Will government score a goal at their third attempt?

South Africans have been trumpeting the economic success that will come on the back of the 2010 World Cup for so long that investors could be confused for thinking the economy will crash after the event. The recent trend is for economists to focus on 2010

2014 is the real target

And the reason for this focus is that until recently, 2010 was not a feature of government planning. Harmse notes that it was never government’s intention to focus on 2010. Instead, they have set a number of targets in their Millennium Development Goals programme to vastly improve the lot of ordinary South African’s by 2014. The 2010 Soccer World Cup has become a catalyst for these plans, and should be welcomed by South African citizens for this reason.

But government’s goals are ambitious. They hope to reduce poverty from 43% of the population to 25%, reduce unemployment from 25.5% to 14%, achieve and maintain a GDP growth rate of 6% and boost the investment rate to 25% of GDP, all in the next seven years. Harmse believes government will struggle to hit most of these targets. And Fanews Online agrees – the statistical evidence suggests that the only target likely to be reached is that of investment expenditure reaching 25% of GDP.

Supply constraints peg growth possibilities

The big worry for industries across the country is supply constraints and their likely impact on economic growth. Power is a major issue. Eskom is under pressure to keep up with demand, having neglected its power production assets over a number of decades. The result is countrywide load-shedding which is likely to remain in place for the next seven years.

Business students would do well to include Eskom as a case study for the results of poor or non-existent planning. And government should use it as an example of how excessive interference in employment and management strategies causes long-term efficiency problems. Now electricity users are being asked to foot the bill to get Eskom’s capacity sorted by 2020, although the 18% proposed increase will hardly put a dent in the R1 trillion of development capital required!

A great deal of work has gone into ensuring other domestic shortages are reduced. Cement giant’s PPC and Lafarge have upped capacity and believe they will be able to meet supply in future – even if they have to occasionally resort to product import. South Africa’s airports, ports and railways have also taken steps to increase their load handling capacities. The Airports Company of South Africa is spending billion to ensure tourists enjoy a positive impression in 2010. In this regard, Harmse notes that we should not discount the impact of tourism on the domestic economy. The sector already contributes more to GDP than mining and agriculture and will leverage the coming soccer spectacular to grow its share further.

Three possible economic scenarios

Harmse and his team identified three possible scenarios for the economy to 2014. The first is the situation which will prevail if nothing changes in the current socio economic environment. In this scenario the country’s growth is likely to be pegged at 4.1%. The second scenario is the extremely unlikely event that South Africa achieves full employment and applies every available resource efficiently. In this case the likely GDP growth rate will be 6.9%.

He believes we will have to accept a more realistic compromise. In other words if government manages to reach their Millennium Development Goals, the country should be able to grow at 5.1% per annum. The key to delivering GDP growth improvements is social development – particularly education. Fanews believes government has long neglected this important aspect in its various economic policies. Sort out education and South Africa will grow from strength to strength. The current dismal situation should never have been allowed to develop – and that fact that government ministers are being allowed to hide their failures by continually lowering education standards is a travesty.

In conclusion, “the focus was never 2010 – it was 2014,” says Harmse. “Price increases and periodic shortages will be the norm to 2013.” He suggests, tongue-in-cheek, that you purchase a water tank and generator – and for those of you work in Johannesburg – that you approach your bosses to allow flexitime to avoid getting stuck in traffic.

Editor’s thoughts:
Government and private sector have finally come to the party to commit fixed investment funds to the development of local infrastructure. This combination provides strong arguments for continued economic growth in South Africa beyond 2010. Have we become too focussed on the 2010 Soccer World Cup? Add your comments after this article, or send them to gareth@fanews.co.za