Sub-Saharan Africa continues its transformative journey from a developing continent to a hub of global growth. Six of the countries currently growing their GDP above 7% are from the region and the expected GDP growth is expected to reach 5% in this financial year for the region. According to the World Bank, almost half of Africa’s countries have attained middle-income status. To build on its achievements, Africa’s leaders need to strengthen the continent’s competitiveness, foster inclusive growth and build resilience in a volatile global environment.
The conference sough to create a dialogue towards a sustainable path of growth and development by addressing the following themes:
· Accelerating Economic Diversification
· Boosting Strategic Infrastructure
· Unlocking Africa’s Talent
The themes sparked an internal discourse in my mind about the journey we have taken in the past 19 years and where are we heading as a country. South Africa is a middle-income country, and forms part of the emerging market with an abundant supply of natural resources. Our economy is anchored on a well-developed financial, legal, communications, energy, and transport sectors; a stock exchange that is the 18th largest in the world; and modern infrastructure supporting a relatively efficient distribution of goods to major urban centres throughout the region.
Growth was robust from 2004 to 2007 as South Africa reaped the benefits of macroeconomic stability and a global commodities boom but began to slow in the second half of 2007 due to an electricity crisis and the subsequent global financial crisis' impact on commodity prices and demand. GDP fell nearly 2% in 2009 but recovered in 2010-12. Unemployment remains high, at above one-quarter of the work force, and outdated infrastructure has constrained growth.
Daunting economic problems remain from the apartheid era - especially poverty, lack of economic empowerment among the disadvantaged groups, and a shortage of public transportation. South Africa's monetary policy focuses on controlling inflation; however, the country has had significant budget deficits that hamper its ability to deal with pressing economic problems. The current government must contend with the impact of the global crisis and is facing growing pressure from special interest groups to use state-owned enterprises to deliver basic services to low-income areas and to increase job growth.
Economic Diversification
Against such a back ground I wondered, how does South Africa approach the challenge of economic diversification? What has been its agenda to date and how effective has it been? Economic diversification is when the country has incomes from many different sources that are not directly related to each other. Middle Eastern countries that are anchored in Oil production are an example of a poorly diversified economy.
The South African economy has long been the largest, and one of the most diversified, economies in Africa. Its GDP grew strongly after 2000, but began to decline in 2008 and even turned negative in 2009, at the height of the global financial crisis. Manufacturing dropped, mining activities slumped and agriculture was badly hit. The automotive sector, a big contributor to international trade tax revenues, also saw output decline massively. In fact, only the construction sector was sparred because of the works associated with the 2010 Football World Cup. The consequences of the crisis highlighted South Africa’s strong integration with the global economy, and the vulnerabilities that can result thereof.
Government has made interventions to strengthen Economic Diversification through the National Industrial Policy Framework (NIFP) and its Industrialisation Action Plan (IPAP). IPAP identified a number of sectors in its drive to meet economic diversification through economic industrialisation.
· Cluster 1 – Qualitatively new areas of focus: realising the potential of the metal fabrication, capital and transport; equipment sectors, particularly arising from large public investments; “green” and energy-saving industries; agro-processing, linked to food security and food pricing imperatives.
· Cluster 2 – Scale up and broaden interventions in existing IPAP sectors: automotive vihicles, components, medium and heavy commercial vehicles; plastics, pharmaceuticals and chemicals; clothing, textiles, footwear and leather; bio fuels; forestry, paper, pulp and furniture; strengthening linkages between cultural industries and tourism; business process servicing.
· Cluster 3 – Sectors with potential for long-term advanced capabilities: nuclear; advanced materials; aerospace.
Some economists consider that the South African Government has been targeting industries that would not be sustainable without protection and should instead focus on resource-based sectors that enable South Africa to be internationally competitive. Critics also bemoan the lack of action to build entrepreneurial and technical capacities through more co-operative mechanisms between the public and private sectors.
The role of the South African private sector in Economic diversification is also import. The sector has historically been involved in most of the key areas of the economy. The size of the sector, and its links to major global corporations, has played a major role in enabling South Africa to become an emerging economic powerhouse. South African companies have come under some criticism in recent months for sitting on piles of cash and very unwilling to invest the money in the South African economy. The SA Reserve Bank (SARB) deposit data revealed that non-financial corporate deposits were R578 billion by the end of 2012. This equivalent to 18% of the GDP which could be invested in the economy.
· Cluster 1 – Qualitatively new areas of focus: realising the potential of the metal fabrication, capital and transport; equipment sectors, particularly arising from large public investments; “green” and energy-saving industries; agro-processing, linked to food security and food pricing imperatives.
· Cluster 2 – Scale up and broaden interventions in existing IPAP sectors: automotive vihicles, components, medium and heavy commercial vehicles; plastics, pharmaceuticals and chemicals; clothing, textiles, footwear and leather; bio fuels; forestry, paper, pulp and furniture; strengthening linkages between cultural industries and tourism; business process servicing.
