation of the AfCFTA, together with the cross-cutting nature of the stated aims and objectives of the three groupings, questions are starting to be raised as to whether some form of consolidation is required. This paper has elaborated on the question as to whether, from an African perspective, the need for a proliferated approach still holds true, or whether some form of streamlining of the triplication may lead to better coordination and developmental outcomes. It does not venture a firm solution, but does suggest that it is a topic worthy of consideration. 6. Recommendation It is recommended that the secretariats of BRICS, FOCAC and the BRI consider further structured interrogation and dialogue to determine the merits of the arguments made, that is structured cooperation between FOCAC, BRICS and the BRI. The China-Africa Think Tanks Forum could be the ideal body to undertake such research. Whatever the outcome, the exercise should aim at strengthening mutually beneficial multilateralism, since, in the authors view, nations - and indeed the world - are better served through cooperation based on mutual respect than they would be by following an isolationist and/or going it alone approach. References African Union (AU). N.d. Program Infrastructure Development for Africa (PIDA). [Online] Available at: https://au.int/en/ie/pida [accessed: 13 October 2020]. African Union (AU). 2012. Agreement establishing the African Continental Free Trade Area. Addis Ababa: African Union Anonymous (Anon.). 2020. Confidential meeting between author and South African enterprises. BRICS. N.d. History of BRICS. [Online] Available at: https://infobrics.org/page/history-of-brics/ [accessed: 12 October 2020]. Burger, S. 2017. Heartland-to-heartland linkages sought in China-driven industrial superproject. [Online] Available at: https://www.engineeringnews.co.za/article/heartland-to-heartland-linkages-sought-in-china-driven-industrial-superproject-2017-12-12/rep_id:4136 [accessed: 12 October 2020]. Dristi Media. N.d. BRICS. [Online] Available at: https://www.drishtiias.com/pdf/1601129266-brics-1.pdf [accessed: 12 October 2020]. European Bank. N.d. Belt and Road Initiative BRI. [Online] Available at: https://www.ebrd.com/what-we-do/belt-and-road/overview.html [accessed: 12 October 2020]. Hass, R. Rubenstein, D.M. & Thornton, J.L. N.d. The trajectory of Chinese foreign policy: From reactive assertiveness to opportunistic activism. [Online] Available at: https://www.brookings.edu/wp-content/uploads/2018/03/fp_20171104_hass_the_trajectory_of_chinese_foreign_policy.pdf [accessed: 12 October 2020]. Hind, J. 2019. 2nd BRI Summit 2019 Is Underway In Beijing, China. [Online] Available at: https://www.defencedirecteducation.com/second-bri-summitindia-china/ [accessed: 12 October 2020]. Manda, S. 2018. SA is a worthy member of BRICS. [Online] Available at: https://www.sanews.gov.za/features-south-africa/sa-worthy-member-brics [accessed: 12 October 2020]. Mackinnon, T. 2018. The Forum on China Africa Cooperation (FOCAC). BRICS Policy Center [Online] Available at: THE-FORUM-ON-CHINA-AFRICA-COOPERATION-FOCAC.pdf [accessed: 12 October 2020]. OECD. 2018. The Belt and Road Initiative in the global trade, investment and finance landscape, in OECD Business and Finance Outlook 2018. Paris: OECD Publishing, https://doi.org/10.1787/bus_fin_out-2018-6-en People’s Republic of China (PRC). 2000. The First Ministerial Conference of FOCAC. [Online] Available at: https://www.fmprc.gov.cn/zflt/eng/gylt/dyjbzhy/t157577.htm#:~:text=The%20first%20ministerial%20conference%20of%20FOCAC%20was%20held%20in,10%20to%2012%20October%202000 [accessed: 12 October 2020]. Peters, G. 2018. The challenge of policy coordination. Policy Design and Practice, 1 (1):1-11. Republic of South Africa (RSA), N.d. Fifth BRICS summit – general background. [Online] Available at: https://www.gov.za/events/fifth-brics-summit-general-background [accessed: 12 October 2020]. Risberg, P. 2019. The Give-and-Take of BRI in Africa. [Online] Available at: https://www.csis.org/give-and-take-bri-africa#:~:text=China%20lists%2039%20African%20countries,Brazzaville%2C%20Djibouti%2C%20and%20Zambia [accessed: 31 October 2020]. Shelton, G. & Paruk, F. 2008. THE FORUM ON CHINA-AFRICA COOPERATION. A Strategic Opportunity. [Online] Available at: https://issafrica.org/chapter-1-introduction-focac-and-africa [accessed: 12 October 2020]. Schneider-Petsinger, M. 2020. National Self-Sufficiency or Globalization is Not a Binary Choice. [Online] Available at: https://www.chathamhouse.org/2020/06/national-self-sufficiency-or-globalization-not-binary-choice?gclid=Cj0KCQjwoJX8BRCZARIsAEWBFMK8xvGoDUZJ6K0tSj0BdEmv0ajX7PYC5VlsCC0uf9ryQ5Ev16S7UkMaAkHMEALw_wcB [accessed: 13 October 2020]. tralac. N.d. African Continental Free Trade Area (AfCFTA) Legal Texts and Policy Documents. [Online] Available at: https://www.tralac.org/resources/our-resources/6730-continental-free-trade-area-cfta.html [accessed: 12 October 2020]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Occasional paper 7/2020 Copyright © 2020 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. Author: Dante Mashile (Accredited Public Relations Practitioner), National Diploma in Journalism, Certificate in Project Management (Netherlands), BA, Postgrad. Diploma in Telecoms and Information Policy, Master of Development Studies Abstract There is uncertainty about the impact of the proposed National Health Insurance (NHI) on the pricing of pharmaceutical products and the return on investment (ROI) for local pharmaceutical companies. Currently, differential pricing between the public and private sectors exists. Pharmaceutical companies supply the public sector with low-cost products, based on a tender system. Costs can remain low as the public sector is able to purchase in large volumes. Pharmaceutical companies make their profits primarily in the private sector, where medication is sold at higher prices. The NHI pharmaceutical purchasing model will be based on negotiated pricing, with a balancing of government policy that prioritises reduced medicine costs, and the goal of facilitated industrial development. The presence of a single purchaser of pharmaceutical products may give the NHI significant buying and supplying power, with the potential to drive pharmaceutical product prices down by at least 15% through reduced logistics and dispensing fees. However, there is uncertainty about whether a single purchaser under the NHI will necessarily reduce pharmaceutical costs. Pharmaceutical companies may price their loss of profit, currently generated in the private sector, into the price of products supplied to the NHI scheme. Some may also withdraw from the South African market if they are not allowed to price in a way that allows them to match their current profits. This may result in an increase in the price of pharmaceuticals supplied to the NHI scheme, since pharmaceutical companies will still have an ROI obligation to their shareholders. While importing cheaper medicines from abroad remains an option, government may not choose that route because of its negative effect on the balance of payment, employment and domestic capital formation. An opportunity exists for South Africa to explore public-private partnerships (PPPs) in NHI delivery to leverage the expertise of private sector companies and the regulatory and institutional capacity of the public sector. The 2018 Health Market Inquiry report of the Competition Commission found that there is nothing that stops the state from using PPPs in addressing the delivery of healthcare services in the public sector, especially with a rich and a well-developed legal and policy framework for PPPs, under the auspices of the National Treasury (Compcom, 2019). Introduction African health systems are often fragile, and governments’ failure to prioritise healthcare and allocate sufficient resources for health is at the heart of the continent’s fragile health systems (WHO, 2011). The 2001 Abuja Declaration sought to correct this by securing a commitment from African Union governments, which stipulated that at least 15% of national budgets should be allocated to the health sector (Biegon, 2020). However, despite the consistency in health spending, the South African government has yet to reach this target. The consolidated health spending, as a share of consolidated government expenditure, ranged between 13.4% and 14.1% over the 2013/14 to 2019/20 period, and fluctuated between 3.7% and 3.9% of the gross domestic product (GDP) (UNICEF, 2018). The proposed National Health Insurance The National Health Insurance (NHI) proposed by the South African government aims to pool funds in order to provide access to affordable quality care for all South Africans and long-term residents. Care is based on the health needs of the population, irrespective of their socio-economic status (DOH, N.d.). The NHI is founded on the basis of universal health coverage (UHC), which is guided by the principle that every South African will have a right to access comprehensive healthcare services free of charge at the point of use. Care can be sought at any recognised health facility across multiple levels of care, including clinics, hospitals and private health practitioners. The NHI is consistent with the South African Constitution, which states that healthcare is a human right, and this right should not depend on the wealth of the individual or where they reside (DOH, N.d.). The primary principle underpinning the NHI, is social justice. This is recognised through (a) the constitutional right to access healthcare; (b) social solidarity, which refers to financial risk protection for the entire population; (c) effectiveness through the implementation of evidence-based interventions; (d) equity, which ensures UHC and care according to need; (e) affordability, ensuring that services will be procured at reasonable costs, while recognising that health is a public good; and (g) efficiency, which will be ensured by creating new administrative structures that avoid duplication across national, provincial and district spheres of governance. NHI financing It is envisaged that the NHI will be established through the creation of a single fund that will buy services on behalf of the entire population. Funds will be collected through a combination of mandatory prepayment sources, primarily based on general taxes. Most employed South Africans will, therefore, contribute to the NHI Fund. All South African citizens and permanent residents will be allowed to access services included in a basic package of care, such as preventative and primary healthcare, medicines and emergency medical services. This model is similar to that of medical aid schemes and their stipulated prescribed minimum benefits (PMBs). However, two key differences between these models exist (DOH, N.d.). The NHI will cover employed or unemployed long-term legal residents, regardless of their income level. The health condition of clients will influence the type of healthcare that they may receive, not their socio-economic status (the salary that they earn or their employment status). Essentially, under the NHI, the basic package of care will be available to all citizens, regardless of their income, economic status or the nature of their disease. The burden of disease and health outcomes The burden of the coronavirus had further exposed the weaknesses of South African health system and has intensified pressure on the government to implement UHC through the NHI. The NHI aims to bring about healthcare policy reform that will, among other things, address the high burden of disease, allowing government to address the high cost of private healthcare and improve the quality of public healthcare facilities. Government spends vast sums of money on healthcare for the majority of people, and yet, they are receiving poor quality care in public facilities, and health outcomes are still poor. This is due to a lack of focus on disease prevention, and a delay in receiving appropriate, timely and adequate healthcare. The result is higher-than-optimal levels of disability-adjusted life years (DALYs; WHO Metrics) (Grosse et al., 2009; Wang et al., 2018) The effects of NHI: Equitable access through NHI In 2014, the WHO Consultative Group on Equity and UHC published a comprehensive report, Making Fair Choices on the Path to Universal Health Coverage, detailing strategies that countries should adopt when moving towards healthcare coverage for the entire population. The report provided exhaustive guidelines on how to expand coverage to more people, services that should be covered and the prioritisation of healthcare resources to achieve UHC (Wang et al., 2018). Many countries have largely adopted the WHO’s report guidelines to a UHC approach. China, however, followed an approach that would, at face value, not be viewed as uniform and equal. The country’s system was designed to respond to the various needs of population segments in an equitable manner. The Chinese model had bespoke regional differences, including various sources of funding that were initially outside of the national pooling system, but it still increased cover for the majority of the population (Wang et al., 2018). The lesson from China’s experience is that the UHC guidelines should be tailored to the needs of each country and its economy (Wang et al., 2018). The private healthcare sector serves a minority of the population, who have relatively good access to money and resources (Naidoo, n.d.; Discovery, 2019; Sithole, 2015). The cost of medical aid cover for members is, however, rising far quicker than consumer price inflation. The Council of Medical Schemes 2015/2016 Report showed that medicines and consumables dispensed by pharmacists and providers other than hospitals amounted to R22.3 billion in benefits paid to members over that period. However, medical aid members had to settle co-payments of about 20% over and above the member benefits during that period (CMS, 2016). In-hospital consumption of medicines and consumables by medical aid members drives the co-payment expenditure up further (Rovira & Darbà, 2001). It suggests that the inflation of 7.5% for medical care and health expenses in 2020 will translate into member benefit increases of R1.68 billion over a five-year period (Forbes, 2019). According to IQVIA, an American multinational company operating in the health information technology and clinical research space, the pharmaceutical private sector recorded an annual spending of R30 billion in prescriptive medicine and R15 billion in over-the-counter (OTC) medicine in market sales as of July 2020. This amounts to a combined total private sector expenditure of R45 billion (Insights - IQVIA, N.d.). The 2020/2021 consolidated government expenditure on health is R230 billion, which is 103.5% higher than total private sector pharmaceutical medicine costs (R45 billion). Public healthcare expenditure is higher than private sector pharmaceutical expenditure. This warrants the need to harness the combined investments of private and public sector healthcare spending, especially in the context of the NHI. And South Africa must take advantage of the combined and integrated healthcare and pharmaceutical investment of both the private and public sectors, with all the benefits of improved quality of service, affordable service and well-trained healthcare professionals (National Treasury, 2020). South Africa deserves an integrated healthcare system that offers quality of service that is affordable and deriving value for money. Price control mechanisms Improved access to healthcare services has been a focal point in South Africa for two decades now (Bangalee & Suleman, 2015; Moodley & Suleman, 2019). With this, improved access to lower cost pharmaceuticals is required. Various transparent price control mechanisms have been introduced to regulate prices in the pharmaceutical market. These include capped annual price increases, to which the Department of Health (DOH) Pharmaceutical Economic Evaluation (PEE) refers to as a single exit price (SEP) adjustment and mandatory generic substitution for medicines with expired patents (although clients/patients still have the choice to purchase originator products or brand-name products). An SEP is the maximum price at which a manufacturer must sell all scheduled substances to wholesalers, distributors and pharmacies, irrespective of the volume sold. The SEP was introduced in 2004 as part of an attempt to increase transparent pricing of medicines sold in the private market, with the aim of putting a stop to discounts and additional levies on medicines (Bangalee & Suleman, 2015; Chowles, 2017; Moodley & Suleman, 2019; DOH, N.d.). The current pricing of pharmaceutical products The pharmaceutical pricing system in South Africa is regulated by the SEP mechanism in the private sector and by state tender pricing in the public sector. Competition between firms through a bidding system and, to some extent, volume-based pricing determines the state tender price. The relationship between state tender prices and private sector SEPs is unclear. Some companies balance their return on investment by engaging in both a higher-priced, lower-volume market, and a lower-priced, high-volume market for the same product, or across an entire portfolio. The reality may be that some firms, notably the generic manufacturers, operate in both markets based on what achieves the highest profit. However, there are some single-source suppliers that sell to the private sector at similar prices than those offered to the public sector. Others, in both the generic and originator sectors, operate only in the private sector and do not participate in the state tender system at all. The impact of SEP and private sector costs Research has demonstrated that SEP regulation had a positive impact on both originator and generic medicine pricing in South Africa immediately after the introduction of this regulatory mechanism. However, according to Statistics South Africa (Stats SA), the rise in medical scheme fees, along with an increase in food and non-alcoholic beverage prices, contributed significantly to the rise in the consumer price index (CPI), which indicates the price increase of a standard basket of items. Annual consumer price inflation was 3% in September 2020, down from 3.1% in August 2020 (Stats SA, 2020) In February 2020, Stats SA measured the cost of medical schemes, as well as the fees charged by private sector medical practitioners and hospitals. They found inflation on medical products to be approximately 6.4%. Medical inflation consists of various medical costs. Notably, painkillers were up 10.2% and vitamin prices were up 9.1%. The costs of medicines, hospital fees and doctors’ fees contributed to the overall consumer and medical inflation, which have to be contained (Stats SA, 2020). The SEP regulatory system is not entirely fool proof, because there is a possibility that manufacturers could use higher logistics fees to incentivise wholesalers and distributors to stock their own brands and thereby push for those products down the value chain (Bangalee & Suleman, 2015). A better logistics fee structure has a direct lever in creating a preference for certain medicine brands being stocked and distributed in the market. The logistics fee is a strategic area of negotiation between wholesalers and distributors. The logistics fee is a percentage of the SEP and it varies. The average charge is 6%, with the general trend being between 7.4% and 12.5%. In fact, there are differences in the logistics fee as a proportion of the SEP within identical manufacturing groups. The manufacturers offer a logistics fee in order to make their products competitive for retail pharmacy buyers. It is the manufacturer that sets the terms attached to the logistics fee. The SEP should not impact the integrity of the supply chain. Currently, the SEP is not as robust as it could be, leaving room for improvement in the system and for better pricing regulation. The impact of the state tender system Increasingly, the state tender system is being negatively affected by the failure of suppliers to bid because of a lack of supply of raw materials and active pharmaceutical ingredients (APIs), which are the required ingredients in medications. This forces the state to engage in procurement based on quotations received from pharmaceutical companies, and, at times, they have to pay the SEP. It is therefore difficult to determine the net effect on total pharmaceutical expenditure in line with a more active procurement policy under the NHI. There is a likely possibility that some prices that are currently being paid by the state will not be attainable under the NHI. However, in some cases, total expenditure may actually be lower if procurement actively and aggressively uses the monopsony power of the NHI Fund. Mandatory generic substitution Generic substitution policies mandate the availability of generic medicines maintained that generic substitution policies were vital for cost containment, as they prevented brand names from charging inflated prices (Gray, Santa‐Ana‐Tellez, & Wirtz, 2016). These policies cover internal and external reference pricing and the use of limited lists, such as essential medicines lists and treatment guidelines that form the basis of care. Such generic substitution policies have been identified as important cost-saving measures. International/external price benchmarking, a widely used policy instrument to control the prices of pharmaceuticals that are protected by intellectual property rights, draws on countries with similar economic backgrounds and/or geographic closeness, who use it as a benchmark during negotiations between government and the pharmaceutical industry for new medicinal products of high therapeutic value. Additionally, external reference pricing provides institutional buyers and regulators with a benchmark for negotiating the price of a pharmaceutical product. South Africa and other emerging markets have also used this instrument, even though they are outside of the European Union market. The other instrument to use is reference pricing or internal reference pricing. This is what an employer or insurer pays, up to an established maximum price, for a healthcare service. The reference price is set at a level that allows patients to receive a healthcare service from various high-quality providers without an additional contribution. This promotes the rational use of similar drugs to control overall pharmaceutical expenditure with no associated negative health outcomes and with no discriminatory effects. It was noted that when the mandatory offer of generic substitution was introduced in South Africa in 2003, implementation in the public health sector was delayed. However, the private sector (medical schemes and managed healthcare service providers) showed a commitment to use lower-priced generic medicines. That said, even in the private sector, the take-up is lower than in major developed markets (Gray, Santa‐Ana‐Tellez, & Wirtz, 2016). Single medicines selection process To a greater extent, another policy consideration is the use of the single medicines selection process, supported by the more explicit use of health technology assessments (HTAs). This would narrow the gap between the public and private sectors. It is important to acknowledge that the Essential Medicines List (EML) might inform the selection of medicines that should be available at all entities offering NHI services, because, as stipulated in the National Drug Policy of 1995, these could not necessarily be the only medicines available. The regulatory framework governing the EML should require a regular review of the list. HTAs are a fair, evidence-based and a dependable approach to determining the criteria for the inclusion of services and new technologies for incorporation into the NHI healthcare platform. It is also imperative that the HTA is established before the implementation of the NHI. The HTA system could assist in identifying and informing decisions about the funding of health services and technologies. Therefore, South Africa needed a strong and working HTA system that would best inform the provision of the NHI services. Health technology assessment could strategically be one of several tools needed to implement the NHI more broadly and in order to achieve the aim of evidence-based and affordable health care for all South Africans, eventually contributing to the improvement of the nation’s health (Siegfried et al., 2017). Reimbursement model An additional policy that was implemented is a reimbursement model, which is informed by pharmacoeconomic data, and used to set up potential options for an integrated health system (Gray, Santa‐Ana‐Tellez, & Wirtz, 2016). NHI and pharmaceutical purchasing The healthcare market does not operate under the same conditions that exist in an open, competitive market. This is because, in the public sector, the idea of pricing from a consumer or funder standpoint is not a straightforward concept, as services are not sold as they normally would be in the competitive market. The price of goods is not determined by the existence of a market where consumers and producers determine the price. Although input or manufacturing costs may be used to set market prices, marketing and distribution costs are excluded (Ramjee, 2013). The public sector system absorbs all costs that lead to positive externalities – that is – a healthy society. Such benefits are not always recognised by individuals, resulting in lower demand than what there ought to be. There needs to be an incentive for stakeholders in the healthcare sector to maintain the sustainability of the overall sector. The key stakeholders (wholesalers, retailers, hospitals and dispensers) should be permitted to thrive, even under the NHI system. We should caution policymakers not to link one overarching instrument centred on the pricing of medicines to everything associated with NHI. Equally, a singular market-orientated competitive approach will not solve the healthcare morass in South Africa. Enhancing plurality of provision The plurality of provision through the inclusion of multiple care providers in the public and private sectors, was addressed ahead of the NHI implementation (Ramjee, 2013). Differential payment mechanisms used for providers, especially those accredited under the NHI, have been established in order to level out the playing field. Such policy considerations would provide clarity on aspects such as input costs, profit margin and logistics fees, among other costs. The state is able to attain substantial discounts for pharmaceutical and surgical products due to its buying power. However, an assessment of the financial effect of this discounted pricing, and the mix and volume of products purchased, still has to be unpacked. Arguably, there are salient differences in the basket of goods purchased between the private and public sectors. Admittedly, there is a strong relationship between the mix of goods used, the magnitude of discounts obtained, and the differential pricing of goods that are used across the sectors. Despite the benefits that are produced as a result of increased transparency in the prices of medicines, evidence shows that a highly regulated market that pushes for low medicine prices may inadvertently have negative consequences. Price regulation is required, however, price thresholds may lead to wayward economic benefits for pharmaceutical businesses (Bangalee & Suleman, 2015). It follows then that price setting and formulation development purely using the free market would not work in the NHI setting. The public health system can be transformed by a combination of governance reforms and decentralisation, the NHI bill favours a centralisation of the system. The NHI implementation would require supervisory structures, such as boards for hospitals, district authorities (the recently launched District Service Delivery Model, is a model of implementing service delivery, that will ensure a coherent planning, budgeting and execution of service delivery projects in all districts by all three spheres of government could be used here as well) and statutory councils that would be protected from political appointments and interference. Health service delivery should be entirely depoliticised. The private healthcare sector is required to implement the Health Market Inquiry recommendations. With the guidance and backing of the Department of Health, pricing regulator should be established to manage annual price negotiations for hospitals and doctors, and establish an information regulator to bring quality of care information on private and public health services to the surface. The NHI legislative process is required to shape an integrated healthcare system, preferably resembling the best features of a functional, quality healthcare service, which is operationally robust in delivery, to the public and private sectors. The NHI organisational make-up needs to consider the price regulation when establishing its operational structures, to include the concept of the price regulator as highlighted by the Health Market Inquiry Report commissioned by the Competition Commission. Breaking down the sectoral divide The impact of NHI financing The financing mechanism proposed under the NHI will change the way in which citizens purchase healthcare. The funds used to purchase healthcare will be pooled into one central fund, instead of through 10 different government departments and 78 medical schemes. The state will act as the purchaser, using the common sizeable pool of funds. This can be used strategically when purchasing goods and services needed to run the healthcare system. While this single purchaser system is proposed, multiple lower level governmental purchases will be used. The purchasing will be done at the district or sub-district levels. Therefore, the system will be adjusted and provincial Departments of Health, who are currently deemed the health authorities, will no longer act as the purchasers of medications. The final drafting of the amendments to the Medical Aid Schemes Act may impact the SEP. The prices of medications under the NHI, and the reimbursement of medications not covered by the NHI Fund (for example, medicines that are outside of the benefit package or excluded from the formulary) will be adjusted. The NHI will have to consider the potential impact of moving from a system of primarily procuring only one pharmaceutical brand of medicine, to a system based on maximising reimbursement in terms of price. This will allow a broader range of producers to participate in the NHI market. As the market is currently highly concentrated, such a move would encourage new competitors to participate. To preserve the integrity of tendering-based healthcare systems, policymakers and other industry players should regularly inspect the functioning of tendering policies in order to rapidly address problems such as price increases and supply disruptions (National Treasury, 2015). Addressing the divide Possible changes could involve combining public sector and private sector stock, however, with the high out-of-pocket consumption of medicines, the separation between public and private sector stock may remain to some degree. Out-of-pocket medicines are still often covered under complementary insurance. The medical aid schemes have tried to control the rising expenditure by making exclusions to the regulated Prescribed Minimum Benefits package, leading to the rising trend in co-payments. The price of medical scheme contributions has been brought into the spotlight because members are struggling to afford their contributions. The number of out-of-pocket payments has increased as a result of the high cost of premiums (Ataguba & Goudge, 2012) and the exclusion of coverage for certain types of services and providers. The NHI Fund will not be able to pay for all treatments. If the inclusion of treatments in the basic benefit package is based on cost-effectiveness analyses, gene-based cancer treatments, for example, may be excluded. A more profitable market outside of the NHI Fund may always exist, and pharmaceutical companies may be discerning about who they choose to sell to and where. Globally, we have seen tendering used by countries that procure large quantities of products on an infrequent basis (once or twice a year) from a central medical store, which is often reliant on donor funding. Importing medicines has not proven useful in South Africa, even though it has been legally possible since 2003. NHI and pharmaceutical companies' drug pricing The introduction of transparent pricing aimed at ensuring that no one could supply medicine according to a bonus or rebate system, or any other incentive scheme (Moodley & Suleman, 2019). Regulating the pharmaceutical market and enabling access to quality pharmaceutical therapies was attempted through the use of generic medicines in order to lower costs and control prices, while making a transparent price available in the private market (Moodley & Suleman, 2019). SEP in practice SEP allows for the addition of a small mark-up for the dispensing fee of the pharmacist or dispensing doctor. The appropriate dispensing fee is charged by licensed persons and entities. In line with the March 2020 update, if the SEP of a scheduled medicine is less than R128.00, the dispensing fee must not exceed 30% of the SEP. Where the SEP of a scheduled medicine is greater than or equal to R128.00, the dispensing fee must not exceed R38.40 (excluding VAT) (DocWeb, N.d.). The combination of the introduction of SEP and capped annual medicine price increases led to an overall decrease of 22% in medicine prices in South Africa in the first year after the introduction of SEP. The introduction of SEP managed to reduce medicine price inflation, improve medicine price transparency, and ensure that clients pay the same price for medicines irrespective of where they buy them (pharmacies, hospitals or dispensing doctors). Careful consideration of a pricing model that balances fair competition and supports a thriving pharmaceutical sector is essential under the NHI. The annual rate of increase for the sale of medicines is based on an SEP formula, and the Health Minister has the discretion to make decisions outside of this. However, this is not always done. The pharmaceutical industry demanded that the formula must be restructured in order to adequately reflect market forces. The industry’s view is that the percentage increases authorised by the Minister do not accurately reflect real market conditions in line with the inflation associated with input costs, salaries and wages. The likely impact of NHI through a SEP lens Inflation leads to increased manufacturing costs for the pharmaceutical companies, but regulation only permits a price increase at a later stage. This is currently a long delay and is causing financial strain for pharmaceutical companies. Further strain is being felt, particularly by those with low profit margins, due to the depreciation of the rand and the low-price increases permitted. The weakness, from a regulatory perspective, is that untimely implementation will have negative consequences for the pharmaceutical industry and funders, who base their planning on the SEP adjustment. The DOH PEE unit is responsible for enforcing, monitoring and evaluating the SEP within the pharmaceutical industry (MPR, N.d.; DOH, N.d.). Any changes to the SEP have to be submitted to the PEE unit for assessment and approval before implementation. The schedule below shows the structure and breakdown of the Department of Health SEP. a) Manufacturer price contains the direct and indirect cost of manufacturing the medicine, including freight and forwarding costs for imported medicine. It also contains a profit margin. Research and development costs are covered under the manufacturing price. b) Logistics fees are costs added to the manufacturing price to cater for all costs associated with taking the medicine from the manufacturing company to the dispensing pharmacy or doctor. The revenue of pharmaceutical distributors and wholesalers are included in this. Logistics fees are capped at 15% and varies from 9%, depending on the nature of the product/medicine (Bangalee and Suleman, 2016). c) Value-added tax (VAT) is currently at 15%. d) Therefore, an SEP of R100 is broken down as shown in the schedule above. Channel workflows The flow chart below illustrates the value chain from the drug manufacturer to the end user, the client. This value chain differentiates between the private market price and government tender price, and highlights the fact that the NHI will not drive private drug manufacturers out of business simply based on price. Source: (Author, 2020) Based on the two channel workflows above, it can be concluded that: a) The main difference between the tender price and private SEP channel flows is logistics fees. b) Government uses its own economies of scale (lower cost of production as a result of increased volume) and avoids logistics fees completely. Manufacturers may negotiate with government in very rare cases, where delivery does not follow typical government processes. Under government funding, logistics fees will not be included in the pricing of the medicine, but will be included under the NHI operations. Provinces will establish their own distribution arrangements to ensure that medicines and medical supplies are distributed in the most cost-effective manner. Where appropriate, provincial authorities may contract distribution to the private sector. Currently, the distribution of drugs and medical supplies to public sector health facilities takes place at least once a month. c) Depending on the value of the tender and revenue guaranteed from the tender, manufacturers can reduce the tender price to below the manufacturing price, which is a trade-off between higher profits per unit (pricing) and higher profits due to more units sold (quantity). While it is clear that SEPs are higher than tender prices, it is also clear that the difference between the two cannot simply be two-fold. Therefore, the NHI will need to find a new way of pricing medicines effectively. Countries that have established UHC, such as Spain and the UK, show that a regulated framework for drug pricing has to be institutionalised (Rovira & Darbà, 2001). Other common features of the system were generic substitution and reference pricing. However, significant price control mechanisms targeted branded products or originators and not generics. Generic pricing Generic prices were broadly controlled by market forces. South Africa applied the same concept through the DOH PEE. Branded products or originators with existing patents are benchmarked against Brazil, Australia, Canada and Spain (DOH, N.d.). This ensures that the manufacturing price more closely approximates real-world costs and are aligned with international pricing. Generic medicine prices can be lowered to less than the manufacturing cost during the tender process. The flow chart below shows the anticipated value chain from the drug manufacturer to the end user when the NHI is fully implemented. Source: (Author, 2020) In the public sector, logistics fees are unknown, meaning that the end user is not aware of the fees. However, there are costs funded by the taxpayer. These relate to transporting medicines directly to the client. In some cases, the private sector may be used to distribute medicines to clients. Currently, in the private sector, pharmaceutical companies also pay marketing fees to pharmacies and wholesalers over and above the logistic fees paid to wholesalers. The amount paid does not affect the price of medicines, however, it affects the profits obtained by pharmaceutical companies. These fees range from 15-30% of the SEP. Under the NHI monopsony, these fees will be reduced, and are likely to not exceed 15%. These fees cannot cause the price of medicines to increase. It is more likely that they will form part of NHI Fund operational costs. Decreased supply As clients gain access to medicines through the NHI, generics are likely to grab a generous slice of the pie. However, the main challenge for pharmaceutical companies will be to stay competitive by providing more cost-effective products. If government continues to award supply contracts solely based on price under the NHI regime, it will place tremendous pressure on pharmaceutical suppliers of generic medication, who have already dropped their prices significantly in an environment where annual increases are highly regulated. The probable reality is that suppliers who are unable to manufacture other products because of cross-contamination and other restrictions may exit the market. The net result may be that certain firms leave the South African market, and certain brands, including essential medicines, may no longer be available locally. For suppliers whose tenders were unsuccessful, and who may have to wait for the next round of tenders, there is a financial risk to continue maintaining their facilities in order to wait for the next round of tendering. Supply security would be compromised, leading to significant stock-outs as suppliers choose not to increase production during this time. Stock-outs have a negative impact on patient motivation and adherence. This leads to mistrust in the system. The implication is that we may have a more concentrated and potentially less competitive pharmaceutical market, and users may end up losing. The NHI system does not require a highly concentrated market, however, these supply challenges may mean that fewer options are available under the NHI. The NHI system will need to establish security of supply, without disruptions (Wouters, n.d.). The Essential Medicines Stakeholder Forum, comprising industry players, industry associations and healthcare professionals, including non-governmental organisations, is hosted by the Health Ministry. The forum provides guidance to health ministry officials. It encourages them to monitor the impact of tendering on medicine prices and to look for solutions to mitigate issues that arise therefrom. The National and Provincial Departments of Health should entrench a practice to work at improving the accuracy of forecasting methods. Unfortunately, past tenders were characterised by large discrepancies between the estimated quantities and procured quantities for medicines. Policy review regarding tendering needs to be addressed from an NHI perspective to consider issues that affect prices and supply security, namely the weighting of value parameters, fair contract management and the removal of barriers to generic competition (Wouters, n.d.). Medicine shortages and stock-outs, which are already a concern, could worsen. This may be compounded by potential foreign investment declining as multinationals withdraw from the market. Shortages and supply chain breakdowns could result in outbreaks of disease. In mitigating this, government must expand tax rebates for pharmaceutical companies. This will not only allow more clients to have access to affordable medication, it will also promote the sustainability of the South African pharmaceutical manufacturing sector. B-BBEE and economic and industrial development, including price, are competing criteria that the Department of Trade Industry and Competition (DTIC) and the Department of Health consider when awarding tenders. The Department of Health is always motivated by increases in both cost-saving and access to medicines, while the DTIC favours suppliers that procure greater local content and increase local industry designations to support economic growth. Under the NHI, manufacturers will have to strategically affiliate themselves with the NHI Fund. They may have to consider forming public-private partnerships (PPPs) to supply medicine at negotiated prices and in a manner that produces a win-win situation. Under this policy framework, drug manufacturers may either negotiate or bid, depending on the supply and demand. Prices of generics are expected to be determined based on market forces and will drop to an optimal level. Branded and originator products may be less elastic, with prices remaining stable, and will continue to be used across the pharmaceutical product range. Public-private partnerships The Pharmaceutical Task Group (PTG) argued that a well-functioning NHI system will be dependent on a robust supply chain and procurement process (PTG, 2016). The NHI Bill (RSA, 2019) articulated that the purchasing of medicines and medical devices from accredited suppliers should take place in line with (a) principles of evidence-based medicine; (b) applicable treatment guidelines and formularies; (c) the needs of the users that are serviced; (d) volume uptake; (e) demographic and geographic data; (f) outcomes of health technology assessments (HTAs); (g) health outcomes; (h) contractual obligations between the NHI Fund and the service provider; and (i) the availability of trained professionals to administer, use and monitor the medicine or device. Public sector issues The public sector procurement process has challenges that include the non-payment of suppliers, poor supplier performance, unhealthy supplier relationships, a lengthy buyout process, and a shortage of active pharmaceutical ingredients, among others. This is exacerbated by the shortage of raw materials. These are common themes when addressing the shortages of essential medicines, and are a challenge faced by many countries. It is now compelling governments to work together and to coordinate efforts to find global solutions. Suppliers being paid late is contrary to the Public Finance Management Act of 1999, which states that suppliers should be paid within 30 days from receipt of a valid invoice. Unfortunately, the reality is that suppliers are not always paid on time and, as a result, the supply of medicines to hospitals is reduced. Administrative collections of proof of delivery of medicines and invoice processing are ineffectively reconciled in the provinces (Modisakeng et al., 2020). The management of supplier contracts after the tender is awarded is crucial in ensuring supplier compliance and improving essential medicine availability. The National Department of Health and National Treasury should institutionalise contract management to improve medicine availability in public sector hospitals and other health facilities. It is important for public sector tenders to be awarded timeously, with the net result being a reduction in the number of buyouts, easing the burden associated with buyouts at an institutional level and improving medicine availability. These are all considerations for the implementation of the NHI. Implementing public-private partnerships for healthcare delivery The NHI is an opportunity to fully explore the supply chain of medicines in the context of PPPs. The 2019 Health Market Inquiry report of the Competition Commission found that nothing stops the state from using PPPs to address the delivery of healthcare services in the public sector. South Africa has a rich and well-developed legal and policy framework for PPPs, under the auspices of the National Treasury. With regard to policy choices, PPPs could practically enable and empower the healthcare system to feature elements such as client education, client medicine compliance and self-care, and setting up registries as part of health outcomes research initiatives. These could even be done in the period preceding the full NHI implementation. The Office of Health Standards and Compliance (OHSC) was established by an act of parliament, and is aimed at monitoring public health services and addressing complaints of non-compliance, while setting guidelines and providing information on the implementation of agreed health service standards. The OHSC would be a solid foundation for the rollout of the NHI and can support government decision-making when establishing PPPs (Sithole, 2015). The OHSC is focused on driving much-needed improvement in health service quality, changing public health care management and creating core health standards for public and private service providers. The OHSC can assess health facilities in both the private and public sectors. Undoubtedly, the skills and experience of the healthcare industry in relation to supply chain management, regulatory processes and health research could be harnessed in the establishment of PPPs. The policy and regulatory framework should empower the NHI Fund to formalise any PPPs, and those partnerships will assist in achieving the objectives, duties and functions of the NHI Fund. Additional private sector contributions The private sector needs to commit skills and other assets to the NHI infrastructure. Private sector participation could enrich the development of the NHI process. Private sector expertise should be harnessed, especially in the areas of benefit design, clinical risk management, contract management, data collection and management, data analytics, forecasting, risk factor analysis, costing of the benefit package and actuarial expertise. Conclusion UHC is a global priority and more countries are adopting an NHI-type approach. Virtually all of Europe has either publicly sponsored and regulated universal healthcare or publicly provided universal healthcare. It is important to note that universal healthcare does not imply government-only healthcare, since many countries continue to have both public and private insurance and medical providers. No flawless model exists, however, South Africa must attempt to enhance its existing health system to accommodate all its citizens by ensuring accessible and affordable quality care, while buoying the healthcare industry as a whole. The impact of NHI on the pharmaceutical pricing of medicines and on the pharmaceutical sector itself remains uncertain, and can only be adequately assessed after the NHI is fully implemented. This paper described the healthcare landscape and international lessons in how healthcare spend and pharmaceutical prices can be reduced despite constrained public sector national budgets. The creation of the NHI scheme, as a single purchaser of pharmaceutical products and supplier of health services, has the potential to increase the buying and supply power of the NHI Fund with the potential to drive pharmaceutical product prices down by at least 15%. Currently, logistics and dispensing fees amount to 15%, on average, given that the dispensing fee is 30% on medicines with an SEP of less than R128.00, and for those greater than or equal to R128.00, a dispensing fee not exceeding R38.40 (excluding VAT) is allowed. However, the NHI Fund will have to pay for its own logistics and distribution costs, which may be included as an operational line item. Funders of the NHI (taxpayers) will still be funding the transport of medication, in a potentially less transparent way. Ultimately, lower prices are not the only consideration for an efficient pharmaceutical market: there also needs to be choices and a variety of products and providers. The NHI system will still need to involve the participation of wholesalers, pharmacies and private service providers, who will be paid using the NHI Fund. Therefore, prices set by medicine manufacturers are anticipated to drop. Based on the descriptive analysis and the contextual healthcare sector landscape, there is no direct or indirect evidence that the NHI will cause a collapse in pharmaceutical business, but further investigation will be required. There are factors other than price that may impact the healthcare sector more broadly, and to suggest that the drop-in medicine prices as a result of the NHI system may result in the collapse and closure of the pharmaceutical industry would be an exaggeration. Economically, drug prices are defined largely by the manufacturer rather than by the market, and in this case, the public sector will enter into negotiations with the suppliers. The pricing structure does take the manufacturing and development cost of the medicine brands into consideration and has less to do with the features of the public sector market to which these brands will be sold (Zg, 2019). Innovator medicines would naturally not be covered in reference pricing systems because of the lack of a comparative product. Therefore, the NHI Bill’s Health Care Benefits Pricing Committee will have to consider actuarial factors, pharmaceutical factors, epidemiologic factors, health management, health economics, health financing, labour rights and rights of clients in order to recommend pricing of healthcare services. Strengthening the co-ordination of tender publishing and the registration of healthcare products (which could lead to some brands being excluded from tenders) might further weaken competition in the pharmaceutical market. However, the government could play a role in sustaining competition by using the NHI purchasing power to influence and facilitate a larger mix of brands through tendering (Wouters, n.d.). Government’s obligation to provide universal healthcare must be complemented by leveraging the expertise of the private sector and optimising business models to bring in more clients and reduce relative overall system costs. There is a great need for medicine availability, skilled medical human resources and quality care in a comprehensive manner. This could possibly affect the industry as a whole. 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Journal of Pharmaceutical Care Health Systems, 6(2):1-7 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Occasional paper 8/2020 Copyright © 2020 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. Author: Daryl Swanepoel MPA, BPAHons, ND: Co. Admin Abstract When the Biden administration assumes office on 20 January 2021, Africa hopes to exit the awkward diplomatic state of affairs presented by the current Trump administration’s laissez faire, even disparaging, attitude towards the continent, and the conundrum caused by the US – China squabble over the coronavirus and trade. It hopes for a reset of relations to those pre-2017. What do analysts expect? Normalisation of US-China relations It is expected that President-elect Biden will usher in a new era of diplomatic normality between the United States and China. Whilst the United States will continue to sharply differ with China on a number of fronts, including, inter alia, differing stances related to human rights, for instance the Uyghur people, the ramping up of Sino-military might, particularly in the South China Seas, and, what it considers unfair trade practices, it is expected to radically adapt its style and approach (Stremlau, 2020; Grobler, 2020; Weseka, 2020). The antagonistic and confrontational rhetoric against China is expected to be substituted with a more nuanced, rational argument, in which it positions itself as a competitor, as opposed to an adversary. It is expected that the current ‘new cold war’ pomposity will give way to, at worst a competitive rivalry, and at best the seeking of win-win solutions capable of containing the domestic “battle with the Republicans for the soul of America” (Stremlau, 2020). That said, the immediate focus of the Biden administration will be on revitalising the American democracy and fashioning the US economy to serve its middle class. China will of course feature, but it is secondary to the pressing domestic priorities. One has therefore to expect Biden to engage in politically popular talk such as that America must lead again, but foreign policy actions will be more measured as the administration works towards regaining its international leadership position (Stremlau, 2020). Moreover, with Biden’s propensity for multilateralism and the restoration of America’s place in the world, it appears that the Biden administration will develop a more coherent policy towards China, thereby enabling the US to navigate the multilateral environment more effectively (Weseka, 2020). Reinvigorating the US-Africa engagement It is really under the Clinton administration that a serious and sustained US – Africa engagement was developed. It deepened under both Presidents Bush and Obama, during which period the US agenda in Africa experienced remarkable bipartisan support in both the Congress and the White House (Owusu & Carmody, 2020). Over the past two decades, Africa’s share of annual US foreign assistance funding increased markedly, with annual aid fluctuating between USD 7 billion and USD 8 billion. Notable programmes receiving funding included Clinton’s Africa Growth and Opportunity Act (Vine, 2016), Bush’s Presidential Emergency Plan for Aids Relief (PEPFAR) (Owusu & Carmody, 2020) and Obama’s Power Africa and Trade Africa programmes (Vines, 2016). In turn, President Trump’s “America First” foreign policy, sadly meant them disengaging with Africa (Owusu & Carmody, 2020). Granted, US aid was not cut; in fact, a country such as South Africa received even more assistance in the form of a US grant of at least R410 million to combat the COVID-19 pandemic in the first half of 2020 (Home, 2020). For now, therefore, African relations with the US State Department remains relatively consistent (Weseka, 2020; US Department of State, 2020). And it is to be expected that going forward, the continuity in the US’s relationship with Africa will continue. The US Foreign Policy architecture with Africa is quiet stable, the State Department’s infrastructure, with embassies across Africa, is in place. And the signature projects, such as the Africa Growth and Opportunity Act (AGOA), will remain. The big change is going to be in interest, style, tone, ideology and thrust (Grobler, 2020; Weseka, 2020). Whilst Biden did not materially deal with Africa during the election campaign, Africa can take its lead from Biden’s stance towards the African-American constituency, which were amongst “his core constituents and key to his bid to make America more of a nation that ‘belongs to all who live in it, united in its diversity’” (Stremlau, 2020). This relationship may well develop into an important link into Africa, be it through African-American participation in the US-Africa Business Council or their (African-American) growing trade and investment activity on the continent (Weseka, 2020). The Biden-Harris Agenda for the African diaspora suggests a resetting of the US – Africa engagement pre the Trump pause, indeed, it may even be bolder. It asserts, amongst others, “America’s commitment to shared prosperity, peace and security, democracy, and governance as foundational principles of U.S.- Africa engagement”, and the restoration and reinvigoration of “diplomatic relations with African governments and regional institutions, including the African Union” (Biden-Harris Campaign Website, N.d.). Biden of course has a personal history defending Africa, and particularly South Africa during the apartheid days. He has for many years served on the US Senate’s Foreign Policy Committee, and has visited Africa many times. He understands the continent. It is therefore not surprising that President Ramaphosa was one of the first foreign leaders that he contacted after winning the election. Possibly due to the new emphasis on multilateralism – Ramaphosa is the current chair of the African Union – and/or due to South Africa being viewed as an entry into the broader continent (Weseka, 2020). It is therefore quiet conceivable that the US will reinvigorate the Obama-era policies towards Africa – in particular, the signature Power Africa project, which was essentially abandoned by the Trump administration. There is also almost certainty that positive movement will be seen in the AGOA discussions, especially important given that it comes to an end in 2025. Here too, continuity is expected, either in the form of an extended AGOA or some new deal, such as a free trade area (FTA) arrangement of sorts (Weseka, 2020). During the Obama administration a number of bilateral discussions were being undertaken for FTAs between the US and individual countries, for example, Kenya. There were also various multilateral consultations at all levels, be it with regard to trade and investment, or peace and security, amongst others, which seemed to have stalled and become dormant under the current Trump regime (Grobler, 2020). Not to say that there was no engagement: The engagement seems however to have been through a peace and security prism, with the main focus being on dealing with terrorism and security. What is to be expected under the Biden regime is that the engagement will be across a far broader spectrum, including trade and investment. One can thus expect the restoration of the important US-Africa dialogue (Grobler, 2020). That said, African expectations will need to be tempered. Whilst US interest in Africa is bound to increase, it should not be expected to top the agenda. The Biden-administration has many fences to mend, with those of its ally, Europe, and major competitors, such as Russia and China, requiring significant attention. The onus will in fact be on Africa to position itself as an active driver of the US-Africa relationship (Weseka, 2020). The US-China-Africa triangular construct Perhaps the time is now ripe to encourage US - China trilateral discussion on African issues. There is much to be gained by cooperation in the fields of public health, maritime safety, and even with regard to military and policing matters, where cross-regional coordination is proving vital in both the domestic and international interest (Stremlau, 2020). One need not look any further than the current impact of the COVID-19 pandemic, which knows no border, thereby necessitating global collaboration amongst friend and foe. Some Chinese and American diplomats (prior to the Trump administration) have in the past promoted the idea of the two sides being responsive to the African agenda. They are of the belief that though competitors, they should strive for win-win-win outcomes. The recent establishment of the African Continental Free Trade Area (AfCFTA) presents itself as a strategic opportunity to do so (Stremlau, 2020). There have been some moves towards greater US – China cooperation, with suggestions for the United States and China to work in complementary ways in Africa. An example being their shared interest in Africa’s stability - the US Africa Command (AFRICOM) has, for instance, started[, albeit prior to the heightened tensions of late,] to engage China in this regard (Fabricius, 2018). Other promising areas for potential “trilateral cooperation include regional economic and infrastructure integration, joint work to address corruption, and mechanisms to support commerce, which could[, amongst others,] include a unified approach to local content provisions” (Brookings, 2013). Whether that is still possible in the wake of the escalated Sino-American tensions, remains to be seen (Stremlau, 2020). Africa, it is supposed, will take its cue from Biden’s ability to lead America back into the realm of multilateral engagement. The prospect therefore is, however, brighter today than yesterday. One of the hurdles for the US to consider in its engagement with Africa is that China has been more coherent and systematic in its approach to Africa. The US has been inconsistent, with policy changing as administrations change. To illustrate, past attempts under Obama (and then Vice-President Biden) aimed at setting up a US equivalent of the Forum for China Africa Cooperation (FOCAC), came to nought under the subsequent Trump administration. And now again, given Biden’s commitment to multilateralism, it is quiet conceivable that there will be a return by the US to such a continental approach (Weseka, 2020). But obviously competition between the two major powers, that is China and the United States, is not going to go away. As previously mentioned, it is fully expected that the Biden administration’s primary focus will, post-COVID-19, be on restoring its domestic economy. How America factors Africa into that equation will be interesting to observe. In reinvigorating US manufacturing, for example, one option may be to focus on the supply of goods and services to the African continent, which will result in it sparring with China, who has become the continent’s major supplier of such. Similarly, in the fields of technology and media, where the US currently has the upper hand with the likes of Google and Microsoft, competition is rife, as Chinese enterprises such as Huawei and ZTE rapidly advance (Weseka, 2020). Hopefully, this will not lead to a clash, but to healthy competition. The unknown, however, is how the US will respond the Chinese approach, which is open to concessional loans, debt relief and grants, something that the US does not really do. (Weseka, 2020). Also, on the military front, where both China and the US have a presence, one will have to observe developments. China is increasing its activity. It is deploying military attachés to its embassies, and increasingly getting involved in peace missions on the continent. It has more boots on the ground than the US. And will the Chinese consider it necessary to protect its growing assets and commercial interests on the continent, or the Belt and Road Initiative, through some form of defence mechanism? It is a topic to consider and observe (Weseka, 2020). That said, with Biden embracing multilateralism, the battleground, it is expected, will move to the multilateral fora such at the World Trade Organisation (WTO) and United Nations (UN). But here to, the US would be interested in developing relationships with continental groupings, such as Africa. China has a well-established relationship with the continent, and has, to a certain extent, under Trump, had free reign in the UN when it came to issues of requiring third party support (Weseka, 2020). This again suggests a shift in US policy from bilateralism to an African multilateral approach through a US type of FOCAC. Finally, the real question is how Africa is going to respond as a collective to the Biden administration. They need to act in a comprehensive and cohesive manner, by developing an African position as regards its expectations from the new US regime. In developing that response, it will have to look at what is in its interest (Grobler, 2020). It should avoid falling into the trap of, in a sense, reliving the cold war, by choosing sides. Africa will have to put its terms on the table and find a way to constructively work with both sides in a manner that best serves its interests (Grobler, 2020). For Biden, it will, however, not be a simple task to put up a pro-US alliance to temper China’s influence. African countries, and indeed many Middle Eastern, even European countries, have a distinct interest in continuing their relationship with China. They share a commitment to dialogue, mutually beneficial economic cooperation and multilateralism (Grobler, 2020). For the US to advance their African policy, they will have to be accommodative in its approach and tolerant of competition. They will have to accept that Africa is, in its own interest, willing and open to the idea of working with all sides. Conclusion Africa has, in the last decades, enjoyed good relationships with both the United States and China, albeit on distinctly parallel tracks. This has greatly aided economic growth and stability on the African continent, whilst simultaneously advancing global development and sustainability. The relationship with China has, in the last four years continued to blossom; with the United States it has, however, in large measure, paused. The approaching Biden administration presents a unique opportunity, not only for the US to revive and bolster its relationship with Africa, but for it to also take a fresh approach in its engagement with the continent. In recommitting the US to multilateralism, the potential exists for the US to reposition itself as both competitor and collaborator, thereby enabling themselves to acquire their fair share of the opportunities that abound in Africa. Such competition would bode well for the continent (Stremlau, 2020). References Biden-Harris Campaign Website. N.d. The Biden-Harris Agenda for the African – American diaspora. [Online] Available at: https://joebiden.com/african-diaspora/# [accessed: 1 December 2020] Brookings. 2013. A Trilateral Dialogue on the United States, Africa and China Conference Paper 2 and Responses. The Commercial Relationship between the United States, China and African Countries: Areas for Trilateral Cooperation. [Online] Available at: https://people.unica.it/annamariabaldussi/files/2015/04/USA-China_Africa.pdf [accessed: 1 December 2020] Fabricius, P. 2018. US and China inch towards awkward cooperation in Africa. [Online] Available at: https://issafrica.org/iss-today/us-and-china-inch-towards-awkward-cooperation-in-africa [accessed: 1 December 2020] Grobler, G. 2020. Interview with Ambassador Gert Grobler, Senior Research Fellow at the Institute of Africa Studies, Zheijiang Normal University. 2 December 2020. Home, W.2020. VSA gee nog geld aan SA vir virusstryd. Cape Town: Netwerk24 Owusu, F. & Carmody, P. 2020. Trump’s legacy in Africa and what to expect from Biden. [Online] Available at: https://theconversation.com/trumps-legacy-in-africa-and-what-to-expect-from-biden-1502 [accessed: 1 December 2020] Stremlau, J. 2020. Personal interview with Professor John Stremlau, Honorary Professor, Department of International Relations, University of the Witwatersrand. 1 December 2020. US Department of State. 2020. U.S. Relations with South Africa. [Online] Available at: https://www.state.gov/u-s-relations-with-south-africa/#:~:text=U.S.%2DSOUTH%20AFRICA%20RELATIONS,%2C%20environment%2C%20and%20digital%20economy [accessed: 12 July 2020] Vines, A. 2016. Trade not aid: Obama’s Africa legacy. [Online] Available at: https://www.chathamhouse.org/2016/09/trade-not-aid-obamas-africa-legacy [accessed: 1 December 2020] Weseka, J.B. 2020. Interview with Dr Bob Weseka, Coordinator: African Centre for the Study of the US, University of the Witwatersrand. 2 December 2020.by Dante Mashile (Accredited Public Relations Practitioner), National Diploma in Journalism, Certificate in Project Management (Netherlands), BA, Postgrad. Diploma in Telecoms and Information Policy, Master of Development Studies - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Occasional paper 1/2021 Copyright © 2021 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. April 2021 Author: Derek L Fleming Introduction The United States of America (US) has a long and meaningful history of involvement in Africa. Be it at a socio-economic, military, or political level; the US has traditionally, along with its European allies, been at the forefront of development in Africa. The United States’ involvement has, over many decades, been steady. Under the two US administrations prior to that of President Trump, the cooperation between Africa and the United States was given greater impetus. The Africa Growth and Opportunity Act (AGOA) was, for example, introduced by President Clinton, and President Obama is noted for, amongst others, his Power Africa and Proper Africa programmes. However, under the Trump administration, a pause was experienced. In the meantime, China has, especially over the last few decades, been steadily, and successfully, increasing its involvement with Africa. This has developed to the point where it is now Africa’s largest trading partner, a position that is causing some discomfort amongst those powers that have traditionally been the main development partners of Africa. The Trump hiatus, undoubtedly, created a vacuum, and thus an opportunity, for China to rapidly expand its relationship with Africa. Many may argue that this expansion has been at the expense of the US’s interests on the continent. Meanwhile, the relationship between the US and China, at a global level, deteriorated under the Trump administration, at an alarming rate. This meant that Africa was, in a sense, caught between the two global power centres. On the one hand, it wants to maintain its relationship with the US and Europe, whilst on the other, it is enthusiastically expanding its relationship with China. How this dichotomy will ultimately play out on the African continent, remains to unfold. Under President Trump, China had an almost unfettered advantage, in that, whilst the then US administration was insulting the continent, and even though the US did not abandon Africa – aid and investment continued – enthusiasm for nurturing and expanding its traditional relationships waned. Now there is a new administration in Washington and President Biden has indicated a return to normal diplomacy under his watch. This article attempts to interpret the impact that this return to normalcy will have on Africa and China, and how it interconnects in Africa. US-Africa relationship reset and the Chinese nexus Traditionally, the US played an active role on the African continent: politically, economically, and militarily, especially in former British colonies. Under the Trump administration this relationship declined somewhat. All the while, China has seized the opportunities opening in Africa and has over the last few decades been steadily advancing its interests on the continent. The vacuum presented by the previous US administration has served to boost China’s influence. Chinese relations reflect its own social organisation and ways of economically engaging individual African states, in large measure, by taking into account local conditions. Without fanfare and reaching quiet accomplishment, their slogan is ‘Peaceful Development’. Previously it had been ‘Peaceful Rising’. The incoming Biden administration recognizes that the Trump era and its attitude towards Africa requires a dramatic correction of US policy across all 55 continental states. Indeed, Africa was relegated to near last among other regions, pushed by a past presidential disinclination to consider it relevant; and to only be responsive where competitor nations, such as China or Islamic fundamentalists, were perceived to be working a reversal of US economic efforts. Prestige profiling of Americanism occasionally brought out responses. Gratuitous insults from the White House about core African worthiness also worked to reduce the US’s standing. This ill-feeling has receded among Africans and their leaders since Trump left office and now that Biden is taken to be the forerunner of an entirely different period, both in style and substance. Biden’s slogan is ‘America is Back’, alluding to the normal run of diplomacy as the chief driver of foreign policy. Being more rational and predictable, this is reassuring to Africans. Biden wants to enhance the Obama legacy, through first a rebuild and then an extension. AGOA is one economic mode that bears watching. It seems unlikely to be renewed in its present form. Biden and Congressman Gregory Meeks, Chairman of the House of Representatives Foreign Affairs Committee, will, in all probability, substitute AGOA with a new preferential African import access into the US markets programme. The debate evolves around the exclusion mechanism, for example barring Rwanda over used clothes sales from China, and commercially unfair price undercutting, which is working against resentful and displeased US businesses. Currently, AGOA, has a limited reach in that it, in the main, helps Botswana and South Africa. In contrast, China’s preferential loan regime operates with less stringent conditions, such as fiscal reform requirements and prescribed human rights conduct, with over forty African states. Military dimensions On assuming office, Trump had over six thousand Special Forces deployed across Africa. He drove a reduced presence after the death of an operator in Niger in 2017. Biden would likely be confronting a worsening security situation with Islamist fundamentalists actively engaged in five countries: Sinai in Egypt as a key Middle Eastern ally; the Maghreb where France is confronting Al Qaeda; Boko Haram in Nigeria; the ADF in the Democratic Republic of the Congo; and Al-Shabaab (ASWJ) in northern Mozambique. China has no known anti-Islamist Jihadi role at present. The role of Private Military Companies (PMC) is a complicating factor for the Biden policy teams as past administrations have made extensive use of them in Afghanistan and Iraq. The recent Amnesty International report from a respected human rights organisation, on one PMC assisting local police in Mozambique against an Islamic insurgency affiliated with global ISIS, brought on a condemnation by John Godfrey, interim counterterrorism coordinator, in that “Private groups make the fight against terrorism less transparent by self-regulating ‘outside international structures’". In the event the PMC has left the country, a firmed-up position from Washington DC is needed. China has security companies, and where they may deploy into Africa in support of governments, friction will likely occur. Driving US policy on China and Africa Policy and its formulations in the United States happens in closed rooms across Washington DC. On foreign policy it is the committees of the Deputy Under-Secretaries of State, and the Africa Bureau within the State Department, comprising the country desks manned in that Department, which are pivotal. Participants are usually State Department career staffers with academic and diplomatic posting experience. Their product, tasked effort or matters arising from the course of events, passes to the Under-Secretary of State for Africa, onward to the Secretary and his staff, where a regular weekday, late morning meeting of principles, thrash out priorities. The fruits of such deliberations pass onward to the President in written briefing reports. Personal interaction between the Secretary of State and the President, outside of Cabinet meetings, allows priorities to be evaluated into a direction the Chief Executive prefers or raises himself. Under Trump, the antagonism toward China was largely caused by the tariff trade war. Africa was a remoter consideration. China in Africa got noted occasionally, but rarely part of the clash with Beijing. The Pentagon, and the US Navy in particular, stood against Chinese expansion of the latter’s territorial claims in the South China Sea and the Indo-Pacific in general. Therefore, the People’s Liberation Army (PLA) Navy’s intention to establish five naval bases in Africa (in the Seychelles, Tanzania, Djibouti, Angola, and another in West Africa), was, to the US, alarming. It is worthy to note that China has eclipsed the US in having the world’s largest blue-water fleet navy. And there are US concerns relating to China’s expanding missile arsenal and Eastern Pacific submarine deployments. Global balance of power appears to be tipping away from the west, and Africa has noticed. These military concerns remain and will be present during the Biden Presidency, as it does in the Central Intelligence Agency under Biden appointee, Director William Burns, who, in a speech in mid-March 2021, set out China as the foremost US peer competitor. Biden would have signed off on this orientation. Under Biden, some working assumptions of competitiveness with China will remain as part of a logic that cannot be defied, but the method and managed perceptions of deployed policy, will be dramatically different. A changed mix of form and substance is expected. Africans will have to evaluate whether they buy into it, by considering how it affects them, on a case-by-case basis. Legacy complications President Biden will need to confront diplomatic facts on the ground created by his predecessor; a glaring example is the status of the Moroccan occupation of Western Sahara. The issue had led to Morocco leaving the African Union, a body President Obama respected, and Trump effectively ignored. In the final days of the Trump presidency, he brought this Arab state into recognition of Israel. The critiques of Rabat stalling on implementation of the American Baker Plan faded, yet the issue remains. China endorses the implementation of the Baker plan. The opportunity exists for the US and China, both permanent members of the Security Council, to together, move to a solution via the proposed referendum for Western Saharans. Changing US style and substance The Biden first rule for foreign relations is that it should pursue a two-track approach to promoting US interests and values, the international and domestic, mutually reinforcing each other. The crunch comes down to how clashes and contradictions are managed. African matters that could likely trigger Congressional and media responses, will principally be environmental, trade, and human rights issues. Engines of the US view on Africa A general working assumption in the making of state policy around Washington DC is that many can contribute to its inception. These officials do so through advancing and defending their own positions, even though they may well not be adopted in the end. But once policy has been set down, it becomes the line to adhere, unless the President or Secretary of State wishes a review. The decided line is sacrosanct, and everyone gets behind it, even if staffers may have to fake enthusiasm occasionally. Understandably, being in the early days of the Biden presidency, the final, settled view is in transition itself, though it is rapidly firming up across issues. China policy was among the first to be tackled on account of the US security establishment. Within the State Department, priority revolved around reassuring and re-establishing alliances (over forty treaties) ignored or shredded by the Trump White House. And regionally, Africa has gained new prominence, even greater than it enjoyed during the Obama years. As it relates to the anticipated bearing on US-Africa relations, it is worthwhile noting the political realignment within the Executive and Legislative arms of the US: Under Democratic political party control of both Houses of Congress, and the Presidency, three interacting points of original policy formulation exist, which can now be better coordinated into a more coherent international response, both in timing and in content. Trump was often in an uncivil war with his own state bureaucracy and the committees of the House of Representatives. In the United States Congress, the pivotal foreign affairs portfolios are held by African-Americans. It can be expected that they will keenly drive African issues over many years. In the House of Representatives, Gregory Meeks (D-New York), a law graduate and former Assistant District Attorney in New York, is the Chairman of the Committee on Foreign Affairs. This is a high profile and powerful committee. Its decisions often pass as strong recommendation to other committees such as Defence, Treasury and Homeland Security. Trade relations often have their birth here, to be implemented elsewhere. Congresswoman Karen Bass (D-California), a health science graduate, serves on the United States House Foreign Affairs Subcommittee on Africa, Global Health and Global Human Rights. She is also Chair of the Congressional Black Caucus. Bass was seriously discussed as a potential running mate for Democratic presidential candidate, Joe Biden. Biden also considered her for Secretary of Housing and Urban Development and as Secretary of Health and Human Services, but she declined. The new US approach to Africa Spotlight diplomacy According to the House Foreign Relations Chairman, Gregory Meeks, the US needs a more robust US presence across the continent. Policy should not be an echo chamber as before: agencies around Washington DC need to feed their views into the same roundabout of policy formulators. He now foresees within Africa, collaboration on shared challenges and that Africans are to be at the forefront of the Biden relationship with the continent. “Africa is to be brought to the front burner’’ under his chairmanship of the committee. His novel conceptualization is that there will be a greater emphasis on promoting people-to-people exchanges, so as to enhance understanding and shared respect for common values. Meeks explicitly stated that Biden and Congress’s approach is to be a new one, not the Trump view of seeing the continent in terms of being a terrain for global competition between themselves and China. This approach will indeed hold globally. Meeks makes plain he will be working hand in hand with Karen Bass, who heads the Africa Subcommittee in the House of Representatives. Diplomats engaging with her since Biden assumed office, find that it appears China has to date not featured much, whilst Russia seems higher on the agenda. Understanding and shared respect for common principles Congressman Meek’s first public event as chairman of the committee was on Africa. This was purposeful. He acknowledged that the US has considerable work ahead in repairing its relationship with Africa. And that restoring moral credibility and reputation should be the goal. To do this, the relationship needs to be elevated, not isolated as under the previous administration. Collaborative effort with shared benefit: the new baseline Under the new administration the US will continue to advocate authentic democratic principles and values, which they aim to transmit through policy guiding their relationship with international counterparts, the goal being a commitment from both sides to democratic principles, the same as exist “back home here in the USA”. Meeks cites as examples: dealing with police violence, poverty expansion and social discontent within a democratic dispensation across his own country. Against this, the domestic regime of each African state, given their own specific local conditions, will be examined, and critiqued, in order to move towards the US’s interpretation of authentic democratic practice. Control of both Houses of Congress, and the Presidency, allows the Democratic Party to redefine its foreign relations unhindered, which will clearly portray to the world that “the US is back at the table”. This is especially true of Africa, which, to a large extent, was marginalized under the previous administration. Bass and Meeks say the US needs to move away from the Trump administration’s record of reducing countries to pawns in the prejudiced great power game with countries such as China and Russia. This was particularly true in the case of Africa. From Meeks’ perspective this was insulting, as it assumes Africans have no agency to affect and be affected by foreign affairs. Transcending traditional public policy The future relationship under Biden is to be collaborative. While advocating democratic principles, reluctant transition of power in some African countries sometimes makes it difficult, as did the transition in the USA from Trump to Biden. Persuading the international community to be transparent and to protect human rights, depends on the US’s own credibility, and its ability to convince the world that it is able to rise above its own problems, challenges, and inevitable setbacks, in this regard. Climate change Desertification, potable water declines and the risk of poor food security, affects the stability of polities. This is the main linkage that Meeks makes under climate change. To him ‘think global, act local’ requires a planetary effort. The US’s return to the Tokyo climate change protocol, and it is re-joining of the Paris climate accord, is a central tenet of the Biden presidential programme. In his view, congressional Republicans and Democrats hold the position that China is the biggest atmospheric polluter. They are of the view that through the US’s re-joining of the international efforts, reversing global escalation of temperatures, and unpredictable weather events, is achievable. African Urban Development Initiative President Biden, during his electoral campaign, committed his administration to the planning of an urban development initiative, in crucial areas, such as energy access, transportation, and water management. Meeks wants to codify this into an “African Urban Development Initiative”. It is likely that Meeks was informed by Biden’s exposition on the idea