/ 6 May 2011

Competiveness ‘rests with the state’

State capacity and coherent economic policy have emerged as two of the key issues if South Africa’s global competitiveness is to improve.

These issues, the broader concerns over education and skills and the relationship between the labour market and productivity were raised at a workshop hosted by the World Economic Forum (WEF) on Africa in Cape Town this week.

Saki Macozoma, chairperson of Liberty Holdings and a member of the panel at the workshop, said the ideological debate about increased state involvement in the economy and the emphasis on a “developmental state” were problematic when the state could not deliver. “If you have a state that is not, as we speak, capable of running municipalities properly, how are you going to have a developmental state?” he asked.

The managerial capacity of the state was too limited to meet the needs of development on its own, he said, and the increased dependence of the emerging middle class on the state for employment had to be halted.

This dependence meant that people would not challenge the state and the excesses seen in state business would not be addressed. Decoupling the middle class from its dependence on the government was very important, Macozoma said.

The crisis in many state-owned enterprises was also a concern and it was important that institutions responsible for public services should have the right leadership and management and clear objectives. If that were to happen the “effectiveness of the state would improve”.

Macozoma said that adding to a lack of clarity were the many state departments — including the treasury, the departments of trade and industry and of economic development and the national planning commission — that could influence economic policy. The fact that the ANC was in a “perpetual state of elections within itself” also made it difficult for the party to take coherent positions on economic policy, he said.

Ann Bernstein, of the Centre for Development and Enterprise, echoed his views, saying South Africa, as a developing country, could be a lot more competitive in several areas but was hindered by a “divided and squabbling ruling party”.

Crucial problems
Problems such as education and skills and finding ways to address the growing number of unemployed young people were also identified as crucial. Bernstein stressed the importance of creating businesses that provide low-wage jobs to absorb the large number of unemployed youth “who are unskilled and, through no fault of their own, have not had a decent education”.

In seeking to achieve increased growth rates, Marilou Uy, sector director of the World Bank’s department of African finance and private sector development, said South Africa would have to examine ways to address the large number of people between the ages of 18 and 40 who were unskilled but would make up the bulk of the workforce in the next two decades. Ways had to be found to absorb this group, including a closer examination of the industries that rely on this type of labour and of ways to train these workers.

Discussions also touched on the often unpopular reception of these types of analysis by state authorities. Jennifer Blanke, head of the Centre for Global Competitiveness and Performance at the WEF, said that in measuring the competitiveness of countries the organisation looked at a mix of quantitative data as well as qualitative data gathered by surveying top executives operating in a country.

Although the report could be criticised for relying too heavily on survey data which informed two-thirds of it, Blanke said the survey was better able to address questions not easily answered by hard data. She gave the example of the protection of property rights, one of the criteria used to measure competitiveness. “You might be able to figure out what the law [in a country] says, but how well protected are they?” she asked. As there could be a lag in statistical information, survey data were also generally much more recent.

Blanke said states were beginning to pay more attention to the information. “More and more governments take this really seriously. One thing important to keep in mind is that even if it’s a perception it’s a perception of the top business people, which means those people making the investment decisions in the economy.” They were the people “driving productivity and development”.

She said that, in terms of factors such as infrastructure, private public partnerships were important to ensure that the expense did not rest wholly with the taxpayer, since it was for the benefit of all participants in the economy — although she made the point that corporations themselves were taxpayers.

Last year’s Global Competitiveness Report saw South Africa, in a ranking of over 139 countries, drop from 45 in 2009/2010 to 54 from 2010/2011 due mainly to other countries rapidly overtaking it.

The competitiveness of some industries in South Africa is of growing concern, and state intervention such as nationalisation of mining sector and a resources rent tax are currently being discussed by the ANC’s economic transformation committee. The outcome of these discussions is expected next year and what impact they will have on South Africa’s competitiveness rating remains to be seen.