The way forward for SA. Elias Masilela, Tony Leon and Adrian Saville debate solutions. JOHANNESBURG – How does South Africa solve its socio-economic problems? Speaking at The Insiders event hosted by Glacier by Sanlam (JSE:SLM) and Time magazine last week, Elias Masilela, chief executive officer of the Public Investment Corporation, said South Africa’s faced with structural imbalances that cannot be resolved in the short-term. Society needs to start taking a long-term view. Masilela said the national development plan (NDP) provides a road map to start thinking long-term. Unfortunately, the country has an array of problems – education is only one of them, he said. Other problems include that the country is not investing enough and is therefore deprived of the benefit of reinvested earnings. Service delivery is also a challenge. “The solution to the problems that we’ve identified is growth and that means all of us need to work towards generating higher growth in the economy,” he said. A silver bullet? But, said Dr Adrian Saville, chief investment officer of Cannon Asset Managers, the likelihood of the NDP growth trajectory transpiring in the very near future is exceptionally low. “The structural makeup of the South African economy supports a 3% growth economy; 6% growth is pie in the sky.” The country does not have the structures in place that support that level of growth - education for example. In common Saville said during the last three years Cannon has been working on a research project that seeks to understand the common factors that exist in societies that achieve sustained socio-economic improvement. “And the word ‘socio’ has to be underlined, because if you have economic advance without social inclusion, you have got an accident waiting to happen.” Apart from social inclusion, the common factors can be built - they can’t be discovered like gold or coal. Saville said they have identified six factors. The first is that society must have access to savings which are translated into functional public and private sector investment. Demographically, more people have to be entering the workforce than going into retirement. Education and healthcare is also important. “You want an open economy that engages in the movement of people, information, goods, services (and) capital. The sixth ingredient is policy and institutional capacity and the findings in this work really forced me to change the way I see the world as an economist: It is not the policies themselves that matter, it is the policy stability,” he said. Tony Leon, former leader of the Democratic Alliance, said one of the paragraphs in the diagnostic overview of the NDP really struck him as the gold standard. It says: “Successful countries have what is called a future orientation. Their policy bias is to take decisions that lead to long-term benefits, as opposed to short-run solutions that could have negative effects later on. Such countries generally prefer investment over consumption, have high savings rates, sound fiscal policy, high levels of fixed investment, a high degree of policy certainty and clear rules of engagement for the private sector.” Leon said while he agrees with this observation fully, it is important that the tactics should align with the strategy. The mineral petroleum resource development amendment bill, which was given the green light by the same cabinet that approved the NDP, is in its detail almost a complete contradiction of this paragraph of the NDP, Leon said. Until there is alignment between the day-to-day policy or legislation and the NDP, the country will not achieve the sort of growth road that would help it to overcome its challenges, he said. Is growth enough? But said Saville, he is not convinced that economic growth of 6% – if it materialises – will redress South Africa’s unemployment problem. South Africa exhibits an attribute that is described as jobless growth. Data going back to the mid-1980s suggest that when the South African economy does grow, it does so with the same workforce, he said. “We are very good at building increasingly productive workers, but we don’t complement economic growth with job growth.” Saville said it’s not growth that creates jobs – it’s companies. He said South Africa has a poverty of companies – and in particular small companies – that create jobs. Chile has a population of 17m people and has 700 000 small firms. South African has a population of 50m, with 600 000 small firms. “I would venture that this is the missing ingredient – it is the poverty of businesses that are job-creating,” he said. While the country does have world-class multinational companies, South African industries in general are characterised by high concentration (a small number of large firms), he said. “These concentrated industry structures do not translate into job creation because they do not fuel the establishment of small competitive firms.” Saville said while government policy is imperative, business should also come to the table. Unfortunately the business structure that the country has, perpetuates concentrated business. “We are part of the problem.” Leon said he also agrees with Trevor Manuel, minister in the presidency, and Ricardo Hausmann who helped with the Asgisa-plan, that South Africa should create jobs for the workers it has, not the workers it wishes it had. Unfortunately many workers in SA have limited skills. It is therefore important to create conditions that would make it easier to employ people. In this regard, Cosatu is both part of the problem and part of the solution, he said. Leon said although employment is a complex issue, the more difficult it is to fire people, the more difficult it is will be to hire them. Some tough choices have to be made. -Moneyweb
Posted on: Mon, 15 Jul 2013 06:10:31 +0000
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