We have to ask ourselves: why are we falling behind? – Cyril Ramaphosa – POLITICS | Politicsweb
We have to ask ourselves: why are we falling behind? – Cyril Ramaphosa
Cyril Ramaphosa |
06 April 2022
President notes GDP per head was 53% of G7 level in 1970 but fell to a quarter by 1994, where it remains
Remarks by President Cyril Ramaphosa at the launch of the Oxford handbook of the South African Economy
6 April 2022 – 12:00am
Vice Chancellor of the University of the Witwatersrand, Prof Zeblon Vilakazi,
Vice Chancellor of the University of Johannesburg, Prof Tshilidzi Marwala,
The editors of the Oxford Handbook of the South African Economy, Prof Imraan Valodia, Prof Fiona Tregenna and Prof Arkebe Oqubay,
Colleagues and Friends,
The Oxford Handbook of the South African Economy comes at a time of great upheaval in the global economy.
The COVID-19 pandemic has depressed economic activity, disrupted global supply chains and deepened inequality.
South Africa’s economy has similarly been severely affected.
While the economy expanded by 4.9% in 2021, the impact of the pandemic continues to be felt throughout the economy and society.
And we know that there is yawning gap between where we are and where we need to be.
Post-apartheid South Africa continues to labour under a crisis of exclusion.
A fifth of households experience hunger, over a third of adults are unemployed, and this remains one of the most unequal societies in the world.
There are certain notions that lie just outside the grasp of economics – notions of dignity and self-sufficiency – but economics should give us some of the tools to rebuild societies that have been devasted by dispossession and oppression.
We also expect economics to give us the evidence base to develop policies that will bring the millions of excluded people into meaningful participation in the economy.
First, we need to understand the reality that confronts us.
Economic theory predicts that developing economies will converge towards the performance of richer countries.
Capital will flow from where it is abundant to areas of the globe where it is less available, and earn higher returns in those regions of relative capital scarcity.
An open economic order, we have been told, will ensure that technology and know-how is diffused across the world, bringing all economies progressively closer to the technological frontier.
These predictions are borne out to a great extent in the historical experience of a country such as Germany, a relatively late industrialiser in the European context.
They can also be traced in the experiences of late industrialisers in Asia such as Japan and South Korea.
These are economies that have moved beyond the technological frontier and are determining what is cutting edge in various industries.
Yet for significant parts of the developing world, especially Africa and Latin America, convergence has been elusive.
In the case of our own country, the past decades have brought periods of divergence.
In 1970, GDP per head in South Africa stood at just over half that of the average G7 level, at 53%.
By the end of the 1980s, South Africa’s relative GDP per head had shrunk to a third of the G7 average and by 1994 it was closer to a quarter.
Although there were periods of improvement towards 2009, the ratio fell back to 26% by 2018.
By way of contrast, China clocked in at 2% of the G7 average in 1970 and surged to a third by 2018.
We have to ask ourselves: why are we falling behind?
The democratic government has developed inclusive policies and arrested this trend of divergence.
But there is consensus that far more is required.
With an economy stuck in low gear, battered institutions and declining productivity, an important strand of economic policy making over the past four years has been on fixing the fundamentals of the economy.
Within government, a key analytical milestone in this regard is the paper published by National Treasury in 2018, which looked at inefficiencies in the economy, particularly those plaguing network industries.
It identified the various ways in which structural constraints raised the cost of doing business and the cost of living, and proposed a reform agenda to address these constraints.
In practical terms, this reform agenda is an important pillar of the Economic Reconstruction and Recovery Plan, and has found expression in Operation Vulindlela.
Early successes include opening up the space for private sector energy generation accompanied by measures to create a competitive market structure in the electricity supply industry.
Pro-competitive measures are also being implemented in ports and freight rail.
The digital sector will receive a boost with the resolution of long-delayed processes of licensing of high demand spectrum and digital migration of broadcasting.
In addition to reliable electricity supply, economic development is also intimately bound with access to water.
Reforms in this sector will ensure better management of the nation’s water resources through measures aimed at improving allocation of rights, pricing and the monitoring of quality.
To unleash the energy of the private sector, especially the small and informal segments where the majority of jobs are created, we have created a Red Tape Reduction team in the Presidency to remove regulatory impediments to entry and growth.
Another major constraint on growth and employment are the relatively low skills levels in the country and the inadequate outcomes of our education system.
The resultant skills gap is also a significant contributor to inequality and undermines efforts to end inter-generational cycle of poverty.
The only sustainable way to bridge the skills gap is to dramatically improve the performance of all levels of our education system.
Among other things, this means ensuring that there is a firm link between the skills and competencies being produced and those required in the economy.
We have initiated several programmes to link training to workplace experience and employment.
As I indicated in the State of the Nation Address, the Department of Higher Education and Training will place 10,000 unemployed TVET graduates in workplaces from April 2022.
Another innovation is the Digital Work Accelerator as a coordinated public-private initiative to enhance digital skills and create digital jobs,
To ensure that skills training is linked directly to the demand in the economy, we are pioneering a fundamentally different approach to skills development for unemployed youth.
This approach links payment for training provided to placement of candidates in a job opportunity.
While we are working to address constraints on growth, we are also pursuing new sources of inclusive economic growth.
The socio-economic texture of the South Africa of today is a product of a commodity exporting economy with a small emissions-intensive manufacturing sector – although the service sector has gained prominence over time.
This economy is also highly concentrated.
