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