Aims are at­tain­able

But suc­cess will prob­a­bly come later rather than sooner

Finweek English Edition - - Economic trends & analysis - BY HOWARD PREECE howardp@fin­week.co.za

THE SOUTH AFRICAN ECON­OMY is now pretty well at the point that var­i­ous high-profile sce­nar­ios in the early Nineties said was fea­si­ble in favourable cir­cum­stances.

Th­ese ex­er­cises in­cluded in­puts from such heavy hit­ters as the In­ter­na­tional Mone­tary Fund and the World Bank.

The good news is that this phase – the first but vi­tal steps in a hugely longer jour­ney of turn­ing as­pi­ra­tions to re­al­ity – has been broadly com­pleted.

Plenty of cheer­ful re­joic­ing is clearly jus­ti­fied. But some im­por­tant cau­tions must also be thrown into the mix.

We must note cru­cially that the SA econ­omy is roughly where the 1990-93 “fu­tur­ol­o­gists” gen­er­ally thought it could be by the year 2000 – sub­ject, of course, to var­i­ous key caveats.

In other words, SA has ar­rived at the ini­tial ter­mi­nus all right, but maybe some seven years be­hind sched­ule. It’s worth keep­ing both those facts well in mind.

That’s par­tic­u­larly so in con­sid­er­ing the like­li­hood of pro­jec­tions for the next decade – most no­tably those put for­ward in the Gov­ern­ment’s As­gisa (Ac­cel­er­ated and Shared Growth Ini­tia­tive for SA) macroe­co­nomic game-plan – be­ing re­alised.

The key tar­gets here are to have av­er­age an­nual eco­nomic growth at 6%-plus from 2010 and to halve poverty and un­em­ploy­ment by 2014.

Ex­pe­ri­ence clearly in­di­cates that the As­gisa aims are at­tain­able.

The record also shows, though, that sus­tained suc­cess, if achieved, will much more prob­a­bly come later rather than sooner.

I don’t find that pos­si­bil­ity ei­ther sur­pris­ing or, re­al­is­ti­cally, dis­ap­point­ing – any more than the time de­lay be­tween the time-scales of the sce­nar­ios of the early Nineties and the ac­tual eco­nomic progress of demo­cratic SA.

For starters, those sce­nar­ios al­most all sig­nif­i­cantly un­der­es­ti­mated the ob­sta­cles con­fronting post-apartheid SA.

The steady in­ten­si­fi­ca­tion of trade and fi­nan­cial sanc­tions against SA in the Eight­ies (some as­pects dated from the Sev­en­ties and ear­lier, but that was largely forgotten in the spec­tac­u­lar gold boom of 1979-81) took a heavy toll on the econ­omy’s pro­duc­tive ca­pac­ity.

Cap­i­tal equip­ment and ma­chin­ery across many in­dus­trial sec­tors be­came in­creas­ingly ob­so­les­cent and in­ef­fi­cient.

Many ex­port mar­kets have been at least partly lost, al­though some im­por­tant off­set­ting gains were also made, es­sen­tially in Africa and Asia.

There are no quick fixes to such deepseated prob­lems.

Cru­cial point is that it took SA much longer for the econ­omy’s pro­duc­tive base to re­cover than the IMF and the rest as­sumed could hap­pen.

Re­mem­ber, too, that the area that most con­cerned many an­a­lysts then – the abil­ity of SA to hold peace­ful elec­tions and to avert civil war, most press­ingly in Na­tal – proved im­mensely less dif­fi­cult than widely feared.

But even that could not pro­duce any­where near in­stant eco­nomic tri­umph.

Some­thing sim­i­lar is cer­tainly pos­si­ble in seek­ing to bring about ful­fil­ment of the As­gisa agenda.

For ex­am­ple, on the sur­face SA has se­cured vast ed­u­ca­tional gains over the past 10-12 years.

That is pri­mar­ily based, how­ever, on the grossly over-sim­plis­tic view (com­mon in many other coun­tries, in­clud­ing Bri­tain among de­vel­oped na­tions) that mas­sive rises in spend­ing equate to sim­i­lar in­creases in over­all ed­u­ca­tional stan­dards.

But that is far from nec­es­sar­ily true, as in health, trans­port and other sec­tors.

Key fact is that SA has chronic short­ages of hu­man skills.

Th­ese can to some ex­tent be glossed over in a world of boom­ing com­mod­ity prices and a global econ­omy that over 2003-06 en­joyed its best growth burst in 25 years.

But th­ese ex­cep­tion­ally strong seg­ments of the busi­ness cy­cle don’t run for­ever.

There are leaner pe­ri­ods, as at the start of the Eight­ies (good­bye Pres­i­dent Carter in the US), the Nineties (ditto, Pres­i­dent Bush Snr) and this mil­len­nium (Bill Clin­ton got out just in time).

Sure, there are no Thir­ties-style de­pres­sions and even re­ces­sions have lat­terly been mild and short-lived.

How­ever, coun­tries such as SA, which are so heav­ily de­pen­dent on the world econ­omy, can get bit­ten nas­tily.

Look at the un­pleas­ant rip­ple ef­fect on SA of the “Asian con­ta­gion” set­back al­most 10 years ago.

That’s when coun­tries that have in­trin­si­cally vig­or­ous, dy­namic private sec­tors and ef­fi­cient busi­ness-friendly pub­lic sec­tors are usu­ally best able to cope. That’s also where I have resid­ual wor­ries about SA.

The ANC Gov­ern­ment is at best am­bigu­ous about its at­ti­tude to tra­di­tional (ie “white”) busi­ness. This may be un­der­stand­able, given SA’s his­tory.

But un­less and un­til “trans­for­ma­tion” in­volves colos­sal green­fields en­ter­prise by groups des­ig­nated “black” by the au­thor­i­ties, eco­nomic growth will con­tinue to be heav­ily re­liant on the tra­di­tional sec­tor.

In that case, how­ever, that sec­tor (along with all oth­ers) has to be nur­tured.

But in min­ing, for in­stance, we see lack­lus­tre new fixed in­vest­ment when we might rather ex­pect boom con­di­tions.

Trans­for­ma­tion-by-char­ter patently needs to be han­dled much more care­fully in SA.

Com­pany tax has been cut in SA, yes, but rel­a­tively the bur­den on cor­po­ra­tions com­pared with the rest of the world has been ris­ing (see graph).

This threat­ens to re­tard rather than ad­vance As­gisa.

DOWN, BUT RELATIVELYY HEAV­IER

Source: KPMG/SARS

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