g. July

Updated 29 July 2008
* New additions

* Komphela can subpoena but needs replacing – 29 July 2008
Butana Komphela, chairman of Parliament’s sport portfolio committee, told Mail & Guardian that “SA’s Olympic governing body is full of whites and Indians who don’t understand transformation and who lack vision.” Who can understand the double-speak and implicit racial discrimination of transformation? What he should have acknowledged is that Sports Confederation and Olympic Committee members prefer merit selection and victory to fast-tracking token blacks, ‘improving’ equity statistics and failure. Sascoc president Moss Mashishi declared that Sascoc and affiliates will no longer attend Komphela’s committee meetings until he’s replaced, since his attitude is insulting to leaders who have fought for nonracial sport. The ANC always closes ranks so Mashishi‘s in trouble but he points out that expressing opinion and intentions does no harm. Only if someone ignores a subpoena to attend does be become ‘in contempt’ of parliament. Quite right. It’s like government pressure, which we should always resist. They can legislate, and subpoena attendance, so if they want our reluctant compliance they should have to publicly and formally override our protestations if they’re able to. Far better, however, that a more civil public servant chairs the committee and sports leaders attend happily. (BD 21.7)

* The AFU shouldn’t grab private property without conviction – 29 July 2008
Dimitrio Paparas is the father of alleged druglord Stefanos Paparas. Both may go on trial in October for manufacturing and dealing internationally in drugs. Dimitrio has a Springs smallholding which the Scorpions searched. The house was not furnished or used as a dwelling and the National Prosecuting Authority believes it was used for making and dealing in drugs. So the Asset Forfeiture Unit used a civil application based on the “balance of probabilities” to seize the R650 000 property as “the instrumentality of an offence” without first having to prove Paparas’ guilt. Sale proceeds will be paid into the Criminal Asset Recovery Unit. But wait. What if time passes and Dimitrio is not in fact brought to trial, or is found innocent? Doesn’t the presumption of innocence until proved guilty, so beloved of obviously guilty public figures, apply to alleged manufacturers and exporters of drugs? Wouldn’t it be more appropriate for the AFU to await an alleged criminal’s conviction before snaffling his property with court approval? (Star 23.7)

* Competition tribunal likely to bar better soda ash – 29 July 2008
Botswana Ash (Botash) complained to the competition commission about anti-competitive activity by American Natural Soda Ash Corporation. Ansac is a joint-venture cartel of US producers formed to promote US exports of soda ash. That sounds sensible and is perfectly legal under America’s Webb-Pomerene Act. The commission found that Ansac violates Section 4 of SA’s Competition Act and in 2000 referred the matter to the competition tribunal. Ansac lawyers point out that SA law lacks jurisdiction over America and Botswana. Botash needs to sell costly, non-white soda ash to SA glass-makers by keeping cheaper, whiter American soda ash out. So Botash tells the tribunal that the effect of Ansac is to deprive foreign consumers of the benefits of competition among its members, citing the “protectionist hypocrisy” of the US congress approving export price maximisation as long as there was no price-fixing at home. It’s even more hypocritical when a Botswanan firm criticises US law to “protect” SA from better soda ash imports. So will our competition authorities let SA consumers buy what they prefer? No, based on their protectionist approach. Botash hopes to upgrade to whiter soda ash, once its future is secured. (BR 24.7)

* Food stamps or fast growth beat zero-rating basic food – 29 July 2008
Government zero-rates 19 food items – brown bread, maize meal, samp, mealie rice, dried mealies, dried beans, lentils, pilchards/sardinella in tins, milk powder, dairy powder blend, rice, vegetables, fruit, vegetable oils, milk, cultured milk, brown wheaten meal, eggs, edible legumes and pulses of leguminous plants. Cosatu wants the list extended to help the poor cope with escalating food prices. Treasury doesn’t. Cosatu’s unsure what other basic foodstuffs the poor spend their money on. Treasury sees some ‘benefits’ of its zero-rating captured as producers and suppliers naturally adjust zero-rated retail prices to match comparable 14%-Vatted foods and wealthier households naturally buy more of the zero-rated foods. Instead of distorting spending patterns by such trivial fiscal tinkering, government could redistribute cash or food stamps directly from taxpayers to some of the poor 25% of South Africans (12 471 616 people at the end of May) who get R5.5bn monthly handouts from the Social Security Agency. Or tax less and let faster growth reduce poverty. (BD 22.7, Cit 25.7, Star 26.7)

