Three easy wins for GDP

PAVE THE WAY: BOOST BUSINESS CONFIDENCE

Making it easier to do business here, easier for people to buy homes and increasing tourism will lure investment – Kevin Lings.

South Africa cannot be successful until business confidence returns to an index level of at least 50 (considered neutral).

Speaking at the Investment Forum 2019, Stanlib chief economist Kevin Lings said business had suffered from lack of confidence in recent years and that political turmoil and policy uncertainty have weighed on growth.

A recent South African Reserve Bank study found that every 1% increase in business confidence leads to a 0.5% increase in fixed investment.

“If you want to grow this economy, just make business happy – they will do the rest,” said Lings.

Growth has gradually slowed from an average of about 4% before the global financial crisis, to roughly 1%.

Lings said given South Africa’s population growth, 1% economic growth was unacceptable and – if left unchecked – would lead to social chaos. “We need to create 600 000 jobs a year to deal with the emerging population.”

This was impossible with 1% economic growth. He said any solution is needed to meet two criteria: be politically acceptable, which government has spoken about, and of low energy intensity.

While various potential solutions meet these criteria, Lings highlighted three: make it easier to do business, build houses and lure more tourists to South Africa.

“I would argue that you do any one of those things better … and you would start to change sentiment in this country, and that is what you are ultimately after.” 1. Make it easier to do business South Africa currently ranks at 82 on the World Bank’s Ease of Doing Business Index. President Cyril Ramaphosa wants the country to get back into the top 50 within the next three years.

Lings said this did not require a significant amount of effort, was achievable and would lift business confidence.

The World Bank ranks South Africa at 134 of 190 countries on the ease of starting a business, falling from 61 four years ago. Rwanda ranks at 51, after introducing new technology allowing for online registration. 2. Housing Over the last 10 years private sector mortgage finance growth has been muted.

“There are a huge number of people in South Africa that earn too much money to qualify for an RDP house but too little money for banks to be interested.”

Lings said banks were currently more willing to grant personal loans for people to go shopping, than give a young family a mortgage to buy their first home. 3. Tourism Global tourism is currently at an all-time high. Although the amount of money South Africa receives from foreign tourism is at a record high, in dollar terms the picture’s much less rosy.

South Africa ranks at 107 in the world in the size of its tourism market relative to the gross domestic product. Currently only 4.5% of people employed are either employed directly in or associated with tourism. The global average is 10%.

“If South Africa could start to attract the average level of tourism given the size of our economy, that would do wonders for employment.”