Johannesburg - The South African economy appears to be suffering from an element of dysfunction, with capacity problems becoming endemic, says Christo Luüs, Absa chief economist.
"This is exacerbating the large deficit on the current account of the balance of payments. In addition, business confidence is reportedly being affected because of the increasing bottlenecks."
Luüs points out that most periods of economic growth South Africa has experienced since 1945, have been brought to an end by three factors: balance of payments problems, inflation, and a shortage of skilled labour.
He holds economic structural changes - including emigration, the HIV/Aids pandemic, and an ineffective educational system - responsible for the shortages of the appropriate and requisite skills.
"A current paradox of the South African economy is that millions of unskilled people are unemployed, but there are acute shortages of skilled people at the same time."
Luüs notes that other shortages are besetting the domestic economy.
"Similar shortages are being replicated in other areas of the economy, like ship repair and oil rig maintenance sectors, the gas and glass industries, electricity supply, cement, bricks, newsprint, fertilisers, soft drinks, milk, etc.
"During the last quarter of 2006, major supermarkets groups made references to shortages developing in the supply of certain grocery products, including toiletries and food.
"There are also infrastructural bottlenecks in areas such as roads, rail links, ports and airports and the state of many of the existing infrastructural facilities is poor.
"One general repercussion of this malaise is the reduced self- sufficiency in the economy. Another is the diminished scope for economic growth."
Luüs believes that a supply-side crisis is plaguing the domestic economy and the shortages being experienced are connected to the acceleration of the economic growth rate in recent years after a lean period in the 1980s and 1990s.
"The faster growth is primarily attributable to the unprecedented boom in international commodity prices, which started in September 2001 and has proved to be far more sustainable than was generally anticipated."
He adds faster growth has caused a steep increase in capacity utilisation rates in the economy, while the capital stock as a ratio of GDP has constantly declined, from 247% in 1992 to 193% in 2006.
Luüs proposes policy options which will alleviate and over time eliminate the various capacity constraints in the economy. These include:
- Achieving more deregulation in the labour and capital markets;
- The abolition of exchange controls;
- An improvement in the education system;
- Retention of the existing skills;
- Effective measures to bring crime under control; and
- Lowering the tax and compliance burden on individuals and
companies.