Finance Minister Pravin Gordhan believes it has become opportune for South Africa to proclaim a new "national intent" of pursuing an economic path that targets sustained gross domestic product (GDP) growth of 7% for a period of 20 years.

In a broad-ranging interview (see video) with Engineering News, held recently at the National Treasury's 40 Church Square offices, in Pretoria, Gordhan said that the current growth trajectory simply "won't help us to get to where we want to go".

The country's official unemployment rate has again breached the 25% level, income inequality has widened and there are serious health, education and infrastructural deficits. Gordhan is particularly worried about the fact that there are four- to six-million youths currently unemployed and that four-million citizens between the ages of 15 and 24, who have a matric qualification or less, have no immediate work prospects.

"Unless we do something spectacularly different, unless we can demonstrate the same boldness that we showed with the World Cup . . . we are not going to meet both the social and economic targets that we have set for ourselves," he states.

But achieving that goal will require a "humongous national effort" and development of a "social compact" involving labour, business, the social sectors and government.

"We have got to now get the minds to meet . . . [so as] to determine a national intent," he explains.

This process is led by Economic Development Minister Ebrahim Patel, Trade and Industry Minister Dr Rob Davies and Gordhan, and has been framed under the so-called ‘New Growth Path', which is itself guided by "outcome four" in President Jacob Zuma's list of 12 outcomes.

The idea is not merely "another document, which is testimony to the fact that we can sit in a room and talk, but, far more importantly, that we can give effective implementation to [a programme] that people are able to palpate in their day-to-day and real lives". The new vision would rely on partnerships and is likely to be canvassed "sooner rather than later".

Some of its components are likely to include:
• a focus on improved training and the development of new opportunities for the youth, including the possibility of the creation of a new category of colleges to galvanise the training machinery, particularly in technical areas;
• efforts to boost entrepreneurial endeavour, particularly among young people;
• new initiatives to reduce business and input costs, as well as red tape;
• expanding network infrastructure and improving the efficiency of such infra- structure to create the platform for competitive investment;
• boosting South-South business relations;
• supporting initiatives to boost productivity and innovation in the economy;
• continuing with infrastructure investments across the power, transport and water sectors; and
• stimulating those industrial sectors identified under the Industrial Policy Action Plan.

Emphasis will also be given to reinvigorating the agriculture and mining sectors, where significant potential exists to create jobs and to raise exports.

"So, we are not talking about short spurts, but sustained growth over a period of time. That means we have to put a recipe together, and that's the work we are currently doing," Gordhan explains.

The Rand Factor

Further, consideration could be given to macroeconomic policies that encourage export-led growth, possibly through addressing the volatility of the rand, as well as the perceived overvaluation of the local currency unit.

A recent Organisation for Economic Cooperation and Development (OECD) Economic Survey of South Africa stated that there could be "net benefits from a range of actions designed to ease upward pressure on the real exchange rate". Using the Fundamental Equilibrium Exchange Rate approach, the survey quoted an estimate suggesting that the rand was about 15% overvalued in real effective terms in March, 2010. It noted, too, that there has been further appreciation since that date.

The OECD specifically suggested a more active accumulation of foreign exchange reserves by the South African Reserve Bank (SARB), particularly when net inflows are strong and allowing depreciation when these flows weakened. Such intervention could be supported with increased communication to send stronger signals to the market about where the SARB saw the exchange rate in relation to its own "equilibrium level".

The suggestion gelled with a recent joint declaration by South Africa's Manufacturing Circle and three of the country's largest trade unions, which called on government to intervene to weaken the buoyant South Africa currency, which rose 30% against the US dollar in 2009. In 2010, the unit has not only held onto its 2009 gains, but even strengthened to better than R7,20 to the dollar in August.

The Congress of South African Trade Unions (Cosatu), the Federation of Unions of South Africa and the National Council of Trade Unions indicated that a rand:dollar exchange rate of between R9 and R10,50 would go a long way towards helping to revive the embattled domestic manufacturing sector.

