OPINION: Creating new cities is the way to drive SA’s socioeconomic growth
BUSINESS LIVE / 20 MARCH 2021 - 07:35 / KGANKI MATABANE
Structural economic reforms are a prerequisite for the recovery of the economy, anchored by urban development
SA continues to grapple with low economic growth, which has resulted in worsening levels of unemployment, poverty and inequality. Since the 2008/2009 global financial crisis, the World Bank reports that SA’s economic growth rates have generally been on a downward trend, with the exception of the relative recovery the country experienced from 2010 to 2013.
The Covid-19 pandemic has further worsened SA’s economic fortunes, with demand and supply shocks that have negatively affected the global economy. In 2020 alone, SA’s economy contracted at an unprecedented rate of 7.2%. The unemployment rate now stands at 32.5%, with young people being the most negatively affected. Many small and medium enterprises have had to close down, while the majority of those still in operation are facing dire circumstances. President Cyril Ramaphosa, appreciating the global and domestic economic outlook, has engaged all social partners on an economic reconstruction and recovery plan. The Black Business Council (BBC) has responded to the president’s call to action for all of us to contribute to rebuilding our economy. In his state of the nation address (Sona), the president highlighted the importance of economic growth for job creation and poverty reduction. He reminded all citizens that without growth there will be no decent employment opportunities, and without jobs there will be no meaningful improvement of the lives of our citizens.
The BBC has always held the view that industrial growth is a key catalyst for socioeconomic transformation in SA. It is therefore critical that SA’s industrial policy framework promotes sustainable industrial manufacturing opportunities as well as localisation. This is essential in creating a conducive environment for private-sector investment, a key growth All social partners agree that government policies should help crowd in much-needed investment and capabilities to grow a strong and sustainable industrial economy. Policy certainty cannot be underestimated in creating an attractive investment climate.
Related to the weakness of economic activity are the structural constraints in the SA economy. These structural challenges include the high concentration of the economy, policy uncertainty, spatial development, poorly performing state-owned enterprises (SOEs), the high dependency on low-value raw material exports and the importation of finished goods, a declining manufacturing sector, high data costs and high wages. I am of the view that structural economic reforms are a prerequisite for the recovery of the SA economy. The government’s focus on reforming ailing SOEs is a welcome development. The country must position SOEs as key drivers of socioeconomic transformation. However, it must be understood by all South Africans that this is not possible if these institutions are weak and heavily reliant on fiscal bailouts. In this regard, the transformation of the balance sheets of these SOEs is an urgent task. To achieve this, competent leadership must be at the helm of these institutions.
As SA develops these new cities it must utilise local goods and services to reduce import dependency. This will create new employment opportunities beyond short-term infrastructure jobs and low-level retail work opportunities
The import dependency of our economy has to be addressed. The president is thus correct to call for import substitution by all SA citizens through shifting consumption to SA commodities. However, more work is needed to boost local manufacturing capacity.
SA was once the most industrialised nation outside the core developed world. `The country’s per capita manufacturing value added (MVA) in the 1960s was about 61% that of Japan and 15% of the US. Now, SA’s MVA sits at 11% compared to Japan and even other Brics partners, such as China and India, have overtaken us in this regard. To support the economic recovery the SA economy needs to re-industrialise. During the Sona Ramaphosa spoke about the importance of building new cities to reverse the spatial development patterns of apartheid. The new cities concept is not only essential for infrastructure investment but also has the potential to be a key catalyst for industrial development. In his book, New Cities, New Economies, Dr Tshilidzi Ratshitanga argues that SA and the continent can harness the spin-offs of urban development through constructing new and modern cities as a strategy to attain high levels of economic growth and development. We support this vision and believe, as does the president, that it is now time to ensure a project pipeline and master plans are developed. The investment and infrastructure office in the presidency must ensure an urgent overhaul of the laborious and uncoordinated regulatory environment. Several projects have been hampered by municipal and delayed provincial government approvals.
The government needs to be cognisant of weaknesses in the capacity of the state contributing to project failures. Central to this task is building a capable state characterised by a competent, highly skilled, and proficient non-partisan bureaucracy. The government needs to rebuild confidence in the public service to attract the best skills in the SA economy. The building of new cities creates new demand for goods and services. With the necessary strategic execution, the value chain opportunities can result in huge manufacturing potential for the economy. As SA develops these new cities it must utilise local goods and services to reduce import dependency. This will create new employment opportunities beyond short-term infrastructure jobs and low-level retail work opportunities that characterise current projects. All new cities must be transformed, with meaningful participation by black business as opposed to the traditional participation approach through business development and minority involvement. To achieve this, institutional financing mechanisms and development finance must be leveraged. This requires reviewing the funding policies of institutions such as the Public Investment Corporation and the Industrial Development Corporation to ensure they are more inclusive and developmental.
I believe the new cities vision can anchor SA’s efforts to restructure its economic relations, deconcentrate its economy, create new demand, re-industrialise and achieve higher levels of growth. We stand ready to support the president and other social partners in realising this bold vision. It is through strong leadership, determination and strategic execution that these national objectives can be achieved.
• Matabane is CEO of the Black Business Council.
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Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER