South Africa’s Reserve Bank Governor, Lesetja Kganyago, has forecast zero percent growth for this year, 1.5% next year, and 1.7% in 2018.
This spells disaster for the country, particularly the unemployed. The jobless rate is expected to rise from its current level of nearly 27%. What must be done to improve the economy? Sibonelo Radede, The Conversation Africa’s business and economy editor, asked Lumkile Mondi to share his thoughts.
What company is South Africa keeping in the world? What are the main common drivers?
We are in the company of some of our chosen friends in Brics – Brazil, Russia, India and China. We share a lot of unfortunate features with Brazil, China and Russia – high levels of corruption and inequality that are holding back economic development potential.
The agendas of strong and corrupt ruling parties are distracting these countries from uplifting their people. This is true of the workers’ party in Brazil, the ANC-led government in South Africa, the Communist Party in China and the United Russia Party in the Kremlin. The economic fortunes of all are significantly influenced by the parties ruling them.
In the Nelson Mandela and Thabo Mbeki eras, South Africa was associated with fighting injustice and defending the oppressed. This enhanced the country’s status and earned it the right and respect to play a constructive role on the international stage. This earned goodwill benefited its development path in the form of accessing international capital and positioning the country as an investment destination.
We should have kept the status of a country with an exemplary constitutional democracy. We should have kept the relationships that come with that character. But we have veered towards morally questionable countries with a focus on the short term and narrow financial benefits.
We have become close to a list of countries, such as Angola, which have dismal human rights and good governance records. They are ruled by corrupt oligarchs where families of their “big man” leaders accumulate untold wealth, while the majority of their citizens live in stark poverty.
Given the friends we have chosen, we are going to have few allies to support our economic development and our fight against poverty and inequality.
And South Africa has taken sides with countries to the detriment of its moral position in global affairs. Successful countries such as China, the UK and the US always put their own economic interests first. But South Africa has taken political positions rather than economic ones.
What company should we be keeping? What are the better performers doing that we aren’t?
South Africa has been an upper middle income country for a while. With appropriate policies and the required drive the country should be in the company of countries like South Korea, Mexico and Malaysia. They developed because they moved up the global manufacturing value chain.
Some scholars have argued that South Africa is stuck in the upper middle income trap because it has been unable to move out of low level manufacturing. To escape, it needs to change its industrial character. It must move into fabrication and high value added manufacturing and design.
We need to move beyond offering assembly capability and towards products that are conceived, developed and manufactured in our country. To get there we need concerted effort and calculated investment in education and the sciences.
We need to put money into research and development to become an innovative economy.
We have the framework. But we don’t have people to drive it because of our history and also because of the ANC’s poor education policies. The standards of education have been lowered to absorb as many people as possible.
In the process we have put a lot of pressure on universities. The approach of “access at all costs” is compromising quality in our higher education system. Education is the key to all countries that have moved up the manufacturing value chain. If we bungle education, as we are doing, we are doomed to fail.
The other big obstacle is monopolistic domination in critical sectors like power, telecommunications and transport. These are crucial because they enable other businesses to flourish. But they are held ransom by moribund state owned enterprises such as Transnet and the power utility, Eskom. As a result we have become a high cost economy.
The Reserve Bank governor focused on external factors. What about domestic factors?
I understand why the governor seemed to be apportioning all the blame to external factors. It’s election time. Talking about domestic factors is to venture on to slippery political ground.
He could be accused of causing harm to the ANC which is facing increasing competition at the polls.
He knows very well that the South African economy’s challenges are made of a mix of external and domestic factors. He is very aware that a lot of our problems stem from domestic factors and what we may term suicidal behaviour, mainly by leaders of the ruling party. I think he knows that the behaviour and policy choices of President Jacob Zuma, whether it is Nenegate or the mining laws, have made his job extremely difficult when he needs capital inflow to mitigate the increasing inflation. But he can’t say that.
In some areas we have good long-term plans on the table. But there is a lack of vision in the leadership of the ruling party to implement where we have plans such as the NDP. And there is inertia.
For example, we know that we have a serious water problem and we have a plan in place to tackle it. We need the Lesotho Highlands II to be getting off the ground but we are waiting for a serious crisis to hit us before we act.
What urgent steps should be taken to get the country out of this hole?
We should focus on partnerships with business which has abundant expertise to help the country address its underdevelopment challenges.
We must focus on lowering the costs of doing business. If we grow business activity we will broaden the tax base, generating more money that can be allocated to critical development areas such as employment generation, health, education and infrastructure.
We must be very worried about the state of the education system and the direction it is taking. The tertiary education system will collapse if nothing is done about funding.
We are now seen as a corrupt state even by international institutions. Corruption in South Africa robs the poor of access to various public services which could change their lives. It is going to take some doing to reverse that perception.
It requires the ANC to look beyond protecting individuals. The ANC must respect the courts and act accordingly when the law has ruled. We need to send a strong message to the international community that we are willing and able to hold those in power accountable.
And then there are the state-owned enterprises. We must seriously look into privatisation and joint ventures with companies with strong balance sheets and expertise to turn around the fortunes of the troubled ones. For entities like South African Airways, the state needs to look for partners like others in Africa such as the Ethiopian or Kenyan airlines. We need to build alliances with those that are better than us. We can learn from them.
South Africa has little choice but to take some serious decisions that will boost the economy and absorb millions living at the margins of economic activity. It must stop focusing on other social and political goals, sideshows, like the black industrialists’ policy. The energy placed in creating a few millionaires and billionaires when many people remain outside must be redirected.
The Conversation
* Lumkile Mondi is Senior Lecturer in Economics, University of the Witwatersrand.
