Africa-Press – South-Africa. South Africa has only one chance left to break out of its economic stagnation and ensure the current generation entering the workforce has a reasonable chance of employment.
If the government does not take the necessary steps to drive faster economic growth by increasing private participation, then the state itself may fall apart.
Many of the state’s functions, from policing to education, have been replaced by functioning private alternatives.
As the central government continues to fail, more South Africans will turn to these private alternatives, resulting in an effective unitary state effectively falling apart.
This is feedback from political analyst Frans Cronje, who outlined the precarious position South Africa finds itself in at the second BizNews Investment Conference.
Cronje explained that South Africa’s decline over the past 15 years came after a period of relatively strong economic growth and vast improvements in living standards.
However, the period of decline has been so severe that it has undermined the progress made in the first decade and a half of democracy.
“The importance, therefore, of burning the coal, stopping the taxation of capital on arrival through empowerment policies, and the concessioning of the ports is vital,” Cronje said.
“Just three things, you mustn’t be too ambitious with this administration, it’s probably the only avenue left for this generation of relatively poor South Africans to be put in a position where they might aspire to a much higher standard of living.”
Cronje’s three steps will translate into faster economic growth of around 4% per annum, which will reduce unemployment rate in South Africa to 10% within a generation.
Historically, when South Africa’s economy has grown at 4% per annum, the country has created over 400,000 jobs a year.
Cronje expects the three steps to result in South Africa’s fixed investment rate improving to 25% of GDP from the current level of 15%.
“That is something that will deliver the jobs South Africa needs and, on the record of the past twenty years, will bring down the political temperature and stabilise politics,” Cronje said.
“If you are poor, the only way out now is for the unitary state to work in South Africa to generate the level of economic growth that will bring down unemployment.”
South Africa has run out of options
Stanlib chief economist Kevin Lings
Apart from Cronje’s three steps, other analysts are pointing to the fact that the state has run out of options and that it now has to turn to the private sector for investment.
One of these analysts is Stanlib chief economist Kevin Lings, who explained that the state has simply run out of road.
Lings said that the only option left for South Africa to get out of its economic decline is to deregulatre sectors of the economy to encourage private investment.
This is largely a result of the financial collapse of the government and state-owned enterprises (SOEs), making them incapable of investing heavily in infrastructure project.
However, this does not mean that the state should not play a substantial role in the local economy, with it being crucial to crowd-in private investment and create an enabling environment for companies to grow.
The state also cannot be replaced by the private sector in many cases. Rather, it simply can no longer be expansionary due to its financial deterioration.
“We would have to up the investment considerably more to result in capacity building or job creation in South Africa,” Lings said.
“The current investment level is mainly maintenance capex and kind of treading water, with companies waiting for a better environment.”
“Instead of deploying capital into growth or hiring, corporates are parking it in money market funds or call accounts.”
This capital is desperately needed in South Africa to help build and maintain infrastructure vital to the proper functioning of a modern economy.
To get this capital off the sidelines and invested in the economy, the government has to create an enabling environment for companies. This begins with deregulation.
“I would say that deregulation is your only option now. It is your only choice, and while you may not like it ideologically, it is your only option,” Lings said.
“You are out of options, and those options have been taken away because you took government debt from 26% to 76% of GDP. That increase meant you have taken away your option to use your own balance sheet.”
Lings said it would have been ideal for South Africa for the government to use its own balance sheet for infrastructure investment. However, this option is no longer available.
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