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Build industries, not malls

30th July 2010

By: Seeraj Mohamed

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South Africa is faced with economic policy decisions over the short term that will have a huge impact on the lives of our grandchildren and great-grandchildren.

We know that we cannot let the economy carry on the same path that it has been on since the 1990s. Unemployment and poverty remain huge social problems and inequality has grown. My view is that government should place emphasis on industrialising the South African economy. We should support and nurture diverse manufacturing and services sectors that will increase levels of value addition in the economy.

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Our economy has been geared towards increasing consumption by more- affluent South Africans. There has been significant growth of the financial sector without a big, visible contribution from the financial sector towards increasing productive activity and levels of productivity in the country. Instead, finance seems to have serviced affluent members of society in their consumption and speculative activities.

There are many who argue that it does not make sense for government to channel effort and resources into supporting and nurturing manufacturing and productive services enterprises in the country. They point to low levels of skills and argue that wage levels are too high. They say that we will not be able to compete against China and other Asian economies that have low wages and better-skilled workers. Their solution is not to drive the economy onto a different path but to improve existing areas of the economy. One such economist recently suggested an ‘open skies’ policy that would see the cost of air travel to South Africa declining. He argued that this liberalisation would lead to more tourism in the country, which would create more jobs.

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Another economist recently argued that economic policymakers should worry less about the big picture and fix all the little things that make businesses less competitive. He gave, as examples, the time it takes to register a company and the difficulties and delays associated with moving goods across borders to neighbouring countries. Both these economists are correct: there are many things government can do to get certain markets working better and to increase the competitiveness of our businesses. However, I think that we should be doing much more. We should be developing a vision of the future economy we want and building that economy while we improve, innovate and tinker with the myriad of issues that reduce our competitiveness.

I firmly believe that there is a two-way relationship between the kind of economic activity you undertake and the inefficiencies in the economy. The fact that policies have neglected growth in productive activities has led to a situa- tion where fewer people in government and business make an effort to sustain and improve all those areas that would contribute to increased productivity and competitiveness. In other words, the argument is more complex than the absence of capacity and skills. We have built infrastructure and capacity in many areas of the economy, particularly in areas where affluent South Africans have focused their economic activity: consumption and speculation. South Africa has better shopping malls and car dealerships than many other countries, including some developed countries. The infra- structure and systems to support speculation in equities, bonds, derivatives and other financial markets is highly developed.

The money available for investment and the talent and skills coming out of our higher education system moved into these areas of the economy during the 1990s and early 2000s.

The current economic configuration of our economy is geared towards sustaining and possibly exacerbating the inequalities in our society. And, as the affluent spend more on luxury cars, mansions, private security, private schools and private health insurance, the economy will grow, but poverty, inequality and political stability will get worse. We have to shift our resources and efforts from speculation and showy consumption for instant gratification towards building long-term, sustainable productive industry.

We have to work out how to outcompete other economies in order to increase employment growth and reduce poverty and inequality.

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