The economy, stupid

2015-04-20 10:51

In 1992, Bill Clinton’s campaign strategist coined the phrase “the economy, stupid” to highlight that many of the issues facing America at the time really boiled down to the economic pressures felt by the country. Similarly, many of the issues in SA currently, including xenophobia, the removal of statues, the increasing polarisation and despondency are being exacerbated by economic pressures. These issues can be better addressed in an environment of economic growth, job creation and improved outlook. It is therefore so important that we deal with the issues hampering our economic growth, including the Eskom electricity supply, the delays in the National Development Plan (NDP), education and the development of and promotion of new industries.

Over the 9 years from 2000 to 2008, SA’s real gross domestic product (GDP) grew on average by 4.2% per year. Since then it has slowed to an average yearly growth of only 1.7% with the latest growth rate for the final quarter of 2014 only being 1.3%. The International Monetary Fund (IMF) is forecasting growth of only 2% and 2.1% in 2015 and 2016, less than half of what was achieved during the first part of the 2000s. Unemployment in SA declined from a high of 26.6% on the narrow definition in 2002 to 21% in 2007. However, since then it has picked up and during 2014 was at 25%. That implies an additional 800 000 people that want to work that are unable to find work in 2014 relative to 2007. In addition, food inflation has averaged 7% over the past 5 years, petrol prices have increased by over 75% since the start of 2008 and since the start of 2014, interest rates have risen by 0.75% with more hikes likely to come. Many South Africans are suffering at the moment, have seen their situations deteriorating over recent years and have a bleak outlook of the future. It is no wonder that they are lashing out in frustration. They are lashing out at foreigners in xenophobic attacks, they are lashing out at government in service delivery protests, they are lashing out at statues and they are lashing out at each other. I am not making light of the issues at which people are lashing out or the often violent and unacceptable way in which they are lashing out. However, I believe that if we were not facing the economic hardships that we are, we would have seen less lashing out. It is therefore imperative that we do not simply try and address the symptoms, but that we focus on the root causes of unhappiness in our communities. Electricity supply The electricity supply disruption that has become a daily part of our lives is the first issue that needs to be addressed. It is a daily reminder to our communities of the failings of government. It is a distraction from productive behaviour, it creates unhappiness and it leads to people having a bleak outlook. In addition, it is starting to hamper economic growth and limiting foreign investment, exactly the things that we need to improve the lives of our communities. I have suggested two key steps that government and Eskom could take to aggressively and promptly deal with the situation. Firstly, Eskom needs to find a way of ceasing the sale of below cost electricity to BHP’s aluminium smelters which suck up 5% of our electricity supply. My suggestion is that Eskom (or government) buys these smelters (which are housed in BHP Billiton’s spin-off company South 32) and mothballs them. This would save a great deal of money that can be reinvested in the economy (more than offsetting the economic cost of the mothballing) and it would end load shedding immediately. Secondly, Eskom should do a Telkom. I have suggested that Eskom forms a 50:50 joint venture (JV) with a private partner and house all new electricity generation projects in this JV. This would bring in capital and technical know-how and allow Eskom to focus on maintaining and repairing its existing infrastructure. Job creation

Unemployment in SA is becoming a national crisis and needs immediate and concerted attention. It is undeniable that the collapse in global commodity prices has had a very detrimental impact on the SA economy and that this is something outside of our control. However, there are other contributing factors that are within our control, including protracted strikes, rigid employment regulations and delays in launching the NDP.

Government should as a matter of urgency fast track the roll-out of the NDP. This plan has the potential to be a meaningful job creator in SA through high public sector infrastructure investment; boosting private investment in labour-intensive areas; professionalising the public service to strengthen accountability, improve coordination and prosecuting corruption; etc. However, since this plan was initially mooted in May 2010, 5 years have passed and we are still waiting for implementation. The plan was strongly supported by the National Assembly in January of this year, which is a positive step. Now we need action. Government, please give us action. Labour unions need to come to the party and recognise that protracted strikes are not just hurting their own members, but damaging the SA economy and the wider SA population at exactly the time that we cannot afford it. It is important that they act in a responsible and pragmatic fashion during the current difficult times. It is also vital that government and unions recognise that the current rigid labour regulations could be a serious hurdle to effective job creation. It is too difficult to hire and fire employees and this is causing companies to err on the side of not hiring. A more liberalised labour regime could help to reduce unemployment markedly. In addition, we also need a strong focus on youth unemployment. We need more vocational training, we need more apprenticeships, we need more internships, we need a youth subsidy. Education

The poor standard of our education in SA is arguably the most meaningful hurdle to long-term economic growth and job creation. This is an issue that needs to be addressed with urgency, even if we will only reap the benefits in years to come. In my opinion, it is not necessary to spend more money on our education, but instead to spend the money better. We deserve much better outcomes for the investment we are making. I have suggested that the key steps that we need to take to fix our education system are to lift standards and to empower principals. We need students to attend school, arrive on time and stay until the school day is over, we need teachers to be present, we need students to have text books (even if they get it from the previous years’ pupils) and we need students to aim to achieve 100%, not just scrape by with a 40%. I have spoken about Mbilwi Secondary School in previous blogs, but I would like to share the story again. This township school in Limpopo is a beacon to other schools faced with the same challenges all over the country. This school achieves an almost 100% pass rate with almost 80% of pupils achieving matric exemption. It has more than 2500 learners and has become a very attractive destination for pupils who are searching for excellence. What makes Mbilwi different from many underperforming township schools is excellent management, dedicated teachers and very high standards. At Mbilwi, the target is not to achieve a pass (typically 40%) – instead, the target is to achieve 100%. If Mbilwi can do it with limited funds, so can so many other schools. Building world-leading industries

Another step that we should be taking in SA, even if it will only pay off in the future, is to build, promote and support world-leading industries. In a previous blog I spoke to the need to identify and aggressively support new generation industries where SA can become competitive in the global market over time, including renewable energy generation, biotech, software development, mobile telephony, etc. I suggested that we change our thinking in two ways to allow this to occur. Firstly, I suggested that certain industries be protected (using tariffs) and promoted through tax concessions, less rigorous labour laws and government tenders. Secondly, I suggested that we throw our doors open to skilled immigrants. To build world-leading industries, we need many more engineers and scientists than our country produces. We should use the substantial assets that we have as a country, including our space, our weather, our freedom, our infrastructure and the aggressive support of leading-edge industries (in this scenario) to attract large amounts of scientists and engineers from other countries. Not just will these immigrants help to build new industries, they will help to create jobs and help to impart skills to our own people. Our economy cannot simply remain dependent on taking raw materials out of the ground and exporting them with limited beneficiation. We need to add value to our product and we need to start today. Conclusion

South Africans are suffering and this is making them unhappy and fearful. Let us see the lashing out of various communities in SA in various ways for what it truly is, a cry for help. Let us not just deal with the issues raised by different communities, but let us also look at the root cause of the suffering. People don’t have jobs, the economy is not growing and the cost of living is rising. Let us address issues such as the electricity supply and the roll-out of the NDP with the utmost urgency, while at the same time investing in our future through improving education and building industry. Let us stop fighting each other and start tackling our challenges. Together, we can do so much better.

What do you think of my assessment? Do you think that our main problem is “the economy, stupid”? What do you think of the solutions I have put forward? Do you have solutions of you own that you can share? Do you think we can do it? I would love to read your feedback.

In the mean time, keep your talking straight!

Marius Strydom is the owner of MLAX Consulting

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