Inclusive growth means courting capital

It is a marvel to watch our legal system at play. In courtroom after courtroom, the display of competence, legal prowess and robust engagement makes not only for good television, but reassures us of the rule of law.

But while the rule of law is a critical element of a vibrant and developing economy, it is not everything. In our case, and because court cases have taken such prominence in public life, you would think they are everything.

For we who drive through Sandton, arguably the continent’s financial centre, the dominance of law is evident in the scale of the buildings bearing names of law firms. But the many legal cases involving the government and its entities suggest a different thing to a country whose economic pillars are widening. They show tensions and squabbles among various economic agents — and the effects are starting to show.

The economy is beginning to wither at the base. And nothing could have shown that better than the most recent GDP numbers released by Statistics SA.

The primary sector, comprising agriculture and mining, is now a mere 10th of the economy, having declined 1.5 percentage points over the past half a decade.

It goes without saying that these are the sectors most capable of helping grow employment, since they tend to be more labour-absorbing, especially for less skilled workers, who are a large part of our labour force.

Contrary to popular belief, manufacturing is growing rather than contracting. But it is contributing less and less as other sectors grow faster. As manufacturing grows, it employs fewer and fewer workers. While the manufacturing sector has added 4% more in production since 2011, employment in that sector has fallen 10%. This means the economy is taking on a particular structure, and it is not necessarily inclusive economic growth.

In discussion documents towards the ANC’s fifth national policy conference later in 2017, the governing party talks about “strengthening the programme of radical economic transformation”. While the document is correct to highlight important pillars, such as strong institutions and the judicial system, it is remiss in thinking this is in any way sufficient to help in “stimulating inclusive growth”.

Correctly, the party says that to be inclusive, growth must include increasing levels of employment, expansion of productive activities and massively increased opportunities, particularly for black South Africans.

This is not what we are seeing in the manufacturing sector, for example.

The economy is growing along particular contours. The primary sector is declining and the tertiary sector is expanding. That represents a dangerous trend. Indeed, it makes statements appearing in the discussion documents ring hollow — such as, “Well-conceived and well-executed transformation programmes are necessary to improve the quality of growth” and “growth-enhancing elements, such as reduced red tape, increased investor confidence, the maintenance of investment-grade rating[s] and policy certainty in key areas”.

Here’s the rub: when the president calls back the finance minister from meetings with those who hold the capital, we need to expand productive activities and to reverse what we are seeing in the manufacturing sector as outlined above, he works directly against the cause of radical economic transformation.

What does this all mean for radical economic transformation? Well, it means the government’s language and its strategy have very little correlation.

People often refer to the rand and its reactions to the country’s political developments. You would certainly think that the rand has its own life quite apart from the rest of us. But this is certainly not true. The rand represents decisions made by a group of human beings acting in their own interests and in the interests of those they represent.

This means political decisions affecting the rand are responses by market participants — for example, fund managers trying to make sure they meet the performance expectations of union members, who are constantly looking for higher returns.

With all the reassurance in the world that we have independent judges and competent lawyers, it is not enough to make for an economy that continues to grow and provide employment to all who want to work. We need a clear growth and employment strategy underlined by a stable political framework with a clear direction. A finance minister leaving discussions with investors to sit in courtrooms doesn’t cut it.

WE NEED A CLEAR GROWTH AND EMPLOYMENT STRATEGY UNDERLINED BY A STABLE POLITICAL FRAMEWORK WITH A CLEAR DIRECTION

Payi is an economist and head of research at Nascence Advisory and Research.