Tragedy is, we have the cap­i­tal

Sunday Times - - Business | Opinion - Andile Khu­malo Khu­malo is an en­tre­pre­neur

Ilove news­pa­per posters. A few weeks ago I saw one that read: “The end of Ramapho­ria! — GDP falls 2.2%”. This week, a Busi­ness Day street-pole poster read: “Bat­tered rand is back at Zuma-era lev­els.”

Poor for­mer pres­i­dent Ja­cob Zuma has clearly ce­mented his sta­tus as the yard­stick for un­der­per­for­mance.

These two posters got me rethinking the fun­da­men­tal prob­lem with our econ­omy, es­pe­cially when it comes to lev­els of in­vest­ment by the gov­ern­ment and busi­ness.

South Africa clearly still faces chal­lenges that ques­tion the sus­tain­abil­ity of the eco­nomic tra­jec­tory it is on. In sum­mary, these re­late to poverty and unem­ploy­ment char­ac­terised by inequal­ity, where the black ma­jor­ity are poor and the white mi­nor­ity and a frac­tion of black peo­ple are rich.

Prin­ci­pally, it is the coun­try’s abil­ity to gen­er­ate long-term, sus­tain­able and in­clu­sive eco­nomic growth that is paral­ysed by these chal­lenges.

Pub­lic sec­tor pol­icy has to date failed to stim­u­late sus­tain­able growth in the coun­try — al­though not for lack of try­ing. Af­ter the global fi­nan­cial cri­sis, nu­mer­ous pro­grammes have been in­tro­duced with the aim of cul­ti­vat­ing ac­tiv­ity and the con­di­tions for growth.

The poli­cies have had mixed re­ac­tions. The Na­tional De­vel­op­ment Plan so­licited broad sup­port from the pri­vate sec­tor while be­ing crit­i­cised by some of the gov­ern­ing party’s alliance mem­bers. The same hap­pened with Na­tional Health In­sur­ance, the Min­ing Char­ter, the Na­tional Min­i­mum Wage Bill. The list goes on.

One can say, well, that’s the na­ture of democ­racy — things are de­bated. Un­for­tu­nately, if the de­bate is be­tween those seen to be in power, it raises doubts about how clear they are about the right poli­cies that will in­spire in­vest­ment and there­fore grow the econ­omy.

In ad­di­tion to ef­forts on the pol­icy front, the lack of ca­pac­ity in im­ple­men­ta­tion by the gov­ern­ment has ex­ac­er­bated the chal­lenges. There has not been tan­gi­ble progress in bring­ing many very good poli­cies to life in the man­ner en­vis­aged.

Then there is busi­ness. The mind­set and out­look of the pri­vate sec­tor demon­strate a gen­eral lack of con­fi­dence in their own coun­try. Ramapho­ria or no Ramapho­ria, busi­ness is sim­ply not in­vest­ing enough in South Africa. It has been re­ported that the non­fi­nan­cial cor­po­rate sec­tor had ac­cu­mu­lated R722-bil­lion in cash de­posits as at end-2016.

While there will con­tinue to be de­bate re­gard­ing the au­then­tic­ity of the con­cerns of the pri­vate sec­tor, this mind­set be­comes a self-ful­fill­ing spi­ral, with low con­fi­dence lead­ing to lack of in­vest­ment and, ul­ti­mately, lower re­alised growth. This af­fects em­ploy­ment, pro­duc­tiv­ity and con­fi­dence in in­di­vid­ual or­gan­i­sa­tions as well as lead­ing to a broader malaise.

An in­ter­est­ing irony in this dy­namic, which could be char­ac­terised as a lack of pa­tri­o­tism, is the con­tin­ued in­vest­ment in im­port-fac­ing ca­pac­ity such as ware­hous­ing fa­cil­i­ties. This trend ac­knowl­edges the in­her­ent de­mand for goods and ser­vices, but the pri­vate sec­tor would rather utilise im­port chan­nels to sat­isfy this de­mand to the im­me­di­ate detri­ment of lo­cal in­dus­try.

Re­cently, an as­set-man­ager friend told me about a study done by the CPB Nether­lands Bureau of Eco­nomic Pol­icy Anal­y­sis, which ex­am­ined the im­pact of do­mes­tic pen­sion sav­ings on eco­nomic growth in OECD and non-OECD coun­tries. The study found sup­port­ing em­pir­i­cal ev­i­dence that an in­crease in pen­sion sav­ings had a pos­i­tive im­pact on eco­nomic growth. The mech­a­nism for this link was the avail­abil­ity of cap­i­tal that com­pa­nies could ac­cess and thus drive eco­nomic growth.

In South Africa, a large por­tion of pen­sion sav­ings is in­vested do­mes­ti­cally in the cap­i­tal mar­kets. The eq­uity cap­i­tal mar­kets are an in­ter­est­ing case study of the chal­lenge aris­ing. The mind­set of the man­age­ment teams of listed com­pa­nies re­sults in cap­i­tal ei­ther not be­ing in­vested or be­ing in­vested out­side the coun­try. This ef­fec­tively robs the coun­try of the very cap­i­tal seen to be a mech­a­nism for growth.

There are reg­u­la­tory frame­works within which pen­sion as­sets are in­vested in South Africa. Reg­u­la­tion 28 of the Pen­sion Funds Act spec­i­fies the as­set classes per­mit­ted for in­vest­ment and the lim­its in each. The chal­lenge arises where a num­ber of the as­set classes feed into the very structures that are con­trolled by man­age­ment with a neg­a­tive mind­set. Fur­ther, there is no struc­tured mech­a­nism to fa­cil­i­tate in­vest­ment into the small and medium sec­tors.

Our coun­try does not suf­fer from a lack of cap­i­tal. It suf­fers from sub­op­ti­mal al­lo­ca­tion of its cap­i­tal. Do­ing more of the same isn’t go­ing to change any­thing.

Ramapho­ria or not, busi­ness is sim­ply not in­vest­ing enough in SA

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