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SA’s two big challenges

And the single biggest factor needed to solve them.
Re-igniting an economy requires patience, the author writes. Picture: Moneyweb

When Cyril Ramaphosa took over as president of South Africa earlier this year, many analysts were expecting an immediate turnaround in the country’s economic fortunes. Some boldly revised their 2018 growth forecasts upwards, anticipating a boost in business confidence.

However, it has proved to be not quite so easy to re-ignite the economy.

“What we naively believed is that you can turn South Africa around very quickly,” Stanlib chief economist Kevin Lings told the Allan Gray Investment Summit in Cape Town on Tuesday. “But it’s going to take a long time. We have to be realistic.”

While Ramaphosa has begun a process of addressing the most pressing issues in the country, the challenges facing South Africa are extensive.

“There are two sets of challenges as I see them,” says Lings. “At the moment we are dealing with the first set, which is where the focus of the media discussion and political debate is.”

These are the immediate issues of boosting business confidence, restoring fiscal discipline, reforming state-owned enterprises, implementing clear transformation policies, and dramatically reducing corruption.

Addressing these are critical in the short term. However, Lings argues that it is the longer-term challenges that will really determine South Africa’s future.

“In my mind there are two really big obstacles that South Africa has to overcome,” he says. “We need to get an education, and we need to employ people. You do those two things and a lot of other things immediately get better.”

He believes that every policy in the country should focus on those two variables.

“The more you improve these, the bigger the difference you make to everything. You name an economic or social problem in South Africa, and addressing those two factors will deal with that problem – especially creating jobs. Job creation is the most powerful economic factor you can have in an economy. If you want to get your economy vibrant, just give people a job.”

The country’s education problems are both at basic and tertiary levels. At school level, it is most clearly illustrated by the fact that only half of the children who enter school end up with a matric, while at tertiary level only 17% of students who enter universities graduate with a degree.

When it comes to unemployment, Lings points out that the number of unemployed people in South Africa will continue to rise unless the country is able to create 600 000 jobs a year.

“How fast do we have to grow the South African economy to create 600 000 jobs?” Lings asked. “It has to be over 4%, and ideally up at 5%. Then the number will stop going up.”

Given this reality, many have turned to the government, expecting it lift the growth rate. However, the state’s current level of indebtedness means that it has run out of levers to pull.

“Government quite simply is not in a position to drive this economic growth,” Lings says. “They don’t have any more money. You can’t expect the government to lift South Africa’s growth meaningfully by simply spending money, because there is no more money.

“So where does that growth come from?” Lings asked. “It has to come from private sector investment.”

This is recognised by the government itself. The National Development Plan sets a target for private sector investment to be 20% of GDP. That is the accepted level of investment needed to generate growth of 5% a year.

However, private sector investment remains well below these levels, and in many sectors is declining. Corporates on the whole are not engaging with the economy on the scale required.

“So what is the most critical thing holding back the South African economy?” said Lings. “Effectively, we are just not happy. If you want to get companies to engage, get corporates investing, the key is business confidence.”

Over the last eight years, business confidence in South Africa has been below average. The question is why Ramaphoria hasn’t changed this.

“The reason, I think, is that we are too worried about politics,” Lings said. “Cyril Ramaphosa first wants to win the election next year. Then he will have a better power base. Then he can fix this. But until the politics moves, the levels of confidence in South Africa are going to struggle to generate the 4% to 5% growth we need.”

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“How fast do we have to grow the South African economy to create 600 000 jobs?” Lings asked. “It has to be over 4%, and ideally up at 5%.”

Never going to happen, ever. We have a whole generation (25 years) already doomed by the abomination that is the department of basic education and SADTU. And the next generation is being “processed” through that unique system as we speak. Then let’s not even mention reckless population growth, especially among the lowest socio-economic quartile of society.

On Fiday Cyril Ramaphosa activated the controversial Protection of Investment Act, this act was originally made law by Zuma and doesn’t sit well with foreign investors…..these ANC leaders doesn’t/can’t think….my only conclusion.

You hit the nail on the HEAD!~! Education !! BUT if you allow these unions to usurp their positions we will go no where. Just look @ America’s failing educational system and the losers it is putting out!!

What? The US is home to one third of the top 100 universities in the World. No failing education system there!

In 2012 teenagers in the U.S. slipped from 25th to 31st in math since 2009; from 20th to 24th in science; and from 11th to 21st in reading. There is only 31 countries in this student assessment program for OECD countries. The US was beaten by countries such as Estonia and Vietnam in all categories.

if you look at their economy(Microsoft/Apple/Amazon),military strength,policing,medical superiority, Nasa space dominance…the list goes on….definitely no failing education…..math slither or not.

Ivy league colleges not representative of whole education system. US public school system is crumbling and dysfunctional. You should not measure the quality of your education by the peformance of the top 0.5% of students that manage to get an Ivy League education and go on to become Silicon Valley billionaires. I think you should actually look at the educational outcomes of the bottom half of the class. Do they receive a decent enough education to allow them to become productive and satisfied citizens. Northern Europe light years ahead of the US in providing decent education for everybody.

we managed to build the Square Kilometre Array, not sure how that is going to benefit the masses but at least it will give Cyril/ANC something to boast about.

The difference between African countries and first world countries is that in Africa, narrow self-interest will always win over big-picture thinking. In the USA Trump says “Let’s make America great again”- In Africa, leaders say “Let’s make me rich”. African leaders will steal tax money meant for school books and hospitals without shame and nobody is ever held accountable. That is the main difference. If every civil servant in Africa just did what he/she is getting paid to do instead of doing deals/stealing on the side, then poverty will disappear. If only the enormous mineral, agricultural and natural wealth of Africa was managed for the benefit of all instead of for the benefit of a select few, then poverty will disappear.

The ANC governing the country into the ground while the rest of us are trying to save it!

jnrb is correctly describing the prevailing Africa “disease” which has destroyed every single country in Africa with Botswana maybe the exception.

“Government quite simply is not in a position to drive this economic growth,” Lings says.

Government is not the solution. The ANC regime is the problem. The ANC want economic growth. The ANC want the private sector to absorb the armies of unemployed. The ANC want to expropriate property without compensation. The ANC are busy with ethic cleansing of the workplace. The ANC are behind absurd BEE laws and other labour legislation that make it onerous to hire workers. The ANC are a criminal organisation robbing the country.

Let us just note that the ANC are reaping what they have sowed.

I remember a British politician who went to an election to strengthen her hand but the outcome was the complete opposite. Cyril needs the guts to do it now or he may find his position weaker or he may not even be in power! Lets hope the latter,then there will be a new broom to sweep clean

Interesting point. I tend to agree with you. Could also give him the ability to get rid of the relics from Zuma still littering his cabinet.

Haha, two big challenges. More like two hundred and twenty two.


The two biggest challenges are:

1. Population growth is too high

2. Economy growth is too low

You can forget about any economic growth spurt going forward as the demographic problem has not been solved. We won’t see that growth again

End of comments.





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