Prioritising growth key to dispelling cynicism, and turning SA around

14th February 2024

Prioritising growth key to dispelling cynicism, and turning SA around

The cynicism pervading the commentary around last week’s State of the Nation Address (SoNA) was entirely predictable, and had been foreshadowed in a stream of articles in the run-up to the event.

Reflections on unmet commitments, on failed initiatives and on the general malaise in the country abounded, and nothing more impressive was envisaged for Thursday night. The President’s performance, disappointing though it was, was expected.

The SoNA provides a platform for showcasing big ideas. Typically, lots have been on offer, and as the years have worn on, they have become progressively less credible.

Last week’s SoNA was largely a punt to the electorate: a reminder of the dreadfulness of pre-democracy South Africa, a tour through achievements, excuses for failings that apparently had little to do with the government itself –  listening to the references to “state capture”, one might forget that President Cyril Ramaphosa held the vice presidency during its height, and that he has rejected some of the Zondo Commission’s recommendations – and promises that the country’s “challenges” will imminently be addressed.

The point has been made that the speech befits an election year and a political party facing unprecedented credibility problems. But it speaks to something else: a failure to understand the manner in which its policy objectives relate to one another and a rank inability to prioritise them.

A successful socio-economic development strategy demands a robust economy. Absent the necessary resources, upliftment endeavours and redistributive measures are unsustainable. As always, SoNA was weighty on the latter – the Social Relief of Distress Grant would be “extended” and “improved” – but vacuous on the former.

And so, referring to public works programmes, the President declared: “While economic growth is essential to reduce unemployment, we cannot wait to provide the work that many of democracy’s children need.” In this, he unwittingly acknowledged the imperative of economic growth, but then – in a time-honoured South African tradition – shifted focus onto its (absent) byproduct, employment, and offered a palliative as a substitute.    

South Africa’s various economic strategies have pitched essential real economic growth at between 5% and 6% a year, underpinned by investment of around 30% of GDP. At this level, the economy could expect to be generating the job opportunities, the trade and the wealth that would deliver a virtuous cycle of expanding prosperity – and the only path to maintaining the social welfare net on which millions depend, and will depend for at least another generation.

In reality, South Africa has managed no more than three years since 1994 in which growth has exceeded 5%. In the years of President Ramaphosa’s incumbency, the highest has been 1.9% in 2022 (unless one counts the post-Covid rebound of 4.7% in 2021 from a 6% decline the year before).

The International Monetary Fund projects growth of 1% this year. The South African Reserve Bank is more optimistic, forecasting growth of a whole 1.2%. These numbers denote not a steady national decline with no respite in sight.

Indeed, beyond the abstraction of numbers, warnings of where the country is headed are everywhere, and have been evident for the better part of two decades. Think about this: South Africa experienced its first bout of load-shedding in 2007. After repeated assurances and high-visibility interventions (remember the “War Room”?) – even over-budget new power station builds that have been dogged by allegations of impropriety and technical design flaws – South Africa remains crippled by it. Last year was one of the worst the country has experienced. Indeed, as Ricardo Hausmann has commented, there are no comparable countries which have suffered such a crisis for so long. (Incidentally, as SoNA was being delivered, loadshedding was at Stage 2; the next day it was at Stage 4.)

In setting out his party’s post-1994 achievements, President Ramaphosa asserted: “We have enabled a diverse economy whose minerals, agricultural products and manufactured goods reach every corner of the world, while creating jobs in South Africa.”

Yet these are all sectors that have – directly and indirectly – suffered greatly from policies subordinating success to the ideological preferences of the government. Demands to cede equity to approved “partners” have proven a disincentive to entrepreneurs and investors. The expropriation without compensation agenda shook the country’s agricultural sector – and much else besides. Attempting to use the power and logistics institutions as drivers of “transformation” undermined their functionality, legitimated corruption and ultimately imposed enormous costs on the country.

And as this persists, it means more unemployment, more immiseration and more frustrated lives.

But this needn’t be South Africa’s long-term fate.

South Africa retains strong fundamentals that can be leveraged, provided there is a proper reorientation of economic policy. Economic growth needs to be the clear priority. As the Institute of Race Relations has argued, significant movement is possible with some important but relatively simple policy changes.

The objective must be to remove the blockages to growth. Lawful economic activity must be regarded as a welcome, natural good in itself, irrespective of who is undertaking it. Where restrictions are in place, they must serve a clear, evidence-driven public benefit, not an ideological fixation, and certainly not one that has failed to produce its promised benefits. Regulations protecting water or air quality are reasonable and justifiable; race-based employment demands and “preferential procurement” are not.

Indeed, Hausmann’s Harvard University-based Growth Lab, in a revealing report last year, remarked that the hard reality of much extant policy was that “empowerment of a few has de facto come at the expense of the many”.

A growth agenda demands a relentless commitment to efficiency, to getting things done. Given that the state is itself broken and compromised, this will require outsourcing some functions.

The private sector is no cure-all, but it has not been wantonly incapacitated. It is a resource that South Africa has that can bridge the gap as the state is professionalised and refocused on handling a limited core of responsibilities. Ironically, for all the controversy that “privatisation” generates, it’s no longer an ideological issue, merely a matter of practicality and pragmatism.

Practicality and pragmatism, not to mention prioritisation, were little in evidence last week. But they are the keys to getting growth going – and to dispelling cynicism.

Written by Terence Corrigan, publications and project manager at the Institute of Race Relations