There is no way an economy that does not manufacture goods massively will be able to create jobs, and land reform is crucial.
South Africa is facing serious socioeconomic challenges with the population growth rate now standing at 58.78% and the unemployment rate at 29.7%.
BusinessTech of July 29 carried an article entitled “Foreign investors are ditching South African assets at a record pace”. It went further and said “overseas investors have sold a net $4.8 billion (about R73 billion) of South African equities and bonds in 2019”.
“Outflows, particularly from fixed income securities, have accelerated since the start of June as ratings companies and banks turned more bearish about South Africa’s fiscal outlook…”
The implication of all this is that there is no new money circulating in the economy as international investors are selling off local bonds and equities.
The resultant effect of this economic calamity is that the rand will continue to weaken against the dollar, the country will have a higher current account deficit and imports are likely to be expensive as the rand depreciates.
Furthermore, the rand will weaken as the prospects of more interest rate cuts are in the offing now that the inflation rate edged up to 4.3% from 4.1% in May 2019. Economists are predicting that inflation will average 4.4% in 2019 and 5.1% in 2020.
Sadly, these dark economic clouds continue to gather, despite the fact that President Cyril Ramaphosa convened a presidential investment summit in October 2018.
According to the Cabinet minutes of quarter four of 2018, the summit attracted R300 billion in investment and pledges. Projects to the value of R187 billion are already in the implementation phase and some, worth R26 billion, are in the pre-implementation phase, the Cabinet minutes further stated.
During the State of the Nation Address (Sona) in February 2019, Ramaphosa asked provincial governments to identify investable projects and ensure that they build investment books for each of the nine provinces.
We also saw the launch of the Youth Employment Service (YES) as a response to the problem of youth unemployment.
Despite all of these noble initiatives, the economy is still in ICU.
What is it that Ramaphosa must do to resuscitate this ailing economy?
The first step is to put in place a new economic policy (NEP) and put aside the outdated new development plan (NDP) with unrealistic economic targets. It is evidently clear that the South African economy will not be able reach the economic growth rate target of 5% by 2030 as projected in the NDP under the current economic climate.
The NEP will have, among other things, to integrate the scattered Master Plans that Ramaphosa talked about during the Sona. The NEP should direct public investment in the following sectors of the economy: infrastructure, manufacturing, agriculture, energy, skills and innovation.
Infrastructure investment has the potential to trigger economic growth across all sectors of the economy and 2010 Fifa Soccer World Cup legacy is a living testimony.
Accordingly, National Treasury will have to make budget available for national infrastructure programmes.
The manufacturing sector has been on the decline due to trade liberalisation, hence the country is facing economic growth challenges. The sector has also not been able to create new industries and, instead, many industries closed down.
This is the reason why government policy interventions like the black industrialists programme registered very little success. There is no way an economy that does not manufacture goods massively will be able to create jobs.
Agriculture and manufacturing lifted the South African economy out of a recession in quarter three of 2018. The slow pace of land reform and agricultural transformation are slowing growth in the sector.
It is within this context that radical policy shift should be introduced in the agricultural sector and chief among those is the setting up of a Land Reform Fund and Agency as proposed by the high-level panel on land reform and agriculture.
Stabilisation of the energy supply is key in economic growth and without skills and innovation it will be extremely difficult to set the South African economy on an irrevocable growth path.
- Zamikhaya Maseti is a political economy analyst based in Centurion.