The last few days have seen South Africa reeling in a way only seen during the darker times of the advent of our democracy. As an organisation, we categorically denounce the violence and those instigating it and sending our country and economy into free fall. It is our hope that the security cluster rapidly deploys its resources to quickly restore law and order!
Even before the current unrest and the coronavirus pandemic of 2020, our economy has for a number of years been unable to produce the levels of economic growth required to address historic backlogs and create opportunities for its large number of unemployed.
The looting we have seen other than politics is a direct result of recent failed economic policy decisions, which have not been able to propel the economy into a new growth phase. This failure of public policy, along with high levels of corruption, have had an adverse impact on State capacity and on the economy’s ability to gain momentum towards inclusive growth.
South Africa has made noteworthy progress in improving the welfare of its citizens since it became a democracy in the mid-1990s, but the rate of progress has plateaued. The percentage of South Africans living below the upper-middle-income-country poverty line fell from 68% to 56% in the years 2005 through 2010, but has since rebounded upwards to 57% in 2015. This figure was projected to reach 60% in 2020! The drive to reduce poverty has been greatly undermined by structural challenges and weak growth, which have been worsened by the coronavirus pandemic. Household welfare is severely hampered by rising unemployment, which peaked at an unprecedented 32.6 percent in the first quarter of 2021. At a rate of around 63%, young people aged between 15 and 24 are the most affected by unemployment. (Overview – The World Bank in South Africa, 2021)
According to the World Bank, South Africa remains a dual economy with one of the highest and most persistent inequality rates in the world, with a consumption expenditure Gini coefficient of 0.63 in 2015. This dynamic of high and persistent inequality continues due to a legacy of exclusion. Further, economic growth does not sufficiently increase available jobs, and is not geared to improve conditions for the poor. Inequality in wealth is even higher and intergenerational mobility is low meaning inequalities are passed down from generation to generation with little change over time. (Overview – The World Bank in South Africa, 2021)
What needs to be done to address these problems?
This question will be playing on the minds of government, business and the civil society for years to come, but doing the old things in the same way simply will lead to this being a perpetual cycle. In this time, we need leadership as well as disruption. Our view is that leadership requires us to steady the ship, identify the problems and develop solutions, while disruption will allow us to design and develop world class solutions which we historically have done best as South Africans with our backs against the wall!
We could spend a great deal of time talking about important structural reforms which our government have been attempting to implement but have not, such as infrastructure development. However, in order to achieve some real rapid turnaround, we must consider critical interventions as modeled in countries like South Korea, which experienced and overcame similar structural issues. These include:
- Prioritising human capital
- Deregulating our economy to reduce barriers of entry
- Incentivizing transformation
- Improving coordination and implementation
Prioritising human capital
South Africa has abundant mineral resources which will allow us to be a strong continental economic contributor for years to come, but sadly, this will eventually come to an end. Our priorities need to shift on an untapped resource where we develop a skilled workforce. If we prioritise human capital by creating a workforce with a changed mindset who are exceptionally skilled and extremely efficient creates an environment to solve problems, create entrepreneurs and become social partners. Once internationally recognised, this talent can easily be exported into the rest of the world and will disrupt our unemployment statistics.
Deregulating our economy
It is a well known fact that regulation increases the cost of supplying goods and services to consumers, as well as the cost of saving and investing and employing people. When things cost more, people buy less, including labour. In regulated markets consumers pay more for less, the country uses more resources for less wealth-generating investment, and unemployment increases. The worst part of regulation distorts the economy in the favor of those who have, who are our privileged elites who easily create barriers to entry. Instead of discontinuing bad laws, South Africa tends to make new ones in increasingly desperate attempts to counteract deleterious effects of earlier laws. A more open society will allow for new market entrants and smaller players to compete on a more equitable basis and disrupt the economy.
BBBEE has been a swear word for untransformed business, this is largely because of various negative press by those not wanting the economy transformed as well as the approach government has adopted for BBBEE which has been a punitive system rather than one that offers incentives. The carrot put forward by government has largely been through the preferential procurement bill which forces the government to partner with black businesses in order to get contracts with the state, while this is a carrot, it still is very punitive. Our view is that the government needs to be much more innovative by providing better rebates or tax incentives for spending on black owned businesses. This change will encourage big business to spend on black business and provide them with an incentive that the spend is a win-win for both parties. This is a more disruptive approach to transformation.
Improving Coordination and implementation
Developing economic policies that deliver growth requires not only commitment and strong political leadership, but also efficient coordination, strong implementation and close inspection. South Africa continues to stumble,not because of a lack of resources or the means, but because of a leadership and management crisis. South Africa is recognised as having some of the best policies internationally, but its challenge remains implementation or rather the lack thereof. South Africa has been struggling to apply various well-intentioned policies that are aimed at fostering economic growth and uplifting the nation. Our policies need to be rationalised with the intention to create harmonisation and will be able to easily deliver with the improvements in human capital which we need to develop!
We will work closely with our clients which are across the spectrum in the public and private sector as well as those we support in civil society to bring solutions to the country as we lead to a path from poverty to prosperity and close the inequality gap to bring renewal and restoration to South Africa!
In conclusion, we have a long way to go and much to do. We close with this quote from the Father of our Nation, President Nelson Mandela: “Sometimes, it falls upon a generation to be great. You can be that great generation. Let your greatness blossom.”
World Bank. 2021. Overview – The World Bank in South Africa. [online] Available at: <https://www.worldbank.org/en/country/southafrica/overview> [Accessed 13 July 2021].