Prince Charming does not exist. It’s time for SA to save itself
BUSINESS DAY / 12 MARCH 2018 - 06:27 / NTHABISENG MOLEKO
South Africans still cling to the notion of waiting for help or redemption from benevolent outsiders
Once upon a time, we were told the stories of Cinderella, Rapunzel and Snow White who were rescued from lives of darkness and disparity by fairy godmothers, glass slippers and handsome princes who rode white horses.
There's no prince on a white horse coming to our rescue. Picture: 123RF/MARYART1
Perhaps, years after first hearing these stories, as Africans – or as South Africans, in particular – we still cling to the notion of waiting for help or redemption from benevolent outsiders.
We are dealing with a 36.4% unemployment rate; a poverty rate exceeding 50% with more than 30m South Africans living on less than R992 a month; massive inequality; and a widening gap between the rich and the poor.
To spur inclusive growth, we must adopt and embrace wage equalisation. South African CEOs earn 541 times the country’s per capita gross domestic product (GDP), compared with 483:1 in the US and more than double the UK’s 229:1.
The growing middle class has boosted consumption, but this has been driven largely by mounting household debt, rising from 54.1% of disposable income in 2000 to 77.8% in 2015. Spending exceeded revenue in our government budget of R1.56-trillion in the last financial year, with the shortfall financed by debt. Our 4.2% budget deficit leaves us with a gaping 52.9% gross debt level.
Government finances can still recover from the deterioration that led to downgrades by rating agencies, but the solution does not lie in turning to international agencies or foreign aid. No prince’s kiss will save us from the poison of underdevelopment, inequality and low investment.
Fixed investment levels in SA exceeding 25% of GDP were last seen between 2009 and 2010. Since then, the number has bounced between 18% and 20% – inadequate to fire up growth and address the issue of more than 17m South Africans living off social grants.
No prince’s kiss will save us from the poison of underdevelopment, inequality and low investment
In fact, SA’s investment growth rate is far lower than the GDP growth rate. We need to emphasise public, private and domestic investment into trade, chemicals, wood, manufacturing, food, beverages and resource processing.
The company tax rate of 28% is high when compared with those of Organisation for Economic Cooperation and Development (OECD) member countries. However, SA’s unique levels of inequality, structural duality and spatial disparity must be addressed.
In the coming year, perceptions of red tape and corruption in the public service may change as law enforcement agencies and commissions investigate and prosecute private and public enterprises and individuals who have interfered with the functioning of the state. The commission to investigate allegations of state capture will raise business and public confidence, which is sorely needed to appease rating agencies and attract potential investors.
Youth unemployment of 67.4% is not only the government’s problem: it leads to fragmentation, frustration, social inequality, crime and reduced productivity among those within this demographic.
Business, labour and the government must work together to tackle this problem.
Europe has shown us that total factor productivity declines in an ageing population. We do not have the same problem – but we must boost youth development through skills development programmes linked to the labour markets; public and private sector investment and enterprise development in supporting industries; and the development of local value chains across sectors.
Supporting enterprises must also have clear market access channels for the youth and women in particular, as they remain the most excluded.
Looking at our economic fundamentals, inflation has fallen from 6.8% in 2016 to 4.6% in 2017 – within the Reserve Bank’s target range. A stronger rand following recent political changes may improve SA’s fiscal credibility ahead of the next Moody’s verdict on our currency rating. We are likely to maintain our rating if the management of the public purse is seen as prudent, while of course improvements in state-owned enterprises have already started with the turning of the wheel at Eskom. We are making progress – albeit rather slowly – amid a widening budget deficit whose interest repayments must be maintained.
For the first time in the past decade, our exports have exceeded imports, supported by the rise of commodity prices globally. Chinese demand is expected to drive global growth, which bodes well for our gold, platinum, iron-ore and coal production.
Global growth is now estimated to reach 3.7%, but advanced economies are growing at a far lower 1.9%–2.2% and emerging economies at 4.5%. This creates opportunities for strategic and trade terms that benefit our exporters. The South American, Asian and African markets will become more important in the next decade, spurred by rising gross national income and a fast-growing middle class, while changing demographics and productivity levels will hamper growth in the global north.
Power of the middle class
Furthermore, some developing economies have grown faster than OECD economies since 2001. Our new strategic trading partnerships should be built on integration with these economies, whose burgeoning middle class – an estimated 313m people in South America, 341m in Africa and 3.2bn in Asia – will exceed the 332m in the US and 680m in Europe.
The middle class is the biggest consumer of goods and services, which are largely imported. Our regional counterparts must contribute more to these imports, and we need to develop entrepreneurial export enterprises. Export promotion agencies, development finance institutions and incubators must work together across all SA’s provinces. Support services cannot remain concentrated in urban nodes and provinces such as Gauteng, the Western Cape and KwaZulu-Natal.
Sectors such as manufacturing and agriculture that employ low-skilled labour are now contributing less to our total output. However, addressing structural constraints such as input costs and putting in place subsidies and development finance for small, medium-sized and micro-enterprises will help develop these sectors.
Our economic growth can reach far higher levels in the coming year than the 1.6% estimated by various economic houses. Consumption and growing net exports may boost our output, but the development of the secondary sector has relied on the growing construction sector financed by state spending on infrastructure.
SA’s growth, at a sluggish 1%, is far lower than that of its West, Central and East African counterparts that are reaching up to 7%, or the 6%–8% achieved by China.
To maintain growth, we must curtail the deindustrialisation of our manufacturing and utilities sectors and slow the decline of the primary sector, which has contracted to a third of what it was five decades ago.
The budget deficit is manageable, with a steady consumer price index of 4%-6% expected in the coming year, along with stable interest rates and policy certainty.
There is no white horse in the form of foreign aid or a Prince Charming turned political saviour to rescue us from our slumber of inequality and underdevelopment. We need a functioning bureaucracy and good governance of state institutions; a transformed private sector with investment in fixed and human capital as part of strategic planning; and trade partnerships promoting intra-Africa trade to the growing middle class.
A growing productive economy breeds a class of entrepreneurs who will develop our own products and services with the intent to export. That is how we will save ourselves.
Nthabiseng Moleko is an economics and statistics lecturer at the University of Stellenbosch Business School who also serves as a commissioner for the Commission for Gender Equality.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER