Pali Lehohla
Pali Lehohla

OPINION: The reality and statistics from the investment conferencce

By Dr Pali Lehohla Time of article published Nov 10, 2019

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JOHANNESBURG - A colleague gave me an obvious choice, which was to be part of South Africa’s Champions Movement.  You need to  champion your country and be positive.  

But in economics being positive needs to take in account reality and hard facts.

This week South Africa's Investment Drive was in full gear in Sandton.  

After R364 billion in investment pledges, commentators said 412 000 jobs would be created from this. However, the reality is that this is an unlikely outcome.

One needs to look to Statistics SA , the producer of facts, as well as the National Treasury, as the user of these facts, to verify whether 412 000 jobs is realistic.

In 2016, Stats SA launched the full suite of national accounts under one roof ,which included the expenditure measures of the national account - the core measure of reportage on the proposed investment drive of R1.2 trillion by 2023.

One also has to take into account, the government’s recently released Medium-Term Budget Policy Statement (MTBPS)  as an accountability framework for the next ten years.  It is obviously early days from the inaugural investment summit, but observations can be made from the indicators nonetheless.

First the economy faltered delivering the highest level of shrinkage in the second quarter.  Treasury accordingly revised its growth projections for the year from 1.5percent to 0,5percent.  Actual recorded capital formation, a core measure of the effectiveness of the hoped for R 1.2 trillion by 2023, registered negative growth both in 2018 and 2019 of -1.4 percent and -0.8 percent  in 2019.  Treasury has pencilled a 0.8 percent growth for 2020. Stats SA measurement by end of 2020 will arbitrate this hope.  Current indicators, therefore, do not affirm positive effects from the pledges of 2019.  Perhaps a point of clarification on pledges, past, present and future.  Pledges of investment address two economic frontiers.  

First,  they represent what firms were going to do anyway.  

Second, they serve to replenish ailing and retired capital.  Depending on their magnitude they can be growth positive, neutral or negative.  And third, they can represent new investments.  In the absence of death in existing investments this would be net growth-positive.  The problem is that only ribbons get cut for new investments and there are no burial ceremonies for those that died.  So far the verdict is the growth is negative albeit less negative in 2019 compared to 2018.  

As regards the 412 000 prospective jobs as a consequence of pledges, one has to look at the government’s MTBPS document, which says at the end of 2030 only 1 million jobs will have been created.  This implies 100 000 jobs created a year.

Factored in this formulation is an anticipated R 250 billion investment a year. Thus the expectation of 412 000 jobs with a R 360bn investment can only be delusional.  

The plan does not suggest investment in low skills at all.  In fact private sector pledges are more likely to be targeting industries and sectors demanding high skills where labour capital ratios would be very low.  

Meaning that investment will be in favour of capital and less so labour.  This by itself will not generate jobs.

Furthermore, in its Quarterly Labour Force Survey, Stats SA revealed that the unemployment rate has increased marginally by 0.1 percentage point to 29.1 in the third quarter.  

So the effect of pledges made in 2018 have actually correlated with an increase in unemployment rate in South Africa growing to the highest level in ten years.  

Unfortunately, South Africa champions have been a bit overly optimistic on investment equating to jobs. Let us allow facts to prevail, even if they run in the way of a good story.  Positivist posture to development represents a rationale, auditable and accountable social order.  

Dr Pali Lehohla is the former Statistician-General of South Africa and former head of Statistics South Africa. or @PaliLehohla


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