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Are NDP targets becoming more unattainable?

Reaching economic growth of more than 5% from by 2030, seems unrealistic, at best.

In the next 12 years, SA would be an economy that grows on average by 5.4% every year, inequality would be a memory and the country would be grappling with a mere 6% unemployment rate.

This is the theoretical SA that the National Development Plan (NDP) envisages – but more than five years since its adoption, there’s consensus that its growth objectives are increasingly becoming unattainable.

As a blueprint for SA’s policy roadmap, the NDP plans to increase employment, eliminate poverty, improve access to quality healthcare, education and state-funded homes by 2030.

Since the NDP first burst onto the scene in 2012, its implementation has been slow and overshadowed by political infighting within the governing ANC, corruption scandals and an economy that continues to grow at a glacial pace.

There’s a growing belief that the NDP was well on its way to gathering dust – like its earlier growth strategies including the Reconstruction and Development Programme (known as RDP), Growth, Employment, and Redistribution (Gear), Accelerated and the Shared Growth Initiative for South Africa (AsgiSA).

The NDP’s resurrection has been President Cyril Ramaphosa’s top priority in order to halt the economic decline that festered over the Jacob Zuma years.

The World Bank has already warned that without structural economic growth, the NDP’s targets – particularly reducing inequality, unemployment, and poverty – seem further off than ever.

SA’s growth has been long-stifled by persistent inefficiencies including a low savings rate among consumers and private sector investments, slow productivity and economic growth that is not inclusive nor labour-intensive.

World Bank senior economist Marek Hanusch said SA’s economy would have to grow by 8% in the short term in order for the NDP average economic growth target of 5.4% per year from 2030 to be achieved.

“If you look at SA’s structural economic growth potential, the economic growth is not going to be that fast,” said Hanusch. “South Africa is an economy that doesn’t grow very fast, even after 1994. In the mid-2000s, the economy did get to 5% and it can happen again but it is cyclical.”

The Washington DC-headquartered World Bank doesn’t see a long-term economic growth of 5% being realistic unless there are higher private sector investments.

Hanusch said although there has been an improvement in business and consumer confidence under Ramaphosa, it hasn’t necessarily translated to economic growth and investments.

He cited the Absa Purchasing Managers Index, which shows that sales orders by businesses remain below the crucial 50 level in March 2018 – indicating that businesses are not yet committing to large purchases even though they are confident about their future financial prospects. 

Stanlib chief economist Kevin Lings said new private sector fixed investments and maintenance capital expenditure (meaning maintenance on machinery or equipment) by businesses have been in a low-growth phase for a long time.

However, due to the new political leadership under Ramaphosa and recent rand strength, Lings expects businesses to start thinking about renewing or maintaining their equipment/machinery rather than expanding their capacity or employing more people.

“This is equipment/machinery they should have looked at three years ago but decided to patch or repair it and not replace or renew it. Businesses are now in a position to renew and contribute positively to the growth rate overall,” he told Moneyweb.

Lings expects maintenance capital expenditure to continue in the next two years but not fixed investment or expansionary capital expenditure.

What about poverty- and inequality-busting NDP goals?

The World Bank said SA could reduce the number of poor people by six million to four million by 2030 if it promotes access to free higher education, reduces corruption and improves the country’s spatial planning by linking townships to work nodes using public transport.

Read: SA could halve number of poor by 2030, World Bank says

“However, inequality will still remain very high but much lower. Inequality creates a lot of frustration and demand by society for more distribution. If you have low investment and growth, then there will be low job creation,” said Sebastien Dessus, the World Bank’s programme leader for SA.

Using the Gini coefficient – a key metric for measuring the distribution of wealth – South Africa, with a population of about 55 million, ranks as the world’s most unequal country among the countries the World Bank features.

Source: World Bank

Dessus said if SA were to achieve economic growth of 3% from 2018, that would be a significant level to address poverty and inequality.

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Average growth of 5% pa to 2030 might have been achievable if SA’s education system functioned and produced substantial numbers of matriculants able to become successful students, in for example the STEM disciplines. As things stand, the bulk of school leavers are functionally illiterate, proudly brought to you by SADTU and the ANC.

The matriculants of 2030 start school next year, so everybody who has to contribute to the imagined growth is already in, or through, the system. SA does not have a hope in h3ll of producing enough appropriately skilled workers to grow the economy at 5% pa and/or reduce the Gini coefficient. In fact, SA’s Gini coefficient is likely to increase.

