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Three easy wins that can lift economic growth

If SA is able to get even one of them right, business confidence will improve.

South Africa cannot be successful until business confidence returns to an index level of at least 50, a level considered neutral. 

Speaking at the Investment Forum 2019, Stanlib chief economist Kevin Lings said if South Africa’s business confidence had been at a level of around 50 in 2018, the economy would have grown at 2% instead of 0.8%.

Business has suffered from a lack of confidence in recent years (see below) and political turmoil and policy uncertainty have weighed on growth. 

Sources: BER, South African Reserve Bank

A recent SA Reserve Bank study found that every 1% increase in business confidence leads to a 0.5% increase in fixed investment.

“So what does it say to me?

“If you want to grow this economy, just make business happy – they will do the rest.”

Although South Africa grew at an average of around 4% prior to the global financial crisis, growth has gradually slowed to an average of roughly 1% over the past 10 years.  

Lings says given South Africa’s population growth, economic growth of 1% is unacceptable and – if left unchecked – will lead to social chaos.

“We need to create 600 000 jobs a year to deal with the emerging population.

“You can’t grow at 1% and create 600 000 jobs. That will not happen.”

But with government’s debt-to-GDP ratio heading towards 60%, it would be naïve to think that government can spend its way out of its economic predicament.

Lings argues that any solution to the problem will need to meet three criteria. It has to be politically acceptable, something government has already spoken about, and of low energy intensity.

While there are various potential solutions that would meet these criteria, Lings highlighted three: make it easier to do business, build houses and lure more tourists to the country.

“I would argue that you do any one of those things better – any one – and you would start to change sentiment in this country, and that is what you are ultimately after.”

1. Make it easier to do business

South Africa currently ranks 82nd on the World Bank’s Ease of Doing Business Index.

“We used to rank around about 40 or so, but in the last four years the ease of doing business has deteriorated. We make it incredibly difficult to do business.”

In his State of the Nation Address, President Cyril Ramaphosa announced that he wants the country to get back into the top 50 within the next three years.

Lings says this doesn’t require a significant amount of effort, is achievable and will lift business confidence.

It is incredibly difficult to start a business. South Africa is ranked 134th out of 190 countries on this metric, falling from 61st just four years ago.

Rwanda is ranked 51st in the world, following its introduction of new technology that allows for online registration.

2. Housing

Although government doesn’t always deliver on its promises, its ability to develop housing over a long period of time has been pretty good. Yet, over the last 10 years mortgage finance growth in the private sector has been muted.  

“If you are able to develop a housing market in any country it does incredible things to lift confidence and growth, and there are a huge number of people in South Africa that earn too much money to qualify for an RDP house but too little money for banks to be interested.”

Lings says banks are currently more willing to grant personal loans for people to go shopping than give a young family a mortgage to buy their first home.

“That stifles the economy. Developing housing does way more for a country than going shopping.”

The level of fixed investment in housing in South Africa is extremely low when compared with developed countries that don’t need more housing.

“The housing market is an obvious win for South Africa.”

3. Tourism

By almost any measure, global tourism is currently at an all-time high. There are more aeroplanes and a greater amount airport space than ever before. More than 4 billion people fly once a year.

Although the amount of money South Africa receives from foreign tourism has reached a record high, in dollar terms the picture looks much less rosy.

South Africa is currently ranked 107th in the world in terms of the size of its tourism market relative to GDP.

Lings says it is hard to believe that this is the country’s true ranking, given its natural attractions. It should be in the top 50.

At the moment, only 4.5% of people employed are either employed directly in tourism or associated with tourism. The global average is 10%.

“If South Africa could start to attract the average level of tourism given the size of our economy, that would do wonders for employment.”

Lings says if South Africa can get any one of these three things right, business confidence will improve.

“Ultimately this is what is stopping South Africa [from] achieving more economic success. South Africa cannot be successful until this number [business confidence] is at the 50 index level.”

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As an American businessman Cancel BEE, Cut corporate tax rate (worked for Trump!) strengthen the police and start eradicating crime! They are so focused on socialism and they don’t understand. They just keep taking from the the working people (that are left) and paying those who never worked. 25 years later get on with it!!!!!!!!!!!!!!!!!

