Crisis, Mr Andrew Donaldson argues that stagnating incomes, rising unemployment, and serial revelations of business wrongdoing and official corruption has fuelled discontent in S. Africa, which the government urgently needs to solve.
South African President Cyril Ramaphosa led his ruling African National Congress (ANC) party to a comfortable victory in the country’s parliamentary election earlier this month. But engineering the economic recovery that South Africa needs is likely to be much harder.
True, the country’s banks withstood the stresses of the 2008-2009 recession, and the Reserve Bank of South Africa has kept inflation within or near a 3- 6 per cent target range for the past 20 years. But a decade of stagnating incomes, rising unemployment, and serial revelations of business wrongdoing and official corruption has fueled widespread public discontent.
Little wonder, then, that the share of the vote for both the ANC and its main rival, the Opposition Democratic Alliance (DA), fell amid a marked decline in turnout and rising support for left and right-wing nationalist parties.
Moreover, the new ANC-led government will have little room to provide fiscal stimulus. Government debt is rising as a share of GDP, the country’s credit ratings are under critical scrutiny, and huge shortfalls in the balance sheets of state-owned enterprises are straining public finances.
The government’s growth plan must, therefore, go beyond ANC party ideology and narrow orthodoxies. It must emphasise private-sector investment, together with consistent and credible policy reforms, and also aim to redistribute income. And agreement on such a plan’s key elements among a broad range of political leaders and other stakeholders will be crucial to success.
A government-funded research programme on employment and inclusive growth, managed by the University of Cape Town’s Southern Africa Labour and Development Research Unit, recently outlined several possible priorities. The central idea, according to Ravi Kanbur of Cornell University, is a “grand bargain” that balances short-term job creation and growth against deeper long-term structural reforms.
Urban infrastructure investment and city development should be immediate priorities, because research suggests that these are an important source of upward mobility and rising living standards. Improving basic infrastructure and services will require a mix of public and private financing, as well as improved cost recovery for urban services.
But with an ANC-led national government, and three of South Africa’s major cities under DA or coalition rule, political gamesmanship could stall progress.
Accelerating investment in housing is also vital. Government-sponsored housing schemes and upgrading of informal settlements should continue, but the main growth potential lies in easing barriers to private housing investment and co-financed development. Urban housing, land ownership, and associated small-business growth are important avenues for improving family wealth distribution and living standards. These require joint initiatives by government, municipal authorities, financial institutions, and developers.
With South Africa’s unemployment rate currently above 25 per cent, the government must make job creation central to its industrial and urban-development policies. Agriculture, tourism, repair and maintenance services, and more labour-intensive manufacturing all have growth potential.
But, as Jim O’Neill and Raghuram Rajan have recently argued, investments in geographic areas and community development are more likely to generate lasting productivity and enterprise gains than narrowly targeted sectoral support.
The new government should also consider regulatory changes and enabling measures to support informal employment and small business growth, and should reinforce competition policy to counter incumbents’ market power. Mr Ramaphosa himself, meanwhile, has rightly endorsed a business-led “youth employment service” initiative: this needs to be expanded rapidly as a public-private partnership.
Mr Ramaphosa has a long economic reform agenda and a public impatient for results. His recent decision to revive an expert policy coordination unit in the President’s office is an encouraging sign. But he will need both skill and statesmanship to overcome the corruption and bureaucratic inertia holding back South Africa’s economy.
Restoring South Africa’s electricity
First, South Africa’s biggest challenge is restoring its vertically integrated electricity monopoly, Eskom, to financial health. Long delays in restructuring the energy sector has brought the state-owned utility close to bankruptcy. Large-scale refinancing must be negotiated, together with an enterprise reorganisation that brings competition and market incentives into the power generation sector. Electricity tariffs must rise, and weaknesses in municipal revenue collection need to be addressed. The new government also needs to revitalise its skills development.
Andrew Donaldson, a former deputy director-general of South Africa’s National Treasury, is currently Senior Research Associate at the Southern Africa Labour and Development Research Unit, University of Cape Town.
The article is from Project Syndicate, 2019.