Does South Africa have an economic plan?

Echoing the words of President Jacob Zuma, GIBS professor Dr Adrian Saville says South Africa’s economy has a good story to tell.

TOUGH COUNTRY: Adrian Saville, professor of economics and finance at GIBS and founder and CIO of Cannon Asset Managers. Photo: Provided

TOUGH COUNTRY: Adrian Saville, professor of economics and finance at GIBS and founder and CIO of Cannon Asset Managers. Photo: Provided

Considering South Africa’s economic growth since 1980, Saville explains the country grew in an “uncoordinated” boom-bust pattern during the apartheid period. The growth rate was at 1.5%, which was half that of the world’s at 3%. The “political miracle” in the early 90s shows a more functionally, coordinated economic growth correlated with the world’s. He says this economic miracle hasn’t dawned on most South African businesses in our “half-empty rather than half-full society”.

Post ’94 and towards 2014, South Africa managed to achieve the world’s economic growth rate, double that of the previous 20 years and well-ahead of population growth at 3.2%.

g7

 

Going forward, in what Saville describes as a period of “drifting to driving” with economic growth forecasted at 3.3%. South Africa has harvested the benefits of economic integration. However these benefits are once-off gains. “Something different needs to be added into the recipe,” he says.

“South Africa has gone backwards in the last couple of years,” says Saville. The country struggles to convert great ideas into functional deliveries for the improvement of socio-economic wellbeing, he says.

There’s 5.5 and social inclusion right in front of us, we just have to reach for it.

Saville suggests implementing structural transformation to change social and economic architecture. This will see economic openness, policy certainty, advances in social welfare, life expectancy, education, health delivery and a culture of savings that become functional investments. Current architectural problems take away 1.5% of economic growth, seeing South Africa lag behind the world’s economic growth of 3.5% at 2.5%.

To meet the National Development Plan target of 5.4% he suggests three changes:

  1. The delivery of Gross Domestic Fixed Investment (GDFI) for new firms, employment and productivity. Nurturing confidence in the public sector is key. Public sector delivery combined with private sector investment can stimulate 5.5% sustained contribution to economic growth, raising it from 2.5% to 4%. Delivering more jobs and resolving unemployment is possible by generating small businesses.
  2. Openness and connectedness through Trade, Capital, Information flows and People (TCIP). The most important drivers of economic integration are moving people and information across borders ahead of goods and services and capital. South Africa should be more connected with its neighbours, as economic growth opportunities are up to 1.5%. Integration is an accelerating contributor to social and economic improvement.
  3. Social and economic inclusion matters more than achieving the 5.4%. South Africa continues to display high levels of unemployment. South Africa’s Gini coefficient is the highest in the world at 65.0. “It’s not the 5.5% economic growth we should be ringing our hands about, it’s this Gini coefficient,” says Saville. “There’s 5.5 and social inclusion right in front of us, we just have to reach for it.”

This article was featured in Finweek magazine.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s