OSAGYEFO MAZWAI: How education can be an economic enabler

The level of education in SA continues to be a constraint on the trend GDP growth rate. The US, South Korea and Japan significantly benefited from a sustained and concerted effort in enabling the human capital within their respective countries. This was driven by a focus on the structural elements of the economy, of which education is an important component. SA is missing a trick when we consider the capacity gap that has been forming.

The number of researchers each country has per capita, as well as the number of patent grants they receive a year from the World Intellectual Property Organisation, is considered by some as a proxy for innovation, and the US, South Korea and Japan are among the countries that stand out. Research suggests there is a linkage between trend GDP growth (average GDP over five years) and the growth in the number of patent grants over the preceding 10-year period. In SA, the structurally low GDP growth rate is linked to structurally low innovation. This is in stark contrast to our relative investment in education, 6% of GDP, which is among the highest in the world.

From an economic perspective, low innovation means SA effectively imports its technology. We have also potentially missed opportunities to exploit knowledge creation to enhance our industries. We rely on exogenous factors such as offshore innovation to influence the performance of our domestic industry, create efficiencies and increase competitiveness. This need to import technology also contributes to our current account deficit, as well as to a worsening terms of trade.

One example, for illustrative purposes, is the just energy transition. The sustainable development goals (SDGs), set out in 2015, were specific in the actions required by governments globally to reduce greenhouse gas emissions, including a move into renewables such as solar photovoltaic (PV). SA mines a large number of the necessary commodities to manufacture solar PV, and demand for this product has surged. Presently, China dominates the renewable energy supply chain, including the lion’s share of solar PV manufacturing (about 80%).

While we acknowledge the specific competitive advantages China enjoys, it is worth considering the Africa Continental Free Trade Agreement (AfCFTA) and the Southern Africa Customs Union as opportune export markets for SA, given tariff-free and preferential trade agreements. SA, as an industrial-scale manufacturer, may be uncompetitive within the global context but the regional trade structure could provide some prospects.

Let’s consider the current commodity down-cycle, which is harming SA’s fiscus. Had SA put itself in the position to beneficiate the commodities currently being exported to produce solar panels, we could have benefited from not only continuing to export these commodities but also received the premium attached to the manufactured/value-added products (an improvement in the terms of trade).

This would have been positive for economic growth and job creation in SA. Of course, the strength of this argument is weakened when considered in the context of the energy and logistics crisis in SA, which are negatives for economic activity and manufacturing.

Improve yourself, improve society. Improved education can create critical thinkers and pioneers, make SA agile, and enable the economy to be incrementally more robust and resilient. The opportunity to improve oneself is severely diminished by a lack of education and the skills required to make something of yourself. Education is critical to better develop human capital and our relative innovative capabilities.

Significant economic development over the past few decades globally has opened new corridors of opportunity. SA should position itself, through education, to innovate and fully exploit the technological opportunities of the day. That said, we do not underestimate the contributions made by home-grown talent in the fields of medicine, banking, telecommunications, mining, automotives and agriculture, among others. Our researchers continue to make a stellar contribution to SA’s economic trajectory, but, we argue, that more can be done to empower through education.

That said, localisation is not necessarily the quick fix one might envisage as a propeller of economic growth and job creation, but it is an interesting lever to use when strategic opportunities present themselves. SA is abundant in resources, and to mitigate against the effect of a commodity cycle downturn perhaps one route is value-adding processes (manufacturing) within the country, driven by our innovation. The cushioning effect of this action would be a net positive for our fiscus as SA becomes less reliant on the commodity cycle and builds structural resilience.

In closing, our problems are perhaps best illustrated by the otherwise excellent step taken by the SA government with the implementation of a tax incentive to encourage private-sector companies to invest in scientific or technological research & development (R&D) in the country. Unfortunately, the website for this programme was last updated in 2018, so it is unclear what we have done since then.

• Mazwai is an investment strategist at Investec.