Over the last 15 years, South Africa’s growth story has been far from inspiring. Today, unemployment is above 30% and growth is below 1%. Confronted with this disaster, the government’s response appears to be a tacit admission of surrender.
Instead of adopting a ruthless growth focus, the government is doubling down on job-destroying policies like expropriation without compensation (EWC) and enhanced BEE, while bribing SA’s poorest to look the other way with miserly social grants and by providing them with decrepit state services in water, electricity, education, health, transport, and safety, among other areas.
Yet it does not have to be this way. A small number of critical reforms, resolutely enacted, can achieve a dramatic turnaround in South Africa’s prospects. Even better, most of these reforms can be implemented at little cost, as discussed in an Institute of Race Relations (IRR) briefing on Thursday 24 August, 2023. The recording is available online, as is the paper on which the reform proposals are based.
At the outset, it is important to note the important role South Africa’s social grant framework plays. It is a vital salve for mitigating the worst afflictions of poverty. Certainly, as long as the nation’s economy remains as brittle as it is today, these grants must persist.
Grants and systematic failings
However, it is a mistake to describe them, as President Cyril Ramaphosa has, as “one of the greatest achievements of our democratic society”. Social grants are not a great achievement: they are an admission of defeat. To use a medical analogy, they are the morphine given to a dying patient to take away the pain. But in this case, the doctor who is giving the morphine is killing the patient. This has got to change.
A stagnant economy will quickly run out of the capacity to fund a grant system spanning half the populace, let alone sustain other governmental functions. Additionally, this landscape of dependence on governmental stipends fuels a bleak future for those reliant on them. Think of the hours-long queues for grants, the panic during payment interruptions, or even the dystopian scene of a minister urging social distancing amid water cannon onslaughts.
To contextualise the scale of the grant challenge, half of all South African households presently receive at least one grant, and for nearly a quarter, grants are their main source of income. In provinces with strong ANC support, this dependence is even more pronounced.
So, how did we reach this juncture? The nation’s GDP growth has barely crawled at an average of 1.2% annually since 2008. Concurrently, GDP per capita has regressed by about R3,000 over this span. This decline is palpable in tightening budgets, vanishing jobs, and growing disillusionment. A pervasive sense of decline is eroding the national spirit.
The remedy does not lie in more grants, or in artificial job creation orchestrated by the government. Genuine employment emerges from authentic growth, a fact the ANC administration appears to ignore. The IRR therefore submitted proposals to stimulate aggressive growth at the founding meeting of the Multi-Party Charter, a group of seven reform-minded opposition parties.
Growth desperately needed
How much growth is needed? We advocate a formidable target of 7% growth.
Admittedly, this is ambitious, considering the present climate. There are two reasons why we set our sights so high.
Firstly, the urgency of a paradigm shift is undeniable. Mere tinkering is inadequate; substantial reform is demanded.
Secondly, this target acknowledges the scale of our challenges. With unemployment in the 30s, reducing it to single digits in a decade necessitates no less than 7% growth, achieving a doubling of GDP in a decade. The longer we wait to get moving, the more years of poverty and state dependency we are condemning millions of South Africans to. And missing a 7% goal by a percentage point or two is vastly better than languishing in the 1% doldrums.
So, how do we get to 7% growth? Our blueprint covers four key segments, commencing with Part 1: boosting direct investment.
Presently, South Africa’s gross fixed capital formation rate hovers at a mere 14% of GDP — half the 30% target the government itself outlined in its 2012 National Development Plan. This rate captures investments in factories, infrastructure, and equipment, illustrating commitment to long-term growth. Here, the nation falls short.
Crucially, the government must kindle investor interest in South Africa. This involves both local and international investors, both of whom are reluctant to commit to South Africa due to various concerns – concerns that can be mitigated.
Foremost among these is property rights. The ambiguous stance of the government towards these rights deters investors. Urgently rejecting EWC is essential. To attract investments and ignite growth, property rights — including those covering land, buildings, pensions, health insurance, intellectual property rights, and others — must be unequivocally safeguarded.
Crime emerges as another deterrent to investment. Individuals and businesses fear not only government seizure but also criminal activities. Reversing this requires depoliticising the police, bolstering prosecution entities, and fostering partnerships with the private sector. Transparency in governance, simplified labour laws, and dismantling corruption-fuelling structures like BEE are also vital.
Part 2 of our Growth Strategy homes in on infrastructure, the government’s management of which has been woeful. The distressing deficit in electricity supply and other crucial sectors hamstrings economic growth, so pragmatic, fast-acting solutions are imperative. Here, involving the private sector becomes crucial, whether through partnerships or sensibly executed privatisation. Privatisation processes must, however, be transparent and competitive to prevent corruption and monopolisation.
Part 3 centres on job creation, a highly desirable by-product of fast economic growth. To accelerate employment, barriers to entry for job seekers must be diminished. Entry-level wages must be realistic to encourage job creation and reduce unemployment. Minimum wages — currently among the world’s highest when compared to the national median wage — should be eliminated. They are an unaffordable luxury in a country where just 40% of the working-age population are earning an income. On top of that, fostering labour-intensive sectors — such as agriculture, mining and tourism — through deregulation and much-simplified bureaucratic processes will drive job creation.
Finally, Part 4 addresses broadening economic participation. The current onerous BEE and employment equity strategies, while ambitious, have exacerbated inequality and stifled growth. A novel approach, Economic Empowerment for the Disadvantaged (EED), seeks to harness business as an engine of growth, rewarding enterprises for supporting expansion and opportunity.
EED departs from the racial focus of its predecessors, concentrating instead on socioeconomic criteria. By enhancing education, healthcare, and housing services through tax-funded vouchers that promote consumer choice, individual autonomy and private-sector involvement, EED can uplift the disadvantaged, irrespective of race. IRR polling between 2016 and 2022 found public support levels in excess of 80% for vouchers.
In conclusion, South Africa’s trajectory can be reversed, but not with minor tweaks. A growth revolution requires boldness and innovative thinking, inspired by the experience of other countries and underpinned by evidence-based policies. The sooner we get started, the better. DM