in the first place. Here, increased competition between the US and China in Africa can be expected. China, who has built over 150 new cities, leads the world in this regard and has already aided the building of African cities in countries such as Kenya and Ethiopia. Culture and US soft power Congressman Meeks wants to use the concept of cultural heritage and its preservation to advance US foreign policy. Using the soft power of America’s creation and entertainment industries, such as Hollywood, and cross pollination of music and the sports, are his explicit examples. To illustrate, he cites collaboration between the National Basketball Association and the African Basketball League. African Growth and Opportunities Act (AGOA) Created by President Clinton, and already extended for a further ten years, Chairman Meeks seems to be opting to move beyond AGOA by reworking previous administration programmes such as Power Africa and Prosper Africa. He believes that economic engagement should start with the US’s wholehearted support for the African Continental Free Trade Area. He has mooted a number of suggestions, such as the provision of technical support for the trade dispute resolution mechanism. This could be done through the African Union (AU) secretariat, or multilateral mechanisms such as the African Developments Bank’s legal support facility and/or through setting up trade mediation courts based within the regional economic communities. Such assistance is being considered at three levels, namely government, private companies, and the regional economic communities. Meeks envisages a “post AGOA” US-Africa relationship as not being one-sided. Investing in the development of digital networks across the continent, for example, should be done in collaboration with African technology companies. Such formalized support with Africa’s technology sector, would counter the current domination by Chinese companies, such as Huawei. The path of partnerships with African technology companies, incubators and educational institutions involved in the emergent technology sector, needs to be followed in order to create an environment for the building of digital capacity for young Africans. Another important focus has to be US support for a STEM education (mathematics and science) initiative (falling between universal basic education and the TAYI higher programme), so as to enable the African youth to become more integrated in the global economy. He cites, as a way in which the US could become involved: mid-career US corporate professionals should be identified and tasked. They could then be deployed to local African enterprises for a six-month placement, during which time they would be making crucial skills transfer. So too, American educational institutions could bring expertise in online content with continental partners. To achieve this, it is proposed that the US International Finance Corporation play a more active role than it has to date. African diaspora The growing and well-educated African diaspora in the US will be leveraged to enhance US-Africa cooperation. To this end, entrepreneurship and transnational connectivity will be prioritized. Similarly, the US could act as a coordinator to bring about Trans-Atlantic connectivity between Africa and Latin America, where there is also a sizeable African diaspora. The US would want to aid the establishment of the great African cultural museum, which is included in the AU’s Agenda 2063. The museum is to be developed in order to promote appreciation of Africa’s heritage and its vast and dynamic artifacts, music culture and language and its continuing effects on world culture. A larger diplomatic presence The US recognizes that it will fail to be relevant if it does not participate in bilateral and multilateral forums. Presently in several US embassies there are insufficient staff, whilst USAID is often also not present in the country. This lack of a presence can lead to imbalances, when, for example, the Defense Department cannot surge personnel through AFRICOM in order to address emergent needs. In order to avoid US views only being known in capital cities, the priority is to expand across all posts, civilian appointees, and to also staff rural consulates, such as Goma (DRC), Kano (Nigeria) and Mombasa (Kenya). This, it is believed, will build perspectives across all population sectors. US diplomatic structural adaptions Meeks and Bass aim to introduce team formations capable of meeting transnational challenges. These will be dedicated country teams comprising representatives drawn from the departments of state, commerce, and defense, and USAID, who are to be stationed at the African regional economic communities, for example the Southern African Development Community (SADC), and the East African Community (EAC). The work of these formations will have distinct tasking and are to be separate from the bilateral formal diplomacy. US Military in Africa Meeks and Biden share the thinking that there needs to be a “hard look” at the US military’s role on the African continent. The thinking suggests that regional peace and security should be framed through the lens of democracy, good government, and human rights. As such, US security partnerships should be with those African countries that hold free, fair, and credible elections and where local security forces do not perpetuate state sponsored violence against their citizens (such as recent allegations against President Museveni’s win in Uganda over Bobby Wine, who was detained). The current training of African militaries in humanitarian law (war law) is likely to continue. The US is of the view that upstream poverty prevention assists in preventing conflict and that it is key to hold back undemocratic impulses by security establishments. Improved civilian oversight of the military is equally important. To this end, they consider partnerships with civil society organizations, legislatures, and the media, as a means to achieve this. It will, they believe, prevent credible threats to the American homeland in the longer run. The Global Fragility Act will be deployed to reframe the current security stance towards African crises. They have set as a 2030 goal, the reduction by half, the number of chronically unstable African countries. Concerted action at goal achievement Much of the above Meeks-agenda, tracks initiatives yet untried by the United States, but which are already implemented by the Forum for China-Africa Cooperation (FOCAC) initiatives. Surveying and organizing, in a humanitarian way, is a central tenet of the US policy aimed at making gains across Africa. They believe their strongpoint to be their global leadership position, and their ability to mobilize multi-national responses to crises. Of course, they need to be aware that immodesty could well lead to resentment. The three influential Biden advisors: Nicole Wilett, Alison Lombardo and Michael Battle, are credited with helping shape US-African policy. They are well regarded as cogent on African affairs; in that they are well equipped with African research experience. They were formative in the emerging policy with the Democrats in Congress. In contrast, Trump’s African brains trust appears to have been his son and son-in-law who had gone big game hunting in Zimbabwe. Lombardo is now Deputy Assistant Secretary of State for International Organization, Battle has re-joined Duke University, and Willet is with the Open Society in New York City. The latter two continue to play an important informal role in shaping US foreign policy, although they were not taken up into the Administration. Melding domestic policy with foreign policy For the incoming Secretary of State, Tony Blinken, the problem of moving away from Trumpian positions, as he acknowledged at his first Senate appearance, is that not all of the former President’s policies need be reversed (such as the Bureau of Industry and Security). Furthermore, simply re-joining international institutions will, on its own, not be enough to restore confidence in American participation. China’s close ties with Africa present a similar problem. Already economic sanctions and movement restrictions against one hundred of Zimbabwe’s ruling party were renewed by Biden at the beginning of March 2021. Coincidentally, the European Union had done so one week earlier. Zimbabwe’s elites may be personally inconvenienced, but they are unlikely to be toppled when a Chinese veto at the UN Security Council is ready to shield them. Biden is also heir to several other Trump initiatives, such as the International Corporation of China, which was placed atop of a list of Chinese firms blocked from access to US electronics with potential dual use applications. But US-China relations under Biden will shift from a zero-sum approach to one that is competitive, cooperative and contested. The semiconductor manufacturing and supply of rare earth minerals (REMs) are prime examples of China’s strategic access to resources and its monopoly in world production. It is therefore likely that the US will focus on areas in which they are competitive. This will undoubtedly include technology, rule-setting and diplomatic influence. Rule-setting for China will be hard to achieve, as China, under Xi Jinping, will not be a rule taker under a Rules Based International Order (RBIO). So too, diplomatic influence will have its primary thrust through Congress; and in the case of Africa, it will be the Meeks-Bass duo driving the Biden African agenda. Blinken is expected to adhere to Biden’s diplomatic imperative which is informed by what makes the American people and workers more secure, prosperous, and hopeful. Events, such as Covid-19, posited as having its origin in China, while Beijing benefits the most from supplying vaccines faster than the US; and allegations of systemic human rights abuse in Western China, straight-jackets America into a firm stand against China. For Blinken, there are two possible responses: First, an export regime is emplaced so that no American technologies that might be used in repression domestically are exported to China, and secondly, no merchandise produced under repressive Chinese labour conditions should be allowed into the US. The Biden administration would also encourage allies and friends to do the same. African states that incur the same kinds of displeasure could face similar treatment. Already African states with legal systems unfavourable to sexual minorities have been warned by Biden: Ghana, Zimbabwe, Uganda, and Malawi. African states, of course, perceive this as intrusion into sovereign political affairs, where none can be tolerated. China makes no such demands. The US and China meld: Values with interests - Rapture vs Rupture China, for the Biden Administration remains the main international peer competitor and will remain so for decades to come. A reformulated approach is in the making. Tony Blinken, Secretary of State, puts it as a “realignment preferable to rupture”. Not Trumpian in the least. The central tenet of the American and European global governance is a mantra: Rules Based International Order (RBIO). China is portrayed by them to be maverick, often outside RBIO, wild and irresponsible, unsettling, and disruptive. Hence notions floating in the new administration, and which have gained ground, are that China’s role in the World Trade Organisation is counterproductive. China’s status designation as a developing nation, according to them, has to be reviewed. The US Treasury, traditionally, has been counter poised against the Pentagon. Treasury prefers trade and chokes upon tariffs. It rigorously opposes them, with exceptions such as organised criminal enterprise, fiscus mismanagement and unlawful stock market manipulations. Increased goods and services serve a tax base yield they welcome. Janet Yelland, as the Biden appointee, is not belligerent, but does act decisively when reason beckons, such as the reimposition during early February 2021 of personal and corporate sanctions on an Israeli diamond mogul in Africa, that had been lifted by Trump. US-Europe-China competing for influence in Africa In the diplomatic and economic rush into Africa, the United States, France, and the UK, are China's main competitors. China surpassed the US in 2009 to become the largest trading partner of Africa. Bilateral trade agreements have been signed between China and 40 countries of the continent. In 2000, China-Africa trade amounted to 10 billion USD and by 2014, it had grown to 220 billion USD. It peaked in 2015 and the latest data suggests 2019 was 192 billion USD. China expends more effective effort in courting African states and elites, secures more resources and is highly influential through the Forum for China-Africa Cooperation (FOCAC). Seven-point upgrade of FOCAC China defines eight major initiatives with Africans, namely (i) industrial promotion, (ii) infrastructure connectivity, (iii) trade facilitation, (iv) green development, (v) capacity building, (vi) health care, (vii) people-to-people exchange, and (viii) peace and security. A corrective seven-point plan is now to be put forward in 2021. Africans, it appears however, do not see intense industrialization after the Chinese model as a solution. Global competition between industrialists is, however, unlikely to yield disruptive results, given that China has the biggest industrial base worldwide in any event. Intellectual knowledge business, agricultural expansion, tourism, and mining are the conceptual paths towards continental development that African states are converging around. The European Union favours this route over the Chinese proposal on industrialization as the main vehicle for African GDP growth. The US tends to view industrialization as useful when its companies can produce cheaper abroad than they can back home, especially when healthy tax benefits are thrown into the mix. A prime example is Ford Motor Corporation’s 2021 1,05 billion USD investment in its South African manufacturing operations. It is a private-public partnership with all three spheres of government in the South African executive capital (Tshwane) Automotive Special Economic Zone (TASEZ). The Department of Trade and Industry’s Automotive Investment Scheme, no doubt, played a role triggering the investment. The US Government does not actively steer business abroad for its private companies, and from Beijing’s view, China, via overarching “whole nation effects”, in a sense, sees itself as a business in itself and extensively assists Chinese companies. Potential for US-China collaboration in Africa Foremost, both countries should accept a working presence alongside each other – without interference – while in free competition under local law. With Congressman Gregory Meeks this is settled as the way to go. US companies will nonetheless continue, rightly or wrongly, to feel disadvantaged against their Chinese competitors, which they allege enjoy uncompetitive state subsidy and support, with, for example, EXIM bank and others. Mutual support work may take time to build. The chief impediment is discrepant national systems of civil administration and infrastructure building assumptions (national standards from food and agriculture to road and construction codes) and, most of all, national culture, the ultimate determinant. Person-to-person engagements therefore remain the best initial approach, which will undoubtedly lead to a greater chance of success. It is less complicating. Similarly, in the field of US/China policing and military liaison, the focus should be on building lower level working trust among themselves and their African host nations, especially since longer term joint effort seems unlikely at higher levels, given the US National Security posture and contingency plans that continue to factor China as the prime military threat. In this vein, world events remain highly unpredictable. Real and imagined slights upon either state’s prestige by the other can never be excluded. Escalation by military error or miscalculation can bring on crises. Because the US and China find themselves increasingly in close proximity on land across Africa, de-escalation mechanisms at political and military levels should be well functioning between themselves and the African Union. Notwithstanding the aforementioned challenges, it is submitted that outside of public view, a number of problems that pose concerns to both the US and China, can be jointly worked on. These include issues such as: International policing actions on narcotic and environmental smuggling. Joint police training and military joint interdiction of West Indian Ocean narcotics routes from Pakistan to Somalia, Kenya, Tanzania, and Mozambique. Emergency and humanitarian disaster relief coordination (droughts, tsunamis, cyclones, earthquakes, floods, volcanic eruptions). This should include sea and air lift capacity. Inter-operability (Chinese and NATO standards) development of doctrine and training for national militaries confronting insurgencies, especially those affecting mining and civil construction and electricity transmission, which is a serious threat in parts of Africa. Lower-level military formations (tactical and operational) are less constrained by doctrines that hold at the national strategic level. There could be some flexibility and adaptation for joint cooperation when pursuing counter insurgency actions such as dhow interdiction in the eastern Indian Ocean and Arabian Sea. Across the five Islamist insurgencies in Africa mentioned earlier in this article, both sides could provide logistical and material support, including humanitarian training, tactical support, and platoon weaponry. Coordinate greater coherence in adopting international positions on African problems in the Security Council of the United Nations, within a framework of closer consultation with the AU. Biden has signalled AU relevance in an open speech of congratulation on the 34th sitting in February 2021. This gesture got appreciative acknowledgement from a number of African Heads of State, particularly Kenya, Democratic Republic of Congo (chair) and South Africa (former chair). The regular new year’s tour to at least three African capitals by senior Chinese Communist Party (CCP) officials gets attention on the continent. The US also stages occasional visits by administration officials. Biden has hope of attending the 35th AU General Assembly in 2022. If this happens, it would be a significant departure by a US President towards Africa on par with Obama’s visit to Cairo, which aimed to realign with the Muslim world. (Later drone strikes on Arab countries reversed much of this Obama effort, so Biden would need to come with more than solidarity wishes and declared empathy). China places less emphasis on grand gestures, preferring the gradual development of people-to-people contacts informed by its overarching plan. Conclusion Africa has, in the main, for many decades now, enjoyed a long and rewarding relationship with the US. Over the last few years, under a belligerent Trump administration, the Africa-US rapport paused. Under the new Biden administration’s “America is back” approach, it is expected that the relationship between the US and Africa will correct and expand. In a sense, the relationship will return to that of the pre-Trump era. Concurrently, the relationship between Africa and China has been steadily growing, to the extent that China has now become Africa’s biggest trading partner, is a significant investor on the continent, and commands meaningful political sway. Through FOCAC it has an entrenched channel for coordinating its activities within Africa. In this, it has been immensely successful. One conclusion that can be drawn from this article is that whilst Africa is eager to have its relationship with the US normalised, it is simultaneously unwilling to relinquish its bond with China. As the US rebuilds its relationship with Africa, it will have to adjust its approach, cognisant of the reality that the relationship will have to co-exist with Africa’s relationship with China. They will need to position themselves as a competitor for trade, investment, and political cooperation. This article concludes that the competition need not be adverse for the continent, in that it compels the two powers to moderate their competition to their individual advantage, with a concomitant spill-over benefit for the continent. An equally important conclusion is that whilst positioning for advantage, new opportunities, be they militarily, policing against narcotics, emergency, and humanitarian relief, amongst others, are opening up for trilateral collaboration between Africa, the US and China. This article urges an earnest consideration in this regard. Such a multilateral approach will serve Africans best. Information sources This opinion has been developed through interviews and consultations with senior members of the incoming Biden administration and US Congress, open-source materials, former members of US State Department, African ambassadors, and think-tanks. None of the views expressed here are necessarily an attributable, declared position of the foregoing. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Occasional paper 2/2021 Copyright © 2021 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. May 2021 Author: Yaseen Lockhat BA Geography (Honours), PGDip Planning, MSc Development Planning Abstract Humanity is experiencing an anthropogenic-induced climate emergency. Climate change is framed as an emergency due to the numerous catastrophic physical risks, which are increasing over time. A global response is needed to address the challenges posed by climate change. It will require redesigning many sectors and activities of the economy to reduce its environmental impact, in particular the energy sector which is responsible for a significant amount of the total emitted carbon. The transition to a low-carbon economy is a complex process due to the magnitude of the shift and the dependencies of the economy on the activities that need to change, thus the transition also poses a severe risk. However, the benefits of transitioning far outweighs the costs. It is vital for South Africa to have a holistic climate change strategy, as the country is susceptible to both physical and transitional risks. Introduction Climate change can be described as one of the single greatest challenges that humanity has ever faced. It poses a highly complex challenge due to its interconnected and multifaceted nature. Climate change is a consequence of certain activities within the current societal and economic systems, yet at the same time it negatively impacts these very same systems. Thus, climate change needs to be addressed methodically as it is embedded at a universal level within the global systems people are dependent on. The one thing that is guaranteed by both climate change and climate action, is change. Whether there is climate action or inaction, there will be drastic changes. Humanity is however at a point where the change can be influenced for the better. The globe is faced with a choice. It can either focus efforts on transitioning to a sustainable economy that will ensure a high quality of life for future generations or decide not to respond to climate change, which may result in short-term gains that will be eroded by the rapid deterioration of the physical environment. However, both climate action and inaction pose risks, and this is particularly true for South Africa. This paper will explore the physical risks posed by climate change, the physical risk posed to South Africa, the global response to climate change and its challenges, the South African context, and conclude with recommendations for the country. Climate change of the Anthropocene There is an overwhelming scientific consensus that climate change is driven by anthropogenic activities (Oreske, 2018). Whilst climate change as a process is a cyclical phenomenon that is undoubtedly a part of the earth’s natural climatic process, it was previously thought that humans do not have the capacity to alter or influence a system as large as the earth. However, since the industrial revolution, technological improvements led to the acceleration of greenhouse gas (GHG) emissions, most notably carbon dioxide through the burning of fossil fuels and land coverage change, most notably deforestation. These two shifts, albeit land coverage change to a lesser extent, have led to the drastic increase of heat retained in the atmosphere and ultimately the acceleration of the climate change process (IPCC, 2007; IPCC 2019). Scientific consensus is demonstrated through the Intergovernmental Panel on Climate Change (IPCC), a global body established by the United Nations to consolidate various climate change studies, from hundreds of scientists across the globe, into assessment reports that shed light on climate change ‘implications and potential future risks’ and to suggest ‘adaptation and mitigation options’ to governments and policymakers (IPCC, 2021). The IPCC reports are cited for their credibility as ‘In the scientific community and media, its reports are broadly viewed as the most comprehensive and reliable assessments of climate change’ (DW, 2019). In 2018 the IPCC produced the ‘Special Report Global Warming of 1.5°C’ on the need to curb emissions to 1.5°C above pre-industrial levels. The report is authored by 91 experts from over 30 countries including South Africa. The report paints a bleak picture of the current climate change risk trends, as it reveals that anthropogenic activities have already resulted in climatic changes. Moreover, the IPCC report further reveals that climatic changes will increase, and the associated risks will be exacerbated as global warming continues, with the report emphasising that a mere half a degree of warming may result in significant changes. For example, Dosio et al., (2018) found that at 1.5°C, 13.8% of the global population will experience an extreme heatwave once every five years, whilst this percentage may drastically increase to 36.9% of the global population at 2°C warming. Climatic change will not be evenly distributed as certain regions will warm at higher rates than the global average and consequently, as seen by the example citing Dosio et al., (2018) these areas will likely experience more severe extreme climatic events. This is further reinforced by a study by Arnell et al., (2019) which found that there is an increase in frequency across climatic events when average temperatures increase. Thus, this phenomenon is not unique to heatwaves but is also true for other extreme weather events such as drought and flooding. Figure 1: Climate risks of a 1.5°C change compared to a 2°C change (Source: World Wide Fund for Nature, 2018) Climate change in Southern Africa According to the IPCC ‘Special Report’ (2018) Southern Africa warms at twice the rate of the global average. This means that if the globe warms by an average of 1.5°C, Southern Africa will experience an average rate of 3°C warming. As temperatures increase, Southern Africa is expected to experience drier, warmer conditions with an increase in rainfall variability, and of consequence, an increase in extreme weather events that are linked to these climatic changes (IPCC, 2018; Miller et al., 2020). A closer examination of South Africa indicates that the west of the country may become drier and experience an increase in drought, whilst the north-east of the country may experience an increase in ‘extreme rainfall events’ such as flooding and cyclones (IPCC, 2018; Vogel, 2019; Engelbrecht, 2020, cited in Arnoldi, 2020; Mbokodo et al., 2020). Of particular concern is the threat climate change poses to South Africa’s water security, as the country is already classified as a water stressed country that is ranked as the 30th most arid country (GreenCape, 2020). Physical climate risk Climate change will result in a plethora of physical climate risks and the paradox is that human activities are responsible for climate change, and yet it is also negatively impacted by climate change. In certain instances, this can be the same activity, for example there are agricultural practises that contribute to climate change, such as clearing forests for farmland, and yet agriculture is also impacted by climate change as the changing climatic conditions may result in lower yields (Dean and Green, 2019). The following are examples of risks that are directly attributed to the physical risk of climate change: food insecurity may increase – as shifting weather patterns decrease arable areas; risk to health and physical wellbeing – as more people are exposed to extreme weather events; and financial risk – as it may disrupt business supply chains (Chersich and Wright, 2019; Nhamo et al., 2019; Mbokodo et al., 2020). Often these issues affect the most vulnerable groups and thus may exacerbate poverty, inequality, and other socio-economic issues. The climate change response The scientific body of climate change literature is enhancing and growing and is thus improving the understanding of the physical implications of climate change. In addition, more climate risks are materialising, as risks move from perceived risks to actual occurrences. Thus, the need to respond (to climate change) has become more urgent. The World Economic Forum’s (WEF) annual risk ranking report The Global Risk Report (2021) is dominated by environmental risks that are linked to climate change. The report ranks ‘extreme weather’ as the number one global risk in terms of likelihood, the second is ‘climate action failure’ and the third is ‘human environmental damage’. Only one of the top five risks in terms of likelihood is not classified as an environmental risk, and that is the risk of ‘infectious diseases’, which is ranked fourth. This is profound as even during the global Covid-19 pandemic, climate change poses the greater material risk. A similar trend is observed in the report’s risk impact ranking, with three of the top five risks classified as environmental risk related; ‘climate action failure’ is ranked as the risk most impactful after the risk of ‘infectious disease’. Lately, scientific consensus has broadened to agree that the world is in a climate emergency, which is further testament to the severity of climate change and the need for urgent action (Fischetti, 2021). Figure 2: World Economic Forum Global Risk Report (2021). In response there is a global effort to address climate change and in recent years this effort has intensified. At a global level, the Conference of the Parties’ (COP 21) Paris Agreement (PA) has been instrumental for action against climate change. The PA is a global, legally binding agreement signed in 2015 that commits signatory countries to reduce their carbon emissions and to adapt to the changes that are brought about by climate change. The agreement was signed by 195 countries, including South Africa, who are required to submit a National Determined Contribution (NDC) report, which is a framework document that outlines how a country will achieve their PA targets for both emission reduction and climate adaption. The ‘ratchet mechanism’ within the PA requires countries to update their NDCs by increasing their climate action ‘ambition’, once every five years. Other aspects of the PA cover financing, transparency and loss and damages (United Nations, 2015). Climate action: adaption vs mitigation As demonstrated in the PA, climate change can be addressed via two methods namely, climate adaption and climate mitigation. Mitigation is described by the IPCC (2014, p.4) as ‘a human intervention to reduce the sources or enhance the sinks of greenhouse gasses’. The PA requires countries to reduce their emissions so that global warming is kept below 2°C above pre-industrial temperatures. However, it does encourage countries to preferably limit warming to 1.5°C. To achieve their commitments to the PA, countries must embark on a transition away from high carbon intensity. Countries will need to develop mitigation pathways to transition various sectors of the economy over time. Most countries are focusing their mitigation efforts on the decarbonisation of the electricity sector, as the electricity sector is one of the largest sources of carbon emissions, primarily through the burning of fossil fuels (EEA, 2017; Markard, 2018; Doh, Budhwar and Wood, 2021). In addition, technological advancements in renewable energy, battery storage, and other related infrastructure are further driving the energy transition, as improvements and wide-scale adoption has led to a sharp decrease in the costs of renewable energy (WEF, 2019). Transitioning to a low or a decarbonised economy adds to the complexity of climate change, as the process poses significant risks, which is termed ‘transitional risk’ (CISL, 2019; Oliver Wynman, 2019). Transitional risks may manifest through the following (CISL, 2019): Policy and regulation May increase the cost of carbon intensive business activities, for example the implementation of a carbon tax. Consumer preferences Consumers and clients opting for ‘green’ alternatives, for example individuals preferring electric vehicles over petrol- and diesel-powered vehicles. Technological advancements Innovation disrupting ‘traditional’ activities/sectors. Reputational damage Stakeholders litigating against, disassociating from, or disinvesting from organisations linked to climate change. The transition These risks are most likely to affect individual companies, but it can result in systemic risk if there is a disorderly transition. A disorderly transition can be characterised as a transition that occurs as a set of events that unpredictably and suddenly result in the limiting of emissions or other restrictions on carbon intensive activities. Whilst an orderly transition can be characterised as a transition that occurs steadily according to a long-term plan that outlines the country’s transition strategy (UNEP Finance Initiative, 2021). An orderly transition strategy (roadmap) may be based on a climate scenario coupled with a study that considers when various mitigating technologies become technologically and financially viable to optimally limit emissions in a manner that is least disruptive from a socio-economic perspective. Transitional risk is of particular concern for countries that have a concentration of carbon intensive sectors, including financial institutions with portfolios that have a significant percentage of assets in carbon intensive sectors/activities. Whilst there is risk with the transition, the cost of not transitioning will be far more costly. A study by Swiss RE (2021) indicates a correlation between the rise in global temperatures and economic contraction. With a 2°C increase in temperature, it is predicted that the global gross domestic product (GDP) will contract by 11%, whereas at a 3.2°C rise the global GDP is expected to contract by 18.1%. On a regional basis, the Middle East and Africa are predicted to fare worse than the rest of the globe, with an estimated 14% contraction of its GDP with a 2°C increase, and an estimated 27.6% contraction with a 3.2°C increase. The role of financial institutions in the transition The financial sector plays a critical role in addressing climate change, and thus far this paper has only explored the relationship between climate change and financial risk. But transitioning to a low carbon economy also presents an opportunity for the financial sector, as the process requires significant investment and financing. It is estimated that a global investment of between $1.5 trillion and $2 trillion is needed annually for the next 30 years to achieve carbon neutrality. This represents 1.5% of the world’s combined GDP. That said, it is a fraction of the cost when compared to the cost of allowing climate change to increase to temperatures beyond 2°C (Turner, 2020). To assist the financial sector with navigating through the transition and climate change, the Basel Financial Sustainability Board developed the Task Force on Climate-related Financial Disclosures (TCFD). The purpose of the TCFD is for companies to produce detailed information on their strategic and risk management processes in respect of climate risks and opportunities. The TCFD has created a set of recommendations, which focuses on four key operational areas, namely governance, strategic risk management, and metrics and targets. There is additional guidance for certain crucial sectors, including the financial sector. Ultimately, having credible and standardised disclosures will assist the financial sector in making better long-term decisions (for finance, investment, insurance and even disinvestment) (TCFD, 2021). The just transition It is vital for transitioning countries and companies to do so in a just manner. The ‘just transition’ is a concept that was first promoted by labour unions. The Just Transition Centre (2017, p. 3) describes the International Labour Organisation’s concept of a just transition as: ‘a bridge from where we are today to a future where all jobs are green and decent, poverty is eradicated, and communities are thriving and resilient. More precisely, it is a systemic and whole of economy approach to sustainability. It includes both measures to reduce the impact of job losses and industry phase-out on workers and communities, and measures to produce new, green and decent jobs, sectors and healthy communities.’ A just transition is recognised as a critical component to achieving a successful transition, as it addresses social sustainability risk that may emanate from the transition to a low carbon economy, and without a just transition, socio-economic issues will be exacerbated. Consequently, the notion of a just transition has been adopted by global multilateral organisations as well as within countries’, and even within companies’ strategic plans and roadmaps. Contextualising South Africa's response South Africa is in an invidious position with regards to climate change. On the one hand, the country is vulnerable to several physical climate change risks and on the other hand it is vulnerable to transition risk. South Africa ranks as the largest GHG emitter in Africa and the 14th-largest emitter in the world (McSweeney and Timperley, 2018), with 39% of the country’s total emissions attributed to Eskom (Full Disclosure, 2019) who burns fossil fuels, primarily coal, to generate most of the country’s electricity. Thus, a large part of South Africa’s transitional risk is linked to electricity and the coal value chain. A report by Climate Policy Initiative (CPI) (2019) indicates that South Africa lost an estimated $60 billion of coal export revenue between 2013 and 2017 and is susceptible to a further $120 billion of transitional risk, most of which is predicted to emanate from the loss of coal export revenue as countries transition their energy sector to align with the PA (CPI, 2019). Moreover, major sectors of the economy such as the agricultural, electricity, mining, and transport sectors are vulnerable to both physical and transitional risk, and consequently this places thousands of jobs at risk. These sectors contribute 22% to South Africa’s total GDP (Stats SA, 2021a) and employ 15% of the workforce (Stats, SA, 2021b). South Africa’s climate response predates the country’s signing of the PA. In fact, South Africa is seen as one of the most climate change progressive developing countries, as it has produced several pieces of policy and legislation in response to climate change. Most notably is the National Climate Change Response White Paper (published in 2011), which provides the basis for all other policy and legislation. However, despite the release of the White Paper, the country’s climate response decelerated from 2009 to 2018, as there have been several delays to key policies and programmes amidst political and economic turbulence (Averchenkova, Gannon and Curran, 2019). Despite these delays, the release of the Low Emission Development Strategy (LEDS) (2018), the implementation of carbon tax (in 2018), the drafting of the Climate Change Bill (first draft released in 2017), will all build on the White Paper, together with the recently released draft update of the NDC which was opened for public commentary. In addition to these policies the Presidency has established a Climate Commission, where a broad stakeholder base is focussing on creating a ‘just transition’ pathway to transition to a low carbon economy, and National Treasury (NT) has released a technical paper termed ‘Financing a Sustainable Economy’ (2020). A financial sector-wide Climate Risk Forum (CRF) is currently focusing on implementing the recommendations of the NT technical paper. The purpose of the CRF is to provide a financial sector-wide platform to address climate risk and other, non-competitive, climate issues that impact the financial sector. The CRF’s current focus is to give effect to the general recommendations of the technical paper, which is envisaged to increase the capital allocation to sustainable development and the transition to a ‘climate-resilient economy’ (Climate Risk Forum, 2020). The NT technical paper recommends the development of: A sustainability taxonomy Technical guidance for disclosures as per TCFD The sectors’ competency and capacity (for both the financial and public sector) A climate risk benchmark scenario The sustainable finance landscape As indicated in previous sections of this paper, the finance sector should play a vital role in the climate response and thus the CRF is seen as a critical part of the process to address climate change and its associated financial risks in South Africa, including the provision of sustainable finance to enable the just transition to a low carbon economy. However, despite the establishment of the CRF and the aforementioned policies and initiatives, South Africa is yet to demonstrate an integrated and co-ordinated vision and response to climate change. By way of example, the Independent Resource Plan (IRP) 2019 contradicts the LEDS aim to achieve carbon neutrality by 2050, as the IRP 2019 includes coal in the energy mix post 2050 and allows coal-based power stations to be built until 2030 (Climate Action Tracker, n.d.). In addition, government seemingly wants to expand the country’s economic reliance on fossil fuels as the Department of Mineral Resources and Energy is seeking to promulgate the Upstream Petroleum Resources Bill (released in 2019), which aims to develop the country’s petrol and gas industries following discoveries of offshore gas fields (Reeler, 2021). Such a fragmented and misaligned approach increases the likelihood of a disorderly transition as well as heightened physical climate risk, where mitigation and adaptation strategies to minimise the socio-economic impacts may not be maximised. Conclusion South Africa has scope to enhance its climate response. But if South Africa does not adequately coordinate and address its carbon emission transition and build resilience to climate change, the country may be less competitive, as this may result in the marginalisation of the country on the global stage. To expand, as countries transition, so too will their consumption patterns and, thus, products, manufactured using fossil fuel energy or within countries that do not adhere to international carbon emission commitments, may be subjected to carbon tariffs when exported to compliant countries. South Africa should create an overarching transition strategy for climate change that describes a unified vision for South Africa’s decarbonisation, including the year when carbon neutrality is possible and under what supporting conditions (developed countries committed themselves to providing technological and funding support to developing countries for transition purposes in the PA). Most countries that have set a net-zero carbon goal intend to do so by 2050. Furthermore, South Africa needs a detailed roadmap which is more encompassing than the abovementioned LEDS. It should provide a detailed overview of the sectors and activities that contribute to climate change as well as the sectors and activities that are to be impacted by climate change. The roadmap should contain a detailed adaption plan for impacted sectors and a detailed mitigation strategy for contributing sectors. The mitigation strategy may be based on a study that details how best to transition these sectors and activities based on their economic and technological viability. For example, sectors may not be able to transition due to the lack of carbon neutral technology or the cost to implement such technology, whilst other sectors may require an electricity transition to enable their transition, such as manufacturing and electric vehicles. Therefore, as previously explored, the electricity sector represents a low-hanging fruit as it currently offers a viable transition pathway, which is attributed to the advances in renewable energy technology. The energy sector will be further shaped by advancements in green hydrogen technology as it progresses to a level where it will be a viable source of energy and where it, together with renewable energy, is expected to dominate energy sources globally. South Africa ought to capitalise on these opportunities given the country’s competitive advantage, due to its favourable climatic conditions, by producing renewable energy and green hydrogen. The roadmap should also leverage off work that is currently being undertaken, such as work by the CRF, the Climate Commission and the ‘Just Transitions Pathway Project’ that is being conducted by Business Unity South Africa and the National Business Initiative (National Business Initiative, 2020). The roadmap should combine the findings of all these studies into its strategy. In addition, the strategy should ensure that there is policy certainty, alignment and mainstreaming across all three spheres of government. There cannot be contradictory messaging from departments and all public programmes should align to the climate strategy, for example the department responsible for mining activities should not explore opportunities to increase the country’s coal mining capabilities, but rather it should align to the climate strategy and ensure that there is climate resilient mining infrastructure. This structured approach will allow for the management of an orderly transition, and ensure that there is a just transition, as it can pre-empt the sectors where there will be job losses, provide the necessary upskilling of human resources affected by the transition, and determine sectors where there will be job and economic opportunities. It is crucial for the roadmap to contain a cost analysis of the envisaged transition, as this will assist in allocating and assessing the finances required to undertake the transition, including the quantum of international funding support required. Government will not be able to solely finance the transition and thus would need to crowd in private and development finance by ensuring projects are commercially viable and sustainable. Where projects are not commercially viable and sustainable, government would need to access donor funding or employ innovative financing models, such as blended finance. This once again highlights the importance of finance in addressing climate change, but it also highlights the importance of a detailed climate change roadmap as it will provide credibility and certainty, and thus attract international investment and funding. This paper reinforces that both climate change and climate action will bring about significant change and risk. However, if carefully managed a transition to a low carbon economy can address the many climate change challenges and may even result in benefits that transcend the environment, as a just transition promotes social sustainability. Thus, an adequate climate response offers South Africa a chance to not only respond to climate change, but to also determine its own course of change. In doing so, it may result in solutions for many other challenges that the country is faced with such as the lack of energy security and the high degree of social inequality. References Arnell, N.W., Lowe, J.A., Challinor, A.J. and Osborn, T.J., 2019. Global and regional impacts of climate change at different levels of global temperature increase. Climatic Change, 155(3), pp.377-391. Arnoldi, M., 2020. Climate change will hit Africa much harder than other continents – panel. [online] Engineering News. 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Climate Change and Land: an IPCC special report on climate change, desertification, land degradation, sustainable land management, food security, and greenhouse gas fluxes in terrestrial ecosystems. IPCC, 2021. About IPCC. [online] Available at: [Accessed 5 May14 April 2021]. Just Transition Centre, 2017. Just Transition. [online] Just Transition Centre, p.3. Available at: https://www.oecd.org/environment/cc/g20-climate/collapsecontents/Just-Transition-Centre-report-just-transition.pdf [Accessed 20 April 2021]. Kathryn A. Miller, Ndoni Mcunu, Andreas Anhäuser, Aidan Farrow, David Santillo & Paul Johnston.Weathering the Storm: Extreme weather events and climate change in Africa. Greenpeace Research Laboratories Technical Report (Review) 04-2020 Markard, J., 2018. The next phase of the energy transition and its implications for research and policy. Nature Energy, 3(8), pp.628-633. Mbokodo, I., Bopape, M., Chikoore, H., Engelbrecht, F. and Nethengwe, N., 2020. Heatwaves in the Future Warmer Climate of South Africa. Atmosphere, 11(7), p.712. McSweeney, R. and Timperley, J., 2018. The Carbon Brief Profile: South Africa. [online] Carbon Brief. Available at: https://www.carbonbrief.org/the-carbon-brief-profile-south-africa [Accessed 14 April 2021]. National Business Initiative (2020). Launch of the NBI Just Transition Pathways Project. [online] Available at: https://www.nbi.org.za/luanch-of-the-nbi-just-transitions-pathways-project/ [Accessed 1 May 2021] National Treasury (2020). Financing a Sustainable Economy. Technical Paper Nhamo, L., Mathcaya, G., Mabhaudhi, T., Nhlengethwa, S., Nhemachena, C. and Mpandeli, S., 2019. Cereal Production Trends under Climate Change: Impacts and Adaptation Strategies in Southern Africa. Agriculture, 9(2), p.30. Oliver Wyman, 2019. Climate Change Managing a New Financial Risk. Oreskes, N., 2018. The scientific consensus on climate change: How do we know we’re not wrong? In Climate modelling (pp. 31-64). Palgrave Macmillan, Cham. Reeler, J., 2020. Five years after Paris Climate Agreement, why is SA’s response to climate crisis so lethargic?. Daily Maverick, [online] Available at: https://www.dailymaverick.co.za/article/2020-12-08-five-years-after-paris-climate-agreement-why-is-sas-response-to-climate-crisis-so-lethargic/ [Accessed 20 May 2021]. Stats SA, 2021a. Gross Domestic Product (GDP), 4th Quarter 2020. Pretoria: Statistics South Africa. Stats SA, 2021b. Quarterly Labour Force Survey, 4th Quarter 2020. Pretoria: Statistics South Africa. Swiss RE, 2021. The economics of climate change: no action not an option. Zurich: Swiss RE Management Ltd. Task Force on Climate-Related Financial Disclosures. 2021. About the Task Force on Climate-Related Financial Disclosures. [online] Available at: https://www.fsb-tcfd.org/about/ [Accessed 28 April 2021]. Turner, A., 2020. The costs of tackling climate change keep on falling. [online] financial Times. Available at: https://www.ft.com/content/33bb3714-93cf-4af5-9897-e5bf3b013cb7 [Accessed 22 April 2021]. UNEP Finance Initiative, 2021. Decarbonisation and Disruption. United Nations / Framework Convention on Climate Change (2015) Adoption of the Paris Agreement, 21st Conference of the Parties, Paris: United Nations. Vogel, C., 2019. Living with 1.5 and climate change – what may it take? World Economic Forum, 2019.The Speed of the Energy Transition Gradual or Rapid Change? World Economic Forum, 2021. The Global Risks Report. 16th Edition. World Wide Fund for Nature, 2018. Climate Risks: 1.5° vs 2° Global Warming. [image] Available at: https://www.wwf.org.uk/updates/our-warming-world-how-much-difference-will-half-degree-really-make [Accessed 18 May 2021]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Occasional paper 3/2021 Copyright © 2021 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. June 2021 Author: Sershnee Pillay Abstract This article aims to tackle the issue of financial literacy as a tool to emancipate the South African national economy from global debt and create self-sustaining stability. Drawing on the concept of financial inclusion and the impact that our citizens can have on stimulating the economy, together with models that have worked in international environments, this article highlights the benefits and ideology of financial literacy as a tool in our unique South African context, with recommendations for a way forward. The COVID climate While South Africa together with the rest of the world finds itself in the midst of a global pandemic, naturally all the focus has shifted towards healthcare and infrastructure to support vaccination efforts. This is without a doubt a necessary and vital focus area to alleviate the current situation, but an ancillary fact is that these efforts can only reach as far as our Rand does, and how far is that exactly? Statistics South Africa published data in March 2021 which showed that South Africa’s economy contracted by 7% last year (StatsSA, 2021). In a forecast by Minister Mboweni in the 2021 budget speech delivered in February this year, it was further evidenced that our economy is flailing. The reported budget deficit has ballooned to a record 14% of GDP, more than double the Minister’s 2020 forecast of 6.2% (Hogg, 2021). This points to a disturbing and undisputable fact: South Africa’s ability to care for its citizens is limited by our weak fiscal position. Economic growth has been a long-standing goal for the government and seemingly one which we consistently fall short of, for a multitude of reasons. The impact of which holds dire consequences for the very taxpayers who are caught in the negative cycle of a contracting economy and rising living costs, propelling individuals towards escalating debt to make ends meet. All the while, chasing the ever-elusive economic reprieve of GDP growth. As if this was not concerning enough, there is now yet another contender for our resources in the form of COVID-19. The resulting scenario being a bleak picture of continually perpetuating debt from both a micro- and macro-economic standpoint. South Africans are heavily in debt, be it looking at our own pockets or our collective debt as a nation. This has created the perfect storm for a tiered intervention, one which can address the issue of economic growth at a grassroots level as well as lead us on the sustainable road to recovery as a nation. Financial literacy - the key to economic empowerment To increase our fighting weight when it comes to facing the next potential pandemic or even how we manage our organic finances in a regular climate, the answer lies in strengthening our fiscus. The author is of the opinion that this can be achieved through financial literacy. Financial literacy refers to the ability to understand and apply different financial skills effectively, including personal financial management, budgeting, and saving. Financial literacy makes individuals become self-sufficient, so that financial stability can be accomplished (Biswas, 2021). This definition and elaboration outlines some of the key concepts which are vital to the success of such an intervention. For decades we have been trying to address and alleviate the symptoms facing our country and our poor finances. Financial literacy is the cure that addresses the cause of our financial ill health at multiple levels. Citing a comprehensive study completed by the Human Sciences Research Council on behalf of the Financial Services Board, ”the level of financial literacy among adult South Africans tends to be in the low to moderate range on average” (Discovery, 2018). This alarming fact may well provide the basis for us to understand why we as South Africans do not make informed choices with our finances and are drawn into more and more debt over time. The most unfortunate reality is that in most cases this is by and large due to our upbringing, having learned these behaviours from our parents and other role models while growing up. We have seen and emulated the same behaviours our family’s have followed, only to be, not-surprisingly, caught in the same financial quandary ourselves later in life. General wealth If we consider the way money is handled in a typical South African household, we see that most families are struggling to get through the month and manage their general living expenses. ‘The Household Affordability Index’ compiled by the Pietermaritzburg Economic Justice and Dignity Group (PMBEJD), showed that as of 2019, 56% of the South African population is living on less than R41 a day (BusinessTech, 2019). When faced with a low-income household in situations such as this, the thought of a concept such as financial literacy may present as an inaccessible ideal. Yet if we look into the history books, many a time we can trace back a family’s generational wealth to one particular individual who learned how to make his proverbial ‘R41’ grow into something substantially more valuable, thereby breaking his family’s generational cycle of poverty. The problem then is not a lack of means alone, but a lack of willingness to take a calculated risk for high reward and disciplined gratification, due to a lack of understanding the science of money. If the problem presents itself through bad learned behaviours, but we see in certain instances that the mould was broken, it seems apparent that the solution then is to provide enabling environments, skills and knowledge to equip young South Africans to break the bad money habits earlier on in their lives, thereby giving them the tools necessary to create their own wealth and even build and accumulate wealth for future generations. This is vitally important at this point in time, given the all-time high access to credit and the appeal of this in low-income families. Financial capability The island nation of New Zealand is home to the indigenous Māori population amongst a variety of other cultural and linguistic groups with various generationally learned and accepted financial behaviours, which for the purposes of this research, provides similarities to our own diverse South African melting pot of cultures. The Commission for Financial Capability (CFFC) in New Zealand has initiated the first financial literacy model which has been aligned to the New Zealand Curriculum and across Māori Medium Education (2020). The Programme, named Sorted in Schools, aims to tackle the issue of financial literacy, redressed as financial capability, to curb the spread of debt cycles and encourage better monetary decisions at various life stages, ultimately leading to financial security and a healthy retirement. With its inception and approval from the New Zealand government received in 2017, CFFC has been working on implementing the programme for secondary school students over a four-year period. As communicated by CFFC, “in March 2019, Sorted in Schools launched its first learning and teaching package for years 9-10 for the New Zealand Curriculum. The package is based on the theme of financial identity, and includes topics such as managing my money, debt, savings and goal setting”. “The launch of package two, financial sustainability, followed in June 2019. Financial sustainability includes topics such as KiwiSaver, retirement, insurance and investment.” The programme was adapted and developed for Māori Medium Education and since 2019 has also been rolled out in te reo Māori for years 9-10. At this stage in 2021, it is estimated that ‘Sorted in Schools’ will have rolled out eight teaching and learning packages across years 9-13. Four for the New Zealand Curriculum and four for Māori Medium Education in te reo Māori. The programme is supported by the New Zealand government, including the Ministry of Education, The New Zealand Qualifications Authority (NZQA), the Tertiary Education Commission and the Ministry of Business, Innovation and Employment (MBIE). Through the partnerships and support outlined above, the free, government funded programme has grown with such popularity that it has over 67% of secondary schools in New Zealand signed up to teach their students essential money skills with ‘Sorted in Schools’ (2020). A key driver is equitable access to financial capability, with a keen inclusion and consideration for the programme to reflect the cultural viewpoints of New Zealand’s diverse student population. Emphasis is placed on an increase in collaborative partnerships that support not only schools and students, but also their communities, parents, and families. Why should South Africa care about financial literacy? Looking to a first world nation such as New Zealand and their identification of the need for such skills having resulted in the initiation of a landmark programme such as ‘Sorted in Schools’ for their diverse populations’ needs and future security, one must surely see the value in taking action to adopt our own version of a financial literacy programme suited to our unique needs and future goals as a nation, in the hope of one day also holding first-world status. The question then is how do we duplicate or re-create this kind of programme on home soil? What are the tried-and-tested principles of financial literacy that can lead to positive money relationships and become a proponent for creating generational wealth for the vast majority of South Africans? In a paper on financial literacy and inclusive growth in the European Union, Sweden and Denmark were cited as the world’s best performers in financial literacy rankings – interestingly, the EU also houses below global average performers such as Romania and Portugal. What was highlighted by these findings was that even amongst other developed economies, low-income individuals, women, young people and less educated people tend to consistently underperform in literacy tests (Batsaikhan and Demertzis, 2018). Here too, we see a direct correlation between a stable economy like Denmark and a high financial literacy ranking. If we aim to place ourselves amongst the likes of New Zealand and Denmark with a strong and bolstered economy, we need to encourage initiatives which promote financial literacy activities in the South African context. Therefore, our current education system should be rejigged to include financial literacy, with a clear focus on the following areas: Nurturing a savings mindset/culture: In a popular personal finance quote by Warren Buffett, he said, “Do not save what is left after spending, but spend what is left after saving” (Doyle, 2020). The emphasis is placed on reserving your savings out of your earnings, then from the balance that is left, you should plan your expenses. This is an essential skill which benefits any age group and even a child learning this principle can take the lesson home into their communities and contribute to larger-scale financial literacy. The key is to begin promoting the change in behaviour and mindset at an early age, nurturing the positive shift before negative money behaviours are learnt and accepted as the norm. Debt rehabilitation: This is an important area of learning given the South African context which features elements such as “black tax”, for example, which these days is not wholly limited to race. Most South African families unwittingly and unintentionally create a debt cycle for their child even before the individual has had the chance to start building a security base for themselves. This may manifest in a number of ways, from elderly parents needing support, to siblings who lean on one another to make it through the month, and even in the form of student loans taken out since funding was not available for tertiary education, due to poor planning and ill-managed resources by the adult members of the family early on in the child’s life. Sharing the science of how to free oneself from the crippling reality of inherited debt could be life-changing for many young South Africans and again is a transferable skill which can alleviate a community’s pains, given the correct distribution. Tax efficiency: Teaching the value of understanding saving vehicles such as a Retirement Annuity can really provide the youth with the leg up that is needed when embarking upon the world of personal finances. This is a great example of an avenue that is easily accessible to all through saving even a minimal amount, which translates into big rewards later on and promotes tax savings and planning for the future, potentially unlocking generational wealth creation, if used correctly. Creation of cashflow/ assets/ wealth: Stemming from a basic practical skill like budgeting, individuals stand to benefit from understanding how to make their money work for them, in not just sustaining their lifestyle but improving it for themselves and their families. Most high net-worth individuals who came from impoverished backgrounds generally share a specific trait. They learnt that the science of money means that as your income increases, your lifestyle does not necessarily have to match that elevated paycheque. They applied the simple yet effective technique of maintaining their standard of living and constantly investing the increased income into more and more savings vehicles or investment vehicles, which allowed their money to grow. Over time, they in effect multiplied this effort, meaning that essentially their assets began generating further wealth for them. If this principle can be taught to children coming from low-income households at an early age, there is little doubt that they will have the discipline to make this model work to their benefit. The economic advantages and efficiencies brought about through financial literacy Notwithstanding the clear practical benefits already outlined above, the behavioural shift in the youth from low-income communities would have long-term benefits, such as providing the educational basis to allow for clear and well-informed decision-making regarding their finances. Ranging from establishing clear credit records through understanding the evils of debt cycles, to the removal of what would otherwise be a predisposition to accepting poor financial advice and falling prey to “get rich quick” schemes, the evidence points to the long-term benefit being a more stable financial future. The positives of financial literacy provide a means to free the youth from repeating the mistakes made by generations before them, who unfortunately did not have the same skills, tools, or resources to allow them such freedoms or choices. In a sense it creates a semblance of what could be seen as the beginnings of equality for previously disadvantaged households and families. The macro-economic effects of which would be experienced through a shift in the way our society handles, manages, and interprets their financial security. Behaviourally, it would mean a psychological overhaul of established norms such as cash-based transactions, moving to more evolved means such as digitals funds and electronic fund processing. The safety and security that comes with such systems allows for access to markets previously out of reach, thus opening up the world market for small local businesses. This, together with the technological advances arising in the financial sector, will allow for a trajectory of financial independence unheard of at this level of the economy. What does this mean for the South African economy? These concepts when applied in real-life situations provide an alternative to the current stark reality of many South African youth, who are faced with the prison of poverty and have accepted the life sentence. The introduction of a financial literacy programme has the potential to breathe life into the generation of township economies, allowing the youth of South Africa to create an enabling environment for themselves, which by extension will nourish and feed their own families and communities. The reach is infinite if these spider networks are created through financial literacy drives in schools and even community workshops, which take the message of financial literacy and practical lessons to achieve financial freedom into the communities that need it most. The implied benefits of a successful roll-out of such programmes will intensify entrepreneurship amongst the youth, resulting in job creation and thereby promoting the relevant upskilling needed to drive growth in the various economic industries and sectors. This in itself creates a “big bang” effect, which allows the national economy to flourish, given the spider network of township economies and their self-sustaining structures. How do we kick-start this programme? The recommendation is that, similar to New Zealand’s Commission for Financial Capacity, a public private partnership is needed between the South African government, the Department of Trade, Industry and Competition, the Department of Education and financial services institutions, with a focus on creating wealth through financial planning and financial interventions. The author is of the opinion that this kind of collaboration could provide the operational and technical framework needed for: Classification of the split of funding between the public and private sectors; Creation of the learning material / technical syllabus, with emphasis on catering to the multi-lingual population; Identification of communities which could benefit from the programme (ideally across the whole of SA); The phasing and timelines for roll-out; and The distribution model encompassing specific age groups, schools and their tiered needs and evolution within the programme. Financial literacy holds the key to economic liberation for the South African individual and the multiplied effect of such an intervention is the stimulus that will emancipate the South African economy and help stabilise us in the global economy. Through an inclusive economy which enables its citizens to create their own opportunities, our nation will thrive and become a self-sustaining, empowered country, which every South African will be proud to call home for generations to come. References Batsaikhan, U. Demertzis, M. 2018. Financial literacy and inclusive growth in the European Union, Bruegel Policy Contribution (8:6-9) [Online] Available at: https://www.bruegel.org/wp-content/uploads/2018/05/PC-08_2018.pdf [accessed 25 May 2021]. Biswas, S. 2021. What Is Financial Literacy? [Online] Available at: https://cleartax.in/g/terms,financial-literacy [accessed 28 May 2021]. Business Tech. 2019. More than half of South Africans are living on less than R41 a day. [Online] Available at: https://businesstech.co.za/news/lifestyle/345026/more-than-half-of-south-africans-are-living-on-less-than-r41-a-day/ [accessed 25 May 2021]. Commission for Financial Capability. 2020. Equipping young New Zealanders for their financial futures. [Online] Available at: https://cffc.govt.nz/sorted/sorted-in-schools/ [accessed 26 May 2021]. Discovery. 2018. The link between financial literacy and economic empowerment. [Online] Available at: https://www.discovery.co.za/investments/financial-literacy-and-economic-empowerment [accessed 26 May 2021]. Doyle, G. 2020. Do not save what is left after spending; instead spend what is left after saving. Warren Buffett. [Online] Available at: https://ca.rbcwealthmanagement.com/gerry.doyle/blog/2303780-Do-not-save-what-is-left-after-spending-instead-spend-what-is-left-after-saving----Warren-Buffett/#:~:text=Contact-,%E2%80%9CDo%20not%20save%20what%20is%20left%20after%20spending%3B%20instead%20spend,left%20after%20saving.%E2%80%9D%20Warren%20Buffett [accessed: 7 June 2021]. Hogg, A. 2021. Executive summary of 2021 National Budget Speech. [Online] Available at: https://www.biznews.com/budget/2021/02/24/budget-speech-summary [accessed 27 May 2021]. Sorted In Schools. 2020. [Online]. Available at: https://sortedinschools.org.nz/ [accessed 26 May 2021]. Statistics South Africa (Stats SA). 2021. GDP: Quantifying SA’s economic performance in 2020. [Online] Available at: http://www.statssa.gov.za/?p=14074 [accessed 27 May 2021]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Occasional paper 4/2021 Copyright © 2021 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. August 2021 Author: Isaac Matshego BCom Hons, MCom Introduction The development model pursued in South Africa is neither a laissez-faire approach nor a state-controlled and dominated economy. The United States Congressional Research Service (2020:12) characterises the South African government’s development model as a fusion of pragmatic support for private sector-led growth with state-centric economic planning. The role of the state in economic development is encapsulated in the National Development Plan 2030 (NDP 2030) (RSA, 2012), which envisions the achievement of a ‘capable and developmental state’. This model of development, which places public entities at the core of developmental initiatives, was conceptualised by Johnson (1982). Johnson contrasted the Japanese industrialisation model with the private sector-centred approach adopted by the United States and the United Kingdom. He described the Japanese model as the ‘capitalist developmental state’, or ‘developmental state’ for short. In this model, public entities assume the principal role in planning and executing industrialisation and overall development programmes. This development model was replicated, with considerable success, by most East Asian economies and was particularly successful in Singapore. Historically, South Africa has pursued a developmental state model. Before the democratic transition in 1994, state-owned enterprises (SOEs) played a leading role in electricity provision, steel production, road network management, and even the development of technology to refine coal to fuel. The privatisation programme that started in the late 1990s under the Growth, Employment and Redistribution Programme led to the steelmaker being sold off entirely to private investors on the one extreme, and the partial privatisation of the telecommunications operator, while Eskom and Transnet remained wholly state-owned at the other end of the extreme. Therefore, SOEs still play the leading role in electricity and water provision, as well as operating the rail network, among other functions. This article analyses the challenges encountered on the development front in South Africa, focusing on the shortcomings posed by poorly run SOEs in helping to achieve the goals of the NDP 2030. Firstly, a brief synopsis of the current state of the economy and shortfalls in infrastructure development are presented. A discussion of the weak state of local SOEs is then followed by proposed measures to stabilise and strengthen the management and governance of these entities. State of the economy The South African economy can be characterised as having failed to facilitate the achievement of short-term economic targets and longer-term development goals, that would in turn have raised incomes and uplifted the livelihoods of citizens. Job creation has hardly kept up with labour market growth. Moreover, per capita GDP, an aggregate measure of personal income trends, has contracted since 2015. Even before the onset of Covid-19, indicators of the state of the economy were significantly lagging behind the targets set in the NDP 2030. The economic growth rate was below 2% a year since 2014 and has furthermore declined through the years to a meagre 0.2% in 2019, averaging only 1.7% per year since 2010. Among others, the critical objective in the NDP 2030 is to boost employment. The goal was to reduce the unemployment rate to 14% by 2020 and to 6% by 2030. This target required an average annual economic growth rate of between 5% and 6% throughout the entire period of almost two decades to 2030. However, the 2020 target for the unemployment rate has been missed, and it is looking increasingly unlikely that the rate will be cut by more than half over the next nine years. In fact, the unemployment rate breached 30% in 2020 after it hovered at around 29% over the course of 2018 and 2019. It is also worth noting that these figures are based on the official, narrow definition of unemployment that counts only workers who are actively seeking employment. Once discouraged workers are included, the rate of unemployment is actually close to 40%. South Africa records a mixed performance in the assessment of the quality of infrastructure development. InfraCompass is an initiative of the Group of 20 that assesses the quality of infrastructure development among 81 countries that account for 93% of global economic activity. South Africa is the top performer in Africa in terms of infrastructure development but ranks poorly among the upper-middle-income countries in the survey. In terms of positive indicators, South Africa ranks in the top 10 among all countries in terms of the quality of financial markets’ infrastructure, 12th in planning and 23rd in procurement. However, the country performs poorly in governance (35th), regulatory frameworks (46th), funding capacity (47th), permits (51st) and activity (61st). In the InfraCompass 2020 survey, it did poorly in the value of closed public-private partnerships (PPP) infrastructure deals (scoring just 5.5 points out of 100), which totalled only 0.03% of GDP, compared with the upper-middle-income country average of 0.3%, and in terms of value of closed infrastructure deals with foreign equity ownership, scoring only 7.1 out of 100. These low scores suggest a preference for traditional infrastructure models that are constrained by the capacity of the government and the SOEs to raise debt financing for infrastructure projects. The state of South African SOEs The significance of SOEs in infrastructure development and financing and mobilising private sector funds is elucidated in Amman et al (2016). The paper highlights the role of infrastructure investment in Brazil by reviewing hindrances to infrastructure development, highlighting regulatory constraints and the burden posed by poorly managed SOEs. These entities play a similarly significant role in South Africa. Ehlers (2014) analyses the challenges related to raising infrastructure finance across the world. Ehlers (2014) and Amman et al (2016) surmise that developing economies with poor records of economic development, limited domestic long-term capital markets and sub-investment grade credit ratings incur high capital costs. This situation ultimately limits their ability to build infrastructure at the lowest cost possible. The difficulties engulfing local SOEs, which have resulted in their failure to be drivers of development in the country, are well documented. Most of the rot in the local SOEs appears to have set in over the past decade. Before then, the large SOEs paid dividends to the public treasury regularly. Eskom was a well-managed power utility that won global awards and had a better credit rating than the government in the early 2000s. Transnet secured concessions to operate rail ports in a few southern African countries. South African Airways (SAA) won several global awards, including for being the leading airline in Africa. The extent of the current troubles in these entities has been laid bare at the Commission into Allegations of State Capture, commonly known as the Zondo Commission. Poor management, political interference in operational matters, high debt, weak balance sheets and a shortage of critical skills afflict the entities at the centre of the government’s developmental agenda. These factors have led to poor investment outcomes by these SOEs. Eskom’s generation capacity expansion programme, which started more than a decade ago, has bequeathed to the country poorly built power stations that cost much more than budgeted. In the meantime, power supply shortages remain a burden on the economy. The collapse of SAA is attributable to political and board interference in operational matters, while Transnet acquired rolling stock that is not suitable for the local railway network. SOEs have been a significant burden on the fiscus. The National Treasury transferred a cumulative R232.3 billion to the large SOEs between 2008 and 2020, while another R42.2 billion has been budgeted for 2021 to 2024. The bailouts, most of which are for the power utility Eskom (Table 1), are contrary to the management guidelines set by the National Treasury. The policies dictate that SOEs should be well-managed entities with the capacity to raise developmental financing on the strength of their balance sheets (National Treasury, 2010:95). Public sector corruption and the mismanagement of SOEs inhibit the development of economies, particularly those that have pursued a developmental state model. Mauro, Medas and Fournier (2019) elucidate how corruption diminishes public trust by encouraging tax avoidance and even evasion, which often results in spending on social functions (education, health and even security) being lower in countries with a high prevalence of corruption. Corruption in public contracts ‘distorts the activities of the state and ultimately takes a toll on economic growth and the quality of people’s lives’, with the aggregate ‘cost of corruption being greater than the sum of lost money’ (Mauro, Medas and Fournier, 2019:26). Corruption and the mismanagement of SOEs are not confined to South Africa or developing economies. Japan’s own ‘arms deal’ in the 1970s had government officials accepting bribes in return for approving contracts for the purchase of US military craft (Mauro, Medas and Fournier, 2019). The positive news in the case of South African SOEs s is the excellent state of the development finance institutions (DFIs). The Industrial Development Corporation (IDC) plays a leading role in industrial financing in the country and facilitates the entry and expansion of previously disadvantaged industrialists. The Development Bank of Southern Africa (DBSA) has proven itself a world-class infrastructure financier in the domestic market and Southern African region. The Land Bank, despite its recent financial difficulties, also remains a significant partner for emerging farmers in particular. Other DFIs fill a critical financing void in ensuring funding for small businesses, an area of growth identified as crucial for job creation in the NDP 2030. The generally good state of the DFIs is additional proof that South Africa can have SOEs managed prudently and that they are facilitators of development in a capital-constrained economy. The significance of SOEs in South Africa extends beyond their socioeconomic objectives of transforming the economy to a more inclusive one. They are at the centre of the government infrastructure build programme, with most of the government’s infrastructure megaprojects being planned based on cooperation between national departments and SOEs. The National Treasury (2021:157) shows that the rollout of the government’s R791.2 billion infrastructure development programme over the fiscal years ending in March 2024 will be driven by SOEs, accounting for 37% of the spending. Stabilising and improving the management and governance of SOEs Stabilising SOEs is, therefore, one of the critical components for improving the developmental objectives. Mauro, Medas and Fournier (2019:29) conclude that curbing corruption ‘starts with domestic political will, continuous strengthening of institutions to promote integrity and accountability, and global cooperation’. Progress has been made in stabilising local SOEs in recent years. New boards and management have been appointed at Eskom and Transnet, among others. Leadership at the entities that have historically operated efficiently, such as the Airports Company of South Africa, has been strengthened. The restructuring of Eskom into three separate entities will help to make it more operationally efficient. The establishment of the Transnet National Ports Authority as an independent subsidiary of the Transnet Group has also been announced. Other positive developments include the establishment of the Infrastructure Fund. The fund is housed in the DBSA and will coordinate PPPs between public entities and the private sector. Additionally, ‘Operation Vulindlela’ aims to ensure the efficacy and coordination of infrastructure spending across the public sector. Some progress has therefore been achieved, but more is still to be done. Deloitte (2019) stresses critical tenets for the efficient and effective operation of SOEs: Clarity of purpose. SOEs play a significant role in extending economic and social services that the private sector cannot provide at reasonably affordable costs to consumers. In this case, the mandate of SOEs and the justification for their participation in such activity must be elucidated to avoid conflict with the role of the private sector. Management of SOEs. A clear separation of the roles of management, the board and the shareholder help to inhibit interference in operational matters by those appointed to fulfil fiduciary and oversight functions. The government, as the shareholder, must act boldly to address mismanagement where such measures are justifiable. Importance of capital management. In pursuing their developmental mandate, SOEs commit to strategic projects that are predominantly funded through long-term debt. Therefore, capital management should be divorced from the whims of those in power, who are often influenced by short-term political and pecuniary goals. Fiscal health. Prudent management of the SOEs that shields them from the influence of the executive arm of the government contributes to building well-run entities that become dividend payers to the fiscus instead of relying on bailouts. To this end, establishing an independent board to oversee policy implementation and enforce proper governance and management of SOEs is necessary. At the same time, the government department under which the SOE falls fulfils an additional governance role. Singapore established Temasek Holdings in 1974 as its SOE-holding company, and the company has been transformed into the country’s sovereign wealth fund with stakes in various industries across the globe. China has successfully housed its SOEs in the State-owned Assets Supervision and Administration Commission, which is accountable to the State Council (the Executive arm of government), since the 2000s. Implementing these measures will set local SOEs on a path to better financial positions and improve their contribution towards achieving the country’s developmental goals. Better managed SOEs with solid balance sheets will improve the credit ratings of these entities and enable them to raise capital in local and international markets under favourable terms. Conclusion South Africa continues to pursue a developmental state model. Consequently, SOEs are central to the government’s developmental plan. South Africa’s socioeconomic fabric is similar to Brazil’s, and the country is similarly highly dependent on SOEs for the rollout of national economic and social infrastructure. Therefore, the need to strengthen local SOEs and improve their contribution to development objectives is of paramount importance. Well-functioning SOEs will facilitate the NDP 2030 objectives of strong economic growth and the significant reduction of unemployment and poverty. Measures have already been implemented to improve the management and governance of key SOEs. The government has also put in place policies and entities to facilitate closer cooperation between the public and private entities involved in infrastructure development. The establishment of an overseeing authority of SOEs, in the form of a holding company made up of retired executives from both the public and the private sectors, will help to cushion them from political interference. The management of the SOEs must be aligned with the long-term objectives laid out in the NDP 2030. These steps will help lift confidence, facilitate greater cooperation in fixed investment by the public and private sectors, boost economic growth, ultimately stimulate job creation, ensure reliable energy supply, and eradicate logistical bottlenecks that constrain the country’s export capacity. Table 1: Summary of recapitalisations and bailouts of state-owned companies Source: National Treasury References Amman, E., Baer, W., Trebat, T. E Lora, J.V. 2016. Infrastructure and its role in Brazil’s development process, The Quarterly Review of Economics and Finance, 62:66−73. Congressional Research Service. 