Prioritising the reduction of economic exclusion for enhanced economic growth
Dr Nthabiseng Moleko is an economist at Stellenbosch Business School
Since 1994 the South African government has employed market friendly policies in an investment led growth strategy. Yet South Africa has averaged 1.2% GDP per capita growth over the last three decades, faring particularly poorly in the last decade by contracting -0,25% in per capita GDP growth. Despite concerted efforts made at Investment summits and policy imperatives to crowd in investment, announcements, and commitments we are unable to move the needle. South African Reserve Bank recorded FDI net inflows of R96.5 billion in 2023, an estimated 1.3% of GDP. A considerable 36% decline from R151 billion reported in 2022 at 2.3% of GDP, revealing capital inflows remain inconsequential to drive up growth.
In 30 years, we have not met the required investment inflows of 25% to GDP for the economy to surpass the low growth trap and reach the required 5.4% GDP growth rate we set out as a target in the National Development Plan.
Gross fixed capital formation plummeting in similar fashion with both public and private sector investments contracting to 12% of GDP in 2023 from a high of 18% GDP in 2008, the highest in the post-apartheid period.
Dishearteningly, the Centre for Competition Regulation and Economic Development reported that institutions in the top 50 JSE listed firms have hoarded cash reserves amounting to R1.4 trillion in 2016 (increasing from R242 billion in 2005). These reserves not invested in the South African economy have been termed an investment strike. Denoting that firms have chosen to retain profits and wealth, and accumulate reserves, choosing not to increase investment during half of the post-apartheid democratic period firms have not invested domestically and have chosen accumulation or capital flight.
The economic system and policies adopted by the state over the past 30 years from GEAR, AsGISA, NGP and the current NDP have been at the helm of investment led growth economic strategy, underpinned by market friendly policies. The rhetoric placing emphasis on weak state capacity and ineffective government execution as the sole reason for the economic woes remain unusually silent on the failure of the economic policy positions employed by the state. Hushed we remain on the investment strike, yet there is an expectation that international investment must allocate capital stock yet domestically, private sector investment into the South African economy is withheld. Surprisingly, even as we witness macro-economic indices uncovering widening income inequality at 0,65, the worst in the world. Statistics South Africa quarter 1 Labour Force Survey reported a national unemployment rate of 41%, exceeding 40% in 7 of the 9 provinces, African women experiencing 4.2% higher unemployment than the general population. While youth unemployment reached unprecedented levels of 60%. The recently reported contraction of GDP growth of 0.1% in the first quarter of 2024, with a 1% target for 2024 confirms we will remain on the path of inequality, poverty and lacklustre growth if we remain on this policy trajectory.
The silence deafening on the mechanisms needed to rectify inequality and poverty, concentrated on the dispossessed and excluded who are mainly Africans. Redistribution and economic participation of most households a necessary condition for prosperity, productivity and economic growth.
In the context of limited infrastructure, political instability and governance challenges that would inhibit growth in the continent how is it that the IMF regional outlook reported the average growth in Sub-Saharan Africa is 3.6% in 2023? Non-resource intensive countries such as Mozambique (5%), Uganda (5.7%), Kenya (5.4%), Rwanda (6.2%), Benin (6%) and Gambia (5.6%) all booming at over 5% growth rates in the same period. Resource intensive countries experiencing similar output spurts with DRC (6.3%), South Sudan (5.6%) and Niger (6.1%). Why do we consistently fare the worst?
Economic exclusion requires focused efforts and needs to be at the forefront of economic policy discourse and strategy if we are to see economic gains. The expansive informal sector in the sub-Saharan Africa and inclusion of the entirety of the population in economic activities differs substantially from South Africa. We are crippled with unequal distribution of land, capital and labour all patterned by race.
Market concentration and dominance of firms across key economic sectors a common feature that requires strong regulatory bodies. The general discourse is seemingly opposed to instruments that drive the public good, broadening participation of the historically disadvantaged. Worryingly, local Competition authorities and B-BBEE Commission are often touted for disabling business, hindering investment with their “onerous” requirements, and have even been labelled anti- growth for advancing redistribution.
In our market economic system there is private ownership of the factors of production, land and capital. Access to these resources determine access to entrepreneurial opportunities, enable participation in the productive processes and determine whether you are a bystander or active economic participant.
Access to these factors of production also determine whether you earn interest, profits or interest, salary and at what level. South African CEOs according to a Bloomberg survey are reported to be the 7th highest earners globally, whilst CEO earnings are over 700 times what a low-level salaried employee earns in the retail sector. Markets have not self-corrected, but the national minimum wage legislation frowned upon as a deterrent to investment and constraint to labour market demand. Labour market failures require regulatory instruments to reconfigure an inclusive economy that prioritises and incentivises employment, production, and industrialisation.
The ‘laissez faire’ approach of the invisible hand resolving structural and systemic economic failures in the South African economy produced by a well-structured, organised and targeted instruments of exclusion during apartheid require more focused interventions and tools that widen market access and enable a well-funded financing machinery targeting excluded groups and enterprises to drive economic participation in productive sectors. The owners of factors production remain largely what we saw at the turn of apartheid.
A sprinkle of B-BBEE beneficiaries gaining wealth will not silence the necessary discourse on the need for substantive redress, which will remain a priority for the excluded. The middle class is undergoing a cost-of-living crisis and the large majority of South Africans live in abject poverty, to underscore the failures of B-BBEE without a decisive economic strategy that sets out a clear path to redistribution and economic prosperity for all the people. Sadly, this means economic stagnation is almost certain.
The widening poverty and inequality, and in particular the widening of wealth inequality in South Africa must now take the forefront of the country’s policy makers. Various nations including developing countries that have chartered economic development that has expanded access and inclusion to the majority of the populace have ensured that the economic policy prioritises full employment, industrialisation, and inclusive policy instruments (these require state involvement in disbursement of factors of production) with a clear targeted education to employment pathway. South Africa has embraced a market economic system.
It is necessary that the government in whatever form or fashion it shapes co-operates and recognises that the South African population require the state to recognise that the South Africans require a decisive response to the economic class differences and exclusion that are prevalent in our society.
There is an urgent need to deliberate on the strategies that must be employed to respond to economic failures and missteps of the last 30 years. It is not enough to bemoan the failures of redistributive policy without providing solutions to breaking inequality, market dominance which further constrain growth and national stability.
It is also not enough to call for innovation and reforms without building a capable state and accountable institutions underpinned by meritocracy and integrity, that will consider prevailing fiscal conditions. At the turn of this new season in our economic dispensation, it is time for all to focus on redistribution to advancing inclusive growth