The leading party implemented BEE as a vehicle to create an equal society. Now, after 24 years of BEE, we are the most unequal society in the world! Businesses don’t invest because the moment they spend capital and take on risk to begin a new venture, government will expropriate 30% of that business for BEE partners. Helping previously disadvantaged people is good and noble. The issue is not so much with partnerships as a form of empowerment, but with the destruction brought about when BEE companies tender for contracts with the state.

A BEE company is motivated by the the state to be as inefficient as possible. A BEE company loads it’s tenders by 30%, 50% or even 100% and will still get the contract, while other companies are better equipped to to a better job at 50% of the cost.

No economy can grow with inefficiencies like these at the core of the economy. BEE is a licence to loot. Who ultimately pays for the looting? The poor, the unemployed, the youth. This criminal socialist government steals economic opportunities from their own voters to buy their votes. Inequality will only grow under ANC rule because they painted themselves into a corner. There is no turning back from a socialist, looting policy. The ANC has successfully institutionalized the looting mindset.

Scrap BEE legislation, privatize all SOE’s and privatize ANC municipalities and we will become an equal society in no time.

Excellent point. I also firmly believe thaty BEE has been one of the greatest impendiments to growth and investment. To expand on your point around ownership: “Businesses don’t invest because the moment they spend capital and take on risk to begin a new venture, government will expropriate 30% of that business for BEE partners. ” It is even worse, with theprinciple of once empowered, always empowered not being recognised that 30% or 20% or 10% can and is claimed one more than once.

On a different note though it is interesting how unequal the US is, by far the most unequal western democracy. For most of my life I have been a fervent supporter of unbridled, laissez faire capitalism, but after working in the Netherlands I have to admit that I am tempering my view somewhat. Only challenge is that for greater intervention by the state to work you need competent and honest politicians/civil servants…

Excellent summary on BEE Sensei. Now the new caretakers of the economy have added that wonderful incentive of Expropriation without Compensation! How inspired is that? What an incentive for investors and economic growth.

They have really run out of fake solutions to the unemployment and inequality problems while simply throwing more money at the real solution – Education and Skills Training – while ignoring the fact that the teacher unions are still strangling any progress at all.

I would not be surprised if one day, having run out of excuses, the likes of a Malema dictator declares that all whites must be deported and allowed only a single suitcase on the way out as the final solution to the country’s economic woes. Given the type of rhetoric spewed out these days what else can one expect? I was wrong on my expectation that Zuma was destined be that dictator. Hopefully I will be wrong again.

In an article by Francois Williams in “Die Burger” of 13 April 2018, according to the World Bank: Inequality can improve, by 2030, to where it was in 1994, provided education etc is improved. (My translation)
So this inequality was boosted by our glorious leaders in the ANC?
What a surprise!

South Africa is the worst on the scale for distribution of wealth for a reason: You’ve to be an insider of the ANC, be a government employee which year on year receives an average salary increase of 11,25% – whereas in the private sector as of 2010 – 2017 the average was 5% – far below the ACTUAL inflation rate of 7,25% and of course let’s not forget you have to be an employee of Eskom, Transnet, etc., etc. “We the privileged” are so busy “hunting and gathering” that the most basic rights of the ordinary South African such as education, hospitals, clinics, providing for the elderly in all aspects, etc., etc., is non-existent. An NDP target of 5% what a joke!!!

Referring to the article extract from above “see below”, the World Bank does not see corruption being eliminated by 2030 but only reduced….this regime will take us further into poverty and taxes will be the only thing growing by 5% to 8%…we are feeding a bankrupt system…..

“The World Bank said SA could reduce the number of poor people by six million to four million by 2030 if it promotes access to free higher education, reduces corruption and improves the country’s spatial planning by linking townships to work nodes using public transport.”

I must be missing something but we are surely living in cloud cuckoo land. You cannot have a President for 10 years who basically undermines the economy, promotes corruption and erodes key institutions (plus favouring a immigrant family over locals) and not expect some ramifications. You cannot ruin the education system and install a poor work ethic plus chase away valuable skilled professionals through uncontrolled crime and public hate speech (e.g. threaten the slaughter of Whites) and not expect consequences. Then as soon as the corrupt President is gone compromise property rights with EWC. Come on, get real, live in the real world South Africa. You cannot do the above-mentioned (which can be extended to many paragraphs) and expect 5% economic growth. You get rewarded economically for a sustained effort (over decades) from the entire nation (e.g. South Korea and Singapore). How can South Africa with politicians promoting national disunity and anti-nation building ever hope for 5% growth. Not in my life-time, that I can promise you.

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