South Africa needs a drastic change of direction if the country is to have a higher, more inclusive level of economic activity.
Professor Philippe Burger, Professor of Economics and Head of Department at the University of the Free State told a Gordon Institute of Business Science (GIBS) Forum that policy failure and patronage had meant labour and education reforms introduced since 1994 had not resulted in increased employment and prosperity.
“South Africa is in an economic rut of low growth and high unemployment, both of which are exacerbated by high levels of corruption and patronage. Severe institutional rot, as well as political and administrative mismanagement, has created an environment of policy uncertainty,” he said.
Dr Adrian Saville, Professor of Economics, Finance, and Strategy at GIBS said that 25 years after the advent of democracy, the structural limits of the South African economy, including a poor education system and concentrated economic activity, remain the same.
Despite “rafts of impressive policy and no lack of ambition,” South Africa still has one of the lowest levels of social mobility globally. “If you are born poor, you are very likely to die poor. It is an extraordinary challenge,” Dr Saville continued.
Per capita income in the country has stagnated over the past ten years, remaining at the same level as during the Mbeki era. “It is a lost decade,” he said.
What went wrong?
In his recent book, Getting it right - A New Economy for South Africa Professor Burger argues that at the heart of the country’s economic malaise is the need to roll back patronage, implement workable policy, and empower people through investments in education and by securing their rights to communal land.
“The first democratic government in 1994 inherited an underperforming economy with a broken labour system. The legacy of Bantustans and Bantu education is still with us,” Professor Burger explained.
32% of all South Africans still live on communal land, ruled by traditional leaders in the former homeland regions of the country. Recognising use rights to land in law will enable people to access financing and help leverage the land for development, Professor Burger argued. “We have not dealt with tenure rights on communal land as there is a patronage relationship between the ruling party and traditional leaders,” he added.
Similarly, the patronage relationship between the ANC and the South African Democratic Teacher’s Union (SADTU), who are in control of education departments in six out of nine provinces, has aggravated the decline of the school system.
Professor Burger suggested a number of measures to restore education, including compliance with the minimum standards of school infrastructure; a focus on early childhood development and an emphasis on science, technology, engineering and maths (STEM) and literacy skills. Fixing Technical and Vocational Education and Training (TVET) colleges would provide the economy with a boost by creating an artisanal class.
However, “the depth of the crisis in education requires a multi-party and multi-sector partnership, and the private sector needs to be more interested in education, as there are opportunities there,” he added.
Dr Saville said early childhood development should be turned into “a national imperative,” as it does not require much investment, and the success of all further education interventions depend on the care children receive within the first thousand days.
Changing South Africa’s economic trajectory
In order to revive the country’s economy, Professor Burger said government and business would need to strike a deal in the form of legislative commitments from government and investment guarantees from the private sector to create higher and recurrent investment.
“There needs to be an understanding that this is the only business sector we have; they are the ones who will create the jobs. Being antagonistic towards them won’t help, but that doesn’t mean that they are without sin,” Professor Burger said.
Non-executive director at the Development Bank of Southern Africa Gugu Mtetwa said investment in the economy is integral to economic growth. “We need investment partnerships between government and the private sector in partnership with communities, especially capital and infrastructure development in under-resourced municipalities,” she said.
“As the South African government runs into financial trouble, infrastructure investment is going to have to increasingly come from the private sector,” Professor Burger added.
A further prospect for economic growth lies in intra-Africa trade, which currently stands at 17% Mtetwa said. A reduction in the cost of trade between countries means regional commerce would pick up, which offers opportunities for individual countries to thrive as the continent as a whole prospers.
“The right South Africa is an incredibly attractive destination for foreign and domestic capital investments,” Dr Saville said. “We need to get the messaging and policy landscape right and make sure we have robust institutional fabric. All of these are within our control.”
South Africa is a low growth, low prospect, high unemployment, and high inequality environment, which is “an explosive combination,” Dr Saville said. “There has to be a collaboration between the public and private sector, as no one can do it alone.”
While he warned that it would be a great danger to be a naïve optimist, he argued: “there are so many levers within our reach that are achievable and possible.”