South Africa’s policy choices unwittingly reinforce poverty

Statistician general Pali Lehohla has reminded us, yet again, that our stubborn and rising structural unemployment demonstrates that economic growth is still elusive and that our growth strategies are not delivering the intended outcomes. He also observes that the level of foreign and domestic investment is too low to create new businesses and jobs.

The challenge with foreign direct investment (FDI) is that for many years it has been around 20% of GDP and it has not exceeded capital depreciation significantly enough to be able to catalyse growth and the creation of new businesses and jobs. For the economy to create the level of jobs anticipated in the National Development Plan (NDP) it would require the FDI to exceed 30%. The implications are pretty obvious. This is the area of the political mandate and leadership with strategic foresight. We need to create an investment climate that is attractive because it is the private sector that creates jobs by investing in new businesses and expanding existing businesses.

At the heart of the rising unemployment problem is the uncomfortable reality and paradox that the majority of the unemployed are unskilled and yet we are progressively moving towards a high-tech and high-skills economy.

Mining has historically provided the employment opportunities for this labour segment and contraction in that sector over the years has presented us with special challenges.

We need to accept the reality that strategically the way to go is low-wage mass employment opportunities in manufacturing, but this puts us in direct competition with low-cost competitors in the far East and will always meet with resistance from the labour component in the ruling alliance, which insists on decent wages and decent work.

We may then have to look at strategically targeted wage subsidies for a solution. The question is how to fund such subsidies. The only possible source is progressively higher taxes on the rich. The fact of the matter is that we must create jobs for the kind of unemployment we have and not that we wish we had!

The NDP identified the need for average annual growth of over 5% a year between 2012 and 2030 in order to meet its targets of eliminating poverty and reducing inequality, primarily by creating 11 million new jobs. However, annual growth has barely touched 3% sinc and has been slowing over the past few years to around 1%. The result is that our economy is considerably smaller now than the NDP would have hoped and the average growth rate needed to achieve the NDP’s target for the size of the economy by 2030 is now over 6% a year. More importantly, the failure of the economy to grow means that many social policies championed in the NDP, and by government, appear increasingly unaffordable

Given the scale and complexity of SA’s unemployment problem, and especially of youth unemployment, no single or easy policy solution exists. Stimulating faster growth in general, and employment creation in particular, requires the determined adoption of a broad package of long-term measures to address and resolve both the supply-side and demand-side constraints.

These must include not only the rectification of the deficiencies of the education and skills development systems, but also the adoption of more business-friendly economic policies to restructure the economy, reform the general investment climate and increase the incentives for private enterprises which ultimately constitute the primary source of new jobs. It is encouraging that the energised engagement between government and business is finally searching for mutually agreed interventions.

In a situation where the economy and investment are growing, and sustainable job opportunities are being created, the hopes and dreams of people are positively influenced. In such a situation, tax revenues for the state increase and the state is in turn able to increase the services it can provide, especially to meet the needs of the poor. Unfortunately we have experienced slow growth in our economy for many years. As a result, the ability of the economy to absorb the ever-increasing workforce has been limited.

The economic growth rate in the past few years has barely exceeded the rate at which the population increases on an annual basis. With growth projections at no more than 2% up to 2019, it means we are progressively getting poorer and it will increasingly become difficult to reduce inequality and poverty significantly. It is broadly agreed that the key factor that links poverty and inequality is unemployment, which affects not only the unemployed (nearly 8 million people) but affects the broader society as well. This is because the wages of the working poor and grants provide support to the unemployed in poor households.

Researched has demonstrated that one of the persistent constraints that confront the poor is the cost of going out to look for jobs. Our spatial and housing policies have extended, very faithfully, the legacy of the apartheid design. We have continued to provide very poorly constructed social housing in areas that are far away from commercial centres instead of opting for high density housing in the cities and near commercial centres. The rationale for this policy is astounding except for the simple reason that it was used as a political ticket. The refrain has always been that “we are committed to providing RDP housing for our poor people”. The arrogance reflected in this statement, often used by the tripartite alliance, is that the poor have even been commodified and policies intended to serve them have instead reinforced the poverty in which they exist.

Economic policy remains a bitterly contested terrain because of the fundamentally different ideological perspectives of the alliance partners. The conflict around the NDP is a classic example of this disagreement and yet the government frequently uses it as a flagship of its economic policy over the next five years.

However, as long as this gridlock persists, creating an attractive investment climate will continue to be elusive. What is clearly necessary and urgent is the need for a comprehensive dialogue by all stakeholders around an appropriate and highly focused and shared growth path and strategy for SA. Such a growth strategy must focus on, and include, the following key elements:

Quality education for all, especially the poor.
Anti-monopoly policies and strategies that are aggressively implemented.
Steeply progressive taxation that may include a development tax on the rich.
Labour market reforms to promote employment of low-skilled people and a strong social safety net
Providing incentives for the creation of mass employment opportunities in the manufacturing sector

These are issues that will require visionary leadership from all sides and they have been avoided for too long.