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Can the SARB provide a short cut to jobs and growth?


Dr Marius Oosthuizen is a scenario planner and writes in his own capacity.

To right the national ship will require investment. It will, of course, require public sector investment as well. The Magashule, Masina and Yengeni camp in the ANC want to allocate resources that we simply do not have, to their socialist project of national reconstruction.

This week we saw the internal debate in the ANC about the mandate of the South African Reserve Bank (SARB), spill out into the open. It has made the financial markets jittery, caused business to throw up their hands in exasperation over ongoing policy uncertainty and made some to wonder if President Cyril Ramaphosa can execute on his programme of reform.

While the ANC Secretary General Ace Magashule was playing the card up his radical populist sleeve and calling for “quantitative easing“, the President was meeting with representatives of state-owned companies (SOC) to discuss their role in growing the economy. While the President was trying to steer the national ship, there seemed to be a macro-economic policy mutiny brewing at Luthuli House.

The fundamental question is whether the SARB can provide South Africa with a short cut to jobs and growth?

To answer this question we need to take a look at the big picture of what makes a country economically successful. I help my students do so by providing them with a simple model of what one might call a “national value chain”. Modelled somewhat on the well-entrenched notion of a value chain popularised by Harvard professor in strategy, Michael Porter, it sets out the building blocks of how countries create value and compete.

At the national level, the value chain functions a little different to a company, and integrates what the World Economic Forum (WEF) describes as the “factors of competitiveness”. Countries that get these right, and in the right sequence, flourish and make their citizens wealthy. Countries that get them wrong stagnate and at worst spiral into anarchy.

The national value chain depicted below, centres on the ability of a country to use its natural resources and (2) climate to develop the first stage of economic development which is described as a factor driven economy. Mining and agriculture are examples of industries that depend on these first principles. For countries to develop industries on the basis of these foundations they have to make investments in (3) infrastructure and in the complementary human capacities of (4.a.) human capital or skills as well as (4.b.) health.

Once these first few competencies are in place, a country is able to transcend basic resource dependency, as well as a dependency on rainfall for instance, and begin to build economic capacity. South Africa largely achieved these basic steps of progress over the last century. Many African countries have not, and as a result, often teeter on the edge of famine or war. In cases where countries have little or no natural resources, such as Singapore and South Korea, their human resource, coupled with infrastructure, become their starting point to harness their geographic advantage, such as in the development of logistics hubs for shipping.

Countries that only depend on the first two elements often suffer from what one might call the resource curse, where citizens only ever get to work the land or dig in the soil for survival. On their own, these fundamentals do not constitute a path to the much desired “decent jobs” that organised labour in South Africa would want.

Adding to the aforementioned, countries have to enhance their (5.a) connectedness to trade partners and global value chains while improving their (5.b) technological readiness to ensure that their productive capacity is not only in the export of commodities but of value-added goods. As these competencies grow, countries are able to harness the resources, climate, skills and health, the underlying fundamentals, to grow industries of higher complexity and value-addition. South Africa achieved some of this during apartheid, especially in niche areas such as the arms industry, but quickly began to lose traction and de-industrialise when the fundamentals were no longer competitive compared to global peers.

For these first steps to be taken, countries require two critical pillars to underpin their progress, (a) macroeconomic stability brought about by sound fiscal management, currency stability and ideally, a trade surplus, and (b) enabling institutions such as the rule of law, property rights and an independent judiciary.

It is simple to understand how, such as was the case in Zimbabwe, once you kick one or two of these pillars out from under the national table, the rest quickly comes crashing down. You simply cannot have investment in long-term enablers such as infrastructure, mining or factories without the basic contractual conditions such as property rights. To imagine that you can, is idiotic. The alternative is what we see in central Africa, where extractive and corrupt elites partner with extractive and exploitive foreign actors to drive mining industries that deliver zero benefit to the people whose resources they steal.

