Transforming the economy of South Africa for the future

It has been just on 20 years since the first democratic elections were held in South Africa. Many analysts are using this time to reflect on what has changed and how these two decades have positioned the country on the global stage.

A summit held in Sandton last month, sponsored by the Industrial Development Corporation (IDC), the Eskom Development Foundation, the National African Federated Chamber of Commerce (Nafcoc), Glenfiddich, and the Mail & Guardian, asked the question whether South Africa's legal and policy framework helps or hinders true economic transformation within the context of the past 20 years.

The panel consisted of Lumkile Mondi, chief economist at the IDC, Reverend Joe Hlongwane, president of Nafcoc, Nomonde Mesatywa, chief director of the department of trade and industry, Sandile Zungu, general secretary of the Black Business Council, and Duma Gqubule, founder of KIO advisory services. They were moderated by Professor Adam Habib, vice-chancellor and principal of the University of the Witwatersrand.

After the opening proceedings national deputy president Kgalema Motlanthe addressed delegates by detailing how the current democratic state can be proud of what has been achieved but should also recognise its failures.

"Since 1994, the South African economy has grown at an average rate of more than three percent a year. To put this in perspective, in the 15 years before democracy, growth was under 1.5 percent a year. Employment has grown by around 4.5 million (approximately 45 percent). In contrast, the economy generated almost no new jobs from the late 1970s through 1994," he said.

Motlanthe did admit that while the 42 percent of adults employed today is still well below global standards, at least it shows an improvement on the past.

"In 1994 the rate of investment was less than 15 percent of gross domestic product. Today, the figure is over 19 percent. Especially since 2005, investment has been underpinned by a multi-billion-rand outlay in infrastructure, which is laying the foundations for faster and more inclusive growth in the future."

"Importantly, in the past 20 years, growth has normalised, despite the global setback of the 2008 recession, while investment has improved and positions of power in the economy are becoming more representative. In short, we can be proud of our economic record. But we also have to be aware of two remaining challenges, challenges that we need to address to bring about a better life for all going forward."

These challenges revolve around the impact inequality has on the country and the fact that the economy has not diversified sufficiently, with the manufacturing sector growing especially slow.

Motlanthe said that since the inception of democracy, the main economic objectives of government have been job creation, the elimination of poverty and the reduction of inequality, while simultaneously maintaining investment and growth.

He stressed how the country adopted fiscal and monetary policies geared to maintaining economic stability while seeking to bring about economic transformation and increasing productivity. However, he said, South African economic policies do not operate in a vacuum.

"The democratic government had to respond to global trends and events that had a critical influence on the domestic economy. Firstly, the economy was opened to global trade and investment, which increased competitive pressure on domestic manufacturing in particular but also supported the growth of the financial sector. Secondly, the economy was positively influenced by the commodity boom from the year 2000 through 2008, which fuelled economic and employment growth in South Africa.”

Debating economic growth
Habib opened the discussion.

"In electoral politics we often have the debate on whether life is better now than during apartheid. But this is not a debate. The mere fact that we are sitting here reflects how much different the country is than what it was in the past. South Africa is a fundamentally different place but there are still challenges. We definitely do not want to use apartheid as a reference point for the discussions but where do we go from here?"

He stressed the challenges of the economic inequality that keeps increasing despite the fact that poverty has come down.

"But does this even matter? Should we be worried that inequality is growing? One should never lose a sense of pragmatism when it comes time to deal with economics. By understanding the problem you should look at how to resolve the challenges. But this is certainly a very extreme debate. We need to look at it from a more basic level."

Habib stated that people want to know how the unemployment gap will be filled and how the government plans to give learners access to higher education. He said that everybody needs to be more honest in their conversations and be clearer in addressing those challenges.

Mondi said that while going forward policy decisions still need to be made.

"There is no coherence on current economic policies. All policies have faults but what can we do? We need to take the strong decision that an inflation of six percent is too low," he said.

Mondi believes that by increasing inflation to 10 percent and pushing the debt level up to five percent, resources will be gained that could be used to develop both infrastructure and human capacity.

"The state has to have the right people in place to implement the National Development Plan. We need to get rid of B-BBEE policies that are too shortsighted and continually create inefficiencies. Instead, a percentage of funds need to be set aside for black business."

SMME focus
Hlongwane said a lack of focus in developing the small, micro, and medium enterprise (SMME) sector in the past is adding to the challenges today.

"We did not pay sufficient attention to building companies from the bottom up. The state departments have also not been talking to one another. To address this, a ministry for SMMEs needs to be created."

He believes it needs to be run by people who understand the challenges and opportunities in the sector. There also needs to be access to finance at less than the going market rate.

"Currently there is a lack of effective enforcement on the economic framework. There is no champion for SMMEs. We need a minister with a separate budget who understands what to do and how to engage with other stakeholders."

