Focus on scalability needed to reach growth goals
To accelerate the growth required to deal with unemployment, a change of mindset and economic model is needed
There is a serious and complex perspective problem developing in SA.
Having been busy “gardening” in recent months before joining Intellidex, I was struck by the flip-flop in sentiment and genuine upset from the private sector that it had got the post-presidency transition period so wrong. It has been remarkable how a normally ever-sunny SA commentariat has become so depressed. Expectations for the “stimulus”-package announcement from President Cyril Ramaphosa and the Jobs Summit were at rock bottom. This week’s investment summit is similarly turning out to be a battle-of-expectations management between the presidency and commentators.
All the recent summits and announcements have promoted necessary change. They all provide some help to get back to 2% growth by 2020.
When I deliver this forecast to people, their general reaction is, “what happened to the bear we knew”. This is the problem with having the expectations bar so low – it has been a distraction - 2% growth seems amazing, but it misses the point. It will still not address unemployment and inequality in a financially constrained environment.
SA needs to get out of its funk and have a shift in perspective; a debate with a laser-like focus on what is actually at stake here – world-beating inequality and 8.9m unemployed and discouraged workers.
There still seems no realisation that more of the same economic model cannot surmount these problems. Hence the NDP unemployment target is all but abandoned, yet a decision to take a bigger policy step is not taken.
As part of the shift in perspective, a clear and critical differentiation is needed between getting back to low long-term potential growth of 2% (which the measures announced help) and raising potential growth from 2% to 4-5-6%, which those measures do little to help.
The key test is between removing negative drags on growth and actual new positives. So much of the stimulus package was the former not the latter. The shift in visa regime and Mining Charter are key examples. The Mining Charter has kept a high cost, higher barrier to entry framework, while removing the negatives of excessive of the Zwane Charter. It still provides a huge challenge to junior miners.
The investment summit will similarly help a resumption of normal levels of investment from the suppressed levels in recent years, but with the current high cost, high barriers to entry model will still be a constraint to going further.
We should be careful for the investment summit to differentiate between what would have occurred anyway cyclically (around $48bn of additional private sector investments between 2021-2023) and what is truly new and likely to actually emerge.
To accelerate growth towards the 4-5-6% growth rates (ie 2-4% per capita income growth), that is required to start to deal with unemployment, fiddling by removing negatives is not enough – but a change of mindset and economic model.
This is about sheer practicality. The mindset change is from “interventions” and the constant hunt for what government should be poking at, to “scalability” – dealing with the foundations and the hard policy changes that will have the biggest impact. It requires an understanding that the state is deeply under-capacitated and that is not going to change in this fiscal and skills environment for the foreseeable future.
Scalability comes not from social compacts involving the usual suspects, but from a laser focus on where the marginal bit of growth comes from that drives us from 2% to 4-5-6% growth. That means SME growth, formalisation, supply-chain integration and, most importantly, skills.
Scalability is taking the good things going on in Industrial Development Zones and applying them nationwide. Scalability is understanding that policy supporting 2.4m SMMEs can have a much larger multiplicative impact on employment than targeting specific large industrial interventions (not that that should be ignored of course – it’s a question of focus).
Ann Bernstein has started laying out in these pages how SA needs to move from a capital-intensive high barrier to entry model to a labour-intensive low barrier to entry model. This is the way to achieve the scalability needed in an environment of constrained fiscus, tighter global monetary and credit conditions.
For many, Ramaphoria has simply been delayed till after the election. Ignoring the issues of what a ‘mandate’ is, how a mandate can shift deep factions in the ANC NEC – the question is what would be done with a mandate anyway? Would it be a fundamental shift that allows decisions around some of the difficult trade-offs and decisions needed for scalability of policy measures to make a meaningful dent in unemployment and leap frog growth to 4-5-6% or would it just be the political capital to undertake narrower specific interventions within the same mindsets at DTI and EFF, that don’t have scalability of impact.
This is where perspective is needed.
Attard Montalto is Head of Capital Market’s research at Intellidex