The slide in SA’s economic growth over the past decade and rise in unemployment, interrupted and worsened by Covid-19, has raised concern about the country’s ability to turn around its economic performance, particularly given the lack of sufficient competitive reforms.
The statistics are well known, including SA’s recent rise in unemployment to about 35% and falling economic growth trend from above 5% year on year by 2007 to 0.2% by 2019 (temporarily interrupted by, but not caused by the 2008-2009 global financial crisis).
The many tabled economic reforms seek to achieve a competitive economy, but the slow pace of implementation has often been ascribed to political issues, insufficient skills and lack of capacity, among myriad other causes.
Criticism of the weak environment in which businesses operate — including insufficient electricity, water and other state services, high costs and a strangulating hold of the regulatory environment — has been met with various responses from state officials, with most recognising the difficulties impeding the ease of doing business in SA for enterprises of all sizes, and the need to suggest solutions.
However, what is also critical is how to measure the progress externally, for example against other countries, and not merely on internal targets — which may be the same thing but not necessarily.
Finally achieving increased self-generation limits, the allocation of more spectrum for telecom operators and other goals may or may not increase SA’s competitiveness against other countries — and this needs to be something that is quantifiable.
In other words, the question here is: has SA improved or decreased its competitiveness globally? This is an important question because ranking SA against other key economies in the world provides both a comparison to see where the country is deteriorating or improving, and a clear metric for solutions on an objective basis with the ultimate goal to improve economic activity.
Why should this matter? Significant employers and the ability to grow companies into large employers clearly do matter, as do the opinions of the business owners and managers who drive this process.
A disconnect between the enabling environment to do business in (provided largely by the state) and the business operatives themselves is not a recipe for success, while a state that listens and enacts (this is the crucial part) the changes needed by the private business sector is. This a prerequisite for robust employment-creating growth in any country, a measure from which SA is not exempt.
The 2022 state of the nation address recognised that only the private business sector can create jobs in the numbers needed in SA. Despite the past decade of ostensibly trying, the state cannot do this without blowing up the fiscal debt and deficit, and taxation of the private sector in the process — and so weakening growth.
State capture is not the focus of discussion here but cannot be ignored as having played an integral part in where the country finds itself.
However, returning to the focus, which is solutions — and the grading of SA against other competitive economies in the world with the aim of learning from their successes and failures — means following the information in this area.
The World Economic Forum (WEF) Global Competitiveness Report is a key publication in this regard, aggregating the opinions of many in the private business sector, globally and domestically, on the factors impeding or encouraging fixed investment, either domestic or foreign. These opinions are crucial, as it is these individuals who make the decisions to invest, expand or downsize enterprises, and so employment.
Questions in the report range from the perceived quality of infrastructure (transport, water and provision of services via digital platforms), through to safety and security (costs of climate change, crime and social and political unrest) as well as trade and investment (tariff and non-tariff barriers, restrictiveness of rule and regulation on foreign direct investment, evolution of supply chains — localisation versus globalisation).
The performance of state institutions (complexity of state regulations and administrative requirements for companies, ethical standards of politicians, protection of property rights, independence of the judiciary, corruption) is also assessed, along with building human capital (education, employee training), work and employment (pay versus productivity, skills levels, flexible hiring and firing) and the quality of financial services (soundness of banks, ease of obtaining venture capital, financial and reporting standards, and SMME financing). This year also includes the perceived management of the economic recovery and risks (technologies of strategic importance for SA in the next 10 years, effectiveness of recovery, growth and revival strategy, new market opportunities, biggest threats, blockages hindering growth).
SA’s WEF global competitive ranking fell sharply over the past decade, reflecting weakened fundamentals, after rising in the decade before as the 2000s saw growth-enhancing economic reforms, and the resultant inclusive growth; the unemployment rate fell towards 20%. Improving SA’s investment profile against other countries globally is simply the strongest benchmark to improve the factors which drive economic growth in any economy.
Against the backdrop of deglobalisation, and especially trade defragmentation and associated high and rising costs, improving SA’s competitiveness is crucial internally and externally and will require higher productivity and state efficiencies.
• Bishop is Investec chief economist.
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