PHILIPPE BURGER: SA needs a green, urban-driven investment strategy to realise growth
Even before Covid-19, the SA economy found itself in recession, with the official unemployment rate exceeding 29% and economic growth all but disappearing. Then the pandemic hit, probably shrinking the size of the economy by more than 5% and pushing unemployment up yet further.
South Africans and foreign investors alike might therefore be excused for holding a junk-status view of SA as a country of dilapidated infrastructure; an insolvent state with state-owned entities and junk credit ratings; and now, to top it off, the economic impact of Covid-19.
Though these problems require urgent attention, a junk-status view holds the danger of preventing us from thinking beyond these problems and reimagining SA. What we need is a vision of what the country could look like in 10 or 20 years, one that does not deny the problems but looks beyond them to give direction; something to work towards and push for.
We need to reimagine an SA where economic growth is high, inclusive, green, investment-driven and urban-focused. We need to shift our focus towards urban and especially metropolitan development, supported by a sustainable agricultural sector to feed everyone. According to the Council for Scientific and Industrial Research (CSIR), SA’s urban population is set to increase to between 50-million and 52-million by 2035, an increase of 12-million to 14-million from 2018. Gauteng’s 2018 population was 13.7-million. Thus, in the next 15 years, SA needs to build urban areas accommodating a population equivalent in size to today’s Gauteng. This entails accommodation and places of business, worship and entertainment in high-density, human-centred cities. These new urbanites will also require consumer goods, transport, water and energy.
Clever urban design done in a green, sustainable manner creates enormous opportunities for business and serves as a foundation for a “Future SA Vision”. It requires the expansion of renewable energy generation and the increased use of water-saving technology, modern telecommunications technology, improved low-emissions public transport and modern construction techniques and materials creating energy-saving buildings.
SA also needs sustainable agriculture and agroprocessing industries for this growing urban population to safeguard the country’s food security and ensure the increased food demand does not result in a weaker trade balance. Food security for a growing urban population also requires the integration of communal land farmers into commercial agricultural supply chains and securing their tenure rights.
To demonstrate the possibilities for a future SA, let’s take two sectors that require a complete reimagination: energy and water. To solve the country’s future energy demands, it needs to rely more on renewable energy. The Northern Cape, covering an area larger than Germany, gets some of the best sunshine in the world — its direct normal irradiation is more than 8kWh/m², higher than even the Sahara receives.
This creates the opportunity for farmers in areas with high irradiation and close to Eskom’s electricity distribution corridors (essentially, where Eskom’s distribution lines run through the country) to generate electricity to feed into the grid. Such farmers will therefore diversify their activities, farming with sheep, maize and solar power.
An increasing population also means an increasing demand for water. SA needs to manage its scarce water resources better and consider options such as desalination and the recycling of greywater. Given the effects of climate change, the country also needs to implement water management systems that deal with changing rainfall patterns, with the west of the country projected to become drier, while the east becomes wetter.
A green, urban-driven investment strategy to realise the Future SA Vision can therefore drive economic growth. Economic data over the past 70 years suggests a strong positive link between private-sector business investment and economic growth. Data from the past 20 years also suggests that, roughly, for every 1% GDP grows, employment grows by 0.8%. This investment-driven growth is also expected to result in higher job growth.
To finance investment and thus raise the investment curve so that investment increases from its current 18% of GDP to 25%, some have called for vastly expanded cheap money and credit creation. This, they argue, will create growth that will help repay loans. However, growth is not primarily inhibited by too little credit. Rather, the problem is too little equity capital.
Equity capital is created by saving. At 14% of GDP, the bulk of saving in SA is corporate and in the form of retained corporate earnings. Companies retain earnings predominantly to invest, and they will only retain more earnings if expected future growth in risk-adjusted returns justifies it. Thus, what SA really needs is investment in high-growth industries that can serve as locomotives to pull the economic train forward faster. A green, urban-driven investment strategy creates room for fashioning high-growth industries, including in energy, water, construction, transport and agriculture.
Realising the Future SA Vision requires government policy that gives the private sector the room it needs to invest in high-growth industries. This requires the identification of stumbling blocks, and changing policies and laws where necessary. It also requires the reduction of red tape and the elimination of policy uncertainty. In exchange, large corporates should commit to investment targets. The current public-private growth initiative is a good start.
A Future SA Vision might require an investment compact and sectoral deals between the government and business. But without a common understanding by the government and business of what a future SA should look like, such compacts and deals will fall short of delivering growth and jobs. Building inclusive, green and growing cities that provide not just a livelihood, but life to an increasingly urbanised population, is such a possible future SA.
• Burger is pro-vice-chancellor: poverty, inequality & economic development, and professor of economics, at the University of the Free State.