2020. South Africa: Current Issues, Economy, and U.S. Relations, Congressional Research Service, R45687, September. [Online] Available at: https://crsreports.congress.gov/product/pdf/R/R45687 [accessed: 27 July 2021]. Deloitte. 2019. Gearing for Growth: Restructuring SOEs for improved governance and performance, in Gearing South Africa for Growth. Johannesburg: Deloitte. Ehlers, T. 2014. Understanding the challenges for infrastructure finance, BIS Working Papers No 454. Basel: Bank for International Settlements. InfraCompass. N.d. Infrastructure Futures Report. [Online] Available at: https://infracompass.gihub.org/ [accessed: 27 July 2021]. Johnson, C. 1982. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925 – 1975. Stanford: University Press. Mauro, P., Medas, P. & Fournier, J-M. 2019. The Cost of Corruption, in Finance and Development. Washington: International Monetary Fund. Republic of South Africa (RSA). 2012. National Development Plan 2030. [Online] Available at: https://www.gov.za/issues/national-development-plan-2030 [accessed: 27 July 2021]. National Treasury. 2010. Budget Review. [Online] Available at: http://www.treasury.gov.za/documents/national%20budget/2010/default.aspx [accessed: 27 July 2021]. National Treasury. 2021. Budget Review. [Online] Available at: http://www.treasury.gov.za/documents/national%20budget/2021/default.aspx [accessed: 27 July 2021]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2021 Inclusive Society Institute 50 Long Street Cape Town, 8001 South Africa All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute. DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of the their respective Board or Council members. Developmental fiscal and monetary policy By Prof William Gumede Associate Professor, and former Convener, Political Economy, School of Governance, University of the Witwatersrand; and former Senior Associate and Programme Director, Africa Asia Centre, School of Oriental and African Studies (SOAS), University of London; and author of South Africa in BRICS (Tafelberg) Abstract Developing countries often pursue persistent deficit spending which, over time, balloons into large national debts and sees the countries pay the price through rising levels of poverty, underdevelopment and financial instability. The result is that these countries pay the price in rising levels of poverty, underdevelopment and financial instability. This article examines the phenomena by considering lessons that can be learnt from selected international jurisdictions. It considers Japan, where the central bank adopted a strategy of reducing the volatility in the country’s currencies by building up large international reserves; Brazil, who in contrast prioritised growth rates to maintain support, which led to runaway inflation and budget deficits; Sweden, who maintained prudent monetary and fiscal policies to finance the welfare state; and Botswana, who’s prudent macroeconomic management reflects an African post-colonial exception. The lesson for the South African policy makers is that monetary policy is about balancing the competing objectives of economic policy: price stability, exchange rate stability and free capital mobility. Introduction Prudent macro-economic policy, especially the management of monetary, fiscal and public debt is more crucial in developing countries wanting to catch up to or surpass industrial countries in terms of development. In the postcolonial period many developing countries who genuinely pushed broad-based development fell short when they neglected fiscal and monetary discipline, undoing their development efforts. Unpacking the terms: “Fiscal policy” relates to the policy decisions on the levels of government spending, taxation and borrowing. Whereas “monetary policy” is the coordination of the supply of money in the economy to influence inflation, the value of the currency and employment. Many developing countries put little focus on curbing inflation, keeping exchange rates stable or managing public debt levels. Furthermore, they often allow large budget deficits, where expenses exceed revenue by huge margins. Milton Keynes in his General Theory made an argument for “functional finance”, the use of deficit spending to overcome “cyclical fluctuations in the economy” (Keynes, 1936). However, many developing countries by the 196os onwards pursued persistent deficit spending which over time ballooned into large national debts (Emenike et al, 2017). For example, by the 1960s many African governments had, on average, budget deficits of 30% of GDP. The Nigerian economist Bade Onimode writes that many African countries have, since independence from colonialism, experienced a “chronic balance of payments crisis” (Onimode, 2000). The economists John Healy and Mark Robinson say: “There was a fairly common pattern to African economic policy in the 1970s and early 1980s which included the following recurring features: the persistence of high and volatile public sector deficits, often financed from the banking system; failure to stabilise inflation, especially in the face of terms-of-trade shocks; lack of clear prioritisation of public expenditure and weak economic appraisal of investment together with overvalued exchange rates” (Healy & Robinson, 1992). Chronic balance of payments crises undermine development Many developing countries also mismanaged their balance of payments situations (Ocampo, 2016). The balance of payments being the record of all transactions between the residents, firms and government of a country and the rest of the world. There are three parts to this record: a current account, a capital account and an official financing or balancing account. The current account is the balance of trade, which includes both government and private sector payments and the earnings on foreign investments excluding payments made to foreign investors and cash transfers. Whereas the capital account is sales and transfers of contracts, ownership of fixed assets and patents. The financial account is the transfers of financial assets and liabilities between residents and non-residents, including banking flows – hot money, portfolio flows – debt and equity and foreign investment flows, and official reserves. Developing countries often struggle to manage their budget deficits, current accounts and their exchange rates. Setting developmental interest rates – which promote the outcomes set out in the national industrial or developmental plan, keeping inflation manageable and setting sustainable exchange rates are crucial for development. Moreover, public spending is often not disciplined and in many cases developing countries do not use taxes towards increased development. The result is that they pay the price in rising levels of poverty, underdevelopment and financial instability. Therefore, the challenge for many developing countries is “balancing the competing objectives of economic policy: price stability, exchange rate stability and free capital mobility” (Nassif et al, 2011; Williamson, 2008; UNCTAD, 2011; Rodrik, 2008). Furthermore, the Brazilian economist Luiz Carlos Bresser-Pereira points out how “the experience of the East Asian countries has demonstrated, keeping the budget deficit as well as the current account under control is a necessary condition for keeping the macroeconomic prices right and the macroeconomic aggregates balanced” (Bresser-Pereira, 2017). Naturally then, when developing countries pursue expansionary fiscal policies – whereby they increase public spending to stimulate aggregate demand in the economy – ill-discipline results in unchecked government spending, which may cause harm including rising inflation and crowding out private investment. Developing countries often increase public spending to levels where they end up increasing the budget deficits. The government spends more than it collects in revenue and grants, thereby running a budget deficit, resulting in macroeconomic imbalances. Unless the budget deficit is covered by private savings, it creates a current-account deficit withthe rest of the world, obliging the country to borrow to finance said deficit. If the government cannot finance the deficit by borrowing, pressure builds to finance it through depreciation of the national currency. Depreciation then leads to greater exports and, hence,reduces the current-account deficit. The problem with this is, firstly, that many developing countries export single commodities, with prices dependent on demand in buying countries. Secondly, depreciation may lead to inflation, which cuts purchasing power. Another issue is that developing countries often hold their currency at too high a rate for the state of the economy, meaning the country’s exports are more expensive than its imports. And during periods of low growth, an overvalued currency is bad for the economy. Brazil, for example, experienced overvaluation of its currency for most of the mid-1990s period. It has worsened now because many industrial country investors move their money to developing countries when interest rates in those countries are low, to seek higher investment returns. Then, when interest rates increase again or during times of economic and political uncertainty within those countries, the investors move their money out to avoid losses. Post-Second World War macroeconomic management success in Japan For a brief period following the Second World War, during the occupation of the country, the operations of the Bank of Japan (BOJ), the central bank, was suspended and a special military currency used in the country. The bank was restructured in 1949 and began to play its central developmental role in Japan’s post-war economic miracle. The BOJ operated with reasonable autonomy during the post-war period, although critics throughout have criticised it for being too independent (Horiuchi, 1993). Many East Asian developmental states have been successful in reducing the volatility in their currencies by building up large international reserves (Aizenman & Ito, 2014; Rodrik, 2008; UNCTAD, 2011). Many of these states, such as South Korea, Malaysia and Singapore, pegged their currencies to a basket of currencies. In the post-war period, Japan focused its monetary policy on promoting “export- and investments-led growth”, focussing determinedly on ever-diversified exports. A pillar of the BOJ’s monetary policy was called “window guidance”, in which the central bank gives credit quotas to commercial banks, which they must channel to specific industries prioritised by government as growth sectors (Cargill, Hutchison and Itō 1997; Werner 2005). The BOJ would directly communicate the industries that should get quicker loans, thereby directly influencing the activities of commercial banks. Japan’s Ministry of International Trade and Industry (MITI) was one of the key institutions in setting fiscal policy. MITI managed the allocations of foreign exchange to companies, with which they bought raw materials or equipment. Government subsidies to prioritised industries were also crucial to expand industrialisation. To secure foreign exchange, companies had to, in return, support the government’s export and investment-led strategy (Pham, 2017). Many Asian economies, more recently including China, have copied the Japanese monetary policy of “window guidance” as “an effective tool to control the total volume of credit to financial institutions” and to “regulate the growth rates of money and investment spending more easily” (Pham, 2017). In the two decades before the collapse, in 1971, of the Bretton Woods System of linking currencies to the value of gold, the Japanese currency was fixed at 360 yen to the US dollar. The collapse of the Bretton Woods System caused the Japanese currency to appreciate sharply. Japan then devaluated its currency, and in 1973, set a floating exchange rate with the mission to stabilise the exchange rate. In the immediate post-war period, Japan’s external current account had large deficits which were financed by US aid. The country also experienced hyper-inflation. “Monetary policy faced difficulty in pursuing two contradictory purposes at the same time, namely stimulating investments to restore supply capacity and depressing the hyper-inflation” (Suzuki, 2017). During the same period, Japan rolled out a massive infrastructure rehabilitation and expansion programme. In addition, the government had to make large payments in reparations for damage it inflicted during the war – both of which were financed by government bonds, underwritten by the Bank of Japan (BOJ). The government formed the Reconstruction Public Finance Corporation in 1947, underwritten by the BOJ, to issue bonds to state-owned entities for industrial rebuilding. Private businesses also expanded dramatically, borrowing from private banks to finance their expansion. The BOJ provided lending to private banks who in turn provided lending to private firms. Importantly, the country’s savings were channelled into investment projects (Hamada & Kasuya, 1992). The government provided subsidies to crucial sectors, called “priority production system” (Hamada & Kasuya, 1992). By 1948, such subsidies came to 24% of the country’s general account (Hamada & Kasuya, 1992). These subsidies were financed by the Bank of Japan and also increased inflation. The Japanese government had a Trade Financial Special Account which sold crucial imports at a much lower price than the international prices. This was subsidised by the BOJ. This also caused additional inflation. There were strong arguments for deficit budgeting – which was rejected In 1946, then Fiscal Minister Tanzan Ishibashi, in his budget speech, basing his argument on Keynes General Theory, argued: “In order to achieve the goal of resuming production there is no harm if government deficits occur. Since both capital stock and labour force were clearly underemployed, the problem was simply that bottleneck factors such as the lack of raw materials from overseas stood in the way” (Hamada & Kasuya, 1992). The government until the 1950s maintained a balanced of payments equilibrium, maintaining similar levels of investments abroad to foreign investment locally. During this period, infant industries became competitive. Japan, from the 195os to the 1970s, undervalued its currency in relation to the US dollar. Furthermore, throughout the post-Second World War period, Japan undervalued its currency to encourage export manufacturing. Then, from the 1970s, the focus became currency stability (Green, 1990). The government regularly intervened in the market to either buy or sell dollars to gain that stability. Furthermore, the government regulated capital flows (Hutchison, 1984; Suzuki, 1986). Japan’s current account was in surplus since 1968. The country accumulated large foreign reserves and the country’s citizens were encouraged to save. Until 1965, the Japanese government implemented a balanced budget principal. Then, in 1965, the Japanese economy experienced a recession. The government for the first time introduced an expansionary fiscal policy, financing a budget deficit with a national bond (Takagi, 2015). The government maintained price stability – targeting inflation at 5.5% per year. The export growth focus provided a surplus in the country’s balance of payments with the world, and foreign investment was introduced selectively in targeted industries. However, capital liberalisation, whereby foreign companies could enter unencumbered, was only introduced in 1973. From 1966 to 1973, the government financed a deficit on the capital accounts, through the issuing of a national construction bond. The government also built up foreign exchange reserves which, by the early 1990s, totalled over US$100bn – a record amount for the IMF (International Monetary Fund, N.d.). During the period leading up to 1990, Japan’s currency was knocked by three international crises. In 1971, the US withdrew from the Bretton Woods System which pegged the US dollar to the value of gold. This caused an appreciation in the yen, which had been under a fixed rate to the value of the US dollar. The government responded by depreciating the currency and adopting a free-floating currency exchange policy. During the first oil shock, in 1972, Japan’s balance of payments accounts declined. This put pressure on the value of the currency, and so, the government restricted capital outflows (Green, 1990). The first oil crisis in 1973 exposed the deficit financing through national bonds. All throughout Japan’s high growth period, the government used monetary policy as a counter cyclical tool to encourage growth, rather than fiscal policy (Funabashi, 1988; Ito, 1987 and 2003; Takagi, 2015). Another shock to the Japanese yen was the Plaza Accord and Louvre Accord of 1985-1987, which again appreciated the value of the dollar. Between 1980 and 1985, there was a dramatic appreciation of the dollar against the currencies of the major industrial countries – almost 50% against the Japanese yen. All as a result of the US Federal Reserve System fighting stagflation, which hounded the US dollar in the 1970s (Frankel, 2015). However, the intervention went belly-up when the dollar became overvalued (US Department of Treasury, 1983). In 1985 the Ministers of Finance and central bank Governors of the G5 countries – the US, Japan, Germany, France and the United Kingdom – signed the Plaza Accord, which agreed on a planned devaluation of the dollar, with the other countries coordinating their activities with that of the US central bank. By the time of the Plaza Accord the US economy was in recession, its current-account deficit was at 3.5% of GP and its exporters uncompetitive. The intervention helped to narrow the US trade deficit with major industrial countries. By 1987, the devaluation of the US dollar had now decreased the value of the dollar against the yen by 51%, and Japan had restrictions on imports. The appreciation of the yen forced the country to respond with an expansionary monetary policy. It increased the money supply, lowered interest rates and decreased the value of the yen – to increase aggregate demand, the total use of goods and services in the economy. However, this in turn caused an asset price bubble, deflation and low growth. The combination of these would become known in Japan as the Lost Decade (Obstfeld, 1990). In 1987, the US industrial country partners signed the Louvre Accord to stop the devaluation of the dollar. In a coordinated approach, the US would in 1988, reduce its deficit to 2.3% of GDP, cut interest rates and cut government spending by 1% (US Department of Treasury, 1983; Krugman, 1991). All four of Japan, Germany, France and the UK would cut interest rates, reduce public spending and taxes. Japan would reduce its trade surplus. Throughout the period, the Japanese government emphasised currency and price stability. The government maintained a low interest rate policy throughout the high growth phase and contained inflation. It also eschewed used tax increases to finance budgets and channeled savings to support targeted export manufacturing, infrastructure and housing. Lessons from Japan Independent central bank, the Bank of Japan (BOJ) Developmental monetary policy prioritised export- and investment-led growth Ministry of International Trade and Industry (MITI) set fiscal policy Monetary and fiscal aligned to prioritise export and investment-led growth Throughout Japan’s post-Second World War high growth period, monetary policy was used as a counter cyclical tool to encourage growth, rather than fiscal policy The BOJ provided lending to private banks who in turn provided lending to private firms Throughout the post-Second World War period, Japan undervalued its currency to encourage export manufacturing The government regulated capital flows Until 1965, the Japanese government implemented a balanced budget principle Only in 1965, when the economy was in recession, an expansionary fiscal policy was introduced, financing a budget deficit with a national bond The government maintained price stability throughout the postwar period, targeting inflation at 5.5% per year Capital liberalisation, whereby foreign companies could enter unencumbered, was only introduced in 1973 From the 1970s currency stability became the focus Persistent balance of payment crises undermined Brazil's post-Second World War development In Brazil, the military took power in 1964 and ruled until 1985. The military governments prioritized high growth rates to maintain support. The high initial growth rates – from 1960 to 1980, came through state investments in infrastructure, telecommunications, mining and atomic energy. It was dubbed the Brazilian Miracle. The high economic growth rates came with high inflation and large budget deficits. From 1981 to 1994, growth slowed down, and was accompanied with hyperinflation and large deficits (Ayres et al, 2018). Throughout the period from 1960 to 1994, Brazil’s central bank was not independent (Ayres et al, 2018). Brazil fell into a balance of payments crisis in early 1970s, as global demand for its commodities slumped because of slowdowns in industrial country economies buying its commodities (Ayres et al, 2018). The government pursued import substitution industrialisation, economic diversification and self-sufficiency. The import of products that were already locally produced was restricted. The costs of this conversion were paid by foreign loans. The plan was that over time a structure in the economy would materialise, whereby more local products would be produced for export, and the foreign earnings would pay for the accumulated debt. The Brazil government ran a large current account deficit. In 1973, the deficit was US$1.7bn and by 1980 it was US$12.8bn. Foreign debt became more expensive to repay because of higher interest rates charged by lenders. In the 1960s Brazil introduced what it called “indexation”, in which it tried to align prices, interest rates and wages, to past inflation levels, to keep inflation constant across the economy. This, in the absence of firm monetary policy, actually increased inflation (Ayres et al, 2018). By the mid-60s until the early 1970s, the government increased taxes to plug deficit holes, including introducing value added tax (VAT). Until 1964, Brazil had no official central bank. The Treasury implemented monetary policy through the Bank of Brazil, which was a state-owned bank, while at the same time being a commercial bank (Ayres et al, 2018). The government had in 1945 established a Superintendency of Money and Credit (SUMOC) committee, with powers over monetary policy. The Bank of Brazil had majority seats on the SUMOC, giving it a controlling say over monetary policy. In 1964, the government created the Central Bank of Brazil (CBB). At the same time the government restructured the SUMOC into a National Monetary Council (CMN), which oversaw the central bank. The Central Bank of Brazil has been nominally independent, however, in 1994 the bank was given formal independence, and put fully in charge of monetary policy (Ayres et al, 2018). By 1983 Brazil had the largest foreign debt of any country in the world – standing at US$92bn. The government responded by hiking interest rates to record levels, and Brazil’s terms of trade – the ratio between a country’s export prices and import prices – deteriorated by 10% between 1971 and 1979. The 1973 oil crisis, in which the price of oil spiked, hit the economy badly. In addition, the US ran up large budget deficits in the early 1970s, of US$200bn annually, which forced its main trading partners to increase interest rates. Developing countries such as Brazil with very high foreign debts struggled to pay interest on their debts because of the higher interest premiums. Worse, Brazil imported large numbers of products, from machinery, components and raw materials. Efforts to diversify local production of at least consumer goods were pedestrian. The government also repeatedly devaluated the currency, which increased inflation. Low growth, high inflation and high interest rates caused the collapse of many local companies. The second oil crisis in 1979 gave the Brazilian economy another knock, increasing the foreign debt, as interests on repayments of foreign loans rose further, lowering the terms of trade and worsening the balance of payments crisis. Until then, the early 1980s, the government maintained its strategy to lift growth. However, as the debt accumulated, the government changed tack to foster trade surpluses, by pushing exports, and using the income to pay off debt. The 1982 Mexican debt crisis had a further knock-on effect on the Brazilian economy. The International Monetary Fund and Western commercial banks put pressure on the government to introduce a structural adjustment programme, adopted by the country’s legislature in 1983, which included reducing inflation, cutting wage increases and privatisation of state-owned entities. In 1994, Fernando Henrique Cardoso was elected president, and introduced a stabilisation programme, the Real Plan, with a new currency. Monetary policy was tightened, the new currency was anchored to the US dollar, and inflation was reigned in. Lessons from Brazil Military took power in 1964, ruled until 1985 In 1945 a Superintendency of Money and Credit committee was established, with powers over monetary policy Until 1964, Brazil had no official central bank In 1964, the government created the Central Bank of Brazil Throughout 1960 to 1994, Brazil’s central bank was not independent Treasury implemented monetary policy through the Bank of Brazil, a state-owned bank, operating as a commercial bank Import substitution industrialisation strategy, a trade and economic policy focusing on replacing foreign imports with domestic production The military governments prioritised high growth rates to maintain support Initial growth rates – from 1960 to 1980 - came through state investments in infrastructure, telecommunications, mining and atomic energy. It was dubbed the Brazilian Miracle. The high economic growth rates came with high inflation and large budget deficits. From 1981 to 1994, growth slowed, accompanied with hyperinflation and even larger deficits Overvalued currency in early 1970s undermined export 1970s oil crises caused a trade imbalance Heavy borrowing increased the current-account deficit Current account deficit financed through foreign debt Expected import substitution industrialisation with exports rising over time, which was anticipated to result in trade surpluses, failed In 1983, the International Monetary Fund and Western commercial banks pressured Brazil into a structural adjustment programme, resulting in the reduction of inflation, the cutting of wage increases and the privatisation of state-owned entities. Prudent macroeconomic management under Sweden's Rehn-Meidner economic model Left of centre governments in industrial countries – such as Sweden, which was governed by the Social Democratic Party – maintained prudent monetary and fiscal policies to finance the welfare state (Braconier & Steinar, 1999; Calmfors, 1993; Calmfors et al, 2001; Erlandsen & Lundsgaard, 2007; Forslund and Krueger, 1997). In 1951, Swedish trade union economists Gosta Rehn and Rudolf Meidner, at the Swedish Trade Union Congress, designed what would be called the Rehn-Meidner economic model (Rehn, 1952, 1969, 1977, 1982 and 1987; Meidner, 1952 and 1988), which was based on high growth, low inflation, full employment and income equality (The Swedish Confederation of Trade Unions [LO], 1951). The model was based on a “third away” between Keynesian, central planning and neoclassical economics. After the Second World War until the end of the 1970s, the Swedish model was “able to combine a relatively fast rate of GDP growth with full employment, considerable economic security, and a rather equalitarian distribution of income” (Lindbeck, 1997: 1273). The Swedish economist, Assar Lindbeck, who chaired what became the Lindbeck Commission - an inquiry in 1993 into the reasons for Sweden’s economic decline in the late 1980s and early 1990s - listed seven crucial institutional elements of the Swedish “third way” model. These are according to Lindbeck (1997: 1274): “ (a) large public-sector spending and high taxes; (b) a stabilisation policy, to foster full employment, with an active labour market policy as a tool; (c) government intervention to influence aggregate saving, credit supply, and investment, as well as their allocation, by public sector saving, capital market regulations, taxes, and subsidies; (d) strong central government control of local governments; (e) centralised wage bargaining on a national level; and (f) centralised decision making in the private sector, where a small group of large firms dominates on the production side and where the holdings of financial assets, including shares, are highly concentrated in a few large institutions, banks, insurance companies, and investment firms; with (g) the centralised private sector system being combined with a strong free trade regime.” At the heart of the Swedish model was a growth policy, based on disciplined macroeconomics, with price stability, but still advocating for fair wages, through using an active labour market policy. Immediately after the Second World War, a number of Western European Social Democratic Parties implemented Keynesian policies, which were “counter-cyclical” fiscal policies, by reducing spending and raising taxes during boom times, and increasing spending and reducing taxes during downtimes (Beveridge, 1944). These governments pursued expansive macroeconomic policies. They used expansionary fiscal policy by using their budgets to increase spending or cut taxes; and expansionary monetary policy through expanding the money supply through lowering reserve requirements, lowering interest rates and lowering the currency. In the Swedish model, applied during the country’s golden growth period from the late 1940s to the late 1970s, the “expansionary macroeconomic policy measures are combined with selective fiscal measures and with regulation to conquer inflation” (Erixon, 2010). For example, the Swedish Social Democratic Party reduced possible rising inflation, current deficits and overvaluation of the currency that would result from expansionary policy, by “regulation, including informal incomes policy, and by extraordinary fiscal measures” to “moderate price and wage increases in the most overheated industries” (Erixon, 2010). The Swedish central bank, the Riksbank, had both functional and institutional independence, and was one of the agencies that were directly reporting to Parliament (Commission of Inquiry, 2007). The country has a National Debt Office, a public entity reporting to Parliament, which ensures that government borrows prudently. The government used restrictive fiscal policy, particularly indirect taxes to hold down inflation. The country introduced consumption taxes – taxing people when they spend money on goods and services, rather than on income or profits, and devaluated the currency in 1949. “Sweden met actual and expected deficits in the current account with a devaluation of the krona, not with deflationary macroeconomic policy measures” (Erixon, 2010). Sweden in the 1950s to the 1970s began to coordinate wage bargaining, to protect weak industries and to manage inflation (Nickell et al, 2005; Johannesson, 1981). Although the model envisaged wage increases linked to productivity, and wage restraint during tough times, underproductive firms would necessarily go under (Rehn, 1982). However, the argument was that new industries would be created simultaneously through investments in new more market-relevant industries, active labour policies, including continuous industrially relevant training and social welfare (Gowan & Viktorsson, 2017). Wages are determined centrally through collective bargaining. This often resulted in uncompetitive and low-productivity firms, that were unable to afford the agreed wages, to collapse. More productive firms secured comparatively lower wages “than they would have to pay in a ‘free’ labour market” (Ryner, 2003). In the Swedish model, during recessions, a countercyclical fiscal policy, reducing spending and raising taxes during boom times, and increasing spending and reducing taxes during downtimes, was still part of the macroeconomic arsenal. In the model, during a recession the temporary use of budget deficits, moderating wage increases and selective employment subsidies in weaker industries are practical options. To prevent inflation, the government used prudent public finance management. It pursued strict fiscal policy, focusing on generating budget surpluses. Uncompetitive companies with high costs and poor price structures struggled, whereas highly productive companies, with favourable cost and price structures were advantaged (Erixon, 2010). Through effective coordination of the economy, the government continually shifted employees from low-growth to high-growth sectors (Blanchflower et al, 1995). The government managed an active labour market policy: comprehensive industrial skills, training, education, life-long adult-education programmes to cushion the “losers” (Erixon, 2010). Full employment was seen as unemployment below 3%. A core part of the Swedish welfare state was universal education, health and pensions. The model also has a high degree of gender equality, including in the labour market. Private property rights and the freedom of companies to trade internationally were pillars of the model (Bergh, 2017). Progressive taxation, including that on property, funded many of the welfare programmes (Lindbeck, 1997). During the 1950s to the 1970s, Sweden extraordinarily for the country’s size, had large global engineering firms – SAAB, Ericsson, SKG, Electrolux, Volvo and others – which by the 1960s had accounted for 20% of the country’s total exports. In the early 1970s there were criticisms that wage constraints in profitable firms meant that massive profits went to a small circle of private company shareholders and owners. The Swedish Trade Union Confederation (LO), ally of the Social Democratic Party, proposed the establishment of a worker controlled, “wage-earner” funds, which would be funded through taxes. The proposal would give trade unions a direct say in the investment decisions of listed companies. Organised business saw it as a “collectivism of corporate ownership” (Gylfason, 2020). The Swedish government established commission in 1973, proposing employees become shareholders over time. This would be done through setting up sector-based wage-earner funds which would get a proportion of company profits through shares. These funds would be managed by employees. Proportions of the proceeds of the wage-earner funds would be reinvested in their companies, used to finance research and specialist management training for employees, to provide them with the skills to run businesses. However, the wage-earner fund proposals were not implemented – as it faced opposition from employer organisations (Gowan & Viktorsson, 2017). More importantly, the disagreement over the wage earner proposals would collapse the famous Swedish tripartite consensus model (Lindbeck, 1997). Sweden was also hit by the 1973 and 1979 oil crises. The Bretton Woods System of fixed exchange rates, with the US dollar’s value fixed to gold, was ended in 1971, essentially collapsing the fixed currency system (International Monetary Fund, 1972-810). In addition, Sweden struggled in the new conditions to stabilise the value of its currency. The rise of Japan and East Asian developmental states now also provided competition to Swedish global manufacturing. Furthermore, the global recessions sparked by the oil and currency crises meant diminished markets for Swedish products – the Swedish economy faced headwinds (Erixon, 2010). The Swedish Social Democratic Party lost power in the 1976 elections; and only returned to power in 1982. A limited form of wage-earner funds was established in 1984, funded through “excess” profit tax over a 7-year period, rather than through acquiring company shares (Gowan & Viktorsson, 2017). It was not employee managed. The Swedish Social Democratic Party lost power again in 1991, and the funds were privatised by the new government post-1992, after the Social Democratic Party were out of power again. In the post 1970s oil crisis period, Sweden, whether governed by the Social Democratic Party, or the centre-right coalitions that took power for periods thereafter, struggled to maintain Sweden as an open, competitive economy. And amid the global economic crises, together with increased competition from the rising East Asian economies, they battled to maintain the social benefits of the welfare state, (Bergh, 2017). Until the early 1990s, successive governments tried to maintain the economy’s competitiveness through currency devaluations (Lindbeck, 1997). The policy of high marginal taxes to fund the welfare system, saw many high net individuals seeking ways to avoid tax; and at the same time generous welfare benefits discouraged many who could work from seeking work (Bergh, 2017). The support to companies to protect jobs often led to the cushioning of uncompetitive businesses. Rather than innovate to stay competitive, many companies sought government bailouts. Furthermore, wages increasingly rose above productivity increases, causing rising inflation. “Repeated currency devaluations led to both a lower living standard and investment-sapping uncertainty” (Bergh, 2017). Between 1991 and 1993, struck by the most severe financial crisis since Great Depression that hit several Scandinavian countries, the Swedish government instituted an inquiry into why the successful post-war model had faltered after three decades and how it could be refined for new times. Both the government and opposition parties accepted the criticisms and advice of the report and implemented its key proposals to modernise the Swedish welfare state (Gylfason, 2020). Lessons from Sweden “Third away” between Keynesian central planning and neoclassical economics Growth policy, based on disciplined macroeconomics, with price stability, but still advocating for fair wages, using an active labour market policy Expansionary macroeconomic policy combined with selective focused fiscal measures Combat possible rising inflation, current deficits and overvaluation of the currency that result from expansionary policy Through regulation, including informal incomes policy, fiscal measures taken to moderate price and wage increases Focused on generating budget surpluses Restrictive fiscal policy, using indirect taxes to lower inflation Dealt with expected deficits in the current account through a devaluation of the currency Actively coordinated wage bargaining to protect weak industries and to manage inflation During recessions, a countercyclical fiscal policy, reducing spending and raising taxes during boom times The temporary use of budget deficits during recessions, moderating wage increases and practical options such as selective employment subsidies in weaker industries Increasing spending and reducing taxes during downtimes part of the macroeconomic arsenal To prevent inflation, the government used prudent public finance management Central bank, the Riksbank, has been relatively independent and one of the agencies reporting directly to Parliament Botswana's prudent macroeconomic management is an African post-colonial exception Botswana is one of the few African countries since colonialism to pursue prudent macro-economic policy, especially the management of monetary, fiscal and public debt (Maipose, 2008). When Botswana became independent in 1966 it was among the poorest countries in the world, but through prudent economic management, the country achieved real GDP growth averaging 9 percent between 1965/66 and 2005/06. The country is now an upper middle-income country (Rodrik, 2003). Immediately after independence, Botswana borrowed from abroad, like many African countries (Maipose, 2008). However, the foreign loans were used for infrastructure, unlike in most African countries in the immediately post-colonial period. Botswana also immediately went searching for foreign investment, specifically to develop new industrial sectors (Maipose, 2008). Many African countries immediately after independence discouraged the entry of private investment, often nationalising or indigenising, replacing the owners, managers and employees with locals, frequently members of the governing party, not necessarily with the experience to manage sophisticated private sector firms (World Bank, 1989; Young, 1982; Elbadawi, 1996; Rosberge and Jackson, 1982; Ndulu & O’Connell, 1999; Collier & O’Connell, 2007). The government was also tougher on corruption than most African countries. In 1976, it enacted a law, the Finance and Audit Act, which made accounting and project officers personally liable for waste, misuse and stealing of public funds (Crisuoldo, N.d.). The government ran budget surpluses for 16 years since 1982; and only in 1998/99 ran up a budget deficit (Harvey, 1997; Gaolathe, 1997; Lewis, 1993; Mupimpila, 2005; Sentsho, Eds.; UNDP, 1998). It judiciously accumulated foreign reserves and used the savings from these to finance the budget deficits of the 1998/1999 and 2002/2003 financial years. The Botswana government has a National Employment, Manpower and Income Council which annually determines public service wage increases. The Council does this by taking into consideration the overall macroeconomic targets, including inflation levels, whether the country has a budget deficit and the levels of public debt. During budget deficit years, the government has capped public salary increases (Maipose, 2008). Like many other African countries, Botswana relied on a single or two commodities – in the case of Botswana, beef. This often causes “boom and bust” cycles, with revenue depending on the price and uptake of the commodity (Brautigam, 1996; Gaolathe, 1997; Hyden, 1983; World Bank, 1989). Since commodity prices are volatile, African economies have years of booms followed by recessions, depending on the global commodity price they export. In 1973, the Botswana government put together a long-term strategy which would build up reserves during boom periods to be used during downturns. The government planned much more competently than most other African governments. “The government explicitly pursued a counter-cyclical policy in the management of foreign exchange reserves and government cash balances, basing year-to-year spending decisions on the intermediate-term forecasts of export earnings and government revenue, and on a realistic view of spending capacity” (Maipose, 2008). Furthermore, the Bank of Botswana has exceptionally been one of the most independent central banks in Africa, where central banks are often appendages of the governing party or used by the leader as a private bank. It has been central to consistent exchange rate stability, low inflation and sustainable current account levels (Hill & Knight, 1999). The Bank of Botswana also judiciously invested commodity surpluses. Monetary and fiscal policies are tightly coordinated between the central bank and the Department of Finance and Development Planning to ensure alignment of objectives. The Pula has been consistently under-evaluated to “a level below the perceived equilibrium” (Maipose, 2008), to promote exports. In 1973, the Botswana government resolved to establish three funds to stabilise debt, reserve and to fund local development. In 1979, the Public Debt Service Fund (PDSF) and the Revenue Stabilisation Fund (RSF) were established. The main Revenue Stabilisation Fund became the repository of export surpluses to finance the budget during downturns. By 1995 Botswana had the highest domestic savings rate in Africa at 45% of GDP (Motsomi, 1997). In 1975 it was 16% of GDP (Motsomi, 1997). By 1984, all gross fixed capital formation, the acquisition of new fixed assets, minus disposals, by government, business and households were financed by local savings (Maipose, 2008; Motsomi, 1997). The Botswana government have maintained strict discipline in using the Revenue Stabilisation Fund only for the purposes of creating budget surplus during downturns and not for other things, as is the case in many African countries which set up such funds (World Bank, 1989; Elbadawi, 1996). The government also built up large foreign exchange reserves. “The high level of foreign exchange reserves is a result of a deliberate policy to accumulate as much as possible for unexpected changes regarding the balance of payments” (Maipose, 2008). The Public Debt Service Fund was to pay off public debt. It was financed by appropriations from the national budget, budget surpluses and the profits of investments that were made by the fund. The fund essentially, over time, became an investment fund, loaning funds to state-owned enterprises for the purposes of infrastructure, new investments and buying new stock. Subsequently, the government established the Domestic Development Fund to finance local development. Foreign funding was initially deposited into the Domestic Development Fund. Later, money specifically set aside for capital spending is also deposited into the fund. Development project proposals are evaluated by the fund, and if they meet the requisite standards, funds are disbursed (Maipose, 2008). Depositing donor money into a separate fund, dedicated to development, is also a departure from general African practice of donor funding going uncoordinated to different government departments and local projects (Brautigam, 1996; Gaolathe, 1997; Hyden, 1983; World Bank, 1989). Lessons from Botswana The Bank of Botswana has been one of the most independent central banks in Africa The central bank has been central to consistent exchange rate stability, low inflation and sustainable current account levels Botswana ran budget surpluses for 16 years since 1982 Only in 1998/99 did Botswana run up a budget deficit for the first time since 1982 It judiciously accumulated foreign reserves and used the savings from these to finance the budget deficits of the 1998/1999 and 2002/2003 financial years To ensure alignment of objectives, monetary and fiscal policies are tightly coordinated between the central bank and the Department of Finance and Development Planning The Pula has been consistently under-valued to promote exports Export surpluses finance the budget during downturns By 1995 Botswana had the highest domestic savings rate in Africa - 45% of GDP The government built up large foreign exchange reserves After independence Botswana borrowed from abroad, however the loans were used for infrastructure Botswana also searched for foreign investment, specifically to develop new industrial sectors The government was tougher on corruption than most African countries A National Employment, Manpower and Income Council determines public service wage increases on an annual basis The Council takes the overall macroeconomic targets, including inflation levels, whether the country has a budget deficit and the levels of public debt into consideration During budget deficit years, the government has capped public salary increases The government pursued a counter-cyclical policy in the management of foreign exchange reserves and government cash balances It based year-to-year spending decisions on the intermediate-term forecasts of export earnings and government revenue Developmental fiscal and monetary policy lessons for South Africa Developmental fiscal and monetary policy must, in the public interest, be done in partnership with social partners and be part of an overarching national industrial plan. Brazil during its period of high growth with inflation, balance of payments crises were run by dictatorship – and alternative policy voices were snubbed out. Botswana in the first two decades after independence was more inclusive in economic policymaking, bringing in government and business to cobble together macroeconomic policy. In Sweden, there was a partnership between government, labour and business to jointly strike developmental fiscal and monetary policies. Japan, Asia’s most democratic nation, struck up partnership agreements over economic policy between governing and opposition parties, and with business and labour. Macroeconomic policy must be aligned to and support the national industrial plan. It must focus on growth. However, successful broad-based development necessitates prudent macroeconomic policies. It needs fiscal and monetary discipline. This means keeping inflation at low levels, keeping exchange rates stable and sustainably managing public debt levels. Public spending has to be disciplined. Setting developmental interest rates, keep inflation manageable and setting sustainable exchange rates are crucial for development. Developmental fiscal and monetary policy is complicated, sophisticated and complex. It means the institutions that oversee fiscal and monetary policy must be staffed by competent people. There has to be the policy sophistication to deliberate on the appropriate policy solution, to correctly analyse the environment and to change tactics, when there are economic shifts. All of this demands coordination between the private sector, government and local and global markets. For government to be trusted by the markets, private sector and implementing government entities, it must be seen as credible, honest and competent. 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New Haven: Yale University Press. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This article has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2021 Inclusive Society Institute 50 Long Street Cape Town, 8001 South Africa All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute. DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of the their respective Board or Council members. CLIMATE CHANGE Challenge change: Transition to a sustainable economy By Yaseen Lockhat BA Geography (Honours); PGDip Planning, MSc Development Planning Abstract Humanity is experiencing an anthropogenic-induced climate emergency. Climate change is framed as an emergency due to the numerous catastrophic physical risks, which are increasing over time. A global response is needed to address the challenges posed by climate change. It will require redesigning many sectors and activities of the economy to reduce its environmental impact, in particular the energy sector which is responsible for a significant amount of the total emitted carbon. The transition to a low-carbon economy is a complex process due to the magnitude of the shift and the dependencies of the economy on the activities that need to change, thus the transition also poses a severe risk. However, the benefits of transitioning far outweighs the costs. It is vital for South Africa to have a holistic climate change strategy, as the country is susceptible to both physical and transitional risks. Introduction Climate change can be described as one of the single greatest challenges that humanity has ever faced. It poses a highly complex challenge due to its interconnected and multifaceted nature. Climate change is a consequence of certain activities within the current societal and economic systems, yet at the same time it negatively impacts these very same systems. Thus, climate change needs to be addressed methodically as it is embedded at a universal level within the global systems people are dependent on. The one thing that is guaranteed by both climate change and climate action, is change. Whether there is climate action or inaction, there will be drastic changes. Humanity is however at a point where the change can be influenced for the better. The globe is faced with a choice. It can either focus efforts on transitioning to a sustainable economy that will ensure a high quality of life for future generations or decide not to respond to climate change, which may result in short-term gains that will be eroded by the rapid deterioration of the physical environment. However, both climate action and inaction pose risks, and this is particularly true for South Africa. This paper will explore the physical risks posed by climate change, the physical risk posed to South Africa, the global response to climate change and its challenges, the South African context, and conclude with recommendations for the country. Climate change of the Anthropocene There is an overwhelming scientific consensus that climate change is driven by anthropogenic activities (Oreske, 2018). Whilst climate change as a process is a cyclical phenomenon that is undoubtedly a part of the earth’s natural climatic process, it was previously thought that humans do not have the capacity to alter or influence a system as large as the earth. However, since the industrial revolution, technological improvements led to the acceleration of greenhouse gas (GHG) emissions, most notably carbon dioxide through the burning of fossil fuels and land coverage change, most notably deforestation. These two shifts, albeit land coverage change to a lesser extent, have led to the drastic increase of heat retained in the atmosphere and ultimately the acceleration of the climate change process (IPCC, 2007; IPCC 2019). Scientific consensus is demonstrated through the Intergovernmental Panel on Climate Change (IPCC), a global body established by the United Nations to consolidate various climate change studies, from hundreds of scientists across the globe, into assessment reports that shed light on climate change ‘implications and potential future risks’ and to suggest ‘adaptation and mitigation options’ to governments and policymakers (IPCC, 2021). The IPCC reports are cited for their credibility as ‘In the scientific community and media, its reports are broadly viewed as the most comprehensive and reliable assessments of climate change’ (DW, 2019). In 2018 the IPCC produced the ‘Special Report Global Warming of 1.5°C’ on the need to curb emissions to 1.5°C above pre-industrial levels. The report is authored by 91 experts from over 30 countries including South Africa. The report paints a bleak picture of the current climate change risk trends, as it reveals that anthropogenic activities have already resulted in climatic changes. Moreover, the IPCC report further reveals that climatic changes will increase, and the associated risks will be exacerbated as global warming continues, with the report emphasising that a mere half a degree of warming may result in significant changes. For example, Dosio et al., (2018) found that at 1.5°C, 13.8% of the global population will experience an extreme heatwave once every five years, whilst this percentage may drastically increase to 36.9% of the global population at 2°C warming. Climatic change will not be evenly distributed as certain regions will warm at higher rates than the global average and consequently, as seen by the example citing Dosio et al., (2018) these areas will likely experience more severe extreme climatic events. This is further reinforced by a study by Arnell et al., (2019) which found that there is an increase in frequency across climatic events when average temperatures increase. Thus, this phenomenon is not unique to heatwaves but is also true for other extreme weather events such as drought and flooding. Figure 1: Climate risks of a 1.5°C change compared to a 2°C change (Source: World Wide Fund for Nature, 2018) Climate change in Southern Africa According to the IPCC ‘Special Report’ (2018) Southern Africa warms at twice the rate of the global average. This means that if the globe warms by an average of 1.5°C, Southern Africa will experience an average rate of 3°C warming. As temperatures increase, Southern Africa is expected to experience drier, warmer conditions with an increase in rainfall variability, and of consequence, an increase in extreme weather events that are linked to these climatic changes (IPCC, 2018; Miller et al., 2020). A closer examination of South Africa indicates that the west of the country may become drier and experience an increase in drought, whilst the north-east of the country may experience an increase in ‘extreme rainfall events’ such as flooding and cyclones (IPCC, 2018; Vogel, 2019; Engelbrecht, 2020, cited in Arnoldi, 2020; Mbokodo et al., 2020). Of particular concern is the threat climate change poses to South Africa’s water security, as the country is already classified as a water stressed country that is ranked as the 30th most arid country (GreenCape, 2020). Physical climate risk Climate change will result in a plethora of physical climate risks and the paradox is that human activities are responsible for climate change, and yet it is also negatively impacted by climate change. In certain instances, this can be the same activity, for example there are agricultural practises that contribute to climate change, such as clearing forests for farmland, and yet agriculture is also impacted by climate change as the changing climatic conditions may result in lower yields (Dean and Green, 2019). The following are examples of risks that are directly attributed to the physical risk of climate change: food insecurity may increase – as shifting weather patterns decrease arable areas; risk to health and physical wellbeing – as more people are exposed to extreme weather events; and financial risk – as it may disrupt business supply chains (Chersich and Wright, 2019; Nhamo et al., 2019; Mbokodo et al., 2020). Often these issues affect the most vulnerable groups and thus may exacerbate poverty, inequality, and other socio-economic issues. The climate change response The scientific body of climate change literature is enhancing and growing and is thus improving the understanding of the physical implications of climate change. In addition, more climate risks are materialising, as risks move from perceived risks to actual occurrences. Thus, the need to respond (to climate change) has become more urgent. The World Economic Forum’s (WEF) annual risk ranking report The Global Risk Report (2021) is dominated by environmental risks that are linked to climate change. The report ranks ‘extreme weather’ as the number one global risk in terms of likelihood, the second is ‘climate action failure’ and the third is ‘human environmental damage’. Only one of the top five risks in terms of likelihood is not classified as an environmental risk, and that is the risk of ‘infectious diseases’, which is ranked fourth. This is profound as even during the global Covid-19 pandemic, climate change poses the greater material risk. A similar trend is observed in the report’s risk impact ranking, with three of the top five risks classified as environmental risk related; ‘climate action failure’ is ranked as the risk most impactful after the risk of ‘infectious disease’. Lately, scientific consensus has broadened to agree that the world is in a climate emergency, which is further testament to the severity of climate change and the need for urgent action (Fischetti, 2021). Figure 2: World Economic Forum Global Risk Report (2021). In response there is a global effort to address climate change and in recent years this effort has intensified. At a global level, the Conference of the Parties’ (COP 21) Paris Agreement (PA) has been instrumental for action against climate change. The PA is a global, legally binding agreement signed in 2015 that commits signatory countries to reduce their carbon emissions and to adapt to the changes that are brought about by climate change. The agreement was signed by 195 countries, including South Africa, who are required to submit a National Determined Contribution (NDC) report, which is a framework document that outlines how a country will achieve their PA targets for both emission reduction and climate adaption. The ‘ratchet mechanism’ within the PA requires countries to update their NDCs by increasing their climate action ‘ambition’, once every five years. Other aspects of the PA cover financing, transparency and loss and damages (United Nations, 2015). Climate action: Adaption vs mitigation As demonstrated in the PA, climate change can be addressed via two methods namely, climate adaption and climate mitigation. Mitigation is described by the IPCC (2014, p.4) as ‘a human intervention to reduce the sources or enhance the sinks of greenhouse gasses’. The PA requires countries to reduce their emissions so that global warming is kept below 2°C above pre-industrial temperatures. However, it does encourage countries to preferably limit warming to 1.5°C. To achieve their commitments to the PA, countries must embark on a transition away from high carbon intensity. Countries will need to develop mitigation pathways to transition various sectors of the economy over time. Most countries are focusing their mitigation efforts on the decarbonisation of the electricity sector, as the electricity sector is one of the largest sources of carbon emissions, primarily through the burning of fossil fuels (EEA, 2017; Markard, 2018; Doh, Budhwar and Wood, 2021). In addition, technological advancements in renewable energy, battery storage, and other related infrastructure are further driving the energy transition, as improvements and wide-scale adoption has led to a sharp decrease in the costs of renewable energy (WEF, 2019). Transitioning to a low or a decarbonised economy adds to the complexity of climate change, as the process poses significant risks, which is termed ‘transitional risk’ (CISL, 2019; Oliver Wynman, 2019). Transitional risks may manifest through the following (CISL, 2019): - Policy and regulation May increase the cost of carbon intensive business activities, for example the implementation of a carbon tax. - Consumer preferences Consumers and clients opting for ‘green’ alternatives, for example individuals preferring electric vehicles over petrol- and diesel-powered vehicles. - Technological advancements Innovation disrupting ‘traditional’ activities/sectors. - Reputational damage Stakeholders litigating against, disassociating from, or disinvesting from organisations linked to climate change. The transition These risks are most likely to affect individual companies, but it can result in systemic risk if there is a disorderly transition. A disorderly transition can be characterised as a transition that occurs as a set of events that unpredictably and suddenly result in the limiting of emissions or other restrictions on carbon intensive activities. Whilst an orderly transition can be characterised as a transition that occurs steadily according to a long-term plan that outlines the country’s transition strategy (UNEP Finance Initiative, 2021). An orderly transition strategy (roadmap) may be based on a climate scenario coupled with a study that considers when various mitigating technologies become technologically and financially viable to optimally limit emissions in a manner that is least disruptive from a socio-economic perspective. Transitional risk is of particular concern for countries that have a concentration of carbon intensive sectors, including financial institutions with portfolios that have a significant percentage of assets in carbon intensive sectors/activities. Whilst there is risk with the transition, the cost of not transitioning will be far more costly. A study by Swiss RE (2021) indicates a correlation between the rise in global temperatures and economic contraction. With a 2°C increase in temperature, it is predicted that the global gross domestic product (GDP) will contract by 11%, whereas at a 3.2°C rise the global GDP is expected to contract by 18.1%. On a regional basis, the Middle East and Africa are predicted to fare worse than the rest of the globe, with an estimated 14% contraction of its GDP with a 2°C increase, and an estimated 27.6% contraction with a 3.2°C increase. The role of financial institutions in the transition The financial sector plays a critical role in addressing climate change, and thus far this paper has only explored the relationship between climate change and financial risk. But transitioning to a low carbon economy also presents an opportunity for the financial sector, as the process requires significant investment and financing. It is estimated that a global investment of between $1.5 trillion and $2 trillion is needed annually for the next 30 years to achieve carbon neutrality. This represents 1.5% of the world’s combined GDP. That said, it is a fraction of the cost when compared to the cost of allowing climate change to increase to temperatures beyond 2°C (Turner, 2020). To assist the financial sector with navigating through the transition and climate change, the Basel Financial Sustainability Board developed the Task Force on Climate-related Financial Disclosures (TCFD). The purpose of the TCFD is for companies to produce detailed information on their strategic and risk management processes in respect of climate risks and opportunities. The TCFD has created a set of recommendations, which focuses on four key operational areas, namely governance, strategic risk management, and metrics and targets. There is additional guidance for certain crucial sectors, including the financial sector. Ultimately, having credible and standardised disclosures will assist the financial sector in making better long-term decisions (for finance, investment, insurance and even disinvestment) (TCFD, 2021). The Just Transition It is vital for transitioning countries and companies to do so in a just manner. The ‘just transition’ is a concept that was first promoted by labour unions. The Just Transition Centre (2017, p. 3) describes the International Labour Organisation’s concept of a just transition as: ‘a bridge from where we are today to a future where all jobs are green and decent, poverty is eradicated, and communities are thriving and resilient. More precisely, it is a systemic and whole of economy approach to sustainability. It includes both measures to reduce the impact of job losses and industry phase-out on workers and communities, and measures to produce new, green and decent jobs, sectors and healthy communities.’ A just transition is recognised as a critical component to achieving a successful transition, as it addresses social sustainability risk that may emanate from the transition to a low carbon economy, and without a just transition, socio-economic issues will be exacerbated. Consequently, the notion of a just transition has been adopted by global multilateral organisations as well as within countries’, and even within companies’ strategic plans and roadmaps. Contextualising South Africa's response South Africa is in an invidious position with regards to climate change. On the one hand, the country is vulnerable to several physical climate change risks and on the other hand it is vulnerable to transition risk. South Africa ranks as the largest GHG emitter in Africa and the 14th-largest emitter in the world (McSweeney and Timperley, 2018), with 39% of the country’s total emissions attributed to Eskom (Full Disclosure, 2019) who burns fossil fuels, primarily coal, to generate most of the country’s electricity. Thus, a large part of South Africa’s transitional risk is linked to electricity and the coal value chain. A report by Climate Policy Initiative (CPI) (2019) indicates that South Africa lost an estimated $60 billion of coal export revenue between 2013 and 2017 and is susceptible to a further $120 billion of transitional risk, most of which is predicted to emanate from the loss of coal export revenue as countries transition their energy sector to align with the PA (CPI, 2019). Moreover, major sectors of the economy such as the agricultural, electricity, mining, and transport sectors are vulnerable to both physical and transitional risk, and consequently this places thousands of jobs at risk. These sectors contribute 22% to South Africa’s total GDP (Stats SA, 2021a) and employ 15% of the workforce (Stats, SA, 2021b). South Africa’s climate response predates the country’s signing of the PA. In fact, South Africa is seen as one of the most climate change progressive developing countries, as it has produced several pieces of policy and legislation in response to climate change. Most notably is the National Climate Change Response White Paper (published in 2011), which provides the basis for all other policy and legislation. However, despite the release of the White Paper, the country’s climate response decelerated from 2009 to 2018, as there have been several delays to key policies and programmes amidst political and economic turbulence (Averchenkova, Gannon and Curran, 2019). Despite these delays, the release of the Low Emission Development Strategy (LEDS) (2018), the implementation of carbon tax (in 2018), the drafting of the Climate Change Bill (first draft released in 2017), will all build on the White Paper, together with the recently released draft update of the NDC which was opened for public commentary. In addition to these policies the Presidency has established a Climate Commission, where a broad stakeholder base is focussing on creating a ‘just transition’ pathway to transition to a low carbon economy, and National Treasury (NT) has released a technical paper termed ‘Financing a Sustainable Economy’ (2020). A financial sector-wide Climate Risk Forum (CRF) is currently focusing on implementing the recommendations of the NT technical paper. The purpose of the CRF is to provide a financial sector-wide platform to address climate risk and other, non-competitive, climate issues that impact the financial sector. The CRF’s current focus is to give effect to the general recommendations of the technical paper, which is envisaged to increase the capital allocation to sustainable development and the transition to a ‘climate-resilient economy’ (Climate Risk Forum, 2020). The NT technical paper recommends the development of: · A sustainability taxonomy · Technical guidance for disclosures as per TCFD · The sectors’ competency and capacity (for both the financial and public sector) · A climate risk benchmark scenario · The sustainable finance landscape As indicated in previous sections of this paper, the finance sector should play a vital role in the climate response and thus the CRF is seen as a critical part of the process to address climate change and its associated financial risks in South Africa, including the provision of sustainable finance to enable the just transition to a low carbon economy. However, despite the establishment of the CRF and the aforementioned policies and initiatives, South Africa is yet to demonstrate an integrated and co-ordinated vision and response to climate change. By way of example, the Independent Resource Plan (IRP) 2019 contradicts the LEDS aim to achieve carbon neutrality by 2050, as the IRP 2019 includes coal in the energy mix post 2050 and allows coal-based power stations to be built until 2030 (Climate Action Tracker, n.d.). In addition, government seemingly wants to expand the country’s economic reliance on fossil fuels as the Department of Mineral Resources and Energy is seeking to promulgate the Upstream Petroleum Resources Bill (released in 2019), which aims to develop the country’s petrol and gas industries following discoveries of offshore gas fields (Reeler, 2021). Such a fragmented and misaligned approach increases the likelihood of a disorderly transition as well as heightened physical climate risk, where mitigation and adaptation strategies to minimise the socio-economic impacts may not be maximised. Conclusion South Africa has scope to enhance its climate response. But if South Africa does not adequately coordinate and address its carbon emission transition and build resilience to climate change, the country may be less competitive, as this may result in the marginalisation of the country on the global stage. To expand, as countries transition, so too will their consumption patterns and, thus, products, manufactured using fossil fuel energy or within countries that do not adhere to international carbon emission commitments, may be subjected to carbon tariffs when exported to compliant countries. South Africa should create an overarching transition strategy for climate change that describes a unified vision for South Africa’s decarbonisation, including the year when carbon neutrality is possible and under what supporting conditions (developed countries committed themselves to providing technological and funding support to developing countries for transition purposes in the PA). Most countries that have set a net-zero carbon goal intend to do so by 2050. Furthermore, South Africa needs a detailed roadmap which is more encompassing than the abovementioned LEDS. It should provide a detailed overview of the sectors and activities that contribute to climate change as well as the sectors and activities that are to be impacted by climate change. The roadmap should contain a detailed adaption plan for impacted sectors and a detailed mitigation strategy for contributing sectors. The mitigation strategy may be based on a study that details how best to transition these sectors and activities based on their economic and technological viability. For example, sectors may not be able to transition due to the lack of carbon neutral technology or the cost to implement such technology, whilst other sectors may require an electricity transition to enable their transition, such as manufacturing and electric vehicles. Therefore, as previously explored, the electricity sector represents a low-hanging fruit as it currently offers a viable transition pathway, which is attributed to the advances in renewable energy technology. The energy sector will be further shaped by advancements in green hydrogen technology as it progresses to a level where it will be a viable source of energy and where it, together with renewable energy, is expected to dominate energy sources globally. South Africa ought to capitalise on these opportunities given the country’s competitive advantage, due to its favourable climatic conditions, by producing renewable energy and green hydrogen. The roadmap should also leverage off work that is currently being undertaken, such as work by the CRF, the Climate Commission and the ‘Just Transitions Pathway Project’ that is being conducted by Business Unity South Africa and the National Business Initiative (National Business Initiative, 2020). The roadmap should combine the findings of all these studies into its strategy. In addition, the strategy should ensure that there is policy certainty, alignment and mainstreaming across all three spheres of government. There cannot be contradictory messaging from departments and all public programmes should align to the climate strategy, for example the department responsible for mining activities should not explore opportunities to increase the country’s coal mining capabilities, but rather it should align to the climate strategy and ensure that there is climate resilient mining infrastructure. This structured approach will allow for the management of an orderly transition, and ensure that there is a just transition, as it can pre-empt the sectors where there will be job losses, provide the necessary upskilling of human resources affected by the transition, and determine sectors where there will be job and economic opportunities. It is crucial for the roadmap to contain a cost analysis of the envisaged transition, as this will assist in allocating and assessing the finances required to undertake the transition, including the quantum of international funding support required. Government will not be able to solely finance the transition and thus would need to crowd in private and development finance by ensuring projects are commercially viable and sustainable. Where projects are not commercially viable and sustainable, government would need to access donor funding or employ innovative financing models, such as blended finance. This once again highlights the importance of finance in addressing climate change, but it also highlights the importance of a detailed climate change roadmap as it will provide credibility and certainty, and thus attract international investment and funding. This paper reinforces that both climate change and climate action will bring about significant change and risk. However, if carefully managed a transition to a low carbon economy can address the many climate change challenges and may even result in benefits that transcend the environment, as a just transition promotes social sustainability. Thus, an adequate climate response offers South Africa a chance to not only respond to climate change, but to also determine its own course of change. In doing so, it may result in solutions for many other challenges that the country is faced with such as the lack of energy security and the high degree of social inequality. Reference Arnell, N.W., Lowe, J.A., Challinor, A.J. and Osborn, T.J., 2019. Global and regional impacts of climate change at different levels of global temperature increase. Climatic Change, 155(3), pp.377-391. Arnoldi, M., 2020. Climate change will hit Africa much harder than other continents – panel. [online] Engineering News. 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Palgrave Macmillan, Cham. Reeler, J., 2020. Five years after Paris Climate Agreement, why is SA’s response to climate crisis so lethargic?. Daily Maverick, [online] Available at: https://www.dailymaverick.co.za/article/2020-12-08-five-years-after-paris-climate-agreement-why-is-sas-response-to-climate-crisis-so-lethargic/ [Accessed 20 May 2021]. Stats SA, 2021a. Gross Domestic Product (GDP), 4th Quarter 2020. Pretoria: Statistics South Africa. Stats SA, 2021b. Quarterly Labour Force Survey, 4th Quarter 2020. Pretoria: Statistics South Africa. Swiss RE, 2021. The economics of climate change: no action not an option. Zurich: Swiss RE Management Ltd. Task Force on Climate-Related Financial Disclosures. 2021. About the Task Force on Climate-Related Financial Disclosures. [online] Available at: https://www.fsb-tcfd.org/about/ [Accessed 28 April 2021]. Turner, A., 2020. The costs of tackling climate change keep on falling. [online] financial Times. Available at: https://www.ft.com/content/33bb3714-93cf-4af5-9897-e5bf3b013cb7 [Accessed 22 April 2021]. UNEP Finance Initiative, 2021. Decarbonisation and Disruption. United Nations / Framework Convention on Climate Change (2015) Adoption of the Paris Agreement, 21st Conference of the Parties, Paris: United Nations. Vogel, C., 2019. Living with 1.5 and climate change – what may it take? World Economic Forum, 2019.The Speed of the Energy Transition Gradual or Rapid Change? World Economic Forum, 2021. The Global Risks Report. 