Big five priorities
“While the South African economy is weak, we must acknowledge that this country has a big business foundation - one of the best out of emerging markets, with production parallel to China and Brazil,” said Paul Jacobson, co-author of McKinsey & Company’s report South Africa’s Big Five: Bold priorities for inclusive growth.
Speaking at the Mail & Guardian and Gordon Institute of Business Sciences (GIBS) second Critical Thinking Forum on February 25 2016 in Illovo, Sandton, Jacobson’s keynote address led into a panel discussion on the topic of “Reimagining South Africa: What does the future hold and who is going to take South Africa forward?”
Jacobson outlined the five opportunities that the McKinsey researchers believe can advance South Africa, which are: advanced manufacturing, infrastructure productivity, natural gas, service exports and raw and processed agricultural exports.
“South Africa can be a meaningful player in advanced manufacturing, particularly in terms of automotive, chemical, mechanical - and is a world leader in the production and export of centrifuges,” he said. “We could build on this and produce products and services adjacent to our strengths. To unlock our potential, we need to focus on our core skill sets, leveraging from our existing skills base and leveraging on our investment in machinery.”
He said that if this country’s government and business prioritised the “big five”, this could increase GDP growth by 1.1% per annum, adding one trillion rands to annual GDP by 2030 and creating 3.4 million jobs.
The second-largest economy in Africa - after Nigeria - South Africa has a good business environment, particularly in the area of corporate governance, a growing consumer class and six upwardly mobile cities. This is tempered by poor growth and job creation, slowing investment, enduring poverty and growing pessimism both domestically and internationally. Jacobson and the other panellists stressed the importance of reversing negative trends.
Said Lyal White, director, GIBS Centre for Dynamic Markets: “There are areas of neglect. We have forgotten about nation-building, education in the universities, productivity in South Africa is dismal at best, we have neglected Africa, and government and business have not done enough to develop a competitive relationship.”
Doctor Rob Adam, director, SKA Project, said that local markets showed governance and fiscal prudence. “The Sandton skyline demonstrates that a lot of investment is going into South Africa via Sandton, yet we do still have the tin shacks in Vanderbijlpark and Germiston. We have not transformed our heads.”
Said Shaun de Waal, Mail & Guardian editor-at-large: “There is an uncomfortable mix. Local investors follow international investors but we don’t need investors quite the way other countries do. We have lots of plans, but there is almost a paralysis that has gripped South Africa.”
Jacobson said: “This country spends 5% of its economy on infrastructure - one of the highest in the world. Streamlining projects and delivery could create another 600 000 jobs.”
South Africa also faces an ongoing shortfall in electricity and Jacobsen said that natural gas plants, which are relatively quick to build, are not capital intensive and have a low carbon footprint, could provide a feasible alternative to diversifying the power supply.
Jacobsen also said South Africa is losing out on huge potential revenue in the services sector to other African countries, which have geared themselves to exploit opportunities. “We only hold a 2% market share of services imported by neighbouring countries. There are big opportunities available to us, without having to confront the Chinese head-on. We have very strong retail banking and insurance sectors, which need to look at how they can meet the needs of the lowest income sectors.
“Agriculture production and processing has the potential to double economically, based on analysis of products we are already exporting and growth in consumption rising in sub-Saharan Africa and Asia. We have to recover from the drought and invest enough in processing to address farming infrastructure and value chain — getting products to market.”
Jacobson said there is a need to analyse what jobs to create. “Almost half the jobs created will require vocational skills, which require us to develop the youth in careers such as artisans, welders and clerks. We need to strengthen career guidance and education towards employment where it is needed [most].”
Panelist Phuti Mahanyele, executive chairperson, Sigma Capital, said: “R2-billion is spent every year on education, in spite of which, we still have a low level of matric pass rate. We need to find ways to change ordinary lives through education and then beyond.”
Jack van der Merwe, Gautrain’s chief executive, added: “We have to bring in international companies and bring in skills. We just need to ensure we have good contracts with them. Africa is awakening and the window of opportunity with Africa is closing. If we don’t take up these opportunities, we will lose them.
“We also need to have an on-going conversation in this country to remove the concept of what is a business and what is a government problem,” concluded Jacobson.
Dean of GIBS Nicola Kleyn raised the issue of collectively determining a future for South Africans. “There is the need to emphasise both inclusive growth and the development of social cohesion in determining our collective future.
“There is also the need to acknowledge our past and the grittiness of our present as we conceptualise and enact our future - and it is a future not only based around economic growth. We cannot commit to a future without considering our past, and now playing into the present,” said Kleyn.
“It is a collective role determining what kind of future we can procreate and nurture. There needs to be balance to realise the immense opportunities in South Africa and on the continent and imagine a future with more cohesiveness.”