Publications
Partners
In South Africa today, the basic cost of living is rising, while living standards are falling.
Unless this deterioration – the result of sharply slowing economic growth and declining per capita income – is arrested, we will not be able to take advantage of the current political changes to restore sustainable progress in the country.
We must decisively break from the vicious cycle of the past decade, which was characterised by grand corruption and state capture, policy inconsistency and incoherence, political instability and social mistrust.
A departure from this has already begun.
Systems of governance rarely change overnight, but a new leadership is emerging that offers pragmatism, reform and hope. The global economy is showing signs of growth.
This is good news because it presents us with an opportunity to break out of our low-growth trap and move back into line with the global business cycle. Because of the political uncertainty, policy paralysis and embedded corruption of the Zuma years, South Africa has badly lagged the global growth cycle, which it normally follows closely.
The International Monetary Fund’s World Economic Outlook predicts that global growth will reach 3.9% this year, above the 3.2% of 2016.
However, there are risks – global inequality is still on the rise, fuelling the rise of populism and increasing political risk. The multilateral framework that underpinned the international economy for decades is being challenged, with powers like the US favouring unilateralism.
The Organisation for Economic Development and Cooperation, which represents mainly developed economies, has cautioned governments that strong, sustained growth is not quite secure.
In a recent report, it said there was now a “window of opportunity” for governments to prioritise capital expenditure and economic reforms, to help ensure that the cyclical upswing does not fizzle out.
This can be done by generating productivity growth and opportunities for higher living standards.
These warnings also apply to South Africa – we need to accelerate investment, improve productivity and economic growth and raise the living standards of our population.
Business and private investment are essential for sustained growth and development.
Countries that have been able to produce economic growth rates at above 5% per year are those that have had at least 25% investment as a percentage of GDP. However, in South Africa, public and private sector investment has been contracting and is currently at 17% of GDP.
Investment was put on hold because of policy uncertainty, poor governance, weak growth and low returns, among many other reasons.
And, like companies, economies that do not invest do not grow.
Investment is a key determinant of productivity growth in the economy.
In his January 8 address, ANC president Cyril Ramaphosa said: “Our vision is an economy that encourages and welcomes investment, offers policy certainty and addresses barriers that inhibit growth and social inclusion.”
He struck the right note.
We are at the early stages of renewal and structural reform will of necessity take time, but the basis for it must be laid now, with the appropriate signals and actions.
The recent renewed activity by the criminal justice system is important, not only to deal with allegations of corruption and maladministration in the country, but because it reinforces the rule of law and strengthens our constitutional democracy.
This will encourage local and international investors, who have been discouraged by the criminal shenanigans of the past decade – even as the political tussle between reformers and the rest carries on.
Similarly, the parliamentary inquiry into Eskom and the State Capture Commission are starting to instil confidence that a new leadership is taking charge and assuming its proper role in safeguarding the national purse and public interest.
Another key step will be cleaning up the regulatory uncertainty caused by the Mining Charter and ensuring we are ready to take advantage of global growth and a new commodity cycle.
Kick-starting investment into the mining industry can equally stimulate manufacturing and the services sector, generating growth and employment in the rest of the economy.
Economic reform and good governance are critically important to starting a virtuous cycle of investment, growth, employment and economic inclusion.
For now, policy development may experience twists and turns, but the major political uncertainty is being dealt with.
State capture and the resulting structural decay will take time to remedy.
Economic reform and good governance are not short-term events, but processes that are already beginning to unfold.
The signals encourage cautious optimism.
* Fuad Cassim is an economist at the Banking Association SA. He was an adviser in the finance ministry from 2010 to last year.
* SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.