Arrest DET alien-invader litterers – 22 July 2008
In Western Cape flooding burst the banks of rivers like the Oliphants which then devastated Citrusdal citrus orchards and Vredendal vineyards. The effects of 300mm rainfall were worsened by the Working for Water programme to clear alien invaders like bluegum. Unremoved tree trunks block river courses, clog culverts and destroy bridges. In Eastern Cape the environmental department’s contract to eradicate alien inkberry and lantana vegetation left cut stumps to re-grow more widely as coppices made far more inaccessible because of the felled trees left lying as fire hazards. Was Asmal’s Working For Water even a good idea gone bad? If so, maybe Kortbroek’s new draft National Environment Laws Amendment Bill will ride to the rescue. It criminalises “intentionally or negligently committing any act or omission which causes or is likely to cause pollution or degradation of the environment” or which will detrimentally affect it. Then the department can arrest itself and its contractors, impose R10m fines or ten years in jail or both, and give us a break. (BT 13/20.7, BD 15.7)

Beneficiate unrefined labour policies – 22 July 2008
Richard Hausmann’s International Panel on Asgisa advised government to drop its plan to selectively intervene to promote minerals beneficiation, not an easy or natural next step – many other activities appear “closer” or potentially more valuable than downstream processing, so let firms discharge their BEE equity obligations through any new greenfield diversification by the mining industry. Right enough, it seems impossible to start local diamond polishing with India’s 700 000 Gujarati diamond-polishers earning R18-36 a day. Any local job seeker or employer willing to match that isn’t permitted, thanks to sectoral minimum wage determinations. For any sector without unionised collective bargaining, labour minister Mdladlana is empowered and keen to control wages. He only decrees minima but his structural unemployment – only 42% of adult South Africans are employed – means nobody’s going to pay more. Yet he always insists SA’s labour market is flexible and another OECD study just agreed. Trouble is, even the poorest old OECD economy (Portugal) has over thrice our average real incomes. Rich countries with low unemployment can afford union-pampering restrictions. We need to create real jobs, competitive exports and fast growth. (Cit 7.7, BD 18.7)

Scrap duff comms regulation, red tape and rationing – 22 July 2008
Communications regulator Icasa has at least one fan. Safact (Federation Against Copyright Theft) CEO James Lennox likes the duff job Icasa did in liberalising the industry so that the cost of bandwidth is extremely high and the volume available extremely low. That makes it expensive and time-consuming to download pirated products over the internet. Probably he also likes how high fuel prices reduce traffic jams. Outgoing Vodacom CEO Alan Knott-Craig wants Icasa regulators to stay at home rather than regulate without commonsense with the mentality of government officials (which they are). Regulators need to understand economics, shouldn’t punish successful firms just for being large, and could let industry blossom by not wrapping miles of red tape around its throat. How true. But like Lennox he talks his book, saying licensing an unlimited number of operators is only good in theory. He’d prefer scarce wireless spectrum allocated to fewer capable people who would use it wisely, and licensing too many people with too few resources is unintelligent and makes them uncompetitive. No, consumers would benefit more from more market competition than from unintelligent Icasa rationing. (BD 17/18.7)

Whatever the property, stop thief – 22 July 2008
As Bloomberg’s Amity Shlaes says of Reagonomics, tax cuts send a general ‘growth is good’ signal but aren’t just about stimulating growth. They’re also about property – people get to keep their money, more of it anyway. The draft Expropriation Bill is also about property. Chas Everitt International MD Berry Everitt says the bill puts the rights of the state ahead of those of the individual. Clause 25 makes no distinction between land, money and other property so why wouldn’t his four concerns apply to taxes? Adding ‘in the public interest’ to ‘for a specific public purpose’ changes nothing under unlimited majoritarian government that taxes and does whatever it wants. ‘Expropriation first, arguments later’ is already how tax works. ‘Removing court power to decide on appropriate timing, manner and compensation’ was done long ago to protect SARS. And the bill’s provision that the “market value” offered by the state would be determined solely by the state is already how government operates. They tax, waste, pay cronies, and deliver a little ‘service’ particularly prior to elections. Whether of money or land or anything else we own, expropriation is theft. (BD 16/18.7)

