Research and Policy Brief: The Case for South Africa - 29th November 2010.

Recent months have seen an increasing number of people question the political and economic trajectory of our country. Once silent parties, such as organized business and the black middle classes, have come to display a new openness in echoing concerns that were previously the preserve of a handful of ‘conservative’ opinion makers in the country. Even the media, which had long been the Government’s handmaiden on introducing ever more interventionist policy and regulation into almost every facet of our country, has become a great deal more critical. In the international community once liberal opinion has turned against the ruling African National Congress. It is now common to hear senior diplomats and executives of multinational firms express grave concerns about our future. Today the ANCs own allies talk about having to save the country from a ‘crisis’. However a case can still be made, and now more than ever needs to be made, that despite our many challenges the future of our country is not as bleak as many are making it out to be.

Where the new widespread openness about policy failures serves to safeguard South Africa as a free and open society it is to be welcomed. However, there exists a danger that a collective sense of negativity about South Africa may come to exaggerate the actual extent of the risks facing the country.

The challenges are well known. They include an often incompetent and widely corrupt Government and public service. Standards of public schooling for black South Africans are often very bad. Many in the ruling ANC remain tied to outdated ideological notions of transformation and redistribution that prevent South Africa from realizing its full potential as an emerging market. These and many other shortcomings are now widely acknowledged and the Institute has been publicly identifying them since long before it became politically acceptable to do so.   

Below follow ten reasons to have confidence in the future of South Africa. These are not the asinine ‘good news’ stories of South Africa ‘baking the world’s biggest chocolate cake’ which have for too long been bandied about as evidence of the success of our post 1994 democracy. Rather the ten points are carefully researched and considered facts on current macro-trends for the country.  

      1.      Positive economic growth

Growth forecasts by the Treasury see South Africa achieving a level of GDP growth of over 4% by 2013-2014. Admittedly this is a rate far lower than that of emerging BRIC nations and far lower than that of sub-Saharan Africa. But it is a rate on a par with that of the past decade. This means at the very least that the country should remain in a position to generate sufficient revenues to fund its own expenditure. This point is backed up by further Treasury projections of the budget deficit leveling out to just over 3% of GDP by 2013-2014. Figures released by the Treasury are usually conservative and it is quite reasonable to have confidence in these projections. Living standards and income levels must therefore be expected to continue improving in the country - in stark contrast to widespread negative sentiment.

      2.      Rising fixed investment

Gross capital formation, or fixed investment, as a proportion of GDP sits at 23% in South Africa. This is still too low but is an increase from the figure of 15% at the time that the ANC took office. The current figure is higher than that of Brazil and is only three percentage points lower than that of Russia. It is a figure that is expected to increase by 6% by 2013-2014 and to maintain that level of increase for the medium term. Much of this investment is being carried out by private sector firms who contribute some 70% of investment into South Africa. Such figures demonstrate that there remain real investment opportunities in South Africa for foreign and domestic private sector entrepreneurs.

      3.      Growing portfolio investment

Non-fixed or portfolio flows into South Africa have increased significantly in recent years as foreign investors have come to take advantage of the interest rate differential between South Africa and mainly Europe, Japan, and the United States. This is admittedly short term investment that can be removed at the click of a mouse but is does assist the country in financing its current account deficit and is also indicative of a measure of at least short term investor confidence in South African assets.

      4.      A favorable macro-economic environment

Perhaps the greatest success of the ANC in Government has been its management of the macro-economy. The prime overdraft rate fell from close on 20% after the ANC took office in the mid 1990s to under 10% today. This is a truly phenomenal achievement which has greatly boosted the capacity of the private sector in the country to grow and to contribute new value and investment. Here the ANC deserves much credit from South Africa’s business community who have benefited from better economic circumstances under the ANC than they saw at any point over the last 50 years.

      5.      Improved living conditions

Almost every measure of service delivery demonstrates significant increases in the proportion of households accessing various types of services. This is an important point to make in a country which has convinced itself that service delivery has failed. It has not. The proportion of households living in a formal house has increased by 73%, or by 4.2 million households, since 1996. Increases of a similar scale are true for access to electricity, clean water, sewerage systems, and communications infrastructure. That so called ‘service delivery’ protests occur is in our view a function of failures in the labour market more than anything else. This is a problem that can only be solved via labour market policy changes. It does not change the fact that in terms of transfers from wealthier to poorer South Africans a considerable amount has been achieved to improve the living conditions of poor people.

