Focus on 2% growth distracting SA from shift needed to effect scalability

Aserious perspective problem is developing in SA. Having been “gardening” in recent months before joining Intellidex, I was struck by the flip-flop in sentiment and genuine upset from the private sector that they had got the post-presidency transition period so wrong.

Expectations for the stimulus package announcement from President Cyril Ramaphosa and the jobs summit were set at rock bottom. This week’s investment summit is similarly turning out to be a battle of expectations management between the Presidency and commentators.

All the recent summits and announcements have promoted necessary change; they all provide some help to get back to 2% growth by 2020.

When I deliver this forecast to people, their general reaction is: “What happened to the bear we knew?”

Two percent growth seems amazing but it misses the point; it will still not address unemployment and inequality in a financially constrained environment.

SA needs a shift in perspective — a debate with a laser-like focus on what is actually at stake here: worldbeating inequality and 8.9-million unemployed and discouraged workers.

There still seems no realisation that more of the same economic model cannot surmount these problems. So the National Development Plan unemployment target is all but abandoned, yet the next step of a bigger policy is not taken.

A clear and critical differentiation is needed between getting back to low long-term potential growth of 2% (which the measures announced help), and raising potential growth from 2% to 4% to 6%, which those measures do little to help.

The key test is between removing negative drags on growth and actual new positives. So much of the stimulus package was the former not the latter.

The shift in the visa regime and the Mining Charter are key examples. The charter has kept a high-cost, higher barrier-toentry framework, while removing the negatives of the Mosebenzi Zwane charter. It still provides a huge challenge to junior miners.

The investment summit will similarly help a resumption of normal levels of investment from suppressed levels in recent years, but the current model — with its high cost and high barriers to entry — will still be a constraint to going further.

We should be careful for the investment summit to differentiate between what would have occurred anyway cyclically (about $48bn of additional private-sector investments from 2021-2023) and what is truly new and likely to actually emerge.

To accelerate growth towards the 4% to 6% growth rates (that is, 2% to 4% per capita income growth) required to start to deal with unemployment, fiddling by removing negatives is not enough. A change of mind-set and economic model is needed.

This is about practicality. The mind-set change is from “interventions” and the constant hunt for what the government should be poking at, to “scalability ”— dealing with the foundations and hard policy changes that will have the biggest impact. It requires an understanding that the state is deeply under capacitated and that will not change in this fiscal and skills environment for the foreseeable future.

Scalability comes from a focus on where the marginal bit of growth comes from that drives us from 2% to 4% to 6% growth. That means small and medium enterprise growth, formalisation, supply chain integration and, most importantly, skills.

Scalability is taking the good things going on in industrial development zones and applying them nationwide. It is understanding that policy supporting 2.4-million small, medium and micro-sized enterprises can have a much larger multiplicative impact on employment than targeting specific large industrial interventions (not that that should be ignored, of course).

According to Ann Bernstein, SA needs to move from a capital-intensive model with high barriers to entry to a labour-intensive, low barrierto-entry model.

Ignoring how a “mandate” can shift deep factions in the ANC national executive committee, would it be a fundamental shift that allows decisions around some of the difficult trade-offs and decisions needed for scalability of policy measures to make a meaningful dent in unemployment and leapfrog growth to 4% to 6%?

Or would it just be the political capital to undertake narrower specific interventions within the same mind-sets at the department of trade and industry and the EFF that don’t have scalability of impact?