New norms in Agri economics

Government needs to reconsider its spending priorities if South Africa is to achieve the kind of economic growth that will enable it to reduce unemployment and inequality.

EXCLUSIONARY POLICIES RESTRICT THE NUMBER OF ACTIVE PARTICIPANTS IN THE ECONOMY

According to Statistics South Africa, the country’s economy contracted by 7% in 2020. This poor performance pushed the total number of unemployed people in South Africa to 7,2 million.

It is tempting to attribute all of the country’s economic misfortunes to the COVID-19 pandemic and its related lockdown; however, the GDP per capita, which now measures less than

R50 000 per person (constant 2010 prices), illustrates that South Africa’s economic challenges were mounting even before the pandemic.

The GDP per capita has been declining since 2014, implying that population growth is outpacing economic growth. This means that even as South Africa’s population continues to grow, the economy is shrinking, which is resulting in more unemployment, inequality and poverty. Farmers have long recognised the risks and challenges that a shrinking economy pose in terms of consumer demand, and have positioned themselves for exports. Today, about 46% of the country’s agricultural value is generated from export earnings.

THE ENTREPRENEURIAL GAP

What is equally concerning about the state of the local economy is the limited ability to accommodate new entrants in the formal economic system. This is partly the result of a constrained policy environment coupled with reduced entrepreneurial mindsets and skills in the country.

The Global Entrepreneurship Monitor identified low entrepreneurial spirit as a root cause of youth unemployment and slow economic growth in South Africa. It also showed that 10,7% of the country’s working-age population was involved in entrepreneurial activities in 2019, which is lower than regional and world averages.

SPENDING PRIORITIES

Since the dawn of democracy, the private sector has been instrumental in sustaining and growing the South African economy. However, inequality and barriers to entry have perpetuated the kind of economic exclusion and segregation that existed during apartheid and the colonial era. The democratic government has failed to create and enforce policies conducive to an inclusive and growing economy, including that of agriculture, where just 6,5% of the country’s farms are responsible for two-thirds of agricultural value.

Policies that sustain exclusion limit the number of people actively participating in the economy. As a result, the number of people who rely on social grants ballooned to over 17 million in 2020, forcing the government to skew its spending towards social services instead of economic development.

Evidence of this can be seen in the 2021 National Budget, in which nearly 60% of the consolidated public budget of R2,02 trillion is ring-fenced for social services, while only 10% will be channelled towards economic services. Expenditure on social services is critical to safeguard vulnerable people against starvation, but spending on economic development is equally important for long-term sustainability and growth.

While the economic stimulus measures announced in the budget do offer critical support to businesses, these measures largely benefit existing and large corporates and will do little, if anything, to stimulate the participation of new players to create new opportunities for growing the size of the domestic economy. For this to happen, the state must implement wealth-creating policies and ensure that enough money is set aside in the budget for that.

CREATION VS REDISTRIBUTION

In 2020, the construction, transport and manufacturing sectors declined by 20,3%, 14,8% and 11,6% respectively due to COVID-19 and other factors. However, these sectors were already growing negatively prior to the pandemic, showing the existence of structural constraints and lack of wealth-creating policies.

To reverse these trends, government, in collaboration with the private sector, must reach a better balance between social and economic spending. As well-known economist Mariana Mazzucato argues, developing nations fail to prosper economically because they focus too much on wealth redistribution and not enough on wealth creation. To a large extent, this has been the case in South Africa.

To drive entrepreneurship and grow the economy after COVID-19, resources and policy must focus on increasing public investments in agriculture, research and development, as well as affordable entrepreneurial financing.