16th Edition. World Wide Fund for Nature, 2018. Climate Risks: 1.5° vs 2° Global Warming. [image] Available at: https://www.wwf.org.uk/updates/our-warming-world-how-much-difference-will-half-degree-really-make [Accessed 18 May 2021]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This article has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2021 Inclusive Society Institute 50 Long Street Cape Town, 8001 South Africa All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute. DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of the their respective Board or Council members. Judicial review: A constitutional imperative or a corrosive separation of powers? By Adv Wendy Andrew-Befeld Bachelor of Laws (LLB); Bachelor of Arts (BA); Communications Abstract This article explores the allegations of judicial overreach that have been levelled at the South African judiciary in recent years, by asking whether the judicial review that has taken place is the fulfilment of a constitutional imperative or a corrosive separation of powers in a young and vulnerable democracy? In answering the question, the fundamental building blocks of constitutional democracy are unpacked including the rule of law, the counter-majoritarian dilemma, and the separation of powers doctrine. These are examined with specific reference to the complex South African context, in which much has been achieved to ensure the liberties of our people, while far less has been done to meet their pressing socio-economic needs, in spite of one of the world’s most advanced, progressive and directional Constitutions. The role of the Judiciary in circumnavigating this complex landscape is examined with reference to various cases that have come before our courts and the country’s electoral system is identified as a key problem area. In the final analysis, the picture that emerges is one where the lines separating the powers have indeed been blurred. However, where this has occurred, it has been the line between the Executive and the Legislature. In spite of any allegations to the contrary, it is the Judiciary that has, succeeded in “staying in its lane” (author’s expression). Moreover, the Judiciary has been pivotal in ensuring that South Africa has remained true to the guiding principles and values enshrined in our Constitution (RSA, 1996) and fundamental to a healthy, robust constitutional democracy in service of all of its people. From a supreme Parliament to a supreme Constitution Prior to the advent of constitutional democracy in South Africa, the judiciary was effectively crippled. Constrained by the Westminster system of Parliamentary sovereignty, the courts were bereft of any powers of judicial review and confined to interpret and enforce legislation based on procedural issues alone. They were precluded from considering substantive questions of legality, merit or morality. As such, they were reduced “to a mere spectator over the injustices perpetrated under the apartheid legal order” (Ngcobo, 2016:8). In 1994, pursuant to multi-party negotiations aimed at ensuring a peaceful transition from oppression to democracy, “a deeply divided society” (RSA, 1993) formed a constitutionally democratic state founded on the values of human dignity, equality and freedom; the advancement of human rights; the rule of law; and the supremacy of the Constitution (RSA, 1996, hereafter referred to as “the Constitution”). The hallmarks of this new constitutional supremacy were a justiciable constitution entrenching the fundamental human rights of all South Africans in a Bill of Rights, and fully independent courts that would protect and uphold those rights. So how has South Africa’s constitutional democracy fared in the years since then? What has become of the dreams and hopes voiced by South Africa’s first democratically elected President, the late, great Nelson Mandela - and shared by so many ordinary South Africans? Protecting liberties but failing to provide necessities There can be no question that we have come a long way since the days of apartheid, when many South Africans were deprived of the most basic human rights, such as dignity, liberty and even the right to life. But there is also an inescapable reality to be faced and it is this: more than twenty-seven years after liberation from the shackles of apartheid, too many South Africans continue to suffer a cruel socio-economic fate - with no discernible end in sight. This is because although our justiciable constitution and our new independent judiciary has, by and large, succeeded in upholding and protecting our first generation, civil human rights, such as freedom and security of person, or freedom of speech, the state has fared much more poorly when it comes to dealing with our second generation, socio-economic human rights. These include those enshrined in section 26 of the Constitution, which provides for universal access to adequate housing; section 27, which provides for right of access to health care services, emergency medical treatment and sufficient food, water and social services; and section 29, which provides everyone with a right to both basic and further education. So, why has one of the world’s most advanced Constitutions (and Bill of Rights) which boasts a more expansive list of socio-economic rights than most others, imposes both negative and positive duties on the state in terms of access to and realisation of political and socioeconomic rights, and renders these socio-economic rights justiciable, rather than being merely directive, as is the case in most other Constitutions, nonetheless failed to adequately and properly fulfil its mandate as a transformative Constitution? How can it be that it has failed to meet the basic welfare needs of its most vulnerable citizens? The answer to these questions is no idle speculation. It matters a great deal. Not only because it addresses pressing political and socio-economic concerns in South Africa, but because it has much broader significance for the continent as a whole. As Fombad (2013) points out: “no region of the world presently endures the severe disparities between people’s rights and their realisation that occurs in Africa.” Furthermore, it is thought that a rights-based approach to social security is the best way to address disparities and as South Africa has one of the most constitutionally entrenched frameworks for protecting the right of access to social security on the continent, our Constitution has and will continue to be modelled (Fombad 2013). As we transformed from a turbulent past characterized by human rights abuses to the advent of a new Constitutional democracy, we did so determined to avoid the injustices of the past. Fundamental to our constitutional vision was a decisive break from the unchecked abuse of state power and resources virtually institutionalized by the apartheid regime. To achieve this, we adopted accountability, rule of law and supremacy of the Constitution as foundational values of our constitutional democracy. Moreover, we have what is widely acknowledged to be one of the finest constitutions anywhere in the world – one that was carefully and thoughtfully crafted, pursuant to an extensive public engagement process. It sought to ensure a strong, independent, effective judiciary and a modern, comprehensive and inclusive Bill of Rights that could serve as a benchmark for human rights everywhere. It was designed to protect its people from the injustices of the past and to pave the way to a brighter, well deserved future. So how did we get here? And what can we do to course correct? To answer these questions, we need to unpack the basic building blocks of our democracy in order to see what has worked and what has not. The essentials in the South African context Rule of law defined As a concept, the rule of law resists definition. “Like democracy, what precisely is meant by the term is deeply, perhaps essentially, contested” (Krygier, 2018:13). It has been defined in many different ways from a “sophisticated doctrine of constitutionalism, revealing law as the antithesis of arbitrariness” (Krygier, 2018:13), to the simple explanation that it requires government to act according to clear, general rules that are enforced via fair procedures in impartial courts. However it is defined, it prohibits the arbitrary exercise of power and serves as a restraint on the exercise of authority. Furthermore, in a constitutional democracy where the constitution is supreme, the rule of law applies to ALL – including state institutions and organs of state, whose actions must be lawful. It is also clear that the rule of law has both procedural and substantive attributes. The procedural component of the rule of law forbids arbitrary decision making. The substantive component requires that the state should respect an individual's basic rights. This is in accordance with the new constitutional scheme and is a radical departure from the previous apartheid regime, where legality was merely a procedural formality. The apartheid regime propagated the narrow, legalistic version of the rule of law in order to advance their authoritarian, race-based agenda. They succeeded in doing so as a consequence of the parliamentary sovereignty that prevailed at the time, rendering the judiciary powerless to counter substantive injustice. However, with the advent of the new constitutional dispensation and a supreme Constitution that has entrenched the rule of law as a founding principle, the Constitutional Court has made good use of the principle in a number of cases that have come before it. Soon after its inception, the Constitutional Court tackled the rule of law head on, in order to assess the constitutional validity of legislation. In Fedsure Life Assurance Ltd. and Others v Greater Johannesburg Transitional Metropolitan Council and Others 1998, the Court held that it includes, at a minimum, the principle of legality which requires: that all three branches of government act in accordance with the legal principles and rules that apply to them; that laws be clearly formulated and evenly administered by independent courts; and that self-help is inimical to a society based on the rule of law. In Pharmaceutical Manufacturers Association of South Africa and Another: In re Ex Parte President of the Republic of South Africa and Others 2000, the Constitutional Court found against the state, confirming that in terms of the rule of law, the exercise of public power by the Executive and other functionaries may not be arbitrary. Since those early days of democracy, the Judiciary has had many more opportunities to deepen, develop and further refine rule of law jurisprudence for the new South Africa, as case after case has come before the Constitutional Court, the Supreme Court of Appeal and the High Courts. Brought by political parties, Chapter 9 institutions, NGO’s and others, they have dealt with everything from signal jamming at the State of the Nation (SONA) address (Primedia Broadcasting and Others v Speaker of the National Assembly and Others 2016); to the forcible removal of MP’s from Parliament (Democratic Alliance v Speaker of the National Assembly and Others 2016); to an unauthorised withdrawal from the Rome Statute of the International Criminal Court (Democratic Alliance v Minister of International Relations and Cooperation and Others 2017); to a bitter fight between government and the TAC over antiretrovirals, in what would be dubbed “the judgement that saved a million lives” (Honermann & Heywood, 2012). The common thread running through all of these rule of law cases is that when all else fails, the Judiciary has not. More on that later. In any event, as Constitutional Court Justice Madala (2003) observed, the rule of law “is not the enemy of liberty but its partner” and as such, it was enshrined as a foundational value in section 1 of the South African Constitution. Section 1 of the Constitution states that: “South Africa is one sovereign, democratic state founded on certain values including the rule of law, accountability, responsiveness and openness”. The inclusion of the rule of law in the values-based opening section of the Constitution (s1(d)) is no accident and given the country’s dark past, characterised by tyranny, oppression and a distinct LACK of the rule of law, it is unsurprising that the framers of the Constitution sought to entrench the rule of law as a founding value of the new constitutional democracy. To ensure the enforcement of these values, section 2 of the Constitution (known as the supremacy clause), provides that the Constitution is the supreme law of the Republic; that any law or conduct inconsistent with it is invalid; and that the obligations imposed by it must be fulfilled. Section 8 of the Constitution provides that the Bill of Rights, which sets out all of our fundamental rights and freedoms, has supremacy over all forms of law and binds all branches of the state. Section 165 ensures an independent Judiciary, whilst section 167(4)(e), gives the court the power to ensure that Parliament fulfils its constitutional obligations and section 172 of the Constitution then provides that a court MUST declare any law or conduct that is inconsistent with the Constitution invalid to the extent of its inconsistency, thereby giving the courts the power of judicial review. These critical Constitutional clauses, thoughtfully conceived and articulated by the framers of our Constitution, make it patently clear that the judiciary is not only permitted to enforce the rule of law, but it is their specific constitutional duty to do so. Judicial review or judicial overreach? Judicial review may be defined as: “the power of the courts…to declare invalid and strike down legislation…not in conformity with the requirements of the constitution” (Du Plessis, 2000:229). Dennis Davis describes it negatively, as a process undertaken by unelected judges “empowered to overturn the will of a democratically elected and accountable legislature”. Therein lies a dilemma. How to justify censure of a democratic political system by an unaccountable institution? (Du Plessis, 2000: 230). This dilemma is debated wherever constitutional supremacy has been adopted but, according to Du Plessis (2000:230), the consensus reached is that judicial review is an essential part of the democratic process, and that the disadvantages are outweighed by the advantages of having judges perform an independent check on government. The process does however create tension between the will of the majority and the judges’ power of judicial review and this is known as the counter-majoritarian dilemma. The Counter-Majoritarian dilemma In S v Makwanye and Another 1995 the Constitutional Court - in opposition to overwhelming public support for its retention - ruled that the death penalty was unconstitutional and accordingly, abolished it. This case was a vivid demonstration of the type of tension that may arise when the will of the court is at odds with the will of the people but assertions “that democratic will is being overridden by unbounded judicial preference” (Dent, 2015:12) would be a step too far and notably counter to the current reality in South Africa. This is because, as Dent (2015:6) puts it, “the counter-majoritarian dilemma takes on a significantly different tone in the South African context”, which may be described as follows: Self-aware South African courts, particularly the Constitutional Court, balance pragmatism and principle in order to operate in a new democracy and further develop case law and common law in line with the fundamental values and principles of our Constitution. Moreover, it has become clear in recent years that the state capture so roundly complained of includes an element of what may be termed “legislative capture”. As the apartheid judiciary was once expected to quietly tow the legislative line, now our democratically elected legislative branch is expected to tow the party line. The people of South Africa have grown increasingly frustrated and angry as they have watched parliamentarians repeatedly sidestep their constitutional obligations, in order to curry favour with their political party, rather than the electorate they are mandated to represent. The reason for this is that our current electoral system is based on a closed list proportional representation (PR) system, whereby the electorate vote only for a party, rather than a person. The seats in the National Assembly and the provincial legislatures are then filled on the basis of this closed list, which cannot be altered by voters. At the end of the electoral process, these ranked lists are then used to fill the seats allocated to each respective party. It is this exclusively closed list system that drives Parliamentarians to place their party before their people in order to ensure their own political survival. As British MP Lord Acton famously remarked in his letter penned to Anglican Bishop Mandell Creighton, on April 5th, 1887: “Power tends to corrupt, and absolute power corrupts absolutely” (Dalberg-Acton, 1887). That is not to say that this is intended as an indictment of the ruling party per se – it is an indictment of a system poorly designed for self-interested human beings. It is a system likely to be abused by any political party and the end result is predictable. In any event, the repeated, unsuccessful attempts to oust President Jacob Zuma via no-confidence votes in Parliament during the course of 2015 and 2016 constituted a turning point for many South Africans. They came to view the majority of the members of the Nation Assembly as nothing more than partisan representatives of their political party, rather than representatives of the people and they began instead, to view the courts as their champion. This about face, where the Judiciary is increasingly viewed as the champion of a frustrated nation, and the best hope for the rule of law in South Africa, is particularly exemplified by the so-called Nkandla case (Economic Freedom Fighters v Speaker of the National Assembly: Democratic Alliance v Speaker of the National Assembly 2016) and a number of other cases, all of which render the counter-majoritarian dilemma in South Africa a rather distant concern at this point in the country’s political evolution. The Makwanyane case took place a long time ago, when the legislature had a clean slate and the judiciary had yet to prove itself. A lot has changed since then. It is nonetheless regrettable that our courts are increasingly required to preside over matters, such as the Nkandla case that would never have come before them, had the other two branches of government acted in compliance with their constitutional mandates. This has been a disquieting development in the context of already overcrowded court calendars and it is particularly unfortunate for the Constitutional Court, who, in a youthful democracy, has much to do in terms of interpreting legislation, and developing common and customary law, to “promote the spirit, purport and objects of the Bill of Rights” (RSA, 1996). Furthermore, it has led to an increasingly embattled judiciary upholding the rule of law, enshrined as a bedrock value in our Constitution, often in the face of opposition from the other branches of government, who have regularly accused the Judiciary of judicial overreach and breaching the separation of powers. The Separation of Powers Doctrine Separation of powers is the most ancient and enduring element of constitutionalism and it is a central construct of the constitutional democracy that we now enjoy in South Africa, pursuant to the adoption of the Constitution of the Republic of South Africa in 1996. The doctrine of the separation of powers is based on the assumption that power corrupts and separation of powers is essential to liberty and democracy. Charles Louis de Secondat, better known as the Baron de Montesquieu, was the first writer to give the principle paramount political importance in his seminal work on the subject, De l’Esprit des Loix (The Spirit of the Laws), originally published in 1748 (Montesquieu and Varnet, 1748). He continues to be considered the foremost authority on the subject to date. Montesquieu's thinking was underpinned by the idea that man, although rational, is led by his desires into “immoderate acts”, and “that every man invested with power is apt to abuse it and carry his authority as far as it will go.” (Montesquieu, 1748). Accordingly, the end result of the concentration of too much power is tyranny and the suppression of liberty. The Baron's prescription for preventing the abuse of power was that everything be done to ensure that power should check power. To guarantee the protection of liberty and freedom against tyranny and dictatorship, he therefore recommended the separation of powers. He strongly advocated both equality with and independence of the judiciary from the legislative and executive branches of government. The principle of the separation of powers is entrenched in the Constitution of the Republic of South Africa. In terms of section 165 of the Constitution, judicial authority is vested in the courts, which are independent and subject only to the Constitution and to the law, which they must apply impartially and without fear, favour or prejudice. The issue of judicial independence, as envisaged in section 165, is one of the main pillars of the doctrine of separation of powers. The judiciary serves as an important check on the other branches of government and should, therefore, be independent and beyond reproach. The Constitution furthermore established the Constitutional Court as the highest court in all constitutional matters and the final arbiter of decisions in the event of conflict of competence between the different spheres of government. Notwithstanding the guarantee of judicial independence that is enshrined in our Constitution, the South African judiciary still faces serious challenges. In the first instance, the judiciary must continue to fulfil its constitutional mandate whilst taking care not to encroach into the domain of either the executive and/or the legislature and in a newly democratic hybrid system of government, such as ours, this balancing act is no easy feat, as the case law indicates. In addition, the judiciary is subject to attack from many quarters, including the ruling party, who are increasingly challenged by both the citizenry of South Africa and the opposition political parties, all of whom look to the judiciary to ensure a fully functioning democracy based on the rule of law. In the early days of our democracy, the court noted in De Lange v Smuts NO and Others (1998: para. 60), that there is no universal model of separation of powers and that it is not absolute. However, Ackermann J observed that: Over time our courts will develop a distinctively South African model of separation of powers, one that fits the particular system of government provided for in the Constitution and that reflects a delicate balancing, informed both by South Africa's history and its new dispensation, between the need, on the one hand, to control government by separating powers and enforcing checks and balances and, on the other hand, to avoid diffusing power so completely that the government is unable to take timely measures in the public interest. Unfortunately, there has been growing concern regarding separation of powers. Some commentators claim the courts’ expanded role in upholding the rule of law, in recent years, is a legitimate consequence of the other branches’ failure to fulfil their constitutional obligations. On the other side of the ideological divide, there are those in the Executive and the Legislature who accuse the Bench of supporting opposition party politics and special interests in a new brand of “law-fare” (Ngcobo, 2016) and whilst healthy tensions between the branches are inevitable, “they must not be elevated to the level of a struggle for power because…rule of law will suffer and with it the administration of justice” (Madala, 2003:36). Judicial review: a legitimate consequence of a case of "law-fare"? According to Feliciano (1992:23), “judicial review is essential for the maintenance and enforcement of the separation of powers and the balancing of power among the three departments of government.'' Yet, it is also a limitation on the principle of the separation of powers in that by striking down laws or Acts of Parliament, the judiciary encroaches upon the functions of other branches of state authority, especially the function of the legislature. Therein lies the paradox of judicial review. In a democratic state that adheres to the rule of law, it is a paradox that gives rise to a tension between the judiciary on one hand, and the legislature and the executive on the other. The tension arises because the judiciary is empowered to decide on the legality of the conduct of the other two branches of government but as pointed out by Maswanganyi (2010:14-15), “if the rule of law is to mean anything, the executive and legislature must accept judges peering over their shoulders.” Not only is judicial review a routine part of a democratic society where constitutional supremacy is embraced, but section 172 (1)(a) of our Constitution specifically empowers the courts to act as guardian in respect of the protection and promotion of our constitutional values and principles against ALL who may violate them. As to whether the Constitutional Court’s efforts to uphold the rule of law has thus far constituted judicial review, as opposed to judicial overreach, the fulfilment of a constitutional imperative rather than a corrosive breach of powers, one has only to look at the ever-increasing list of jurisprudence on the subject. As it turns out, the Constitutional Court is to be commended for adopting a consistently careful, impartial and self- aware approach to the separation of powers and judicial review, and whilst it has made rulings that affect the executive and legislature, it has deferred to the other branches of government when appropriate to do so. In Soobramoney v Minister of Health, KwaZulu-Natal 1998, for example, the court demonstrated early on that it was impartial; had no intrinsic bias in opposition to the Legislature or the Executive; and would rule in the favour of either, if the application of law and the facts supported such a decision. In S v Dodo 2001, the court did just that when it held that although sentencing is a judicial function, a law prescribing a mandatory minimum sentence was not inconsistent with the separation of powers, as the legislature also has a responsibility in respect of sentencing. However, in Executive Council of the Western Cape Legislature v President of the Republic of South Africa 1995, the court held that it was inconsistent with the doctrine of separation of powers for Parliament to delegate its power to amend the laws to the President as head of the Executive. In Doctors for Life (2006), the court confirmed (in particular at paragraphs 37-38) that the constitutional principle of separation of powers requires that other branches of government refrain from interfering in parliamentary proceedings. In this case, the ruling was intended to serve as a caution to the courts that they too must observe the constitutional limits of their authority and should be careful not to interfere in the processes of other branches of government, unless to do so is mandated by the Constitution. Conversely, in our constitutional democracy, the Constitution is the supreme law and it is therefore binding on all branches of government including Parliament. When it exercises its legislative authority, Parliament must act in accordance with the limits of the Constitution. Furthermore, Section 167(4) entrusts the Constitutional Court with the power to ensure that Parliament fulfils its constitutional obligations. That brings us to the landmark case dealing with the Nkandla matter, brought before the Constitutional Court by the Economic Freedom Fighters and the Democratic Alliance against the National Assembly and Others in 2016, as a result of Parliament’s failure to hold then State President, Jacob Zuma, to account for refusing to comply with the remedial action prescribed by the Public Protector. As history has recorded, instead of facilitating the enforcement of the remedial action prescribed by the Public Protector, the National Assembly (Parliament) had effectively absolved the President for failing to comply and in so doing, the National Assembly had breached its constitutional obligations in terms of s55(2) and 181(3) of the Constitution (Economic Freedom Fighters v Speaker of the National Assembly and Others 2016). The rule of law and separation of powers were central to the Constitutional Court’s findings in this case and the Constitutional Court grappled with the issue of judicial review as never before. The apex court made it clear that it is the ultimate guardian of our supreme Constitution and its values; that the Constitution is binding on all branches of government; that the courts are constitutionally mandated to ensure all branches of government act in accordance with the law and fulfil their constitutional duties and obligations; and that remedial action is binding, not optional, because our constitutional order hinges on the rule of law. As the Honourable Chief Justice stated in paragraph 1 of the Court’s judgment: Certain values in the Constitution have been designated as foundational to our democracy…If these values are not observed…we have a recipe for a constitutional crisis of great magnitude. In a State predicated on a desire to maintain the rule of law, it is imperative that one and all should be driven by a moral obligation to ensure the continued survival of our democracy. The court held further, that no constitutionally or statutorily based decision may be independently disregarded without first having recourse to a court of law. To do so is to take the law into your own hands and is tantamount to self-help, which is inimical to the rule of law. However, as clear as the court was about constitutional supremacy and rule of law, it was equally careful to make itself clear vis a vis separation of powers, referring to the dictates of Constitutional Principle VI; appropriate checks and balances; and acknowledging that the Judiciary is just one of three branches of government and must be conscious of the vital limits on judicial authority and the Constitution's design to leave certain matters to other branches of government. This means that the judiciary should refrain from interfering in the processes of other branches of government, save for where such interference is mandated by the Constitution. The Chief Justice was clear. Where the Constitution entrusts a matter to a political branch of government, making the manner of fulfilment discretionary, it is not for the Judiciary to prescribe to that branch of government how to fulfil that obligation. The court’s role is simply to determine that fulfilment has taken place. The ruling in this case underscores the minority judgment in Glenister v President of the Republic of South Africa and Others 2011, wherein the Constitutional Court held that there are matters that, for good reason, are reserved for the political branches of government and judicial review merely ensures these branches undertake their constitutional obligations in accordance with the prescribed limits of their authority. This careful approach and due regard for the separation of powers shown by the Constitutional Court in both the Nkandla and Glenister cases (and others) is a demonstration of the court’s commitment to judicial review – as opposed to judicial overreach – and its respect for separation of powers. The good, the bad and the obvious South Africa has demonstrated that a solid constitutional framework serves as the foundation for the protection of human rights but it is just that – a foundation – for there are other important factors to be considered. No matter how constitutionally entrenched human rights are in the Bill of Rights, whether these rights operate within a bona-fide democracy, a pseudo-democracy, a transitional democracy or a dictatorship will matter, as will the availability of the state’s economic resources, which are diminished and diverted by corruption and state capture. Having reviewed the basic building blocks of our democracy, it does indeed become clear what has worked to further our constitutional dream, and what has not. There is certainly a lot that has been and is working. We learned lessons from our nation’s turbulent political past (and culture of human rights abuses); we learned from other States (and their Constitutions); and from the international human rights community. We took this collective wisdom and forged it into a truly outstanding Constitution, complete with an ambitious and contemporary Bill of Rights, aimed at achieving the promotion and protection of first, second and even third generation human rights. Our Constitution imposes both negative and positive duties on the State and it does so in a way that is justiciable and not merely directional. Moreover, in the new constitutional dispensation, the rule of law is now legitimately exercised and where this is not the case, the judiciary is empowered by the supreme Constitution to deal with contraventions thereof. The Judiciary has in turn demonstrated that the separation of powers is alive and well and claims of judicial overreach are largely unsubstantiated. It may therefore be said that in stark contrast to the apartheid era, the citizenry of South Africa now have an effective safeguard against the arbitrary, excessive or unjust exercise of government power. Unfortunately, neither our revered Constitution, nor our carefully sewn tapestry of constitutional checks and balances, including a robust and independent court, has proved a match for human frailty and self-interest, aided and abetted by an electoral system that eschews accountability. Accountability and the need for electoral reform Generally, the post-apartheid electoral system in South Africa has been “characterised by simplicity, inclusiveness and a strong sense of fairness” (February, 2021). Proportional representation coupled with an exclusively closed list system does, however, lack accountability, particularly in the context of one-party dominance and “it is on the key democratic value of accountability where the system remains weak” (February, 2021). This deficit has weakened key institutions, enabled the emergence of a one-party dominant system and “the dominance of party executives” (February, 2021). It has facilitated rampant corruption, mismanagement and state capture, resulting in the diversion of money from social delivery programmes, intended to promote human rights and social welfare, into the hands of the powerful elite. The result is that the government has neglected to fulfil its constitutional responsibilities to the people of South Africa in terms of their socio-economic human rights. Moreover, the negative effects of this go much deeper than the journalistic headlines and as Mantzaris (2017) has pointed out: The tens of billions of Rands that are squandered in rampant corruption could be utilised to deliver basic, foundational guarantees such as adequate housing, food, healthcare and education. A clear and evident solution to the slow and ineffectual delivery of socio-economic human rights is exhaustive electoral reform that renders representatives of the people accountable to the people they serve and not party elites and those in service of personal agendas. It is proposed as a means to “induce the correct balance between individual and party accountability” (February, 2021) and as such, to begin restoring greater accountability, and rule of law in the context of the one-party dominance that appears so solidly entrenched in South Africa. This reform is critical. It is clear that the exclusively closed list proportional representation system (underpinned by the very lack of accountability that such a system tends to generate), coupled with a culture of corruption and state capture that has until recently characterised the political landscape in South Africa, has diluted the power of our formidable Bill of Rights. It has effectively handicapped its efficacy in terms of protecting and promoting the full range of human rights on behalf of all South Africans. Comprehensive reform would begin to reverse this process. It would serve to restore accountability and reduce corruption, thereby affording the ambitious Bill of Rights in the South African Constitution, a realistic and resourced framework within which to operate. Whilst the difficulties our young democracy has encountered are complex and multi-faceted and it would be disingenuous to suggest that electoral reform is a simple fix – a panacea for all that ails us – it is advocated as a critical, foundational step in creating a more accountable, independent legislature, predisposed to fulfil their constitutional obligations to the electorate, thereby redistributing responsibility for the rule of law more evenly between all branches of government. This would, in turn, reduce the burden on an already overburdened judiciary, and moreover, it would serve as an invaluable aid in combatting corruption and mismanagement, which deprives the electorate of essential resources. So, how do we go about making this fundamental course correction that has such significant long-term implications for the governance and stability of our country? Course correction: Will the recent Constitutional Court ruling pave the way for comprehensive reform? On 11 June 2020, Justice Mbuyiseli Madlanga handed down a defining judgment in New Nation Movement NPC and Others v President of the Republic of South Africa and Others 2020, wherein the apex court ruled that the Electoral Act is unconstitutional on the grounds that it does not allow citizens to be elected to the national and provincial legislatures as independent candidates. Parliament was ordered to remedy the defect within 24 months and the media was jubilant – hailing the judgment as a game changer – a victory for all South Africans…but can it get us to where we need to go? There is no question that the ruling is a step in the right direction. What remains to be seen is whether the changes Parliament makes will lead to the kind of comprehensive overhaul we so desperately need in order to ensure that our elected representatives are accountable to the people they are elected to serve, and that they remain so? Analysts have pointed out that the closed list PR system that was originally designed to facilitate only our inaugural democratic election, has been in dire need of electoral reform for years. In fact, Cabinet commissioned an Electoral Task Team (ETT) as early as 2003 (ETT, 2003). They were asked to report on the matter and propose legislation for an electoral system in the years to come. The ETT (also known as the Van Zyl Slabbert Commission) highlighted accountability as a concern and tendered its recommendations. Unfortunately, the proposed changes were never made. So where to from here? With characteristic sensitivity in respect of separation of powers, The Constitutional Court did not pronounce on how Parliament should rectify the unconstitutionality of the Electoral Act, nor on a preferred model, expressly leaving this to Parliament to determine. Home Affairs Minister, Aaron Motsoaledi, recently indicated that South Africa's electoral system is set for a major overhaul, and that the changes would not be limited to the Constitutional Court's directive regarding independent candidates (Business Day, 2021). The Minister’s announcement is a positive indicator that government may indeed action the course corrections advocated by the Van Zyl Slabbert Commission so long ago, and now so overdue. The Independent Electoral Commission of South Africa (IEC) has however expressed concern about the 24-month time frame mandated by the court and this is indeed likely to be problematic given the potential scope of the work to be done and the necessary due processes to be followed in amending the electoral system (Business Day, 2021). This concern has been echoed by a number of other organisations, including the Inclusive Society Institute (ISI) whose response to the judgment suggests effecting consequential improvements where possible, whilst implementing system changes to accommodate independent candidates. The hope is that broader reform will need to follow over time. Final thoughts For the many South Africans leading lives that are a far cry from the hopes and dreams they nurtured at the birth of our democracy, change simply cannot come soon enough. In the interim, South African’s must continue to rely on the judiciary to ensure that the rule of law in our young democracy is upheld by ALL, including the State. And for as long as that continues, there will naturally be those who continue to pose questions about whether the separation of powers principle is alive and well and at work in South Africa? The answer to that question, based on the evidence, is yes and no. If there exists any credible threat to the separation of powers, it lies in the blurring of the lines between the executive and the legislature. Where the judiciary is concerned, it is merely stepping into the breach, which it is constitutionally obliged to occupy. As the Constitutional Court pointed out in the Nkandla case, the National Assembly (Parliament) is intended to embody the voice of all South Africans, especially the “poor, the voiceless and the least remembered”. The Constitutional Court referred to Parliament as the eyes and mouthpiece of the people, responsible for playing an oversight role with respect to the Executive and state organs alike, and for ensuring the execution of their constitutional and statutory obligations. Alas, as the Nkandla case (and others) have demonstrated, the legislative branch of our government is not always equal to that task. Moreover, sometimes the problems that come before our courts have nothing to do with politics or the need for electoral reform. Sometimes, the courts are simply dealing with the unintentional consequences of poorly drafted or ill-considered legislation that falls afoul of the Constitution. Certainly, it would be disingenuous to suggest that there is a silver bullet that is a cure for all of these difficulties. What is however certain is that when we look at what has worked and what has not, the blueprint for our success, becomes a little clearer. That blueprint must, at a minimum, consist of electoral reform, redressing the paucity of accountability that has arisen in our system of political representation. It must also provide for improved legislative capabilities and performance, by ensuring that our law makers promulgate well researched, well drafted and constitutionally sound legislation. Ideally, that blueprint should also provide for further capacitating our courts and thereby enabling them to continue fulfilling their constitutional imperative, as we continue to reform and refine our young democracy… …and while we wait for change to come, we can take comfort in the fact that we may rely on our courts to uphold the Constitution and as enjoined in section 165(2), to “apply the law impartially and without fear, favour or prejudice”. References Business Day, 2021. SA's Electoral System set for major overhaul. [Online] Available at: https://www.businesslive.co.za/bd/national/2021-02-09-sas-electoral-system-set-for-major-overhaul/ [accessed: 11 June 2021]. Dalberg-Acton, L. 1887. Historical Essays and Studies, edited by Figgis, J.N. and Laurence, R.V. [Online] Available at: https://oll.libertyfund.org/title/acton-acton-creighton-correspondence [accessed: 15 June 2021]. De Lange v Smuts NO and Others (CCT26/97) [1998] ZACC 6; 1998 (3) SA 785; 1998 (7) BCLR 779 (28 May 1998). Democratic Alliance v Minister of International Relations and Cooperation and Others [2017] ZAGPPHC 53; 2017 (3) SA 212 (GP); [2017] 2 All SA 123 (GP); 2017 (1) SACR 623 (GP) (22 February 2017). Democratic Alliance v Speaker of the National Assembly and Others (CCT86/15) [2016] ZACC 8; 2016 (5) BCLR 577 (CC); 2016 (3) SA 487 (CC) (18 March 2016). Dent, K. 2015. Minority rights and majority politics: a critical appraisal. Master of laws Thesis. University of South Africa. Doctors for Life International v Speaker of the National Assembly and Others (CCT12/05) [2006] ZACC 11; 2006 (12) BCLR 1399 (CC); 2006 (6) SA 416 (CC) (17 August 2006). Du Plessis, M. 2000. The Legitimacy of Judicial Review in South Africa's New Constitutional Dispensation: Insights from the Canadian Experience. The Comparative and International Law Journal of Southern Africa, vol. 33(2):227-247. Economic Freedom Fighters v Speaker of the National Assembly and Others; Democratic Alliance v Speaker of the National Assembly and Others (CCT 143/15; CCT 171/15) [2016] ZACC 11; 2016 (5) BCLR 618 (CC); 2016 (3) SA 580 (CC) (31 March 2016). Electoral Task Team (ETT). 2003. Report of the Electoral Task Team. Pretoria: Electoral Task Team. Executive Council of the Western Cape Legislature and Others v President of the Republic of South Africa and Others (CCT27/95) [1995] ZACC 8; 1995 (10) BCLR 1289; 1995 (4) SA 877 (22 September 1995). February, J. 2021. SA's electoral system is weak on accountability. [Online] Available at: https://www.wits.ac.za/news/latest-news/in-their-own-words/2018/2018-10/sas-electoral-system-is-weak-on-accountability.html [accessed: 10 June 2021]. Fedsure Life Assurance Ltd. and Others v Greater Johannesburg Transitional Metropolitan Council and Others, 1998 (CCT7/98) [1998] ZACC 17; 1999 (1) SA 374; 1998 (12) BCLR 1458 (14 October 1998). Feliciano, F.P. 1992. The Application of Law: Some Recurring Aspects of The Process of Judicial Review and Decision Making, The American Journal of Jurisprudence, 37(1):17-56. Fombad, C. 2013. An Overview of the Constitutional Framework of the Right to Social Security with special reference to South Africa. [Online] Available at: https://repository.up.ac.za/bitstream/handle/2263/21961/Fombad_Overview%282013%29.pdf?sequence=1&isAllowed=y [accessed: 10 June 2021]. Glenister v President of the Republic of South Africa and Others (CCT 48/10) [2011] ZACC 6; 2011 (3) SA 347 (CC) ; 2011 (7) BCLR 651 (CC). Honermann, B. & Heywood, M. 2012. A judgment that saved a million lives. [Online] Available at: https://www.iol.co.za/the-star/a-judgment-that-saved-a-million-lives-1334636 [accessed:10 June 2021]. Krygier, M. 2018. What about the Rule of Law? [Online] Available at: https://constitutionalcourtreview.co.za/wp-content/uploads/2018/10/What-about-the-Rule-of-Law.pdf [accessed: 10 June 2021]. Madala, T. 2003. The challenges of promoting the rule of law in Southern Africa. [Online] Available at: https://www.gcbsa.co.za/law-journals/2003/august/2003-august-vol016-no2-pp36-37.pdf [accessed: 10 June 2021]. Mantzaris, E., 2017. Corruption as a violation of basic human rights in South Africa and Russia | African Journal of Public Affairs. [Online] Available at: https://journals.co.za/doi/10.10520/EJC-ab4ffe849 [accessed: 10 June 2021]. Maswanganyi, M. 2010. Rule of Law in South Africa. Master of Laws Thesis. University of Limpopo. Montesquieu, C. & Varnet, J. 1748. De l’ esprit des loix. Geneve: Barrillot & Fils. New Nation Movement NPC and Others v President of the Republic of South Africa and Others (CCT110/19) [2020] ZACC 11; 2020 (8) BCLR 950 (CC); 2020 (6) SA 257 (CC) (11 June 2020). Ngcobo, S. 2016. Why Does the Constitution Matter? Public Lecture Series Presentation by the Human Sciences Research Council at Gallagher Estate, Johannesburg on 30 June 206. Pharmaceutical Manufacturers Association of South Africa and Another: In re Ex Parte President of the Republic of South Africa and Others (CCT31/99) [2000] ZACC 1; 2000 (2) SA 674; 2000 (3) BCLR 241 (25 February 2000). Primedia Broadcasting (a division of Primedia (Pty) Ltd) and Others v Speaker of the National Assembly and Others (784/2015) [2016] ZASCA 142; [2016] 4 All SA 793 (SCA); 2017 (1) SA 572 (SCA) (29 September 2016) Republic of South Africa (RSA). 1993. Constitution of the Republic of South Africa Act No. 200 of 1993. Pretoria: Government Printer Republic of South Africa (RSA). 1996. Constitution of the Republic of South Africa, Act No. 108 of 1996. Pretoria: Government Printer. S v Dodo (CCT 1/01) [2001] ZACC 16; 2001 (3) SA 382 (CC); 2001 (5) BCLR 423 (CC) (5 April 2001) S v Makwanyane and Another (CCT3/94) [1995] ZACC 3; 1995 (6) BCLR 665; 1995 (3) SA 391; [1996] 2 CHRLD 164; 1995 (2) SACR 1 (6 June 1995) Soobramoney v Minister of Health, KwaZulu-Natal 1998(1) SA 765 (CC),1997 (12) BCLR 1696 (CC). - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This article has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Copyright © 2021 Inclusive Society Institute 50 Long Street Cape Town, 8001 South Africa All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute. DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of the their respective Board or Council members. The challenges faced by local governments since democracy: How far have we come? By Nondumiso Alice Sithole MSc. Public Policy & Management; LLB. Property & Investment Practice Law Postgrad. Cert; Legislative Drafting Postgrad. Cert Abstract It is a well-established fact that the municipalities that comprise South Africa’s local government structure have become a focal point since the advent of democracy in South Africa, given their role in delivering on the Executive’s developmental objectives for the State (RSA, 1996). These developmental objectives require local governments to be tasked with the responsibility of developing their own development plans, in the form of Integrated Development Plans (IDP’s). The Municipal Systems Act 32 of 2000 (RSA,2000) requires municipalities to undertake a robust integrated development planning process in the production of their IDPs. The objectives of the IDP’s are supposed to be achieved through the Service Delivery and Budget Implementation Plan’s (Ekurhuleni, 2021) of municipalities, which are the means by which effect may be given to their respective Integrated Development Plans (IDPs). The aim of this structure is firstly, to achieve the objectives of local government as stipulated in Section 152 of the Constitution; and secondly, to give effect to its developmental duties, as required by Section 153 of the Constitution. For example, a municipality must structure and manage its administrative, budgeting and planning processes in order to give priority to the basic needs of the community, and secondarily, to promote the social and economic development of that community. In light of what may be said to be monumental duties that fall to local municipalities, in terms of fulfilling their critical constitutional mandate, one may presume that local governments have recognized the need to ensure that they possess at least the minimum level of human capital, coupled with financial and operational efficiency. Judging by the surge of local community protest that have taken place over the past seven years, this is not, however, the case and it seems clear that the local municipalities face a crisis. In addition, the continuous findings by the Auditor-General, that local governments are regressing, serve to solidify this fact. It is furthermore apparent that the most significant challenges lie in the human resources; governance; and monitoring and evaluation systems in municipalities. This article aims to examine these issues, particularly human capital development, with the deficiency of effective human resources systems as an overarching causal factor. It furthermore provides recommendations that may be adopted or modified with the intention of adequately addressing the issues of service delivery at the local levels of government. Introduction The municipalities that comprise South Africa’s local government structure have become a focal point since the advent of democracy in South Africa, given their role in delivering on the Executive’s developmental objectives for the State. This accords with what is commonly known as developmental state theory, which is characterized by a state undertaking to prioritize economic development as its top priority, in terms of government policy, and seeking to design policies and institutions that serve to promote this broad objective and foster transformation (Pham, 2012). Developmental local government is, in turn, defined as: “a local government that is committed to working with citizens and groups within the community to find sustainable ways to meet their social, economic, and material needs and improve the quality of their lives” (RSA, 1998). Its fundamental purpose is said to be the unravelling of common national development problems; the creation of new development prospects; and the achievement of shared national development targets. Thus, developmental local governance gravitates towards creating a better future for communities through the promotion of local socio-economic development programmes and projects. To achieve this, it requires strong and capable institutions, systems, strategies, policies, processes, and procedures in order to promote grass root development. As such, it is evident that the existence of a municipality should be development oriented and our local governments should indeed be tasked with the responsibility of developing their own development plans, in the form of Integrated Development Plans (IDPs). An Integrated Development Plan endeavours to provide an overall framework for development. Its intentions are to co-ordinate the work of local and other spheres of government into a coherent plan to improve the quality of life for all the residents living in an area (Gueli, Van Huysteen & Liebenberg, 2007). Thus, as a matter of principle, IDP should consider the existing conditions, problems, and resources available for development. Furthermore, the plan should strive for economic and social development for the area as a whole. It must set a framework for how land should be used; what infrastructure and services are needed; and how the environment should be protected (JDA, 2006). According to the Municipal Systems Act 32 of 2000, municipalities are required to embark on a vigorous integrated development planning process in the production of their IDPs, the purposes of which IDP’s are, in turn, to be achieved through the municipalities’ Service Delivery and Budget Implementation Plans. The aim of this requirement is firstly, to achieve the objectives of local government stipulated in Section 152 of the Constitution, and secondly, to give effect to their developmental duties in terms of Section 153. This is theoretically achieved through means such as structuring and managing of the respective municipality’s administration, as well as its budgeting and planning processes, in order to give priority to the basic needs of the community, and to promote the social and economic development of the community (Ekurhuleni, 2019). Local government is the level of government that is closest to the citizens. In essence, municipalities are best positioned and should be able to obtain and understand people’s wishes as well as the aspirations for their locality. They should also be able to identify and unlock local potential, and to mobilize resources present in their locality. As such, specific emphasis is generally placed on the developmental service delivery role of local government. These characteristics do not automatically equate to a higher quality of service delivery and legitimacy of decisions, but they certainly have the potential to do so. Local governments are distinctive. The Constitution (RSA, 1996) enshrines “original” powers and functions to municipalities. The Constitution also provides a list of “local government matters” over which local government has authority - these are captured in Section 156. Additional powers and functions may also be transferred by national and provincial governments to local government as a sphere, or to individual municipalities. A significant part of local government’s financial authority is guaranteed through constitutional provisions that secure local government’s power to levy property rates and surcharges on fees. Lastly, the Constitution provides that local governments are entitled to an “equitable share” of nationally generated revenue, providing municipalities with a legal claim to unconditional revenue streams. In light of the autonomous status of local government in South Africa, coupled with the fact that they have been tasked with such a significant constitutional mandate, it seems reasonable to presume that the municipalities comprising local government would long have recognized the need to ensure that they possess at least the minimum level of financial and operational efficiency (RSA, 1996: 88). Yet, municipalities still fail to generate adequate financial liquidity and are often in a state of financial chaos. There is a rising trend that demonstrates that the “autonomous rights” of local municipalities don’t extend to operational and financial collapse, as higher levels of government can intervene and “take over” the affairs of municipalities on the verge of collapse (Ledger, 2019). This interdependence in relation to other spheres of government implies a relationship of supervision. The national and provincial governments are constitutionally entitled and mandated to supervise the performance of municipalities. National or provincial interventions are, however, relatively slow and ineffective when dealing with a failing municipality. This begs the question: how effective are the national and provincial levels of government in discharging their constitutionally mandated function of providing support, and at strengthening the capacity of municipalities to manage their own affairs and to exercise their powers and functions as stipulated in section 154(1) of the Constitution (RSA, 1996)? Moreover, if provinces routinely monitor the work of municipalities and provide necessary support in areas where shortcomings are identified, as required by section 155(6) of the Constitution (RSA, 1996), why have so many municipalities become either partly or fully dysfunctional, particularly in this day and age in the context of a technological world? A few key factors that have led to the consistent downward spiral of South African municipalities are discussed in this paper. Firstly, the deployment of officials from the national or provincial departments who lack the knowledge required for administration at local level. That being said, it has been observed by the author, that interventions for political purposes are, in any event, expedited when it serves a political agenda. Furthermore, the attention devoted to the administrative management of failing municipalities is not equal. This is one of the main pitfalls of the Inter-Governmental Framework (RSA, 2005) currently in place. In addition, some of the significant challenges lie not only in the availability and allocation of suitable resources but further, in the quality of those resources that are available and accessible to local municipalities, in their various forms. The Auditor General's report showed that fruitless and wasteful expenditure had amounted to R32 billion, for the audit outcomes of the 2018 to 2019 period. (Auditor-General, 2020). One of the issues in relation to this is cadre deployment. It is an issue that is highly debated, but nonetheless taken for granted. Municipalities must be staffed with qualified individuals and cadre deployment, where insufficiently qualified cadres are deployed, starves municipalities of the qualified individuals they need. The above, in essence, is a challenge of the legislation, the Regulations on the Appointment and Conditions of Employment of Senior Managers (RSA,2000). It is often alleged that most cadres do not have governance as their priority but party-political agendas. This includes qualified officials who are placed for political reasons. The above limitations detract from municipalities’ ability to function in the manner in which they were intended. Moreover, deficiencies are exacerbated by the fact that most significant challenges faced by municipalities can be attributed to inadequate resource apportionment to those municipalities. The author submits that central to the failure of the grass roots government is the inadequate human capital, or the lack thereof. Other ancillary issues are also examined. Background Local governments were established in order to assist in addressing past inequalities at a grass roots level. This level of government was, in fact, a major force leading to the national reform process which began in South African, in 1990. The process resulted in the formation of the Local Government Transition Act of 1993 (herein referred to as “the Act”). However, the Act did not provide a blueprint for a new local government system – rather it simply outlined a process for effecting a change from the apartheid regime. The process provided for by the Act was a locally negotiated transition which has resulted in a wide and non-uniform array of municipal structures, wherein efficiency and functionality are lacking. This may be the probable cause of the current disparity in municipal structures. Previously, the weaknesses of the Act exposed its urban bias (Anon., 1995) and lack of structured support processes to enable municipalities to manage the transition process from a transitional system of local government to a democratic non-racial system. The Act’s inadequacies are reflected in the municipal systems. While many municipalities, elected councils and administrations have, in many areas, made significant progress in addressing backlogs and extending services, they still face insurmountable constraints. There are still huge infrastructural disparities and inequalities stemming from the history of the country that remain most visible in grass roots communities. Furthermore, the transition process has shown that the delivery of new municipal mandates is still not being achieved within the existing institutional framework. It is also becoming increasingly challenging for municipal governments to accelerate development, owing to the difficulties associated with corruption, mismanagement and maladministration, amongst other factors. Key challenges include lack of adequate finance, human resources, leadership; and technology as the main contributors to the slow developmental progress of municipalities (Beyers, 2016). The current state of local government Our municipalities’ maladministration permeates across all types of municipal categories including district, local and metropolitans alike. This has led to a state with failing municipalities, and it has resulted in a number of municipalities having been placed under administration since the Act came into effect. In November 2018, twenty-four municipalities were under administration (Evans, 2018). In May 2019, fifteen municipalities in the North West Province alone were placed under administration and citing financial distress; collapse of service delivery; mismanagement of funds; and maladministration as some of the grounds for their failures (Seleka, 2019). Most recently, South Africa’s state capital, the City of Tshwane, was placed under administration due to instability, demonstrating a lack of proper management and a lack of adequate and capable human capital (SA News, 2020). Incidents such as those detailed above clearly indicate the need to reform the way in which municipalities are managed, and to further re-examine some of the pieces of legislation, including but not limited to the Municipal Structures Act (RSA, 1998), which outlines the different powers and functions of human capital in municipalities. In terms of the Act, politicians are prohibited from interfering with the executive. They are not, however, barred from interceding with municipal priorities such as those espoused through the IDP. This causes conflict between the executive and legislative parts of councils over decision making powers (RSA, 1993). Municipalities are strategically located. As such, they have far greater institutional control over their jurisdictions; policy makers; the entire scope of conduct of their own officials; and the communities within which they govern. This then begs the question: why do they still, notwithstanding this greater degree of control, have so many significant and public failures? It is the author’s submission that the reasons for this vary, from a shortage of adequate skills; ineffective performance management systems; outdated technology; lack of leadership commitment; and most prominently, the deficiency in the human resources of municipalities, coupled with an insufficiency of expertise in critical roles. For the purposes of this article, it is suggested that the shortage of human capital and effective human capital is at the epicentre of municipalities failing to perform. Section 195(1)(h) of the Constitution (RSA, 1996), states that “good human resource and career-development practices, to maximize human potential, must be cultivated”. This goes to the core of what human capital development should achieve: maximizing the potential of the employees that make up local government organizations, by ensuring that there are sufficient career paths for those who perform, as far as organizational objectives are concerned. It has been determined that the problems experienced by smaller municipalities include “procedures followed when appointing new staff members” (Du Plessis, 2016). When proper procedures are not correctly applied and followed in the appointment of new employees, one can draw the inference that persons that are ill suited to the respective jobs may be appointed and that this may, in turn, lead to ineffective performance. It has also been suggested that municipal officials often fail to perform because they do not expect any punitive action against them. This once again points to how problematic the political-administrative interface may be and how political influence in human resource issues can be to the detriment of local government achieving its goals. Political interference in the recruitment process allows for poorly qualified individuals and cadres to be deployed to strategic positions. The testimony at the Zondo Judicial Commission, reveals that this practice is unfortunately widespread throughout all spheres of government. Academics and practitioners have, for years, maintained that sustained competitive advantage for organizations could accrue from industry level barriers such as “technological supremacy, patent protection and government regulations” (Du Plessis, 2016). Further, they have stated that in the modern environment, requiring flexibility, speed-to-market, effectively developing and managing employees’ knowledge, experiences and skills and expertise – collectively defined as ‘human capital’- has become a key success factor for sustained organizational performance” (Du Plessis, 2016). The argument is that it is important for any organization to maximize performance outcomes through the optimal deployment of existing resources and that one of the most important of these resources, is human capital. Furthermore, academics argue that if talented employees are not deployed where they are needed, an organization risks “missed market opportunities, poor customer service and revenue erosion” (Du Plessis, 2016). It is clear that the modern organization requires employees that are knowledgeable, experienced, skilled and who possess the necessary expertise in their vocational areas, in their organizations, in order to optimize performance and therefore the achievement of organizational goals. It is furthermore clear that the maximization of human capital can be regarded as a critical requirement for sustained organizational performance that is imperative for its long-term success. Finally, it is also clear that failing to pay sufficient attention to the issue of human capital development could expose any organization to significant risk. This is the view taken by the author, and specifically, it is the position the author takes when it comes to local government, for the purpose of this article. Human capital management may be defined as “the approach to staffing which perceives people as assets whose current value can be measured in terms of productivity and whose future value could be enhanced through investment”. The nexus to the above, is the term talent management as “the process through which an organization’s anticipated talent needs are planned for through acquisition or development strategies” (Thornhill, 2014:313). The assertion is thus that public organizations, like municipalities, have to invest in their existing human capital. This is done by taking care of their developmental needs, whilst there also has to be a process of pre-planning in terms of what the institution’s future human capital needs may be, in order to facilitate sustained organizational performance. It could be argued that if municipalities made a concerted effort in terms of attracting suitably talented people, as well as creating an environment in which investing in existing human resources is part of the organizational culture, being employed by such municipalities will be regarded as a career path of choice (Du Plessis, 2016). The role that inadequate human resources and shortage of skills plays is at the crux of municipal malperformance and remains the biggest challenge in terms of their ability to achieve efficiency. In many underperforming municipalities, this recurring theme relates, in particular, to key critical positions being occupied by individuals lacking in the essential skills required for the efficient operations of the respective municipalities, or by those managing those who are in those critical positions (Madumo, 2015). The extensive timeframe in which rare skills are filled exacerbates productivity and efficiency, resultant is inefficient use and underutilization of those precious resources that cities are in possession of, for example, funds directed at filling of vacancies. The role of the most senior municipal official, now called the municipal manager, has changed significantly. Since 2000, each municipal council has had the authority to appoint a municipal manager, as well as other senior management personnel that report directly to the municipal manager (RSA, 2000). This structure was designed to produce a senior management team in the municipality that understands, and operates in sync with, the political principals in its municipal executive. Although this objective is supported, the structure does have negative side-effects. Now, when there is political instability in a municipal council, there is an immediate and direct ‘knock-on’ effect on senior management. A change in local political leadership; shifts in a ruling coalition’ or even a reform within a ruling party often leads to the dismissal of the municipal manager, and sometimes even to the dismissal of managers reporting to the municipal manager (De Visser, 2009). This is evidenced by the large number of unfilled vacancies in the top two echelons of municipal administration. In some instances, municipalities have high percentages of posts at senior management level that stand vacant for months on end. Municipal administrations thus suffer from a lack of continuity at senior management level. In 2020, Gauteng’s Cooperative Governance and Traditional Affairs, and Urban Planning Department, revealed that Gauteng municipalities had a 20% vacancy rate at senior management level (Zuzile, 2020). The highly charged political environment and profile of local municipalities and senior management positions has contributed immensely to the shift in control over appointments, from the municipal council to the internal workings of political parties. There has been, and still is, widespread concern, that the need for ‘political suitability’ has eclipsed the need for qualified and skilled senior managers in municipalities. The fact that thirty percent or more of senior municipal management has five years or less of local government experience demonstrates a demoralizing trend towards the appointment of inadequately skilled senior managers (Businesstech, 2021). It is argued that this is the result of excessive political involvement in what should be appointments on the basis of merit. In order for local government to further improve its performance, a new balance needs to be struck between the need for the political alignment of top management with the municipal executive on the one hand, and an insistence on quality, on the other. Serious consideration should be given to removing the appointment of the second layer of management from the realm of the municipal council and leaving this to the municipal manager. It is suggested that this will assist in reducing political involvement in the administration, whilst leaving the political alignment between the municipal manager and the municipal executive intact. Clarifying the roles and functions of the Council and the municipal manager is crucial. The distinctions between the responsibility of the Council and that of the municipal manager must also be emphasized. The Council is responsible for the formulation of policies, strategies and vision, whereas the municipal manager is responsible and accountable for the implementation of Council’s strategies, plans and policies (Paulin, 2014). The end result or effect of the failure to adhere to the abovementioned principles is that municipal departments don’t reach their objectives, as a consequence of their inefficient processes. For example, it is a common occurrence that technical posts, such as engineering posts, are occupied by staff who do not possess the appropriate technical qualifications. The damaging effects of this include instances where project managers in municipalities fail at project management undertaken on behalf of the municipalities, that in turn result in the municipalities being embroiled in litigation, with its resultant cost implications and halting of service delivery. Interventions that may lead to increased efficiency When considering some of the interventions that may lead to better performance, the undermentioned factors are not discussed in the order of what may be deemed to be most important. They are, in essence, all equally relevant. An investigation of the exact extent to which municipalities’ strategies are influenced by their human capital capacity and how human capital capacity influences the development and implementation of municipal strategy, should be an ongoing exercise of their respective Human Resources departments. The Human Resources departments should undertake continuous assessments in this regard. They should also determine the extent of the influence of municipal councillors; communities; and community organizations, as significant strategic partners in municipal processes. Consistent training and upskilling of general employees, but more acutely, of rare skills staff, is also critical to addressing the above identified major constraints, particularly in so far as they relate to shortcomings emanating directly from human resources factors. The focus on the training of staff must be particularly focused in terms of both the quantity and quality of appropriately trained personnel in these key roles. The shortage of expertise in senior positions impacts the capacity of municipalities to perform at the level that they are theoretically capable of. Skills development should become ingrained in the DNA of local governments. It is also essential that skills audit are always continuously conducted. A key requirement in achieving organizational or municipal goals is that the modern local government organization must ensure that their employees are experienced, have the requisite skill base and knowledge, and also the vital expertise in their vocational areas within their organizations. This may have an impact in terms of contributing positively to the optimization of performance and will ultimately lead to objectives not only being met departmentally, but the municipality will also achieve its organizational goals. An organization that has knowledgeable key staff members leading lower members of staff will be able to lead appropriately and with confidence. This kind of structure should further be bolstered with performance management systems, which should, in turn, be linked to a greater organizational system, which is related to, amongst other things, organizational performance versus individual employee outputs, and reward and recognition systems within the organization. The author has observed that the importance of motivating municipal employees has been neglected by most municipalities. Performance management should be maintained and implemented in organizations in order to achieve, amongst others, the following objectives: the creation of a climate of motivation; the creation of a performance culture; and the linkage of remuneration with performance, amongst other things. It is the author’s submission that the existence and continued proper implementation of a good performance management system within an organization could assist both the organization, and the individual employees. Municipalities should employ the use of participatory monitoring and evaluation techniques, that focus on addressing challenges facing municipalities. Municipalities should decide on evidenced-based monitoring and evaluation framework which consults with the stakeholders and essential business partners of the municipality. (Cloete & Eigelaar-Meets, N.d.). Secondly, the adoption and use of essential, innovative technological systems that are commensurate with the needs of the economy within which the municipalities and their stakeholder operate, continues to occur at what may be termed snails-pace. The impact of technology is that it results in modifications to time spent on service delivery. Moreover, the digital and technological transformation of economies is drastically changing the way that people live in South Africa, Africa and globally. However, Smart City initiatives fail due to changes in political leadership. Smart cities are municipalities that use information and communication technologies (ICT) to increase operational efficiency, share information with the public, and improve both the quality of government services and citizen welfare. Long term projects, such as municipalities developed IDP’s, require long term commitment from municipalities. One of the main strategies of smart cities is the promotion of innovation (Marais, 2019) and municipalities should be encouraging “innovation ecosystems” (Marais, 2019) that enable structural economic transformation, from traditional to new/IT-based economic activities. The achievement of this objective is, in the authors view, developing at a stagnant pace. Therefore, it is perhaps necessary to seek to achieve a balance of the use of technology in places where human capital is not necessarily essential. An example of this would be the use of automatized systems at toll gates, where traffic ordinarily piles up, perhaps as a result of the fact that there is only one teller/employee who is doing their best to execute their job but only can only do what is reasonably expected of an individual. The use of an automated system may, in this instance, execute the particular task more speedily. The use of automated systems will, in turn, be aimed at easing the burden of the rate payers. Thirdly, financial mismanagement is a devastating contributor leading to flawed municipalities, as is the case with any other enterprise. The maladministration of finances is observed to be a widely pervasive malignancy in a wide number of the economies across the African continent. Generally, political structures are not held accountable (Henao, Moyer & Namakula, 2017). A large portion of legislation such as the Municipal Systems Act 32 of 2000 and the Municipal Finance Management Act 56 of 2003 (the MFMA) (RSA, 2003) deals with directives and consequences for the administration. Legislation does not, however, place a similar obligation on politicians and collective accountability for their conduct. The exception is section 32 of the MFMA. Whilst the legislation provides, for example, that Councillors may not interfere in the administration, who actually polices this? The author’s submission is, therefore, that legislation must be amended to make politicians accountable and liable for their actions. In the case against Bathabile Dlamini (Constitutional Court, 2018) the Court took this route. This will not, however, be a readily available solution until accountability and liability for politicians is legislated. The legislation must also address behaviour and conduct. While political bickering, whether inter-party or internal to a party is a hallmark of democracy, such conduct must be limited when it compromises service delivery. An example of this conduct is when a party walks out of a council meeting, preventing decisions from being made (Frank, 2021). Furthermore, the under-allocation of budgets to municipalities, by Treasury for municipalities’ functional activities, can also be linked to poor performance in municipal service delivery. Municipalities deliver a range of specified services to relatively small geographically delineated areas. Municipalities should, therefore, be allocated proportionate funds by Treasury, according to the type of municipality that particular local government is. The creation of new and larger amalgamated municipalities has also resulted in significant transition costs, due to the merging of administrations. This has resulted in municipalities being faced with challenges in terms of containing personnel expenditure. In addition, some local governments are still, to date, struggling with the fact they have limited effective tax capacity. The inhibition of their taxing powers has a negative effect in terms of generating revenue. In 2016/17, Ekurhuleni was, for example, the only city out of five large cities not to have borrowed money for capital expenditure, Sixty two percent of this was funded through internally generated funds (Mughogho, 2018). This is evidently a difficult thing to achieve. Therefore, such challenges must still be re-visited if municipalities are to deliver municipal services at reasonably affordable prices; to provide free basic services to poor households; and to continue to promote social and economic development, in line with their developmental mandate. With the above submission made, it should also be noted that municipalities should strive to inject supplementary and additional efforts into generating new income streams, perhaps drawing on certain practices from the private sector that may assist in generating revenue. An area in which municipalities are also lagging behind as far as growing their revenue is concerned, is asset management. Public property management has historically been a combination of maintaining properties that are used for essential services and disposing of surplus properties, as either a public-sector service, or as part of social development. Property has also been used to address housing needs. Municipalities should not extend their role in so far as their properties are concerned. Public properties must, however, be viewed as a portfolio of assets, the effective management of which can be used to generate income. The establishment of a proper property asset register further establishes the financial value of such a portfolio, which, in turn, requires a direct link to the valuations roll. This requires the establishment of a skilled task team(s), together with the investment of further resources, as this may be the steppingstone to establishing potential value, or future value, that can be obtained from public assets. Task teams should also be in charge of other strategic aspects that will look at ways to expand the economic output/s that can be acquired from any and every property. One must however appreciate the fact that the above can only be achieved once there is clarification of local governments’ property rights and fiscal autonomy. Currently, legislation is very limiting in this regard. Nonetheless, nothing prevents municipalities from creating policies that can assist them in driving effective public property management as one of their core objectives. The lack of enforcement of financial accountability in municipal organizations has had a detrimental effect on their operational efficiency; how the leadership of municipalities are viewed; but most importantly the performance of the municipalities. In many municipalities financial accountability is absent to non-existent given the significantly high levels of the mismanagement of resources (Reddy, 2017). Municipal leadership can, however, assist in the stemming of corruption in local government, by providing support to law enforcement agencies enforcing the law, as prescribed by the Public Finance and Management Act (PFMA) in terms of illegal activities, and prosecuting corrupt officials misusing public resources for personal gratification (Reddy, 2017). It is pertinent knowledge that local governments have an array of legislation and policies at their disposal which in the instant are developed by them. Furthermore, local governments adopted “Batho Pele” (Ekurhuleni, 2017) good governance principles to facilitate, improve and sustain service delivery by them. This has not necessarily resulted in higher levels of performance by municipalities, which has been evidenced by numerous service delivery protests over the years. Local governments, in general, face a wide range of risks associated with their daily operations, including financial, reputation, political and operational risks. One may therefore assume that care would be exercised in establishing the functions and role of corporate governance in municipal organizations. The authors’ assertion is that government, as a whole, but in this context specifically local governments have neglected the development and up scaling of their corporate governance departments and in essence, they lack such offices within their institutions. So, although local governments have good legislative frameworks and policies on managing local government, they have failed to fully implement corporate governance. The protocol on corporate governance in the public sector provides guidance to state owned entities in achieving the socio-economic objectives of the government, without particular emphasis on local governments (DPE, 2002). The legislative frameworks and policies do not provide clear guidelines as to how corporate governance can transpire in local governments. This is what has also led to a lack of accountability and disregard for good governance, and inevitably, to severe failures in local governments. There is a significant degree of responsibility entrusted in local government leadership, which necessitates ethical values to enhance accountability, fairness and transparency as dictated by corporate governance principles. It is in the implementation where the deficiency exists. It is suggested that a strong system of accountability, that works effectively to make sure that municipalities are constantly reminded and held to account as far as their obligations are concerned, is the remedy for this. In order to achieve this, it is recommended that the Ministry of Cooperative Governance and Traditional Affairs and the Ministry of Public Service and Administration, together with SALGA (the South African Local Government Association), must therefore provide expertise and facilitate the development of corporate governance frameworks that will apply to different categories of municipalities, or to each local government. Secondly, the facilitation of corporate governance must be compulsory for all local governments. This means the actual establishment of divisions or offices within their departments designated to monitor implementation of policies by the various employees and to develop and explain their practices, according to their environment. In cases where there is no capacity and capability in terms of skills, competence, and expertise in the management of the local government, external agents should temporarily be utilized, in order to provide strategic guidance on the creation of such offices. The employees, who are employed by these departments, should be required to be custodians of good governance in the organization. Their role would be not to get involved in the politics of the local government, but to oversee and ensure that there is compliance with the corporate governance principles and policies in place. The above places an earnest emphasis on the proper implementation of monitoring and evaluation mechanisms in local government structures. Although there is a policy tool, the Policy Framework for the Government-wide Monitoring and Evaluation System (RSA, 2007), that has been developed, much can be said as to whether this has been effectively used as a developmental tool. In general, monitoring and evaluation capacity is low in the majority of municipalities - perhaps even more so in smaller municipalities. This also has an adverse effect on their capacity to deliver quality monitoring and evaluation services. Local municipalities should prioritize the skilling of their current staff responsible for monitoring and evaluation functions. Again, an environment that attracts and retains technical staff by offering incentives, such as training opportunities, should be promoted by local municipalities. The foundation for proper monitoring and evaluation systems must stem from the support of both the political and administrative leadership at a municipal level, in order to ensure that such municipality functions optimally by offering citizen-responsive services. The strengthening of accountability within the municipality and holding municipal leadership accountable for their performance will serve to eliminate or address systemic challenges in local government, thereby enhancing quality service provision. It is furthermore recommended that interdepartmental relations should be enhanced among colleagues to assist in addressing challenges at different levels. This would enable departments to play an oversight role, when required at certain intervals, thereby mitigating errors made by colleagues from other departments. Legal, Risk and Internal Audit departments should also assist in identifying risks and ongoing breaches that occur in municipalities, the reasons why they occur and possible remedies and interventions that ought to be employed. It suggested that an awareness of the advantages of good governance should be promoted in municipal councils, in line with the principles of the King III report (IODSA, 2009). Furthermore, the political leadership occupying key positions, should set the collective tone with respect to accountability issues and challenging transgressions. They must lead by example in effectively managing bad governance, poor performance and non-compliance – and they must do so in relation to not only their staff, but also with their very own peers. The establishment of and adherence to good governance principles in local governments should not be met with resistance from politicians, as this sets the tone of the municipalities. Corporate governance should be used as a tool to effectively manage the relationship between the administrative and political leaderships in local governments, since such governance concerns itself with issues of responsibility and accountability. Local governments should begin to challenge the view that now predominates, in terms of which they are viewed as having enabled an erosion of accountability, and that they are incapable of leading world class municipalities. This is something that needs to be addressed if a capable state is to be established and sustained. African countries such as Egypt, Congo, and Lesotho, etcetera (Francois, 2018). In particular face extensive challenges due to above-mentioned. In as much as the author has highlighted other key arears that municipalities must focus on including resources and leadership etcetera, it is suggested that they are all ancillary issues to the epicentre of the problem, namely the need to have human capital that has a strong sense of service orientation in local government. What is needed is local governments that will apply the correct procedures in the appointment of employees, that will accordingly be well suited to the job they fill, the end result of which is more effective performance. The electorate must also be educated about their rights and the power they have to bring about change. Currently, communities tend to vote for parties because of sentiment, rather than serving their interests. This allows non-functioning councillors to remain in office and even to return in successive elections (Frank, 2021). Municipalities that perform well are generally characterized by the following; a strong tone set by effective leadership characterized by accountability; controlled environments that are institutionalized; a strong oversight on financial management and debt collection; capable and skilled staff members; proper governance structures in place, with effective monitoring and evaluation systems in place; compliance with supply chain management processes and relevant. These are just some of the elements which, when collectively applied, lead a municipality to perform better. In a qualitative analysis, undertaken by the author, the following municipalities were evaluated: Ngaka Modiri Molema District Municipality (North West province), Dipaleseng Local Municipality (Mpumalanga province) and Okhahlamba Municipality (KwaZulu-Natal province). . The majority of the failures of these municipalities stemmed from exactly the same challenges, or extremely similar challenges. Ngaka Modiri Molema District Municipality has been experiencing serious challenges since the year 2014, when it was placed under Administration. Section 139 of the Constitution (RSA, 1996) provides for an intervention by the provincial sphere of government, where a municipality, as a result of a crisis in its financial affairs, is in serious or persistent material breach of its obligations to provide basic services or to meet its financial commitments. The province is empowered to intervene and can take steps to impose a recovery plan; dissolve the council; or assume responsibility. In this case, the Section 139 intervention arose due to the fact that the District Municipality had been experiencing a myriad of governance and administrative challenges. The Council had appointed a Municipal Manager and senior managers who did not meet the competency requirements in terms of the local government regulations, despite being advised against such appointments. In addition to the other unsuitably qualified senior management staff, the Chief Financial Officer, who was appointed in the 2012/2013 financial year, was also insufficiently qualified, in that he did not have the relevant experience as a financial management practitioner in the local sphere of government. Furthermore, there were reports that the supply chain management processes, with respect to key services, were being consistently flouted by the Municipal Manager and other senior managers. Lastly, failure by the Council to act on the alleged maladministration, fraud and corruption led to the collapse of the municipality. The collapse of this municipality is not surprising given that it accounted for half of the six material irregularities, that were identified as having occurred at three municipalities under audit by the Auditor General (Auditor General, 2020). The Auditor General’s 2020 report still identified the most material financial irregularities, three, at Ngaka Modiri Molema (Auditor-General, 2020). The challenges that the Dipaleseng municipality faced around service delivery emanated from administrative, financial management and governance issues. It appears that these challenges recurred over long periods of time, and that they have been repeatedly highlighted in the Municipality’s annual reports, as well as the 2020 report of the Auditor-General. It is reported that the municipality has not been proactive in employing procedures or taking steps to prevent the losses incurred or to mitigate the abuse of the supply chain management regulations and contraventions of MFMA laws that have been prevalent within the municipality (Dipaleseng District Municipality, 2018). The financial sustainability challenges are a result of poor financial management, operations, administration, lack of proper leadership and planning, inadequate delegations, lack of staff discipline, poor performance and lack of accountability. Given the nature of local government, rural municipalities fall short in collecting revenue compared to the urban cities and district municipalities. As a rural municipality, OKhahlamba municipality suffers from staff that lack technical skills, knowledge, leadership and management skills within local government. In addition to the officials and councillors of the municipality lacking these basic skills and knowledge, the local government also lacks adequate tools and resources to carry out the necessary tasks to deliver services. This has resulted in the quantity and quality of service delivery being compromised (Mabizela & Matsiliza, 2020). Non-compliance by municipal officers is also a pervasive threat that leads to poor performance and inefficiency in the Okhahlamba municipality. A further challenge in rural arears is that of technology in remote arears. The lack of electricity, or access to it, results in a slow pace of service delivery and innovative ways need to be utilized for effective service delivery to occur. The supply of energy can play a crucial role in underpinning efforts to achieve the Millennium Development Goals and improving the lives of poor people across South Africa. However, there are low levels of access to electricity in rural arears. This also affects officials in terms of being able to obtain information; collect and store data; and most importantly, to become trained and skilled through the use of technology. The above demonstrates that the issues that affect the municipalities reviewed, resemble the issues that other municipalities have. A recent report, released in August 2020 by the Research Unit in Parliament, and dealing with Municipalities Under Section 139 Intervention, found that 140 municipalities had been placed under administration between the years 1998 to 2019 (Parliament, 2020). The findings of the study revealed that the challenges of service delivery in local governments remains a serious governance challenge and that this challenge is most prevalent in rural areas in the KwaZulu-Natal and North West provinces. It is also apparent from the research material that was studied, that the state of rural developments is slow. That being said, it is worth noting that the majority of residents in rural arears, where agriculture and farming are the backbone of economies for the district municipalities, cannot afford to pay for basic services, due to the fact that jobs are scarce. Consequently, these municipalities do not receive sufficient revenue from residents; hence they do not have sustainable resources, with which to provide services. It is the author’s submission that political leaders and senior management officials employed by local government in rural areas should make more use of structures such as traditional leaders and chiefs in such areas for the distribution of information, but also for data and governance purposes. Local leaders are normally able to transmit crucial information and to win over the local population. A recent poll conducted in 2021 by Ratings Afrika, on behalf of Money web, listed the most improved and the most deteriorated municipalities over a period of five years. The findings indicated that the most improved municipalities focused on getting the basics right. These were improving revenue collection; eliminating wastage and corruption; and better service delivery, which is, in turn, dependent on maintaining and improving infrastructure spending and the maintenance of existing infrastructure. In these municipalities, there was a concerted effort from the senior management to improve the municipalities’ financial sustainability. What stood out the most – and served as a huge alarm bell - is the fact that the calibre of management staff in municipalities was\ found to have had a huge bearing on their performance. The fact that many municipalities have chased away skilled administrators has left the door opened for incompetency. Furthermore, municipalities are often embroiled in legal battles to get rid of “problematic staff”. In the final analysis, what was suggested is that it’s not impossible to fix the messy situation that municipalities find themselves in. This can be achieved by targeting the actual source of the problems at local government level, which is usually the quality of management and human capital (Ryan, 2021). Recommendations It is recommended that in working towards the 2030 sustainable development goals (Lina Henao, 2017), municipalities should focus on the following issues:: human resources departments must be capacitated with human resources specialists, who must play a strategic role in the acquiring of skilled human capital; corporate governance must be prioritized in the public sector, coupled with a revamp in legislation to help guide the implementation; legislation with respect to the policing of those in leadership positions must be reworked in order to achieve effective accountability and provide for proper checks and balances to be put in place; continuous upgrading and modification of monitoring and evaluation systems so as to align them with global standards; and technology must be used as a tool to assist in achieving effective service delivery. Rural municipalities must also utilize the assistance of traditional leaders as they are the bridge to their communities. Finally, the continuous upgrading of the level of education for councillors is crucial to guarantee that they will be able to ensure proper oversight, and to ensure proper accountability. Conclusion The global outbreak of Covid 19 requires local governments to be more aggressive in respect of being innovative, progressive and instrumental in ensuring that service delivery is not hindered and ensuring that they meet their objectives as outlined in their respective IDPs. Frameworks of reference, defining the qualifications and responsibilities of local government staff and a national local government capacity-building strategy should be implemented at local level. Vacancy rates for senior management positions by municipalities should be highly regulated through the use of external HR consultants, who can be utilized in ensuring that the hiring of senior professional staff is conducted properly and purely on the basis of merit. The adoption of this procedure, as a formal requirement, would solidify ongoing “buy-in” (author’s emphasis) to the commitment of adequate and appropriate resourcing and to the up-skilling of municipal staff. Capacity building should include regular training; improvements to salary structures; adequate working conditions; mandatory development courses; and a demonstrable commitment to staff well-being. Monitoring systems and measures related to performance management should be vigorously implemented by Human Resources departments, in order to keep track of the skills base. It is critical that municipalities be adequately resourced with competent monitoring and evaluation tools and system for their personnel. They must also be well-resourced with up to-date training in the maintenance and use of such mechanisms. This is important for strengthening their capacity to deliver efficient monitoring and evaluation services. Smart technology methods should be employed by municipalities in order to increase their abilities to meet citizens demand for services. An example of this is the use of automated machines to operate toll gate operations. This may have job-loss implications, but such losses may be mitigated through increased opportunities in other areas. Automation, for example, results in a greater need for technical roles in terms of app development and equipment maintenance. The need for guidelines and a legal framework that will facilitate the implementation of corporate governance in a municipal context, is also a key factor in working towards improving the performance of local governments. This must be coupled with the personnel who are adequately trained to assist municipalities in implementing the guidelines within their respective organizations. Furthermore, it is the authors observation that factors such as leadership, technology, and adequate human and financial resources as invaluable in achieving what Sections 152 and 153 of the 1996 Constitution determine is the very essence and purpose of local government: namely to provide public goods and services to local communities and to enable their social and economic development. Lastly, the author has considered the crucial issue of human capital as a meaningful contributor to local government organizational performance. Having done so, the author has made recommendations to the effect that consistent ongoing training is key if municipalities are to achieve their objectives. The functioning of municipalities is highly dependent on the people involved in them and on those who run the day-to-day operations of the organization. Their ability to work optimally has a direct nexus to the achievement of the organization’s mandate. It is therefore evident that no organizational strategy can be easily accomplished or achieved without aligning it with the human capital available, or without taking decisions on human capital acquisition or development, with the organizational strategy in mind. References Anon. 1995. Front Matter. Journal of Southern African Studies, 21(1) [Online] Available at: www.jstor.org/stable/2637327 [accessed 22 June 2020]. Auditor-General. 