SA must drive own markets
Trade and industry director-general Lionel October says a larger black middle class can save the economy
Agrowing middle class would take South Africa on a new growth path of domestic demand and rescue the economy from the “mineral resources and low wages trap”, according to trade and industry director-general Lionel October. It is crunch time for the country to come up with solid proposals for economic growth and job creation, or face a deepening crisis.
In an interview with City Press, October said the answer lay in accelerating BEE to grow the black middle class. He said it was important to seriously consider raising the incomes of lowerearning groups.
“Once you stimulate them, you no longer rely on [outside countries buying from us], but we are instead driven by our own markets,” said October, with a sentiment that could be read as support for the national minimum wage.
“The problem is that we have a lot of debates about solutions, and the blame game is very strong in South Africa. Some claim business is unpatriotic, government is corrupt and the unions are stoking labour unrest. We must have a common analysis of our core problem.
“I think we are stuck in a resource and lowwage trap. We have been relying on mineral resources for exports and low wages. Those two things have led to inequality in South Africa and the lack of a big black middle class.”
October said developed countries that had relied on resources – such as the US, UK, Australia and Canada – had raised the wage levels of workers and created a middle class.
“Once their resource booms were over, their economies were driven by domestic demand and a rising middle class. They no longer relied on external demand.”
He said this explained why the US was growing so strongly – it was “driven by domestic demand and consumption, as well as middle class spending. Australia and Canada can continue to grow because consumers are spending.”
However, South Africa had built and stayed in a trap, in which it relied on mineral exports and low wages.
“Thus, inequality is high. We do not have higher incomes to drive growth. Nobody buys the output from manufacturing because the demand is low,” he said.
October, however, also said South Africa was still the biggest recipient of foreign direct investment (FDI) on the continent.
“Sure, there is hot money flowing out, like bonds and equities, and it is a global phenomenon,” said October.
But he said, our FDI picture was positive overall. As an example, he cited new investments by companies such as Johnson & Johnson and Unilever.
“But the problem is, because of the lens through which we look at South Africa, we refuse to acknowledge our own success and what people call black excellence. Because it is coming from us, it cannot be true,” he said.
He said there was an expectation that South Africa should be failing, and therefore FDI could not be increasing.
“We have to break that narrative of negativity. There is a positive story to tell. It is not made up. Our long-term potential is great.”
At the end of last year, the automotive industry raked in up to R20 billion, adding to its total contribution of R100 billion in exports a year.
“It is only going to be growing massively,” October said, adding that the industry was an “absolute South African success story”.
Government had also turned around and stabilised the clothing, textile and leather industry – following years of job losses as a result of cheap imports. The industry had created more than 6 000 jobs last year and 23 new leather factories had opened their doors.
October said the achievement was “a major success story in the most difficult industry”.
“If you can turn around clothing and textiles, then you can turn around any industry,” he said, attributing the improvement to the work of Trade and Industry Minister Rob Davies.
South Africa’s film industry was also recording higher numbers, said October.
“We have become the Mecca for film making, from almost nothing 10 years ago. You go to Cape Town every day, or Johannesburg, and somebody is making a movie. We have built a film industry.”
In terms of the services sector, October said the country had seen call centres for major companies coming to the country, including for Amazon, Facebook and Barclays.
“Everybody has set up massive call centres, employing between 3 000 and 5 000 people.”
He said the prospects of South Africa’s economy looked positive because “we are the most sophisticated economy on the continent, and we are more diversified”.