Narrative vs numbers: How to re-establish SA’s economic growth credentials

The Zondo Commission’s report thoroughly detailed the extent of state capture and highlighted the need to reestablish an accountable government. This was, and still is, a formidable task.

The state capture period resulted in a collapse in employment and a rise in poverty. Nobody disputed that this poor outcome had to be dealt with. Regrettably much time was lost dealing with the symptoms rather than the root cause of this social calamity.

From the outset, economic growth should have been reignited to fix unemployment and to provide the financial means to improve social conditions for the poor. It serves no purpose to explain why this did not happen.

Finally, in his acceptance speech, President Cyril Ramaphosa acknowledged the importance of economic growth and declared it a national priority. This is equivalent to firing the starting gun for a long and difficult process to reestablish SA’s growth credentials.

Reestablishing economic credibility requires a package of measures supported by numbers, with a clear commitment to delivery. Critically this package has to acknowledge and provide solutions for a number of contextual dilemmas:?

• Binding constraints: SA is starting this journey from a poor financial position with high deficits and significant debt. Its infrastructure is fundamentally broken. What is a reasonable growth rate given Eskom and other problems? One must be practical about what is doable.
• Conflicting objectives: To date economic growth was not always a key priority in decision making. This for example led to outcomes where, too often, firms with inferior capabilities were relied upon for key deliverables. This has led to numerous court challenges. While there is a clear understanding for level playing fields in commerce, any sub-economic decisions must be avoided.
• Inconsistent policy: Economically we are measured by our actions. The much-quoted example is our foreign policy position which?discourages export partners from trading with us. Arguably it’s not our non-aligned position which bothers export partners but rather the nature of active measures we take which militates against this position. Partners also talk first and act later. There is a long list of other similar matters to consider.
• Trade-offs: Transformation is much harder without economic growth, but which comes first is contentious. However, conflicts and required trade-offs need to be acknowledged and planned for.
• Legislation: A key requirement of good legislation is solid socio-economic impact studies, transparently debated and which take the input received as part of the process into account. Currently, several bills are subject to Constitutional Court challenges because the process followed was questionable. This presents serious credibility issues for lawmakers and undermines rational economic decision making.
• The role of Government: Municipal business models no longer work, as citizens increasingly provide for their own electricity and water. Should regional government be involved in providing parallel security or stray into banking? Focus is required at every level of Government and adherence to mandate matters.
• Gratuitous economic policy: Economic orthodoxy is well established and deviation from this norm will mostly attract derision from investors. In this context, challenges to the central bank ? policies such as prescribed assets and so on ? are unlikely to be taken as positive for economic growth.

Good leaders know you cannot be everything to everybody. Everybody has limited resources and that is why leaders need to adequately explain how they balance difficult decisions for the benefit of all. Laundry lists of tasks can highlight issues, but they are deeply unhelpful in establishing and maintaining credibility. To do so, you need a well-considered package of measures.

We have a narrow path to success and that is why a package of measures, recognising the interdependence of issues supporting economic growth, is a necessity.

Let’s see how we go.

Ps. Investors don’t expect miracles. They simply want to see steady forward momentum. If this happens, they will start to discount future benefits, driving down the cost of debt. They will provide inward investment and generally facilitate the funding for economic growth. Unfortunately, the opposite process has been at play over the last decade.?