Remedies for low saving are obvious – 15 July 2008
Treasury D-G Lesetja Kganyago urges South Africans to stop being aggressive borrowers and learn how to save instead. Finance minister Trevor Manuel berated households for contributing very little to the cause. What cause? That of enabling more local entrepreneurial investment, attracting more foreign direct investment, and boosting economic growth. Not that government seems to care, the flood of new wealth would resolve other problems and bring better lives for all. But both secondary and primary saving incentives are lacking thanks to Mr Manuel’s departmental efforts. Capital gains and interest on savings are taxed and Reserve Bank holds real interest rates too low to incentivise savings, which encourages unsound and consumption borrowing. And despite Kganyago’s claim that treasury ‘handed out R93bn of tax relief since 2001’, every year government’s tax bite of national incomes increases. With Tax Freedom Day moving ever-later in May, Manuel’s government takes from incomes almost half as much as he leaves. High upfront tax-looting, low aftertax real interest rates and a sluggish economy all discourage saving. If government wants more, remedies are obvious. (BD 7.7, BT 13.7)

Privatising for 17% annual growth – 15 July 2008
An eastern fiction for SA. In March, Beijing-based China Huaneng paid $4.24bn for Telkom (Tuas Power). Now state-owned investment company IDC (Temasek) has put SA’s (Singapore’s) largest utility Eskom (Senoko Power) up for sale, for completion in 2009. The price matters, but many parties including banks eager for Telkom (Tuas) lost out and Eskom (Senoko) offers a chance to get into a stable cash-flow business. IDC (Temasek) manages more than $100bn in assets and last year revived a plan abandoned six years (four years) ago to sell state-owned SA (Singapore) enterprises in order to tap rising international demand for investment assets. It has said it plans to auction off other assets including Transnet (Power Seraya) and Denel by early next year. The SA (Singapore) government has been gradually introducing competition in formerly state-monopolised parts of the economy. After completing the second phase of liberalization by 2010, all consumer demand will be open to retail competition and the number of so-called contestable consumers has rocketed. No longer needed, SA’s competition authorities (which never tackled state monopolies) have been scrapped. Counter-revolutionaries’ complaints about problems caused by SA’s 17% annual growth fall on deaf ears. (BD 8.7)

Emulate Canada during the downturn? – 15 July 2008
London’s Daily Telegraph comments that the Group of Eight (G8) heads lack the authority or moral leadership to pursue goals like curing poverty, tackling climate change, ending North Korea’s nuke programme, deposing the Zimbabwean junta and cutting food prices. Their alleged faults sound familiar in South Africa. Sarkozy, Merkel and Brown are disliked at home. Bush is a lame duck. Berlusconi is changing the law to indemnify himself. Medvedev is seen as Putin’s creature. Fukuda is the first Japanese leader to have a censure vote passed against him in parliament. Only Canada’s popular Stephen Harper shows a successful record as the global downturn intensifies. Canadian Tories have kept spending in check and reduced taxes. They play their full role in world affairs, notably in Afghanistan. Rather than canting about saving the world, they have addressed themselves to curing remediable ills and above all, to putting their own affairs in order. If SA’s government had comported itself with similar modesty, prudence and competence, we might not be in this mess. (BD 8.7)

Could crooks steal the rails? – 15 July 2008
Someday Nersa and REDS may unbundle retail electricity sales. Excess municipal profits have always enabled municipalities to cross-subsidise loss-making ‘services’. Ending that, like privatisation, could prompt modernisation and reduce real costs. Private rail freight would also work, but state monopoly Transnet depends on cross-subsidies from profitable port operations which it won’t unbundle. So no efficient European-style private ports for SA. Coal and iron ore are exported via profitable dedicated rail that would work better if privatised. Otherwise little freight now goes by slow and costly rail despite trucking congestion and freight-strain on poorly-maintained national roads. Some Gauteng freight uses Maputo though gouged by Tolcon and Spoornet charges. Most imports and exports use Transnet ports whose delays and charges constrain growth. It’s fixable if privatised or if ports didn’t have to subsidise pointless efforts to get freight onto state rail again. Germany and Japan modernised after WW2 destruction. Could railways vanish? Might crooks steal them for scrap? (BD 8.7)