2020. Not much to go around, yet not the right hands at the till. Pretoria: Auditor General. Beyers, L. J. E. 2016. Service Delivery Challenges Facing Municipalities: A case study of Fetakgomo Local Municipality in Sekhukhune District Municipality. Bangladesh e-Journal of Sociology, 13(2). Businesstech. 2021. Almost half of South Africa’s senior municipal officials don’t meet minimum competency levels. [Online] Available at: https://businesstech.co.za/news/government/483989/almost-half-of-south-africas-senior-municipal-officials-dont-meet-minimum-competency-level [accessed 4 June 2021]. Cloete, H. & Eigelaar-Meets, A. F. W. S., n.d. The Challenges Faced By The Municipal Skills, s.l.: School of Public Leadership. Constitutional Court. 2018. Black Sash Trust (Freedom under law intervening) v Minister of Social Development and others [ 2018] ZACC 36. Pretoria: Southern African Legal Information Institute. Department of Public Enterprises (DPE). 2002. Protocol on Corporate Governance in the Public Sector. Pretoria: Department of Public Enterprises. De Visser, J. 2009. Developmental Local Government in South Africa: Institutional Fault Lines. The Commonwealth Journal of Local Governance, 2. Dipaleseng District Municipality. 2018. Draft turnaround strategy/financial recovery plan. Mpumalanga: Dipaleseng District Municipality Du Plessis, L. M. 2016. Human Capital Development in Local Government and the search for a Capable State. African Journal of Public Affairs, 9(3), pp. 31-37. Ekurhuleni, City of. 2017. City Of Ekurhuleni 2017/2018 Customer Services Standards. Germiston: City of Ekhurhuleni Ekurhuleni, City of. 2019. Ekurhuleni Budget (IDP) City of Ekurhuleni. Germiston: City of Ekurhuleni. Ekhurhuleni, City of. 2021. The Service Delivery and Budget Implementation Plan. Germiston: Government Printer Evans, S. 2018. 24 municipalities now under administration.. [Online] Available at: https://www.news24.com/news24/SouthAfrica/News/24-municipalities-now-under-administration-20181118 [accessed 15 May 2020]. Francois, Y. 2018. Assessing the Institutional Environment of Local Governments in Africa,2nd Edition. Rabat: United Cities and Local Governments of Africa. Frank, M. D. S. 2021. Interview conducted on 13 April 2021 with the Divisional Head Specialised Legal Support, By-law Drafting & SCM Support Services, Ekurhuleni Municipality. Gueli, R., Van Huysteen, E. & Liebenberg, S. 2007. Integrated Development Planning in South Africa : lessons for international peacebuilding? African Journal on Conflict Resolution, 7(1):89-112. Henao, L., Moyer, L. & Namakula, P. 2017. Africa 2030, How Africa Can Achieve the Sustainable Development Goals. Kigali: Sustainable Development Goal Centre for Africa. Institute of Directors in Southern Africa (IODSA). 2009. King Report on Corporate Governance, Johannesburg: Institute of Directors in Southern Africa Johannesburg Development Agency (JDA). 2006. Integrated Development Planning in the City of Johannesburg 2006/2011. Johannesburg : Johannesburg Development Agency. Ledger, T. 2019. We already have a solution to failing municipalities: It’s in the fine print. [Online] Available at: https://www.dailymaverick.co.za/opinionista/2019-10-06-we-already-have-a-solution-to-failing-municipalities-its-in-the-fine-print [accessed 3 March 2020]. Mabizela, H. & Matsiliza, N.S. 2020. Unconvering the gaps in the provision of services in the rural Okhahlamba Municipality of KwaZulu-Natal province. Africa's Public Service Delivery & Performance Review, 8(1) Madumo, O. 2015. Developmental Local Government Challenges and Progress in South Africa. Pretoria: Administratio Publica. Marais, L. et.al. 2019. Rethinking LED: Local Economic Development in intermediate Cities, Johannesburg, Braamfontein: South African Cities Network. Mughogho, D. 2018. The People’s Guide to the State of City Finances 2018. Johannesburg: South African Cities Network. Parliament, 1998. Municipal Structures Act 117. Cape Town: Parliament of South Africa. Parliament. 2020. Overview of municipalities under section 139 intervention as it relates to service delivery. Cape Town: Government Printer. Paulin, M. 2014. Corporate municipal governance for effective and efficient public service delivery in South Africa. Journal of Governance and Regulation, 3(4):98-106. Pham, H. H. 2012. The developmental state, the evolving international economic order, and Vietnam. PhD dissertation. University of Birmingham. Reddy, P. 2017. Operationalizing an effective monitoring and evaluation system for local government: Considerations for best practice, Cape Town: African Evaluation Journal. Republic of South Africa (RSA). 1993. Local Government Transition Act. Pretoria: Government Printer Republic of South Africa (RSA). 1996. Constitution of the Republic of South Africa. Pretoria: Government Printer. Republic of South Africa (RSA). 1998. Local Government Structures. Pretoria: Government Printer. Republic of South Africa (RSA). 1998. The White Paper on Local Government. Pretoria: Government Printer. Republic of South Africa (RSA). 2000. Regulations on appointment and conditions of employment in Municipal Systems Act. Pretoria: Government Printer. Republic of South Africa (RSA). 2003. The Municipal Finance Management Act. Pretoria: Government Printer Republic of South Africa (RSA). 2005. Intergovernmental Framework.. Pretoria: Government Printer. Republic of South Africa (RSA). 2007. Policy Framework for the Government Monitoring and Evaluation System. Pretoria: The Presidency. Ryan, C. 2021. What Separates the winners from the losers among municipalities. [Online] Available at: https://www.moneyweb.co.za/news/south-africa/what-separates-the-winners-from-the-losers-among-municipalities/ [accessed 20 May 2021]. SA News, 2020. City of Tshwane placed under administration. [Online] Available at: https://www.sanews.gov.za/south-africa/city-tshwane-placed-under-administration [Accessed 15 May 2020]. Seleka, N., 2019. Another North West municipality placed under administration, council dissolved. [Online] Available at: https://citizen.co.za/news/south-africa/politics/2195933/another-north-west-municipality-placed-under-administration-council-dissolved [accessed 15 May 2020]. Thornhill, G. V. D. I. I. 2014. Public Administration & Management in South Africa: a developmental perspective. Cape Town: Oxford University Press. Zuzile, M. 2020. Gauteng municipalities have a 20% vacancy rate among senior managers. [Online] Available at: https://www.timeslive.co.za/news/south-africa/2020-10-14-gauteng-municipalities-have-a-20-vacancy-rate-among-senior-managers/ [accessed 4 June 2021]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This article has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Roundtable report on the National Health Insurance Copyright © 2020 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. All records and findings included in this roundtable report, stem from the discussions that took place during the roundtable dialogue on the National Health Insurance, 2 December 2019 at Deloitte, Woodmead, Sandton, Johannesburg, South Africa. Content Setting the scene for the NHI roundtable dialogue – Ms Sue van der Merwe, Chairperson of the Inclusive Society Institute Purpose and objectives – Daryl Swanepoel, Chief Executive Officer of the Inclusive Society Institute 1. Executive Summary of the National Health Insurance Roundtable Dialogue held on 2 December 2019 in Sandton, Johannesburg 2. Desktop review on the potential constitutional implications of the NHI bill 3. Recommendations 4. NHI ushers in universal health coverage for all in South Africa: An extract from the presentation of Dr Nicholas Crisp, NHI Fund Developer, Ministry of Health 5. NHI is a healthcare revolution, not a political motivation: Dr Gwen Ramokgopa, former Deputy Minister of Health and ANC NEC Education & Health Sub-committee member 6. Extracts from presentations by sectoral representatives 6.1 Business proposes joint ranks with government over NHI to balance capacity 6.2. Workers call for urgent quality healthcare from government in response to NHI 6.3. NHI gives rise to constitutional challenges 6.4. NHI presents a golden opportunity to equalise the health system 6.5. Quality and standards: the cornerstones of achieving universal health coverage 6.6. Managing the lifeblood of the NHI 6.7. Integrating family practitioners as gatekeepers to the NHI 6.8. MedTech as a solution to the NHI’s pricing challenges 6.9. Fundamental principles for NHI success: efficiency, quality and responsiveness 6.10. Bringing the frontline of healthcare to the NHI debate 6.11. Fair play in the pharmaceutical trade in Africa 7. Finding pathways to consensus on the NHI (Open discussion) Setting the scene for the NHI roundtable discussion Ms Sue van Der Merwe | Chairperson of the Inclusive Society Institute The Inclusive Society Institute held a roundtable discussion on the National Health Insurance (NHI) system on 2 December 2019, with dialogue continuing from midday until late into the afternoon. The meeting was hosted at Deloitte Place in Sandton, and moderated by Deloitte’s Life Sciences and Healthcare Lead, Ashleigh Theophanides. The keynote speaker was Dr Nicholas Crisp, NHI Fund Developer in the National Department of Health, who presented on the National Health Insurance Bill. A number of other key South African stakeholders also delivered their input. After which there was an open discus­sion where the other notable guests in attendance were invited to express their views and concerns. The primary focus of the Inclusive Soci­ety Institute, and to a large degree the dialogue around the table on the day, was to work on and promote a more in­clusive society, as its name suggests. There is much noise being made in South Africa’s national discourse about various present-day issues, but not much of it is positive. The institute has been established to create a platform where this discord can be presented and discussed, to find some middle ground in dealing with the pressing issues the country faces. It may sound overly optimistic but there is more in common between the diverse societal players than one might think. And those commonalities seem to become particularly evident when the nation wins at something – winning the Rugby World Cup this year is case in point. The country’s natural optimism and natural energy as a society comes to the fore in these instances. But when tackling complex, difficult issues, this optimism risks getting drowned out by the negative talk. The question of the National Health Insur­ance is one of these stumbling blocks. National discord is not unique to South Africa; anybody who reads the news, will know that. In fact, people world­wide are taking to the streets to voice their arguments against the state of their own societies. South Africans generally fair better than other countries at getting around the table and thrashing out current is­sues, coming up with policy platforms, such as the Inclusive Society Institute, that offer a broader network of support for society. The institute then becomes a valuable resource for identifying areas of align­ment and disagreement and finding ways to bridge those gaps. Doing so through robust discussion, keeping an open mind to the perspectives of the various stakeholders around the table, and through undertaking research and analysis of public policy shortcomings. In the foreseeable future, the insti­tute will be organising many more opportunities for dialogue like the NHI roundtable. In addition, it will be producing publications through a variety of media avenues. And all with the intention of seeking to facilitate cooperation with similarly focused international and local institutions. The NHI discussion has come at the right moment – at a point where gov­ernment legislation on, and the process in which we progress and go forward with the health of our nation, is at the pinnacle of transformation. Hopefully this dialogue will encourage further debate and discussion on the issue, with the result of finding pathways that could achieve consensus. Key takeouts 1. The Inclusive Society Institute held a roundtable discussion on the Draft NHI Bill on 2 December 2019 at Deloitte Place in Sandton. 2. The keynote speaker was Dr Nicholas Crisp, NHI Fund Developer in the Ministry of Health, who presented on the National Health Insurance Bill. 3. The primary focus of the Inclusive Society Institute, and to a large degree the dialogue around the table, is to work on and promote a more inclusive society. 4. The institute has been established to create a platform where discord can be pre­sented and discussed, to find some middle ground in dealing with pressing issues. 5. The institute is a valuable resource for identifying areas of alignment and disa­greement through robust discussion, and research and analysis of public policy. 6. The institute will be organising many more opportunities for dialogue such as the NHI roundtable. 7. In addition, it will be producing publications through a variety of media avenues. 8. The intended outcome of the NHI discussion is to encourage further dialogue and debate on the issue, in order to find pathways that could achieve consensus. Purpose and objectives Daryl Swanepoel | Chief Executive Officer of the Inclusive Society Institute The National Health Insur­ance Bill (NHI) was tabled in parliament on the 8th of August 2019. The purpose and objective of the bill is to usher in an era of quality healthcare for all, as is envis­aged in the Constitution of the Republic of South Africa, Act 108 of 1996. The NHI is the proposed enabling funding mechanism to give effect thereto. The public responses to parliament’s call for comment on the bill have been profoundly polarised, with proponents in favour of the bill enthusiastically embracing it, and opponents thereto strongly rejecting it. The remarkable fea­ture of the public discourse, however, is that whilst universal support has been registered in favour of the principle ob­jective of delivering an affordable, quality and universally accessible healthcare system, little attention has been given to seeking out a middle ground position on the financing mechanism that could realise it. The Inclusive Society Institute is of the opinion that such a consensus position is achievable and is driven by a desire to find an equitable mechanism for funding universal health coverage responsibly. The purpose of the roundtable on the Na­tional Health Insurance Bill was to take stock of the wide-ranging critique that had surfaced during the parliamentary public comment phase. Its objective was to assess the areas of alignment and disagreement on the bill; and to evaluate the potential to bridge the gaps. This report does not constitute the policy position of the institute. Instead, it is a summary of the policy positions taken and arguments made in the public debate on the NHI. Given the broad rep­resentation at the dialogue, the institute is confident that the reported outcome sufficiently represents all the main aspects that need attention during the upcoming legislative process. It trusts that this report will serve as a useful tool to inform and aid public officials and representatives in their important task of delivering inclusive public policy. Executive summary Ashleigh Theophanides | Life Sciences and Healthcare at Deloitte It is clear from the roundtable pres­entations and discussions around the recently published NHI Bill and NHI in general, that there are various areas of alignment, areas of disa­greement or lack of clarity and some uncertainty on the way forward. All participants agree that there is a need for universal healthcare (UHC). Many of the providers of the healthcare services have shown a keen desire to be involved in assisting with this process as well as being Providers of the various services. The idea of a single purchaser model by the State for public healthcare services is generally accepted by most. The view that the NHI Board be ap­pointed by the Minister of Health, and the CEO of the Board appointed by the Board, seems to be the preferred route for the NHI Fund organisation. It is also generally accepted that all healthcare providers and stake­holders need to be involved and give their views in order to help shape an effective NHI system. The need for UHC is welcomed, as there is agreement that the current levels of inequality in the South African health system are not sus­tainable. In addition, greater levels of collaboration between the public and private sector is welcomed. Primary Health Care is recognised as the appropriate first stop on the referral network. There are concerns around the imple­mentation of the NHI. Some of these concerns stem from either disagree­ment with the high level principles/ proposals stemming from the NHI Bill or lack of clarity around various proposed elements. One of the main concerns is that the implementation phases of the NHI Bill are based on timelines that do not link back to any measurable milestones and outcomes. This aspect needs further consideration. There are high levels of concerns with regards to Section 33 in the NHI Bill. It creates uncertainty around the role of medical schemes post the implementa­tion of NHI. The “complementary cover” that medical schemes may provide is not clearly defined, nor is the benefit package that NHI will provide. Further clarity and specifics with regard to the composition, governance, operations, funding and coverage of the Fund is needed to ensure more deliberate de­bate and consultation can be had. Funding mechanisms for NHI accord­ing to the Bill, include tax revenue, reallocation of funding from medical scheme tax credits, payroll tax and a surcharge on personal income tax. The current constraints within the fiscus, along with the very low levels of GDP growth has raised questions regarding the sustainability of the proposed NHI. In addition, the financial sustainability of the proposed NHI has been further questioned given the lack of clarity with regard to fundamental building blocks such as the benefits that will be covered by the Fund. This lack of clarity has a significant impact on investor sentiment and therefore on the broader South African economy. It was suggested that the focus should be on fixing the public sector and Dr Crisp confirmed that this is the first priority as without this, NHI cannot be implemented. There is also concern as to how the funds collected will be utilized, due to the failure of many of the SOE’s in South Africa. Concerns were raised that not all relevant providers and funders of healthcare services were sufficiently included in the NHI deliber­ations. Further consultation will be needed once further details of the NHI become available. This important process should continue to be as inclusive as possible. Some argued that the process of impos­ing a state system while restricting the operations of the private system was unconstitutional and there is no global precedent for this. Further investigation is needed to understand the conse­quences of this recommendation. There were also various views that the focus should be on growing the economy first, before tackling NHI. Some partic­ipants felt that the timing and priority around this was not ideal. Arguments were also made that the unmet need of the population are so dire that the health system must reform in the next 5 years to ensure South Africa does not fall into social unrest as many other countries have seen in the recent past. Clarification is required around some of the key issues identified in order to remove uncertainty and provide some degree of comfort to all healthcare stakeholders. Key takeouts 1. Some of these key issues and the way forward with them are briefly summarised below: 2. The benefits package that will be provided through NHI has to be clearly defined 3. The role of medical schemes and the definition of complementary cover needs to be clearly articulated. 4. All Providers and Funders of the various healthcare services need to be included in future discussions around NHI in order to get the nec­essary buy-in and optimal solutions for NHI to ensure its success. 5. The Funding mechanisms that will be used for NHI, post determining the benefits to be provided and the costs of this provision, needs great­er clarity. 6. The risk mitigation strategies that are going to be implemented to en­sure NHI is sustainable in the long term needs to be clearly communi­cated. 7. There is a great desire to get NHI implemented as soon as possible to demonstrate to the citizens of South Africa that NHI is not a pipe-dream. This however needs to be balanced with a genuine desire to ensure future credibility and sustainability of the system. The process should therefore not be unduly rushed. It is encouraged that future round-ta­bles that allow robust debate to occur continue. This will contribute to the development of a sustainable and equitable health system for all South Africans. Potential constitutional implications In the course of the dialogue, frequent reference was made to the bill not garnering sufficient support to pass constitutional muster. Therefore, the arguments raised during the roundta­ble were subsequently subjected to a desktop review in order to flag the potential constitutional implications and challenges. Whilst state law advisor Ayesha Johaar confirmed that the bill had been certified as being aligned with the Constitution (Gerber, 2019), the desktop study revealed various consti­tutional concerns from a broad spectrum of organisations. The first argument relates to section 18 of the Bill of Rights, which guarantees every person the right to freedom of association. Some in the legal frater­nity argue that by being compelled to associate oneself with the NHI, one’s right to decide with whom to associate – either the NHI or a medical scheme – may be unfairly and unduly limited (Botha, 2019; Kirby, 2019; Van Staden, 2019). In this regard, Professor Shabir Moosa, a professor of Family Medicine and Primary Care at the University of the Witwatersrand and president of the Afri­can chapter of the World Organisation of Family Doctors, believes that no citizen can be prevented from having a medical aid scheme offering the full range of ser­vices, even including procedures covered by the NHI offering, precisely because the NHI Bill is constitutionally unsound (Medical Brief, 2019). It is further argued that the freedom to choose healthcare services may well be intertwined with the constitutional right to bodily and psychological integrity entrenched in section 12(2)(b) of the Constitution. This right guarantees all people control over their own bodies (Anonymous, 2019; Botha, 2019). Another argument relates to section 25 of the Constitution. In essence, the bill does away with a medical scheme’s ability to provide and charge for services rendered under the NHI regime. This, it is argued, may constitute an “unlawful infringement of a medical scheme’s right to property”, which is specifically prohib­ited by section 25 of the Bill of Rights (Kirby, 2016). Whilst state law advisor Johaar argues that section 27 of the Constitution, along with the Republic’s responsibili­ties in terms of international treaties, imposes a duty on the state to take rea­sonable measures to give effect to the right to healthcare, (Gerber, 2019), others rely on the Constitutional Court ruling in Government of the Republic of South Africa v Grootboom 2001 (1) SA 46 (CC) to support their argu­ment that the current NHI Bill may in fact infringe on their section 27(1) right to access to healthcare. In Grootboom, the court ruled that “the positive rights in the Bill of Rights – those rights that entitle South Africans to services from government, such as housing, healthcare, education, etc. – are themselves also negative rights. Whilst government is expected to progressively make possible the right to healthcare, government may not hinder South Africans from them­selves giving effect to this right” (Van Staden, 2019). Yet, even though govern­ment may therefore not prevent citizens from providing their own healthcare, the NHI Bill does not include an “opt-out clause”, and clause 33 relegates medical schemes to offering only “complementary cover to services not reimbursable by the Fund” (Van Staden, 2019). Another area of potential conflict touched on during the roundtable is the potential impact on an individual’s right to freedom of trade, occupation and pro­fession guaranteed in section 22 of the Constitution. Here too the Constitution­al Court has provided guidance, this time in Affordable Medicines Trust v Minister of Health 2006 (3) SA 247 (CC), where it held that “there are two components to this right: it is the right to choose a profession and the right to practice the chosen profession”. The court concluded that where a law regulating a profes­sion has a negative impact on citizens’ choice of profession, the statute must be subjected to the rationality test. Some in civil society question whether the NHI Bill in its current form will in­deed pass such a test, particularly given its lack of evidence of public purpose as well as the legislature’s failure thus far to present proper financial feasibility studies (Anonymous, 2019; Botha, 2019; Van den Heever, 2019). This is despite the state law advisor’s insistence that “the bill’s provisions connected ratio­nally with constitutional obligations” (Gerber, 2019). In a similar vein, the civil society organisations Section27 and TAC have questioned the bill’s specific exclusion of applicability of the Competition Act 89 of 1998. Excluding the NHI from the scope of the Competition Act, they believe, is not in the interest of health or of the NHI Fund (Section27 and TAC, 2019). There is also a suggestion that the bill may fall short of the limitations clause contained in section 36 of the Constitu­tion, which states that “the rights in the Bill of Rights may be limited only to the extent that the limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom, taking into account all relevant factors, including … (d) the relation between the limitation and its purpose [and] (e) less restrictive means to achieve the purpose” (RSA, 1996). Proponents of this argument emphasise the lack of published evidence to prove that the NHI is indeed necessary to achieve universal access to healthcare, claiming that there are numerous other approaches that could be implemented that would be less restrictive than section 33 of the bill (Anonymous, 2019; Van den Heever, 2019). Finally, both the roundtable and the subsequent desktop study have found that the vagueness of many aspects of the legislation, including the costing and funding model, and the unpredictability of the legislation’s intended outcomes may constitute sufficient grounds for a constitutional argument. In its founding provisions, the Constitution affirms that the state is founded on, among others, the value of the “supremacy of the constitution and the rule of law” (RSA, 1996). The rule of law suggests that legislation should be clear, unambiguous and provide reasonable certainty and sufficient information to enable those affected by it to respond in an informed manner. This notion was supported in the Constitutional Court ruling in Van der Walt v Metcash Trading Ltd 2002 (4) SA 317 (CC). Here, the court stated an absence of arbitrary power and unpre­dictability as essential elements of its understanding of the rule of law (Venter, 2011). Furthermore, in Affordable Medi­cines Trust, the court held that legis­lation should “indicate with reasonable certainty to those who are bound by it what is required of them so that they may regulate their conduct accordingly” (Constitutional Court, 2005). References Anonymous. 2019. Confidential correspondence between the CEO of the Inclusive Society Institute and academic attached to the University of the Witwatersrand, 5 December 2019. Botha, C. 2019. Submission on the National Health Insurance Bill [B11-2019] (“NHI Bill”). Cape Town: Centre for Constitutional Rights, The FW de Klerk Foundation. Constitutional Court of South Africa. 2005. Af­fordable Medicines Trust and Others v Minister of Health and Another (CCT27/04) [2005] ZACC 3; 2006 (3) SA 247 (CC); 2005 (6) BCLR 529 (CC) (11 March 2005). [Online] Available at: http:// www.saflii.org/za/cases/ZACC/2005/3.html [accessed: 4 January 2020] Gerber, J. 2019. NHI Bill is constitutional - state law advisers tell Parliament. [Online] Available at: https://www.news24.com/SouthAfrica/News/nhi-bill-is-constitutional-state-law-ad­visers-tell-parliament-20190829 [accessed: 3 January 2020]. Kirby, N. 2016. Many areas of concern in NHI paper. [Online] Available at: https://www.iol.co.za/busi­nessreport/opinion/many-areas-of-concern-in-nhi-paper-1970022 [accessed: 6 January 2019] Kirby, N. 2019. No mandatory requirement for South Africans to join fund under NHI bill as currently proposed. [Online] Available at: https:// www.werksmans.com/legal-updates-and-opinions/no-mandatory-requirement-for-south-africans-to-join-fund-under-nhi-bill-as-currently-proposed/ [accessed: 3 January 2020]. Medical Brief. 2019. Little of the criticism of the NHI Bill is ‘constructive’. [Online] Available at: https://www.medicalbrief.co.za/archives/little-criticism-nhi-bill-constructive/ [accessed: 3 January 2020]. RSA. 1996. The Constitution of the Republic of South Africa, 1996. Act 108 of 1996. Pretoria: Republic of South Africa. Section27 and TAC. 2019. Section27 and TAC NHI Submission November 2019. [Online] Available at: http://section27.org.za/2019/11/56382/ [accessed: 3 January 2020]. Van den Heever, A. 2019. National Health Insurance Policy Bill Review. Expert review of the National Health Insurance bill submitted by the Minister of Health to Parliament in 2019 for submission to Parliament as a response to the request for public comment. Chair in the field of Social Security Systems Administration and Management Studies Wits School of Governance. [Online] Available at: https://docs.mymembership.co.za/docman­ager/1e9aea2c-b58d-4aed-b5a2-96187d705aee/00146348.pdf [accessed: 3 January 2019]. Van Staden, M. 2019. Proposed NHI throws con­stitutional caution to the wind. [Online] Available at: https://www.freemarketfoundation.com/arti­cle-view/proposed-nhi-throws-constitutional-cau­tion-to-the-wind [accessed: 3 January 2019]. Venter, F. 2011. South Africa as a “Diceyan Rechtsstaat”, in Matthias Koetter / Gunnar Folke Schuppert, Understandings of the Rule of Law in various legal orders of the World, Rule of Law Working Paper Series Nr. 18, Berlin (ISSN 2192- 6905). [Online] Available at: http://wikis.fu-berlin.de/download/attachments/173736195/Venter+­South+Africa.pdf [accessed: 4 January 2020]. Recommendations In pursuance of its objective to secure inclusive public policy, the Inclusive Society Institute, makes the following recommendations in an attempt to secure broad consensus on the National Health Insurance Bill. The institute is of the opinion that it is possible to achieve such an accord by adopting a rational approach to this important national dialogue. Recommendation 1 The state law advisor has certified the National Health Insurance Bill as being aligned with the Constitution. However, given the strongly stated arguments to the contrary, the insti­tute recommends that the relevant parliamentary portfolio committee further interrogate the constitutional arguments being made, and seek a legal opinion prior to finalising its report. This would avoid a Constitu­tional Court challenge. Recommendation 2 The Constitutional Court has cau­tioned against adopting legislation that is vague and unpredictable. Concerns have been raised with regard to the lack of adequate financial modelling, insufficient clarity as to the prescribed benefits that will be covered by the NHI, and the conflicting provisions on the future role of private medical schemes in sections 8 and 33 of the bill. In this regard, the institute recommends that the relevant parlia­mentary portfolio committee either seek from the executive, or obtain its own, financial estimates regarding the affordability of the scheme and the fiscal impact of reducing the role of private medical schemes. To avoid vagueness and strengthen predict­ability, the institute believes that this modelling exercise should be based on the NHI benefits ultimately envisaged, as opposed to relying on a staged approach. Recommendation 3 The institute recommends that the relevant parliamentary portfolio committee do a comparative study of the universal healthcare systems and private medical schemes in oth­er jurisdictions. This would ensure that the bill passes constitutional muster as it relates to the limitation of rights in terms of section 36(1) of the Constitution, and specifically the section 36(1)(e) requirement for less restrictive means to be consid­ered to achieve the same purpose. It is proposed that at least the opt-in/opt-out model (e.g. that found in Germany) and the co-existence model (e.g. that found in Ireland) be included in such study. NHI ushers in Universal Health Coverage for all in South Africa Dr Nicholas Crisp | NHI Fund Developer in the Ministry of Health There are some mixed messages about what the National Health Insurance is – and what it is not – floating around in the media, and people themselves have different interpretations and different reasons for either liking the idea of the NHI or disliking it. The fact is, the NHI is a financing system; it is not the healthcare system of South Africa. It is a chosen route to achieve univer­sal health coverage. The NHI aims to address three problems simultaneously: increasing the number of people who have access to coverage in South Africa, increasing the amount of healthcare they receive (i.e. the benefits available to them), and decreasing the burden on the individual at the point of care, ensur­ing that when healthcare is needed, peo­ple are not turned away simply because they cannot afford to pay for it. Healthcare is a human right, and access to healthcare in South Africa is enshrined in the Constitution, under sec­tion 27. Furthermore, there is nowhere in the world where people would deny the basic principle of access to healthcare or that the level of healthcare received should not be dependent on the financial and social status of individuals, but rather on the ailment itself. In its present condition, the health sys­tem in South Africa is badly failing. The country currently has one of the most inefficient health systems in the world, where the outcomes in no way match the inputs. And this problem not only lies within the public health system; it also spans the private health system. Each of these systems has its own set of drawbacks and reasons for evolving in the direction it has, but collectively these systems are failing to achieve the outcomes expected from the 8.5% of GDP expended on healthcare. On one hand, there is the public sector, which is fragmented, poor, inefficient, understaffed and ill-equipped, serving the majority – roughly 85% of the popu­lation. On the other, the private sector is fragmented, overserviced, overspecial­ised, expensive, and serving only roughly 15% of the population. It is unsustaina­ble to have such dichotomous systems running concurrently, using up resources unequally that belong to all people in South Africa. It is simply not feasible for government to fix the one system with­out fixing the other at the same time. The whole system needs a facelift – and not just a tinkering around the edges. There are many ways to tighten up both sectors individually – reduce costs, re­duce corruption, improve labour relations – but the problem is really systemic in nature. This is the NHI’s underlying proposition: to address the healthcare system as a whole entity. How will the NHI work in principle? Firstly, it is designed to be one fund; a single pool of resources. The fund pur­chases services on behalf of everybody who lives in South Africa. That fund then contracts directly with service provid­ers – this is with regards to personal health services. Non-personal health services which are not going to be fund­ed through the NHI will still be funded through the provincial equitable shares in government and through the municipal allocations in local government. The legislation currently on the table suggests a purchaser/provider split, where the purchaser is a new public entity, defined according to schedule 3A in chapter 6 of the Public Finance Management Act (PFMA). This public entity has very specific powers. It may not borrow, invest, purchase, or enter into agreements with companies. In the most basic sense, the entity acts as an administrator of government business outside of the public service; the administrative purchasing entity for the funds that are channelled through the NHI fund. Private medical aid will still be made available. According to the NHI Bill, there will be providers from both the public and private sectors. The fund will buy directly from each provider, in the primary healthcare and hospital envi­ronments, and on the basis of accred­itation. To clarify, accreditation is not the same as compliance with stand­ards – that is the responsibility of the Office of Health Standards Compliance. The standards are set by government and the Office of Health Standards Compliance then implements those standards. Following from this, the compliant provider will have to ap­proach the fund to request accredita­tion in order to provide a certain kind of service, or a certain range of benefits of service. When is the NHI Bill going to be imple­mented? It will take time to achieve a fully functioning NHI; switching on mas­sive reforms overnight would break what is an already floundering health system. The process has already started, with the NHI Bill reaching parliament. The National Council of Provinces and the National Assembly are currently in the process of considering the comments on the bill that came in before 29 November and visiting provinces to attain any further comments. There has also been an influx of lengthy petitions which will require a massive amount of administration to get through. The plan is to implement the NHI Bill in phases, with the expected delivery date being 2025/2026. Presently, the pro­cess is in the formative phase, which in­volves setting up the administrative and operational machinery to run the fund – building up the numbers, designing the administrative standards, the operating procedures, the IT systems, etc. It is going to take many years of con­centrated hard work. There will be lead times; everything has to be published in the Government Gazette as a regulation before being considered, and there is usually a substantial amount of debating before even getting to a draft regulation. The process as a progressive realisa­tion of the NHI is fundamental to the success of rolling out the new system. There is plenty of evidence to indicate that building the health, and of course the education, of a population leads to economic growth. But the determining factor has to come from a sense of social solidarity, of aiming to create a healthy nation as a whole. Another point the bill speaks about is portability, wherein no matter where a person is living in South Africa or whether they are regularly travelling within the country, they will have ac­cess to the healthcare they need at any given point. Government and the NHI still need to put the mechanics in place to enable that to happen. The fund will be the purchaser and it will purchase benefits that are ulti­mately determined and signed off by a Benefits Advisory Committee. There is a huge amount of technical work that needs to be done to define what those benefits will be, to codify them, to cost them, and then to set a price for them. There will be a negotiation around what those prices are, much like in the private sector at the moment. Except, this is for a much bigger entity. The NHI currently spends between 8.2% to 8.8% of GDP. The NHI should ultimately cost less than 8.5% of GDP owing to efficiencies and savings on systemic improvements. Under the NHI the chief source of income will be money appropriated annually by parlia­ment: general tax revenue, reallocation of funding from medical scheme tax credits, payroll tax and surcharges on personal income tax. The Constitution states that every per­son living in South Africa – including SA citizens, permanent residents, refugees, inmates and designated foreign nation­als – is protected and must have access to healthcare. The dilemma is that there are many people living in South Africa who are not bona fide refugees or visitors. And so, the bill makes provision for this by limiting protection for those living illegally in the country. The bigger debate revolves around the public/private question, around what role the private insurance industry will play. There is in fact a very clear role for private providers, suppliers and compa­nies. The question is more: what is the role of medical schemes? This concern is currently in a parliamentary process, but is dealt with in section 33 of the bill, which states that once benefits are included in the NHI package for everybody, they are no longer insurable outside of the fund. Private insurance will only fund benefits that are not included in the package. There will be options such as top-up and bypassing, but the idea is that all those living in South Africa will start off by visiting a primary healthcare facility of their choice – whether it is a GP in the private sector, public sector clinic or health centre – to register on the NHI system. Today, the public health system already has 44 million people (those previously registered at the public sector clinics) registered on the first part of its digital system, exclud­ing people in the private sector. There will be predetermined referral pathways to ensure that patients are dealt with at the most appropri­ate level of care. There will be some measure of choice in the matter: referral pathways will cover a number of options which patients will have the chance to negotiate over. From the perspective of portability, the NHI system will still detect a patient if they need to visit a different facility or enter the system through a different GP because they are away from where they originally regis­tered, for whatever reason. There are three reasons for setting the system up this way. First, the NHI wants to track the epidemiological pattern of the users in a given geo­graphical area, so as to ensure that the services purchased meet the needs of the population. The second reason is to monitor the money that the fund is spending on a particular community, to keep an eye on whether there is indeed redistribu­tion of resources, which will ensure that underserviced communities receive proper healthcare. And lastly, there is the question of the transferring of funds. It cannot be arbi­trary; it has to be very deliberate. It is the responsibility of the health system to manage these transfers efficiently and effectively. The bill provides for two main routes through which purchasing will happen. The one is through capitation funds, which will be the means for purchasing in the primary healthcare sector. The trouble here is that there are a variety of models. The costing and designing of those models is a concern, but it is the reporting of what outcomes are achieved that is actually the more tricky aspect to monitor. There needs to be more work done clarifying how to effect capitation. Contracting units for primary health­care could be used, but exactly how that will function in South Africa, within our statutory environment, who would be responsible and who would be the providers within a contracting unit – re­mains to be seen. The second route is through some form of global budgeting mechanism – 0.1% of private purchasing is presently done through a form of diagnosis-related group (DRG). This should be the primary method of purchasing services in hospitals, to avoid a fee for service environment. Fee-for-services is expensive and the development of agreed upon DRGs requires extensive engagement and substantial available data on which to base pricing decisions. DRGs are very necessary in an NHI environment where services need to be actively purchased across sectors. The way in which the provincial equi­table share gets reallocated is also a matter for careful consideration. If the NHI intends to purchase personal health services collectively for the country, it makes perfect sense to shift those funds into the NHI fund, to follow the moving function. This is not going to happen immediately. Touching on accred­itation once more – this is about making sure that the facil­ity and the providers in a facility have, in fact, not just the quality needed but also the capacity to provide a certain kind of benefit. This needs to be set up as an ongoing accreditation system, where providers can update the packages they offer with new benefits over time. The fund must determine the way the provider payment mechanisms operate. The bill says that with specialists and hospital services, payments must be all-inclusive based on performance. It then becomes about an outcome. The problem with our present system in both the public and private sectors is that no-one measures the outcomes; the focus is all on the inputs. The result is: no accountability for the services they offer. With regards to emergency medical services, they are designated in sched­ule 5 of the Constitution as provincial services. Therefore, they will have to be funded directly through the provincial equitable share. The private emergency and medical services could be funded through alternative means. Presently, the bill describes functions that the fund will execute, some of which are common sense. The NHI committee has looked into a number of other NHI funds globally. They also have consultants on hand, and treasury, who have worked in Europe in connection with recently formed insurance funds. The fund has seven key functions, with sub-functions within each. The first function, governance and administration, cannot be implemented until the fund is a schedule 3A entity outside of the public sector, in terms of the Public Ser­vice Act, as it is illegal to duplicate the administrative functions – human re­sources, procurement functions and the supply chain management – under the same accounting officer. The other six will take substantial effort to describe and will involve learning from people who are versed in these undertakings – including the considerable expertise already on South Africa’s doorstep. Function two: set up the NHI fund. This is fundamentally a sizeable bank ac­count which will have roughly R5-billion funnelling through it per week once it is a fully functional fund. It will involve a vast collection of bank accounts and commercial banks, careful cash flow and cash flow balances on a daily basis. How the money comes in from the treasury and how it is dispersed is going to need to be closely watched. The fund will not be run by health professionals; it will be managed by medical scheme administrators with actuarial, financial and clinical skills. The third function is the benefits and the provider payment designs. The key starting point will be getting the bene­fits designed early. Then working out the payment designs: calculating the costs, negotiating a level of pricing and what the profit margins will be, and who will be providing the services. There are no laws prohibiting any one of the multitude of payment design options. The next function (the fourth) is health products procurement. There is some debate about whether this function specifically needs to be carried out by the fund, whether it should be the department’s responsibility or whether it should be an autonomous function. But this is not a warehousing function; it is described as a function of negotiating prices. It follows then that if there is economies of scale, there is the lever­age to attain better prices. Function five belongs to the realm of digital information. The whole NHI sys­tem has to run on a digital platform. It would be impossible to run such a large-scale operation in the same fashion the government has been running health services up until now, which is manually. As such, this realm will require substantial infrastructure investment, software investment and data analytics capacity building. The sixth one is risk and fraud manage­ment, the majority of which needs to be designed into the NHI system. This would be a similar system to those uti­lised in the medical scheme and hospital environments. There also needs to be a way in which to respond to whistle-blowers and people’s complaints outlined in the system. User and service provider management is the last function (seventh). This concerns the rules around what data the fund is at liberty to keep on people using the system. The NHI will not keep the kind of data that a hospital does on personal records, but it needs to have a certain amount of information – whether a patient accessed care and the out­comes of that care – in order to monitor the epidemiological trends, to keep tabs on where the money in the fund is being spent. Exactly what data the fund will be allowed to retain still needs to be determined. And then of course there is the information about the service pro­viders, those who get accredited, which needs to be taken into account. These are the building blocks of the NHI fund. There will ultimately be a board that is accountable. There will be an accounting officer, with an office to deal with the core adminis­trative functions. Although, corporate services will only come into being once the NHI fund is a schedule 3A entity. There may need to be some form of decentralised administration, the details of which are being discussed with the provinces. In terms of the fund itself, until there is money to be paid out, there is no real purpose of having a fund – in the interim, perhaps only a few officers to determine the rules. The National Department of Health will still be responsible for policy standards and coordination of the entire system. The provincial departments of health will still be responsible for stewardship over the public and private providers. The bill is not explicit about whether that will be a primary assigned function but says a great deal of the current provincial functions will be removed and then delegated back to the provinces. The municipalities will primarily be re­sponsible for non-personal services and intersectoral collaboration. The presi­dent is setting up coordinated district meetings to improve the relationship be­tween the traffic department and trade and industry around liquor licensing and water, etc., to relieve pressure on the health department from the throngs of patients arriving at hospitals and clinics with complaints that are due to the social determinants of health. Within the provinces, how the districts are managed in terms of the setup of the primary healthcare units will largely depend on how the economy is performing. As the Minister of Finance explained, if the economy is perform­ing poorly, we would implement less, and then when cash flow increases do more. The NHI needs to trim the fat from the system: sort out the ineffi­ciencies of the public service, the way people are employed and then allowed to offer their services in the private sector, the unnecessary, costly duplica­tion of tests and examinations. The four contentious issues that the NHI is keenly aware of, and is engaging on, are the role of the medical schemes, the role of the provinces, the capability of the state to manage the fund, and cen­tralised procurement. Each issue needs a unique perspective to accommodate the role players as individuals. In the meantime, while the fund is being designed and people are being employed to engage with those who have been through the process, the private sector needs to organise itself. The Health Market Inquiry (HMI) report is not declared null and void because healthcare in the country is moving in the direction of the NHI, far from it, it is as important if not more important than ever. There are numerous social compact issues between private sector players, civil society, the public sector, and so on. And these issues are not negat­ed by the NHI at all. They all need attention; and they will all be seen to in good time. Key takeouts 1. The NHI is a financing system, not a healthcare system, to address the number of people who have access to cover­age, the amount of healthcare they receive, and the burden on the individual at the point of care. 2. The problems with healthcare in South Africa lie in both the public and private health systems. The NHI proposes to address the healthcare system as a whole entity. 3. The NHI is designed to be one fund; a single pool of resources which will purchase services on behalf of every person living legally in South Africa. 4. The NHI fund will contract directly with accredited service providers from the public and private sectors with regards personal health services. 5. Non-personal health services not funded through the NHI will be funded through the provincial equitable shares in gov­ernment and the municipal allocations in local government. 6. The purchaser will be a new public entity, defined ac­cording to schedule 3A in chapter 6 of the Public Finance Management Act (PFMA) and will act as an administrator of government business outside of the public service. 7. NHI benefits will be defined, codified, costed and priced. Prices will be negotiated much as they currently are in the private sector. 8. The chief source of the fund’s income will be appropriated annually by parliament. But essentially, it will come from tax revenue. 9. Once benefits are included in the NHI package, they will no longer be insurable outside of the fund. The private insurance will only fund benefits that are not included in the package. 10. All patients will start off by visiting a primary healthcare facility of their choice to register on the NHI system. 11. The NHI system offers portability in order to track the epidemiological pattern of users in a geographical area, monitor the fund’s spending and track referrals. 12. Purchasing will happen through capitation funds or through a global budgeting mechanism such as DRG, ideally one that avoids a fee for service environment. 13. Provider payment mechanisms must be all-inclusive based on performance to create an outcomes-based measure­ment standard for services, building accountability. 14. The National Department of Health will still be respon­sible for policy standards and coordination of the entire system. 15. The fund’s seven key functions: First: governance and administration; Second: set up the NHI fund; Third: benefits and provider payment designs; Fourth: health products procurement; Fifth: digital information; Sixth: risk and fraud management; Seventh: user and service provider management. NHI highlights Why do we need NHI? It is a human right that everyone should be entitled to It should not be related to income levels Currently there are poor outcomes in both public and private sector Public and Private sector are mutually dependent The whole system needs a facelift How will NHI work? One NHI Fund NHI Fund will purchase services (benefits) from both public and private sectors NHI Fund will contract directly with service providers When will NHI be implemented? Implemented in phases 2025/2026 expected delivery Objectives of the NHI Bill Achieve universal access to quali­ty health care services Aims Achieve progressive realisation to­wards Universal Health Coverage Pool financial resources and ensure risk protection Provide quality health care services Single purchaser of health ser-vices to end fragmentation Create a single national health system Portability of health care services to enhance access The NHI Fund Purchase health care services determined by the Benefits Advi­sory Committee Chief sources of income are money appropriated annually by parliament: General tax revenue Reallocation of funding from medical scheme tax credits Payroll tax Surcharge on personal in­come tax Beneficiary Users of the NHI SA citizens; permanent residents; refugees; inmates; designated foreign nationals Complementary Cover Only applicable to benefits not included in the NHI Fund Health Care Services Coverage The Fund will contract accredited providers and health establish­ments at primary health care and at hospital level, based on the health needs of users and in ac­cordance with referral pathways Services will be portable Transfer to appropriate provider if required NHI Fund as Purchaser Fund will purchase health services for all based on need Various models for reimbursement are outlined Accreditation of Service Providers All Health care service providers and establishments will need to be accredited to deliver health care service (benefits) at the appropriate levels of care NHI Fund Functions Seven Main functions: Governance & Administration NHI Fund Health care benefits & Provider Payment Design Health Product Procurement Digital Information Risk & Fraud Management User & Service Provider Management NHI Fund Organisation The Fund structure is as follows: Board CEO Fund Corporate Services Decentralised Administration Functions What will NHI cost? NHI is expected to cost between 8.2% to 8.8% of GDP Contentious Issues A number of contentious issues have been identified, not limited to: The role of medical schemes Role of provinces The capabilities of the State to manage the NHI Fund Centralised procurement NHI is a healthcare revolution, not a political motivation Dr Gwen Ramokgopa | ANC NEC Education & Health Sub-committee member and former Deputy Minister of Health South Africans will have the NHI bill that suits its environment, its stage of development and what is best for all its citi­zens. And the binding principle will be social solidarity. When a person is sick, they will not have to check how deep their pocket is before receiving healthcare. No-one can disagree with that. The World Bank has been training min­isters of finance to understand why every country – for its productivity and sustainable economic growth – needs to go the universal healthcare route. In fact, this is in the NDP, which is one of the few consensus documents across political parties. There needs to be engagement in a manner that co-creates what is ideal for the majority of South Africans and addresses legitimate concerns. There needs to be controls put in place in order to avoid corruption and systems breaking down further. Over the years, there has been a disin­vestment in the public health system – the funding of central hospitals has halved over the past ten years. The health providers, both in the public and private sectors have been left with the responsibility of deciding how to care for patients while still earning enough to survive themselves. The health system needs to deal with the challenges in both sectors. One of the main concerns is corruption; there need to be adequate controls in terms of governance. The minister should appoint the board, and the board must appoint the CEO, in consultation with the minister. If the minister appoints both the board and the CEO, it will undermine the board. The second concern is the issue of the medical aids. The question here is whether it is too soon to pull the resources from the medical aids. And if not now, when? What led to the near collapse of the public health system in Gauteng is partly the economy. The global economic recession has also resulted in the number of medical aids in the private sector decreasing. And the affordability of catastrophic health situations like cancer has become unmanageable for the ordinary person. Financial protection of all South Afri­cans is critical, as both the public and private sectors are crumbling. There needs to be a wall-to-wall health system that is reliable and includes both sectors in its implementation. Entrepreneurs and investors can diversify or look at other areas where government is looking only to the private sector to service. For example, government will not manufacture equip­ment. Government will still depend on the private sector to avail their skills to help strengthen the NHI and to con­sider putting health and productivity of people before profits. There needs to be a realistic approach which acknowledges that if there are further delays, neither system will be able to provide for the country’s pa­tients. There is no room for arrogance. The NHI and universal healthcare is a revolution, not from a political point of view, but how it will impact the way healthcare is done in the country. There is no other solution. There are recommendations, for instance, that government continues with the 86% of the public receiving funds from treasury and the private sector going to the market to raise funds from investors. But investor money moves. The result will be a much more stressed public sector that will collapse even further. Privatisation is not an option. Health is not a commodity for the free market. People do not want to hunt for and negotiate the best price when they are sick, they want to negotiate good health. The World Bank has done many studies on this and it is no longer a mat­ter of debate globally; it is a consensus. The need for a benefit design is understandable. The Council for Medical Schemes, through the Medical Schemes Act, came up with prescribed medical benefits (PMBs) to protect those with chronic ailments. But when the courts ruled against having a price reference list, instead of improving, the situation actually worsened because medical administrators and medical aids simply found a way around it. There are also lessons to be learnt from Vitality and other programmes that reduce the burden of disease, which is a real risk to the fund. In terms of the current financial framework, including both percentage of health and the economy, and rands and cents, a particular element to emphasise is the issue of affordability. WHO recommends 5% of GDP, but South Africa is already at 8.5%. Looking at it from the perspective of rands and cents, in the public health system there is R230-billion. In the private sector the contributions are also over R200-billion. The NHI is not a reckless politically motivated decision. There has been so much wastage in the public health system. And in the private sector there has been much extraction of the health rand meant for people on medical aids, but used for intermediary support ser­vices, for example. There is much work to be done with treasury to figure out what the amount is that is available, including looking at the inefficiency of tax rebates for healthcare. These rebates come out of a common central revenue and go back to individuals who are working and can af­ford healthcare. Essentially, this means the poor are subsidising the rich. Government through the Council for Medical Schemes and a number of government medical aids participates in private sector health – there is no paucity of information. At the same time, the information is also not that integrated. When referring to compre­hensive benefit packages, this means that nobody will be turned away if they have a health need. And the protocols will be determined by experts, not by government. The same experts that have been developing them for both sectors. There is a small community in the private sector which is making exces­sive profits. And those profits are not shared throughout; it is purely extrac­tionism. There is no problem with the entrepreneurs and private solutions making reasonable profit margins. But the huge returns on investment in private/personal healthcare come at the expense of the vulnerable. The IRRs are about 26%, which is an indefensi­ble figure. Serious investors will know that they need a healthy population to improve productivity. As a society, there needs to be agree­ment on the principle that if a person is sick, it is a human right to have access to quality care, nearest to where they are, anywhere in the country. And health professionals should not have to deal with the issue of whether a person can or cannot afford it every time they treat a patient – that is a massive moral burden to bear. There needs to be research into afforda­ble solutions. There has been waste on the part of government and also the pri­vate sector in the past, so there needs to be zero tolerance for inefficiency, maladministration, extractionism and exploitation in the health sector of the future – whether public or private. Key takeouts 1. South Africans will have an NHI bill that suits its environment, its de­velopment and what is best for its citizens. And the binding principle will be social solidarity. 2. The World Bank has been training ministers of finance on why every country – for productivity and sus­tainable economic growth – needs to go the universal healthcare route. 3. There needs to be engagement in a manner that co-creates what is ideal for the majority, dealing with challenges in both the public and private sectors. 4. One of the main concerns is corrup­tion; there needs to be adequate controls in terms of governance. 5. Another concern is the issue of the medical aids. The question here is whether it is too soon to pull the resources from the medical aids. And if not now, when? 6. Government will depend on the private sector to avail their skills to help strengthen the NHI and to consider putting health and produc­tivity of people before profits. 7. Health is not a commodity for the free market. People do not want to hunt for and negotiate the best price when they are sick, they want to negotiate good health. 8. There is no problem with entre­preneurs and private solutions making reasonable margins, but huge returns on private/personal healthcare are at the expense of the vulnerable. 9. Health professionals should not have to bear the moral burden of whether a person can or cannot afford it every time they treat a patient. 10. There needs to be zero tolerance for inefficiency, maladministration, extractionism and exploitation in the health sector as a whole. Business proposes joint ranks with government over NHI to balance capacity Business point of view Businesses’ position in terms of the NHI’s values is that it sup­ports universal and equitable healthcare – in fact, it forms part of the team’s mandate. One of its other key points is that it believes wholeheartedly that South Af­rica needs to take on board the NHI bill. Further to this, it believes the process of implementing the bill needs to unfold in such a way that it crowds in the pri­vate sector, rather than pushing it out. And not just with regards to healthcare. The underlying sentiment in business’s ongoing discussions with government, from the president down, is that the private sector is able, ready and willing to help in a whole range of ways. The reality of South Africa’s present situation is that the resources of the country lie in the private sector. It makes sense then to use those re­sources to match government capacity with private sector capacity. This is the principle that the business sector brings to the table. It firmly agrees that this depends on mutuality and mutual dependence between the public and private sectors, and that government needs to increase efficiencies within these two sectors and leverage the strengths of both. This is also critical from a funding point of view, given the dire state of the economy, with indications this last quarter that South Africa may be head­ing into a recession. At the very most, the country is looking at a GDP figure of roughly 0.1%. This fiscal situation is reason for great concern, with increas­ing shortfalls in tax collection. These are issues that will have an impact on any proposed strategies, from either the public or private sectors. Funding of the NHI and how much it will cost, therefore, depends on what is expected from it, as a percentage of GDP. Clearly then, there needs to be growth of GDP. As it stands, a percentage of GDP would mean next to nothing. Bearing that context in mind, to fund any major project at this point, or for the foreseea­ble future, from the fiscus is going to be an extremely challenging endeavour. That is of critical importance in the funding discussion. Government needs to clarify the role of the private sector for business continuity and investment purposes. Although it has been said that the role will be a mutual one, the hard discussions are still needed between business and the National Department of Health working on this issue. In parallel to this, there needs to be a focus on fixing up the current public sector capacity – and government will need private sector capacity to do that. The business sector’s proposition is to merge the two and find a way to bring the capacity to bear, though this will take years to implement. Ordinary people on the street who currently use public services do not have years to wait – government needs to remedy this in the short term. And business suggests working together to do that. If the rollout of the NHI is handled properly and the discussions are con­structive – not just talk of it depending on mutuality between the public and private sectors, but agreement on how the two are going to work with each other – then the NHI will have the opportunity to enhance and even regain skills. If the discussion is not construc­tive and the mutuality concept is not bedded down in real, hard terms, then this could very well bleed skills instead. Another point is that the pooling of funds and the creation of the fund under the Public Finance Management Act (PFMA) needs more clarity: on who is going to manage it, how it is going to be managed, what the board is going to look like. Because there is no escaping the reality that public sector pools of funds have not had a good track record over the past years. The private sector is not free from blame in that regard either, but billions of rands have been misappropriated in the public sector and now the conversation is about additional billions of rands in the form of the NHI fund. It is not just the private sector that needs absolute clarity and transparency on how the fund is going to be managed, it is the whole country that needs peace of mind. There are also constitutional issues to take into consideration related to free­dom of choice and what sort of health services a person will have access to. These issues need to be discussed further and government needs to put a plan of action in place to deal with them going forward. There is some impatience around the often talked about potential legisla­tion, but a lack of conversation around the issues. Legislation gets passed and signed into an act, and then when issues arise, government simply blames them on unanticipated, unintended consequences. But as in the case of the Credit Amendment Bill recently, during the process of engagement, the govern­ment was warned of the consequences, compounded by their own socio-econom­ic impact assessment – and still signed the bill. It is now time for government to take responsibility for actions; to take heed of the early warnings. Business understands full well that the process of implementation will be a lengthy one; to rush this would be irre­sponsible and that is not the intention of the NHI. But substantive engage­ment and maximum agreement early in the process will help implementation, rather than allowing those interactions to drag on and cause disruption further down the line. Early on in discussions between the department and organised business, in the first meeting with the Minister of Health, Dr Zweli Mkhize, it was decided to have a deadlock breaking mechanism for managing disagreements and reaching a consensus. Achieving this promptly means that business and the department will have a better chance of working together productively and implementing the NHI successfully, albeit over time. Despite the fact that rolling out this massive project will not be an easy process and there are bound to be differ­ences that come into play, The business sector remains supportive and confident that in the interaction with the depart­ment, and in the parliamentary process, concerns will be addressed and a clear strategy for equitable healthcare will come to light. Key takeouts 1. Business fully supports the NHI values of universal and equitable healthcare. 2. Business believes South Africa needs to take on board the NHI Bill and implement it in a way that crowds in the private sector, rather than pushing it out. 3. Using the resources of the private sector to match government capacity with private sector capacity depends on mutuality and mutual dependence between the two sectors. 4. Government needs to clarify the role of the private sector for business continuity and investment purposes. 5. The country’s fiscal situation is reason for great concern, with increasing short­falls in tax collection. This will have an impact on any proposed strategies for funding the NHI. 6. There needs to be a focus on fixing up the current public sector capacity. The busi­ness sector proposes to merge the state and private sector, bringing the capacity to bear for the long term and for the short term to address immediate needs. 7. The pooling of funds and the creation of the fund under the PFMA needs more clarity. 8. There are constitutional issues to take into consideration related to freedom of choice and what health services a person will have access to. 9. Business understands that to rush the process of implementation would be irresponsible, but substantive engagement and maximum agreement early in the process will lead to less disruption further down the line. 10. In the first meeting between the Minister of Health, Dr Zweli Mkhize and organised business, it was decided to have a deadlock breaking mechanism for managing disagreements and reaching a consensus. Workers call for urgent quality healthcare from government in response to NHI Labour point of view Organised labour representatives recently concluded a process whereby they visited all nine provinces to discuss the NHI Bill with workers – to discuss what the bill is trying to achieve and to get their views on what they believe national health insurance is. The most salient point to come out of the discussions is the urgency for workers on the ground to have access to quality healthcare, and soon. Workers simply cannot afford to be members of medical aid schemes for much longer; it is not practical for them anymore. South Africa’s health system is in dire need of an overhaul in terms of its financial arrangements, management, and its ability to deliver quality healthcare services. Access to quality health services is currently dependent on a person’s geographical location, race, employment status, income level, gender, and on where the healthcare services are being delivered at the time. From labour’s perspective, the unequal distribution of health spend in South Africa and the deteriorating state of public healthcare necessitates the implementation of the National Health Insurance. The findings of the Health Market Inquiry reports reaffirm labour’s opposition to the commercialisation of health and its consequences on both quality and access to healthcare. Labour supports the NHI as well as the bill. The reaffirmation of primary healthcare is a critical component of the NHI, as it constitutes the foundation of the healthcare system. Primary healthcare reengineering and the intended effort to grow a strong district health system is crucial to the endeavour of re-orientating the South African healthcare system. Furthermore, labour supports the establishment of a single fund, the appointment of a board as well as a number of functions related to the NHI fund. Though there is obviously concern about the board pertaining to how secure the funds will be. Corruption has burnt particularly the workers. Wherever there has been an onslaught of corruption, it seems the workers take the fall. SAA and Eskom are cases in point. The only solution to corruption there so far has been the imminent retrenchment of workers. Ignoring the impact of corruption, especially in state-owned enterprises, means workers will continuously be at a disadvantage. There is an opportunity, being at the beginning of the rollout and implementa­tion of the NHI for government to estab­lish clear-cut methods and mechanisms within the board and its functions, to ensure that it is carefully monitored and managed. Labour also supports the inclusion in the NHI bill of the complimentary role of medical aid schemes. It is becoming less and less affordable to be on med­ical aid. During provincial consultation processes conducted by labour repre­sentatives, many have indicated that they chose to first try signing up for a government employee medical scheme, only for it to turn out to be like any other medical scheme, where it quickly becomes unaffordable. The benefits do not justify the amount of money that is being spent on medical aids. With regards to the issues relating to the contracting unit for primary healthcare services, there have been numerous collective bargaining agree­ments put forward that allow for Collective Bargaining Council clinics on site at various workplaces. Workers too are willing to play an active role in the implementation of the NHI, even if it means opening their collective bargain­ing clinics for use by people living in close proximity to the clinics. When it comes to the sources of funding, it seems the NHI will be heavily reliant on taxation. It was said that this is a contradiction of the principles that are set out in the NHI bill, whereby it is based on social solidarity and cross subsidisation. Social solidarity from labour’s point of view means that the rich subsidise the poor; the healthy subsidise the sick. Although there are grievances among the representatives of labour as to how heavy the NHI will lean on taxation, the workers are still willing to come to the table and agree to the sources of fund­ing that have been proposed by the bill. But there needs to be a bit of homework and a bit of groundwork done by the government on looking at additional sources of finance. This is going to be a fund that will benefit all South Africans and, therefore, all South Africans should have a part to play in the financial arrangements. Over and above the various tax streams that have been made use of, there is a need to venture into a discussion about the wealth tax. Regardless of the fact that the Davis Committee has already gone through the process of looking at these various streams of financing, labour feels strongly that this discussion needs to be reopened. If the NHI is to live up to and reflect the standards and processes set out in the bill, which largely focuses on the attainment of section 27 of the constitution, there needs to be con­structive dialogue around how al South Africans will play their part equally with regards to funding the NHI – whether that means looking at a wealth tax, a tax on currency transaction or a tax on financial transactions. Broadly, it would appear that labour agrees with the aims and intentions of the NHI. There have been resolutions at several congresses of labour that a national health insurance is needed, because it is the only vehicle that could achieve universal health coverage. Labour has made several concessions. Ideally, and when the process started, it purely wanted the public sector to be involved. The concession has been made to allow for private sector involvement in the process, on condi­tion that there is a boost in access to healthcare. And that is labour’s main end goal on the matter. There are likely to be additional conces­sions to be made as the rollout of the NHI progresses, but multistakeholder forums of this nature will make it easier to find consensus on the matters that arise. Labour will not be alone in this; other stakeholders will also have to dig deep and take a good look at ideologies they have previously held onto and make their concessions. But at the centre of these considerations must always be the workers and people on the street who are not afforded the access to quality healthcare. Key takeouts 1. Labour’s discussions with workers revealed the urgency for workers on the ground to have access to quality healthcare, as they cannot afford medical aid. 2. South Africa’s health system is in dire need of an overhaul. 