JOHANNESBURG - It goes without saying that so much of what happens next year in South Africa depends on the ANC’s elective conference later this month. With that in mind any predictions about the year ahead come with some strong caveats, but that doesn’t mean we can’t plan. What we do know is that the global outlook for 2018 is positive – especially for emerging markets – but to take advantage of those conditions we need to ensure that South Africa’s political and economic environment is growth supportive.
At the moment, South Africa faces several economic challenges that threaten to undermine what could be a turning point for the economy. Firstly, South Africa’s economic growth is among the weakest of the emerging market sovereigns. Both the World Bank and the International Monetary Fund are cutting already dismal 2018 growth forecasts even further to 0.6% and 0.7% respectively in the face of ongoing political uncertainty.
Secondly, our income inequality remains among the highest in the world. The vast disparity between the rich and poor, and those with jobs and without, is fundamentally unjust, but it is also a real risk to the social compact. Linked to this is the fact that since 2015 the South African economy has not been creating jobs on a net basis. This is the result of years of slow growth and massive structural unemployment, which has resulted in a large and young workforce characterised by high levels of unemployment and a low level of skills.
As much as these are risks to the future, they also present significant opportunities. We know that to avoid shedding jobs, the economy needs to grow at 2% and to address inequality we urgently require reforms – within both business and government - that promote inclusive growth.
At the moment, not all businesses that make profits in this country are adding to the country’s wealth. We have an economy that is structured for big corporations to thrive and small businesses to fail. To address this, we need a new social narrative that strikes a balance between shareholder needs and investment in broader social capital investment. Business has a critical role to play in changing this narrative.
Similarly, I don’t believe that there is an investment strike, but I do believe that South Africa is suffering from a massive trust deficit. Trust is built through accountability, and confidence is built through certainty. It is only when we can trust our government that we will see a resurgence in investment and growth. We have already seen how political uncertainty around the elective conference has done damage to our reputation among the ratings agencies, but there is also low business and consumer confidence as a result of uncertainty, and corruption and mismanagement in government.
The good news is that there are favourable economic winds behind us and we have the opportunity to make the changes that are needed. The global economy is expected to sustain the solid growth we have seen over the past three years with GDP growth accelerating to around 3.8%. We should also see a revival of growth in the Eurozone as uncertainty around Brexit stabilises. Global corporate
investment and capital expenditure are expected to pick up, having been restrained in recent years. This will be a key driver of growth. The strong global growth will support commodities and oil is expected to trade within range. All of this provides an excellent platform for the South African economy.
It is also worth mentioning that the recent proposal by Treasury to move ahead with further fiscal consolidation in the form of additional tax hikes and cutbacks, will do more harm than good for our growth prospects. Ratings agencies have not made their decision based purely on the debt to GDP ratio, so targeting public debt - at the expense of growth by raising taxes and making massive budget cuts - is a false economy. Further fiscal consolidation will only serve to dampen already feeble economic growth.
Growth – and inclusive growth – is the key measure that ratings agencies and investors will take into account so that is what government should be focusing on. This requires accountability and policy certainty (to encourage investment), as well as growth-supportive measures. These include regulatory and economic reform that focuses on labour-intensive sectors, such as agriculture and tourism, as well as small business development.
With this in mind, we urgently need policy that will promote inclusive growth. This means ensuring that government introduces targeted regulatory reform in the finance sector that promotes financial access and financial inclusion. This also means creating policy certainty in the energy and mining sectors – both of which have significant growth potential, and stand to benefit from sustained growth in the global economy – and specifically around the Mining Charter, the Renewable Energy Independent Power Producers Programme (REIPPP), and the nuclear energy programme.
And let’s not forget the significance of focussing on sectors such as Business Process Outsourcing (call centres) and agriculture and agri-processing – these have the potential to absorb our young and largely unskilled workforce. Similarly, support for small businesses and promotion of small business development will allow South Africans to create their own employment.
There are so many opportunities to provide channels for positive contributions to our country’s growth. In Africa our youthful population is being impeded by the oldest leaders in the world.
And in the face of adversity, we all have a duty, as individual citizens, business leaders or even retirees. We all have a role to play to make South Africa better for our youth – let’s get to work.
Adam Craker is Chief Executive Officer at I Qbusiness
* The views expressed in this article are not necessarily those of the Independent Group
- BUSINESS REPORT ONLINE