You believe Trumps policy has worked? LMAO

You need to go read some of the latest data.. at best he prolonged the ongoing bull run at the expense of their middle class and fattening up their elite. US is one of the worse examples of running a country unless you want us to run on >100% debt. If you look at the US critically you will see they no better.

The problem in Sa is not really the social programs.. you need this for transformation and really it’s the least of what they could do to enable social mobility. What Sa messed up though was spending.. education is better or worse than before?

CR and the ANC can claim all they want that they clamping down on corruption, fraud and wasteful expenditure but until Zuma and co end up in jail we will just have a continuation of the status quo. I see they now investigating the removal of the scorpions vs hawks effectiveness.. why not bring them back and make it impossible for it’s removal? If you watch what every political party in SA does you will see they always stop short of this which is a worry because power corrupts everyone and with an inequality skew the likes of which exists in SA, it will always be a threat.

The only method that will work in SA is the TOKOLOSHE METHOD!!!
That and praying to our ANCESTORS!!! We should resurrect them!!

I think you meant cutting corporate taxes worked for Trump’s mates…

You’re expecting common sense from this government? When have they ever displayed common sense. If anything, they have always done the exact opposite. They are the worst kind of stupid (and arrogant) — refusing to take advice from those who know better. Until they learn to be HUMBLE and accept they know next to nothing about growing an economy (as their track record of miserable failure would indicate), we will never get anywhere.

I think everyone should first get clarity on who is really in charge of the Government( ANC )….clearly it is not CR!

As an American businessman Cancel BEE, Cut corporate tax rate (worked for Trump!) strengthen the police and start eradicating crime! They are so focused on socialism and they don’t understand. They just keep taking from the the working people (that are left) and paying those who never worked. 25 years later get on with it!!!!!!!!!!!!!!!!!

Another quick win would be a tax break for property owners wanting to install renewable energy systems. This would create wins as follows:

1. Would allow the economy to grow in spite of Eskom being unable to fulfil its mandate. If we can believe the experts an energy cliff is looming as old power stations are taken off the grid.
2. Power is generated at the point where it is needed thus limiting the need for expensive distribution lines.
3. Creates employment for people wanting to work and build the economy.
4. Reduce environmental pollution in Mpumalanga.
5. Free up valuable coal supplies for export.
6. Reduce the amount of taxpayer money that is squandered on building power stations that do not work.

A capital idea! Problem is govt does not want to lose its monopoly on energy generation, despite its miserably failure to do so successfully. Also, this is an idea that makes GOOD SENSE, which govt is incapable of recognising.

The further problem with this is that Eskom and government are both totally unable to deal with the issue of electricity usage without paying for it – because the ANC cannot afford the electoral support fall-out a crackdown on non-payment will cause. Therefore, it simply cannot be allowed that those who can afford to go off-grid or into co-generation, do so. Because that will take away those consumers who are at the moment actually paying for their electricity (and for those who do not pay), and in the process finally push Eskom over the cliff.

Warren Ingram is too busy explaining to his clients why he didn’t take more money offshore. Has to eat on the run….

If you seriously wanted to improve the economy quickly then,

– Scrap BEE/AA, this is effectively an additional tax and reporting on it is expensive. Especially industry specific BEE like the mining charter which does not reconcile with normal BEE guidelines. It is a mess.

– Bus/Gov reform, stop protecting loss making SOEs and open up markets. Distributed energy is a good example.

– Focused DFI SME interventions – Allow DFIs to put themselves at risk like they are supposed and go and actively look for an support small business. I saw an article on garbage pickers the other day and how they save R750m a year or the like. Why not get some skills and capital together and go and formalise those guys, scale it up and grow a nice environmentally friendly, high labour business that is clearly sustainable. There must be hundreds of these types of businesses across SA.

What is easy for people who know economics, such as the respected Lings, is anathema for the clueless ANC Government. They think growing the number of dependents and shrinking the number of productive citizens and businesses is the way to go. South Africa is already a tragedy but is on course for much worse.

“More than 4 billion people fly once a year.”

Not true.

More than 4 billion passengers fly every year…

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