Structural hurdles impede path to economic growth
Postwar success stories show SA should develop its own Marshall Plan to drive redress
The reconstruction of the Western European economy after World War 2 is deemed by many an extraordinary success. The political institutions had much stability and worked for every citizen, to the point where they became the envy of much of the world. Fast economic growth was experienced, with trickle-down effects to many European nations and citizens.
Much the same can be said about Singapore’s economy, which grew robustly at an average annual rate of 8.9% from independence in 1965 until growth was interrupted by a recession in 1985. The economy bounced back dramatically thereafter, averaging 8.3% growth a year until the regional economic crisis erupted in 1997.
Another magical economic growth story to reflect on is that of Vietnam, a country whose 20-year war, which ended in 1975, left it devastated, one of the poorest in the world. Vietnam is now considered an emerging-market superstar, with annual economic growth of 6%-7%, which rivals that of China. Vietnam is heavily invested in its human and physical capital and is export driven. China, whose explosive 30-year economic growth has made it the world’s largest economy, is also hard to ignore.
This is not to say the above-mentioned economies are perfect, or even that they should serve as a template for sustainable economic growth. However, I do believe struggling economies have a thing or two to learn from them.
In our quest to change SA’s economic fortunes we also need to embrace what Jean-Pascal Bassino said when looking at the lessons to be learned from Japan’s recovery from war: “The key to understanding modern economic growth lies in identifying the forces which dampened growth reversals, rather than the forces responsible for the initiation of a growth phase.”
The economy’s slow growth outlook can be attributed largely to structural impediments such as electricity supply constraints, the small pool of skilled labour and the lack of economic diversification. Doing business in SA remains a challenge for small businesses, especially those owned by designated groups. Productivity has fallen.
Evidently, other economic growth strategies must be explored to advance inclusive economic growth. But what good will this bring if the majority of the population remains locked out of the key sectors that are driving the economy, such as banking and financial services, mining, utilities, transport and manufacturing? These challenges present us with an opportunity to develop our own unique Marshall Plan; a plan that will solve the present challenges while executing a long-term vision for the country.
I agree with finance minister Tito Mboweni’s call to focus the budget on growth-enhancing initiatives with practical solutions. However, without effecting sound changes to the regulatory framework and the monitoring and evaluation arms of the state, such practical solutions will amount to naught.
The minister should consider the following practical strategies while crafting his budget speech:
Investment in human capital. SA should capacitate its workforce with decent education so they can be qualified engineers and scientists, typically the skills economies need to grow sustainably.
Economic inclusion. Calls to prioritise economic growth and development must be supplemented by deliberate efforts to address the plight of black-owned SMMEs and other black-owned companies that are still marginalised from the mainstream economy.
Stable domestic currency. The focus should also be on maintaining the value of the currency relative to others and having sound macroeconomic fundamentals that enhance our international competitiveness.
Access to funding and markets. The government must act as a catalyst by encouraging SMMEs to move to a high level of competitiveness and productivity. Furthermore, the government must create policies that support the commercialisation of small businesses, enhance their ability to access markets and improve their attractiveness to development finance institutions for credit extensions and loan facilities.
Rehabilitate state-owned companies. The maladministration and corrupt practices that have characterised some of our state-owned companies must be addressed urgently. In addition to the strategic importance of these companies to the economy, the dividends they generate are needed to flow through to the fiscus and help drive inclusive economic growth.
Revitalise rural and township economies. Rural areas and townships must be relieved of the shackles of economic marginalisation and despondency. Investing in rural areas and townships will help deal with the scourge of poverty, unemployment and inequality that the poor face.
Promote localisation and beneficiation. Localisation and beneficiation remain crucial to the development of the economy. To be competitive internationally SA should build strong local companies that can compete on a global scale. Local manufacturing of products for domestic and foreign markets must be promoted. While promoting localisation and beneficiation, SA should protect and incentivise industries such as textiles and poultry.
Sound regulatory environment. The government must ensure that it creates policies that will foster a more conducive environment for businesses to thrive. While doing that, there should be more accountability by all companies in implementing transformative policies such as employment equity, affirmative action and broad-based BEE, to create a corporate SA that is a true representation of the prevailing racial demographics.
To get the economy going, SA needs leaders with courage and foresight to make the tough decisions needed. For the economy to thrive, ownership of resources by South Africans, localisation and industrial policies must be driven internally, to make the country less vulnerable to external forces. SA should, for example, seek to minimise the impact of economic downturns in its major trading partners.
SA should promote a social structure that will strengthen the working relations between business and the government. Considerable levels of local capital formation, in line with redistributive policies such as BEE and the National Development Plan, must be maintained.
• Wonci is MD of the Black Management Forum.