SA’s collapsing state is the main reason its economy has underperformed peers on every benchmark, a report from Harvard University’s Growth Lab reads.
The report argues that current reform momentum is unlikely to reverse the collapse because reforms encounter political gridlock, ideology, patronage and an overburdening of state entities with goals beyond their core missions and abilities.
The report is the product of a two-year study led by Prof Ricardo Hausmann of Harvard University. It comes 15 years after the government launched one of the earliest of its many economic plans, the Accelerated and Shared Growth Initiative (AsgiSA), which aimed to lift economic growth to 6%. Hausmann chaired the panel of international and local experts that the Treasury commissioned in 2004 to do the research that fed into AsgiSA.
The panel identified a series of “binding constraints”, including infrastructure bottlenecks, that had to be removed for the economy to reach its potential, and made 21 recommendations for policies to boost growth and job creation.
But the latest report from Hausman and his Harvard team zeroes in on just two big issues that must be addressed if SA is to grow — the collapse in the capacity of the state, which he said on Wednesday had a devastating effect on the economy, and persistent spatial exclusion.
Spatial exclusion means the economy’s limited growth has been concentrated in the cities. Though it dates back to apartheid, the government has inadvertently increased spatial exclusion since the advent of democracy with housing policies and an approach to cities that has imposed long commuting distances and high transport costs.
About 30% of South Africans live in rural former homeland areas where the employment ratio, at 20%, is less than half the national average, Hausmann said.
Attempts to stimulate the economy through fiscal policy over the past 15 years and address exclusion through social grants have failed. “Instead they have sacrificed the country’s investment grade, increasing the cost of capital to the whole economy with little social progress to show for it,” the report reads.
Hausmann said on Wednesday: “Instead of focusing on inclusion, the government has focused on redistribution to compensate people for their exclusion. We want to see investments that see people get included.”
The report also took aim at government’s preferential procurement policies, which weigh on the state’s capability and “encouraged tenderpreneurs in ways that ended up being entrenched in the political system and ended up corrupting the state and the party system”, Hausmann said.
Fifteen years of load-shedding reflect the collapse of the capacity of the state, removing SA’s comparative advantage, which was its cheap, reliable electricity. It needs not just to stop load-shedding but also to restore its comparative advantage in cheap, reliable electricity with the help of its plentiful solar and wind resources, he said.
It points to a huge “green growth” opportunity for SA in a decarbonising world. SA can supply critical minerals and provide the world with many of the enablers of clean technology. It can also harness its solar and wind resources to make products for export in a green way and can export green technology knowledge and innovation.
Hausmann reiterated his view that it is crucial for SA to open its borders to migrants who could bring it knowledge and so stimulate productivity and growth.
“SA will do itself the world of good it if sends a signal that it wants to compete to attract talent and that talent will generate opportunities for many more people,” he said.
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