How to make South Africa's economy roar
Tag: South Africa, South Africa economy
Summary: The World Bank this week cut its growth forecast for South Africa. The revision from 3.1 per cent to 2.5 per cent this year was accompanied by a stark warning that the economy could be tipped into r…
The World Bank this week cut its growth forecast for South Africa. The revision from 3.1 per cent to 2.5 per cent this year was accompanied by a stark warning that the economy could be tipped into recession if the eurozone’s crisis intensifies.
It also underlines a theme of recent years that has seen South Africa’s economy fail to keep pace with many of its developing peers. It is against this backdrop that I am announcing on Friday a new plan to revive the economy and tackle the bottlenecks that frustrate so many would-be investors.
The past few decades have seen a major shift in the trajectory of the global economy away from the old industrialised world. My country, South Africa, is usually included in this story of the shift to the east and south. But the truth is that our economy is faltering.
With growth averaging 3.6 per cent in the past decade and shaky investor confidence, our economy continues to shed jobs. Up to half of South Africans live in poverty; income inequality has even surpassed what it was under apartheid.
It is clear South Africa needs a radical change in direction. This weekend the opposition Democratic Alliance aims to show how this is possible, launching a strategy to accelerate annual growth to 8 per cent. In particular, it proposes tough reforms to labour laws by removing the automatic extension of collective bargaining agreements across sectors; establishing “jobs zones” featuring special exemptions from restrictive regulations; and lifting administrative requirements for small businesses.
These changes will reduce barriers to entry, encourage flexibility and stimulate productivity in South Africa’s principal labour-absorbing sectors such as mining, manufacturing and agriculture. Combined with focused employment incentives such as a youth wage subsidy and market-driven skills development programmes, the plan provides a radical overhaul of the country’s labour market.
Our plan stands in contrast to the future outlined by the ruling African National Congress whose policy features a muddled blend of Venezuela-style resource nationalism and state-driven development.
History shows this does not translate into increased prosperity for the many. Rather it tends to result in creeping expropriation, particularly in the minerals sector, and the concentration of wealth in the hands of the few.
Vladimir Putin’s Russia is a textbook case. Our plan paves the way for a very different future: promoting innovation, entrepreneurship, investment and growth.
Underpinning South Africa’s high rates of poverty and inequality are structural legacies inherited from the country’s apartheid past. To address this, our plan contains policies to bring to life “dead capital” through broad-based economic empowerment programmes, land reform and a proactive social security system.
Examples of this include policies to distribute shares in state-owned companies; introduce tax deductions to incentivise employee shared-ownership schemes; promote a joint ownership model in the agricultural sector; and lower the cost barriers facing first-time homeowners.
These measures are essential for facilitating broad-based participation in the economy. They also seek to put South Africa on a par with the most competitive emerging economies in the world, from Turkey to Indonesia.
Although international rankings such as the World Economic Forum’s Global Competitiveness report praise the country’s sophisticated financial sector and sound legal environment, South Africa falls short when it comes to the ease of doing business and the barriers caused by excessive regulation and state inefficiency. My party’s proposals in this area will cut the tax and regulatory burdens inhibiting new business growth.
Seven of the 10 fastest-growing economies in the world are in Africa. By setting out how to expedite regional trade by simplifying import, export and customs procedures and promoting regional government partnerships, we seek to position South Africa at the forefront of continental growth.
High growth is resulting in rapidly declining poverty and unemployment in the developing world. With the right policies in place, South Africa can be part of this story.