Business Day 28 JUNE 2018 – 05:04
Having recently acknowledged that cracking down on corruption and patronage appointments is necessary but insufficient to spur meaningful growth, SA must now unravel how it creates its own limitations.
Two pervasive beliefs preclude adequate growth. Policies presume domestic wealth and purchasing power can fuel broad prosperity.
Another erroneous belief is that enormous workforce upskilling must precede sustained high growth.
With more than half the voters entrenched in suffocating poverty, the politics of redistribution are irresistible. Yet redistribution policies conflict with expanding exports. Thus, routinely prioritising redistribution ahead of exporting at each policy juncture has greatly dimmed growth prospects.
While SA’s mineral wealth is enormous, its constitutionally mandated social obligations arising from pervasive poverty are greater still, and they are compounding insidiously. Thus SA’s debt has been rated junk despite moderate debt relative to GDP. This ratio climbing from 50% to 60% or 70% is of modest consequence relative to the fiscal and political threats of a majority of voters being perennially poor. Thus the IMF’s favoured restructuring tools — persuading investors to write down debt and having governments embrace austerity — are poorly suited to SA’s circumstances.
SA’s domestic wealth and domestic purchasing power have allowed a few blacks to become extremely wealthy and there are now more middle-class blacks than whites. But such progress was never sustainable. SA’s per capita income has stagnated for a decade and many recent middle-class gains will soon be reversed as government crimps wage increases and sheds jobs.
Prioritising redistribution ahead of increasing value-added exports entrenches poverty, yet this was made worse still by a regulatory environment supporting middle-class entrants becoming overindebted on costly loans. This restricts improvements in family cash flows and asset accumulation. Thus growth in domestic purchasing power has been imprudently stunted.
Like China in the late 1970s, SA must now abandon counterproductive policies while accepting that growth follows from collaborations that increase exports. SA’s politically nuanced version of “capitalism with Chinese characteristics” could be “smart redistribution”.
The false belief that increasing value-added exports requires a well-educated workforce, must also be overcome.
Most well-educated South Africans believe success reflects education outcomes. Creative entrepreneurs can transcend this belief.
But it is made more difficult by policy-makers believing they can best assess export options. High-growth countries look to entrepreneurs to identify and crack new markets.
The net number of jobs cannot increase by small businesses fighting for domestic market share in a stagnant economy against highly skilled and better resourced teams in big companies. This central policy pillar is misconceived.
It is also misguided to think teaming investors and big business will solve SA’s employment challenges. Investments by large companies increasingly lead to technology displacing workers, particularly in low-growth environments.
High-volume job creation in emerging economies is mostly about entrepreneurs uncovering opportunities for exports.
Fervent social conditioning demands that whites seek partial redemption through redistribution, while blacks are conditioned through electioneering rhetoric to focus on being owed. Such thinking is morally resplendent yet economically self-defeating. SA’s enormous entrenched poverty will not yield to redistribution programmes that choke growth prospects.
Encouragingly, SA’s divisive politics may be on the mend. A “safe assemblage zone” is emerging where political and business leaders can come together to advance small business development. However, the net number of jobs cannot increase by small businesses fighting for domestic market share in a stagnant economy against highly skilled and better resourced teams in big companies. This central policy pillar is misconceived.
Big businesses must support, for commercial gain, small businesses in their sectors that develop export opportunities. Just as global trade surged and poverty plummeted when cross-border trade dispute mechanisms displaced imperial tactics, the pending bill to have an ombudsman arbitrate disputes among big businesses and their small suppliers should spur waves of ever more valuable collaborations.
Big business’s R1.5bn small business development fund must also be special-purposed to support export collaborations. The government must reciprocate with special dispensations for such new export initiatives that enable competitiveness.
SA has no choice but to boost exports of goods and services significantly.
Published in Business Day