Manipulating appearances isn’t enough – 08 July 2008
Statistics SA will be launching its revamped consumer price index (CPI) next February. The new basket of consumer goods has reduced weightings for food and fuel. At 17%, food price inflation was among the highest categories in the year to May. Food and non-alcoholic beverages have a countrywide rating of 26.8%, which falls to 20.2% in the new basket. Patrick Kelly, Stats SA executive manager for CPI, says this should reduce inflation. Yes, and by fiddling with school exam and IQ testing you can reduce failure rates and make people smarter! No, general price inflation doesn’t depend on how Stats SA measures and weighs our spending. It depends on how the supply of rands stacks up against the real goods and services we buy and sell. No doubt Mr Kelly isn’t instructed to ‘reduce inflation’. He just surveys spending patterns and periodically re-weights and re-bases CPI. Regrettably, Mr Mboweni at the Reserve Bank isn’t instructed to reduce inflation either, so he doesn’t. He prints around 15% more banknotes every year while GDP grows under 5% (and falling). Naturally prices rise. (BR 2.7)

More growth needs more exports and imports – 08 July 2008
Ricardo Hausman’s international panel on Asgisa made 21 broad recommendations towards sustainable economic growth. One was to liberalise Sacu trade input tariffs, reduce final product tariffs, stimulate exports, radically simplify tariff structure to just two or three rates, and limit the number of temporary infant local industry safeguard measures. SA’s chief trade negotiator Xavier Carim doesn’t get it. Bilateral trade negotiations between Sacu and Latin American trade bloc Mercosur concluded a preferential deal involving 2000 product lines. Many goods will still face stiff tariff barriers, notably heavily protected automotive products because their liberalisation could undermine the Motor Industry Development Programme. New generation issues such as services and investment were also excluded. Trade and industry minister Mandisi Mpahlwa doesn’t get it either. He plans to impose export taxes to limit the export of a host of scrap metal products. Carim and Mpahlwa focus on local employment and are unconcerned about boosting exports, imports, growth and prosperity. It’s time for change. (BD 30.6, 2.7)

State subsidies only prolong the agony for all – 08 July 2008
With low wages, Lesotho and Swaziland have relatively big clothing and textile industries that contribute significantly to their economies. Inflexible labour laws leave few South African players in the ailing sector competitive enough to take advantage of the existing export-incentive subsidy scheme. Trade and industry department claims to have a comprehensive recapitalising and upgrading plan, not just to stabilise the sector but to stimulate long-term growth. The Motor Industry Development Programme is having to move away from treaty-forbidden export-linked subsidies to a volume-based incentive. Likewise the department plans a productivity-linked incentive programme for clothing manufacturers. Certainly reducing tax on imported fabrics not produced here will help local manufacturers. But reducing tax on imported clothing would help local consumers more. It’s hard to imagine how the department could achieve more for local jobs, growth and prosperity than by stopping all its half-baked interference with consumer choice and global market forces. Unless you’re an uncompetitive local manufacturer lobbying for privileges. (BD 2.7)

A very compelling public interest – 08 July 2008
‘Without life, there are no other rights. Taking life without even establishing a person’s guilt is even more extreme. The margin for error in the split second in which a decision to shoot is made in such circumstances is very high.’ The Centre for the Study of Violence and Reconciliation says this while discussing the proper limits on the police use of force when facing a criminal. 375 people were shot dead last year “as a result of police action”. That’s only a 1.2% drop in the bucket of last year’s 31 000 murders. Only India, with 24 times the South African population, suffered more (32 000) murders. The ‘right to life’ for law-abiding South African citizens is flimsy indeed. As Graham McIntosh puts it, if anything affirms the seriousness with which society views somebody unilaterally depriving a fellow human being of their life, it is the death penalty. If the judges of the Constitutional Court can’t understand that, then they may have great learning, but little common sense. There’s a very compelling countervailing public interest in once again allowing the courts the freedom, after due legal process, to impose the death penalty. (BD 3/30.6, 1.7)

