Thabang Motsohi
Thabang Motsohi

Can the new administration inspire investor confidence?

The latest gross domestic product numbers have confirmed that our economy is experiencing very serious strains and the ongoing platinum miners’ strike is a major contributor to the negative trend. At the heart of the problem is the uncomfortable reality 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. But contraction in this sector over the years has presented us with special challenges. We need to accept the uncomfortable reality that low-wage, mass-employment manufacturing opportunities is strategically the way to go. This will always meet with massive resistance from the labour union component in the ruling alliance, who always insist on decent wages and decent work. We may then have to look to wage subsidies for a solution. The question will always be how to fund such subsidies. The only possible source is progressively higher taxes on the rich.

If a comprehensive survey could be made to estimate state of happiness for SA across a few critical parameters, the result would be largely negative. Such an outcome would accurately be reflecting the feeling of the majority of the people that the economy does not provide them with adequate opportunities to exploit their God-given gifts and talents and participate in the economy in order to pursue their dreams and hopes and improve their life circumstances.

In a situation where the economy and investment are growing and sustainable job opportunities are being created, the hopes and dreams of people are normally 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 a pedestrian 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 following few indicators are worrying:

• Among the “youth” (15 to 24-year-olds), South Africa’s employment ratio is 12.5%. Emerging market average is 36%.
• Total unemployment rate is currently around 25% of the labour force. Using a more inclusive definition, it is about 40%.
• Those under 35 account for over 70% of unemployment.
• The household debt as a percentage of disposable income is weighing very heavily on consumers and stands at almost 80%.
• Foreign direct investment lags far behind that of our competitor partners.

Given the scale and complexity of South Africa’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 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.

The central issue with education is weak focus on quality education and what must be done to improve it. For example, a recurring weakness and feature of the public education system is the high drop-out rate that occurs among the quintiles one to three schools that affects children from poor and black families. Over 50% of learners in grade nine and 10 are lost to the system due to this culling process that is designed to eliminate poor performers from sitting the final grade 12 examinations. The objective here is to improve examination outcomes for political purposes.

The truth of the matter is that the business confidence index is very low and businesses are sitting with huge cash reserves on their balance sheets. Foreign direct investment also lags that of our competitor partners. This reluctance to invest reflects the perceived uncertainty and confusion at the level of government economic policy.

At the political level, the alliance partners have ideological perspectives and positions that fundamentally conflict with one another. This ideological gridlock is especially pronounced at the economic policy level. The conflict around the National Development Plan is a classic example of this disagreement and yet the government intends to use it as the flagship of its economic policy in the next five years.

As long as this gridlock persists, creating an attractive investment climate will continue to be elusive. The new economic cluster is intended to provide policy clarity and lead with a harmonised and clear message to inspire investor confidence.

What is clearly necessary and urgent is the need to have a comprehensive dialogue by all stakeholders on an appropriate and shared growth path and strategy for South Africa. And, 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. These are issues that will require visionary leadership by all sides and they have been avoided for far too long.

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