3. From labour’s perspective, the unequal distribution of health spend and the deteriorating state of public healthcare necessitates the NHI. 4. The findings of the Health Market Inquiry reports reaffirm labour’s opposition to the commercialisation of health and its consequences. 5. Labour supports the NHI bill and the establishment of a single fund, the appoint­ment of a board as well as a number of functions related to the NHI fund. 6. There is obviously concern about the board pertaining to how secure the funds will be. Wherever there has been an onslaught of corruption, it seems the workers take the fall. 7. Labour also supports the inclusion in the NHI bill of the complimentary role of medical aid schemes. 8. With regards to the contracting unit for primary healthcare services, there have been numerous agreements put forward that allow for Collective Bargaining Council clinics on site. 9. Labour is willing to agree to the sources of funding proposed by the bill, but the government also needs to look at additional sources of finance. 10. Labour has made the concession of allowing for private sector involvement in the process, on condition there is a boost in access to healthcare. NHI gives rise to constitutional challenges Health industry point of view Nobody in the NHI debate is ar­guing against universal health coverage, but unfortunately many in this debate are having a fundamental debate – literally for and against the NHI. This is unfortunate. Many believe that the debate needs to move past this this approach. The lead­ership within both the public and pri­vate sectors – and the NGOs and others who are part of this conversation – need to move past this high level debate, and to rather focus on those elements of the proposals which can be supported and the elements that are problematic and need further discussion. For many in the private sector, there has been consistent support for the broad policy of the NHI, as well as much of what is found in the NHI Bill. But there are some critical concerns with the current draft of the NHI Bill – the most important of which is Section 33 and the consequences of this. There are some other concerns. For ex­ample, the lack of clarity and informa­tion on the benefit package and, linked to that, the absence of any detailed information on the likely costs and financing of the NHI. It is understand­ably difficult for government at this point to be explicit about these issues – it requires a mountain of work – but it not appropriate in a democratic society to ask the parliamentarians to approve a massively important and impactful Bill such as this one in the absence of such critical information, including the benefit package, and also the associated costs. In addition, there is concern around issues of governance. The model that has been put forward is precisely the model that has led to serious cor­ruption with very damaging impacts on our economy. The main concern is that as currently drafted, too much power is vested in the Minister of Health in terms of appointments and governance. This creates the risk of politicising the NHI. Many stakeholders would suggest that different governance models are ex­plored. For example, in the HMI report, the governance model recommended for the Supply Side regulator could work very well. In fact, it is the same model used by the Judicial Services Commis­sion. In essence, the idea is to have a broad grouping of civil society and all political parties come up with names for the Board and other governing bodies, and then Minister selects the nominations from that short list. The Board then picks its own chair, and also appoints the CEO, who in turn appoints the organisation. This model would preserve more accountability and avoid some of the risks of the current model. Section 33 of the NHI bill is highly prob­lematic. It has the potential to spark significant resistance and objections to the NHI, which are completely avoida­ble. This is why it is important for some compromises to be made in relation to this Section. This Section was incorpo­rated into the Bill at a very late stage, and it was not included in the prior version of the Bill from June 2018. This means that the public had no chance to comment on these drastic provisions in the prior round of comments on the June 2018 Bill. There has also not been any kind of open process or consulta­tion with the private sector, which is most impacted by this Section. For this reason, it is believed that there is no basis to justify such a drastic change from the June 2018 version of the Bill to the current version. There are at least six fundamental problems with section 33. Firstly, no rational policy basis has ever been set out to justify Section 33. No paper or explanation from any of the policy makers has been provided to properly explain the reason for such a drastic in­vasion of both the rights of people and intervention in the healthcare system. The industry has attempted to under­stand the implicit policy arguments, in the absence of clear and explicit explanations from the policy makers. One argument appears to be that Section 33 will deal with the maldis­tribution of resources in the private and public sectors. However, this argument fails to recognise that central to the issue of resources is lack of funding in the public system, as well as very poor conditions of service for health prac­titioners within the public healthcare system. Currently, approximately 25% of specialist posts are unfunded. Funding those posts would make a massive impact on the shortages in the public sector. It is wrong to blame medical schemes for the fact that doctors choose to work in the private sector. The lack of funded posts, and poor working conditions in the public sector are a major part of the problem. There is no need to shut down large parts of the medical scheme environ­ment to force health professionals into the NHI/public system. This approach will not address inequity; it will actually make inequity worse. It will do so by driving up out-of-pocket expenditure, which would be unfor­tunate considering South Africa is currently one of the best performers in the world with regards to out-of-pocket expenditure. These unintended conse­quences of Section 33 have not been properly researched or understood. Another argument appears to be that Section 33 will allow funds to be moved from medical schemes into the NHI Fund. But this is simply wrong. Im­plementing section 33 will not increase funding for the NHI. The only way that can happen is through increased funding from the Treasury, which will require tax increases. Medical scheme funds are owned by their members, and Section 33 will not move any funds from schemes to the NHI. A second point is that there has been no evidence or policy rationale put forward by the policy makers to support this approach. This Section was not included in the prior version of the NHI Bill, and therefore there has been no op­portunity to comment on it, nor is there any reason why it has been included. Thirdly, perhaps most crucially, is that the implementation of Section 33 will have severe consequences for the healthcare system and for the economy as a whole. It will also greatly increase the burden on the NHI. It does not make sense to create a policy that takes nine million people who can fund them­selves and transfers them into the NHI. There is an older average age profile for the medical scheme members, and in some respects a worse disease burden. Adding these 9 million people to the care burden of the NHI will only detract from the limited resources available to improve the healthcare of those who cannot fund themselves. This is therefore actually a retrogressive step. It will impair the ability of the NHI to allocate scarce resources to the most needy in our country. Why not allow those who can contribute to the NHI, and then make an additional contribu­tion to medical schemes to continue to do so. This is precisely the model that is implemented in the UK, for example, which has an outstanding National Health Service, but allows citizens to purchase additional private medical insurance if they wish to. We have already seen that the publi­cation of the NHI Bill with Section 33 included has had a significant negative impact on investor sentiment, with many local and international investors looking for reasons to exit South Africa. And this Section of the Bill is confirm­ing the concerns of sceptical investors who see a government that appears willing to implement an irrational policy without a solid policy foundation to support it. It is very clear that the implementation of Section 33 as drafted will cause material damage to private healthcare. Estimates are, depending on how much money the system can mobilise, that if all healthcare is moved into the NHI, this will have a dramatic negative im­pact on the income of hospitals, private doctors, pharmaceuticals, etc. This will result in the loss of potentially thou­sands of jobs, losses of tax revenues as well as reducing the attractive­ness of our country as an investment destination. The argument that the NHI will support private providers is not convincing as the NHI will simply not be able to fund private sector providers at their current tariff levels. Nor is the argument that increased volumes will compensate for lower tariffs. Most private sector providers cannot accept much of an increase in volumes and no evidence has been provided to back up this view. In addition, the impact of cross-sub­sidies is vital. Medical schemes pay higher prices than the public sector, and therefore effectively provide a subsidy to the public sector. If medical schemes are forced out of the market, as envisaged in Section 33, pharma­ceutical and device prices will have to increase substantially from current state tender prices in order to sustain a pharmaceutical environment and a medical devices environment, with a single payer. And the same is true of doctors and hospitals. The fourth problem with Section 33 is that it will almost certainly lead to legal challenges on various grounds including constitutional challenges. Many stakeholders have received senior counsel advice with clear arguments that under the Constitution, rights can be limited under section 27, but that section 36 of the Constitution obligates the State to justify those limitations, firstly by showing that they will have the desired effect, and secondly by showing that there are no alternative that can avoid the limitation of rights. Thus far, there hasn’t been any justifi­cation for this limitation of rights, and there are certainly alternative models to achieve the same objectives. If the inevitable delays were to be avoided due to legal challenges, surely the way to do this is to find some compromise in relation to Section 33 and some of the other areas of major concern in the NHI Bill. A fifth concern is the fact that there is no country in the world that has, in attempting to implement or run an NHI or similar system, made such a drastic intervention in reducing voluntary health insurance. There are countries that have certain limitations, but there are none that have vetoed cover for anything that the NHI is covering. The reason for this is that other countries have not seen such a drastic interven­tion as a necessary step to achieve their own NHI, and nor is it necessary in our country. The NHS in the UK, which achieves pre­cisely the aspiration of universal health coverage which South Africa aspires to, allows private health insurers to cover whatever they wish to. The NHI Bill should be implemented without Section 33 and the way to go is to build a highly functioning NHI that is supported by all stakeholders and that compete the medical schemes out of business. If the NHI provides a cost effective high quality alternative to schemes, citizens will vote with their feet. There should be no reason for the draconian measure of shutting medical schemes down. Nor does there necessarily have to be only one single public payer. There are brilliant models around the world which have both the public fund and medical schemes or their equivalent carrying the NHI package. Finally, one of the biggest concerns with the bill is that the phases of the bill are tied to dates and not to actual outputs and delivery. Again, this could provide a basis for legal challenge and this can surely be avoided. Some policy makers have said that it will take a lot longer than five or six years to roll out the system. However, the public in South Africa and investors, foreign and local, have the impression from the Bill itself that the date for full implementa­tion and therefore the implementation of Section 33 is 2026. And that implies a drastic curtailment of the role of medical schemes. That is what the millions of medical aid members, which include hundreds of thousands of trade union members as well as public sector employees, as well as the broader business community and civil society are very concerned about. Key takeouts 1. Leadership in the public and private sectors – and NGOs and other stakeholders – need to focus on the details which can be supported and the elements that are problematic. 2. Generally, the private health sec­tor is in strong support of the NHI, but a critical concern is section 33 of the NHI bill. 3. Other concerns include lack of clarity and information on the ben­efit package, costs and financing, the governance model and the timeline. 4. Many stakeholders propose a different governance model: a broad grouping of civil society comes up with names for a board, then the minister picks the board. The board picks a CEO, who in turn appoints the organisation. 5. Section 33 was incorporated into the bill late and with no open process for inputs to provide a rational justification for the move from the June 2018 draft to now. 6. Shutting down large parts of the medical scheme environment will not address inequity; it will drive up out of- pocket expenditure. 7. Adding in the nine million peo­ple who can fund themselves will increase the burden on the NHI, detracting from the limited resources available to those who cannot fund themselves. 8. The country has already seen a negative impact on investor sen­timent, and there will be damage to provider cross-subsidies that currently exist and are needed to ensure sustainability. 9. No country in the world has made such a drastic intervention in re­ducing voluntary health insurance and none that has vetoed cover for anything the NHI is covering. NHI presents a golden opportunity to equalise the health system Health industry point of view When looking at the bigger pic­ture with respect to the NHI, the state of South Africa’s present economy and its likely trajectory over the next decade or two are critical considerations. Whatever the decisions, they need to be made with the certainty that they will not further damage the economy, drive up public debt or stifle an already stagnant economy. Decisions that are made based purely on being patient-friendly and pa­tient-centric often disappoint patients down the line, as they are economically unaffordable to implement. There does need to be a patient-centric system in place, however, solutions that will further worsen public debt and not offer the appropriable public/private partner­ships need to be avoided. This requires a collaborative effort from both the public and private sectors. As organised business there is much that can be supported and needs to be supported in the NHI bill. It is clear that the status quo is undesirable, unten­able and unsustainable. The solution needs to, for the next 50 years, provide a healthcare system which will address the gross inequalities at a financing and service level in the public sector. But there are a few concerns with the bill. The first, the ‘treasury concern’, is to ensure that there is no burden left for future generations to deal with. The country is already paying R1.3-billion daily to service its debt. And the debt to GDP ratio is not looking good. The solution needs to be one that works across both sectors, that will not worsen the public debt position and will deliver equality in healthcare. The second concern is that, speaking to investors, there are a number of issues that are putting them off sinking their money into the country. One of those is policy uncertainty and lack of implementation of policy. Unfortunate­ly, this is the way the bill is presently expressed. Parliamentary processes are urgently needed to constructively contribute towards fixing those issues. As it stands, both foreign and domestic investors are deeply uncertain. Capital is agnostic; it will only follow where there is certainty. South Africa desper­ately needs to attract foreign direct investment. In fact, if the country does not get FDI and domestic investment, it will be forced to rely on the IMF and the World Bank to run it. There needs to be a focus on the prac­tical actions that can be taken to make investors feel comfortable. Some are questioning that when the bill first came out, there was between R40-billion and R80-billion wiped off market capitalisation. The protagonists say that was entirely a consequence of the bill, and those that are defending it say there were a number of other reasons, including poor management, etc, within those companies. The real question though, is whether the policies are investor friendly. If it is cab­inet’s number one imperative at present to grow the economy and solve unemploy­ment, there needs to be a focus not only on what will achieve the desired outcome, but also on keeping investors on side. With regards to the governance issue, there are many models to follow that could resolve that conundrum. Reit­erating the points that have already been made is not helpful, it simply gets investors reacting. The flurry and frenzy of articles and opinion pieces is not the way to achieve a meeting of minds. The last concern is section 33. From a pharma perspective, pharma and de­vices are the only sectors that supply products to both the public and private sectors. The rest of the subsectors in health are largely private-centric. There are no access issues around medicines in the public sector. In the private sector, 87% of chronic condi­tions can be treated for R100 or less a month. The most consumed product in the public sector, antiretrovirals are taken by close to five million patients every month, costing the state roughly R70 for a month’s supply for one person. The access problems begin at around 30 or 40 molecules, mainly oncology molecules. Implementing section 33 in its extreme form, with no medical schemes and, therefore, a completely different model will disrupt the public/private subsidy which enables the selling of an ARV for R70 a month, or less than R3 a day, in the public sector. If that is disrupted, how will the NHI continue to supply those five million patients their treat­ments every month? There are concerns, but there are also opportunities in the bill. The real opportunity that exists for South Africa and its citizenry is to use this platform as an instrument to once and for all bring the two sectors closer together to find common ground. To use this bill as a vehicle to explore other options available that would lead to achieving universal coverage and equalising of the system, with­out having a negative impact on the economy and patients by disrupting the subsidy that exists and chasing away investors. The outcomes of the discussions and comments are now subject to the parliamentary process. But at the end of the day, the real action will be in the hands of the expertise that resides within the health department. There is a golden opportunity to work with the health department on many different levels: getting the infrastruc­ture right, the capex, reducing problems such as debtors books, and introducing 4IR technology into the system to make it more efficient. Using technology and digitalisation would solve some of the human capital issues. In the private sector, pharma­cists spend most of their time on the phone trying to get a benefit through the medical aid, instead of counselling a patient. And in the US, 25-50% of all hospital admissions are iatrogenic in nature, mostly from drug interactions that are not picked up or suboptimal use of drones, etc. Many of the aims that the bill aspires to achieve can partly be serviced through the public sector – there is nothing in it that excludes contracting services from the public sector. The aim to keep an eye on, is how best to equalise the system. Key takeouts 1. Decisions about the NHI need to be made with the certainty they will not further damage the economy, drive up public debt or stifle an already stagnant economy. 2. Decisions based purely on being patient-friendly and patient-centric often disap­point patients down the line, as they are economically unaffordable to implement. 3. The solution needs to, for the next 50 years, provide a healthcare system which will address the gross inequalities at a financing and service level in the public sector. 4. The ‘treasury concern’, is to ensure that there is no burden left for future genera­tions to deal with. 5. Investors are being put off of sinking their money into the country due to policy uncertainty and lack of implementation of policy. If South Africa does not get FDI and domestic investment, it will be forced to rely on the IMF and the World Bank to run it. 6. There needs to be a focus on the practical actions that can be taken to make inves­tors feel comfortable, for example, by ensuring that policies are investor friendly. 7. With regards to governance, reiterating the points that have already been made is not helpful, it simply gets investors reacting. 8. There are no access issues around medicines in the public sector. Implementing section 33 in its extreme form, with no medical schemes and, therefore, a com­pletely different model will disrupt the public/private subsidy. 9. Bring the two sectors closer together to find common ground and use the bill to achieve universal coverage and equalise the system, without a negative impact on the economy and patients by disrupting the subsidy that exists and chasing away investors. 10. There is an opportunity to work with the health department on the infrastructure, the capex, reducing the debtors books and introducing 4IR technology to make the system more efficient. Quality and standards: the cornerstones of achieving universal health coverage Health industry point of view There is much talk about providing quality health services through implementation of the National Health Insurance (NHI) fund. The term ‘quality’ has been used frequently by stakeholders during the discussions on achieving Universal Health Coverage (UHC); however, this is actually a highly complex area. The accreditation of health services focuses on a key aspect in this field: developing and implement­ing accreditation standards. Those representing the accreditation concern wholeheartedly support UHC and believe that quality improvement and compliance with robust standards are cornerstones of achieving this target; in this regard, the Office of Health Standards Compliance (OHSC) has a mammoth task ahead. The extent of this task is indicated in its recent report from 2016/2017 which exposed the enormous gaps in the quality of healthcare services indicated by the lack of compliance with the regulatory national core standards across public sector facilities. The accreditation bodies are ready and willing to offer support and expertise in supporting facilities to improve ser­vice delivery and patient safety across both the public and private sectors and thus achieve compliance with the regulations. One such accreditation body is COHSA­SA, which is just over two decades old, has worked in over 600 healthcare facili­ties in 13 African countries. Notably, COHSASA worked with the Ministry of Health and Wellness in Botswana to de­velop national health quality standards and has accredited 16 facilities in the programme. Furthermore, COHSASA is currently assisting the Ministry of Health in Uganda and the Uganda Healthcare Federation (UHF)—a collaboration be­tween the public and private sectors— to develop baseline standards in order to allow the nation to implement its own NHI in order to achieve UHC. It is vital to invite on board bod­ies such as this, that already have first-hand experience to offer in the process of improving service quality to support the rollout of the NHI in South Africa. It also appears to be the only organisation in Africa accredited by the International Society for Quality in Health Care (ISQua). Within the context of the NHI, capacity is a massive issue. The appropriate accreditation bodies would be able to assist in training healthcare workers to evaluate their services and to address the compliance gaps and deficiencies in the sector. As a result of the multitude of the facilities starting at a low base, it is recommended that, once they are certified by the OHSC as compliant with the regulatory standards, a system of “Graded Recognition” be implemented to allow weaker facilities to demonstrate that they are moving towards compli­ance with accreditation standards. By this method, instead of losing a facility and the personnel due to lack of motiva­tion because they have not achieved full accreditation immediately, the relevant authorities are able to guide and offer a support base to reach key milestones, and eventually reach full accreditation. There have been some interesting innovations when it comes to motivating personnel and healthcare facilities to adhere to quality improvement programmes. For example, a recent TED Talks presentation demonstrated how a consulting firm, employed by the Indian Ministry of Health, helped develop mechanisms to motivate primary health­care facilities to improve the quality of services provided to the population. An example of one method used to enhance motivation involved ranking clinics (and publishing the results publicly) based on key quality performance indicators including patient and family feedback on the level of service received. This intervention was necessary as studies revealed that patients were boycotting primary healthcare facilities and opted to remain sick as opposed to receiving sub-standard care. Similar interventions could be leveraged in South Africa where hospitals and clinics are ranked—based on their progress in complying with the regulatory and accreditation stand­ards— within national and provincial leagues, thereby motivating personnel and management to uphold quality improvement efforts. Quality improvement is a lengthy pro­cess; patience is needed to achieve the desired outcomes and constant monitoring is required to maintain high standards of care. Overall, a commit­ment to working together over an ex­tended period of time is of paramount importance. It was recommended to exempt facilities that have already achieved international recognition, whether through COHSASA, ISO, or an equiva­lent accreditation body. The key deci­sionmakers should focus the country’s limited resources on facilities that are in dire need of assistance and use the facilities that are accredited as Qual­ity Learning Centres (QLCs) to share their learning expertise with the rest of the healthcare sector, both public and private. Finally, it is important to note that quality improvement is founded on the values of excellent governance, leadership and management—these values cannot be neglected. Key takeouts 1. The Office of Health Standards Compliance’s (OHSC) recent re­port shows the enormous gaps in the quality of healthcare servic­es and lack of compliance with national core standards. 2. The first step in the trajectory towards good quality services is for all facilities to achieve compli­ance with the National Regulatory standards assessed by the OHSC. 3. There are capable accreditation bodies to assist the health es­tablishments in improving service delivery and has extensive experi­ence in developing and implement­ing health facility standards. 4. COHSASA has worked in over 600 healthcare facilities across 13 countries in Africa. 5. COHSASA worked with the Ministry of Health and Wellness in Botswana to develop national health quality standards and has accredited 16 facilities in the programme and is currently assisting the Ministry of Health in Uganda. 6. COHSASA is the only International Society for Quality in Health Care (ISQua) accredited organisation in Africa. 7. The appropriate accreditation bodies would be able to assist in training healthcare workers to evaluate their services and to address the compliance gaps and deficiencies in the sector. 8. The accreditation process assists providers to achieve the required standard rather than closing them down. There is an awareness that organisations which have worked primarily in the private sector in South Africa will need to adjust according to the local context. 9. Quality improvement is a lengthy process; patience is required to achieve and sustain the desired outcomes and a system of “Grad­ed Recognition” should be imple­mented to allow weaker facilities to demonstrate that they are moving towards compliance with accreditation standards. 10. It was recommended to exempt facilities that have achieved inter­national accreditation and instead to focus the country’s limited resources on the facilities at the lower end of the quality spectrum. 11. It was suggested to use the facilities that achieve international accreditation to participate as Quality Learning Centres (QLCs that share their expertise with the rest of the healthcare sector. 12. Quality improvement is founded on the values of excellent governance, leadership and management. Managing the lifeblood of the NHI Health industry point of view At the recent NHI Roundtable discussion, representatives of the South African National Blood Service pointed out that the organisation captures the values of the NHI in that it aims to offer a reliable, cost-effective, high quality service which gives every patient in South Africa the coverage – in this case, the unit of blood – that they need, and also aims to ensure that no patient gets a unit of blood they do not need, as blood transfusions are not without their complications. It would appear that through the blood service, government is in the unique position of having access to data from more than seven million donors across the country from diverse backgrounds. Moreover, they have the capability of geomapping this data, which has the benefit of being able to show, for instance, what the incidence of iron deficiency or anaemia is in a particular geographical area. In effect, government has a bird’s-eye view of what the country’s healthcare system looks like – and what can be seen is that there are two different healthcare systems in play. Of course, this has already been proven in the majority of the submissions that have been made and in the research that has been done. But it is worth opening up this discus­sion again, as the difference really is profound. There is a vast discrepancy be­tween what healthcare looks like in the public sector, how sick these patients are, compared to what is happening in the private sector. In the public sector, it appears that patients present later with disease and when presented, the dis­eases are more severe, whereas in the private sector the incidence of disease more closely mirrors the patterns found in the European countries. Furthermore, government not only has access to data of the donor community, but also data of the hospital patients – and a marker that shows severity of disease, which is anaemia. There was recently a blood demand versus supply study conducted. The resulting estimate showed that if government proceeds with implement­ing the NHI and increases access to healthcare, the need for blood in the hospitals is likely to increase by an as­tounding million units. Currently, there are 760 000 units being supplied, but there are concerns that this figure may be out by as much as a million units. With such a massive gap between the public and private sectors, in terms of disease, it is reassuring that the NHI has stated that it will take time to implement the new healthcare system and that it will be rolled out with the utmost care. Looking again at the data, from a real world point of view, in the private sector there are at present 28 units per thousand people being supplied, which is lower than the number in Europe at 33 per thousand. But in the South African public sector (excluding the Western Cape), the audited figure for 2018 is only nine units per thousand – showing a huge deficiency in healthcare in this sector. Another important factor to consider in the NHI discussion is the likelihood that the cost of blood products will rise if the system is implemented as is, and if there are no adjustments made to actually prevent patients from receiving unnecessary blood products. There may be a solution to this which could have an immensely positive affect on healthcare in South Africa. Patient Blood Management involves a system, which has been adopted by the WHO, that would ensure no patient gets a unit of blood unnecessarily, and is based on an IT system that inte­grates hospitals, laboratories and the blood service. Such a system, which has already been implemented in Australia, would take roughly seven years to apply, but would improve patient outcome enormously. Where it was implemented in Australia, it improved in-hospital mortality by 28%, length of stay in hospital by 15% and complications from blood transfu­sion. It cost AU$5-million to put the system in place, but the saving was AU $180-million. There are also possible new solutions being worked on for cancer therapy and degenerative diseases, in the form of immunotherapy and cellular therapies, which will contribute to the efficiency of the NHI. With regards to the NHI bill itself, it makes no mention of blood services. To clarify, the blood service is neither a pharmaceutical service, nor a healthcare service. It provides a unique service: taking blood from donors, processing it and deliver­ing it to every patient in need of it. The organisation is the custodian of the blood products and is also tasked with the responsibility of monitoring the adverse events of these products. According to the WHO, the cost recovery model is the most efficient. It should never be a for gain model. It was suggested that government continue with the cost recovery model and with a non-remuneration system for donors, in the interests of blood safety. Key takeouts 1. The Blood Service captures the values of the NHI: to offer reliable, cost-effective, high quality products and services which gives every patient in South Africa the coverage they need. 2. It would appear that through the blood service, government is in the unique position of having access to data from more than seven million donors in South Africa from diverse backgrounds. 3. It has the capability of geomapping this data, with the benefit of showing, for in­stance, what the incidence of iron deficiency or anaemia is in a particular area. 4. In the public sector, it appears that patients present later with disease and diseases are more severe; in the private sector the incidence of disease mirrors the patterns found in Europe. 5. If government proceeds with the NHI and increases access to healthcare, the need for blood in hospitals will increase by a million units. Currently, there are 760 000 units being supplied, but there are concerns that there is an undersupply of a million units. 6. In the private sector there are at present 28 units per thousand people being supplied. In the public sector (excluding WCBS data) this figure is only nine units per thousand – showing a huge deficiency in healthcare in this sector. 7. Patient Blood Management is a multidisciplinary approach that ensures that the patients’ own blood supply is preserved and does this through a monitoring system that includes IT integration. 8. In Australia, the system improved in-hospital mortality by 28%, length of stay in hospital by 15% and complications from blood transfusion. It cost AU$5-million to put in place, but the saving was AU$180-million. 9. There are also possible new solutions being worked on for cancer therapy and degen­erative diseases, in the form of immunotherapy and cellular therapies. 10. It is concerning that the NHI bill makes no mention of blood services. Integrating family practitioners as gatekeepers to the NHI Health industry point of view This contribution approaches the NHI from a family practition­er’s – a family doctor or GP –perspective, and not from the perspective of a specialist, who works in a different environment from family practitioners. IPAs are independent practitioner associations, which loosely refers to a group of family practitioners from a common area who come together to form a society, in effect sharing a net­work of knowledge and resources and working together to improve health­care. The various smaller IPAs would then fall under a larger IPA within the province. And then nationally most of these IPAs fall under the umbrella of IPAF (Independent Practitioners Association Foundation). There are roughly 5 000 GPs across South Africa. There is a common vision among these health providers: one of patient-centric care, including peer reviewing and mentoring to ensure high quality cost-effective care to their patients. There are also opportunities within these groups for family practi­tioners to take part in regular upskilling training. In addition to medical aid patients, GPs have been providing healthcare to uninsured patients for years. They have discounted their services in these communities, thus making healthcare accessible to numerous disadvantaged individuals. The community of family practitioners is in full support of the ethos of the NHI, since it will essentially be an extension of the kind of services that GPs have already been providing in many of those communities that struggle to access private healthcare. According to the NHI bill the services that will be dispensed first and fore­most will be primary healthcare based. Family practitioners have been specifically trained in this area of providing primary healthcare services to all individuals, regardless of age, gender or illness. They provide prima­ry and continuous care to entire fam­ilies, within communities, addressing not only the physical aspects of health, but psychological and social problems too. It is for this reason that the input from the independent practitioner associa­tions into the NHI is vital. It is imperative that they are included in the discussion around primary healthcare, since they have developed the nec­essary skills and experience over the great number of years that they have been servicing these communities, to assist in successfully implementing the NHI. An area that needs more attention from government is the connection between IPAs working on the ground and the Department of Health in terms of the NHI. A pathway for interaction needs to be created, a consultative process, in order to create a platform on which to discuss the issues that are fundamental to the NHI, which are primary healthcare based. Considering that family practitioners are the gatekeepers of healthcare, or the first point of contact, for most patients within the communities, their representatives need to be at the table when issues such as service delivery requirements, scope of primary healthcare services provided, licensing, accreditation, contracting and dispens­ing medication are discussed. These issues have a direct effect on how the IPAs will function in the NHI envi­ronment; in the universal healthcare environment. For example, the district health man­agement office is set to be a contract­ing unit for primary healthcare. But at this point little is known as to how this will play out in real terms and there is no avenue through which to consult or interact with the district committees. The family practitioner group is more than willing to get involved, to assist with the process of rolling out the NHI, but there is a lack of opportunities for connection and conversation around these matters. Although there are a few unanswered questions that currently concern the group, they believe in the ethos of universal healthcare and are committed to engaging in this consultative dia­logue. The independent practitioners called for the group to be represented on the committees that are discussing issues which will affect family practi­tioners and, in this way, to be inte­grated into the process, allowing the associations to be more meaningful partners to the NHI. Key takeouts 1. IPAs loosely refers to a group of family practitioners from a common area who come together to form a society. 2. Smaller IPAs fall under a larger IPA within the province. Nationally most of these IPAs belong to IPAF. 3. Family practitioners share a common vision: one of patient-centric care, including peer reviewing and mentoring to ensure high-quality cost-effective care to its patients. 4. There are roughly 5 000 GPs across South Africa, who have been providing health­care to uninsured patients for years at discounted rates to enable disadvantaged individuals to have access to healthcare. 5. The community of family practitioners is in full support of the ethos of the NHI, since it will essentially be an extension of the kind of services that the GPs have already been providing. 6. Family practitioners have been specifically trained in this area of providing primary healthcare services to all individuals, regardless of age, gender or illness. 7. An area that needs more attention from government is the connection between IPAs working on the ground and the Department of Health. 8. Family practitioners are the first point of contact for most patients. 9. Representatives of the family practitioners need to be part of discussions about ser­vice delivery requirements, scope of primary healthcare services provided, licensing, accreditation, contracting and dispensing medication. 10. The independent practitioners called for the group to be represented on the com­mittees that are discussing issues which will affect family practitioners. Medtech as a solution to the NHI’s pricing challenges Health industry point of view The medical technology industry fully supports the concept of a National Health Insurance – a well-formulated NHI is crucial to assisting South Africa in advancing universality and social solidarity as the pillars of patient-centred health systems that do not discriminate along economic lines. The South African medical device market – consisting of consumables, imaging, ortho and prosthetics, patient aids, dental and digital services – to­tals US$1.3-billion. There are a limited number of South African manufactur­ers, with an output of approximately US$2.5-million, of which half is export­ed. This makes South African small- to mid-sized distributors with less than 50 employees on average, highly de­pendent on imports. Medical technology is not a commodity and unlike, for example, pharmaceuti­cals, the industry undergoes a rapid cy­cle of improvement – it only takes 1-2 years before newer and better products are introduced. MedTech can be seen rather as a solution consisting of various elements such as hardware, software and con­sumables. It doesn’t necessarily have a dedicated purchase price as such, as it combines and includes services, technical support and training. MedTech can be tailored for certain needs and re­quirements and hence, could offer useful solutions to some of the issues plaguing the NHI process. There are risks an NHI could bring, espe­cially in putting pressure on the price, as this has an immediate effect on servic­es and training, which is where the high investment on the distributor side sits. Furthermore, an over-regulated market bears its risks. The regulatory framework in South Africa needs some attention, if it is going to be any kind of support to the NHI. The Medicines Control Council, which is now SAHPRA, sits at the top of established frameworks such as CE and FDA, and seems yet to become fully functional, with massive backlogs on licence applications and approv­als. There are a number of grey areas that need clarification. The role of these new, yet to be established local regulatory bodies may be confusing to overseas suppliers and this, together with pressure on price, could result in deprioritising the South African market and, worst case, pulling out completely. This would not only have a negative effect on the vast amount of small to medium local distributors, it would also result in a decrease in the quality of healthcare, which is the opposite of what the NHI and government are trying to achieve. Rather, a solution could be transforma­tion. South Africa needs to be marketed as innovative and open to new, more cost-effective technology, building on an already existing excellent digital infra­structure. Paired with the speed at which South Africa is accepting and making way to new technology, compared to other economies, the healthcare system could vastly benefit from this head start and attract over­seas suppliers. There is an obvious opportunity, as well as a need, to create digital services around expensive medical devices. For example, taking screening and diagnos­tic monitoring out of expensive special­ist and overwhelmed hospital environ­ments, has an immediate cost savings effect, making quality healthcare more accessible. Especially in remote and rural areas, digital health and cloud technology solutions could support an NHI on its mission to offer equal standards of healthcare for all South Africans, con­sidering the ever-decreasing number of specialists in the country. Often, all that is needed is a 4/5G net­work, which is widely available in South Africa, and a smart phone or tablet pc to connect a nurse or health worker with a specialist. One of the devices currently applied is used for remote cardiovas­cular screening. The diagnostic devices are cost effective and can be easily employed by a nurse or health worker, af­ter which the patient’s ECG is uploaded to an assessment centre, where experts conducting the analysis are able to give immediate feedback and advice on further action. In summary, part of the strategy for a successful rollout of the NHI could be to upgrade the current system step by step, enable technology and, of utmost importance, create an exciting environ­ment for all stakeholders, as this will benefit all patients. Key takeouts 1. The medical technology industry supports the concept of a national health insurance that doesn’t dis­criminate along economic lines. 2. There are only a limited number of medical device manufacturers in South Africa, therefore the industry is largely dependent on imports. 3. The output of domestic manufac­turers is only two to three million USD, and half of it is exported. 4. Medical technology is not a commodity. It combines hardware, software and consumables, as well as service and training. 5. Pressure on pricing may result in outdated technology, lack of service and training, and would negatively affect the standard of healthcare in South Africa. 6. The regulatory framework in South Africa needs attention, if it is to be a support to the NHI. 7. South Africa needs to be marketed as innovative and open to a new, more cost-effective technology. 8. Digital solutions should be im­plemented, building on an already existing excellent data infrastruc­ture, reducing costs and making healthcare more accessible to all South Africans 3 Fundamental principles for NHI success: efficiency, quality and responsiveness Health industry point of view There are many naysayers in the South African communities – doubtful about whether the NHI and the promises made will come to fruition, worried that it will be too expensive (for government, and for the people who will be using the ser­vice), that the benefits will be too few, that the financing will be corrupt. The NHI is one of the biggest reform programmes in the country. Involving the values of visionary leadership, participation and coordination, the NHI is well on its way to achieving universal health coverage for South Africa. But the financing/benefit design conundrum is a particularly challenging part of the process that still needs to be tackled. The global need for universal healthcare is inevitable. It is an inescapable under­taking brought on by the pressures of changing demographics, an increase in the elderly, an increase in the number of people getting sick, changing dis­ease patterns, higher rates of chronic disease, and so on. The costs of these pressures are incremental; increasing on a yearly basis. The time for the NHI in South Africa has come. But in what form? This needs to be approached with caution: medical care needs are so extensible, unlimited – the needs of patients differ, in some cases dramatically; the financial invest­ment into the NHI Fund will be enor­mous; the professionals and the clients need to be retrained with regards to provision and consumption of services. In many countries, there have been cer­tain ideologies that have disabled their national health insurance. Some people believe there is nothing wrong with the system and all that is needed is to protect against unpredictable expenses by imposing financial disincentives for utilisation. A philosophy that is geared towards leaving the system as it is; just improving it. Whereas others believe the whole system needs reform, that it needs to have a distributive intent. In other words, looking into efficiency, allocation and equity. Clearly, the NHI in South Africa is taking the latter view. A framework has been outlined for how to proceed. While certain areas are well-explained, others are still lacking in detail, understandably, considering the nature and the magnitude of the work that lies ahead. The NHI bill is a framework that out­ lines the governance structure, what governance processes and institutions need to be put in place. There is less focus on other vital structures such as strategic purchasing and the benefit design, which are more relevant to the managed healthcare environment. These issues are key to the affordabil­ity of the NHI. The bill also mentions eligibility of members, the financing, budgeting and reporting – which talks to accountability. Looking at what the critical elements and implications are, and what the tools and remedies will be to miti­gate those implications, needs to be the first action in every step of the process. The implication of raising the finance centrally is that it is distributive in intent. The aim is to move money from the haves to the have nots, including a vast number of unemployed people. Then there is the issue of equity. A person who is paying taxes, paying towards national health insurance, may have a certain sense of entitlement about equity, about how the system is going to work. In addition, there needs to be a definite commitment by government towards economic growth, to undertake such a huge project. Not having a clear direc­tion of where the economy is headed will be problematic in implementing the NHI. From the perspective of particular­ly the taxpayer, there needs to be great sensitivity towards the potential for fraud and abuse of the funds. The purchasing of services is obviously an important issue in terms of cost containment. It will be a purchasing function that has probably never been seen before in this magnitude. Huge money, huge purchasing pressure that is likely to bring down the cost of healthcare, not only for the public sector but also for the private sector – there will be benchmarks set. With regards to location and levels of service, again there is the issue of equity. There need to be safeguards put in place against simply entrenching the status quo. The issue of no payment at the point of sale: this needs to be stratified, because it also comes with the issue of entitlement. The benefit needs to be ex­plained properly to avoid having to deal with human rights issues further down the line. There needs to be clarification about what those rights are, for the patient and for the service provider. Currently, the remedies are primarily legislative. According to the World Health Organisa­tion the benefit packages are crucial to cost effectiveness, impact on financial protection, equity and access across populations. Of utmost importance in the design of benefit packages is effi­ciency, quality and responsiveness. The NHI needs to be effective. In addi­tion, it needs to be affordable, which comes with a level of complexity. But the more complex the NHI is, the more effective it will be, and probably more affordable too. Involving the private sector will increase the complexity but also effectiveness and affordability. The financing is a range. The services will be public/private, and the financing will be mainly public. Within the financing model, these need to occur concurrently. Financing from the government, from treasury and from the actuaries, needs to feed into the NHI model. And it needs to be an iteration; an ongoing process. Key takeouts 1. The NHI is one of the biggest reform programmes in the country. 2. There are concerns that the NHI will be too expensive, that the benefits will be too few, that the financing will be corrupt. 3. The need for the NHI has been brought on by changing demographics and disease patterns; an increase in the elderly, the sick and rates of chronic disease. 4. The NHI needs to be approached with caution: medical care needs are unlimit­ed, financial investment will be enormous, professionals and clients need to be retrained with regards to provision and consumption of services. 5. In some countries, the belief is there is nothing wrong with the system and all that is needed is to protect against unpredictable expenses by imposing finan­cial disincentives for utilisation. In other countries, the belief is that the whole system needs reform, that it needs to have a distributive intent – looking into efficiency, allocation and equity. 6. The NHI bill framework outlines the governance structure, what governance pro­cesses and institutions need to be put in place. There is less focus on other vital structures such as strategic purchasing and the benefit design, which are key to the affordability of the NHI. 7. The bill also mentions eligibility of members, the financing, budgeting and report­ing – which talks to accountability. 8. The purchasing pressure is obviously an important issue in terms of cost contain­ment. This is likely to bring down the cost of healthcare, for both sectors. 9. With regards to location and levels of service, there need to be safeguards put in place against simply entrenching the status quo. 10. The benefit packages are crucial to cost effectiveness, impact on financial pro­tection, equity and access across populations. Bringing the frontline of healthcare to the NHI debate Health industry point of view At the health summit last year, representatives of the private hospitals in South Africa offered insight into what its spare capacity in the private sector was, showing that at public sector admission rates, it may be possible to absorb a population of seven million. The real question is whether there is capacity for a different discussion, as the 2019 version of the NHI bill seems infinitely more aggressive on the role of medical schemes than the draft that was put forward in 2018. As long as a service provider could continue running their practice sustain­ably, they would be indifferent as to who the patient was or whether the patient could afford to only pay half of the cost or only in a year’s time, it would probably be acceptable. But when does it become unacceptable? Would it be when it is at 30% of the patient base, or 50%? There would come a time when it becomes impossible to pay staff, rent, etc. And that is what it boils down to from a provider perspective – whether it is possible to continue offer­ing quality service in a sustainable way. Having Deloitte and the medical schemes at the table leads into the sorely needed discussions around cost and sustainability. There was a class action in 2008/2009, wherein 22 healthcare service providers approached the court demanding that it look at cost studies before deciding on pricing that had been recommended by DoH. The problem with costing is that the price guideline, known as the Reference Price List (RPL) – used as a departure point when medical aid schemes determine their tariff or rates structures – would be loss-making for hospitals from the get-go. The fact is that the Uniform Patient Fee Schedule (UPFS) was lower than the RPL, and the ten wards assessed did not work from the start. That is the reason why these discus­sions are a bit charged. It is not because people do not support universal health­care, it is simply that there needs to be space for a more balanced discussion with more compromise in order to figure out how to shift the discussion and the debate forward. There are so many different elements that need to be discussed, but most important is section 33. And yet, in every session of dialogue about the future of healthcare, there is the same proviso: section 33 may not be discussed. It is hard to see how a middle-income country could do that without cross subsidies from private patients. No one wants to pay three times what they should for healthcare. In addition, no one wants to pay a gen­eral tax, another tax that might come up for healthcare, on top of paying for private healthcare. If a person can afford to, the money will be added to the broader healthcare envelope. Currently, the country has a fairly broad health­care envelope, in excess of R300-bil­lion, but half of that is private money. It will be challenging to substitute that over time. There needs to be further discussion on the role of the medical schemes and how that might change over time. The idea of 2026 being the timeline is most probably unrealistic. Why not rather have measurable milestones? Representatives from the private hospital sector called for a review of the wording of section 33, or the purpose of section 33. Hand-in-hand with that is introducing changes with immediate effect to the Medical Scheme Act, which will merely cause unnecessary uncertainty with regards to an aspect that only really becomes relevant at a later stage. Rather intro­duce it when the time is right and for the right reasons. Obviously, the private hospital sector embraces the objectives of the NHI and understands the need for it – as it is currently structured, the health system will not be able to deliver. Therefore, there is a need for change. What also needs to be acknowledged now though, being close to the point where the rubber hits the road, is that until now the private sector people who truly are on the frontline – the funders, providers, consumers – have not entirely been part of the debate. For some rea­son, it has side-tracked them. The other reality is that they are the ones in the know about what is happening on the ground: how to deliver the healthcare, how to fund the healthcare, about consumer health­care. In fact, moving forward it is crit­ical that, as the gaps begin to emerge in the process, those on the frontline of healthcare – not those sitting in the government boardrooms, but the people who are practically running the institutions – need to be part of the debate in earnest. Key takeouts 1. At public sector admission rates, it may be possible to absorb a population of seven million. 2. The 2019 NHI policy draft is more aggressive on the role of private medical schemes. 3. As long as a service provider could continue running their practice sustainably, they would be indifferent as to who the patient was or whether they could afford to pay. 4. The problem with costing is that the RPL would be loss-making for hospitals from the get- go, but the UPFS rates are even lower. 5. In every session of dialogue about the future of healthcare, there is the same proviso: section 33 may not be discussed. 6. Immediate changes with the Medical Scheme Act will merely cause unnecessary uncertainty. 7. The association embraces the objectives of the NHI and understands the need for it – as it is currently structured, the health system will not be able to deliver. 8. Currently, the country has a fairly broad healthcare envelope, in excess of R300-billion, but half of that is private money. 9. The funders and private providers need to be part of the NHI debate in earnest. Fair play in the pharmaceutical trade in Africa Health industry point of view The private health sector has been working closely with providers and communities on the NHI bill, since it was published in August 2019. The vision of the private health sector is in line with that of the NHI, to create partnerships with various stakeholders to achieve universally accessible and affordable healthcare for all. The aim is to establish private/public partnerships that are sustainable, and which can be rolled out within the African continent. The intention is to unify the private sector in order to engage and take inputs to the Department of Health. In addition, it is to reach a collective perspective and a common purpose around finding solutions to the healthcare challenges faced by the private sector. It is fundamental in choosing repre­sentatives of the private health sector, and indeed those of the NHI, to look for individuals who are knowledgeable and of high integrity. Corporate governance has to be in place; there needs to be accounta­bility, joint decision-making and the ability to identify solutions that have worked and that are sustainable. The idea is to move away from finding private sector solutions for public sector problems but rather to focus on joint participation between the two sectors. The private health sector in South Africa, with all its affiliations, is fully functional across the African con­tinent. There are evidence-based projects currently being rolled out in Africa. For example, the Africa Health­care Federation of South Africa (AHF­SA) is a platform that has pledged to constructively engage government on the implementation of national health insurance, and comments have been submitted through various relevant stakeholders. There needs to be fair regulations in place to allow for a level playing field for all stakeholders in the health sector. The Health Market Inquiry (HMI) has offered great insight into the challenges faced and has made recommendations on how they can be addressed. Healthcare services need to be pro-poor and should promote the needs of the ordinary South African. There are platforms available that could be used for constructive dialogue, joint decision-making, and arriving at solutions that will help with health­care re-engineering, redesigning and restructuring in the implementation of universal healthcare. Proposed interventions that will ensure success include utilising the network available in Africa to under­stand the needs / gaps in the African market, consolidating the lessons that have been learnt in Africa, and to be less reliant on solutions found in first world countries which will not be practical in the South African or African market. Identifying innovative solutions will also help to solve the problems of the African continent. The East African Healthcare Federa­tion member, Kenya, has established successful Public Private Partnerships with organisations such as Amref Health Africa PharmAccess to strengthen the health system towards universal health coverage. The Africa Union (AU) has endorsed the vision of the Africa Healthcare Federation. The AU has also highlighted that the pharmaceutical sector will be an area of focus. Challenges facing the sector include counterfeit medicines being dumped in Africa, regulatory challenges and reviewing trade agreements that are inhibiting free flow trade. Ethiopia has been exemplary in that it has drafted a strategy for the pharmaceutical sector and it has also established in­dustrial park in Addis Ababa to attract investments and growth opportunities. Pharmacy is ready for business. There are three factors as evidence of this: the first is that the licensing in phar­macy is already in place. The second is that the Pharmacy Council is able to identify each and every practicing pharmacy or pharmacist in South Africa. And third, it has attempted to tackle and reduce the cost of medicine through the introduction of a Single Exit Price (SEP). There are also well structured platforms where can engage as pharmacists, community, industry, academia and hospitals. Key takeouts 1. The vision of the private health sector is in line with that of the NHI, to create partnerships with various stakeholders to achieve universally accessible and af­fordable healthcare for all. 2. The aim is to establish private/ public partnerships that are sus­tainable, and which can be rolled out within the African continent. 3. The intention is to unify the private sector in order to engage and take inputs to the Depart­ment of Health. 4. The idea is to move away from finding private sector solutions for public sector problems. But rather to focus on joint participa­tion between the two sectors. 5. There needs to be fair regulations in place to allow for a level play­ing field for all participants in the health sector. 6. The services need to be pro-poor and promote the needs of the ordinary South African, and African, on the ground. There are platforms available that could be used for constructive dialogue and joint decision-making, and arriving at solutions that help with healthcare reengineering, redesigning and restructuring. 7. From the pharmaceutical sector perspective, the issues with regards to healthcare include access to quality, essential and affordable medication. 8. One of the major challenges Africa is facing is that it has become a dumping zone for med­icines. Counterfeit medicine is a critical problem that needs to be addressed. Finding pathways to consensus on the NHI Open discussion The NHI roundtable dialogue was wrapped up with an open discussion, where all partici­pants were given the opportu­nity to respond to the speeches and air any further concerns. The aim was to consolidate the areas of agreement, areas of disagreement and potential pathways to achieving consensus. At the start of the discussion, an im­portant clarification was made with re­gards to the lack of forward momentum and representatives to approach. The NHI is still in the process of splitting from the Department of Health and set­ting up office. There will be functions that will remain in the department to do with policy formulation and health services, and the NHI fund office will be dealing with fund matters: how to pay for and fund the system. The minister and the director general cannot just create a component. They have to have the money, the authority of the Department of Public Service, etc. It is a complex, time consuming and difficult process, not to mention dealing with the media. In terms of the role of the private sector for business continuity, govern­ment’s view is that it is not a homoge­nous group. And while there might be a constituency called BUSA, or any of the other groupings, these hold complex, different players within them that find it just as challenging to come to agreement on how the NHI may or may not affect their business. Then there are the political imperatives, political alliances which the minister and the deputy minister have to handle with other political players. Therefore, it is important to segment and try to understand what the problems are within the various environments to be able to make valid comment around their concerns. However, in terms of the formal contri­bution, the minister’s team, which in­cludes the Department of Health, is not at liberty to comment on the bill in the public environment at present. It is in a parliamentary process – the officials in the department cannot be seen to be agreeing or disagreeing with something which they may find differently. From many of the presentations and discussions on the day, there is clearly consensus on the need for universal healthcare coverage in South Africa. Further consensus was around the need to grow GDP in order to ensure a sustainable economy and to be able to cover various benefits from healthcare to education. Elements that need further clarity include how the NHI will be implement­ed, timelines, the board and security of money, the role of the private sector, how accreditation will happen and how purchasing will be done. Another con­cern is the role of medical schemes and private care and whether it is appropri­ate to withhold the right to opt out of the healthcare system. It has been made clear in discussions and submissions outside of parliament that section 33 is a massive issue for all stakeholders. It begs the question of whether this will result in further investor uncertainty and how that may impact the market. Although section 33 will undoubtedly remain in the bill, government has taken note and understands the arguments against it. There needs to be more definition with regards to the idea of making profit out of healthcare. What is also agreed upon is that an even greater worry than economic performance is staving off rising social unrest. People everywhere are restless, unhappy with the lack of jobs, service delivery, housing, sanitation, etc. There needs to be action to make the lives of the people better, and timeously. In addition, there needs to be a con­certed effort to create channels for communication for all stakeholders: the general public, hospitals, doctors. People have the right to know what is happening at every stage. The public sector failure to meet the needs of the people from a healthcare point of view, extreme inefficiency in the private healthcare system and in­equity are common concerns. Fixing the public sector will not happen without cooperation between the two sectors. However, the budgets for next year are being cut. The implications of this will not be to expand and increase and fill vacant posts, it will mean forgoing certain elements and closure of more hospitals. The reality is government has extended its spending to every last cent. In addition, the public service deliv­ery system is not in the hands of the National Minister of Health. They have almost no authority over it. It is in the hands of the MECs and the heads of departments in the provinces, and their executives. And building that trust and that relationship with a considerable number of new MECs takes time. From the medical technology side, the key will be in health technology assessment. There is consensus that technology is crucial to decreasing the reliance on people and decentralising healthcare, getting it closer to commu­nities for easier access. The problem though is that the new gadgets and innovations do not necessarily add value and the temptation once bought is to use and charge for the expensive gadget, regardless of its usefulness. How the NHI fund chooses which tech­nologies to include in the costing of a benefit will be an important factor. Medical schemes are no longer afforda­ble for the majority. This trajectory, over the last 20 years now, has reached a tipping point. But the Healthcare Market Inquiry (HMI) was very specific. It did not indicate getting rid of medical schemes, but rather made recommendations on how to make them more affordable. The principle issues it found was lack of gov­ernment stewardship and an incomplete regulatory environment. The current trajectory that section 33 envisages is building one large public financing system and marginalising private financing. But some stakehold­ers are of the view that it would be better to build the NHI to a point where it competes private funding out of the picture. The system needs to be affordable – for the people and for government. The critical issues for the NHI to look at are understanding utilisation of services, benefit design, digital healthcare and the central purchasing function of government. Another area of consensus is the need for growth in the economy and a de­crease in debt. To find the right balance between what needs to be achieved economically, while bridging the in-equality in the healthcare system, both at a service and a financial level. There is concern around the narrative in the media. There needs to be caution about creating an unrealistic political narrative – this is not a healthcare sys­tem; this is a national health insurance bill. The public is being led to believe that by 2026 the NHI will be up and running, when in fact it will be a much longer process. Government’s aim is to see visible change within the next five years. The system needs to build carefully, to avoid a precipitous event where suddenly a million people leave their medical aids and switch to the public sector before the NHI is prepared. The minister, through the national health council, is presently working through what needs to be done with the MECs. There are many examples of people putting processes in place, including the pharma industry, which has made con­crete proposals on how to strengthen the NHI. The devices industry has begun a process with the Department of Trade and Industry to boost the manufacturing of devices in South Africa. Government has done a full costing of all the public sector infrastructure needs and is in dis­cussions with the DPSA on how to fund that, which will dramatically improve the construction industry. It makes sense to focus energy on making sure that, whatever comes out of the process, every resource is used more efficiently. The first step is to get enough people with the right knowledge into an office and make them accounta­ble for the benefits. Then to move past the theory, to a point where medical codes are developed, where everybody understands what the benefits offer, that there is a clinical pathway and a health technology assessment (HTA) of the cost of the medicines and diag­nostics has been done. The number of accredited and unaccredited providers needs to be measured, and there needs to be an investigation into what the present case mix is and how to better collect the data. Over the next three months, until 1 April 2020, the IT systems of the new organisation will be formally created. Patients on the current system then need to be loaded and those seconded to be the nucleus of the team designing the operational procedures need to be appointed. There is a small budget which government will have access to from 1 April 2020, and between now and then it will advertise a few posts and bring in more permanent people. And then there are some global donors who have offered to support various activities and posts. There is concern about whether the financing aspect can be dealt with appropriately, given the lack of cer­tainty around what will be included, in terms of benefits, and how that will be phased in – as well as the overall fiscus sustainability of the fund itself. It would be unwise to assume that money spent voluntarily in the private sector will suddenly become available to the public sector, but there are mechanisms to move it, slowly. Gov­ernment, together with the CMS, will monitor the number of people who are shifting out of the medical aid sector, thereby watching people’s affordability to anticipate what the impact will be of removing that subsidy. There is unease around the potential heavy reliance on taxes. Treasury will ultimately make the decision on the use of tax to fund the NHI. But a relationship needs to be built and discussions had in order for treasury to properly understand what the demands and pressures are within the health service. The bill creates the possibility of a pay­roll tax to prepare for the eventuality where people trust the services of the NHI and decide they do not need med­ical aid anymore. The planning for that is being done with close cooperation between the new office of the NHI fund, private sector medical schemes and the Council for Medical Schemes, which coordinates and watches the figures. There may need to be a regulation on what data elements are needed to responsibly monitor these decisions. Obviously patient confidentiality is to be respected, and their information will not be distributed. But the NHI needs to know where a patient has logged into a primary healthcare facility in order to monitor the healthcare it is providing and at what cost. From the public sector side there is a massive programme on the go. One part of this is that the Law Reform Com­mission has done an investigation into medical legal claims, not just for the public sector but for the professions too. That report is in the public domain and can be found on the Internet. Government has now started pooling all the cases to examine them collective­ly, and has found disturbing patterns among the claims, where the same patient has claimed for the same condi­tion in more than one province. All the provinces are now engaged in processes of improving their mortal­ity and morbidity management, risk management, clinical governance processes, etc. To the extent that their current environment allows them, there are concerted efforts and deliberate plans afoot. There has not been sufficient coordi­nation across the healthcare delivery system. But this roundtable dia­logue, set up by the Inclusive Society Institute, saw representatives from government, hospitals, independent practitioners and medical aid schemes, to the pharmaceuticals and equipment industry participating. If the rationality of this discussion was captured in the public media, it would be a source of much comfort for society. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Survey - How are SMMEs coping with the coronavirus lockdown and proposed measures to alleviate financial distress? Copyright © 2020 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. All records and findings included in this report, stem from the survey from the survey on the impact of COVID-19 on the SMME sector, which took place over the period 9 to 13 April 2020. Contents 1. Setting the scene and objectives of the survey 2. Key findings 2.1 Are SMMEs able to cope during the initial lockdown (which includes the two-week extension to 30 April 2020? 2.2 How have the workers of these SMMEs been affected? 2.3 How would the survival prospects change for the SMME sector should there be a further extension of the lockdown beyond 30 April 2020? 2.4 What has the take-up been with regard to the financial aid measures announced to alleviate the impact of the lockdown on business? 2.5 The testing of the acceptability of a selection of potential post-COVID-19 recovery measures. 3. Survey methodology 4. Recommendations 5. Summary of detailed data 5.1 Summary of detailed data for all enterprises surveyed 5.2 Summary of selected data for manufacturing, services and wholesale & retail sectors List of figures Figure 1.2: The lockdown and its effect on business Figure 2.1: Indicators with regard to the enterprises’ chance of survival Figure 2.2: Composition of SMME enterprises surveyed Figure 3.2: Composition of SMME enterprises surveyed Figure 5.1: Sector indicators compared with all enterprise averages References 1. Setting the scene and objectives of the survey On 31 December 2019, the World Health Organisation (WHO) was informed about the outbreak of a pneumonia of unknown cause, which was detected in the Chinese city of Wuhan. On 30 January 2020, the WHO declared the outbreak a Public Health Emergency of International Concern; and on 11 February 2020 it announced the name for the new coronavirus: COVID-19 (WHO, N.d.). On 12 March 2020, Dr Hans Henri P. Kluge, WHO Regional Director for Europe, confirmed that COVID-19 was declared a pandemic (WHO, 2020). On 5 March 2020, South Africa’s National Institute for Communicable Diseases announced the first case of COVID-19 in the country (NICD, 2020). With more and more cases being declared on a daily basis thereafter, the President of the Republic of South Africa announced on the evening of Monday, 23 March 2020, that in terms of the Disaster Management Act, in a decisive effort to save millions of South Africans from infection, a nationwide lockdown for 21 days would come into effect at midnight on Thursday, 26 March 2020. During the lockdown, all South Africans, except for designated essential workers, would have to stay at home and would not be allowed to leave their homes except under strictly controlled circumstances (RSA, 2020). The president acknowledged that the measures would have a considerable impact on people’s livelihoods and on the life of society and the economy, but believed that “the human cost of delaying…[the] action would be far, far greater” (RSA, 2020). Workers and enterprises exempted from the lockdown included health workers in the public and private sectors, emergency and security services personnel, other persons necessary in response to COVID-19 and “those involved in the production, distribution and supply of food and basic goods, essential banking services, the maintenance of power, water and telecommunications services, laboratory services, and the provision of medical and hygiene products” (RSA, 2020). Figure 1.2 The lockdown and its effect on business (Source: News24) All other workers had to stay at home for the full period of the lockdown and enterprises not considered essential had to remain closed. While emphasising the importance of a lockdown, the president urged all firms that were able to continue their operations remotely, to do so (RSA, 2020). In response to the impact that the lockdown will have on the economy, government announced various relief measures aimed at assisting enterprises to retain staff and remain afloat. These included amongst others, the setting up of a Solidarity Fund aimed at assisting small businesses to endure, the setting up of a temporary employee relief scheme and debt relief schemes for both enterprises and employees (Mail & Guardian, 2020). Other measures included employer relief measures, such as the provision of a four-month tax subsidy for employees in the private sector. The aim thereof would be to encourage employers to retain workers during the lockdown. It was also announced that the payment of employment tax incentive reimbursements would change from twice a year to monthly, so as to ensure that cash got into the hands of compliant employers as soon as possible, and tax compliant businesses with a turnover of less than R50-million were, for a four-month period, allowed to delay 20% of their employees’ tax liabilities. A portion of their provisional corporate income tax payments could also, over a six-month period, be deferred without penalties or interest (Deloitte, 2020). On the evening of Thursday, 9 April 2020, the president announced a further two-week extension of the lockdown (News24, 2020). At the time of undertaking this survey, the lockdown was scheduled to run until 30 April 2020. The Inclusive Society Institute, with a view to post-COVID-19 policy planning, undertook a survey immediately after the extension was announced by the president. The objective of the survey was to: Assess how SMMEs were coping with the lockdown Determine SMME confidence levels in their survival post-COVID-19 Consider the potential impact that a further extension of the lockdown on their survival prospects would be Test a number of potential post-COVID-19 policy measures that could be implemented to ease the South African economy back into normality Stimulate SMME thinking as to measures that could be taken through a public-private participative approach aimed at overcoming the calamity that befell the country. The survey period ran from the evening of 9 April to close of business on Monday, 13 April 2020, and should be viewed as a snapshot of SMME thinking during said period. The institute will promote the survey to public policymakers as its contribution towards consolidating national reflexion on economic recovery. The institute supports economic measures that will enhance equality, inclusiveness and solidarity. 