Parsons kicks off series on healing the economy
• To create a delivery state, use sound economic judgment to rein in political idealism, ideology and power rivalry
It has been a year to remember — and not for good reasons. Apart from a once-in-acentury pandemic, the SA economy finally reached the edge of the precipice after years of policy paralysis and unchecked state capture. There is so much to be done to get back on track, but where to start? Today Business Day launches a limited series designed to answer that question, kicking off with University of the North West Business School professor Raymond Parsons, who details the twin policy pillars on which SA’s hopes for sustainable future economic growth now rest.
Ipass with relief from the tossing sea of cause and theory to the firm ground of result and fact,” Winston Churchill once said. For SA, the lingering effects of a “lost decade”, a painful recession, a harsh and prolonged Covid-19 lockdown, deep junk status and high policy uncertainty have all contributed to a tumultuous year of economic devastation and hardship. To top it all, two major ratings agencies have recently ceased to give the country the benefit of the doubt on an economy that has been in deep trouble for some time.
Most South Africans are now keen to move beyond the bad news. As SA contemplates its prospects and national agenda for 2021, surely the time has come to create the bigger, stronger and better economy that has been promised for so long?
With the steady (at least until now) rollout of the Covid-19 lockdown exit strategy, economic news in the second half of 2020, though mixed, has been more reassuring, with a GDP growth rate of about 3% now expected in 2021. This represents a significant economic rebound next year from the -8% rate still widely anticipated for 2020 as a whole.
How well countries fare after Covid-19 will be determined by how rapidly their economies and societies recover from their lockdowns and how soon a vaccine is generally available. It remains imperative that the expected economic rebound in SA next year is translated into sustained growth thereafter.
The twin policy pillars on which hopes of a sustainable future growth now rest are the Economic Reconstruction and Recovery Plan (the growth plan) and the medium-term budget policy statement (the fiscal plan). They offer two important road maps that SA must broadly follow if it is to break out of its low-growth trap without falling into a debt trap, the latter moving perilously closer.
The major drivers of job-rich growth are private and public investment, underpinned by investor confidence. Recent IMF data indicates that total investment as a percentage of GDP in SA has been declining since 2016 and could be as low as 13% this year. It needs to reach 25%-30% of GDP between now and 2030 if the economy is to experience much stronger growth.
Two upcoming policy events shaping business and consumer confidence levels in 2021 are the next state of the nation address and the main budget in February. SA’s overall economic recovery programme will need to build much-needed credibility early next year, not least of all to avoid further investment downgrades.
For it is evident that patience about the SA economy is wearing thin. A clear sense of economic direction is urgently needed. Taking the high road for the economy involves implementing policies and projects that clearly embody three core elements: efficiency, stability and consistency.
President Cyril Ramaphosa recently again emphasised the problem of the gaps in the public service and the lack of state capacity. It would create a better focus if we in SA talked less about a developmental state and dwelt more on the need for a delivery state.
Our recent and more distant past has clearly shown that the slower the pace of economic reform and growth, the longer unemployment, poverty and inequality will persist and the more difficult they become to manage. This is especially so if expectations are raised on the scent of assorted promises and endless plans but are dashed in the face of mismanagement, corruption or inaction. Drift has become the enemy of delivery and inclusive growth.
This has wider socioeconomic consequences. Shared economic prosperity is ultimately the only guarantee of a stable democratic order in SA.
Ramaphosa essentially acknowledged this at his recent third investment conference, where he rightly stressed that implementation, implementation, implementation” must become the dominant mantra. Exceptional discipline and persistence are nonetheless required to show real outcomes.
These regimens need to permeate the 2021 national agenda in tangible ways, with the help of practical and accessible policy tools.
Realistic targets with aggressive timelines must be set. Accountability must be strengthened. Troubled and costly state-owned enterprises must be decisively restructured and the country’s energy supply secured. Inevitably tough decisions, such as on the public sector wage bill, can no longer be avoided. And productivity gains must feature strongly and convincingly in economic decision-making.
If there was a wish list for next year, it would include firm political leadership, tough decision-making, pragmatism, policy coherence and implementation on the part of the government at all levels.
These things might be dismissed as fantasy, yet must be made achievable. But they will only happen if the public and private sectors are jointly seen to be boosting SA’s economic performance and in the process maximising the number of jobs created.
Next year presents SA with a formidable agenda: strengthen public service delivery, curtail corruption, and keep government affordable and the tax burden reasonable, or invite rising costs, weaker outcomes and even greater financing challenges — all of which fuel an increasingly deteriorating outlook. In short, either secure real economic growth with all its benefits, or suffer under the yoke of low growth, with its creeping socioeconomic costs and welfare dependency.
To be successful, political idealism, ideology and power rivalry must now more than ever be realistically balanced with sound economic judgment. SA’s socioeconomic challenges, like the waves on the beach, will continue to come.
A noteworthy strength of the SA economy has been its extraordinary resilience in coping with external and internal shocks. The remarkable capacity of the economy so far to take heavy punishment makes it possible to hope that the country can still build on its strengths and start clearing the obstacles in the way of future job-rich growth.
With the right agenda and the right attitudes next year could become SA’s “second chance saloon”?
Parsons is a professor at North West University Business School and editor of Recession,
‘ Recovery and Reform: SA after Covid-19 ’.