DA Motion Debate

Hon. C. Malematja

All South Africans are rightfully concerned about the rise in the cost of living since the end of the Covid 19 pandemic. Speaking to the ANC on the topic is essentially preaching to the converted by those who also stay in glass houses. When there are problems all parties look to the ANC as if it has messianic powers over deregulated markets. South Africa is not a self-contained market like China, India, Brazil and the US. The market due to its size is characterised by high degrees of concentration especially in capital intensive, high volume and low margin businesses to ensure economies of scale and maintain world class standards. However, this market concentration comes at a high price for South Africa as it was built on the back of apartheid colonial economics that historically ensured poverty, inequality, unemployment and historic economic exclusion.    

Since the emergence in 1994 the ANC set into motion a programme of transformation to correct the historical injustice of the apartheid era. Critical for this debate is to understand that markets were deregulated in many industries during the democratic transition. Deregulation of critical markets are driving the cost of living upwards and increases costs for households. Small markets are not self-correcting and therefore require regulation. While we agree that there is a need for measures to alleviate the financial strain on families and households to deal with the cost of living it is important that we develop measures that are well thought out and which do not have unintended consequences especially for efficient Government. Any attempt to hollow out Government undermines economic development for the majority.  

Therefore in such markets there is a necessity for regulation to ensure competition and reduce monopolistic market behaviour. This is work that has been tasked and is carried out through the Competition Commission. The policy trajectory of the ANC was to deal with market concentration price collusion and predatory pricing to achieve inclusive economic development, deconcentration of the market which ensures space for empowerment and job creation. These are real solutions to the high cost of living as they cannot be clawed back by the private sector through reducing VAT or taxes. Government must deal with the ‘Rocket and Feather Effect’ where prices are quick to rise, like a rocket, but slow to fall even when conditions change. We need to develop enforceable legislation and regulation for these sectors which impact on the cost of living. 

In this regard it is important to review the role of import parity pricing in the domestic market as we have little control over the Rand/dollar exchange rate. The import parity pricing system is a legacy of the apartheid era and prices domestically produced goods as if they were imported with freight costs. A key example of this was when the conflict between Russia and its neighbour Ukraine occurred the price of wheat and sunflower went up. South Africa imports wheat from Russia and Ukraine and sunflower for cooking oil. Seventy percent of the cooking oil supplied into the domestic market is locally produced and 30 percent is imported, but yet the domestic price increased as if all cooking oil which is a basic commodity is imported The same thing happens with South African steel which is exported to Spain, Portugal and Thailand to produce LPG cylinders and these countries are able to do so cheaper than it being locally manufactured. This occurs again due to the import parity pricing of steel as locally produced steel is priced in the domestic market as if it is imported with freight costs and exported at the cheaper export parity price. This negatively affects local industrialisation.

The price of petrol petroleum products in the country impacts on the cost of living and the Government made an intervention through waving the fuel levy for three months to give motorists and South Africans relief. South Africa is a petroleum price taker and not a price setter and the local petroleum pricing regime is dependent on dollar denominated imports which are sold in Rands. However, petroleum pricing is also based on an import parity system. Domestically produced products must be priced on a cost plus system as import parity inflates margins. This is the rationale for the ANC supporting the State Presidents call during the opening of Parliament for the review of regulated pricing including the petroleum pricing. We support this review as it will guide our measures to grant relief based on facts and evidence rather than populist rhetoric or fiction.     

The cost of commuter rail transport has been cheap and stable, but the restoration of commuter rail is ensuring that the working class and poor have a rapid, efficient and cheap transport system. That is the reason that since the recovery of rail corridors and modernisation of commuter rail the passenger numbers have climbed from a low of 5 million passengers to 39 million passengers per annum. This tells the story on commuter rail as it is cheaper and quicker than road transport and yes this did cost the fiscus over R20 billion. Guess what – it is worth it as our people deserve a better life for all. The development of the BRT system will ensure cheap and efficient transport as it is rolled out. However, we are waiting for the release of the transport subsidy policy as it is going to change the nature of road public transport in favour of the user rather than ending up in the bottom line of the established bus companies.  

The National Coordinating Committee is dealing with improvement in rail freight. The private sector will also operate certain corridors also driving efficiencies in the rail sector. The Transnet Freight Rail operations will improve and the cost of freight logistics will improve as Government commences implementing the movement of goods from road to rail. But the rail infrastructure must be ready to implement that policy.   

In terms of electricity tariffs the problem is not with Eskom and Government will need to find effective ways to deal with municipal electricity sales without affecting the revenue of local government. Perhaps the Minister of Energy should start in Cape Town which has the highest electricity tariffs in the country as the city works at high cost and is unable to control its costs.  

We must not develop or suggest measures that take care of one side of the coin, but leave the other side of the coin unattended to bite us. The role of Government is to ensure regulation of markets which are worsening the cost of living like the financial sector which is creating high household debt. Therefore in South Africa the invisible hand of the market as Adam Smith predicted is either broken or not working and therefore Government intervention is required to correct market failures.

The Government of National Unity must ensure that the national economic interest prevails in relation to ensuring that commodities whether food or any other product for that matter reaches the end consumer at the cheapest possible price. Local industrialisation and job creation programmes to mitigate the effects of the high cost of living is the solution. Handouts do not solve the problem of the high cost of living, but a hand up leading to economic transformation will and that is what the ANC has been attempting to do through its programme whilst supporting through the budget the most vulnerable in our society.