Healthcare controls tighten – 1 July 2008
Most think government should intervene in medicine pricing on citizens’ behalf. Manto Tshabalala-Msimang has imposed a string of regulations on the private healthcare sector in her nine years as health minister. Not to centralize power in her hands, she says, but to adopt best practices from many other democracies. Her 1997 law enabling parallel imports of patented drugs was overturned in court then restored in 2001. She tried to halve all drug prices then settled in 2004 for single exit pricing using ex-manufacturer price plus a logistics fee. Her spokesman Sibani Mngadi disagrees with private players that cost is irrelevant to pricing. He says we can’t have a partly regulated environment so the whole prescribed minimum benefits (PMB) area needs regulating but producers can still bargain with government for price increases. Medical schemes must now fully fund minimum benefits prescribed in 2004 law. A proposed 16% dispensing fee upsets doctors wanting 30-40%. Prices have fallen to levels of a decade ago. Many community pharmacies have closed. The Council for Medical Schemes reports medicine spending down from 2001’s R11bn to 2006’s R8bn, or from R130 to R100 per beneficiary per month. Sounds good, if it’s unconnected with falling longevity. Manto’s budget vote speech praised pricing progress. What if doctors and pharmacists pull out and medicine shortages appear? Those planning to nationalise healthcare may look forward to such excuses. (BR 23.6)

Presumed guilty in advance and expropriated – 1 July 2008
Nu Metro is exclusive SA licensee of movies from Disney and other American copyright-holders. Mr Video and its franchisees have been renting out so-called zone 1 DVDs released in the US but not currently released or on show in SA. The DVDs are not copied. They were made in America with the consent of the copyright owners. If they were medicines the health minister might allow their ‘parallel importation’ in advance. Unpersuaded by such argument, Cape High Court judge Burton Fourie ruled Mr Video’s imports as constituting copyright infringement. He also declared Nu Metro entitled to take delivery of Mr Video’s DVDs in order to safeguard its licensors’ rights. Why? Because he agreed with Nu Metro that there’s no way to monitor his interdict and that franchisees’ opposition to delivering the DVDs suggests they probably intend to rent them out. That’s like fining motorists in advance because their opposition to traffic rules suggests they’ll probably break the speed limit someday. Which could work, like pre-penitent sailors stockpiling recited Hail Marys before going on sinful shore leave. Fourie said Mr Video and its franchisees were right to complain about their unnecessary trouble and expense, shouldn’t have broken the law, and could pay all legal costs. They may appeal. (Star 24.6)

Empowerment numbers may be heading south – 1 July 2008
Whites are 9% of the SA population. The black 91% now includes Chinese. So Citizen columnist Andrew Kenny asks if a firm employing 9% whites and 91% Chinese would comply with the Employment Equity Act. It’s Wonderland. A more serious issue is raised by Ajay Lalu of BEE strategising firm Bravura Consulting. The noun ‘bravura’ refers to words or music and means ‘a spirited vocal or musical air with florid graces’, or ‘a brilliant or ambitious performance’. Lalu says dividend yields are often too low to cover even part of the interest on funds loaned by corporations to impecunious new BEE shareholders. These are thus heavily reliant on capital appreciation in the share price, to sell some shares later and have some left. From 357% growth of the JSE all-share index during the past decade, many black shareholders are left with a third of their originally unpaid stake. In recession or crash they can be wiped out. Most empowerment shareholders could end with little to show for “lending their blackness”. They could get disillusioned with broad-based BEE. Like non-black shareholders. (Cit/BR 24.6)

Preemptive nationalisation of non-existent land – 1 July 2008
Environmental affairs department drafted an Integrated Coastal Management Bill designating all coastal land and ports as public property. So forget private port development that works so well elsewhere. Forget bulldozing some rubble from your coastal property into the sea to add on a tennis court or boathouse. Kortbroek would instantly claim it. Cape newspapers suggested V&A Waterfront ownership lets Lexshell reclaim land all the way from Green Point lighthouse to Robben Island. Why not to Brazil? Lexshell’s lawyer said the Bill would remove the state’s ability to bestow ownership of the Waterfront’s front to Lexshell. That’s cock-eyed. For new land, like new minerals, the nul position should involve automatic ownership by land reclaimers (and miners) of the wealth they create, or they won’t. Governments create nothing. (BD 26.6)

Author: Dr Jim Harris prepares the weekly Regulation Updates from press reports. The updates may be republished without prior consent but with acknowledgement to the author. Views expressed in the updates are the author’s and are not necessarily shared by the members of the Free Market Foundation.