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Tripping back to 1965

27 August 2010 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

I wasn’t around in 1965. I’ve trawled the Internet and reliably learned it was slap bang in the middle of the decade when Mary Quant designed the Mini Skirt, the “Sound of Music” was released and The Grateful Dead played their first (of many) concerts. It

We attended his presentation titled: The implications of the infrastructure backlog for the SA economy to find out more.

A World Bank survey on what causes economies to implode singles out two culprits. The first is the mismanagement of key macroeconomic policies, such as fiscal and monetary policy. The second centres on the collapse of critical institutions. We’re not in danger of failing on the first point, because since 1994 South Africa’s government has bent over backwards to maintain strong fiscal discipline. They created a platform for economic growth by ensuring the “independence” of the Reserve Bank and through continuity in critical positions such as the Minister of Finance and SARS Commissioner.

A collapse waiting to happen

But we’re dangerously close to falling flat on the second measure – state institutions – or infrastructure. The real threat facing modern day South Africa is one of balancing growth with capacity. “Our economy has literally grown out of its boots!” said Langenhoven, using something called the capital output ratio as a basis for comparison. South Africa’s capital output ratio – the total value of infrastructure divided by gross domestic product – peaked in 1991/1992. Since then we’ve been investing precious little in infrastructure while simultaneously squeezing extra capacity from it. This lethal combination of zero investment, limited maintenance and running the system at full steam means our 2010 infrastructure, like for like, is exactly where it was in 1965.

South Africa Inc is an extremely sick patient, opined Langenhoven. We’ve got no temperature – no pulse! The spending over the last three to five years has caught us up in some departments, such as stadiums (not too useful for ongoing GDP growth) and airports. But we’ve done very little to address the backlog in roads, ports, rail, water reticulation, electricity etc. “The basis for the support of our infrastructure has been eroded – and there’s no way we can support 6% per annum growth under existing conditions”. The reason: approximately 60% of South Africa’s GDP (and gross national income for that matter) are generated by the export of goods and services.

Can we achieve 7% growth?

Despite glaring shortcomings in infrastructure the Presidency is touting phenomenal growth for the country. According to Sapa, President Jacob Zuma told an audience at the Renmin University of Beijing that the country was “developing plans to achieve a target growth rate of at least 7% per annum in the near future!” Given China’s human rights record there’s probably good reason nobody in the audience sniggered... The growth, said Zuma, would stem from governments ongoing expenditure on electricity, freight and public transport systems and other infrastructure projects.

Has the President lost the plot? The obvious stumbling block here is the shortage of funds for infrastructure expenditure. The current splurge on stadiums, roads, airports and Eskom’s Medupi power plant has drained the State purse. Reuters writes: “Ompi Aphane, Deputy Director General at the Department of Energy, said the cancellation of Kusile, whose first unit was initially expected to come on stream by 2014 to fill a power shortage in Africa’s biggest economy, was one of the possible scenarios for the country’s new national electricity plan.” Could this decision have had something to do with cost? We’ll have to wait till the end of September to find out what government’s new plan looks like.

And that brings us back to Zuma’s prediction of 7% GDP growth. Has the President forgotten the boom years between 2002 and 2007, during which time GDP growth repeatedly failed to break much beyond 5%. Does he know that local economists view 6% as the “holy grail” of GDP growth – a point beyond which South Africa’s ageing infrastructure simply cannot stretch? And does he appreciate the drag on the economy caused by organised labour’s negotiated wage settlements outstripping productivity year after year? Surely his advisors pointed out that GDP growth was decimated through the 2008/9 recession despite record public expenditure.

Winning the battle

On some levels South Africa is winning the battle. Langenhoven slipped the oft-repeated “demography is destiny” into his presentation, saying population growth and GDP growth are inextricably linked. “There are structural things in our economy that are going the right way – that are important for infrastructure,” he said. The country can truly be proud of the 50% increase in per capita GDP since the early 1990s. Yes – inequality still exists – but the further you elevate the lowest common denominator, the better things become for all South Africans.

Editor’s thoughts: South Africa poured billions into infrastructure in the 1970s in an attempt to build a self sufficient economy. Today this infrastructure is stretched to breaking point – in part due to servicing millions more people than intended – and because new build projects were put on hold despite successive years of GDP growth. Can South Africa grow at 7% per annum as President Zuma suggests? Add your comments below, or send them to gareth@fanews.co.za

Comments

Added by Bidnis Man, 03 Sep 2010
I see a possible drop in real GDP coming in the future years. Main reasons - HIV, lack of competitiveness because of labour laws, crime, government corruption and you can possibly add lack of infrastructure to that list. This country will not in a million years catch up to 1st world countries unless the man in the street develops the general level of consciousness of the the average citizen of those countries - something I don't see happening in our life times.
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