Economic activity is clustered in a few, mostly urban, centres.
Key sectors of the economy are dominated by a small number of players, as work by the Competition Commission, including its recently released study on concentration, has shown.
I came into office with a clear determination to raise the level of investment in the economy.
I set a target of R1.2 trillion in new investment over five years.
This is important as a driver of economic activity and dynamism.
Through the deployment of our investment promotion ecosystem, which includes Invest SA, the IDC, Brand SA and supported by the various agencies in the provinces, we have – over the course of four years – managed to raise new investment to the value of R1.14 trillion.
As we seek to aggressively rebuild the productive base of the economy, we maintain our resolve to encourage new fixed investment.
Through a social compact, we would like the private sector to commit to even higher rates of investment so that we are able to reach the target set by the National Development Plan, which calls for fixed investment at 30% of GDP by 2030.
Infrastructure development is an important driver of economic growth.
We have improved coordination of investment from the centre of government, and set up the Infrastructure Fund as a key mechanism to use public funds to leverage private sector investment in this asset class.
As an intellectual community engaged in economic research, many of you would be aware of the immense opportunities that are available as economies transition to lower emissions.
Yet for an economy such as ours, the commitments we have made to avert a climate crisis carry with them significant risks.
These include risks to our energy security, scale of industrialisation, levels of employment and economic activity in coal-dependent communities.
However, the risks of not undertaking an ambitious and just transition are far greater.
Over the past few years, we have developed various institutional mechanisms and policies to steer our just transition.
The Presidential Climate Change Commission has provided helpful advice that saw us raise our climate ambition at COP26.
On the sidelines of COP26, South Africa entered into a historic partnership that seeks to unlock $8.5 billion of grant and concessional financing to support investment in reducing emissions.
This work, coordinated by former Reserve Bank deputy governor Daniel Mminele, takes us some way towards holding rich countries to their obligations under international treaties to contribute towards decarbonisation of developing countries.
I have not yet established whether this voluminous handbook tackles the hemp and cannabis value chain in any detail.
This is one of the sectors we have identified as an important area of growth.
In the State of the Nation Address, I outlined other sectors that government will support through its various policy levers.
These include agro-processing, global business services, the digital and technology sector, agriculture, the green economy and the social economy.
I am encouraged that the handbook we are launching today has various chapters dealing with social security and social development; hunger, stunting and food security; gender and work; migration; health; and household dynamics.
Within our limited fiscal resources, South Africa mounted an effective social protection response to the COVID-19 pandemic.
The public employment programmes initiated during the pandemic will soon create over a million work and livelihoods opportunities, the majority for young people.
The COVID-19 Social Relief of Distress grant reaches over 10 million unemployed people.
Through these efforts, we have developed valuable insights about those members of our society who were not part of the existing social safety net.
Yet there is far more work to be done to strengthen the social safety net and support productive livelihoods.
Our socio-economic context demands that as we focus on growth and job creation, we also ensure that no-one is left behind.
Another significant area of focus is building state capacity.
The role of institutions has gained prominence in explanations of economic performance across nations.
Strengthening the capacity of the state has been a top priority for my administration.
Through the district development model, we are bringing the three spheres of government together with other social partners to achieve inclusive local economies.
We are taking steps to professionalise the public service, strengthening criteria for recruitment and advancement, and building a culture of career-long learning and development.
We know – both from our experience of governance and the reports of the State Capture Commission – how deeply damaging state capture and corruption has been.
Apart from the substantial resources that were stolen from the State, these activities eroded the capabilities of vital institutions and contributed to the loss of skills and experience in the public sector.
Rebuilding these institutions is therefore an economic imperative.
Equally important are the efforts underway to prevent the destruction of economic infrastructure by criminal syndicates, extortion of businesses, organised crime and gangsterism.
Crime and violence has both a huge human cost and an economic cost.
That is why we have prioritised the stability of the leadership of all our law enforcement agencies, security services and criminal justice entities, and are working to ensure they are better resourced and capacitated.
As we launch this Oxford Handbook of the South African Economy, we are reaffirming the importance of improving the quality of national dialogue on the economy.
I welcome the diverse contributions contained in this Handbook.
It promises to provide a holistic take on the economy, ranging from chapters examining South Africa’s economic history, its performance over time and detailed analysis on various industries.
It is also important that it examines emerging features of economics, such as the dynamics of the just transition and the green economy.
I encourage the wide dissemination of this book.
Its authors need to actively take their work into the public domain to deepen the engagement of citizens with economic policy.
South Africans are never short of ideas on how to manage the economy.
We need to inject this enthusiasm with a historical view, empirical evidence and an analytical framework.
We should not repeat the mistakes of history.
We should be aware of the consequences of our economic pronouncements and policy leanings.
Over the past few months, we have been in engagements with social partners to craft a social compact for job creation and economic growth.
This compact will complement the Economic Reconstruction and Recovery Plan with a sharp focus on employment.
As we emerge from the worst of the pandemic, we recognise that the crisis of economic exclusion that threatens to engulf this country can only be overcome through concerted action by all social partners.
This social compact will focus on a clear set of actions by each social partner.
We have to face the trade-offs and sacrifices that are required for a decisive break with poor outcomes in our labour market and in the economy.
This is the time to move beyond platitudes towards a clear set of commitment underpinned by concerted resource mobilisation by all parties.
We trust that the analytical work produced by this intellectual community will guide and enrich this effort.
I thank you.
Issued by The Presidency, 6 April 2022