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2015/16 has not been a great year for South Africa due to slowing economic growth and a deteriorating credit rating status. South Africa is facing both economic and job growth conundrums. The collaborative campaign between the South African government led by the Finance Minister Pravin Gordhan, business leaders and labour unions has been successful in postponing the credit rating downgrade for 2016.
However, the possible credit rating downgrade post 2016 hinges on current political and economic developments.
The critical questions are: what can South Africa do to weather the economic storms and what can South Africa offer to the world? Where to from here? The purpose of this article is to highlight possible economic tools and identify implementable solutions to address the current economic challenges.
What are South Africa’s competitive advantages?
According to Numbeo website on Cost of Living Index by Country 2016 Mid Year, South Africa ranked 91st with an overall cost of living index of 37.76 - almost half that of most of the developed countries.
The Mercer’s 2016 Cost of Living Survey further supports the notion that South African major cities such as Johannesburg and Cape Town are among the world’s least expensive cities for expatriates. It is critical to view low cost of living as a potential competitive advantage for economic developmental purposes.
Global market trends and opportunities
A recent research study by McKinsey Global Institute shows that three groups of consumers are set to generate half of global urban consumption growth from 2015 to 2030, which will reshape global consumer markets. These three demographic groups will generate half of all global urban consumption growth through 2030:
Group 1: The retiring and elderly in developed economies
This group will grow by more than one-third in number, from 164 million in 2015 to 222 million in 2030. It will generate 51% of urban consumption growth in developed countries and 19% of global urban consumption growth.
Group 2: China’s working-age population
By 2030, this group will expand by 20% - an additional 100 million people - and per capita consumption is expected to more than double.
Group 3: North America’s working-age population
The numbers and per capita consumption of this group will grow modestly, by 7% and 24% respectively, from 2015 to 2030. The pie chart below shows the projected global urban consumption demographic in 2030:
Source: McKinsey Global Institute
Based on the extracts of McKinsey Global Institute’s research study, the retiring and elderly category in the developed world is projected to generate about 19% of global urban consumption growth at $4.4trn with estimated population of 222 million people by 2030.
Health-care spending by those aged 60 and older is projected to grow by $1.4trn in the period to 2030. The retiring and elderly in developed economies today have estimated per capita consumption of around $39 000 per year.
South Africa, with a low cost of living and a weak currency position, is in a perfect position to take advantage of increasing consumption in the retiring and elderly category. Foreigners departing from a higher cost of living country can enjoy a quality lifestyle in South Africa at reduced living costs and an increase in purchase power.
This presents an excellent proposition in times where retirement fund returns are often constrained to meeting the retirees’ future retirement spending needs.
In addition to the financial affordability, South Africa also possesses world-class infrastructure; a strong private healthcare system; good weather conditions; an abundance of affordable recreational activities and ease of communication using English as the common language, etc.
Recommendation to create and promote retirement tourism industry in South Africa
The conventional tourism industry focuses on short-term stays of less than 6 months; the duration can be enhanced through an introduction of an affordable retirement tourism sector.
Such an initiative would have a quicker turnaround time in terms of project implementation as compared to strategic infrastructure and/or industrialisation projects. Therefore, the socio-economic impact and results will also reflect much faster than long-term infrastructure projects.
Let this topic be the beginning of a constructive discussion with possible industry creation for public and private sector participants to uplift the South African economy.
• Li-Pei Huang is a qualified chartered accountant with over 10 years' public sector experience. He is a project finance specialist for the Gauteng Provincial infrastructure projects, and writes in his personal capacity.
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