2. Key findings Given the urgency to issue the report prior to the conclusion of the lockdown period, this report mainly confines itself to a global overview of all the enterprises that participated in the survey. It does, however, also provide a high-level analysis of the three largest sectoral components of the survey, namely manufacturing, wholesale and retail, and services. The report therefore covers the data captured for 1 084 enterprises from across all sectors. With minor exclusions, they are micro-, small and medium-sized enterprises. These findings restrict themselves to five main themes: Are SMMEs able to cope during the initial lockdown (which includes the two-week extension to 30 April 2020)? How have the workers of these SMMEs been affected? How would the survival prospects change for the SMME sector should there be a further extension of the lockdown beyond 30 April 2020? What has the take-up been with regard to the financial aid measures announced to alleviate the impact of the lockdown on business? The testing of the acceptability of a selection of potential post-COVID-19 recovery measures. The vast majority – 72 per cent – of the 1 084 enterprises surveyed were not able to operate during the lockdown period. Combined, they employ 39 943 workers and have a turnover just on R33 billion. Twenty-eight per cent of the enterprises were considered essential services. As mentioned, the analysis did not test all individual sectors. It did, however, examine the three largest sectors in the sample survey, namely manufacturing, services, and wholesale and retail. In the main, the conclusions on manufacturing as well as wholesale and retail correlated with the ‘all enterprises’ trends. The services sector, it appears, finds itself in a particularly difficult position and will face greater challenges to recover once the economy normalises. The key finding of this survey is that the SMME sector will most probably be able to recuperate should the lockdown be lifted at the end of April 2020. However, any further extension of the lockdown, in its current format, will have dire consequences for the sustainability of this sector in the longer term. 2.1 Are SMMEs able to cope during the initial lockdown (which includes the two-week extension to 30 April 2020)? Almost all enterprises, that is 98 per cent, have seen a decrease in their turnover. Seventy-eight per cent of the enterprises do not have sufficient cash flow to see them through the lockdown period. Despite these drawbacks, 69 per cent of the enterprises are of the opinion that they would survive the setback presented by the COVID-19 lockdown measures. The sectoral analysis revealed that in terms of those enterprises that were confident of surviving the initial lockdown period, services as well as wholesale and retail were slightly more confident than average, whilst the manufacturing sector was considerably less confident. Seventy per cent of enterprises in the services sector and 74 per cent of those in the wholesale and retail sector were confident of surviving, whilst only 47 per cent in the manufacturing sector expressed confidence in enduring beyond 30 April 2020. Similar patterns were detected across all sectoral analyses with regard to the percentage of enterprises that did not have sufficient cash flow to see them through the lockdown: Seventy-two per cent of manufacturing enterprises, 82 per cent of services enterprises and 83 per cent of wholesale and retail enterprises lacked adequate cash. 2.2 How have the workers of these SMMEs been affected? It appears that the enterprises have in the main managed to make arrangements to retain most of their workers, although it still bled 7,5 percent of their workforce. Only 202, or 19 per cent, of the enterprises surveyed laid-off staff during the lockdown. If this percentage were to be extrapolated to the full number of workers employed in the SMME sector as per the SEDA report mentioned in the methodology section of this report - 10,839,819 workers - then the lockdown could result in the loss of 812,986 jobs. With regard to the sectoral breakdown as it relates to enterprises that had to reduce their staff levels during the lockdown, 15 per cent of manufacturing enterprises, 24 per cent of those in services and 29 per cent in wholesale and retail indicated that they had to do so. However, it appears the aforementioned negative impact on jobs will be somewhat mitigated, in that 21 per cent of enterprises indicated that they would re-employ the workers once they were able to again operate after lockdown, whilst a further 68,5 per cent of enterprises said that they would reemploy the workers once cash flow permitted. As a result, in time almost 90 per cent of the workers will be re-employed. The real job loss could therefore be contained to around 80,000, should enterprises be in the position to re-start at the beginning of May 2020. In manufacturing, the percentage of enterprises that would re-employ retrenched staff, either when they re-open or once cash flow permitted, was 60 per cent; in services, it was 47 per cent, and in wholesale and retail, 97 per cent. This would indicate that the services sector would find it more difficult to revive themselves, whilst the manufacturing and the wholesale and retail sectors would find it easier. That being said, the opposite will hold true should the lockdown be extended beyond 30 April 2020. Seventy-six per cent of enterprises indicated that, in such instance, they would have to reduce their staff complement. This should be read together with the statistic indicating that 70 per cent of enterprises do not believe they could survive a further extension of the lockdown; and 92 per cent of them would not have the cash flow to carry them over an extended period beyond 30 April 2020. 2.3 How would the survival prospects change for the SMME sector should there be a further extension of the lockdown beyond 30 April 2020? The situation becomes somewhat bleaker, should government decide to extend the lockdown beyond 30 April 2020. Respondents were requested to give their assessment should the lockdown be extended by a further month. It was found that there was a far greater number of enterprises that believed they would not survive such an extension. Whereas 69 per cent of enterprises were confident that they would survive the initial lockdown period, this declined dramatically to only 29,5 per cent. Ninety-five-and-a-half per cent of the enterprises are of the opinion that their turnover would decline and 76 per cent would have to lay off more staff. A similar trend was detected in the manufacturing, services, and wholesale and retail sectors. Only 29 per cent of manufacturing enterprises, 25 per cent of those in services and 30 per cent of those in wholesale and retail believed they would survive should the lockdown be extended by another month. A startling statistic has been revealed apropos the ability of the enterprises to fund themselves beyond 30 April 2020. Ninety-two per cent of the enterprises indicated that they do not have the necessary cash flow in place to carry them beyond the end of April. Whilst the manufacturing and the wholesale and retail sectors reflected a similar trend, the services sector was particularly hard hit. Less than one per cent had sufficient cash flow to see them through an extended lockdown. Figure 2.1: Indicators with regard to the enterprises’ chance of survival (Source: Inclusive Society Institute) 2.4 What has the take-up been with regard to the financial aid measures announced to alleviate the impact of the lockdown on business? Only 22 per cent of enterprises indicated that they have sufficient cash to carry them over the lockdown period. This means that they have had to make alternative arrangements to secure funding to see them through until 30 April 2020. To this end, 56 per cent have applied to the various funds set up to assist with the alleviation of the hardships imposed on business by the COVID-19 lockdown decision. However, as of 13 April 2020, only 4 per cent have received approval for such assistance. The full effect of these measures is still to be determined. 2.5 The testing of the acceptability of a selection of potential post-COVID-19 recovery measures In this part of the survey, two new financial measures, which have to date not been widely promoted, were put to the respondents for consideration, together with five policy measures that are already widely publicised in the media. This report will expand on the machinations and potential of the new concepts, whilst only report on the level of support for the others. The first of the two new concepts is a proposed once-off "COVID-19 RECOVERY LEVY" which would be a levy on turnover. The survey suggested that the levy be set at 2,5 per cent, although, alternative levels should form part of any economic modelling – which has not been done – in this regard. The intention of this proposal at this point is to merely consider the willingness of the business community to make financial sacrifices in the national interest. As stated, no economic modelling has been done, and in retrospect the percentage is in all probability too high. Nevertheless, even a fractional percentage on the R9,986,053-million combined annual turnover of all industries (Stats SA, 2020:8), would yield a sizable contribution that could help off-set the repercussions of the COVID-19 lockdown. At a mere quarter of a percentage point, tax revenue of close on R25-billion could be raised. Even at such a high level, more than a third of the respondents (34 per cent) indicated support for the idea. Set at more realistic levels, the concept would in all probability receive broader support. The second new measure that was proposed was the concept of a "SOLIDARITY TAX" of between 1 and 2 per cent on personal incomes above a R240,000 per annum threshold. In the 2018 tax year, at 74,9 per cent returns assessed, the South African Revenue Services collected R332,595-million in personal income tax from taxpayers that had a taxable income in excess of R250,000 per annum (BusinessTech, 2019). The taxable income for personal taxpayers with a taxable income above R250,000 per annum, amounted to R283,920-million. Thus, a one per cent solidarity tax would yield approximately R2,8-billion, and at two per cent between R5,6- and R5,7-billion (SARS, 2019:44). The imposition of a solidarity tax was supported by 44 per cent of respondents. The results from the survey for the other measures proposed, were: The SMME preferences with regard to the types of government interventions preferred are indicated in figure 2.2 below: Figure 2.2: SMME government intervention preferences (Source: Inclusive Society Institute) 3. Methodology The estimated SMME population size in South Africa is around 2,550,540, of which 736,198 are formal and 1,754,443 informal. Combined, they provide approximately 10,839,819 jobs (SEDA, 2019). Sampling, data collection and data subjects Sampling was carried out through the dissemination of the survey by electronic means to a representative database comprising SMME businesses drawn from across the country and from all sectors. In total, 1 084 responses to the questionnaire were obtained. Since “the quality of the sample will be higher, the more completely the sampling frame covers the target population” (European Social Survey, 2016), the data-base selected contained only SMME enterprises, which was the subject of the study. Standard data cleansing and validation procedures were carried out. The chart contained in figure 2.2 below, reflects the composition of the subject SMME enterprises. Figure 3.2: Composition of SMME enterprises surveyed (Source: Inclusive Society Institute) Confidence level and margin of error In determining the sample size, the research relied on the standard 95 per cent level of confidence and 5 per cent margin of error, which is common for social sciences studies (Royse, 2008:209). Sample size In determining the sample size required to achieve a confidence level of 95 per cent and a margin of error of approximately 5 per cent, the author was guided by the table published in Glenn (1992) and Cochran’s (1963) formula for calculating a sample for proportions. The former suggested a sample size of 400 obtained responses and the latter 385. Whereas the survey size should accordingly not be smaller than 400, the actual number of obtained responses amounted to 1 084, nearly three times the standard minimum. This would serve to strengthen reliance on the report since the margin of error would be closer to 3 per cent (Creative Research Systems, N.d.). Question set The survey contained a total of 26 questions, which could be grouped into five categories: Category 1 – questions of a demographic nature In category 1, the series of questions designed was aimed at eliciting information that would assist in answering questions related to the nature of the enterprise participating in the survey. This would help the stratification of enterprises in terms of their size (micro or medium), sector, whether they are considered essential services or not and/or whether they are reliant on government for business. In so doing, findings could be made, amongst others, as to outcome differences between the various sectors, and the extent to which an enterprise being declared an essential service improves their ability to survive. Category 2 – questions related to the impact on workers The series of questions contained in the third category of questions was aimed at assessing the impact of the lockdown on the enterprise itself. It would assist in gaining answers to the enterprise’s likelihood of survival during the current post-COVID-19 lockdown and how a further extension thereof would exacerbate the situation. Category 3 – questions pertaining to the impact of the lockdown on the viability of the enterprise The series of questions contained in the second category of questions was designed to assess the impact that the lockdown has had on workers, and to assess the impact that an extension of the lockdown will have on workers. Category 4 – questions aimed at testing the enterprises’ reliability on financial aid The fourth set of questions was designed to enable findings to be made with regard to both whether the affected enterprises are reliant on the relief measures announced by government, and whether three weeks into the lockdown any access has been achieved. Category 5 – questions aimed at testing potential post-COVID-19 economic recovery measures The last series of questions was designed to initiate thinking with regard to relief measures that could be instituted post-lockdown to mitigate the negative effects that the lockdown has had on the enterprises, the economy and society in general. 4. Recommendations Recommendation 1: Enterprise Survival The results of this survey would suggest that SMMEs across the board are experiencing hardship as a consequence of the COVID-19 lockdown implemented by the authorities. There has been a material impact on the enterprises’ cash flow and ability to retain staff. Notwithstanding, indications are that the majority of these enterprises will survive the lockdown scheduled to end on 30 April 2020, and most jobs lost will be recouped. The policymakers should, however, take cognisance of the finding that 70 per cent of enterprises surveyed believe they would not survive a further extension of the lockdown under the current rules, and that 76 per cent of enterprises would reduce staff in such event. It is recommended that any extension take these findings into account and that, should a further extension of the lockdown be required, mechanisms be considered to allow businesses to operate more effectively, albeit with strict social distancing rules. Recommendation 2: Recovery Measures Part of the survey tested enterprises’ willingness to accept new fiscal measures that would require further sacrifices in terms of higher taxations. This survey introduced two new concepts that do not form part of the current public discourse. The once-off “COVID-19 RECOVERY LEVY” based on company turnover and a “SOLIDARITY TAX” on personal incomes above R240,000 per annum (also once-off) was introduced. More than one third of the respondents supported the former, and 44 per cent the latter. Whilst retrospectively grasping that a 2,5 percent levy on turnover is too high, and that only a fraction thereof – still with the ability to generate substantial revenue – will most probably be feasible, it is proposed that the policymakers undertake economic modelling to examine the feasibility of such new financial measures. Recommendation 3: Relief Measures The survey finds that the vast majority of SMMEs require financial assistance to see them through the lockdown period and that sustained support will be required to aid the recovery of the sector. It is accordingly proposed that the policymakers consider additional mechanisms to support the SMMEs and that the mechanisms, current and future, be streamlined to ensure speedier decision-making and transfer of financial aid to the enterprises. 5. Summary 5.1 Summary of detailed data for all enterprises surveyed No. % 5.2 Summary of selected data for manufacturing, services and wholesale & retail sectors Figure 5.1 below, which contains trends with regard to a selection of indicators, is included in order to compare the performance of the manufacturing, services and the wholesale and retail sectors against the ‘all enterprise’ average. (Source: Inclusive Society Institute) References BusinessTech. 2020. These 3 graphs show who’s paying South Africa’s income tax. [Online] Available at: https://businesstech.co.za/news/finance/363120/these-3-graphs-show-whos-paying-southafricas-income-tax/ [accessed: 12 April 2020]. Cochran, W. G. 1963. Sampling Techniques, 2nd Ed. New York: John Wiley and Sons, Inc. Creative Research Systems. N.d. Sample Size Calculator. [Online] Available at: https://www.surveysystem.com/sdesign.htm [accessed: 13 April 2020]. Deloitte. 2020. South Africa: Tax relief measures announced in response to COVID-19. [Online] Available at: https://www2.deloitte.com/za/en/pages/tax/articles/south-africa-tax-relief-measures-inresponse-to-COVID-19.html [accessed: 10 April 2020]. European Social Survey. 2016. Sampling Guidelines: Principles and Implementation for the European Social Survey. [Online] Available at: https://www.europeansocialsurvey.org/docs/round8/methods/ESS8_sampling_guidelines.pdf [accessed: 13 April 2020]. Israel, G.D. 1992. Determining sample size. Fact Sheet PEOD-6. Gainesville: University of Florida. Mail & Guardian. 2020. South Africa’s economic plan for Covid-19. [Online] Available at: https://mg.co.za/article/2020-03-23-south-africas-economic-plan-for-covid-19/ [accessed: 10 April 2020]. National Institute for Communicable Diseases (NICD). 2020. First case of covid-19 coronavirus reported in SA. [Online] Available at: https://www.nicd.ac.za/first-case-of-covid-19-coronavirusreported-in-sa/ [accessed: 10 April 2020]. News24. 2020. Struggle is far from over. [Online] Available at: https://www.news24.com/SouthAfrica/News/in-full-struggle-far-from-over-read-ramaphosasstatement-on-2-week-lockdown-extension-20200409 [accessed: 10 April 2020]. Republic of South Africa (RSA). 2020. President Ramaphosa announces a nationwide lockdown. [Online] Available at: https://www.sanews.gov.za/south-africa/president-ramaphosa-announces-nationwidelockdown [accessed: 10 April 2020]. Royce, D. 2008. Research methods in social work, 5th edition. Belmont: Thomson Higher Education. Mall Enterprises Development Agency (SEDA). 2019. SMME Quarterly Update, 1st Quarter 2019. Pretoria: SEDA South African Revenue Services (SARS). 2019. Tax Statistics 2019. Pretoria: SARS. Statistics South Africa (Stats SA). 2020. Quarterly Financial Statistics (QFS) December 2019. Pretoria: Stats SA. World Health Organisation (WHO). N.d. Rolling updates on coronavirus disease (COVID-19). [Online] Available at: https://www.who.int/emergencies/diseases/novel-coronavirus-2019/events-as-theyhappen [accessed: 10 April 2020]. World Health Organisation (WHO). 2020. WHO announces COVID-19 outbreak a pandemic. [Online] Available at: http://www.euro.who.int/en/health-topics/health-emergencies/coronavirus-covid-19/news/news/2020/3/who-announces-covid-19-outbreak-a-pandemic [accessed: 10 April 2020]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

The role and place of the Afrikaans-speaking community in South African society The Inclusive Society Institute expresses its appreciation to the In Transformation Initiative, who’s contribution has enabled the implementation of the roundtable dialogues reported on in this publication. In support of efforts to promote social cohesion in South Africa, the Inclusive Society Institute hosted a series of roundtable dialogues to reinforce nation-building and reconciliation in the country. It forms part of the institute’s broader efforts aimed at promoting a cohesive inclusive society. The roundtable dialogues covered in this report relate to the institute’s engagement with the Afrikaans-speaking community. The ongoing broader programme will also engage the other minority communities of the country, and it will facilitate inter-community dialogue aimed at building a common South African identity. Copyright © 2020 Inclusive Society Institute 132 Adderley Street Cape Town, 8000 South Africa NPO Registration: 235-515 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. All records and findings included in this roundtable report, stem from the discussions that took place during the social cohesion roundtable dialogues on the role and place of the Afrikaans-speaking community, which were held in Cape Town on the 11th of February 2020 and Pretoria on the 18th of February 2020. Content Setting the scene for the roundtable on the role and place of the Afrikaans-speaking community in South African society | Keith Khoza | Board Member of the Inclusive Society Institute Purpose and objectives | Daryl Swanepoel | Chief Executive Officer of the Inclusive Society Institute Executive Summary | Roelf Meyer | Director, In Transformation Initiative Social Cohesion survey Recommendations A message to the Afrikaans Community | Paul Mashatile | Treasurer General of the African National Congress Protecting the identity of the Coloured Community in South Africa | Dr Ruben Richards | Chairperson of the Ruben Richards Foundation Inclusive economic growth key to social cohesion | Theo Vorster | Chief Executive Officer of Galileo Capital Summary of the open discussion: Working together to build on nation Annexure A: Tabulated list of concerns Annexure B: Action plan Setting the scene for the dialogue with the Afrikaans-speaking community Keith Khoza | Board Member of the Inclusive Society Institute Mr Keith Khoza, a member of the Inclusive Society Institute’s Board, in his welcome remarks at the Pretoria dialogue, set the scene for the evening’s discussion. He said that 1994 was a watershed year in this country, where we embarked on a journey to redefine ourselves as a people, as a nation, and as a new democracy. It came with all sorts of challenges, problems, and learning to co-exist and to embrace each other. Twenty-five years later, we are still walking that journey. We have not yet achieved all the milestones we have set ourselves – to be a vibrant nation and a formidable force in the rest of Africa. Clearly then, we have a huge task ahead of us and that is why conversations such as these being organised by the Inclusive Society Institute are so important. As a diverse nation we need to continuously reach out in an effort to find each other and understand where we come from, where we are going, and to agree amongst ourselves what the legacy is that we wish to bequeath the generations to follow. We want a South Africa that can be proud of itself. As an institute we are very aware of the many challenges that the nation is facing, including the important issue of social cohesion. That is why we believe these conversations to be crucial. At times, they may not be comfortable conversations to have, they are complex issues that need interrogation, analysis, understanding and compromise – not always easy content to deal with. But we have to do it. This platform that the Inclusive Society Institute is creating, we trust, will make a meaningful contribution to reigniting our nation’s dream of an inclusive society that works for all who live in it, black and white. Likewise, Ms Sue van der Merwe, the institute’s Chairperson, introduced the proceedings at the Cape Town dialogue. Purpose and objectives Daryl Swanepoel | Chief Executive Officer of the Inclusive Society Institute The Inclusive Society Institute has identified social cohesion as a theme that needs critical attention in our country. It recognises that nation-building and reconciliation are vital components that are required to build a cohesive nation capable of providing growth and stability for society as a whole. The institute is concerned with a sense of dissipation of South Africa being the rainbow nation. It shares the view of the African National Congress (as expressed in the 2020 January the 8th Statement and by President Ramaphosa in his 2020 State of the Nation Address) that this national question deserves the urgent attention of South Africa’s policymakers. With this in mind, the institute has embarked on an extensive programme to analyse the current state of demographic cohesion in the country. It intends to develop a set of proposals that could help guide public policymakers in their promotion of a common South Africanism that works for the nation as whole. The institute is concerned with the negative narrative promoting racial intolerance and suggestions of alienation amongst certain sectors of the community. It believes that the tendency by some to stereotype communities based on the actions of certain individuals is harming the national project which requires all groups in society to work together as co-builders of the country. This dialogue on the role and place of the Afrikaans-speaking community, forms part of the institute’s broader social cohesion programme. It seeks to test the attitudes and perceptions of this particular community as to their commitment and sense of belonging. It also aims to direct policymakers to the issues in society that drive a wedge between communities, and which need attention in pursuit of nation-building, reconciliation and the harnessing of all the country’s talents in pursuit of a common future that benefits society as a unit. This phase of the social cohesion programme entails a series of roundtable discussions with the various minority communities in the country. It is important for policymakers to understand the psyche of these communities. The institute is, however, of the opinion that just as important an issue is the breaking down of the silo-effect and that much more effort is required around inter-community interaction aimed at promoting a better understanding of our fellow South Africans. To this end, the next phase of the programme will focus on these aspects. Executive Summary Roelf Meyer | Director, In Transformation Initiative The Inclusive Society Institute held two roundtable discussions on the role of the Afrikaans-speaking community in South Africa. The first was held on the 11th of February 2020 in Cape Town and the second on the 18th of February 2020 in Pretoria. Invited guests ranged from academics to community activists, private sector business leaders, members of the clergy, entrepreneurs, economists, members of the judiciary, government representatives, members of the media and film sector, civil society organisation representatives and educators. The aim of the discussions was to achieve a better understanding of how the Afrikaans-speaking community views its place and role within the country, as well as their experiences in the promotion of social cohesion and national unity. Additionally, the engagements also served as an opportunity to bring the concerns of citizens to the attention of national leadership and policymakers, and develop policy recommendations that will allow the Afrikaans-speaking community to fully contribute to the development of an inclusive society and economy in South Africa. The roundtable discussions revealed areas of alignment, disagreement and lack of clarity pertaining to the definition of a South African’s national identity and how this is informed by the individual’s ethnic, linguistic, racial and cultural histories. Overall, participants expressed their commitment and hope that the issues plaguing South Africa can be resolved, despite echoes of frustration and scepticism regarding the political will from national leadership to consider the concerns and issues expressed. All participants agreed that there is a need for pragmatic solutions in the country which can be achieved through collaborative efforts by government, the private sector and civil society. The Afrikaans-speaking community expressed a keen desire to be involved in these processes and believe they can also be providers of critical solutions to issues of unemployment, service delivery, training and skills transfer and economic growth. However, most participants had the perception that there was a lack of political will to implement recommendations and to address the issues expressed through dialogue initiatives. This perception, be it real or not, continues to deepen the apathy among citizens. Consequently, this makes the mobilisation and motivation of citizens to contribute to the development of the country, that much more difficult. It was generally expressed that members of the Afrikaans-speaking community, including both White and Coloured people, need to be involved and give their input in shaping the narrative around social cohesion, legislation, political participation and economic empowerment. Several participants reiterated that the Afrikaans-speaking community is not one of homogeneity, nor one without its contradictions and complexities and should, therefore, also not be approached with the stereotypes that have historically been associated with this community. Additional key issues that were expressed during both discussion sessions included the lack of clear and consistent leadership required to inspire citizens to reclaim their agency in contributing to national unity, nation building and social cohesion. The continued discrimination against minority groups as a result of divisive political messaging and exclusionary national polices was also a cause for concern. Moreover, there are high levels of concern regarding the current economic climate. Given the uncertainty created by prolonged economic stagnation, urgent intervention and guidance from leadership will be necessary for any improvement in the current economic growth trajectory. The adverse effect of BBBEE and affirmative action was also emphasised by many of the participants. Some argued that the legislation surrounding these policies does not benefit the intended recipients and contributes to a lack of business growth, as well as the loss of critical skills from the country. Additionally, clarification is required around some of the key issues such as the definition of the South African identity, the narrative of national unity, property rights, land redistribution and the current status of constitutional principles, among others. Guidance from national leadership on these issues is needed in order to remove uncertainty and provide a degree of clarity to industry stakeholders, investors and society in general. Key takeouts The Inclusive Society Institute held two roundtable discussions on the role of the Afrikaans-speaking community in South Africa. Keynote speakers for the events were Ruben Richards of the Ruben Richards Foundation (Cape Town) and Theo Vorster, an economic commentator and CEO of Galileo Capital (Pretoria). The primary focus of the Inclusive Society Institute is to promote a more inclusive society by creating a platform where discourse around often divisive topics can be conducted through engaging with diverse and representative groups. The majority of participants continue to feel a sense of hope and optimism for the future of the country, despite many frustrations and challenges. Several participants reiterated that the Afrikaans-speaking community is not one of homogeneity nor one without its contradictions and complexities and should, therefore, also not be approached with the stereotypes that have been historically associated with this community. It is important that minorities are included in these types of discussions towards contributing to the narrative regarding national unity, national policy and the effectiveness and implementation of principles set out in the constitution. The current state of the economy is adversely affecting social cohesion and inclusive growth in South Africa. The Inclusive Society Institute is committed to conducting future dialogue discussions of this nature, towards engaging with more participants in a structured manner and influencing different role players in the country. The Institute can provide valuable insights into areas of alignment or division through facilitating robust discussions and providing analysis and research into public policies and issues of national interest. Social cohesion survey The composition of the two roundtables covered in this report, the institute considers generally representative of the broader Afrikaans-speaking community in South Africa. The roundtables served as focus groups to test their attitudinal sentiments as it relates to their role and place in society. To further assist in the analysis, a questionnaire was developed which probed the attitudes of the attendees on a range of issues that would allow for a broad assessment of this specific community’s commitment to the new democratic dispensation in South Africa, the issues in society that they find most concerning and the prospect of their social integration into an inclusive society, free from discrimination and racial division. The twelve questions posed, could be divided into three broad themes: Theme one tested their willingness to be co-builders of South Africa and their acceptance of the rainbow nation’ concept. Do you believe that, as a member of the Afrikaans community, you can make a meaningful contribution to build and sustain an inclusive society in South Africa? Do you identify with the following statement? A modern-day Afrikaans citizen is one that is in touch with the times, identifies as African, and experiences/ accepts other cultures without fear of having to give up his/her own cultural identity. The second theme tested whether they felt a sense of belonging in the country, and gave insight into whether they believed their rights as an Afrikaans-speaking community were being upheld. This test gave an indication as to whether they considered themselves to be valued as equal citizens and whether they had confidence in the country’s capacity to move beyond racebased policy dialogue. Do you feel that your fundamental rights are being recognised in South Africa? Do you feel excluded from political decisions and policymaking? Do you believe that Afrikaans people and/or their culture are being discriminated against? Do you think the Afrikaans language is being marginalised? Do you believe that the new (younger) generation of Afrikaans people are still being held accountable for the actions and decisions of the previous regime? Do you experience a sense of solidarity between the various racial groups in the country? The third theme served to test the community’s confidence in South Africa, and thus the likeliness of them committing themselves and their families to the long-term future of the country. It is also important for the country to retain the skill sets contained within the Afrikaans community. This theme also specifically tested their susceptibility to emigration. Do you feel economically secure? Do you have confidence in the future of the country? Do you feel safe in the country (physically)? Have you considered emigrating? Interpretation The overall conclusion to be drawn from the responses to the questions posed under theme one is that there is a high commitment across both groups to the building of a sustainable and inclusive South Africa. Ninety-six percent of the respondents in Cape Town and 100% of the respondents in Pretoria (98% average) believe they can make a positive contribution to the building of a shared future in South Africa. An average of 86% of the respondents across both groups identify themselves as [South] African and accept the other cultures of the country, without the fear of having to give up their own culture. At 95% this sentiment was especially high in the Pretoria group, but at 74% somewhat lower, yet still high, in the Cape Town group. Given these statistics, the fair conclusion to be drawn is that given the right motivation and support, the Afrikaans-speaking community will respond enthusiastically to a call to build a united, non-racial, non-sexist South Africa. However, despite the high levels of aspiration to be part of the solution, from the responses it is evident that the Afrikaans-speaking community do not share the belief that the policymakers in South Africa share such sentiment. The trends in both Cape Town and Pretoria were similar in all the questions designed to elicit an understanding of their sense of inclusion. Fifty-nine percent of the respondents were of the opinion that their fundamental rights are not being recognised, 73% feel excluded from political decisions and policymaking, and 63% believe that Afrikaans people and/or their culture are being discriminated against. In terms of their thinking that the Afrikaans language is being marginalised, here too, both the Cape Town and Pretoria groups recorded a high level of discontent, albeit somewhat higher in Cape Town (Cape Town 78%, Pretoria 54%, Average 64%). In terms of their conviction that the new (younger) generation of Afrikaans people are still being held accountable for the actions and decisions of the previous regime, a staggering 86% believe it to be the case, although in this instance, at 91%, it was the Pretoria group that felt more strongly so. In Cape Town it was 78% of the respondents that felt so. The general sense of exclusion reflected in the aforementioned statistics has distinctly resulted in the conviction that there is a lack of solidarity between the various racial groups in the country. Only 30% of respondents believe such solidarity exists (Cape Town 22%, Pretoria 35%). Also on the negative side, both in terms of their current levels of confidence in the country, and in their own personal futures, the statistics are quite glaring. There is a general lack of confidence in their economic future. Only 41% of the respondents in Cape Town and 35% of the respondents in Pretoria feel economically secure. Even more alarming was their sense of not being physically safe in the country. In this regard, only 15% of the respondents in Cape Town and 24% of the respondents in Pretoria feel physically safe in South Africa. That being said, the aforementioned negativity was not reflected to the same degree in their general sense of confidence in the country’s future, although there was a considerable differentiation to be made between the Cape Town and Pretoria groups. Sixty-eight percent of the respondents in the Pretoria group have confidence in the country’s future. The percentage of Cape Town respondents that have confidence in the country’s future was significantly lower (44%). The average between the two groups stood at 58%. The same schizophrenia was detected in the responses to whether they had considered emigration. Whilst only 35% of the respondents in Pretoria consider emigration as an option, this grew to 52% of the respondents in Cape Town. It is not clear what has given rise to this anomaly, nevertheless, with an average of 42% of respondents indicating that they have considered emigration, given the necessity to retain skills and capital in South Africa, this is an aspect that deserves further investigation. The correlation between the two concepts of still holding the younger generation accountable for the actions and decisions of the previous regime and their susceptibility to emigration has not been tested. In this regard a follow-up study will be undertaken to determine whether there is such a link, and whether the notion of emigration is confined to specific generational strata or not. To reach the goal of an inclusive society From the aforementioned analysis, it can be deduced that, in terms of creating an inclusive society, a significant trust deficit exists between the Afrikaans-speaking community and the country’s policymakers. In itself, this should be a cause for concern in terms of the stated objective of promoting social cohesion. On the positive side, however, the policymakers will find the Afrikaans-speaking community receptive to programmes designed to promote their inclusion and mainstreaming into the public policy processes and implementation programmes of the state, as well as into the broader society. In doing so, policymakers should design strategies that aim to remove the concerns that have been clearly identified in this research as inhibitors to integration. Social cohesion survey The role and place of the Afrikaans community in South African society Recommendations The following recommendations have emerged from the roundtable dialogue sessions held in Cape Town and Pretoria. 1. Encourage participation and collaboration through future dialogue and community programmes The roll-out of community-focused engagement aimed at educating citizens on the principles of democracy and active citizen participation, will serve to empower members of society and shape the narrative regarding political participation and social cohesion. These programmes can also contribute to the development of innovative solutions for issues affecting communities and inform the younger generation’s understanding of national identity. Committing to future dialogue between government leaders and citizens can help to promote national unity among South Africans feeling excluded from decision-making processes and consultations. Moreover, workshops aimed at finding practical solutions to issues and blockages can restore citizens’ agency and motivate them to be active participants in building South Africa. Robust, honest engagements need to take place regarding what is required to move the country forward. People from all races, ethnicities and cultures must be considered contributors in finding solutions, regardless of their political affiliations. Improved collaboration between government and the private sector is needed to combat unemployment and implement training and skills transfer programmes in accordance with the needs of the economy. Moreover, the absorption of university graduates into the workforce is something that needs to urgently be addressed. 2. Shape the narrative of non-racialism Government is encouraged to re-assess the use of language regarding racial differentiation such as ‘Blacks in general and Africans in particular’, in an effort to confront the exclusion and discrimination experienced by minority groups that fall outside of these parameters. Moreover, strategic and deliberate decisions pertaining to the messaging on national policy and critical matters affecting society, must be taken to inspire and motivate citizens to take action. This can also serve to combat the current disconnect experienced between leadership and communities that feel excluded from the agenda. Lastly, public officials are urged to steer away from stereotyping and generalisations when making public pronouncements which include racial aspects, as this has a demoralising effect on minority groups, especially those that have come to the party in terms of taking action and providing support. 3. Define the vision for South Africa and promote partnerships The leadership in South Africa need to define the future envisioned for South Africa. Clarity is required on the definition of the new South Africa and what leadership is going to do to achieve this image in the country. People need motivation from leadership. Furthermore, improved collaboration between government and the private sector is vital to combat unemployment and implement training and skills transfer programmes in accordance with the needs of the economy. 4. Provide inspirational, transparent and accountable leadership Address the messages coming from government leaders that discredit constitutional values and re-establish the sense of discipline amongst leaders. South Africans, regardless of ethnicity or culture will support this when seen in practice. Don’t use political power to oppress minorities or exclude certain races from the decision-making processes. Follow the prescripts of the constitution of equality and fairness and justice for all people and give every race an opportunity to participate in all sectors of the country. Government must hold those found to be involved in corruption to account. Visible consequences must be implemented for citizens to see that government is serious about condemning and combatting corruption. 5. Clarity and reflection on legislation Leadership is encouraged to reflect on the intended versus the applied impact of policies. In the case of BBBEE and affirmative action, government could consider reform regarding the implantation of these policies to avoid the current adverse effects experienced by workforces, industry and private sector business. It should be an enabler for business to grow, develop and benefit the intended benefices. Drastic intervention is needed in the education sector. Educators require support from government pertaining to a lack of resources and well-trained educators. The suggestion is to address the shortage in teachers by re-opening education colleges and training colleges for teachers. Moreover, citizens require clarity and certainty from government on areas such as property rights, land redistribution without compensation, the National Democratic Revolution (NDR), economic reforms, the protection of the Judiciary and the status of Constitution following the effects of State Capture. 6. Mentorship initiatives There remains a great sense of optimism and willingness among the Afrikaans-speaking community and business to work together, mobilise and collaborate with government. Citizens are willing, able and skilled to participate in programmes that promote the transfer of skills and establishing mentoring programmes throughout various sectors and trades in the country. It is recommended that leadership consider collaborating with private business stakeholders and skilled artisans in establishing training and mentoring programmes that can offer young people, graduates and unskilled workers opportunities to learn from experienced professionals and receive the support needed for the development of scarce skills, business growth and entrepreneurial enterprises. Additionally, leadership can also consider approaching inactive or retired professionals and experienced stakeholders as participants in these mentorship programmes, thus making use of this currently overlooked yet available group of citizens. A message to the Afrikaans community: South Africa is your homeland too Paul Mashatile | Treasurer General of the African National Congress The focus of this address was on the ANC’s commitment to an inclusive society and the actions taken by the ANC to promote social cohesion: The release of Mr. Nelson Mandela on the 11th of February 1990 was highlighted as the day when South Africa was placed firmly on a path to unity, reconciliation and democracy. “During my lifetime I have dedicated myself to this struggle of the African people. I have fought against white domination, and I have fought against black domination. I have cherished the ideal of a democratic and free society in which all persons live together in harmony and with equal opportunities. It is an ideal which I hope to live for and to achieve. But if needs be, it is an ideal for which I am prepared to die.” (Nelson Mandela, 1964) The history of the ANC is reflected on as a point of departure for its long-standing commitment to an inclusive society and the promotion of social cohesion. In a seminal article published in October 1911, Pixley ka Isaka Seme, one of the foremost intellectuals at the time, called on Africans to put their differences aside and forge a Native Union. In the article, Seme wrote: “The demon of racialism, the aberrations of the Xosa-Fingo feud, the animosity that exists between the Zulus and the Tongas, between the Basutos and every other native must be buried and forgotten; it has shed among us sufficient blood! We are one people. These divisions, these jealousies, are the cause of all our woes and of all our backwardness and ignorance today.” It was this article that laid the basis for the formation, in 1912, of the South African Native National Congress, which later became the African National Congress. The article was the founding document of the ANC. Writing about the ANC’s founding conference, Seme had the following to say: “It was a conference of races and of nations – many of whose ranks had been devastated by the demon of inter-tribal strife and jealousy.” The Freedom Charter, which was adopted in Kliptown in 1956, reflects the views of South Africans from all corners of the country. Most profoundly, this people’s document declared boldly that South Africa belonged to all who live in it, Black and White. Even during the dark and difficult days of banning, exile, mass detentions, torture, political persecutions, assassinations and killings by the apartheid regime, the ANC remained steadfast in calling for a South Africa that belonged to all who live in it. At its 1969 conference in Morogoro in Tanzania, the ANC officially opened its membership and leadership to all races, transforming itself into a truly non-racial organisation both in form and character. Morogoro also reaffirmed that South Africa belonged to all who live in it. In articulating an alternative vision for South Africa, President O.R. Tambo stated: “Our task is to remake our part of the world into a corner of the globe on which all of humanity – Black and White – shall live and work together as equals in conditions of peace and prosperity.” According to the view of O.R. Tambo, it was the ANC’s responsibility to break down barriers of division and create a South Africa where there will be neither Black nor White, just South Africans free and united in diversity. The ANC has learnt from its forebears that the struggle for liberation was never about replacing one form of oppression with another. The struggle was principally about building a united, non-racial, non-sexist, democratic and prosperous South Africa. Up to this day this remains the guiding vision of the ANC. Drawing from the ANC’s rich and proud history of promoting an inclusive society, the country’s democratic constitution reaffirms that South Africa belongs to all who live in it, united in our diversity. The National Development Plan: Vision 2030, the lodestar to the future, envisions a South Africa where everyone is able to say: “I cannot be without you, without you this South African community is an incomplete community, without one single person, without one single group, without the region or the continent, we are not the best that we can be.” As part of practical efforts to contribute towards building an inclusive society and to promote social cohesion, the ANC initiated community dialogues in all provinces on social cohesion and nation building in 2011. These community dialogues culminated in the first National Summit on Social Cohesion and Nation Building in Kliptown, the home of the Freedom Charter. That historic summit brought together more than 3 000 delegates from across the country representing various religious, political, business and civil society organisations to take stock of the process made in uniting the South African nation. Delegates recommitted themselves to the vision of a South Africa where we are one people, one nation, one humanity with a shared destiny. The summit asserted that true and lasting reconciliation, social cohesion and nation building is not an event but a process – it is a journey. This journey will require that we redouble our efforts to address key challenges such as joblessness, poverty, unequal access to opportunities, landlessness, homelessness, the burden of disease, gender inequality and discrimination as well as gender-based violence. It is perhaps time that the declaration and resolutions of the 2012 National Summit on Social Cohesion and Nation Building are revisited and brought to life. The ANC stands ready to work together with all those seeking to revive the letter and spirit of that summit. Sport must continuously be used to build bridges of unity among South Africans, for we know it all too well that South Africa is a sporting nation and that sport is the greatest unifier. Under the leadership of President Cyril Ramaphosa, the country and the ANC has entered a period of renewal. This moment of renewal is an opportunity to reset the moral compass of the country and the movement. It is an opportunity to recommit to strong and unquestionable leadership. It is also an opportunity to rededicate ourselves to the goal of building a truly united South Africa. This is an opportunity to restore and maintain the non-racial character of the ANC – to keep the ANC as the Parliament of all the people of South Africa. It is in this context that I wish to take this opportunity to reassure the Afrikaans community in our country that they are an integral part of the South African landscape, history and heritage. Equally, you are part of the future of this country. We will never forget the role played by Braam Fischer, Dr. Beyers Naude and many other patriots from the Afrikaans community in securing our freedom. I assure all of you that your language, your culture and heritage will continue to be acknowledged, appreciated and celebrated. You are as South African, as all of us. South Africa is your home. You are contributing immensely to the development of our society. For that you have earned the trust and respect of all South Africans of goodwill. Your views, your aspirations and your needs matter, they carry equal worth and value as those of your fellow South Africans. Your dreams are valid. You are free to pursue them. In 1999, Madiba said: “I have great confidence in Afrikaners. They have their name because they considered themselves to be from Africa. Their language originated here in Africa. I know that the vast majority of them will continue to help build this African homeland of theirs.” Let us work together to build a South Africa we can all be proud to call home. Let us also work together to ensure that the ANC remains a home for all South Africans including members of the Afrikaans community. Key takeouts The history of the ANC has a long-standing commitment to an inclusive society and the promotion of social cohesion. The Freedom Charter (1956) declared boldly that South Africa belonged to all who live in it, Black and White. The vision of the 2012 National Summit on Social Cohesion and Nation Building of a South Africa where we are one people, one nation, one humanity with a shared destiny, should be revisited and brought to life. The Ramaphosa era is an opportunity to recommit to strong and unquestionable leadership. It is also an opportunity to rededicate ourselves to the goal of building a truly united South Africa. The country’s democratic constitution reaffirms that South Africa belongs to all who live in it, united in diversity. Sport must continuously be used to build bridges of unity among South Africans. The ANC views the Afrikaans-speaking community as an integral part of the South African landscape, history and heritage and part of the future. Its language, culture and heritage will continue to be acknowledged, appreciated and celebrated. Their views, aspirations and needs matter. Protecting the identity of the Coloured community in South Africa Dr Ruben Richards | Chairperson of the Ruben Richards Foundation Condensed Biography: Dr Ruben Richards is the Chairperson of the Ruben Richards Foundation, an NGO with a focus on facilitating healing within the context of trauma. He is the former Executive Secretary of the South African Truth and Reconciliation Commission, former Director General of the Scorpions, a notable author, community leader within the Coloured communities in the Western Cape, speaker and company director. He also served in executive and leadership positions in government, higher education institutions, the faith community and the private business sector. Richards delivered the keynote address during the Cape Town roundtable discussion, during which he stressed the importance of protecting community identity with specific reference to the Coloured community in South Africa. Richards emphasised that the current concerns and anxieties experienced by the Afrikaans-speaking community is not exclusive to them. He stated: “You don’t have a copyright on anxiety.” The anxieties relating to marginalisation, economic exclusion and inability to influence national policy, continues to be experienced by the Coloured community within the new dispensation. The overarching theme here is inclusivity, which begs the question: who is excluded? What does one have to do to be part of this inclusive society? Additionally, Richards noted that the current education system in South Africa produces people who do not find a way to be included in society. There are more than five million people that form part of the NEET generation: Not in Education, Employment or Training. Richards highlighted some of the consequences of exclusion from mainstream society as experienced on the Cape Flats, sighting issues of gangs and teenage pregnancies; particularly pregnant teenagers who are carrying the babies of gang leaders, which often results in child abuse within these immature relationships. He also cautioned against stereotyping: “Stereotypes are very, very strong. And what we physically represent on the outside is often what dominates the initial interactions.” Key takeouts Protection of community values and history is central to individual identity. The current concerns of the Afrikaans-speaking community relating to marginalisation and exclusion is not exclusive to this group. The Coloured community is continuing to experience exclusion and marginalisation in the new dispensation. The current education system produces the NEET generation: Not in Education, Employment and Training. Inclusive economic growth key to social cohesion Theo Vorster | Chief Executive Officer of Galileo Capital Theo Vorster, the CEO of Galileo Capital and economic market commentator, served as a keynote speaker for the Pretoria roundtable discussion. Vorster began his address by stating the following: “I think the key point of departure is that for any complicated problem, there's a simple solution that doesn’t work. Our problems are complicated, then so are the solutions.” Vorster presented on the current lack of economic growth in South Africa and eluded to factors such as the departure of critical skills and the loss of influential private sector business, which further exacerbates the stunted economic growth in the country. In the early 1990s there was a close correlation between South Africa’s GDP growth rate and that of the rest of the world. In fact, the GDP per capita tracked the rest of the world. In 2012/2013, that correlation broke. Currently, the GDP per capita in the rest of the world is nearly 50% higher than that of South Africa and, consequently, South Africa is now 12 years behind. For several years, economic growth was at 5%, which means that the economy doubles every 15 years. If the growth is at 1%, the economy will double every 72 years. Therefore, at a growth of 0.5%, the economy will take 150 years to double. If South Africa had kept track with the rest of the world, the economy would have been at a 15% growth rate and the unemployment rate would have been closer to 20%, instead of 30%. Reconciliation, social cohesion and keeping skills in South Africa is easy if the economy is growing. But if it is a struggling economy, we have the unfortunate situation whereby the people who can afford to – those with capital, and the talented – leave the country. Therefore, due to the current context we find ourselves in, the GDP growth will need to come from the private sector. Koos Bekker is known for saying that there are only a few people that grow the economy: engineers and entrepreneurs; and in our case, these are the people that are leaving. Additionally, Vorster also noted that the Afrikaans business community is a major contributor to economic growth and could help to create employment opportunities and encourage much-needed inclusive growth through private sector business. Vorster cited the example of Naspers, which in the late 1990s was a company with a market capital of roughly R6-billion. Today, Naspers is worth R1.2-trillion and constitutes 10% of the national GDP. Approximately R1 in R10, of every government employee’s pension is invested in Naspers, the biggest company on the JSE. The Afrikaans business community can contribute immensely to economic growth, business development, creating employment and opportunities. In conclusion Vorster indicated that inclusive growth must be a focal point of government towards addressing the current economic climate, combatting unemployment and the eroding effects this has on the national GDP. Key takeouts Economic growth and stability are necessary for reconciliation, social cohesion, and the retention of skills and investment to be successful in South Africa. Due to the current context we find ourselves in, the GDP growth will need to come from the private sector. The Afrikaans business community is a major contributor to economic growth and can help to create employment opportunities and encourage much-needed inclusive growth through private sector business. Inclusive growth must be a focal point of government towards addressing the current economic climate, combatting unemployment and the eroding effects this has on the national GDP. Working together to build one nation Summary of general conversations A Snapshot! There remains a great sense of optimism and willingness among the Afrikaans-speaking community and business to work together, mobilise and collaborate with government. However, they are often discouraged due to a perceived lack of political will to acknowledge the role that this community and other minority groups can play in improving South Africa. Dialogues and discussions such as these need to result in visible action and implementation. Several participants expressed the need for cultural identity to be upheld, protected, promoted, and embraced, while promoting nation building and a cohesive society. The Coloured community remains a minority group that is marginalised, politically excluded, and economically disempowered. South Africans need a clear vision and dependable leadership to overcome the current apathy and disenfranchisement among the citizenry. The issue of unemployment has been acknowledged but not enough is being done to resolve it. Practical solutions need to be put into effect. BBBEE and affirmative action is considered, rightly or wrongly, by most participants as discriminatory and one of the biggest inhibitors for business and utilising the economic potential and skills available in the country. Economic growth and stability are necessary for reconciliation, social cohesion, retention of skills and investment to be successful in South Africa. Prof David Mosoma, Chairperson of the Commission for the Promotion and Protection of the Rights of Cultural, Religious and Linguistic Communities, commented that tentative solutions for the country are needed and can be developed through collaboration between different communities in South Africa, including the Afrikaans community. Development must be done together and in such a manner that does not culminate in separate development. Clarity is needed on the status of the National Democratic Revolution (NDR). There is great concern about the current status of the Constitution, as well as the effect that State Capture has had on both the Constitution and the Judiciary. Focus must be given to increasing citizen and sectoral stakeholder participation in decision-making. Participants remarked that although the ANC’s intention towards creating an equal and inclusive society for all citizens was true, a disconnect occurred between the ANC’s intended goals and the realisation thereof on a grassroots level. Efforts towards social cohesion must not be discouraged by comments and messaging from political leaders that deepen societal divides. The Cape Town and Pretoria dialogue sessions on the place and role of the Afrikaans-speaking community concluded with open discussion sessions where all participants had the opportunity to respond to the addresses by the guest speakers and raise any further concerns within the presence of the ANC Treasurer General, Paul Mashatile. The aim of the discussion was to achieve a better understanding of how the Afrikaans-speaking community views its place and role within the country, what hopes and fears they have and the possible recommendations they could offer to resolving the plethora of challenges currently facing the country. Several members acknowledged the value and need of dialogue sessions such as these, which allow for honest and open exchanges between leaders and the ruling party and by extension, the government. A platform of this nature also presents an opportunity for people to gain insights and understanding about one another's assumptions, concerns and ideals. Overall, participants expressed their commitment and hope that the issues plaguing South Africa can be resolved. This, despite echoes of frustration and scepticism that the country's leadership will take heed of the fears and issues expressed by them. The lack of leader­ ship and vision from government was a recurring theme expressed among the participants. Many indicated that block­ ages towards resolving issues such as unemployment, economic decline, education and the loss of skills due to emigration, need to be addressed by government with urgency. Emphasis was also placed on the fact that citizens need to see actions and results stemming from planning conferences and dialogue discussions. The lack of apparent political will from leadership to implement recommendations and address the issues expressed through these initiatives continues to contribute to apathy among citizens. This makes the mobilisation and motivation of citizens to contribute to the solutions that much more difficult. Discussions pertaining to the narrative of national identity as it is understood within South African society, was expressed by several participating members in the general discussions. There were contrasting views regarding what constitutes the identity of a South African and how this affects social cohesion in the country. Moreover, questions were raised regarding how this definition of national identity is formed and under­ stood by most citizens in the country, as well as, how this narrative is being communicated from leadership both in government and in communities. Some indicated that they associate more closely with their identity as a South African, above their racial, cultural or linguistic community identity. While others argued that a space within this notion of national identity must be created to include, promote and protect the individual’s cultural identity in such a way that still contributes to nation building and national unity. With regards to social cohesion, some participants expressed their lack of belief in the notion that South Africans can be united in their diversity. Additionally, some believe that the constitutional principles to respect, protect, promote and fulfil the basic rights of all South Africans, are not truly being applied from government’s side. Concerns were raised regarding the breakdown of the values of non-racialism in society and the role that all citizens and leadership need to play to ensure that these values are protected and strengthened among South Africa’s youth. Participants expressed that the use of phrasing such as ‘Blacks in general and Africans in particular’ continues to perpetuate exclusion and discrimination against other races and cultures that do not form part of this classification. The development of an inclusive society in South Africa must include the promotion of non-racialism, however, phrasing in legislation such as this, further perpetuates exclusion of certain groups and the exclusivity of others. The Cape Town session keynote speaker, Ruben Richards, also highlighted that minority groups such as the Coloured community, remain marginalised, politically excluded and economically disempowered. Focus must thus be placed on these minorities to ensure that they become active and participatory citizens to hold governing officials accountable whether at a local, provincial or national level. It is imperative that the Coloured community be included in these social debates and that the value in their contribution to the country is recognised. The need for vision and inspiration from national leadership was greatly emphasised. Dr Rudi Buys, Dean of Humanities at Cornerstone Institute, stated that diverse and influential voices are currently missing from leadership, which are needed to motivate citizens to be activists and to empower them to contribute to the solutions needed for the many challenges facing the country. Strategic and deliberate messaging from the right leaders on national policy and critical matters can help to overcome the current disconnect experienced by citizens. The lack of accountability and transparency from government continues to remain of great concern. Other issues emphasised during the discussions included the current education system, which does not fully allow for the inclusion of all youth into society and the economy. According to Ruben Richards over five million people are part of the ‘Not in Education, Employment or Training (NEET) generation’, which leaves individuals unable to integrate into society, further putting pressure on the fiscus. Additionally, the value of home-language education should also not be overlooked, along with the dire need for resources and well-trained educators within the sector. The current economic climate remained a prominent point of discussion. The lack of growth and prolonged economic stagnation, as well as the loss of human capital from the country is a major concern and urgent intervention from leadership will be necessary for any improvement in the current economic growth trajectory to occur. Comments were made that government is currently overlooking small business and only focusing on collaborating with big business in its efforts to stimulate economic growth. With the right support and opportunities, small business can be valuable for job creation. The negative effect of policies such BBBEE and affirmative action was extensively discussed by a majority of the participants. The necessity of these policies in supporting previously disadvantaged citizens was acknowledged and supported, however, many participants indicated that the current approach and implementation of BBBEE has had devastating effects on businesses, industry and the economy. The loss of critical skills from the country due to lack of opportunity was also contributed to the implementation of these policies. Therefore, the intended versus achieved outcome of BBBEE has become questionable, as it appears to benefit the wealthy more than the intended recipients. Moreover, participants noted that the legislation surrounding BBBEE companies does not serve to benefit or protect the workforce from exploitation. With regards to the issue of unemployment, participants expressed the need for practical plans to be put in place to effect change and growth. Closer collaboration between government and private sector business through programmes like the Public Private Growth Initiative (PPGI) should be increased and emphasised. Moreover, the absorption of university graduates into the workforce urgently needs to be addressed through collaborative efforts. Youth unemployment is one of the greatest challenges in the country, which not only limits the prospects of young people but also applies unsustainable pressure on governmental social programmes amidst stagnant economic development. There needs to be more pragmatic solutions put in place from both government and the private sector to address this crisis, which perpetuates the wealth disparity between the privileged and poor communities in South Africa. During both the discussions in Pretoria and Cape Town, the willingness from the Afrikaans-speaking community to be a part of the solution to the challenges in the country was clearly expressed. This is a sentiment echoed by other communities and sectors of South African society. Members of the Afrikaans business community indicated that they are able and ready to develop innovative initiatives to address issues such as unemployment, economic growth, investment, community empowerment and the transfer of skills. However, many feel they are often overlooked as a result of political agendas. Moreover, policies like affirmative action and BBBEE are preventing skilled and motivated people from gaining equal access to employment, business opportunities and, ultimately, economic participation. During closing remarks at the Cape Town event, Ruben Richards reiterated the need for government to strongly condemn the levels of corruption experienced among officials and hold implicated individuals accountable. Additionally, he also urged government to make use of the available skilled and competent people in the country, who are willing to step forward and put their shoulder to the wheel. The discussions were concluded by comments and responses from the ANC Treasurer General, Paul Mashatile, and the facilitator, Roelf Meyer. The Treasurer General remarked that these engagements and dialogues are important for leadership to hear and understand the fears, hopes and recommendations of its citizens. The honesty and frankness expressed by the participants is greatly appreciated and importance will be placed on the issues raised regarding policy and legislation. Mashatile remarked that the ANC would not advocate policies that are regressive. Mashatile also stressed the necessity of developing action plans to address the issues expressed; strengthening the country’s vision of building a non-racial, non-sexist and democratic society for all people; focusing on decisive economic and structural reforms; repairing trust between government and the private sector through partnership; creating certainty for citizens, businesses and investors; and stimulating public investments within the domestic market. Moreover, the Treasurer General also stated that the current ideals and narrative perpetuated among the younger generations is instilling polarisation and segregationist ideals, which left unaddressed will make the notion of unity in South African society that much more elusive. As South Africans, we can only truly be brought together as one nation with a singular goal to pursue. There must be momentum from all sectors of society. Therefore, platforms like these created by the Inclusive Society Institute must continue to be expanded upon for people to engage and for leadership to take notice of what citizens need. Roelf Meyer concluded the events by commending the participants for speaking openly about difficult discussion topics and being forthcoming in expressing their concerns. Meyer reminded participants that despite the current challenges facing our society, we as South Africans must still appreciate the fact that our society and identity as a country could have looked much different today. Strategic decisions were made by leaders in the country to change the face of a nation that previously defined itself as an exclusive society. We made a new start and completely reorganised and redefined the very identity of a country on the basis of the constitution we have today. We need to focus again on living up to those principles captured in the constitution, a task that is the responsibility of all citizens in South Africa. Additionally, Meyer reiterated two points strongly communicated in both Cape Town and Pretoria, that the Treasurer General could relay to national leadership: Firstly, people in the Afrikaans-speaking community are committed to working towards building the country and creating opportunities for growth, and secondly, don’t discriminate against minorities. The Inclusive Society Institute will continue in its commitment to creating platforms for engagement and bringing more stakeholders to the conversation. Key takeouts Dialogue can no longer be conducted simply for the sake of engaging. The principles that unify us as South Africans must drive us towards a common goal. The conduct of national leadership and community leaders in public platforms cannot continue to be pervasive and counterproductive in shaping a non-racial and unified society. Collaborative space between government, the private sector and civil society must be opened up for all to provide their inputs. Action plans must be formulated to effectively address the issues identified and influence decision-making processes in government. All South Africans have a contribution to make in shaping the narrative around national identity, unity and promoting the principles captured in the constitution. The Inclusive Society Institute is encouraged to facilitate future roundtable discussions of this nature which allow for robust debate to occur and continue. This will contribute to the promotion of a unified and cohesive society. Tabulated list of concerns Following the Cape Town and Pretoria engagements with members of the Afrikaans community on their place and role in South African society, the following concerns, be it perceived or real, were identified: Concerns identified Engagements towards improved dialogue need to be succeeded by action and the implementation of resolutions The lack of vision and reliable leadership from government has resulted in distrust, apathy and disenfranchisement among the citizenry Lack of accountability and transparency from national leadership. Inability to hold those implicated in corruption responsible Need for diversification of voices in leadership to inspire citizens towards action and activism No clear definition and direction from leadership on national unity and how this can be achieved Efforts towards social cohesion are threatened by comments and messaging from political leaders that deepen societal divides Disconnect between what young South Africans understand regarding the intended outcomes and principles forged during the South African transition and the manifestation of these desired outcomes in their lives today Continued use of racial differentiation in legislation and policy including the use of ‘Blacks in general and Africans in particular’, which perpetuates exclusion and discrimination against other races and cultures not part of this classification Discrimination against minorities through legislation and policies resulting in political and economic disempowerment Youth feel excluded from the political agenda and lack opportunities to participate Lack of civic participation in holding government officials accountable and promoting good governance No visible application of constitutional principles that form the foundations of national unity, tolerance and inclusive society The growing crisis of unemployment has been acknowledged; however, more practical plans need to be developed to effect change Increasing levels of youth unemployment and a lack of initiatives aimed at absorbing unemployed graduates into the workforce Economic stagnation and difficulty of doing business in South Africa Discriminatory nature of policies such as BBBEE and affirmative action Competent, skilled and willing individuals feel they are overlooked when it comes to selection for programmes and initiatives aimed at solving the economic crisis in the country, due to politics playing a role in selection Need for mentorship initiatives, training and skills transfer programmes The loss of critical skills and qualified individuals as a result of lack of opportunities and stagnant economic growth Urgent intervention in the education sector is needed, regarding the quality and level of education, shortage of educators and resources, and home-language teaching Clear vision on economic reform and the empowerment of private sector business towards contributing to solutions Lack of clarity on issues of property rights, land redistribution without compensation and the status of the NDR Concerns regarding the status and protection of constitutional principles, as well as attacks on the Judiciary Government continues to pursue avenues and legislative decisions that do not result in positive outcomes or visible effective changes/improvements Action plan to address issues and concerns raised at the dialogues Annexure B The concerns raised during the two dialogues, as captured in the tabulated list of concerns (Annexure A), can be broadly grouped into three action types: The first group of concerns are those for which political leaders and policymakers need sensitisation and which they need to take heed of in their policy formulations and public pronouncements. The second group of concerns are those concerns that require further dialogue between the political leadership, policymakers and the Afrikaans-speaking community. The third group of concerns are those that require further policy research and/or analysis. The concerns are grouped hereunder within an action plan that sets out the concern, action required, the body to be engaged and the target deadline for concluding the action. The outcome of each action will serve as the basis for engaging the political and policymaking leaders of the country and/or to motivate further investigation/research. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Summary of themes from a Roundtable discussion hosted in Cape Town, South Africa Acknowledgements The visit by Hon Schmidt and Mr Knieps, as well as the roundtable dialogue and associated events, was made possible by the Friedrich Ebert Stiftung and is part of a larger exchange of public policy and governance ideas between South Africa and Germany. All records and findings included in this report, stem from the discussions that took place at the roundtable dialogue and technical meetings arranged to consider lessons for South Africa on transitioning to universal health coverage from the German experience. The meetings took place in Cape Town on the 19th and 20th of February 2020. Copyright © 2020 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. In support of efforts aimed at influencing the national policy discourse in South Africa, the Inclusive Society Institute hosted these roundtable and technical discussions in order to consider what lessons South Africa could draw on from the German universal healthcare experience. These deliberations form part of the institute’s broader and ongoing research into pathways to universal healthcare in South Africa. Content Foreword - Prof Zweli Ndevu, Deputy Chairperson of the Inclusive Society Institute Acronyms and abbreviations Introduction - Daryl Swanepoel, Chief Executive Officer of the Inclusive Society Institute The current German health financing system Lessons for South Africa from Germany Building on what you have Embracing social solidarity Start moving towards universal health coverage even when it is hard Competition, consumer choice and bottom-up accountability Cover as many as possible and make the public insurer the insurer of choice Transparency and independence Centralisation vs. decentralisation: ensuring purchasing power while being locally responsive Need for a lean, efficient and technical bureaucracy to support UHC Retain the flexibility provided by multiple reimbursement approaches Moving towards a transition period for UHC Finding a way forward for South Africa’s NHI Bill Conclusion References Foreword by Prof Zweli Ndevu Prof Zweli Ndevu | Deputy Chairperson of the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy, inter alia, by strengthening the public policy discourse. The ISI's work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. One such issue, which is currently high on the national public policy agenda in South Africa, is the proposed National Health Insurance (NHI). Enabling legislation has already been tabled in parliament and the formal public hearing processes have commenced. The ISI has resolved to make a meaningful contribution to the process. It has accordingly commissioned a study which aims to find a consensus position that will overcome the current somewhat polarised public discourse. This it will do by fostering ongoing dialogue on the NHI, and by doing in-depth research that will provide alternative pathways to universal healthcare. In its dialogue sessions the ISI aims to take the conversation out of the formal corners of parliament and government. It hopes to create a dynamic platform where this important issue can be discussed inclusively by involving all stakeholders. That is why it the presence of the Parliamentary Portfolio Committee on Health and the Chairperson of the ANC’s NHI task team is so important, as they are an integral part of the conversation. Their participation is necessary to secure the compromise required to achieve the desired consensus. This will require open, frank and fearless deliberation from both sides of the aisle in order to underpin policy integrity. As an institute we are particularly honoured to in this component of the ongoing study to have experts on the German healthcare system contribute: the former Minister of Health, Hon. Ulla Schmidt, who oversaw its implementation in Germany and Franz Knieps, a respected technical expert who has vast experience on the practical implementation of the system. The intention is to potentially draw lessons that can assist South Africa in its own conceptual wrestling. The ISI trusts that this dialogue has been useful to achieve the middle ground necessary for finding consensus towards a universal healthcare system that works for all. Acronyms and abbreviations DRGs Diagnostic-related groupers NHI National Health Insurance PHC Primary Health Care REF Risk Equalisation Fund UHC Universal Health Coverage Introduction Daryl Swanepoel | Chief Executive Officer of the Inclusive Society Institute The Inclusive Society Institute hosted a Roundtable Discussion on Pathways to Achieving Universal Healthcare in South Africa, specifically focusing on lessons from the German healthcare system on the evening Wednesday, 19 February 2020 at the Taj Hotel in Cape Town. Hon Ursula Schmidt, the former German Minister of Health (2001-2009) and Mr Franz Knieps, the equivalent of the director-general of health (head of department) during Hon Schmidt’s period as Minister of Health shared their experiences of health financing reform relevant for South Africa. The evening was attended by various stakeholders from the South African government and the political sector, including members of the Parliamentary Health Portfolio Committee, as well as funders and providers of healthcare. After having shared their experiences, a number of questions were posed by stakeholders to Hon Schmidt and Mr Knieps and insights from the German experience shared in response to the questions. The roundtable on the 19th of February was followed by a smaller gathering on the morning of the 20th of February hosted at the offices of the Inclusive Society Institute in Cape Town. The gathering on the 20th was aimed at more intimate conversation and dialogue amongst Mr Knieps and a smaller group of representatives from the political, academic and private sectors. The more intimate nature of the meeting allowed for more questions on lessons from the German experience for South African and an interactive and focused dialogue process. The main purpose of both the roundtable and the smaller follow-up meeting was to provide an opportunity to learn from the experiences of the German health financing system which has been built on principles of social democracy and solidarity. These learnings hold particular value and relevance for South Africa, given the current public engagement and parliamentary processes associated with the draft National Health Insurance (NHI) Bill (2019). The primary focus of the Inclusive Society Institute is to work on and promote a more inclusive society. The focus aligned with the dialogue around the table on the 19th and at the smaller meeting on the 20th. There is much noise being made in South Africa’s national discourse about various present-day issues, much of which is not constructive. The Institute has been established to create a platform where this discord can be presented and discussed, to find some middle ground in dealing with the pressing issues the country faces. The current German health financing system In this section we provide brief context on the way the German health financing system functions in 2020. This provides background to the themes discussed in the remainder of the report that emerged from both the roundtable discussions and the smaller workshop discussion. In Germany, citizens have complete comprehensive health insurance coverage through multiple competing funds. This is provided through both public and private systems. On the one hand there is government-provided statutory health insurance offered by 108 competing, not-for-profit sickness funds, and on the other hand substitutive private health insurance for those who choose to purchase their insurance privately, or who are interested in buying supplementary insurance to their government insurance (Busse, Blümel, Knieps. & Bärnighausen, 2017). The private insurance is provided by 42 private health insurance funds, half of them non-profit, with the biggest ones being not-for-profit. Approximately 87% of the population have primary cover through the statutory health insurance funds, while 10-11% hold substitutive private health insurance, i.e. choose to have only private health insurance cover (Busse, Blümel, Knieps. & Bärnighausen, 2017). The remainder of the population, e.g. soldiers and refugees, obtain their health insurance cover through special governmental schemes and payments. All German citizens who are employed, as well as more vulnerable groups such as pensioners and people who earn less than the opt-out threshold (€57 600 per year in 2017) are required to have mandatory statutory health insurance (Busse, Blümel, Knieps. & Bärnighausen, 2017). Their non-earning dependents are provided with cover free of charge. People who earn incomes greater than the threshold as well as those who are self-employed can keep statutory health insurance on a voluntary basis or are allowed to pay for substitutive private health insurance, i.e. private health insurance that provides the same type of cover as the government health insurance. Sickness funds contributions are collected through payroll taxes and a small additional payment. Statutory health insurance is paid for through a contribution of about 14.7% of the income of wage earners (Busse, Blümel, Knieps. & Bärnighausen, 2017). The contribution is equally split between employers and employees. All contributions flow into the Central Allocation Pool (Gesundheidsfonds) or Central Fund and is subsidised with a relatively modest amount from central taxes (Busse, Blümel, Knieps. & Bärnighausen, 2017). The funds pooled through the Central Fund are redirected to the 108 individual sickness funds according to the risk profiles of each fund using a morbidity-based risk-adjustment scheme. Each fund is allowed to charge an additional contribution fee directly to its members to cover total expenditure (there may be remaining expenditure not covered by the Central Allocation Pool payment). These contributions typically equate to an average of 1.1% of wages, meaning total contributions (cost) tend to be around 16% of wages (Busse, Blümel, Knieps. & Bärnighausen, 2017). In addition to sickness fund contributions, long-term care insurance (to pay for nursing care for the elderly or the very sick) is separately insured but organised by the health insurance system. It requires a contribution of about 1.7% of wages (Busse, Blümel, Knieps. & Bärnighausen, 2017). A generous package is available to all who contribute and are covered. In return for these contributions, members of the sickness funds receive a generous package service, which includes services ranging from outpatient services provided by family doctors, dentists, psychotherapists and specialists, hospital care, to prevention, health promotion, and rehabilitation. It’s really an all-over coverage and it includes all essential medication, aids and appliances such as prostheses, wheelchairs and physiotherapy; members get what they need. While out-patient services are totally free, a small co-payment is required for hospitalisation. The health sector is valued, and Germans are proud of it. German citizens willingly make their contributions to the health financing part of the system and highly value the care they receive from the system. Even the CEOs of very large companies are members of statutory sickness funds and talk about their membership publicly. Lessons for South Africa from Germany Below we describe the key themes for South Africa’s transition to universal health coverage (UHC) that emerged from both the roundtable and follow up-discussion. For each theme, the German experience is briefly described, and it is then related back to the South African context and lessons for South Africa are highlighted. The themes are positioned as they were shared by the German experts. Building on what you have The start of the German health insurance system is often traced back to Bismark’s Health Insurance Act which came into life in 1883. It’s acknowledged that since 1883 it took about 125 years up to 2007-2011, the period when Hon Schmidt was the Minister of Health, to achieve mandatory universal health insurance coverage in Germany (Busse, Blümel, Knieps. & Bärnighausen, 2017). The system is still in flux and slowly improving over time, so much so that a 2017 Lancet article which reviewed the German health system made it clear that it took 135 years (up to 2017) to achieve a system built on the principles of solidarity, self-governance and competition (Busse, Blümel, Knieps. & Bärnighausen, 2017). More details on these principles are provided in later themes. This is a reminder that no system emerges fully formed. On the contrary, this complex system has evolved by step by step, always building on structures that were already in place. In a certain sense, the German health insurance system actually existed for more than 800 years, from the very first time that people first started to make provision for health events informally to when Bismarck started to incorporate these early structures into the first pillars of a unified system. The German experience shows that a well-functioning healthcare system does not come about through big-bang reform. While in public discourse it may be positioned as requiring large-scale reorganisation, in reality systems evolve step by step, ideally building on foundations that are already in place. Existing structures should not be dismantled before new ones have been built: the equivalent of the medical principle of “first do no harm”. Goals have to be set in such a way that they are attainable and in line with a country’s financial and organisational targets. While countries need the courage to make change happen, they should not underestimate the pushback that will come from those who are currently in a privileged position, and who are benefitting from the status quo. In South Africa’s own history of health system reform, we deviated from a reform pathway that built on existing medical scheme infrastructure to a single-fund strategy in 2007 (shifting from so-called social health insurance to national health insurance). Arguably, the policy formation process since 2007 has been slowed down by the big-bang nature of the proposed reforms and the resultant conflict. Similar to Germany, South Africa will need to be open to working with the components of the health system we have, but also be open and willing to course-correct if the old route is proving to be not practical. Embracing social solidarity In addition to the long history of reform and building of a health financing structure, Germany has a history of cementing social solidary principles into its health financing system. The first insurance schemes developed around worker schemes in the mining industry and, since then, there has been a history of workers and employers sharing the risks related to health expenses. Social solidarity within the German statutory system means that health service provision is determined solely by the individuals’ need, and not the income, stature, social or professional position, age, background or other characteristics of individuals. Similar to the German statutory sickness fund environment, deep social solidarity principles have already been built into the South African medical scheme system through open-enrolment (cover cannot be denied), community-rating (everyone pays the same price regardless of their demographic, clinical or risk characteristics) and guaranteed minimum benefits. The German health financing system uses a risk equalisation fund (REF) to share member risk between the 108 sickness funds. This approach ensures an equitable distribution of contributions between those who do not need it and those who do (a risk cross-subsidy). It serves to ensure that the sickness funds serving a high proportion of elderly and people with health conditions receive more money than sickness funds with younger or healthier people, i.e. ensuring that money is distributed according to need. This effectively creates a single risk pool even though there are multiple funds. During the mid-2000s, South Africa embarked of the design of and preparation for a REF. Medical schemes went through the process of designing a formula, setting up the data collection systems and then never actually implementing the scheme. It is one of the recommendations of the Health Market Inquiry that the medical schemes sector revitalise the REF process and implement it in order to stabilise the finances of struggling schemes and to ensure competition between schemes on the basis of their ability to purchase healthcare and not on the basis of risk profile (Competition Commission, 2019). Start moving towards universal health coverage even when it is hard The final stages of moving towards compulsory universal health coverage for all German citizens were undertaken during a difficult financial period (2007-2011). Changes were made during an economic crisis (the 2007/8 financial crisis), a period of high unemployment (within a developed country context) and relatively small budgets. In order to build support during this period, it meant the system had to work hard to convince people of the necessity of a comprehensive, universal UHC system: “you should show the people how much money you invest per capita, how much do you invest for homeless people, for a man with no job, or a woman with no job, for the children…”. Similar to Germany, South Africa is currently in the midst of a difficult economic situation: recessionary conditions, growing unemployment, currency weakness, a junk-status credit rating and now also the very negative impact of Covid-19 (the coronavirus) on the economy. This does not, however, mean that we should not start to experiment with the health system reform that is necessary to move towards UHC. Rather, it means that citizens and stakeholders should be taken along in the process and value demonstrated at every step. Competition, consumer choice and bottom-up accountability Consumer choice and competition through multiple funds. The Germany system provides access to public insurance cover through 108 statutory sickness funds. German citizens have a choice about which sickness fund they want to belong to. These funds report to both local structures and authorities, as well as to national level structures. There is a 300-year history of local sickness funds in Germany and their current existence is partly ascribable to the role they have been playing in addressing local health needs throughout this long period. All these funds have boards that are representative of local stakeholders and participants and provide a clear way for paying attention to local-level needs. The funds are also obligated to have representation from patient organisations and, in turn, to participate in patient organisations. This provides a good channel for patient voice and needs to be heard in the German health financing system – good linkages exist between local-level needs and centralised structures. The relationship between local level needs and centralized structures is explored in more detail in later theme in this report. Choice between public and private insurance and providers. Furthermore, apart from the choice about which sickness fund to belong to, clients or consumers in the German system are provided with other choices. Those who earn sufficient income can choose to belong to private health insurance scheme rather than the public sickness funds. The German health financing system is obligated to share information on quality with patients in a clear and accountable way. This allow patients to choose and move between local PHC providers, creating an accountability feedback loop. Quality data and ratings of hospitals are also shared, and patients can make their choices based on this. Consumers are able to choose their local primary healthcare provider and move if they are not happy with the care provided. This create incentives for quality improvement over time. The German approach to the institutionalisation of accountability to citizens in healthcare holds visible lessons for South Africa where many South Africans feel the state is not responsive to service provision needs. A much greater level of bottom-up accountability is needed than currently available in the health system. Cover as many as possible and make the public insurer the insurer of choice Germany followed a gradual process of requiring compulsory coverage of statutory sickness funds (the public system) for certain groups. In the period 2008-2011 when Hon Schmidt was the Minister of Health in Germany, comprehensive compulsory health insurance cover for everyone in Germany was finally achieved. The incentives that have been put in place around the public vs. private insurance choice support choice for the public system in that it uses a community-rating system rather than the risk rating system used by private health insurers. As a result, mobility between statutory and private funds is limited to protect the statutory funds – once you are 55 or older and become a higher health risk due to age you are not allowed to opt back into statutory insurance funds. This is used as a way of encouraging people to belong to statutory sickness funds rather than private insurance schemes at younger ages and contribute when their health need is not as high yet. This assists in ensuring the financial sustainability of statutory sickness funds. There is, however, government financial support available for individuals older than 55 who can no longer afford private insurance premiums. This is provided once these individuals have gone through an application process to show that they are unable to afford private insurer premiums. Sickness funds only offer services on an in-kind basis while private health insurers require up-front payment and claims from members for reimbursement. Certain services are also excluded from private insurance, e.g. family care, health prevention and maternity benefits, creating a strong incentive to be a member of a sickness fund rather than private insurer. This is reflected in the low and declining proportion of people covered by private insurers rather than sickness funds. Transparency and independence Transparency exists at multiple levels and in different ways in the German health financing system, from the way payments are collected to how decisions are made about service provision, the allocation of resources, and tariff determination. Funding contributions The system is funded from the insured’s own contributions which are collected separately from tax. This ensures transparency in payment because contributors’ payments are clearly visible to them. The same approach holds for the elderly in terms of contributions to long-term care insurance. Because health insurance funds are separately collected and managed from the national budget and taxes, it means that it is a very visible component of people’s expenditure. Whilst payroll taxes do have some disadvantages in terms of rigidity, the German view is that the German people place a high value on their benefits because the cost is made visible. It also acts an accountability mechanism for the system. In Germany people do not view public funds as being owned by the State once they have been paid over. Public entities such as the sickness funds have their own, independent boards and the money is viewed as belonging to the people, not the State. Service coverage decisions The range of services provided through the German health financing system is not determined by the legislature or the Minister but is set by the Joint Committee. The Joint Committee is made up of representatives of the Central Fund, physicians, dentists, hospitals and patients. It is a good example of the system of self-government that is typical in German service provision where the State provides the framework, but various stakeholders and the citizenry take responsibility for decision-making and the way services are provided. It is said that the most powerful person in the German health system is not the Minister of Health but the neutral chair of the Joint Committee. His or her vote is the final vote in tie-breaker votes. The Joint Committee determines the range of services paid for funds pooled via the Central Fund through health technology assessments, i.e. sets the basic benefit package. It uses evidence-based economic evaluations of health products and services that are conducted by a special, independent Institute for quality, efficacy and efficiency in the healthcare system. The Institute for Quality and Efficiency in Health Care is staffed by about a 150 people, including academic staff, epidemiologists, doctors, mathematicians, and so on. These staff provide evidence used by the Joint Committee in its decision-making and are also able to advise the Joint Committee. The Institute is a neutral, technical body. It has been set up to be totally independent from both the private sector, healthcare providers and the German government. The Joint Committee can follow the guidance provided by the Institute. However, if it wants to deviate from the recommendations of the Institute it is required to make it clear in publicly accessible reports why it is choosing to do so. While the Joint Committee sets the agenda and programme of the Institute, the Institute is totally autonomous and independent from the Joint Committee. The Institute is required to follow the rules of good clinical practice and have to show, if they get advice from researchers, that there are no conflicts of interest. Quality of the system The German health financing system is obligated to share information on quality with patients in a clear and accountable way. This allows patients to choose and move between local primary healthcare (PHC) providers, creating an accountability feedback loop. Quality data and ratings of hospitals are also shared, and patients can make their choices based on this. Consumers are able to choose their local primary healthcare provider, typically a GP, and move if they are not happy with the care provided. This creates incentives for quality improvement over time. South Africa does not currently have a quality reporting and monitoring system that applies to both the public and private sectors. Health facilities, both primary facilities and hospitals, are subject to infrastructure and service standards. Tariff determination The tariffs or payment levels for both hospitals and outpatient providers are set by two committees independent of the Joint Committee and of the German government. There is a special committee on financing for the hospital sector, new therapies and new medical devices which is responsible for the calculation of diagnostic-related groupers (DRGs) for the payment of hospitals. A second, similar committee is responsible for tariff determination for the outpatient care sector. The members of the committees are elected by the sickness funds and health providers and are fully independent from the German government. The state or government, in this instance, is only responsible to ensure that the committees and the Joint Committee follow regulations, but they are allowed to function independently in their representation and decision-making from government. In conclusion, while the purchaser provider split between the Central Pool and the 108 sickness funds creates the tension necessary for competition, proper oversight happens because of transparency built into the system at various levels. Centralisation vs. decentralisation: ensuring purchasing power while being locally responsive A big question facing South Africa as we embark on a UHC reform path is how you harness the benefits of centralised purchasing power while ensuring responsiveness to local needs. The German REF plays a strong role in ensuring risk sharing at a national level between the 108 sickness funds. While the funds that are available in 16 different German states allow for local needs to be voiced and directly addressed, much of the overall approach to the purchasing function still occurs at a national level: the benefit package is set by the Joint Committee at a national level, tariff determination take place in two national level committees and all collective bargaining processes also take place at a national level. To make the German system work, compromises often have to be made between the state and federal level. If a sickness fund only operates in one state, it tends to be accountable mostly at state level. However, as soon as a sickness fund operates in three or more states, accountability for the fund is situated at a central level. Responsibilities for preventative care are divided between the state and federal levels. Complications during this process often arise but are resolved through conversation between different stakeholders. Need for a lean, efficient and technical bureaucracy to support UHC A critical learning from the German health financing system has been to keep the bureaucracy that supports the financing system as lean, efficient and technical as possible. The Central Fund is a system of algorithms managed by a small group of staff at the national insurance office. It is mainly staffed by data scientists who are able to derive and implement these algorithms. The total administration costs of the financing system are estimated to be about 10% - with half of it residing at the level of individual sickness funds and the other half with different entities (like the Central Pool) in the system. Overall administration costs had to be kept as low as possible to keep the system palatable to German citizens. Retain the flexibility provided by multiple reimbursement approaches Although Germany recognised it was important to implement alternative reimbursement like capitation for hospital services to avoid the over-servicing which is associated with a fee-for-service approach, it decided to also retain fee-for-service reimbursement in certain instances. The payment system for outpatient doctors in Germany is complicated. It is typically a mix of fee-for-service and budget limits. If outpatient doctors exceed their fee-for-service budget limits, then the fees they are paid per visit reduces. This approach has worked quite well in keeping overall outpatient costs low. A fee for service approach is also used in cases where the health system wants to encourage more provision, e.g. services that are typically under-provided such as family visits by GPs or new, innovative services that the system wants to incentive the provision of. Moving towards a transition period for UHC In thinking about how South Africa will manage the process of moving towards UHC, there are at least two difficult questions. Firstly, how will we manage the trade-offs between quality and access? Secondly, how can we take both the public AND private sectors along on this journey to achieve a unified health system for all? The Germany experience offers some learnings. Preserving and expanding access while improving quality The process of quality improvement holds an inherent tension – how can we maintain access to existing health services when it is possible that some may not meet the minimum standards we associate with quality? How do we get facilities not meeting basic requirements to improve over time? The measuring and monitoring of quality essential. Quality improvement in the German health system has a long history. In the1990s when the German health system was compared to other high-income and European health systems it was ranked in only the 22nd place. Health providers and policymakers started to investigate the reasons for this low ranking. It was found that the system fared poorly at providing chronic care, maternity care, and emergency care. The hospitals reacted and created a hospital quality monitoring entity Federal Office for Quality Assurance (Bundesgeschäftsstelle für Qualitätssicherung (BQS)) (Busse and Blümel, 2014). First, only the public hospitals were required to report to the entity. Later on, private hospitals were required (by law) to participate. The quality monitoring function was eventually taken over by the AQUA Institute in 2009 (Busse and Blümel, 2014). This Institute is separate from the Institute for Quality and Efficiency in Healthcare and was selected through a European-wide procurement process (Busse and Blümel, 2014). But facilities that under-perform are supported to retain access and allow for quality improvement over time. In German hospital facilities not meeting basic requirements given were given a period of two to three years to improve. If a hospital achieved a first bad report in the quality assessment process, the report was sent to the Institute and then provided with a chance to improve without the results of the report being made public yet. During this improvement process, site visits were not done by an external agency but occurred in the form of peer inspections. Struggling hospitals were provided with peer support (colleagues from other facilities) to assist with their improvement process and were found to be quite responsive to this process of peer support. In the more rural areas in Germany that have very little competition between hospitals, additional funds are provided to hospitals to improve their facilities and quality, i.e. these facilities are financially supported to improve over time. However, patients are also provided with funds for travel and accommodation to access care at higher quality hospitals in other areas. Including private hospitals in care delivery. Hospital financing in Germany is organised on the state level. About 40% of hospitals in Germany are owned by community organisations, while 45% are owned by churches. The latter group is considered as being privately owned. The states produce infrastructure and investment plans which cover the buildings and physical infrastructure of hospitals. The plans include nearly every hospital in Germany, irrespective of the nature of ownership of hospitals. As part of the process of preserving access, private hospitals in Germany also had to be retained in the system as healthcare providers to sickness fund members. A transition period for moving to more similar funding approaches for the infrastructure of private and public hospitals was required, given that private hospitals are built with investors’ funds who require a return on investment. After the initial transition period, the German state-level governments now cover infrastructure funding for all hospitals and private hospitals. Private hospitals are required to take responsibility for only the operational costs. However, while the government provides infrastructure funding for private hospitals the funding if frequently less than the real capital needs of private hospitals. This results in some investment costs being covered from the DRG payment system, meaning there is pressure on the rationalization of DRGs. The allocation of capital costs is typically a very political issue, and it would be important for South Africa to depoliticize this process. Taking stakeholders along on the UHC reform journey Apart from the changes that are anticipated for NHI, the South African private sector and system as a whole needs to undergo certain payment and quality reforms that have been recommended in the Health Market Inquiry’s final report. In Germany, it was found that a medium-term process of working intensely with important stakeholder groups supported a transition process. An independent research group worked closely for a period of three years with key health system stakeholders to arrive at consensus outcomes and ideas on the changes required. Six books were published from this engagement. It meant the perspectives of all stakeholders were captured and shared in a public way. Furthermore, the Joint Committee essentially also consists of critical stakeholders, including sickness fund representatives, and they are involved in critical funding decisions for the system as a whole. German citizens also had to be taken along on the reform process. Success was achieved when they were able to show citizens that they would not be increasing bureaucracy and administration costs extensively and were offering value. It also had to be made clear to higher income citizens that system reform was not aimed at punishing them (the option of private health insurance was not taken away) but rather at creating a more equitable system for all. How can South Africa prepare for a transition period? The Health Market Inquiry (Competition Commission, 2019) made a number of recommendations that can already be implemented now that supports reform in the health system and will allow it to move towards a more unified, value-oriented health system. Primary healthcare teams in both the public and private sectors. The report found that stand-alone single practices or disciplines characterise the South African private health sector (Competition Commission, 2019). Unlike the public sector, multidisciplinary healthcare teams are not a feature of the private system. This limits efficient referral pathways and a more value-based approach to the delivery of care. It was recommended that the rules that currently prohibit the use of teams in the private sector be amended Competition Commission, 2019). This is something that can be done already now in the very early stages of planning to transition to a unified health system for South Africa. A quality monitoring and reporting system for the health system as a whole. The Inquiry (Competition Commission, 2019) found that there is no standardised approach to measure and report on quality in the various private sector provider markets (GPs and hospitals). There is also no one approach between the two sectors. It was therefore recommended that an Outcomes Monitoring and Reporting Organisation be established for providers, patients and all health stakeholders to collect and report on health quality and outcomes data. Even before the next steps of transitioning to NHI, it is possible to implement this recommendation given the importance of such an entity in helping to empower consumers and promote transparency. Consider stabilising the existing medical schemes environment through a REF. It was recommended that the finances of medical schemes be stabilised through the implementation of a REF and that all medical schemes (open and closed) should belong to the REF (Competition Commission, 2019). This can already be implemented now even before the full transition to UHC in preparing for setting up a centralized risk sharing mechanism. Finding a way forward for South Africa's NHI Bill A number of uncertainties and concerns about the NHI Bill in its current form were identified in an earlier report of the Inclusive Society Institute (Inclusive Society Institute, 2020). In the table below these concerns have been set out. Each concern has been paired with possible alternative approaches offered by the German experience. Dr Gwen Ramakgopa, Head of ANC Task Team on the National Health Insurance, and Dr Sibongiseni Dhlomo, Chairperson of the Parliamentary Portfolio Committee on Health Conclusion While the German experience holds insights for South Africa on many technical aspects and this will be continued to be explored in future work, many of the lessons on “softer” issues hold relevance. Germany’s journey to UHC has taken many years. Depending on when it is viewed as starting, it has taken anything from 800 to more than 130 years. During this process, realism and pragmatism but also boldness and vision were required. The Germany experience shows that one the one hand there is no big-bang change that will make UHC happen. On the other hand, first and often very hard steps are required. Inherent in the tension between these two poles is the necessity of trust between stakeholders and recognition that the system needs to build on what it currently has in hand and maintain stability during the transition process. Inclusivity featured strongly in the German journey – stakeholders across the system are represented on the Joint Committee and were worked with intensely, especially during the final stages of moving to full, compulsory UHC. There will be no easy road for South Africa to UHC but first steps and actions are required and it necessary that we trust each other on the journey ahead. The German commitment to bottom-up accountability aligns closely with South Africa’s approach to a participatory democracy and would help to offset the concerns associated with attempts to manage governance and accountability from a top-down perspective. References Busse, R. & Blümel, M. 2014. Germany: Health system review. Part of the Health Systems in Transition Series, Vol. 16 No. 2 2014. European Observatory on Health Systems and Policies. Busse, R., Blümel, M., Knieps, F. & Bärnighausen, T. 2017. Statutory health insurance in Germany: a health system shaped by 135 years of solidarity, self-governance, and competition. Lancet. 390: 882–9. Competition Commission. 2019. Health Market Inquiry: Final findings and recommendations report. Competition Commission, Pretoria. Available at: http://www.compcom.co.za/wp-content/uploads/2020/01/Final-Findings-and-recommendations-report-Health-Market-Inquiry.pdf (accessed 1 April 2020) Göpffarth, D. & Bauhoff, S. 2015. The public health dimensions of Germany’s refugee crisis. Health Affairs Blog. Available at: https://www.healthaffairs.org/do/10.1377/hblog20151022.051328/full/ (accessed 1 April 2020) Inclusive Society Institute. 2020. Towards Inclusive Healthcare: Roundtable report on the National Health Insurance. Inclusive Society Institute, Cape Town. Available at: https://www.inclusivesociety.org.za/ (accessed 1 April 2020) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Survey – how are SMMEs coping with the coronavirus lockdown and the measures taken to re-open the economy? The Inclusive Society Institute shares government’s concerns with regard to the spreading of the coronavirus and supports efforts aimed at flattening the curve. At the same time, it recognises that the current measures deployed by government are taking their toll, especially as they affect the SMME sector. The institute carried out its first COVID-19 SMME survey in April 2020, the results of which pointed to areas of serious concern. Since then, government has announced a phased approach to the re-opening of the economy, with the first steps taken with effect from 1 May 2020. This second survey assesses the SMME sector’s current position apropos the performance, sustainability prospects and opinions regarding their own and the country’s economic future. The survey was undertaken over the period 5 to 7 May 2020. Copyright © 2021 Inclusive Society Institute 50 Long Street Cape Town South Africa 8000 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members or Members. All records and findings included in this report, stem from the survey on the impact of COVID-19 on the SMME sector, which took place over the period 5 to 7 May 2020. Content 1. Setting the scene and objectives of the survey 2. Key findings 2.1 Findings on how SMMEs coped during the initial lockdown ended 30 April 2020 2.2 Measuring the support of SMMEs for the phased opening of the economy and how they are coping with the gradual opening up thereof 2.3 Testing SMMEs confidence in the future of the economy and gauging SMME confidence levels in the country’s leadership with regard to the COVID-19 policymaking and management 2.4 General observations 2.5 Selected sectors’ performance in relation to the SMME sector in general 3. Methodology 4. Recommendations 5. Summary of detailed data 5.1 Summary of detailed data for all enterprises surveyed 5.2 Summary of sectoral data regarding phased re-opening of the economy List of figures Figure 2.1: Breakdown of reasons given by SMMEs that are not in agreement with phased re-opening of the economy Figure 2.2: Reasons given by SMMEs that are in agreement with the decision to phase in the re-opening of the economy Figure 2.3: April vs May comparative analysis with regard to prospects for enterprise survival and cash flow Figure 2.4: Comparative analysis with regard to jobs losses under three scenarios Figure 3.1: Composition of SMME enterprises surveyed Figure 5.1: Comparative analysis of selected data: Sectoral vs All SMME average 6. References 1. Setting the scene and objectives of the survey On 31 December 2019, the World Health Organisation (WHO) was informed about the outbreak of a pneumonia of unknown cause, which was detected in the Chinese city of Wuhan. On 30 January 2020, the WHO declared the outbreak a Public Health Emergency of International Concern; and on 11 February 2020 it announced the name for the new coronavirus: COVID-19 (WHO, N.d.). On 12 March 2020, Dr Hans Henri P. Kluge, WHO Regional Director for Europe, confirmed that COVID-19 was declared a pandemic (WHO, 2020). On 5 March 2020, South Africa’s National Institute for Communicable Diseases announced the first case of COVID-19 in the country (NICD, 2020). With more and more cases being declared on a daily basis thereafter, the President of the Republic of South Africa announced on the evening of Monday, 23 March 2020, that in terms of the Disaster Management Act, in a decisive effort to save millions of South Africans from infection, a nationwide lockdown for 21 days would come into effect at midnight on Thursday, 26 March 2020. During the lockdown, all South Africans, except for designated essential workers, would have to stay at home and would not be allowed to leave their homes except under strictly controlled circumstances (RSA, 2020). The president acknowledged that the measures would have a considerable impact on people’s livelihoods and on the life of society and the economy, but believed that “the human cost of delaying…[the] action would be far, far greater” (RSA, 2020). Workers and enterprises exempted from the lockdown included health workers in the public and private sectors, emergency and security services personnel, other persons necessary in response to COVID-19 and “those involved in the production, distribution and supply of food and basic goods, essential banking services, the maintenance of power, water and telecommunications services, laboratory services, and the provision of medical and hygiene products” (RSA, 2020). All other workers had to stay at home for the full period of the lockdown and enterprises not considered essential had to remain closed. While emphasising the importance of a lockdown, the president urged all firms that were able to continue their operations remotely, to do so (RSA, 2020). In response to the impact that the lockdown will have on the economy, government announced various relief measures aimed at assisting enterprises to retain staff and remain afloat. These included amongst others, the setting up of a Solidarity Fund aimed at assisting small businesses to endure, the setting up of a temporary employee relief scheme and debt relief schemes for both enterprises and employees (Mail & Guardian, 2020). Other measures included employer relief measures, such as the provision of a four-month tax subsidy for employees in the private sector. The aim thereof would be to encourage employers to retain workers during the lockdown. It was also announced that the payment of employment tax incentive reimbursements would change from twice a year to monthly, so as to ensure that cash got into the hands of compliant employers as soon as possible, and tax compliant businesses with a turnover of less than R50-million were, for a four-month period, allowed to delay 20% of their employees’ tax liabilities. A portion of their provisional corporate income tax payments could also, over a six-month period, be deferred without penalties or interest (Deloitte, 2020). On the evening of Thursday, 9 April 2020, the president announced a further two-week extension of the lockdown (News24, 2020). At the time of undertaking the initial survey, the lockdown was scheduled to run until 30 April 2020. But, on Thursday, 23 April 2020, the president announced a 5-level lift of the national lockdown. The first level reduction came into effect on 1 May 2020. The Inclusive Society Institute, with a view to post-COVID-19 policy planning, undertook a survey of SMMEs over the period 5 to 7 May 2020. The timing of the survey allowed for the SMMEs to first become acquainted with the government regulations, which were published by the various ministers in the Government Gazette in the week following the president’s announcement. The objective of this particular survey was fourfold: To assess how the SMMEs coped during the initial lockdown; To assess how the SMMEs are coping under the gradual re-opening of the economy; To gauge the views of the SMME sector with regard to both their and the country’s economic prospects; and To gauge the level of support for the president, his cabinet and the measures they have taken to combat the coronavirus. As previously stated, the survey period ran from Tuesday, 5 May 2020 and closed at the end of business on Thursday, 7 May 2020. It should therefore be viewed as a snapshot of SMME thinking during said period. The institute will promote the survey to public policymakers as a further contribution towards consolidating national reflexion on economic recovery. The institute supports economic measures that will enhance equality, inclusiveness and solidarity. 2. Key findings Once again, as in the survey amongst SMMEs carried out during the initial lockdown period, the urgency to issue the report, required the interpretation to be restricted to mainly a globular overview of all the enterprises that participated in the survey. It does, however, also provide a high-level analysis of the four largest sectoral components of the survey, namely manufacturing, wholesale and retail, construction and services. The report covers the data captured for 1 012 enterprises from across all sectors and all provinces. With minor exclusions, they are micro-, small- and medium-sized enterprises. The enterprises surveyed represented a workforce of around 27,140 and a combined turnover of at least R18,846,424,705. These findings restrict themselves to three main themes: i. How SMMEs coped during the initial lockdown ended 30 April 2020. ii. Measuring the support of SMMEs for the phased re-opening of the economy and how they are coping with the gradual opening up thereof. The survey was conducted on the basis of the Level 4 lockdown being in place until 31 May 2020. iii. Testing the SMMEs confidence in the future of the economy and gauging SMME confidence levels in the country’s leadership with regard to the COVID-19 policymaking and management. 2.1 Findings on how SMMEs coped during the initial lockdown ended 30 April 2020 From the SMMEs surveyed, slightly more than half – 53 per cent – were classified as essential services. Despite this, 82 per cent of the enterprises were not able to operate during the initial lockdown. In addition, to exacerbate the challenges, 78 per cent of the enterprises were not able to get up and running at the end of the initial lockdown, that is, when the phased opening of the economy was introduced. Sixty-three per cent of the enterprises did not have the necessary cash flow to see them through the initial lockdown and they had to dismiss 12 per cent of their workforce. With regard to the loss of jobs, using the employment figures contained in the 2019 SEDA report as the basis for this survey’s estimations, up to 1,300,658 jobs were lost in the SMME sector during the initial phase. That is 12 per cent of the 10,838,819 number of jobs in this sector (SEDA, 2019). However, as found in the previous survey amongst SMMEs, the negative impact on jobs will be considerably mitigated once the economy re-opens. Two thirds of the enterprises indicated that they would re-employ staff once the lockdown is ended and/or when cash flow allows. This would mean that at least 838,434 lost jobs will be recouped once the economy gains momentum. It is important to note that a far higher percentage of respondents – 15 per cent as opposed to 0,5 per cent in the April survey – were not sure of what they would do. On the availability of cash flow to see the enterprises through the initial lockdown that ended on 30 April 2020, the actual position (63 per cent of enterprises) remained bleak but represented somewhat of an improvement over the sector’s initial expectation. However, it should also be noted that the number of employees retrenched increased substantially, which may have impacted the enterprises’ cash flow. The link between available cash flow and employee retrenchment was, however, not tested. The majority of SMMEs continued to believe that the enterprise will survive the initial lockdown, although the percentage declined from the previous survey. Fifty-nine per cent believed that they would survive, whilst 38 per cent believed they would not. Three per cent were not sure. Comparison to previous survey undertaken during the initial lockdown period: 1. With regard to workers: Whereas the previous report indicated the potential job losses to be in the region of 7,5 percent or 812,986 jobs, in reality this grew to 12 per cent, with the job losses closer to 1,3 million. Furthermore, in the previous survey some 90 per cent of the enterprises planned to re-employ retrenched staff once business re-opened and/or when cash flow permitted. This declined to only 66 per cent in this survey. The real job loss estimation, as at the end of April 2020, thus increased from around 80,000 in the previous survey to around 462,000 in this survey. 2. With regard to cash flow: In the previous survey undertaken during the initial lockdown period, 78 percent of the enterprises expected not to have sufficient cash flow to see them through the lockdown. The actual percentage logged at the end of April 2020 improved by 13 percentage points to 63 per cent. 3. With regard to financial assistance: At the time that the previous survey was done, 56 per cent of the enterprises had applied for financial assistance, whilst 84 per cent indicated at the time that they did not up till then receive approval. In this survey the number of applications for financial aid increased to 73 per cent. The approval rate, at 29 per cent, remained low. 4. With regard to the enterprises’ belief in surviving the initial lockdown: Fifty-nine per cent of the enterprises surveyed in this round were confident of surviving the initial lockdown. In the previous round, 69 per cent expressed confidence therein. 2.2 Measuring the support of SMMEs for the phased opening of the economy and how they are coping with the gradual opening up thereof As indicated earlier, the survey was conducted on the basis of the Level 4 lockdown being in place until 31 May 2020. Findings in this section are, therefore, made on that basis. Seventy-eight per cent of enterprises surveyed were not in agreement with the phased re-opening of the economy. Of them, 57 per cent would have wanted the economy fully opened, whilst 43 per cent would have wanted more businesses and sectors to have been included as businesses that could trade under Level 4 of the lockdown. Figure 2.1: Breakdown of reasons given by SMMEs that are not in agreement with phased re-opening of the economy (Source: Inclusive Society Institute) And of the 22 per cent of the enterprises that agreed with the phased re-opening of the economy, two thirds believed more could have been done for enterprises to become operational. Figure 2.2: Reasons given by SMMEs that are in agreement with the decision to phase in the re-opening of the economy (Source: Inclusive Society Institute) On the expected performance of the enterprises during Level 4 of the lockdown, the following key findings were made: Seventy-three per cent of the enterprises suggested that they would not have sufficient cash flow to see them through the Level 4 lockdown. And only 49 per cent believed they would survive the Level 4 lockdown, with an equal number suggesting they would not. This represented a 10 percentage points decline in business’ confidence of surviving the COVID-19 calamity. Figure 2.3: April vs May comparative analysis with regard to prospects for enterprise survival and cash flow (Source: Inclusive Society Institute) The decision to phase in the re-opening of the economy could result in a further material loss of jobs. Of the enterprises surveyed, a further 17 per cent of employees would need to be retrenched. An extrapolation across the SMME sector would therefore suggest a further potential of 1,842,769 jobs that could be lost. This is over and above the 838,434 dismissed during Level 5 of the lockdown. In total, therefore, the impact of the COVID-19 measures taken could affect the livelihood of as many as 2,681,203 workers. Again, on the same assumption that two thirds of the workers will be re-employed when the economy is fully opened and/or when cash flow permits, the actual number of long-term job losses will be considerably reduced to around 885,000. This, nevertheless, remains an extremely worrisome situation. Figure 2.4: Comparative analysis with regard to jobs losses under three scenarios (Source: Inclusive Society Institute) 2.3. Testing SMMEs confidence in the future of the economy and gauging SMME confidence levels in the country's leadership with regard to the COVID-19 policymaking and management A staggering 78 per cent of the enterprises surveyed were of the opinion that the economy would not recover over the next three to five years to the level it was at just prior to when the lockdown was announced. Furthermore, should the economy remain largely locked down beyond the end of May 2020, economic prospects could further worsen. Eighty-six per cent of the enterprises indicated that they would in such instance not have sufficient cash flow to see them through, and 78 per cent would have to further reduce jobs. On testing the confidence in government in managing the COVID-19 pandemic, there was an equal split between those enterprises whose confidence in the president had either remained the same or grown, as opposed to those whose confidence had declined. A large majority of the enterprises surveyed had reduced confidence in the performance of the ministers assigned to manage the disaster. The reasons behind this sentiment have not been tested and will require further investigation. 2.4 General observations From the trends contained in the two surveys undertaken by the institute, that is the first in mid-April 2020 and the second in early May 2020, the following general observations can be made: The measures taken to combat the COVID-19 pandemic have been particularly harmful to both the survival prospects of the SMME sector and their ability to provide and grow jobs in the economy. The recovery of the SMME sector will take some time: 78 per cent of the enterprises surveyed indicated it would take longer than three to five years to recover to the level just prior to the introduction of the COVID-19 measures. There has been a marked decline in SMME optimism from the initial measures taken by government, and the phased-in approach to the re-opening of the economy. For example, in the survey done in April, 53 per cent of enterprises indicated that they would immediately be able to get up and running should the lockdown have ended on 30 April 2020. This declined to only 21 per cent of enterprise surveyed this time round. Likewise, there has been a marked decline in the SMMEs level of confidence of survival and their ability to retain workers. For example, in the April survey, 69 per cent of enterprises were confident of surviving. This declined by 10 percentage points to 59 per cent in this survey. And whilst job losses were predicted at 7,5 percent in the April survey, it increased to 12 per cent in this survey, with more job losses predicted should the SMME sector remain largely excluded from economic activity beyond May 2020. Confidence in leadership decision-making is starting to wane. 2.5 Selected sectors' performance in relation to the SMME sector in general As mentioned earlier in the report, this research did not attempt to do a full analysis of each of the SMME sectors. It did, however, test selected data for the four largest categories of businesses, namely construction, manufacturing, services, and wholesale and retail. As can be gleaned from the detailed data in section 5.2 of this report, similar trends are to be seen across all the categories of businesses. 3. Methodology The estimated SMME population size in South Africa is around 2,550,540, of which 736,198 are formal and 1,754,443 informal. Combined, they provide approximately 10,839,819 jobs (SEDA, 2019). Sampling, data collection and data subjects Sampling was carried out through the dissemination of the survey by electronic means to representative databases comprising SMME businesses drawn from across the country and from all sectors. In total, 1 012 responses to the questionnaire were obtained. Since “the quality of the sample will be higher, the more completely the sampling frame covers the target population” (European Social Survey, 2016), the database selected contained, with only a few exceptions, SMME enterprises, which was the subject of the study. Standard data cleansing and validation procedures were carried out. The chart contained in figure 3.1 below, reflects the composition of the SMMEs surveyed. Figure 3.1: Composition of SMME enterprises surveyed (Source: Inclusive Society Institute) Confidence level and margin of error In determining the sample size, the research relied on the standard 95 per cent level of confidence and 5 per cent margin of error, which is common for social sciences studies (Royse, 2008:209). Sample size In determining the sample size required to achieve a confidence level of 95 per cent and a margin of error of approximately 5 per cent, the author was guided by the table published in Glenn (1992) and Cochran’s (1963) formula for calculating a sample for proportions. The former suggested a sample size of 400 obtained responses and the latter, 385. Whereas the survey size should accordingly not be smaller than 400, the actual number of obtained responses amounted to 1 012, some two and a half the standard minimum. This would serve to strengthen reliance on the report, since the margin of error would be closer to 3 per cent (Creative Research Systems, N.d.). Question set The survey contained a total of 25 questions, which could be grouped into four parts: PART A – Questions of a demographic nature In part A, the series of questions designed was aimed at eliciting information that would assist in answering questions related to the nature of the enterprise participating in the survey. This would help the stratification of enterprises in terms of their size (micro or medium), sector, whether they are considered essential services or not, and the impact on the labour market. In so doing, findings could be made, amongst others, as to outcome differences between the various sectors, and the extent to which an enterprise being declared an essential service improves their ability to survive. 1. How many workers (including yourself) do you employ? 2. What was your annual turnover in the last financial year? 3. Are you classified as an essential service in terms of the current lockdown regulations? 4. In what sector or sectors does your enterprise operate? 5. How many years has your enterprise been in operation? PART B – How did your enterprise cope during the initial lockdown phase that ended on 30 April 2020? 6. Were you able to do business during the initial phase of lockdown? Yes or No 7. Was your enterprise able to immediately get up and running once the initial lockdown ended? Yes or No 8. Did you have sufficient cash flow to see you through the initial lockdown period that ended 30 April 2020? Yes or No 9. How many workers did you dismiss during the initial lockdown period? 10. Will you re-employ the same workers once lockdown is over? Yes, No or When cash flow again permits 11. Have you applied for any financial aid that has been made available to cope during lockdown? Yes or No 12. If Yes in question 11, has your application been approved? Yes or No 13. If Yes in question 12, has cash reached your bank account yet? 14. Do you believe your enterprise will survive? Yes or No PART C – Questions about the phased re-opening of the economy The series of questions contained in the third part of the question set was aimed at assessing the sustainability prospects of the enterprises as they enter the phased re-opening of the economy. The enterprises were requested to make the assessment on the basis that the current Level 4 regulations will be in place until the end of May. 15. Are you in agreement with the President’s strategy to gradually open the economy? Yes or No 16. If No in question 15, then indicate your preference: a. Keep lockdown until COVID-19 risk is eliminated or sufficiently neutralised b. Rules should be relaxed for more types of businesses and sectors c. Fully open the economy 17. If Yes in question 15, then indicate, for your specific business, whether you believe the arrangements are: a. Adequate b. Could have done more c. Keep lockdown 18. Do you have sufficient cash flow to see you through to the end of May 2020? 19. Indicate the number of additional workers you will still have to retrench, if any, (over and above those already retrenched in the initial phase) despite the new arrangements? 20. Do you believe your business will survive given the newly announced gradual opening of the economy? Yes or No PART D – Questions aimed at testing the enterprises' views on the economy future of the country and the government's management of the coronavirus pandemic 21. On a scale of 0 (weak) to 10 (excellent), what is your level of confidence in the current decision-making processes of the authorities? 22. Looking ahead, where do you believe South Africa will be in 3-5 years? a. Much weaker b. A little weaker c. Recovered to existing levels d. Slightly improved e. Better off 23. Will you have to retrench more workers if you are unable to open up beyond end May? 24. Will you have enough cash flow to see you through the gradual opening of the economy, if it is extended beyond the end of May 2020? 25. With regard to your confidence in the leadership of the country: a. For the President, has your confidence grown, stayed the same, declined? b. For the members of the Cabinet, has your confidence grown, stayed the same, declined? 4. Recommendations Recommendation 1 It is clear from the two surveys undertaken that the SMME sector does not have the support structure or means in place to absorb the economic knock that the lockdown measures have given them. They do not have the necessary reserves in place to see them through an extended shutdown. This is bound to lead to a material loss in jobs and closure of firms. Whilst support for social distancing and heightened hygiene measures to combat the spreading of the COVID-19 virus is evident and welcomed, the authorities will at the same time have to give serious and immediate consideration to ways of easing the means of doing business, since a further deferment will have irreversible consequences for the economy. Recommendation 2 The responses obtained in the conducting of this survey have shown that the SMME sector is having serious cash flow problems as a result of the measures being taken to combat the COVID-19 virus. To overcome this, they have in large numbers applied for financial aid to see them through the COVID-19 calamity. The large number of applications that have not been approved or settled appears to be exacerbating their current financial woes. The reasons behind the non-finalisation of the applications is unclear. It may be administrative in nature, or an issue of too stringent criteria. It is recommended that the authorities review both the administrative procedures and the qualifying criteria in order to enable a wider range of enterprises to gain access to the support. 5. Summary of detailed data 5.1. Summary of detailed data for all enterprises surveyed 5.2 Summary of sectoral data regarding phased re-opening of the economy Figure 5.1: Comparative analysis of selected data: Sectoral vs All SMME average (Source: Inclusive Society Institute) 6. References BusinessTech. 2020. These 3 graphs show who’s paying South Africa’s income tax. [Online] Available at: https://businesstech.co.za/news/finance/363120/these-3-graphs-show-whos-paying-south-africas-income-tax/ [accessed: 12 April 2020]. Cochran, W. G. 1963. Sampling Techniques, 2nd Ed. New York: John Wiley and Sons, Inc. Creative Research Systems. N.d. Sample Size Calculator. [Online] Available at: https://www.surveysystem.com/sdesign.htm [ac­cessed: 13 April 2020]. Deloitte. 2020. South Africa: Tax relief measures announced in response to COVID-19. [Online] Available at: https://www2.deloitte.com/za/en/pages/tax/articles/south-africa-tax-relief-measures-in-response-to-COVID-19.html [accessed: 10 April 2020]. European Social Survey. 2016. Sampling Guidelines: Principles and Implementation for the European Social Survey. [Online] Available at: https://www.europeansocialsurvey.org/docs/round8/methods/ESS8_sampling_guidelines.pdf [accessed: 13 April 2020]. Israel, G.D. 1992. Determining sample size. Fact sheet PEOD-6. Gainesville: University of Florida. Mail & Guardian. 2020. South Africa’s economic plan for Covid-19. [Online] Available at: https://mg.co.za/article/2020-03-23-south-africas-economic-plan-for-covid-19/ [accessed: 10 April 2020]. National Institute for Communicable Diseases (NICD). 2020. First case of covid-19 coronavirus reported in SA. [Online] Available at: https://www.nicd.ac.za/first-case-of-covid-19-coronavirus-reported-in-sa/ [accessed: 10 April 2020]. News24. 2020. Struggle is far from over. [Online] Available at: https://www.news24.com/SouthAfrica/News/in-full-struggle-far-from-over-read-ramaphosas-statement-on-2-week-lockdown-extension-20200409 [accessed: 10 April 2020]. Nirrandes, N. 2020. President announces 5-level lift on nationwide lockdown. [Online] Available at: https://www.capetownetc.com/news/president-announces-5-level-lift-on-nationwide-lockdown/ [accessed: 6 May 2020]. Republic of South Africa (RSA). 2020. President Ramaphosa announces a nationwide lockdown. [Online] Available at: https://www.sanews.gov.za/south-africa/president-ramaphosa-announces-nationwide-lockdown [accessed: 10 April 2020]. Royce, D. 2008. Research methods in social work, 5th edition. Belmont: Thomson Higher Education. Small Enterprises Development Agency (SEDA). 2019. SMME Quarterly Update, 1st Quarter 2019. Pretoria: SEDA South African Revenue Services (SARS). 2019. Tax Statistics 2019. Pretoria: SARS. Statistics South Africa (Stats SA). 2020. Quarterly Financial Statistics (QFS) December 2019. Pretoria: Stats SA. World Health Organisation (WHO). N.d. Rolling updates on coronavirus disease (COVID-19). [Online] Available at: https://www.who.int/emergencies/diseases/novel-coronavirus-2019/events-as-they-happen [accessed: 10 April 2020]. World Health Organisation (WHO). 2020. WHO announces COVID-19 outbreak a pandemic. [Online] Available at: http://www.euro.who.int/en/health-topics/health-emergencies/coronavirus-covid-19/news/news/2020/3/who-announces-covid-19-outbreak-a-pandemic [accessed: 10 April 2020]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za

Survey synopsis - What impact have the measures taken by government to combat the coronavirus pandemic had on the leadership and support of the ANC? In an effort to combat the Covid-19 pandemic, the South African nation is currently under lockdown. This is resulting in a considerable impact on people’s livelihoods and on the life of society. As the ruling party of the country, it has to act in the national interest, despite the potential negative impact that some government decisions may have on its own support base. The survey covered in this report assesses the political impact on the membership and supporters of the measures taken by the authorities and the effect that it has had on the leadership of, and levels of support for the movement. Copyright © 2020 Inclusive Society Institute 132 Adderley Street Cape Town, 8000 South Africa NPO Registration: 235-515 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of the Inclusive Society Institute or those of their respective Board or Council members. All records and findings included in this report, stem from the survey undertaken from 13 to 15 May 2020 on the impact on the leadership and support of the ANC as a result of the measures taken by government to combat the COVID-19 pandemic. Content 1. Purpose and objectives 2. Key findings 2.1 Questions aimed at measuring the level of support of ANC members and supporters for the measures being taken by government to combat the COVID-19 pandemic 2.2 Questions aimed at gauging the opinion of ANC members and supporters on government’s management of, and competence in, combatting the COVID-19 pandemic 2.3 Questions aimed at assessing the impact of the measures on ANC members and supporters’ perception of the leadership of the ANC’s President, the Cabinet and the ANC itself 2.4 Provincial comparisons 2.5 Findings in a nutshell 3. Methodology 4. Detailed summary of data 4.1 Demographic data 4.2 Perceptual data 4.3 Detailed summary of data by province List of figures Figure 2.1: Percentage breakdown of support for measures taken to combat the COVID- 19 pandemic Figure 2.2: Percentage breakdown of how the management of the COVID-19 crisis is being perceived Figure 2.3: Opinion with regard to the performance of the authorities and security forces in combatting COVID-19 Figure 2.4: Breakdown on views for future prospects – personal wellbeing and the economy Figure 2.5: Breakdown of changes of opinion with regard to the President, Cabinet and ANC Figure 2.6: Provincial comparisons for selected data Figure 3.1: Breakdown of respondents surveyed per province Figure 3.2: Respondent demographics 5. References 1. Purpose and objectives On 31 December 2019, the World Health Organisation (WHO) was informed about the outbreak of a pneumonia of unknown cause, which was detected in the Chinese city of Wuhan. On 30 January 2020, the WHO declared the outbreak a Public Health Emergency of International Concern; and on 11 February 2020 it announced the name for the new coronavirus: COVID-19 (WHO, N.d.). On 12 March 2020, Dr Hans Henri P. Kluge, WHO Regional Director for Europe, confirmed that COVID-19 was declared a pandemic (WHO, 2020). On 5 March 2020, South Africa’s National Institute for Communicable Diseases announced the first case of COVID-19 in the country (NICD, 2020). With more and more cases being declared on a daily basis thereafter, the President of the Republic of South Africa announced on the evening of Monday, 23 March 2020, that in terms of the Disaster Management Act, in a decisive effort to save millions of South Africans from infection, a nationwide lockdown for 21 days would come into effect at midnight on Thursday, 26 March 2020. During the lockdown, all South Africans, except for designated essential workers, would have to stay at home and would not be allowed to leave their homes, except under strictly controlled circumstances (RSA, 2020). The president acknowledged that the measures would have a considerable impact on people’s livelihoods and on the life of society and the economy, but believed that “the human cost of delaying…[the] action would be far, far greater” (RSA, 2020). On the evening of Thursday, 9 April 2020, the president announced a further two-week extension of the lockdown which would run to 30 April 2020 (News24, 2020). On Thursday, 23 April 2020, the president announced a 5-level lift of the national lockdown. The first level reduction – that is to level 4 – came into effect on 1 May 2020 (Nirrandes, 2020). The lockdown will continue to trouble society for some time to come. President Ramaphosa has in the interim initiated a consultative process to consider a move to level 3 of the lockdown in certain parts of the country as from the end of May 2020, but it is apparent that in the economic heartlands of Gauteng, the Western Cape and KwaZulu-Natal, level 4 will continue for some time (Mvumvu, 2020). The Inclusive Society Institute, with a view to post-COVID-19 policy planning, undertook a survey amongst members and supporters of the African National Congress (ANC), to assess the political impact of the measures taken by the authorities and the effect that it has had on the leadership of, and levels of support for, the movement. The objective of this particular survey was threefold: To measure amongst the ANC members and supporters, the level of support for the measures being taken by government to combat the COVID-19 pandemic; To gauge their opinion on government’s management of, and competence in, combatting the COVID-19 pandemic; and To assess the impact of the measures on ANC members and supporters’ perception of the leadership of the President, the Cabinet and the ANC itself. The survey period ran from Wednesday, 13 May 2020 and closed at midday on Friday, 15 May 2020. It should therefore be viewed as a snapshot of the ANC membership and supporters thinking during that period. The institute will promote and use the survey to inform and help guide political thinking in the interest of strengthening democracy and civic awareness. The institute supports social democracy and policy that promotes equality, inclusiveness and solidarity. 2. Key findings This section contains the key findings with regard to the three objectives set out in the previous section of this report, namely the measuring of the support of ANC members and supporters for the measures being taken by government to combat the COVID-19 pandemic, the competence as to the government’s handling of the pandemic and the impact of the lockdown on the support for the ANC and its leadership. 2.1 Questions aimed at measuring the level of support of ANC members and supporters for the measures being taken by government to combat the COVID-19 pandemic There is overwhelming support for the measures being taken by the authorities to combat the coronavirus pandemic. Ninety per cent of respondents indicated their support therefore. Only 4 per cent were not in agreement of the measures, with 5 per cent indicating that they were not sure. Figure 2.1: Percentage breakdown of support for measures taken to combat the COVID-19 pandemic (Source: Inclusive Society Institute, 2020) 2.2 Questions aimed at gauging the opinion of ANC members and supporters on government’s management of, and competence in, combatting the COVID-19 pandemic Generally speaking, ANC members and supporters are satisfied with the government’s management of efforts aimed at combatting the COVID-19 pandemic, although there is some space for the authorities to improve. Thirty-nine per cent of the respondents believe the authorities to be “very good” in the management of the pandemic, 21 per cent thought they were “good” and 30 per cent were satisfied. Overall, 90 per cent of the respondents were therefore not negatively inclined towards the government’s efforts in this regard. Figure 2.2: Percentage breakdown of how the management of the COVID-19 crisis is being perceived (Source: Inclusive Society Institute, 2020) Similarly, 88 per cent of respondents were confident that the authorities will bring the COVID-19 pandemic under control (71 per cent confident and 11 per cent somewhat confident). Only 11 per cent of respondents were not in agreement. Likewise, most of the ANC members and supporters, albeit to various degrees, believed the authorities and security forces to be exercising their duties responsibly and that they displayed competence in the exercising of their duties. Sixty-seven per cent thought they were carrying out their duties in a responsible manner, whilst 78 per cent of respondents considered the authorities and security forces to be displaying an acceptable level of competence in the carrying out of their duties (15 per cent highly competent, 34 per cent competent and 29 per cent somewhat competent). Figure 2.3: Opinion with regard to the performance of the authorities and security forces in combatting COVID-19 (Source: Inclusive Society Institute, 2020) Despite the overwhelming support for government’s current efforts and measures, ANC members and supporters did not share quite the same level of optimism with regard to their own and the country’s economic future. Less than two thirds of respondents (64 per cent) believed that their own future would improve after the lockdown is lifted, whilst a staggering 84 per cent were not optimistic about the country’s economic future. In terms of the economy, only 14 per cent of respondents were of the opinion that the economy would improve in the year after lockdown to levels better than before the measures were announced. Twelve per cent thought the economy would not improve, 50 per cent supposed it would not grow to the level it was prior to lockdown and 22 per cent were of the opinion that it would only improve to levels the same as before lockdown, thus with no growth potential and further setting back prospects for addressing backlogs in society. Figure 2.4: Breakdown on views for future prospects – personal wellbeing and the economy (Source: Inclusive Society Institute, 2020) 2.3 Questions aimed at assessing the impact of the measures on ANC members and supporters’ perception of the leadership of the ANC’s President, the Cabinet and the ANC itself All things being equal, the president and his Cabinet can draw solace from the data on the ANC membership and supporters base’s changing opinion of them. The results for both the president and the Cabinet show an improved opinion of them since the measures aimed at combatting the COVID-19 pandemic were announced. In terms of support for the president, 62 per cent of respondents’ opinion of him improved since the measures were announced, whilst 30 per cent’s opinion remained the same. Only 7 per cent of respondents indicated that their opinion of him declined. In terms of support for the Cabinet, 46 per cent of respondents’ opinion of the Cabinet improved, whilst 34 per cent’s opinion of them remained the same. Nineteen per cent of respondents indicated that their opinion of the Cabinet has declined. The latter aspect deserves careful consideration as to what has led to the decline. The ANC itself, also shows that a material number (48 per cent) of respondents’ opinion of the movement has improved, whilst 34 per cent’s view has remained the same. Seventeen per cent of respondents indicated a diminished opinion for the movement. It is important to note that these percentages do not necessarily correlate with electoral support for the particular leaders. It is an indication of changed opinion, which, in itself, is a basis on which to grow a leadership mandate. Figure 2.5: Breakdown of changes of opinion with regard to the President, Cabinet and ANC (Source: Inclusive Society Institute, 2020) 2.4 Provincial comparisons In line with the methodology as set out in section 3 of this report, comparisons were done to test the national validity of the conclusions. In all three of the sampling exercises done, it was found that the trends were similar across the three provinces selected. These three provinces, Gauteng, Free State and KwaZulu-Natal, between them, made up 81 per cent of the total number of valid responses received from the survey. In all three sampling exercises, the provinces were all within a 10-percentage point margin of the national average. In testing the ANC members and supporters’ support for measures taken by government to combat the COVID-19 pandemic, 90 per cent of respondents from Gauteng were in support, 89 per cent from the Free State and 84 per cent from KwaZulu-Natal. The national average in this respect was 90 per cent. In assessing the ANC members and supporters’ views with regard to the government’s management of the pandemic, 91 per cent of Gauteng respondents were favourably inclined. Of this, 41 per cent thought government was managing the pandemic “very good”, 22 per cent “good” and 28 per cent “satisfactory”. In the Fee State, the overall percentage of 97 per cent was slightly higher, with the breakdown being 37 per cent very good, 22 per cent good and 38 per cent satisfactory. Respondents from KwaZulu-Natal, were, on the other hand, slightly more critical, with the overall percentage being 86 per cent, broken down as 33 per cent very good, 26 per cent good and 27 per cent satisfactory. The national average in this regard stood at 90 per cent. And finally, in gauging the impact of the lockdown measures on the political support for the ANC and its leadership, it was found that in Gauteng, 93 per cent of respondents either had an improved opinion, or the same opinion of the president, as compared with immediately prior to the lockdown measures. In the Free State, this was a similar 91 per cent of respondents and in KwaZulu-Natal it was 86 per cent. The national average in this regard was 92 per cent. Figure 2.6: Provincial comparisons for selected data (Source: Inclusive Society Institute, 2020) The institute is of the opinion that in light of the clear trend in similarities across all data sets, that the validity of the national trends have been confirmed. The national results conveyed in this report can, in the opinion of the institute, be relied upon. 2.5 Findings in a nutshell The following general observations are deemed fair: (i) In general, both government and the country’s political leadership, as does the ANC, enjoys the overwhelming support of the ANC supporters for the measures they are taking to combat the COVID-19 pandemic. (ii) ANC supporters are generally satisfied with the competence and way in which the aforementioned measures are being carried out. (iii) The opinion of the President, Cabinet and ANC has changed for the better. (iv) Despite their support for the measures being taken, ANC supporters are concerned about their own and the country’s economic future. (v) Despite the favourable change for the good in terms of opinion of ANC supporters for both the members of Cabinet and the ANC, there are a meaningful number of supporters whose opinion declined. This is an area that deserves careful consideration and further research. 3. Methodology The African National Congress (ANC) is the ruling party of South Africa. With 10 026 475 votes received in the 2019 general election, it holds 57,50 per cent of the vote (IEC, N.d.). As the ruling party of the country, it has to act in the national interest, despite the potential negative impact that some government decisions may have on its own support base. Sampling, data collection and data subjects Sampling was carried out through the dissemination of the survey by electronic means to representative databases comprising members and supporters of the ANC. In total, 499 valid responses to the questionnaire were obtained. Since “the quality of the sample will be higher, the more completely the sampling frame covers the target population” (European Social Survey, 2016), the database selected contained, with only a few exceptions, individuals that have in general expressed their support for the ruling party. Responses, although strongly biased towards Gauteng, were received from across all provinces. Figure 3.1: Breakdown of respondents surveyed per province (Source: Inclusive Society Institute, 2020) In terms of the respondent demographics, there was, as indicated in Figure 3.2 below, a good spread across all age groups and levels of education. Sixty-nine per cent of respondents were men and 31 per cent were women. Figure 3.2: Respondent demographics (Source: Inclusive Society Institute, 2020) Confidence level and margin of error In determining the sample size, the research relied on the standard 95 per cent level of confidence and 5 per cent margin of error, which is common for social sciences studies (Royse, 2008:209). Sample size In determining the sample size required to achieve a confidence level of 95 per cent and a margin of error of approximately 5 per cent, the author was guided by the table published in Israel (1992) and Cochran’s (1963) formula for calculating a sample for proportions. The former suggested a sample size of 400 obtained responses and the latter, 385. Whereas the survey size should accordingly not be smaller than 400, the actual valid number of obtained responses amounted to 499, thus around 20 per cent above a standard academic minimum. Limitation This survey was done by means of electronic dissemination. This therefore restricts the interpretation to be representative of those members and supporters that have access to electronic means of communication. Furthermore, whilst pro-active steps have been taken to ensure data integrity, and all indications are that data is beyond reproach, the possibility of external manipulation of data input cannot be completely excluded. Question set The survey, as it pertains to the objectives of this report, contained a total of 10 questions, in three parts, which is set out hereunder: Part 1 – questions aimed at measuring the level of support of ANC members and supporters for the measures being taken by government to combat the COVID-19 pandemic 1. Do you support the government’s current efforts to combat the COVID-19 pandemic? Support Do not support Unsure Part 2 – questions aimed at gauging the opinion of ANC members and supporters on government’s management of, and competence in, combatting the COVID-19 pandemic 2. In your opinion, how is the government managing the COVID-19 pandemic? Very good Good Satisfactory Bad Very bad 3. Have you got confidence that government will be able to bring the pandemic under control? Confident Somewhat confident Not confident 4. Are the authorities and security forces seen to be carrying out their duties responsibly? Yes No 5. What is your opinion of the level of competence displayed by the authorities, including security forces? Highly competent Competent Somewhat competent Lacking in competence Very poor competence 6. Do you believe that the economy will in the year after the lockdown be able to recover and to what degree? It will not recover Will not recover sufficiently to grow the economy to higher levels than before the lockdown It will recover to levels better than before lockdown It will recover to levels the same as before lockdown 7. Do you believe your life will improve after the lockdown? Yes No Part 3 – questions aimed at assessing the impact of the measures on ANC members and supporters’ perception of the leadership of the ANC’s President, the Cabinet and the ANC itself 8. Has the government’s handling of the COVID-19 pandemic crisis changed your opinion of the President? My opinion has improved My opinion has remained the same My opinion has declined 9. Has the government’s handling of the COVID-19 pandemic crisis changed your opinion of the Cabinet? My opinion has improved My opinion has remained the same My opinion has declined 10. Has the government’s handling of the COVID-19 pandemic crisis changed your opinion of the ANC? My opinion has improved My opinion has remained the same My opinion has declined Testing national validity Given the out of proportion number of responses received from the various provinces, and in particular, given the large number of responses from Gauteng, it was important to do sampling within the various provinces to ascertain whether the national average was reflected in the individual provinces. If this was so, it could comfortably be concluded that the national average stood. On the contrary, were it to be found that the various provinces have considerably different views on the questions posed, an argument could be made as to the validity of the national conclusions. To this end, a sample question was selected from each of the set of questions related to the three objectives of the research. The first question, “Do you support the government’s current efforts to combat the COVID-19 pandemic?”, was obvious, since it was the only question that tested the support for the measures being taken by government to combat the coronavirus. The question selected to test the opinions with regard to the effectiveness of government’s management of the COVID-19 crisis was: “In your opinion, how is the government managing the COVID-19 pandemic?’’. And lastly, with regard to testing the impact of the measures on the political support for the ANC and its leadership, the question selected was: “Has the government’s handling of the COVID-19 pandemic crisis changed your opinion of the President?”. 4. Detailed summary of data 4.1 Demographic data 4.2 Perceptual data 4.3 Detailed summary of data by province 5. References Cochran, W. G. 1963. Sampling Techniques, 2nd Ed. New York: John Wiley and Sons, Inc. European Social Survey. 2016. Sampling Guidelines: Principles and Implementation for the European Social Survey. [Online] Available at: https://www.europeansocialsurvey.org/docs/round8/methods/ESS8_sampling_guidelines.pdf [accessed: 13 April 2020]. Independent Electoral Commission (IEC). N.d. 2019 National and Provincial Elections. Results Dashboard. National Assembly 2019. [Online] Available at: https://www.elections.org.za/NPEDashboard/app/dashboard.html [accessed: 15 May 2020]. Israel, G.D. 1992. Determining sample size. Fact sheet PEOD-6. Gainesville: University of Florida. Mvumvu, Z. 2020. SA's big cities and coronavirus 'hotspots' could remain under level 4 [Online] Available at: https://www.timeslive.co.za/politics/2020-05-13-sas-big-cities-and-coronavirus-hotspots-could-remain-underlevel-4/ [accessed: 15May 2020] National Institute for Communicable Diseases (NICD). 2020. First case of covid-19 coronavirus reported in SA. [Online] Available at: https://www.nicd.ac.za/first-case-of-covid-19-coronavirus-reported-in-sa/ [accessed: 10 April 2020]. News24. 2020. Struggle is far from over. [Online] Available at: https://www.news24.com/SouthAfrica/News/in-full-struggle-far-fromover-read-ramaphosas-statement-on-2-week-lockdown-extension-20200409 [accessed: 10 April 2020]. Nirrandes, N. 2020. President announces 5-level lift on nationwide lockdown. [Online] Available at: https://www.capetownetc.com/news/president-announces-5-level-lift-on-nationwide-lockdown/ [accessed: 6 May 2020]. Republic of South Africa (RSA). 2020. President Ramaphosa announces a nationwide lockdown. [Online] Available at: https://www.sanews.gov.za/south-africa/president-ramaphosa-announces-nationwide-lockdown [accessed: 10 April 2020]. Royce, D. 2008. Research methods in social work, 5th edition. Belmont: Thomson Higher Education. World Health Organisation (WHO). N.d. Rolling updates on coronavirus disease (COVID-19). [Online] Available at: https://www.who.int/emergencies/diseases/novel-coronavirus-2019/events-as-they-happen [accessed: 10 April 2020]. World Health Organisation (WHO). 2020. WHO announces COVID-19 outbreak a pandemic. [Online] Available at: http://www.euro.who.int/en/health-topics/health-emergencies/coronavirus-covid-19/news/news/2020/3/who-announces-covid-19-outbreak-a-pandemic [accessed: 10 April 2020]. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - This report has been published by the Inclusive Society Institute The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals. Email: info@inclusivesociety.org.za Phone: +27 (0) 21 201 1589 Web: www.inclusivesociety.org.za