KUBEN NAIDOO: SA’s strong and centred democracy poised for economic upswing
Structural problems need to be tackled but the near future certainly looks brighter
10 October 2024 - 05:00
byKuben Naidoo
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After about 13 years of low growth we are poised for an economic upswing, driven by several factors. Picture: 123RF/XTOCK IMAGES
I will be in London at the end of this month to address policymakers, business leaders and investors at the annual FT Africa Summit. Along with the DA’s Helen Zille, I’ll be looking back at SA’s 30 years of democracy and the progress that has been made. That’s got me thinking about what we should be focusing on for the future.
SA has survived a concerted attempt to pervert governance to benefit a few people. Our democracy brought us back from the brink of disaster to arrest state capture and rising corruption, via our Constitutional Court, a free and independent media and SA’s vibrant civil society.
Extremism is a huge risk to any democracy and it is on full display worldwide on both the left and the right as people feel disenfranchised and bitter towards the democratic system. Yet in SA the centre has held. Remarkably, in our last election the central parties garnered 70% of the vote. It’s not that SA doesn’t have significant problems, rather that there’s been no rejection of democracy as we’ve seen in other countries.
After about 13 years of low growth we are poised for an economic upswing, driven by several factors. There is a global phenomenon of falling interest rates and easing of financial conditions. Our government of national unity has inspired a new, more positive narrative and the business community has embraced it. Consumer confidence is at a five-year high and business confidence at a multiyear high. Many of the state-owned enterprises that held back growth in the past decade appear to be turning around and we have had no load-shedding for about six months.
SA’s near future certainly looks brighter, but the structural problems we have struggled with remain. Our port, freight, rail and infrastructure issues, with their accompanying logistical weaknesses, have been a drag on progress. Anaemic economic growth for 12-13 years has worsened an already extremely high unemployment rate. Unemployment is without doubt our most serious challenge because it leads to a series of other problems: social, crime and fiscal difficulties. We must address our crumbling infrastructure and get employment up.
We have longer-term structural problems that need fixing too. These include the poor output of SA’s skills system, high levels of crime that limit investment, and spatial inequalities not yet rectified since the end of apartheid. These all mean SA will have persistently high unemployment and inequality even if we grow rapidly. Yet we must grow rapidly for a generation or two to bring down the country’s high levels of inequality and unemployment.
Another major issue concerns energy supply, which has been our biggest constraint for the past 14 years. Much has been done to address this problem, but it is not yet solved entirely. We must continue to invest in generation, strengthen the transmission grid and ensure power stations are run efficiently with as few breakdowns as possible.
SA has been in a middle-income growth trap, with a per capita income of about $6,000 (R105,000). It is not easy to move from middle to high income. Only a handful of countries have managed this in the past 50 years: South Korea, Singapore, Taiwan and Hong Kong. China has moved from low to middle income at $15,000 per capita, in contrast to North America and Europe’s $50,000.
We should aspire over 20 to 30 years to achieve a per capita income of $30,000, which would peg us at southern European GDP levels. There is no reason for us not to achieve this.
We must normalise an unemployment rate of under 10% (now 33%) and address our extreme income inequality through increased employment. While SA has made progress in reducing racial inequality, income is still largely differentiated by race. For democracy to remain sustainable and for this racialised inequality to ease we need to grow rapidly.
If you lift growth you get a cascading effect of rising consumer confidence, which helps the country hit fiscal targets.
Trade is a small share of GDP in Africa, and this is a huge negative for the continent. For instance, Ghana is more likely to trade with Britain than a neighbouring country such as Nigeria. Inadequate or failing infrastructure, rail capacity, efficacy of border posts and corruption at border posts are obstacles to trade. To cross from SA into Mozambique takes about 15 minutes, but the crossing into Zimbabwe can take up to four days! If you’re exporting fruit, the goods have gone off by the time they reach their destination. With better logistics and infrastructure we could be trading a lot more.
Our infrastructure neglect is letting us down. For instance, capacity at the Richards Bay Coal Terminal was expanded to export up to 90-million tonnes of coal a year and average coal exports were just below that for most of the past 15 to 20 years. But in 2023 we exported less than 60-million tonnes, simply because we couldn’t get the coal to the port. We are seeing retrenchments in the mining sector because we can’t get goods to ports fast enough. This is a tragedy.
SA is highly integrated into the global economy. We trade with a wide range of trading partners, including China, the US and the rest of Africa. There are not many countries in emerging markets that have such a wide range of trading partners. But SA is situated far from many markets and we are not always competitive, which makes it difficult to export high-quality goods into advanced economies.
We are overly reliant on mineral exports to the East, which have a low complexity scale. Our fruit, vegetables and other agricultural exports go everywhere. We are the only country in Sub–Saharan Africa that is a net food exporter. We have the seventh-largest automotive manufacturing industry and most of our cars are exported to Europe and North America.
SA needs to gradually increase the sophistication of its exports, because countries become richer by exporting more sophisticated products. We already have some strong niches, such as financial, auditing and legal services. We also have manufacturing capability in niche areas and export white goods such as stoves, ovens and fridges to neighbouring states — an area in which we have significant market share. Despite mining being a declining sector, we are a major exporter of mining tech and equipment to the rest of the world.
If you lift growth you get a cascading effect of rising consumer confidence, which helps the country hit fiscal targets. The public will borrow less, interest rates will come down, and this eases the cost of borrowing for both the public and the private sectors. It is a virtuous cycle that we need to get right.
There is already momentum in many areas that require reform, though it will take time to see the fruits of these efforts.I’m certain that with characteristic SA perseverance we can achieve so much more.