· Cluster 3 – Sectors with potential for long-term advanced capabilities: nuclear; advanced materials; aerospace.
Some economists consider that the South African Government has been targeting industries that would not be sustainable without protection and should instead focus on resource-based sectors that enable South Africa to be internationally competitive. Critics also bemoan the lack of action to build entrepreneurial and technical capacities through more co-operative mechanisms between the public and private sectors.
The role of the South African private sector in Economic diversification is also import. The sector has historically been involved in most of the key areas of the economy. The size of the sector, and its links to major global corporations, has played a major role in enabling South Africa to become an emerging economic powerhouse. South African companies have come under some criticism in recent months for sitting on piles of cash and very unwilling to invest the money in the South African economy. The SA Reserve Bank (SARB) deposit data revealed that non-financial corporate deposits were R578 billion by the end of 2012. This equivalent to 18% of the GDP which could be invested in the economy.
As we seek build further on the country’s economy and with the growing involvement of South African economic interests in Africa, private sector companies and parastatals, should further help South Africa become a dominant economic force in the continent. In this way, the private sector will become South Africa’s bridge to sub-Saharan Africa, the broader region and the international economy.
Strategic Infrastructure
The establishment of the Presidential Infrastructure Coordinating Commission (PICC), Governments National Development Plan (NDP) and the subsequent lamenting of the pace of infrastructure development as lagging behind what the country needs, has made infrastructure development a necessary economic tool. In Economic theory, infrastructure can positively impact on economic growth, in the following five ways:
· Infrastructure as a factor of production: Infrastructure may simply be regarded as a direct input into the production process, like the creation of Power generating plants to fuel more industrial process.
· Infrastructure as a complement to other factors: Infrastructure may be regarded as a complement to other inputs into the production process, in two senses. Firstly, improvements in infrastructure may lower the cost of production. Inadequate infrastructure creates a number of costs for firms, who may have to develop contingency plans against infrastructure failure or even build infrastructure themselves. Inadequate transport infrastructure, for example, incurs potentially massive costs for firms who must seek alternative means of transporting both inputs and finished goods. Conversely, good infrastructure generally raises the productivity of other inputs in the production process.
· Infrastructure as a stimulus to factor accumulation: In particular, infrastructure, in the form of schools, roads used to access schools and electricity provided to schools, is likely to be an important factor in the human capital production function and it classified as Stimulus to factor accumulation.
· Infrastructure as a stimulus to aggregate demand: Large infrastructure projects typically involve significant expenditure during construction and potentially also during maintenance operations, increasing aggregate demand. Governments have, for example, often used large-scale infrastructure projects as stimulus policies during recessions or in order to achieve particular growth targets. E.g. 2010 Soccer World Cup.
· Infrastructure as a tool of industrial policy: The last channel focuses on the potential for infrastructure spending by government to act as a tool of industrial policy. Government might attempt to activate this channel by investing in specific infrastructure projects with the intention of guiding private-sector investment decisions. A road construction project in a rural area may be intended to facilitate integration of that area into the regional economy and hence promote private sector investment and economic growth. This thinking has been a key element of the rationale behind the Maputo Corridor and the Coega Development Corporation.
Unlocking Talent
In my internal discourse, when I looked at the question of unlocking talent, my brain thought of an economy known for its skilled workforce. The Republic of Korea is known for its ingenuity and its trend setting brands like Samsung, KIA and Hyundai. South Korea over the past four decades has demonstrated incredible growth and global integration to become a high-tech industrialized economy. Interesting that in the 1960s, GDP per capita was comparable with levels in the poorer countries of Africa and that in 1980 its economy was the same size as that of South Africa. In 2004, South Korea joined the trillion dollar club of world economies, and currently is among the world's 20 largest economies.
The South Korean system was initially, characterised by close government and business ties, including directed credit and import restrictions. The government promoted the import of raw materials and technology at the expense of consumer goods, and encouraged savings and investment over consumption.
The table above shows very interesting comparisons between South Korea and South Africa. Both countries have almost equal population sizes, with South Africa having more land. Given the size of the economies South Korea has more Gross National Income per population size at US $20,870 compared to South Africa’s US $6,960. The structures of the two economies are different but the fundamental contrast between the two economies is on the number of post high school tertiary institutions. South Korea has 100 times more institutions than South Africa even with South Africa’s bigger land availability.
Government has a role to play in the creation of information, intelligence or education necessary for the creation of industrialists. This is called a, "Knowledge Economy". Knowledge Economy is an economy in which growth is dependent on the quantity, quality, and accessibility of the information available. If SA were to become a Knowledge Economy, the biggest reform in education would not be the quality of education but access to institutions of learning from high school to under graduate level. The number of matriculants willing to learn towards a degree should not be affected by the limited number of studying opportunities in current institutions.
I respect that the National Development Plan (NDP) has recognized the need to build Universities in Northern Cape and Mpumalanga but I believe we still have room to build 30 more specialized institutions outside the Quality Council for Trades & Occupations (QTCO) scope. We need specialized institution to train new graduates in high speed rail, a specialized, Japanese study field which will drive the NDP's transport integration proposals; we need Post graduate institution in Nuclear energy or alternative Hydrogen option to add to the Eskom’s grid; if Fracking takes over the Karoo, then we need to establish a Karoo based Fracking institution up to PHD levels, after all this is the technology that the American President says it’s going to stop the US dependency on foreign oil.
Just a thought!
Strategic Infrastructure
The establishment of the Presidential Infrastructure Coordinating Commission (PICC), Governments National Development Plan (NDP) and the subsequent lamenting of the pace of infrastructure development as lagging behind what the country needs, has made infrastructure development a necessary economic tool. In Economic theory, infrastructure can positively impact on economic growth, in the following five ways:
· Infrastructure as a factor of production: Infrastructure may simply be regarded as a direct input into the production process, like the creation of Power generating plants to fuel more industrial process.
· Infrastructure as a complement to other factors: Infrastructure may be regarded as a complement to other inputs into the production process, in two senses. Firstly, improvements in infrastructure may lower the cost of production. Inadequate infrastructure creates a number of costs for firms, who may have to develop contingency plans against infrastructure failure or even build infrastructure themselves. Inadequate transport infrastructure, for example, incurs potentially massive costs for firms who must seek alternative means of transporting both inputs and finished goods. Conversely, good infrastructure generally raises the productivity of other inputs in the production process.
· Infrastructure as a stimulus to factor accumulation: In particular, infrastructure, in the form of schools, roads used to access schools and electricity provided to schools, is likely to be an important factor in the human capital production function and it classified as Stimulus to factor accumulation.
· Infrastructure as a stimulus to aggregate demand: Large infrastructure projects typically involve significant expenditure during construction and potentially also during maintenance operations, increasing aggregate demand. Governments have, for example, often used large-scale infrastructure projects as stimulus policies during recessions or in order to achieve particular growth targets. E.g. 2010 Soccer World Cup.
· Infrastructure as a tool of industrial policy: The last channel focuses on the potential for infrastructure spending by government to act as a tool of industrial policy. Government might attempt to activate this channel by investing in specific infrastructure projects with the intention of guiding private-sector investment decisions. A road construction project in a rural area may be intended to facilitate integration of that area into the regional economy and hence promote private sector investment and economic growth. This thinking has been a key element of the rationale behind the Maputo Corridor and the Coega Development Corporation.
Unlocking Talent
In my internal discourse, when I looked at the question of unlocking talent, my brain thought of an economy known for its skilled workforce. The Republic of Korea is known for its ingenuity and its trend setting brands like Samsung, KIA and Hyundai. South Korea over the past four decades has demonstrated incredible growth and global integration to become a high-tech industrialized economy. Interesting that in the 1960s, GDP per capita was comparable with levels in the poorer countries of Africa and that in 1980 its economy was the same size as that of South Africa. In 2004, South Korea joined the trillion dollar club of world economies, and currently is among the world's 20 largest economies.
The South Korean system was initially, characterised by close government and business ties, including directed credit and import restrictions. The government promoted the import of raw materials and technology at the expense of consumer goods, and encouraged savings and investment over consumption.
The table above shows very interesting comparisons between South Korea and South Africa. Both countries have almost equal population sizes, with South Africa having more land. Given the size of the economies South Korea has more Gross National Income per population size at US $20,870 compared to South Africa’s US $6,960. The structures of the two economies are different but the fundamental contrast between the two economies is on the number of post high school tertiary institutions. South Korea has 100 times more institutions than South Africa even with South Africa’s bigger land availability.
Government has a role to play in the creation of information, intelligence or education necessary for the creation of industrialists. This is called a, "Knowledge Economy". Knowledge Economy is an economy in which growth is dependent on the quantity, quality, and accessibility of the information available. If SA were to become a Knowledge Economy, the biggest reform in education would not be the quality of education but access to institutions of learning from high school to under graduate level. The number of matriculants willing to learn towards a degree should not be affected by the limited number of studying opportunities in current institutions.
I respect that the National Development Plan (NDP) has recognized the need to build Universities in Northern Cape and Mpumalanga but I believe we still have room to build 30 more specialized institutions outside the Quality Council for Trades & Occupations (QTCO) scope. We need specialized institution to train new graduates in high speed rail, a specialized, Japanese study field which will drive the NDP's transport integration proposals; we need Post graduate institution in Nuclear energy or alternative Hydrogen option to add to the Eskom’s grid; if Fracking takes over the Karoo, then we need to establish a Karoo based Fracking institution up to PHD levels, after all this is the technology that the American President says it’s going to stop the US dependency on foreign oil.
Just a thought!
