Stats SA released GDP figures for the third quarter this week, which told us the economy contracted by 0.6% on a seasonally adjusted and annualised basis. This disappointing outcome means that for economic growth to average the current economist consensus expectation for 2019 of 0.5%, the economy will have to expand by a whopping 4.1% in the fourth quarter. By any measure that seems far-fetched.
If economic growth continues to decline, tax revenue collections will eventually decline too. Meanwhile, the need for critical social spending that holds the country from imploding hardly recognises that the coffers are no longer replenishing. This is a historical and current fact, but let’s look forward.
To avoid the short-termism that prevails across society, I think of structural economic progress, and my personal development, in terms of decades. It takes a decade to devise, structure and implement a series of actions that will yield mission critical outcomes that will establish a new base which will be irreversible unless there is deliberate action to undo such change. The mission for policymakers, business and labour union leaders and every South African, should be the reduction of the triple chronic challenges — of unacceptably high levels of unemployment, particularly for the youth, as well as poverty and inequality — in a way that keeps the environment sustainable.
While the very short-term might seem as if we are fast approaching a low economic growth trap — if we are not already there — that requires urgent and decisive reforms before the window of revival closes, it helps to step back and think about the possibilities and what is required to realise them over the next decade. Can we reduce unemployment, poverty and inequality? Yes. Why haven’t we done it over the past decade if we can do it in the next one?
I believe it is because the majority of leaders across the spectrum have been deliberately self-serving through a toxic rent-seeking mechanism that enriched a tiny proportion of the population at the expense of the majority. As we now see the results of this, it is clear that it is not sustainable. The social compacts made in the years gone by did not yield the desired results, as shown by our 29% unemployment rate, SA being among the most unequal countries in the world and schoolchildren dying in pit latrines.
This means a new social compact between labour, business and government is urgently required as a first step. In this new social compact the state must be ruthless in dealing with corruption and implement economic reforms that will make it easier to do business. The required reforms have already been streamlined by the Treasury strategy. They are not entirely new, but represent a new stance by the government, where business is seen as a driver of economic growth and employment.
Labour must depart from its current position of protecting existing jobs and wages while reducing the chance, almost to zero, for those who are out of the labour market to obtain employment, and start championing and supporting the economic reforms that can lead to the creation of new jobs. Business must help solve SA’s problems, while remaining profitable. It can no longer sit on the sidelines and say inequality, unemployment and poverty must be solved by the government. Jobs are created by businesses as they solve society’s problems profitably.
Business must be at the centre of solving SA’s social problems. For this to happen the next decade should be about economic reforms — those that can be implemented quickly must be put in place without delay to build momentum for the more difficult ones. A new social compact with one mission — to reduce unemployment, poverty and inequality — is critical to preventing self-serving rent seekers from hijacking good intentions.
• Mhlanga is chief economist of Alexander Forbes.
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