Essential steps for SA if we are to chase the sun
SA is celebrating 30 years of democracy and our upcoming election is likely to be a world-class example of democracy in action.
But while our democratic system remains robust, economic divisions are significant. South Africans face high unemployment, crime, mismanagement leading to poor service delivery and failing infrastructure, low business confidence, little foreign direct investment, foreign selling of SA bonds and equities, illegal immigration, and taxpayer emigration.
For SA to grow quickly enough to create jobs, we need to examine some key policy alternatives and outcomes. Philosophically, we need to decide if it is better to divide the existing pie or implement policies that will grow the pie.
Policies that divide the existing pie have significant risks, including capital flight, taxpayer emigration and a collapse of the state and the currency. Venezuela and Zimbabwe have taught us that the pie can shrink surprisingly fast, and the currency can collapse faster and further than anyone can imagine, while hyperinflation from severe currency depreciation and eventual money printing erode purchasing power and cause people to flee to neighbouring countries. Ask any Zimbabwean living in SA.
It is said that socialism ends when other people’s money runs out. Or worse, in the case of communism, that it promises equality of opportunity but achieves only equality in poverty. The clearest examples of these failures are the differences in prosperity between North and South Korea, and between East and West Germany.
Some believe China to be a successful example of communism, but that view ignores its actual developmental path.
Chinese people were deeply impoverished in the 1970s after Maoism. Deng Xiaoping, who assumed control in 1978, allowed a version of capitalism to flourish in the private sector, and this initiative brought more people out of poverty than any other initiative in human history. Deng ’ s reforms resulted in GDP per capita increasing from $200 in 1977 to $12,700 in 2022.
What policy initiatives could catalyse economic growth and job creation? For a start, business and the government need to work together. The government should enable business, as the private sector is the dominant job creator in any successful economy. And business needs to be more supportive of sensible government initiatives.
SA has slipped from 37th in the IMD global competitiveness ranking in 2005, to 61st in 2023. To stop falling and start rising, we need to improve infrastructure, government efficiency, and thus GDP growth.
Our once profitable stateowned enterprises (SOEs) are now almost all losing money. Returning them to profitability will require public-private partnerships or privatisation. This could turn unprofitable SOEs into revenue generators for the government.
The process has started in Eskom and Transnet and should be expanded after the election. Eskom, Portnet and Transnet should be enablers of economic growth. We estimate that fixing just these three key SOEs will boost GDP growth by one to two percentage points a year.
Our high debt-to-GDP ratio is a function of both growing debt and low growth. The government interest bill is consuming a fifth of the budget, which is unsustainable. Higher growth can help lower the debt-to-GDP ratio by growing the denominator, and greater economic activity would boost tax income.
Corruption has to be dealt with as tax receipts are needed to uplift the poor. Only 3-million taxpayers pay 90% of all personal income tax. This cohort can clearly not be squeezed further, and growing the tax base is essential. SA has four times more grant recipients than taxpayers. We need to offer people meaningful jobs rather than creating a dependency on the state.
SA is rich in mining resources and mining contributes more than 8% of GDP. Yet SA has become one of the least attractive mining destinations in the world, ranking 57th out of 62 countries and 11th in Africa in the Fraser Institute mining survey. If mining grows, jobs will grow.
Foreigners have been sellers of SA equities and bonds over the past decade, which contributed to weakening the rand from R11/$ to R19/$. We have worsened these outflows by a series of own goals, including the poorly thought through and ill-advised changes to regulation 28 of the Pension Fund Act.
To grow jobs, SA needs to attract capital, not export it.
Foreign investors still own R2.3-trillion in SA bonds and equities, equating to about 35% of the country’s annual GDP. Should the elections see a move to the left politically and economically, it is likely to result in a further exodus of foreign capital, leading to lower domestic bond and equity prices, lower pension values, a significantly weaker rand, higher debt financing costs for all South Africans and higher inflation. The effects of this will be felt most acutely by the poorest in our society.
The best solution is to implement policies that grow the economic pie. We can achieve this by working together.
The inspiring documentary Chasing the Sun is a real-life example of the remarkable things our country can achieve if we all work together with a common purpose.