Insight: New directions for economy

Mcebisi Jonas

2013 promises to be another tough year for the global, South African and Eastern Cape economies.

The World Bank predicts the global economy will grow by just 2,4% this year, a level similar to last year. The Eurozone will most likely remain in recession, and the US economy, while narrowly having averted falling over the so-called fiscal cliff through tax amendments, is expected to grow at under 2%. The only real good news is that China’s growth is expected to rise (from 7,9% to 8,4%), and the so-called emerging economies will continue to grow at above 5%.
So what does all of this mean for South Africa? For a start, the continued Eurozone recession will continue to hit SA manufacturers where it hurts. Unlike China, which primarily imports unprocessed South African minerals, the Eurozone – South Africa’s largest trading bloc – imports a relatively higher proportion of manufactured and semi-processed goods.
The continued Eurozone crisis will also impact our auto manufacturers. Demand for new cars in the Eurozone fell by 11.3% last year, bringing demand to its lowest level since 1995. This will undoubtedly continue to effect our economic performance and competitiveness.
Our weakened short-term growth prospects, high levels of structural unemployment, and the recent spate of industrial action and social protests, have resulted in a downgrade of South Africa’s credit rating by the three main credit rating agencies (Moody’s, Standard and Poor, and Fitch). These are a clear warning that we, as South Africans across all sectors of the economy, need to get our house in order to avoid further erosion of creditworthiness.
As always, these challenges are accompanied by opportunities. As a country and as stakeholders with different (and sometimes competing) class and socio-economic interests, we have the opportunity to engage in dialogue more, to better understand each other’s needs and concerns, and to deal decisively and collectively with the big issues that confront us. It is through such collaboration that we will begin to address inequality, unemployment, corruption, our education crisis, and inefficiencies in the public sector. It is this approach that holds the greatest hope for a positive future.
Concrete opportunities also abound.
For example, the continued growth of the Chinese economy means continued demand for South African minerals, which will provide the minimum levels of growth and revenue to sustain government’s social welfare programmes over the short-to-medium term. Furthermore, South Africa’s economy remains resilient – our South African non-financial corporates have cash balances of R550-billion (mid-2012), enough to finance two years of private real investment!
At the same time we should recognise that continuing on our current growth trajectory as a country is unsustainable. We need to ask ourselves the hard questions of why we are growing at far lower levels than other emerging economies (South Africa grew at an average 2.7% over the past five years compared to 4.7% for emerging economies), and why we are unable to dent unemployment?
The answer is found in the structure of our economy and our inability to fundamentally change its growth model over the past 20 or so years of democratic governance. South Africa’s historical growth model has been very much centred around mining and finance, driven by a few very large and powerful conglomerates. Rather than providing the feedstock for industrialisation, these conglomerates have disinvested in the industrial value chain activities and continue to export unprocessed commodities. This has further undermined manufacturing. In a classic Dutch disease state of play, the high global demand for commodities (in boom times) has appreciated our currency, which has undermined manufacturing exports.
Our growth model has also resulted in patterns of uneven and underdevelopment in the country. Nowhere has this been as stark as in the Eastern Cape, which developed historically as a labour surplus economy. Today, the province has higher levels of poverty and unemployment than South Africa as a whole. More than half of Eastern Cape households do not have a wage-earner (compared to 37% for South Africa as a whole); more than half of our households (57%) are dependent on social grants; GDP per capita is just over half of the figure for South Africa as a whole; our total fixed capital stock per person is also half of the South African figure.
Our provincial economy is dominated by finance, trade and public services, while the two pillars of the productive economy – manufacturing and agriculture – have been stagnant or in decline.
To change this scenario, we need some radical change in how the economy is structured; in how the state meets its delivery mandate; in how effectively existing plans, frameworks and agreements are resourced and operationalised; in how well incentives promote targeted private sector growth; how accessible such incentives are; how functional partnerships between the state, private sector and communities are in shaping our economic future.
Many of the tools needed to effect these radical changes have already been put in place. As a country we have recognised that our growth model is flawed and have adopted the National Development Plan and New Growth Path to ensure better alignment of mining and finance with our industrialisation strategy.
We have also prioritised industrial policy to grow levels of private investment and shift composition of output to more labour-intensive sectors. Part of this initiative is to provide incentives and support packages to manufacturers to reduce costs of doing business, and enhance competitiveness.
At provincial level, we have aligned our own industrial strategy and jobs strategy to these initiatives. We have also prioritised the agro-industry value chain, where we feel we can create hundreds of thousands of livelihood opportunities through drastically improved logistics and marketing support to our subsistence and small-holder producers, and through partnerships with established commercial farmers. Development Bank South Africa supports a number of major, high value agro-industry projects in the province, ranging from rural agro-industrialisation to forestry rehabilitation.
Significant gains have also been made through provincial government’s support of climate change legacy projects, laying the foundation for the development of a robust new industrial sector.
Vocational training to equip large numbers of unemployed youth with basic technical skills to participate in economic, value-adding activities is also being prioritised at both industrial development zones (East London and Coega). These these initiatives are linked to social economy and public works programmes.
We have also recognised that our under-investment in economic infrastructure was crippling the economy, and so we have recently launched a massive economic infrastructure program (under the auspices of the Presidential Infrastructure Co-ordinating Commission).
Importantly, this programme responds directly to the “prioritised strategic projects” identified by the provincial cabinet in 2010.
The programme recognises historic patterns of spatial underdevelopment, and has packaged a south-eastern node and corridor to connect the Eastern Cape to the national and global economy.
The missing ingredient appears to be the will and capacity of the state – at all levels – to drive, and most importantly sustain, these initiatives.
The success of these new measures to change our growth path will further depend on the urgency and commitment of the state in assembling and activating partnerships. Here we must be creative to ensure we assemble ring-fenced capacity and resources to drive our economic programmes unimpeded by the broader politics of institutional restructuring and conflict.
Nowhere is this more needed right now than in our two metros, which must rise to the occasion to become engines of growth and development.

Mcebisi Jonas is the MEC for economic development, environmental affairs and tourism