• Naidoo, a former deputy governor of the SA Reserve Bank, is a senior manager at Investec.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
KUBEN NAIDOO: SA’s strong and centred democracy poised for economic upswing
Structural problems need to be tackled but the near future certainly looks brighter
I will be in London at the end of this month to address policymakers, business leaders and investors at the annual FT Africa Summit. Along with the DA’s Helen Zille, I’ll be looking back at SA’s 30 years of democracy and the progress that has been made. That’s got me thinking about what we should be focusing on for the future.
SA has survived a concerted attempt to pervert governance to benefit a few people. Our democracy brought us back from the brink of disaster to arrest state capture and rising corruption, via our Constitutional Court, a free and independent media and SA’s vibrant civil society.
Extremism is a huge risk to any democracy and it is on full display worldwide on both the left and the right as people feel disenfranchised and bitter towards the democratic system. Yet in SA the centre has held. Remarkably, in our last election the central parties garnered 70% of the vote. It’s not that SA doesn’t have significant problems, rather that there’s been no rejection of democracy as we’ve seen in other countries.
After about 13 years of low growth we are poised for an economic upswing, driven by several factors. There is a global phenomenon of falling interest rates and easing of financial conditions. Our government of national unity has inspired a new, more positive narrative and the business community has embraced it. Consumer confidence is at a five-year high and business confidence at a multiyear high. Many of the state-owned enterprises that held back growth in the past decade appear to be turning around and we have had no load-shedding for about six months.
SA’s near future certainly looks brighter, but the structural problems we have struggled with remain. Our port, freight, rail and infrastructure issues, with their accompanying logistical weaknesses, have been a drag on progress. Anaemic economic growth for 12-13 years has worsened an already extremely high unemployment rate. Unemployment is without doubt our most serious challenge because it leads to a series of other problems: social, crime and fiscal difficulties. We must address our crumbling infrastructure and get employment up.
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We have longer-term structural problems that need fixing too. These include the poor output of SA’s skills system, high levels of crime that limit investment, and spatial inequalities not yet rectified since the end of apartheid. These all mean SA will have persistently high unemployment and inequality even if we grow rapidly. Yet we must grow rapidly for a generation or two to bring down the country’s high levels of inequality and unemployment.
Another major issue concerns energy supply, which has been our biggest constraint for the past 14 years. Much has been done to address this problem, but it is not yet solved entirely. We must continue to invest in generation, strengthen the transmission grid and ensure power stations are run efficiently with as few breakdowns as possible.
SA has been in a middle-income growth trap, with a per capita income of about $6,000 (R105,000). It is not easy to move from middle to high income. Only a handful of countries have managed this in the past 50 years: South Korea, Singapore, Taiwan and Hong Kong. China has moved from low to middle income at $15,000 per capita, in contrast to North America and Europe’s $50,000.
We should aspire over 20 to 30 years to achieve a per capita income of $30,000, which would peg us at southern European GDP levels. There is no reason for us not to achieve this.
We must normalise an unemployment rate of under 10% (now 33%) and address our extreme income inequality through increased employment. While SA has made progress in reducing racial inequality, income is still largely differentiated by race. For democracy to remain sustainable and for this racialised inequality to ease we need to grow rapidly.
Trade is a small share of GDP in Africa, and this is a huge negative for the continent. For instance, Ghana is more likely to trade with Britain than a neighbouring country such as Nigeria. Inadequate or failing infrastructure, rail capacity, efficacy of border posts and corruption at border posts are obstacles to trade. To cross from SA into Mozambique takes about 15 minutes, but the crossing into Zimbabwe can take up to four days! If you’re exporting fruit, the goods have gone off by the time they reach their destination. With better logistics and infrastructure we could be trading a lot more.
Our infrastructure neglect is letting us down. For instance, capacity at the Richards Bay Coal Terminal was expanded to export up to 90-million tonnes of coal a year and average coal exports were just below that for most of the past 15 to 20 years. But in 2023 we exported less than 60-million tonnes, simply because we couldn’t get the coal to the port. We are seeing retrenchments in the mining sector because we can’t get goods to ports fast enough. This is a tragedy.
SA is highly integrated into the global economy. We trade with a wide range of trading partners, including China, the US and the rest of Africa. There are not many countries in emerging markets that have such a wide range of trading partners. But SA is situated far from many markets and we are not always competitive, which makes it difficult to export high-quality goods into advanced economies.
We are overly reliant on mineral exports to the East, which have a low complexity scale. Our fruit, vegetables and other agricultural exports go everywhere. We are the only country in Sub–Saharan Africa that is a net food exporter. We have the seventh-largest automotive manufacturing industry and most of our cars are exported to Europe and North America.
SA needs to gradually increase the sophistication of its exports, because countries become richer by exporting more sophisticated products. We already have some strong niches, such as financial, auditing and legal services. We also have manufacturing capability in niche areas and export white goods such as stoves, ovens and fridges to neighbouring states — an area in which we have significant market share. Despite mining being a declining sector, we are a major exporter of mining tech and equipment to the rest of the world.
If you lift growth you get a cascading effect of rising consumer confidence, which helps the country hit fiscal targets. The public will borrow less, interest rates will come down, and this eases the cost of borrowing for both the public and the private sectors. It is a virtuous cycle that we need to get right.
There is already momentum in many areas that require reform, though it will take time to see the fruits of these efforts. I’m certain that with characteristic SA perseverance we can achieve so much more.
• Naidoo, a former deputy governor of the SA Reserve Bank, is a senior manager at Investec.
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