The 6% solution

South Africa’s democratic government has shown a resolute commitment to the modernisation of the country’s economic policy and management architecture.

Macroeconomic policy management has played a critical role in creating a credible and competitive platform for growth and development. All components of economic policy (labour, trade, competition policy, fiscal and monetary policies) have undergone fundamental reforms.

The benefits from these reforms, controversial as they might have been, are manifest in indicators such as the longest period of uninterrupted GDP growth, the rapid growth of middle-income groups, the rising global sovereign credit rating, the huge extension of social welfare, falling interracial income gaps and the remarkable rise in investment trends — particularly the turn­around in public sector investment after nearly 30 years of stagnation.

It is true that these reforms coincided with a period of unprecedented prosperity in the world economy. The spectacular expansion of China, India, Russia and Brazil has led to a long-term commodity boom, the so-called “commodity super-cycle”. By defying many doomsday predictions in the past six years and growing at its best pace in three decades, the world economy has created a favourable environment for many emerging economies, including South Africa.

Of course, we could have benefited much more had it not been for the crippling shortage of skills, the misalignment of our export sector, obstinate and pervasive poverty and systemic operational inefficiencies in the public sector.

These interrelated indicators of fault lines in the political economy set the stage for the policy challenges facing the African National Congress (ANC) and the country beyond the Polokwane conference.

From a macroeconomic perspective, the massive disparities in South Africa, coupled with considerable expectations of economic empowerment, require sustainable growth of more than 6% in the next decade.

Though it is true that the employment equity and black economic empowerment (BEE) policies of the past decade have been instrumental in changing symbolic racial disparities and creating a rising pool of “role models” for success in the business sector, it would be hazardous to assume that BEE, if done well and with adequate “broadness”, would lead to widespread and sustainable mass empowerment capable of eliminating structural poverty.

Sooner rather than later the underlying economic drivers of the current BEE model will run out of steam. A downturn in the economic cycle alone might jeopardise many of its considerable gains. And even when coupled with employment equity and large-scale fiscal redistribution favourable to the poor, it is unlikely that this approach to empowerment will result in widespread and sustainable poverty reduction.

In the long term, within a market economy, sustainable and effective empowerment can come about only as a result of three key structural drivers: sustainable growth of more than 6%, widespread skills generation and an efficient and effective public sector. These factors constitute the necessary and sufficient conditions for a systemic elimination of the remaining macroeconomic challenges. But they are subject to continued socio-political stability, hence the importance of the forthcoming Polokwane conference.

Although GDP growth alone is not enough, it is undoubtedly the prerequisite for sustainable develop­ment. To effect a sustainable average GDP growth of 6% in the next decade, it is important to note the limitations of macroeconomic policy. I would argue that our main challenge is no longer at the level of macroeconomic policy, which by and large has delivered the expected dividend. Not much can, or should, be expected of macro policy to deliver higher growth. (This is not to deny the fact that some aspects of corporate tax, foreign exchange and labour policies require refinement.)

The emphasis going forward has to be on key structural and long-term drivers of growth. These include:

  • massively improving human resource development infrastructure;

  • dramatically reconfiguring the machinery of the state;

  • enhancing long-term institutional capabilities; and

  • implementing an effective strategic industrialisation strategy.

Judging by the sharp fall of South Africa’s ranking in the 2006/07 Global Competitiveness Report, it is clear that we have much work to do. Achieving a more globally competitive ranking should be a top strategic objective. After all, in a globalising environment, it is the relative position that assumes rising significance for the sustainability of growth and development. The route to achieving this objective requires committed and visionary leadership.

Systemically, all these areas are interrelated. The lack of a robust and effective human resource development framework is our most salient obstacle to sustainable GDP growth. South Africa’s modern economy requires an integrated education and skills develop­ment platform spanning formal schooling, vocational training and sector-specific skills augmentation, supplemented by on-the-job training.

The management of our public schools and institutions of higher learning leaves much to be desired. Despite much rhetoric and attempts at transformation, the level of teacher competency and commitment remain out of sync with the requirements for an effective human resource development system of an economy in a digital age.

Furthermore, the interface between the formal education system and business-driven skills generation is far too weak and uncoordinated. And the moribund sector education and training authorities (Setas) are no substitute for putting in place a workable and effective integration mechanism to ensure continued skilling and skills upgrading within the economy.

To ensure an average of 6% GDP growth on a sustainable basis, a robust export sector is required. In recent years the contribution of exports to GDP has fallen from its high of 23% (2002) to the current level of 16%. This is far too low given the structure of our economy. This suboptimal state of affairs has manifested itself in an exceptionally high current account deficit of more than 6% of GDP. In the short term this might be manageable, mainly through an inflow of foreign capital, but it is not sustainable. At the very least it is a source of macroeconomic vulnerability, given that our export ratio should average about 30% of GDP.

To achieve and sustain such export levels, a robust mix of private and public sector productivity increases is needed. Although the private sector has done much to catch up with global productivity levels in the past decade, the same cannot be said of the public sector. In fact, under the pressures of economic growth, the relative performance of the public sector has declined.

It is ironic that at the very time when government has abundant financial resources and the economy is doing so consistently well, public services are experiencing a notable decline. Of course, this is not unique to South Africa. During periods of economic buoyancy the relative attraction of higher pay lures many good public service professionals to the private sector and this has been true for South Africa in the past decade. This has resulted in shrinking delivery capacity and declining quality within the public service.

Moreover, the operational environment of the public sector lacks efficiency, coordination and systemic dynamism. This is true despite the introduction of initiatives such as Batho Pele, the New Public Service Act and Public Finance Management Act.

Given that nearly 40% of the country’s GDP is managed within such an environment, it is painfully obvious that unless public sector productivity improves dramatically, the country’s global competitiveness is at risk. So is the prospect of accelerated social delivery. To turn this environment around requires resolute political leadership. Procrastination is bound to deepen a culture of mediocrity and bureaucratic compliance in the public sector. This is inimical to the sustainability of growth and social development.

As with the case of our macro policy reforms during mid-1990s, the next generation of policy reforms requires clear, focused and committed leadership. Though it is tempting to muddle through these critical and thorny issues, the political leadership has to rise to the occasion, create a vision, chart the roadmap and stay the course. For a glimpse of what is required, the contemporary experiences of India, South Korea and Vietnam offer much to emulate.

The Polokwane conference is an opportunity for the ANC to create the will to transform the country beyond the customary rhetoric. It is an occasion to lay the foundation for an effective and accelerated normalisation of the political economy by focusing on the micro-institutional foundations of sustainable growth.

Iraj Abedian is the chief executive of Pan-African Capital Holdings

In December this year the 52nd national conference of the ANC convenes in Polokwane, Limpopo. The decisions taken by conference delegates — from electing the new party leadership to the ANC’s strategy and tactics — will play a decisive role in South Africa’s political, social and economic future. In the spirit of deepening the national debate, the Mail & Guardian is publishing Polokwane Briefing, a series of columns in which participants representing a broad range of views address matters that the ANC, and South Africa, will be considering in the months and years ahead

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