Competiveness will be key to economic growth

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.

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