If South Africa is serious about creating jobs and lifting itself out of the economic doldrums in a sustainable way, it's going to have to change some of its socio-economic policies, says a leading developmental economist.
This would have to include ensuring that foreign investors are forced to partner with local companies, as is the case across Asia, which, compared to the rest of the world, continues to experience consistent growth, said Dr Jose Gabriel Palma.
Palma was invited to speak at the annual summit of the National Economic, Development and Labour Council (Nedlac). He was asked to compare growth in Asia and Latin America, what lessons South Africa could learn from them and critique the country’s policies.
South Africa needs a re-engineering, Palma told senior delegates from government, labour, business and civil society. “Poverty reduction is not rocket science. It’s a willingness to do it. It’s about urgency.”
Palma said some of the key worries with South Africa were that foreign investors were allowed to do business without stipulations to benefit local companies, the rich did not reinvest in the economy as in other parts of the world, and investment in workers was not happening fast enough.
There is also insufficient investment in agriculture and manufacturing, which hampers the economy, and South Africa’s middle to upper class account for the lowest share of national income in the world.
In South Africa, which has the highest rate of inequality globally, the top 10 percent of the population put back a third of what they make from doing business in the country back into the economy. This compares badly with Asia, where the rich reinvest between 70 and 90 percent into their economies.
“The million dollar question is how do we go up to two-thirds? What kind of a state do we need to ensure this?” he asked.
Unlike many in the business sector in South Africa, who believe that foreign investment is key to the country’s economic growth, Palma warned against it. “You need conditionality with FDI (foreign direct investment). In China, they’ll ask you for domestic partners. Five years later it will have its own production line,” he said.
Gasps were heard in the audience when Palma said another reason the economy remained sluggish and unemployment stubbornly high was that the country’s middle class was not earning enough.
“The share of income that goes into the middle upper class is by far the lowest in the world. (In other countries) 50 percent of the population gets 50 percent of the income,” he said.
Without a middle to upper class earning decent money, minimum wage jobs were not created and this group could not afford to pay for services, Palma said.
“If you don’t deal with this you will continue to have your 25 percent unemployment,” he warned.
On whether the country should be focusing on education to serve the labour market, Palma said it was much more constructive to create the “necessity” first.
“Do you think in Korea they waited for skills to get into micro-electronics? It is much more effective to create the necessities which will serve as incentives to create those skills.”
He said another concern with South Africa was that its economy was below average when it came to diversity and the country was unable to level up its primary industries.
He gave the example of Finland and his native country, Chile, which in the 1960s had comparable earnings based on their respective timber industries. Today Chile’s industry is still performing the same as decades ago, but Finland was building the machines that help the Latin American country extract pulp and wood chips.
“In Latin America (like South Africa) the problem is failure in capacity to adjust; Trust me, there is no invisible hand that will lead you there,” Palma warned.
He said a study had shown that if South African invested 3 percent of GDP in social security programmes, this could lift the entire population above the poverty line, laying the foundation for economic and social inclusion.
Labour Bureau