Competiveness will be key to economic growth

2010-12-30 14:11

When the government launched its New Growth Path recently it sketched out its plan to get the economy to grow at a job-creating yearly 7% over the next decade.

This latest jobs pledge is aimed at cutting the stubbornly high unemployment rate to 15% from 25% by creating five?million jobs, mainly from infrastructure, agriculture, mining, green economy, manufacturing and tourism.

Finance Minister Pravin Gordhan’s growth estimate for this year, which he announced during the mini budget in October, was 3.5%.

This suggests that a lot needs to happen over a short time to get the economy to levels of job-creating growth.

Business leaders and economists believe that key to kickstarting the economy will be improved competitiveness, driving down the cost of doing ­business, improving the human development component and encouraging entrepreneurship.

Eliminating logistics deficiencies and driving down the cost of doing business are two vital ingredients for attracting foreign investment and stimulating small business development.

They say the country’s competitiveness hinges on government improving the performance of logistics group Transnet and electricity supplier ­Eskom, the two key parastatals that are at the heart of the R846?billion infrastructure development programme.

“We must fix these assets if we are to build a competitive economy,” says Lumkile Mondi, an economist at the Industrial Development Corporation.

Congestion at some of the country’s busiest ports, run by Transnet, and an archaic rail network are a source of frustration for exporters, who sometimes fail to take advantage of a soft rand by selling more of their goods ­because of difficulties in moving cargo to markets.

In 2009, after power cuts and steep electricity tariff hikes, aluminium producer Rio Tinto Alcan scrapped plans to build a $3.3?billion (about R22?billion) smelter at the Coega industrial development zone (IDZ) near Port Elizabeth.

This struck a massive blow to government’s aspirations of locating heavy industry in the IDZ, forcing it to diversify away from attracting power-hungry, large-scale investments.

Decades of underinvestment in electricity infrastructure led to the national grid nearly collapsing in January 2008 as demand outstripped supply.

Eskom responded by introducing load shedding, a form of deliberate power cuts whose objective was to suppress demand. This forced mines and smelters to shut down for days.

Mondi argues that South Africa’s ­future as a dynamic emerging market depends on it being a low-cost producer that is well integrated with the economies of the Southern African Development Community region. The ­region is estimated to have a population of over 230?million people.

“We need to be a low-cost base economy instead of relying on a weaker rand to be competitive on a global stage."

“Everyone around the world is integrated and we need to integrate our economy with other countries in the ­region. In East Asia you can take a train from Singapore to Vietnam but you cannot travel to other countries via a train in southern Africa,” says Mondi.

Neren Rau, chief executive of the SA Chamber of Commerce and Industry, echoes Mondi’s comments about South Africa’s weak competitiveness.

He says the only sustainable way of raising economic growth is for the country to boost its productivity and competitiveness.

“Productivity in this country is low compared with salaries. We don’t need to drop salaries but we need to raise productivity. You get more output in other countries per worker than in South Africa,” he says.

According to the Medium Term Budget Policy Statement, released by the National Treasury last October, the country’s competitiveness has ­declined over the past few years relative to its emerging-market peers.

The Global Competitiveness Report this year ranked South Africa 54th out of 139 countries, down from 45th last year.

Africa’s largest economy fared poorly on basic education and health, where it came in 129th, labour market efficiency (97th), technological readiness (76th), higher education and skills (75th) and infrastructure (63rd).

Lyal White, political economist at the Gordon Institute of Business Science, argues that South Africa needs to improve the human development component of its economy.

The focus should be on health care, education and encouraging small, micro and medium enterprises (SMME) development to create jobs.

“We need to encourage an entrepreneurial spirit and grassroots businesses in this country. Jobs will come from the SMMEs, not a big state or big corporates,” he says.

Join the conversation! encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions. publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.