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South Africa is stuck. The economy needs to shift focus, say experts

Oct 16 2015 13:43
Katie Kilpatrick

Opportunities for South Africa’s economic growth lie north of the country’s border, but the private sector will need to be more ambitious and aggressive in order to reap the benefits these present.

A panel of leading economists addressed a recent forum at the Gordon Institute of Business Science on the findings in the McKinsey Global Institute’s publication South Africa’s big five: Bold priorities for inclusive growth.

The report lists five opportunities to accelerate economic growth and subsequently, job creation. 

Chief strategist for Citadel Asset Management, Professor Adrian Saville, told the forum: “The most exciting region in the world is on our doorstep and we’re looking right past it.

“South Africa is stuck. Something different has to be done. Our economy is government fed and consumption led, but neither are enablers. Our focus needs to shift to investment and exports.”




Dr Lyal White, director of the Centre for Dynamic Markets at Gibs, said South African business had a unique competitive advantage in its geographical positioning, but needed to integrate this with experience gained in the region.

Partner at McKinsey Johannesburg, Christine Wu, said that although the South African economy had strong fundamentals it was stagnating.

“We must decrease our reliance on consumption and commodities, or we won’t meet the targets laid out in the National Development Plan. The challenge is enormous, and we have to be fully committed.”




The “big five” opportunities for growth in the South African economy detailed in the McKinsey Global Institute report were:

Advanced manufacturing

South Africa had the potential to become a meaningful player in advanced manufacturing and a global innovator for the local market, with particular focus on pharmaceuticals, agricultural and industrial machinery and chemicals.

If government were to take more of an active role and expand on trade agreements to open up new markets the country could explore export opportunities more aggressively.

Infrastructure

Infrastructure investments represent tremendous economic opportunities in the form of job creation. However, South Africa needed to capture lessons gained on past projects and guarantee certainty around the planning, preparation and quality control of large projects.

Natural gas

South Africa needed long-term diversification of energy in order to find new base load capacity, and gas is the most strategically flexible energy source available, Wu said. Although there was currently no natural gas industry in South Africa, the country and its neighbour Mozambique had significant gas prospects.

Service exports

Tourism, construction and financial services were some of the offerings in South Africa’s sophisticated services sector that had the potential to be exported to the rest of the continent. Angola, Nigeria, Mozambique and Ghana were the most promising prospective markets in sub-Saharan Africa region.

Agriculture

Opportunities in the agricultural sector included investing in agro-processing to make local agricultural products more exportable, as well as bringing more productive land into use. Wu explained that positive prospects for the agricultural sector could also have a knock on effect for labour absorption.

Wu concluded that reconfiguring the South African education system to create more trade workers with vocational skills was crucial for the country’s success and would make more people employable and ready to take advantage of economic opportunities.

An improved relationship between the public and private sector was necessary to move South Africa onto a path of accelerated growth in order to undertake a coordinated and sustained effort to raise productivity and strengthen competitiveness.

Founder and chief executive of Pan-African Capital Holdings Dr Iraj Abedian said one of the potential barriers to the realisation of the opportunities listed in the report was a “statist” approach to growth and development that had taken root in South Africa.
“It is all about what the state should do for the economy, which means we are over-reliant on the state,” he said.



Another obstacle Abedian said was the current regulatory framework in South Africa: “The regulative framework has become a disruptive force, and policy impact analysis is missing.”

Despite the obstacles, there were opportunities for the country.

“There is no shortage of good ideas, but we need to focus attention on the big initiatives,” Wu said.

“The burden has been put on government to drive growth, but this must be shifted to the private sector and what it can do to grow more aggressively.”

» City Press is the sponsor of the Gordon Institute of Business Science’s forum sessions.

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