Page Content: This feature article by Claire Bisseker (with photograph by Hetty Zantman) was pusblished in the Financial Mail of 10 September 2014:
South Africa is on a path to further growth disappointments, though not economic collapse, having failed to remove the binding constraints to growth identified by government almost 10 years ago.
"It’s not that we’re messing up economic growth through bad macropolicy; it’s that we’ve done very little to address the growth constraints for the past 10 years," says the dean of economic & management science at Stellenbosch University, Prof Stan du Plessis.
Most of the six growth constraints identified in government’s 2006 economic policy blueprint, the Accelerated & Shared Growth Initiative for SA (AsgiSA), are as binding today as they were a decade ago.
Du Plessis was a member of the "Harvard group" of economists, chaired by Venezuelan development economist and Harvard professor Ricardo Hausmann, whose policy advice underpinned AsgiSA.
The six constraints identified by AsgiSA were: the volatility and level of the currency; the lack of a cost-effective and efficient national logistics system; the skilled labour shortage; lack of competition; the regulatory burden on small business; and deficiencies in state organisation, capacity and leadership.
"I don’t think we’ve learnt anything new about our growth challenges in the past 10 years but sadly we haven’t done much about our growth problem," says Du Plessis. "We still have a skills problem and a low level of international competitiveness and productivity in manufacturing at the going wage rate."
Despite improvements in some aspects of SA’s logistical system, he feels parts of the network have made few or no gains as time and again inefficient state-owned enterprises have been allowed to exercise their monopoly power to prevent more efficient private providers from emerging or growing. He cites Eskom, SA Airways and Telkom as prime examples.
At best, the education system has moved sideways, he feels. Fiscally too, the country is weaker, given rising debt and interest payments. Externally, SA has earned its place among the Fragile Five countries, given its inability to reduce its persistently large current account deficit.
These failures have contributed to SA’s weak growth environment, a key feature of which has been the dwindling of business confidence and private sector investment.
In fact, the trajectory of both business confidence and private investment is considerably lower in the current economic expansion than the median for all expansions SA has experienced since 1970.
During the current expansion, which has so far lasted 20 quarters, the RMB/BER business confidence index has ticked above the neutral 50 level only three times.
Each quarter, the Bureau for Economic Research (BER) asks manufacturers to identify the constraints that are preventing them from expanding. For the past five quarters, around 70% of firms rated the political climate as an investment constraint, making it the most dominant factor.
The term "political climate" is broad. For Du Plessis it includes policy uncertainty. This could relate to individual policies, such as whether foreign skills will be easier or harder to import, but the bigger problem, he feels, is that cabinet has adopted inconsistent economic policy frameworks.
For example, the New Growth Path and the National Development Plan leave business uncertain as to whether the latter really has government’s full buy-in.
Business is reluctant to invest when it has little conviction that the rules of the game will be maintained in the medium to longer term, he explains. For instance, what confidence can a farmer have that property rights will be respected given the recent policy proposal by rural development & land reform minister Gugile Nkwinti that farmers cede 50% of their farms to workers?
Du Plessis feels though government may well have back-tracked on this proposal, it should never have aired it in the first place.
"Government is not a think tank where you can bounce ideas around. Agribusiness doesn’t view it as an academic exercise," he says. These speculations discourage production and investment in an important sector."
SA’s main economic challenge is arguably to improve the environment for a dynamic private sector so as to create jobs and alleviate poverty."
Right at the heart of this challenge is to make a step to a competitive labour market, but politically it looks less viable than ever," says Du Plessis. "Instead, we have adverse competition between militant unions over unrealistic wage demands."
The question many are asking is whether the economy can survive another five years of this.
Though he doesn’t have great confidence that SA will get a handle on its political problems within five years, he certainly doesn’t believe that SA is on a path to implosion.
"We’re on a disappointing path but there is no sign of collapse," he says. "This means we are not out of the game and if we have a policy turnaround we could get growth going again."
He doesn’t buy into the "ticking time bomb" analysis of SA - the notion that the country is heading towards a social uprising or Arab Spring - for two reasons.
The first is that SA has one of the biggest noncontributory welfare systems in the developing world in the form of social grants which assist the disempowered. (This makes it even more imperative that SA’s public finances are sustainable.)
Second, economic literature shows that it’s not inequality or unhappiness as such that leads to civil unrest, but the perception that the state can no longer maintain civil order.
History shows uprisings typically happen once society believes the state is little more than "a rotten door that can be kicked in". Though growth might be disappointing, he feels SA is far from that.