Moving on, if the fundamentals of stage one are in place, an efficiency driven economy becomes possible, if the (6.a) goods market, (7b) labour market and (6.c) financial market conditions are maintained that favour investment. Under these conditions, value creation and returns in industries that rely on the exchange of goods and services through increasingly sophisticated processes become possible. Auto manufacturing is a good example of this being successfully done in South Africa, for now.

In the case of SA, hampered by a relatively small goods market and an inflexible labour market, we are unlikely to see much else by way of labour-absorptive growth. While our banks harness Industry 4.0 in a drive for technological readiness for a digital global economy of which they are already a part, our poor outcomes in human capital and low levels of regional integration hold us back from harnessing Industry 4.0’s full productive potential in other sectors.

Finally, in countries where all of these factors are aligned, (7.) business sophistication and (8.) innovation driven by research and development become the engine that drives an innovation-orientated economy. We see this today in Silicon Valley in California and in Shenzhen in south-east China, where tech start-ups create products that rocket around the world into markets far afield, creating value on a digital highway for millions of consumers. We see the embryonic forms of this in the FinTech start-ups of Stellenbosch.

The further the model advances, the more reliant it becomes on the ingenuity, entrepreneurialism and creativity of the population, not the state. All the building blocks, if harnessed, create enabling feedback-loops that lead to synergies between the elements. Together, they create competitiveness and barriers to entry for outsiders who cannot easily replicate the model.

Given the principles that underpin this model, can the SARB provide a short cut to growth and jobs? The short answer is, no!

For almost two decades now the ANC government has failed to address the economic fundamentals. Failed to provide enabling conditions for the mining sector to harness our resources. Failed to enable agriculture, where the successes that have been there, were due to private actors in spite of the state. Failed to harness the capacity of our rail and port and road infrastructure, let alone investing in digital connectedness, preferring to protect the vested interests of big telecoms.

Failed to execute on a human capital development strategy in the schools, TVET colleges and universities, preferring to protect teacher unions for political ends. On the back of this basic mismanagement of the economy, the ANC has begun tinkering with ownership of the economy rather than the growth thereof. Having diminishing returns for their efforts, they have begun meddling with property rights through their nationalisation debate and now through the “expropriation without compensation” policy.

All this, while they have failed to understand the purpose of our industrial SOEs, such as in energy, and have misused them for jobs for pals and for connected cronies. So in the process, while the private sector has streamlined, offshore and digitised, the broader fundamentals of the economy have worsened.

The decade-long stagnation and 3.4% recession of the last quarter in all sectors but finance, is the natural outcome of this mismanagement of the economy. Taking into account inflation and rising administrative costs and tax, South Africans are all poorer relative to our global peers. It is a sad story really, of ideology dressed up as idealism and practised as quasi-socialism.

To right the national ship will require investment. It will, of course, require public sector investment as well. The Magashule, Masina and Yengeni camp in the ANC want to allocate resources that we simply do not have, to their socialist project of national reconstruction. Look at the last budget presented by Finance Minister Tito Mboweni – the allocation of resources for economic development is the smallest slice of the revenue pie. So instead, this ANC faction imagines that they can loosen the country’s fiscal belt and drive up a higher debt burden and that doing so will somehow magically lead to jobs and growth.

It will not. It will, however, lead to a worsening debt load, declining confidence and a weakening Rand, all of which will eventually cost the poor in the form of inflation and to a 17% VAT rate.

The ANC should go back to the drawing board and to the basics of economic competitiveness. The newly appointed minister for economic development, Ibrahim Patel, should take these cadres aside and offer them a brochure and a scholarship to a course in development economics somewhere far away from the media so that they can better serve their party and the people upon their return.

If the ANC delivers on their duties as a government, in health, education and basic services, stop meddling in our institutions and stay out of the economy, they will find that capital will flow freely to South Africa and turn our beautiful nation into the promising powerhouse in Africa that we have the potential to be. DM

Marius Oosthuizen is a member of faculty at the Gordon Institute of Business Science (GIBS) and writes in his own capacity.


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