Gordhan says that SARB's mandate has already been broadened beyond inflation targeting to include considerations relating to growth, employment and the threat of asset bubbles.

A more assertive accumulation of reserves has also been included as part of the policy mix to foster a more "competitive and stable exchange rate" and government has already spent more than $2-billion on such accumulation initiatives.

"But [that] $2-billion comes with an opportunity cost," Gordhan cautions, particularly in a country where there is so much need. "These are all the careful considerations that keep us awake, both during the day and sometimes at night."

There are a number of structural challenges that compound the problem. As a commodity economy, South Africa tends to attract short-term flows as commodity prices rise. And, in the context of the prevailing poor returns in some traditional markets, there is also an abundance of liquidity seeking yields in places such as South African equities and bonds.

"With that comes the problem of the appreciating currency," Gordhan says, making no reference to a proposal contained in an African National Congress policy document that government consider the imposition of a tax on capital inflows to curb rand strength.

"We also know that intervention in this sort of area is, at the best of times, a sensitive matter . . . and is something that needs to be carefully thought through."

A depreciated exchange rate is also "not a panacea to all of our problems" and a "multidimensional, holistic" approach is required to deal with South Africa's economic and social problems.

While empathising with those sectors battling as a result of the stronger rand, the Minister argued that the "sooner we can move away from a lobbying position to a problem-solving position, the better it will be for all".

The downside risks associated with a weaker rand, such as higher inflation and a higher cost of the infrastructure build programme, which relies heavily on imports, should also not be entirely dismissed. "Life is about balances and the economy more so than anything else is about balances. There are always trade-offs," Gordhan warns.

Government is considering a multi- dimensional response and is currently analysing what policy levers it has at its disposal to improve competitiveness, raise employment and exports, as well as boost growth.

Opportune Timing

Gordhan believes that those solutions should be packaged into a coherent vision and programme of action, around which an implementation partnership with civil society can be forged.

Such an initiative is likely to receive a warm reception, particularly from business, which has indicated that a new national goal is required, following the success of the 2010 FIFA World Cup.

Big business in South Africa has already called for a new ‘big idea'. In fact, Business Leadership South Africa, which is made up of the CEOs of the 70 largest enterprises operating in South Africa, has already suggested ‘Vision 2040', which aims to transform South Africa from a developing into a developed country over 30 years.

Similarly, Cosatu has stated that the World Cup proved that South Africans can unite behind a single goal and has said that it will strive to ensure that South Africa "uses the energy unleashed by the World Cup".

More generally, South Africans are also showing a strong appetite for a national sense of purpose, as epitomised by initiatives such as Lead SA, which seeks to foster hope and inspire people to "make a difference" by doing the right thing in everyday actions.

On the economic front, government will seek to ‘hard-wire' this new enthusiasm under the ‘New Growth Path' theme, which is likely to incorporate the 7%-over-20-years growth aspiration.

"We are saying that such an ambitious growth target is doable, as other countries have proved that," Gordhan enthuses, revealing, too, that government is studying those countries that have been able to sustain high levels of growth for long periods.

But such ambitions should be grounded in reality. "We need to take a hard look at ourselves in the mirror and say: ‘What am I good at? But equally, where are my warts and how do I get rid of them in order to reach these new targets'."

Indeed, Gordhan's more immediate reality contrasts markedly with the growth targets being considered. The country is emerging gingerly from its first recession in 17 years and new threats have emerged on the global economic horizon.

Nevertheless, the indicators are that South Africa's GDP growth in 2010 will be higher than the 2,3% indicated by the National Treasury in February, with many private-sector analysts expecting growth to come in at around 3%.

The National Treasury is also of the view that, despite the eurozone debt crisis and lower-than-expected US GDP figures of 2,4% in the second quarter, a double-dip scenario is unlikely and that South Africa, like other emerging markets, is "on a good wicket".

But Gordhan is concerned about the current push to give fiscal consolidation precedence over growth considerations and, thus, remains cautious about the immediate outlook.

"We live in an uncertain world and we don't know where the next shock is coming from."