SOUTH AFRICA'S ECONOMY: PROSPECTS
Anyone talking about the SA economy will know that the bad news sometimes seems relentlessly gloomy. So here's some room for cheer this holiday season.
The good news is that, formidable though our economic problems are, none of them are insuperable. There remains no reason why, with political will and common sense, we cannot still turn this economy around and restore South Africa's image as the shining city on a hill for Africa, and indeed, in the world.
Our problems are indeed worrisome. In brief, they include an unemployment rate of 25 % of adults (actually 37% if you include discouraged work seekers), and for young South Africans, 49% plus. The government's 5 million jobs target for 2020 assumes a growth rate, according to the Development Bank of Southern Africa ( DBSA) of 8% plus. Our current growth rate is just below 3%, and likely to remain not much above that to at least 2013 – assuming the Euro (ironically another project of the Left in Europe) does not collapse and damage our export markets.
High unemployment plus irresponsible populist statements and rigid trade unionism have all combined to create such policy uncertainty that Moody's Investors Services recently downgraded SA's A3 local and foreign currency debt from stable to negative. It's not a train smash, but it is a red flag. At the same time we are running a Budget deficit of 5.5%, with government debt at 40% - not bad compared with, say, Greece, but an indication that the years of strict Reserve Bank and national macroeconomic caution that did so much to shelter us from the 1999 world financial collapse have been used up.
Welfare cannot be expanded much more unless the sources of finance – taxation –are increased. Since South Africans are already heavily taxed, directly and (increasingly) indirectly, the only real solution is economic growth and job creation (the two are not necessarily the same). There is very little left to redistribute, despite what Julius Malema says – and nationalisation and its compensation costs will lower, not increase, the tax revenues that sustain social welfare, and, with it, social peace. What we are spending is going on consumption, not capital investment. That is why President Zuma declared late this year that "We can't be a welfare state" ( social grants go to 15.2 million South Africans, according to National Treasury, while 13 million work).
In addition, inflation is creeping up again, impacting negatively on consumer debt and household spending power.
South Africa has lost one million formal sector or "decent" jobs in the past two years. We cannot go on like this for much longer.
So what is to be done?
The recently released analyses of both the DBSA and Trevor Manuel's National Planning Commission show ways out of our crisis. So too does the work in progress that is the Democratic Alliance's 8% growth project, due to be released in the next year or so. The new emphasis is on the priority that is job creation. There are areas where all three roadmaps agree that things can be improved, even as there are areas of disagreement. Encouragingly, none of these remedies require rocket science, or even much more money.
For instance:
- Stopping the drain of R30 billion a year that is being lost through state corruption (according to the Special Investigation Unit (SIU)). This means applying the rule of law.
- Accepting the primacy of the private sector as the entity that creates jobs, when allowed to do so. The public sector is already bloated besides being, in general terms, overpaid compared to private sector workers. This does not mean that there is no role for the state. But it does mean that the state must stop intervening where it lacks the capacity and the competence to do so. Also allow more competition with public monopolies from the private sector. Just compare Telkom with the cell phone companies to see how this unleashes jobs and improves people's lives.
- Continue breaking up private sector de facto monopolies (which will also improve SME prospects and keep food prices down). It's not just government that can be greedy.
- Shift the economic debate from redistribution to production, from welfareism to entrepreneurship, with the focus in on growing new business. Combined with a new attitude towards entrepreneurship, we can focus on the empowered individual rather than on dependency . The state has too many capacity gaps to be an adequate substitute for private initiative and risk taking.
- Supporting entrepreneurship seriously, effectively and by using suitable incentives, including tax incentives. This means making SMEs competitive, not forever dependent on state largesse. This means mentoring, it means finding new markets, it means making entrepreneurship part of life skills training, involving the private sector in actually running the training, growing your own timber for local governments via proper apprenticeships (see below).
- Fixing the biggest disgrace of all, the public education system. This means teachers in class, on time, sober and teaching, a return of strict school inspectors, and empowering and appointing strong school principals – and making them accountable. Teach kids the skills that are in demand in the marketplace.
- Improve access to markets, including Africa, without neglecting traditional markets. This means making sure our economy is globally competitive and further liberalising exchange controls so as to sustainably firm the rand.
- Fixing logistics, especially transport and broadband. Again, bring in the private sector (concessioning), increase competition, commercialise the ports, and appoint executives on merit, not for their political connections.
- Ensuring an increased and reliable supply of affordable energy and, increasingly, clean water.
- Clearing up policy uncertainty that detrimentally affects major traditional sectors of our economy that are labour intensive, especially for unskilled and semi skilled workers, namely mining and agriculture. We have missed the benefits of two commodity booms in a row, and will miss the food production boom of the future, if we don't bring policy certainty here and focus on production, not just redistribution. Policy certainty helps investor confidence, and SA needs private sector investment at 30% of GDP pa, not 19% as at present –despite historically low interest rates.
- Reviving private sector skills training and apprenticeships. Abolish the slow, often corrupt SETAs, use incentives for the private sector and the parastatals, link training to jobs.
- Addressing labour regulation and ending the trade union veto on modernising the economy, improving education, and accommodating youngsters entering the job market- as the NDP advocates. This cannot be a root and branch assault on hard won worker rights, but instead a negotiated adjustment to meet the jobs priority.
- Addressing critical skills shortages. We are still too suspicious of skilled immigrants despite the global race for talent. Steve Jobs would in all likelihood never have got past our Home Affairs department if he had decided to move here.
- Giving, as the DA 8% Project points out, the poorest people access to their dead capital by allowing communal land tenure in the former homelands to become individual title deed ownership, suitable for collateral for bank loans for family advancement.
- Introduce the youth wage subsidy, or some variant of it, and link it to on the job experience.
- Apply good governance.
- Slash red tape.
- Drop the proposed ban on labour brokers, who provide an essential link between job seekers and the labour market, as UCT's Prof Haroun Bhorat has conclusively shown. Literally thousands of jobs are at risk.
- Bring down crime much more. It hurts black owned SMMEs the most, amongst other things.
Is any of this impossible? The answer must be "no".
It is indeed possible, if we adopt Deng Xiaoping's approach (the one that did more than anything else to lift China from the ranks of the world's poorest nations to a global economic superpower in one generation). It was Deng who, rejecting ideological straightjackets on economic thinking in China, coined the phrase: "It does not matter whether the cat is brown or white, so long as it catches mice".
Amandla Ngawethu! We are not helpless victims of our past or of our present.
(Speech delivered to Union of Jewish Women, Nov 2011)
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