He cited the example of Indonesia. "There, the SMME ministry creates jobs and does business for the country. It has resulted in 60 percent of the Indonesian GDP coming from those companies."

Another area Hlongwane feels should be looked at is exempting SMMEs as well as their employees from paying direct tax. He said that as the businesses grow, they will inevitably pay more in indirect taxes.

"Clearly, better integration between big businesses and emerging black businesses is needed. We need to create an environment where those larger organisations would want to see SMMEs grow before it is too late."

Perceived failure
For Mesatywa, the country needs to do an introspection in terms of what government has done over the past 20 years.

"How do we create an equitable and just society? Government is aware that it is not going to be an easy process. At the moment, many people feel that BEE is the be-all and end-all of the economy. However, the issue we have around it is the perceived failure of the policy."

She says that everybody knows what they want to achieve but that does not necessarily mean they want to comply.

"B-BBEE was never intended to be one-dimensional. it talks about skills development but people must get to understand all aspects of empowerment. As a policy, it needs to be decisive and change gears to bridge the gap in economic transformation. This country really needs to start seeing meaningful change," she said.

Zungu agrees that one of the biggest problems in the economy of South Africa is that the people do not own the conversation around transformation.

"There is so much confusion and disillusionment around B-BBEE. However, we should not look at throwing it out but examine how to tweak and change the existing scope."

"We need to change the ownership and management patterns of South Africa. A critical component for this to be successful is to provide people with education and access to local markets."

For Zungu, access to capital is the first hurdle to be addressed before anything else is changed.

Gqubule says part of this re-evaluation is that South Africa needs to look at countries that are achieving high levels of growth and see what can be adopted and adapted to work here.

Inflation and debt levels
In summarising the initial positioning, Habib said the main points were raised on whether inflation and debt levels should be raised to generate additional funds. He added that people who understand finance need to be put in the correct jobs where they can make a difference.

"You cannot be a CFO if you cannot even read a balance sheet. Also, is B-BBEE really working and can it be linked to SMMEs? Ultimately, it is a case of the country requiring a mobilising vision for economic transformation."

Gqubule felt that the country has been doing the same things for the past 20 years and expects economic growth of more than 3.2 percent.

"Yet, if you do the same thing over and over, economic growth will remain stagnant. We desperately need to look at countries that share our growth vision. However, we also need higher levels of public investment if we are to stimulate more growth," he said.

Mesatywa said that there is also a need to graduate SMMEs to higher levels of doing business.

"We need to focus on issues around supply and enterprise development. This will inevitably unlock opportunities within the value chain. In future, imagine if the bulk of credit you get when implementing BEE revolves around enterprise development."

But Mondi stated that the artificial creation of black entrepreneurs is not sustainable.

"More money is needed for black business in South Africa. The only way for blacks to succeed is for them to create more businesses. Currently, we have a dysfunctional state. There are ministers who do not understand the sectors they operate in. This creates a knock-on effect in terms of who they hire and results in the entire sector being unstable."

A time for change
Hlongwane said that BEE needs to be restructured if it is going to work.

"One of the first problems we have is ministers who believe that they are untouchable. When are they available to engage with the public? Also, we have bureaucrats who have a different understanding of the challenges faced than the ministers have."

"Clearly, these bureaucrats are not always honest. But markets must exist before one can even consider creating new opportunities. Training for specific industries needs to be done. At the moment, government is setting people up for failure. Look at a man who purchases equipment and land to make wine. He has not been trained on what to do and will inevitably fail.”

"There is a certain dignity that comes from being employed. We need to get people jobs. This helps in creating value in growing the economy. The development state must be capable if economic transformation is to take place."

Zungu says that the issue of creating capacity becomes a very important one.

"We need to have a patriotic bourgeoisie in South Africa that the state can empower. There also needs to be an emphasis on building black industrialists."

Active participants
Motlanthe said that the notion of the state is where there seem to be a lot of problems as people do not understand what it is all about.

"Communities need to be active participants in the programmes designed to address their needs. They have complaints as well as suggestions. Administrators at local government must be people who can deal with human resources issues. Our CFOs have to know how to deal with finances, and the engineers, artisans, and so on need to be embraced at a local government level to conduct infrastructure development and ongoing maintenance."

One of the ways this will be done, he said, is by having a separate administration removed from political representatives.

"Systems need to be introduced to improve the work of respective government departments. Our mobilising vision needs to be the rallying point for the broadest cross-section of the population. It needs to be written in simple language with clear action points. This will create something that is of practical use for people and will enable all of us to work better together in the economic transformation of the country for the future."

This article has been made possible by the Mail & Guardian's advertisers. Content and photographs were sourced independently by the M&G supplements editorial team, unless otherwise indicated. It forms part of a larger supplement

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