      6.      Improved living standards

Today roughly five million income tax payers contribute to a system that supplies monthly cash welfare grants to 14 million poor people. It is impressive that an economy as small as that of South Africa can generate the domestic revenue to support such a programme. If the Treasury’s growth forecasts are correct then this programme remains perfectly sustainable for the foreseeable future. This Institute has long argued that welfare is not a sustainable path out of poverty. However it is only fair to concede that these welfare efforts have done much to raise the admittedly meager standards of living of poor people. The extent of these grants also challenge the assumption that the middle classes, and especially white middle classes, are callous and indifferent to the suffering of their fellow South Africans. Today every (mainly white) income tax payer foots the bill for the living expenses of three poor (mainly black) households and will continue to do so for years to come.  Further the welfare and service delivery data above proves that it is simply not true to suggest, as many social movements in poor communities do, that living standards in South Africa have not changed for the better since 1994.

      7.      Access to higher education

That South Africa’s school system underperforms is taken as read. However, at tertiary education level much has been achieved over the past 20 years. In 1991 white South Africans earned 20 business degrees for every one earned by a black African South African. Today that ratio is 1 to 1. In engineering the ratio was 44 to 1. Today it too has improved to 1 to 1. Similar improvements are true for all university qualifications pointing to the massive potential that is being created in South Africa’s emerging black middle class. 

      8.      Declining murder rate

South Africa’s murder rate is currently seven times higher than that of the United States. However statistics released by the police indicate that this rate has in fact come down by 50% since 1994. Admittedly questions have been raised about the accuracy of the police’s data. But until evidence to the contrary is produced it remains fair to consider that some real progress may have been made since 1994 in curbing the horrific levels of violence that characterized the country in the run-up to its 1994 transition.     

      9.      Increasing incomes

In current prices, average annual per capita incomes in South Africa, have increased by 201% since 1996. Incomes for black Africans increased by 235%. White South Africans will be interested to note that despite reservations about equity legislation and empowerment provisions their incomes increased by 217% over the same period. South Africans today are wealthier than they have ever been and on current trends will continue to see their incomes increase.

      10.  Politics that make us a free society

More than ten diverse political parties are represented in South Africa’s Parliament. The ruling ANC regularly comes in for much public criticism in South Africa. Both points demonstrate that politically much of our society remains free and open and that the future of the country still rests in the choices made by its voters.  True dictatorial regimes such as those in Zimbabwe or Myanmar would simply not tolerate the criticism that the ANC puts up with. Consider too that in the face of sustained public pressure the ANC appears to be trying to extricate itself from the media tribunal mess by now suggesting that greater self regulation of the media may be satisfactory. On the nationalization of mines an influential core of the party have publicly criticized the policy on the grounds that it is not in the best long term interests of South Africa. On both land reform and empowerment the ANC has repeatedly delayed the enforcement of a number of its own targets in the face of evidence that the targets could not be met. This is very pragmatic behavior for a party that is under immense popular pressure to meet the significant expectations of its supporters. That the party has not been swayed to make short term populist policy decisions is a reason to have some future confidence in its current senior leadership.

This article acknowledges the imposing nature of the challenges that confront the country – and the limited capacity of the Government to meet those challenges. Its argument is therefore not to understate the scale of these problems but rather to make the point that despite them we have managed to remain a resilient and growing economy.  It is important too that constructive criticism of Government failures continues to be leveled at the Government. However those who form opinions on the country may get it wrong when they take our many challenges to mean that the future of the country is now in such peril as to amount to a clear and imminent crisis. It is in fact remarkable that despite its many challenges the country it is still able to offer up the ten points upon which this article has argued its case for South Africa. In addition courage within the Cabinet to lead policy shifts on both labour market regulation and skills may yet place us in a position to assume our true potential as one of the world’s leading developing economies.

-          Frans Cronje

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