Treasury pay attention! Cut the red tape and unleash South Africa’s SMMEs
The biggest shortcoming of National Treasury’s New Growth Plan 2030 is its failure to single out entrepreneurship as a solution for the country’s unemployment pandemic. This was the view shared by participants in the first ever The Insiders panel discussi
The endless “L” and other stories...
The consensus is that world’s so-called developed economies are in deep trouble. Sunter drew an analogy between current day Europe and Japan in the early-1980s. He suggests that Japan has been in an endless “L” since its economy imploded. “Japan is already busy with QE 23 (sic) and has achieved an economic growth rate of around 1% per annum over the past two decades,” he said. “And the Euro-zone has even worse demographics than Japan did at the time”. Under the current doom and gloom scenario we could see Europe, one of our main trading partners, stumble along for another five, 10 or even 20 years.
The good news is that international investor sentiment on Africa has shifted significantly of late. We are no longer dismissed as the hopeless continent, but instead lauded as one that offers real commercial opportunity. “Faced with flat domestic markets, multinational companies are chasing the ‘growth-V’ in Africa,” said Sunter. What about South Africa? Sunter offered three scenarios for the domestic economy as well as indicators to signal which scenario is most likely.
The most likely outcome – given a 50% probability – is that we remain in the Premier League of nations. South Africa currently occupies position 50 out of the 59 nations in this league, though it should be nearer 32 based on its world GDP ranking. To remain in the Premier Division South Africa needs inclusive leadership. There is no way we will maintain our position unless policy uncertainty is addressed. Another must is to replicate the pockets of excellence in our economy (in both the public and private sectors) in areas such as education and health. And finally – we need a balanced economy. The resources sector needs to fire on all cylinders with focus on downstream activities to bolster exports, while domestic GDP hinges on massive emphasis on small companies.
It is all about enhancing competitiveness
On the negative side Sunter identifies two scenarios with equal probabilities. If the Premier League dream is dashed the economy either slips slowly into the Second Division, or we suffer the mayhem of a failed state! “We rate these scenarios at 25% each because of the threat of an Arab spring in South Africa,” concluded Sunter. “We are entering uncharted territories in places like Rustenburg – Brand SA has taken a huge hit over the last few months”.
“We have no option but to stay in the Premier League, and I would argue that we have what it takes to stay here,” said Dlamini. “The starting point is for us to enhance our competitiveness by climbing from our 52nd place in the WEF 2012 Competitiveness report rankings”. He singled out a number of areas of excellence that South Africa must leverage going forward. We are number one in securities exchange regulation, legal rights, the efficacy of corporate boards and auditing standards, for example. And we occupy second place in the soundness of banks, financial services availability and minority shareholder protection categories.
Why not position South Africa as an alternative geography for a financial hub – the financial “gateway” to Africa?
Success requires strong leadership and smart thinking. He observed that the myriad multinational companies crisscrossing Africa could be viewed as a challenge or a threat. In many cases these companies get the jump on local firms that are slow to push north… On the other hand they create massive opportunities for infrastructure, logistics, retailers and support companies due to their positive impact on regional growth. Dlamini observed that commodities, though important, were an indirect curse to Africa. The assumption that we can simply unlock the wealth under our feet has made us complacent. “We need knowledge work to be part and parcel of the South African recipe of success,” he said. “We should spend on R&D and innovation to create sustainable forces for global competitiveness”.
Headwinds make for slower progress
“The macroeconomic environment in which we have to progress is much more difficult than it was in the past 20 years,” mused Kooyman. He said that economic growth is generally driven by larger generations coming through to replace older generations. Slower growth is therefore an inevitable consequence of ageing populations in the US and Euro-zone. One of the biggest problems facing the world today is the debt overhang created in many societies. A decade or two ago the US savings rate stood at 12% versus -5% today! “The world grew, used up its savings, and borrowed from the future,” he said. “The huge debt burden we have today is entirely due to future spending”.
Kooyman believes that the fiscal response to the current global growth crisis is wrong. Thatcher (ex UK Prime Minister) embarked on a wave of deregulation to facilitate growth… Nowadays governments are regulating across the board, thereby adding costs to doing business and making it virtually impossible to prosper in today’s extremely competitive global environment. Can South Africa take any positives from this?
Emerging economies such as ours have young populations who provide labour and fuel consumption. And it is worth noting that the best long-term investment returns generally stem from transactions concluded at times of maximum pessimism. “Economies that show the highest growth rate over five year periods are also the ones with the worst performing stock markets,” said Kooyman. “You find some of your best investment opportunities when bad news and pessimism abound, making this one of the best investment environments for a long time”.
Editor’s thoughts: TIME Africa’s Bureau Chief, Alex Perry, summed the debate nicely when he observed that the publication no longer considers Africa as a destination for aid, but as a destination for business. You have to consider that there are already six African countries among the Top 10 fastest growing economies worldwide, for example. Would you agree with Perry’s view that rapid economic growth (from a low base) goes hand in hand with massive social disruption? Please add your comment below, or send it to gareth@fanews.co.za
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