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4 reasons behind SA’s low growth

The problem is structural, not cyclical – Mcebisi Jonas.

JOHANNESBURG – South Africa’s low economic growth was not cyclical as many commentators seemed to think, but structural, former deputy finance minister Mcebisi Jonas, has argued.

Speaking at The Directors Event, Jonas said the South African economy has grown at an average of 1% since 1990. In contrast, China has grown 8.5% since 2000 while India has expanded by 7%. Albeit off a low base, Africa has grown by more than 4% on average.

The South African economy slipped into recession earlier this week after two consecutive quarters of negative GDP growth.

The former deputy minister, who was fired from the position earlier this year in a controversial cabinet reshuffle that triggered several credit rating downgrades, highlighted four reasons for South Africa’s dire economic situation.

1. Dependence on unreliable sources of foreign investment

Jonas said the reason South Africa was not growing like some other developing economies, despite its sophisticated infrastructure and business capability, was its dependence on unreliable sources of foreign investment to finance its growth ambitions.

Countries like Brazil, Turkey and South Africa were extremely vulnerable to external shocks.

“We remain locked into the global markets as primary commodity exporters and find ourselves extremely vulnerable in times of low commodity demand and prices.”

Jonas said more diversified economies with higher levels of manufacturing value-add have enjoyed higher and more equitable growth and have proved far more resilient in the recent global downturn. South Africa’s manufacturing value-add as a percentage of GDP was around 12%, compared to China’s 32% and South Korea’s 31%.

2. Insufficient investment in fixed capital

Jonas said South Africa’s fixed capital investment as a percentage of GDP was around 18%, while China’s was 47% and South Korea’s 30%.

Tough questions had to be asked on why many large South African firms were investing more in other developing countries than at home, he said.

Policy uncertainty, especially in areas like mining, had to be addressed.

The cost of electricity and logistics, broadband and labour – where wage increases outstripped productivity – were also of concern.

“If we can’t address these fundamental structural issues as a country we are going nowhere.”

3. Inherent inequality

Jonas said countries with high initial conditions of asset inequality seemed to be slower growers than countries with high levels of equality. This had to do with a number of factors including reduced aggregate demand and the heightened social and political instability that inequality generated.

Unfortunately there was no quick fix to this problem, he added.

Simple asset redistribution without growing investment and productivity might reduce inequality but it would also increase unemployment and poverty, he said.

South Africa rather had to focus on creating new wealth and assets in which the previously disadvantaged had a growing share. Although the country had a very sophisticated fiscal redistribution programme, efforts to reduce wealth and asset inequality had not had the desired impact, he said.

While BEE policies had created some wealthy black business people, real inequality had increased across all race groups and poor education and training had added to the country’s woes.

Jonas said the focus should shift to creating more black entrepreneurs through incubation programmes and venture capital funds as well as jobs for the low-skill segments of the population.

4. Inability of state to lead structural economic reform project

Jonas said the state had a critical role to play in driving a radical economic reform agenda, but the lack of focus on policy, insufficient technical capability within the state and the capture by narrow political business interests were a significant deterrent.

The Public Protector’s State Capture Report and the Gupta leaks demonstrated that government’s ability to drive transformation and growth was constrained by high and deep levels of corruption and capture within the system. State-owned companies had to focus on driving the economy, offer cheap and secure electricity supply and cheap port handling costs, but corruption within SOCs resulted in costly electricity and a whole range of other issues, he said.

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and to think that only one person is responsible for these four reasons?

Nope Zupta is just the elected leader of the millions!!!

My opinion is that this all started more than 20 years back, when the ANC were so caught up in “proving to the masses that they are the saviours of SA”, that they totally neglected the important factors, education, and the already working infrastructure (to say colonialism) and to proof how to govern in Africa democracy.

The result is that the more they proof themselves wrong the more they try to proof themselves right, with legislation, laws and corruption. The result is “another chapter in African history”

Amazing how not a single commentator or economist will allow the possibility that an explosive population growth amongst the poor is – by far – the MAJOR impediment to SA’s disciplined growth.

All our social problems (crime, no jobs, poor education, land squabbles etc) are DIRECTLY arising from this SINGLE factor.

Yet ZERO acknowledgement – let alone attention – is being paid to this root cause.

This can only end badly.

I know that officially two quarters of negative GDP growth is the sign of a recession, but in my opinion it should be the per capita growth which should be monitored. In western developed countries with stable population it makes no difference, but in third world countries with high population growth, like SA, the per capita is much more important. It would indicate if the average person is getting richer or poorer. Unfortunately calculating this way SA has been in recession much longer.

To add to Jonnoxx on population growth – Stats SA recently showed the population increases of the four race groups:

The black population increased from 30 million in 1994 people to 45 m people now, an increase of 50%, adding an extra 15m people to the poverty. The coloured group increased to a lesser extent and the Indian and white groups growth remained flat.

Add another 5 million immigrants over this period produces 20 m extra people with claims on State resources for housing, schools, health etc.

If Namibia can have huge billboards in the populous north (Owambo land) indicating two children, and that people should not have more children than they can afford, so can SA.

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